Enemalta to register €4 million profit in 2015, government tells Moody’s

The Maltese government believes Enemalta will register a €4 million profit by 2015, when Shanghai Electric Power, a subsidiary of China Power Investments Corporation (CPIC), one of the five largest state-owned electricity producers in China, will become a minority shareholder in Enemalta, providing the Maltese utility company with a cash injection that will improve its financial position.

In a note issued by Moody's on the national utility, the credit rating agency said Malta's energy reform agenda was ambitious but that there were risks to its successful implementation.

FULL REPORT [download in PDF here]

"The building of new [gas] infrastructure relies on the interest of private partners, adding a degree of uncertainty as to whether a suitable partner may be identified," it said of plans to have a private company build a 200MW plant and enter into an 18-year purchase agreement and sale of gas to Enemalta.

Moody's also said that although two new interconnectors are expected to be put in service between Sicily and the mainland between 2014 and 2017, Sicily's current interconnector to Italy was already congested, and the planned Maltese interconnector "could further strain the neighbouring island's grid."

The government will introduce up to 25% cuts in domestic energy bills by 2014, and follow with cuts in bills for businesses in 2015.

But Moody's said Enemalta's financial health could be jeopardised by a premature cut in tariffs should any roadblocks delay the anticipated savings.

"However, we believe that the authorities remain committed to the successful implementation of these measures. Even if progress on the agenda does not meet the authorities' ambitious targets, any gradual steps taken through the end of 2014 would have a beneficial impact on a long-standing vulnerability to Malta's credit profile."

Malta is entirely dependent on energy imports, chiefly oil, and Enemalta, Malta's only generator, distributor and supplier of electricity, is exposed to fluctuations in oil prices. The modern diesel-fired generators at the Delimara phase 2 extension have cut the cost of fuel to generate electricity to 11 cents/unit, from 17-18 cents. The company expects to generate €36 million in savings from the diesel-run power plant.

The Labour government seeks to build a new gas-fired power plant, to be operational by 2015, which will be financed through public private partnerships (PPPs). The authorities expect the private partner to build, own, and operate the new plant, as well as supplying gas to the existing ones. Under the plan, Enemalta would lease properties to the independent producers and buy energy from them.

Enemalta is also in the process of building an interconnector that will link the Maltese grid to Europe via Sicily.

In 2012, Enemalta's total debt reached more than €830 million (12% of GDP), of which 85% is guaranteed by the government. As of end-2012, guarantees to Enemalta represented about 50% of the government's total guarantees. The corporation pays around €20 million a year in capital and interest payments due on the refinanced loans, through a special purpose vehicle. The restructuring enabled Enemalta to spread out €318.5 million in loan repayments over 25 years, in place of three 'bullet' repayments due in 2011, 2015 and 2018.

New smart meters, expected to reach 130,000 by the end of the year, is expected to boost revenue collected by €140 million overall. Previously, Enemalta estimated that revenue losses from theft and lack of invoicing amounted to 7% of total losses.

Enemalta and CPIC are also planning to set up a joint venture to produce photovoltaic units for sale in Malta and across the EU, which would help Malta reach its renewable energy production targets, while providing China with a foothold in the European solar energy market.

Malta Credit Focus 18 September 2013 by maltatoday