Cost of electricity subsidies reaches €163 million as government ignores IMF

Government subsidies passed onto Enemalta in 2023 amounted to €168 million, an increase of almost €40 million over the previous year, new data published in parliament shows.

Energy Minister Miriam Dalli told Nationalist Party Shadow Minister Jerome Caruana Cilia that this high amount of subsidies is still required to keep the price of electricity for consumers and businesses on the low side.

However, experts told The Shift that the increase is not justified and might indicate that the government is using this scheme to subsidise the state entity’s inefficiencies, something which is not allowed by the EU.

Enemalta, which does not produce any energy itself, but relies on third parties, has been posting tens of millions of euro in losses for the past years. According to its latest published audited accounts, it lost €35 million in 2020.

Experts told The Shift that while the current subsidies are still necessary, even though the country is registering stable economic growth, their increase does not make any economic sense.

“Although we are not yet aware of the state of finances of Enemalta for the past years, we suspect that the government is also using the subsidies to shore up its own loss-making company and its gross inefficiencies,” an expert and former senior Enemalta official told The Shift.

In 2022, when the price of energy on the international market was, on average, the same as in 2023, the government spent just €123 million in subsidies for Enemalta. Notably, there were no similar increases in energy-related subsidies for fuel.

Enemed, the state company responsible for most of the imported fuel in the country, received €64 million in subsidies in 2023, drastically down from the €111 million it received in 2022.

Finance Minister Clyde Caruana has so far refused to adhere to advice from international institutions, such as the International Monetary Fund (IMF) and the European Commission, to prepare an exit strategy for these extraordinary subsidies.

Stating that the ongoing government subsidies, aimed to keep inflation artificially low, “do not help incentivise energy conservation or green transition”, the IMF, last November, called for a “gradual phase out”.

The same was reiterated by Brussels and the Central Bank Governor Edward Scicluna, himself a former Labour Finance Minister.

However, Clyde Caruana ignored all these calls indicating that the subsidies are still needed.

Instead, Caruana continues to base his annual budget on a high deficit and borrowing needs, increasing the island’s high debt levels, which are currently standing at over €10 billion.

At the same time, Caruana’s strategy does not even have the desired effect on inflation.

Despite the hundreds of millions of euro in subsidies, