Chamber concerned over downgrading of Enemalta’s credit rating

The Chamber said that it is likely to have an effect on the cost of borrowing for the corporation, which will in turn put pressure on fuel and utility prices.

The Chamber insists that increases in prices are to be avoided as they would bring about “a loss of competitiveness and will also have social repercussions.”

Ensuring the continuation of current projects to strengthen the reliability of energy supply should be a major priority, the Chamber said, as it is crucial for Malta’s economy.

In a statement, the finance ministry said that amongst the reasons cited by S&P for the downgrade from BB+ was a lack of strong 'arrangements' with respect to Enemalta’s financial stability.

In October 2010 the agency had warned that risks from Enemalta could put downward pressure on Malta's creditworthiness if plans to reform its business model prove ineffective or if there is a downward revision of property prices.

S&P rates borrowers on a scale from AAA to D. Non-investment grades such as B indicate a financial situation that varies noticeably while CCC means the investment is currently vulnerable and dependent on favorable economic conditions to meet its commitments.

S&P found that Enemalta’s past tariffs did not reflect the variations in the corporation’s expenditure including the increase in oil prices, which were not completely covered by government subsidies, and recent capital investment.  

Enemalta’s losses are reflected in the large debt the corporation has accumulated: a cursory look at the National Audit Office’s report for 2009 shows the corporation has €448 million in letters of comfort and bank guarantees for loans taken out. In 2008 its debt stood at €300m.

In 2005, Standard & Poor's had removed Enemalta Corporation from its Credit Watch and affirmed its BBB+ long-term corporate credit rating. The debt-ridden corporation had been placed on the Credit Watch in 2004. But S&P had also warned that the perceived weakening in the government's support for Enemalta would likely result in a downgrade, particularly if tariffs were not to become fully cost reflective.