The government's boundless subsidies to cover Enemalta's losses have scored the company a credit rating upgrade.

In a document released earlier this month, international credit rating agency S&P Global Ratings said it was upgrading Enemalta's long-term rating from B+ to BB- and predicted a stable outlook for the company's future.

This is because the government provided "continuous and timely" financial support to the energy company and will probably continue to compensate for its losses in the near future, the agency said.

This year alone the government is expected to spend around €400 million to subsidise energy and food prices in a bid to save businesses and keep the economy growing as it recovers from the pandemic.

Energy prices have skyrocketed since the Ukraine war began, and the government has since stepped in to cover Enemalta's losses each month, whenever the company buys energy through the interconnector or the gas-fired power station.

This has allowed tariffs to remain stable, completely cushioning the impact of the energy crisis on Maltese families and businesses.

S&P Global Ratings lauded the government's intervention and said it assumes the government will continue to compensate Enemalta for its losses for the next two or three years "or as long as the company keeps generating losses".

But the government might soon be forced to water down the subsidies drastically, as the European Commission has begun to tighten the belt on Malta's energy spending.

Malta is almost entirely dependent on international sources of energy. Even if the economy does well enough to enable the government to continue forking out millions to cushion international prices, the EU might well block it from doing so, because the subsidies are responsible for pushing up the deficit.

The EU does not allow member states to accumulate deficits that exceed 3% of the country’s GDP. The EU calls it the Stability and Growth Pact, which also lays down that states must keep their debts at under 60% of the GDP.

That rule was suspended for the duration of the pandemic and the start of the Ukraine war, but the Commission has now informed member states that they will need to rein in their spending in the coming months.

For Enemalta to keep up with the surging prices, the government will eventually need to raise tariffs or invest rapidly in renewable energy sources that provide energy locally for the local market.

In a media statement released on Friday, Enemalta welcomed the upgrade to its credit rating and its CEO, Jonathan Cardona, thanked employees for their "hard work through a difficult year due to the unprecedented increases in gas prices.

“Despite increased prices, and thanks to government’s support, Enemalta managed to speed up its investment in the distribution network to improve its service to consumers while maintaining stable electricity tariffs,” he said.

“Enemalta remains committed to maintaining and developing the country’s distribution infrastructure with minimal impact on the environment, whilst improving the service to the company customers."

The government has a 67% 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.

Apart from the support being paid to it by the government, the credit rating agency said 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 three years.