A plan to keep electricity tariffs stable despite skyrocketing energy costs means the government has taken to “compensating” Enemalta for its losses on a “monthly basis”.

According to a report issued this month by S&P, a credit rating agency, Enemalta’s losses were fully covered by the government in 2021, with its support continuing this year.

The government has committed €200 million to protect consumers from surging energy prices.

Enemalta has continued to sell electricity to consumers at 2014 prices, even though its costs to provide that same energy for sale to the domestic market have recently gone through the roof.

S&P said prices for energy imported via the interconnector, which represents 25 to 30 per cent of Enemalta’s needs, shot up by 154 per cent, rising from an average of €58.09/mWh in 2020 to €148.02/mWh last year.

What happens once the hedging deal ends?

From this month, Enemalta’s five-year contract to buy LNG at a fixed price from the Electrogas consortium comes to an end.

Instead, Enemalta will now buy LNG at a price pegged to the Brent crude index, a global price benchmark.

S&P said that, to date, Enemalta has “partly hedged” the projected volumes of its purchases. 

The rising interconnector prices, coupled with an increase in emissions costs and a surge in gas prices, wiped out any chance of Enemalta making a profit last year, S&P said.

It noted how Enemalta’s exposure to price risks on the global market are effectively being borne by the state.

The credit rating agency said its B+ rating of Enemalta continues to be underpinned by the “extraordinary support” it is receiving from the government.

“Our credit rating analysis on Enemalta incorporates our opinion of a high likelihood that the government of Malta would provide timely and sufficient extraordinary support to the company in the event of financial distress,” S&P said.

No audited accounts since 2018 

The government has a 67 per cent controlling stake in Enemalta, with the rest of the shares controlled by Shanghai Electric Power, a state-owned Chinese company.

Enemalta’s last available account on the business registry dates back to 2018.

In an assessment of Enemalta’s finances last December, S&P warned that the political reluctance to raise energy tariffs over the medium term weakens the company’s profitability.

S&P had further cautioned that the high price environment, coupled with Enemalta’s current energy sourcing mix, could make the company’s business model “unsustainable” should challenging market conditions persist.

Since the assessment in December, Russia’s invasion of Ukraine has further pushed up energy prices on the European market.

Enemalta's credit lines

Apart from the “monthly” support being paid to it by the government, the credit rating agency said that Enemalta still relies on short-term liquidity lines and overdrafts.

Enemalta has credit lines signed with banks, including a €20 million revolving loan signed in October 2019, committed until October 2024 and reviewed annually.

It also has a special €20 million “COVID-19 assist” loan guaranteed by the Maltese Development Bank, signed in May 2021 and to be repaid over the next four years.

S&P said last year that although the credit lines are either uncommitted, short-term or reviewed annually, there is a track record of Enemalta using them when it faces liquidity shortcomings.

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