Lm250m needed for new power generating plants

Public Investments Minister Austin Gatt said yesterday that Enemalta Corporation was a "dinosaur" where extensive restructuring was being taken in hand.

He also explained that with power consumption continuing to rise fast, some Lm250 million would have to be invested in eight years to replace power generating plants at the Marsa power station.

At the same time the corporation would, from 2006, have to cope with competition on the importation of petroleum, the only sector where it was profitable.

Dr Gatt was speaking at the opening of a debate on the estimates of the corporation.

He said that in its management structure, Enemalta was still a dinosaur of the 1970s. It was a giant with a monopoly in power generation and distribution, and the importation and distribution of gas and fuel. While in the private sector, monopolies translated into profits, in this case they resulted in losses.

Enemalta was also a giant in that it was the biggest public corporation, employing 1,848. The corporation had 1,315 workers in 1981, rising by 712 by the elections of 1987. The workforce had since been reduced by natural wastage.

Enemalta was also a giant because it was key to the nation's economy and its people's quality of life.

Dr Gatt said there were times when Enemalta made profits - as a result of pricing that was in contrast to international prices. But the corporation had made losses in the past four years and was projecting a loss of Lm5 million for next year.

Its profits depended largely on international oil prices and local pricing. At present, Enemalta was making a loss of Lm11 million on the sale of electricity. Lm1 million were lost on the sale of gas cylinders, where prices too were heavily subsidised. So the only profits made were from the sale of fuels but that was not enough to compensate for the losses elsewhere.

Enemalta needed to invest strongly in the future. Between 2006-2012 an investment of some Lm250 million would be needed for the purchase of new power turbines to replace those at the Marsa power station. But no one knew where this investment would come from.

The first problem that was being tackled was to introduce a professional management structure at Enemalta. A chief executive and a financial controller had been employed, along with other officials.

A professional management would lead to savings. For example, why was Enemalta holding stocks of Lm25 million? Why was it owed Lm40 million which were uncontested? Why did the corporation not have proper financial regulations and professional internal audit?

The problem also extended to bureaucracy. There was no system for decision-making, with everything depending on the chairman and the minister. This problem extended to human relations management. The corporation had no less than 214 different workers' grades. Overtime and allowances totalled Lm3 million a year and discipline was seriously lacking. Bureaucracy was hindering the corporation even in actions it needed to take to reduce the loss of 17 per cent of its power output, of which 10 to 11 per cent consisted of power output which was not billed or the result of wrong meter reading or theft, a situation costing Enemalta Lm5 million a year.

Another problem was that management information systems practically did not exist.

Dr Gatt said the roadmap the government had laid out started from having a professional management structure where everybody's role was defined.

An analysis of the middle management was currently under way and would be followed by a manpower and skills audit. A 1997 report drawn up under the Labour government had shown a surplus of some 400 workers.

This was being accompanied by the introduction of a new internal audit and management information system and new accounting system and financial procedure manuals. That would be followed by a new collective agreement which would remove antiquated, and expensive, work practices.

There would also be better meter reading, a better billing system and a new stock management system.

Other aims of the roadmap was for Enemalta to revamp its customer relations and to implement an environmental policy. Indeed, new, more environment-friendly fuels were being imported and precipitators had been installed at the power station chimneys.

Turning to the petroleum division, Dr Gatt said the importation of fuel would be liberalised on January 1, 2006 and competition was expected. In terms of EU regulations, the corporation was obliged to keep a stock of 90 days of fuels. That necessitated the need to build more tanks, even more so as the Birzebbugia depot would be closed in the coming years . More tanks would need to be built at Has Saptan. But one had to consider how the corporation would react to competition, which would erode its profits from this sector which compensated for losses on the sale of electricity and gas.

Turning to the gas bottling plant at Qajjenza, Dr Gatt said this more closely resembled a chicken farm, where workers only worked for four hours a day and trucks were barred from entering the plant well before closing time. Clearly there was a need for change not only in the plant but also in the gas distribution system. Why couldn't people buy cylinders themselves rather than have it delivered? Indeed, why should there be a monopoly in gas importation?

But the biggest challenges, Dr Gatt said, was in power generation and distribution. Power cuts were a reality everywhere, caused by growing demand in summer, which led to more generation which then caused more environmental problems.

Current power generation capacities in Malta were too close to demand - a difference of just over 10 per cent - and new generation plants were therefore essential, as he had already explained. Last year alone power demand in summer rose by 12 per cent and it was mostly concentrated in the north, overburdening the distribution network. The situation had improved somewhat through the installation of a new cable to Sliema/St Julian's and the opening of a new distribution centre in Mosta. But the situation was such that no one could give any guarantees and a turbine which developed a failure could not be replaced by another.

Up to 2006, Lm12 million would be spent to strengthen the distribution system, Dr Gatt said. Some Lm25m-Lm30m had been spent over the past 10 years.

Concluding, Dr Gatt said that raising power tariffs would be a last resort. But after reducing operating costs, debtors and stocks and after improving efficiency, Enemalta would still need to meet the costs to fund more power generating plants and import environmentally friendly fuels. One could easily say that the government could increase its subsidy, but the government, too, would have to get the money from somewhere. And money did not fall from the sky.

Communications and Competitiveness Minister Censu Galea spoke on the rapid growth of power generation capacity since 1987. He said Enemalta was keeping up with rising demand but the corporation had to carefully analyse future demand needs so that it would always have a safety margin between demand and supply.

The strong demand for electricity currently being experienced reflected the substantial development which had taken place in the country.

In a monopoly situation which Enemalta enjoyed, should it continue to insist that heavy commercial users develop their own substation or should the corporation provide the service at a cost?

Mr Galea welcomed the fact that Enemalta was using cleaner fuels and said environmental awareness should continue to grow.

In his speech Mr Galea also welcomed improvements made in the distribution network, particularly in the north following last year's power cuts. He insisted, however, that plant should be well maintained to ensure efficiency and reliability.

Mr David Agius (PN) called for coordination by utility companies in road works and proper road reinstatement once works were completed.

The debate continues today.