18 January 2006

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Business Today

A spotlight on change

The hefty electricity surcharge introduced a week before the 2006 budget was presented, stole the show for Lawrence Gonzi’s tax-neutral budget and with good reason. It has placed an additional burden on households and businesses.
Controversy erupted over government’s calculation of the surcharge and whether it was really intended to cover the cost of oil or Enemalta’s inefficiencies. But Enemalta Chairman, Ing. Alex Tranter is categorical that the surcharge was based solely on the higher oil prices the corporation is paying for its electricity generation needs.
“We are not trying to recoup any other losses through the surcharge,” Tranter says. He recognises that since the introduction of the 55 per cent surcharge oil prices are in much calmer waters but cautions this is no guarantee prices will continue falling.
Tranter talks of the restructuring process at Enemalta and says that by the end of the exercise the corporation hopes to save a “couple of million” through improved work practices and more efficient deployment of employees.
Tranter also says the issue of a gas pipeline linking Malta to Sicily will need to be looked into with greater depth as substituting oil-fired turbines for gas would possibly give us the single largest reduction in emissions as requested by EU directives.

For a number of months we have been hearing about the restructuring of Enemalta. Where has the process arrived?
Restructuring is an ongoing process. We started the restructuring at high level management and today the company has an effective structure at chief officer level. Restructuring has to be conducted at the lower levels as well and this means we will be entering into union-related discussions. We have started talks with all unions, especially the General Workers’ Union on the work practices, which will obviously have an impact on the type of structure we would like to see in place.
We are looking at each area separately because each has a particular way of functioning. We already started with the aviation section where the restructuring discussions are at an advanced stage.
The issue that concerns the union most is loss of employment, especially after the events that occurred recently. The restructuring exercise has to identify how we can best utilise our human resources. The company is currently undertaking a skills audit of its employees. This will help us identify suitable training programmes for certain employees so that we would be able to utilise them in other sections where Enemalta has a shortage of employees.
We want a restructuring process that is based on logic, reason and also on assistance to the individuals who will be influenced by a restructuring process.

How long will this process take?
During this financial year, which comes to a close on 31 September, we will have done most of the restructuring negotiations and hopefully implemented most of the initiatives we are pushing forward.

What is the final aim of this restructuring process? What savings are you targeting?
There will be operational savings in terms of labour costs because greater flexibility will enable us to be more efficient in cutting waste. We have indicative figures on what savings we are expecting from the restructuring exercise and they can run into a couple of million.
We will not be saving millions. I do not agree with the argument that the surcharge was introduced to make good for Enemalta’s additional labour costs and inefficiencies because in terms of labour costs, restructuring will not save us the millions incurred by the corporation because of higher oil prices.
It is the price of oil that will determine what type of savings the consumer can expect rather than the restructuring of labour practices.
Restructuring could produce other benefits though in terms of improved quality service levels. Consumers might not benefit financially from restructuring but they would experience a better service from Enemalta.

The PricewaterhouseCoopers report on Enemalta’s energy generation section published by the ministry in 2004 had quantified some Lm5 million in losses due to theft and inefficiencies of the electricity grid. What is being done to reduce these losses?
We are on the eve of a campaign soon to be launched by Enemalta in collaboration with the ministry on theft of electricity. It will be a major national initiative which would make people correct possible incorrect positions at this point in time.
We will give people a chance to correct their positions because if they don’t they will be penalised against established Enemalta consumption benchmarks. But at this stage I cannot comment any further.
But we haven’t been waiting for this initiative to be launched to do something about theft. Since my taking over as chairman, last July one of the issues on my agenda was to evaluate the situation as regards electricity theft. If we look at the number of inspections being done today as compared to six months ago, there has a been a dramatic increase.
We have given the inspections unit more resources to work with. More people have been caught stealing but the process to take back what is due to the company is so long that even changes to the law are being contemplated to make it easier for Enemalta to collect what it is owed.
As regards technical losses, during the first six months of my tenure here I commissioned a think tank of young engineers and an accountant to study various aspects linked to technical efficiency, renewable energy and what can be done vis-à-vis society in general.
The team investigated the issue of technical losses and one of the main initiatives we will be taking in the next six months is the implementation of certain measures to reduce losses in the major transformers which carry a lot of load on them.
But we are also drafting an energy conservation policy for Enemalta, which would also include the obligation for the company to purchase equipment that is energy efficient.

Since the introduction of the surcharge last year, energy conservation has often been mentioned as a possible avenue for reducing consumer demand. Yet no educational campaign has been launched. Are there any plans in this regard?
Enemalta is participating as one of the champions with the Malta Resources Authority and the ministry for the environment, in a tri-partite initiative on a national campaign on energy conservation. The ministry has got a grant of around Lm100,000 to be able to push this national campaign and Enemalta is going to be a key driver and information source in this campaign.
The plan is being put together and over the next couple of months we will be seeing something happen.
From the aspect of renewable energy it is still an expensive option. When you look at the cost it requires to generate electricity and supplying it to households it’s going to cost the householder more. Wind is free energy, but the capital expenditure required to have a wind farm and the infrastructure in place is very high. There is a big debate on what alternative energy option is best suited for Malta.

