Privatisation, liberalisation and competition not that sacred to the EU - Enemalta chairman

by Anthony Manduca

The principles of privatisation, liberalisation and free competition are not as sacred to the European Commission in Brussels as many people think, according to Enemalta chairman Robert Ghirlando. In an article entitled "Enemalta and the EU" which appeared in the April issue of Engineering Today, Prof. Ghirlando says that the Commission normally follows from the principle of the single market which gives rise to the concept of the free movement of people, capital, goods and services. "Limitations to the free market are made if this is in the ultimate interest of the consumer. Certainly what is not tolerated is discrimination between nationals of different member States," he said.

Prof. Ghirlando dedicated the bulk of his article on how the EU's acquis communautaire will affect Malta's energy sector. He said that in its updated report on Malta published last year, the Commission declared that Malta's electricity system was a "small isolated system". He says: "The implications are that while we are not exempted from opening up the generation of electricity to competition, we may retain the distribution system as it is now. However, it will still be necessary to ask for a derogation to retain the present distribution system."

Prof. Ghirlando says that the EU requires the division of an electricity system into generation, transmission and distribution and that even if an electricity company wishes to remain in each of these three sectors, it still has to keep a certain amount of autonomy between them. "In particular, the accounts of the three activities must be kept separate and distinct, to ensure that there is no cross-subsidisation and hence distortions which might make a mockery of competition," he says.

He adds: "This process of separation is called very inelegantly 'unbundling'. Since transmission is considered to start at 200kV and our highest voltage is 132kV, it can be argued that we do not need to separate transmission from distribution. Thus the changes that one can envisage at this stage is the requirement to 'unbundle' generation from distribution and to open up generation for competition."

Prof. Ghirlando says that the Maltese market is so small that the possibility of another generation company setting up shop in competition with Enemalta is very remote. "And even if it were to happen, two companies do not make for effective competition. Hence the importance of having a regulator to ensure that no advantage is taken of a monopolistic or even of a duopolistic position. Indeed, a small isolated system requires a strong regulator. I should add that I do see the possibility of some factory or hotel or other entrepreneur wanting to generate electricity through a combined heat and power unit or through alternative energy sources. But then there is hardly any reason for stopping them doing that now if agreement can be reached with Enemalta regarding the commercial and technical aspects of such a project," he said. Enemalta's chairman points out that the EU leaves the decision regarding privatisation up to each individual member State and is only interested in seeing liberalisation take root "as this usually brings about competition".

He adds: "Thus whereas the opening up of the market is an EU requirement in many cases, privatisation is a decision that we shall have to take on our own and which we must base on important considerations of efficiency and social implications. Indeed what is happening on the continent is that a number of State companies are buying shares in the companies of other member States."

Prof. Ghirlando says that gas also features in the EU's energy chapter since like electricity it is usually delivered through a network, "and networks are difficult to operate in a competitive market unless subject to a regulatory system".

He says that in Malta, we do not have a network as such but a monopoly, so that here we are dealing more with aspects that fall under competition rather than energy. "Again the market is so small that opening up such a market would not necessarily yield many competitors and the watchful eye of the regulator would still be required," he says.

Prof. Ghirlando explains that Enemalta's distribution of gas through a system of distributors each of whom holds a "monopoly" of distribution in his allotted district could well be acceptable under EU rules since this distortion of competition is for the benefit of the consumer, who would otherwise suffer if this system was dismantled. "This does not mean that we need not make adjustments to the system, but it only goes to show that it is simply not a case of 'free market' rules at all costs," he says.

The liberalisation of the importation and sale of fuels on the local market falls under the chapter on competition and free movement of goods. "When this happens, Enemalta will still be able to remain in the market and compete with other companies that might wish to operate in Malta. It is not feasible that these companies build new storage facilities. Hence, I believe that the best solution would be for government to retain ownership and control of the fuel storage facilities (Has Saptan, and so on) and lease them out to various companies, including Enemalta. I have discussed this idea in Brussels and it seems that it would be acceptable. The regulator would oversee that the leasing out is done fairly," he says.

Other requirements include having an energy policy and ratifying the Energy Charter Treaty. The former is being prepared by the Malta Council for Science and Technology. Parts of the acquis relate to the Euratom treaty on nuclear energy. "We do not envisage ever resorting to nuclear power but there may still be parts of the treaty relating to the transhipment of nuclear fuels that we might have to adhere to and have the necessary legislation in place," Prof. Ghirlando explains.

Prof. Ghirlando said that Enemalta has already completed the first draft of the bill to set up the regulator in the energy sector and has passed it on to government.