But is there the willingness at Enemalta to go down the route of alternative energy?
Enemalta is not the entity responsible for this. Such a policy falls within the remit of the resources authority. They are the people who have to issue guidelines on what option is best suited for Malta.
As Enemalta, which is the major operator, we are looking at the best possible ways of conserving energy and also producing electricity from renewable sources. But we are considering alternative sources not as a replacement for the traditional oil-fired boilers but as a parallel source of energy generation.
To replace what one or two boilers can do, we would require large wind farms and solar collector fields to produce the same amount of electricity. On a small scale we can use knowledge generated from alternative sources to assess the economic feasibility of alternative energy in Malta.
But the MRA as a regulator has to look at the issue from a national point of view because it has to guide operators.

When the debate over the surcharge erupted in summer, an initial tag of Lm50 million was mentioned as the additional cost Enemalta was going to shoulder in 2006 because of increased fuel costs. That price tag has however fluctuated giving rise to speculation that the surcharge was partly being introduced to recoup some sort of losses incurred by the company because of inefficiencies and antiquated work practices. What is the exact burden Enemalta will have to shoulder this year?
I can assure everybody that the calculations that led to the surcharge were solely linked to fuel-related costs. We are not trying to recoup any other losses through the surcharge.
But knowing exactly what fuel will cost Enemalta is a million dollar question. I would be out there in the oil market if I knew the answer to that question. We cannot know what oil is going to cost us and that is why we have a fuel procurement advisory committee to help us in our decision.
Since the introduction of the 55 per cent surcharge we are in much calmer waters right now hence the reduction in the surcharge three weeks ago. Does this mean we are on a rollercoaster ride downwards? We don’t know and we cannot know what will happen in the future.
Purely in my personal opinion and from what I have heard, we can be in for some calmer waters this year compared to last. What guarantee is that? Absolutely nothing. It is just a finger in the air feeling.
Will we be reaching the USD100 a barrel or hover around the USD60 a barrel?

Don’t you have estimates?
The 55 per cent surcharge was based on an approximate Lm80 million estimate. But that estimate has already gone down. But if the price spikes up again, it will once again distort our estimate. One of the good things that has happened is that rather than waiting for six months to review the surcharge we will be regularly updating the estimate on a bi-monthly basis to reflect the volatility of the market.

The surcharge is reviewed every two months but actual meter readings for households and small businesses are only taken twice a year. How is the portion of the bill on which the 55 per cent surcharge levied calculated?
Billing is not an easy scenario because you have the surcharge changing regularly and meters are not being read at the same time. We are not living in an ideal environment but we are doing the utmost we can physically do. The surcharge will affect the bills issued at the time of the change.
Estimates are based on previous records and consumption patterns and it would be very weird to see any spikes in actual bills on the basis of lower than normal estimates in the previous months.
All this will be solved when we introduce automatic meter reading. It would be a system similar to that operated by Melita Cable where from a single centralised consol the company can provide you instantly with new services or actually cut off the service.
This system will even have a direct impact on theft because we would be able to better control consumer consumption. We are already down that road by installing digital meters.

Will this system take years to implement?
We are trying to involve a strategic partner on a risk-reward basis and the implementation of electronic meters is the first phase to be completed. I would probably look at a timeframe of 18 months to witness a major shift from what we have today to what we intend doing. When the whole system is complete is another issue.

There was talk in the past over the possibility of having a gas pipeline linking Malta to either Libya or Sicily. The option to link up to the European electricity grid had also been raised. Have these projects been shelved completely?
Research over the possibility of having a gas pipeline has been done but nothing concrete has materialised yet. I know that the MRA is about to initialise a study on the feasibility of such a project.
As things stand, the only energy source we can use to adhere to the targets set out by EU directives on emissions is the switchover to gas-fired turbines rather than oil. We are seeing that shift happen.
This means we have to look at this issue with even greater detail. If it is not a gas pipeline we would have to look at an LNG (liquid natural gas) plant, which gas can be brought in by tankers and stored in a depot like oil.
My personal opinion on linking up to the European electricity grid is that in 10 years time we would see ourselves linked up to the grid automatically seeing how the EU is evolving towards more integration. I believe it will not be an option to stay out of the European grid by that time.
It would give us as a nation a safety valve just in case our own system breaks down. It would be wise for us to look at this project and Enemalta has a crucial leading responsibility in this.
I believe the level of attention that needs to be given to both the gas pipeline and the electricity grid connection needs to go beyond simply studying the options at hand.

The 1 January of this year was supposed to usher in the liberalisation of the fuel market. It has been postponed by some six months. Why?
You’re asking the wrong person. It’s a government question to answer and a regulator question to address. Enemalta does not liberalise the market. Enemalta like other entities seeking to enter this market is also gearing itself up for liberalisation. But I cannot answer that question.

Is Enemalta ready for fuel liberalisation?
We are gearing up to be ready. Today we are not ready. But I can assure you that the delay in liberalisation has not occurred because Enemalta is not geared up. They are two completely separate issues. If Enemalta is not ready by the time the market is liberalised it is our problem.

Alex Tranter was talking to Kurt Sansone

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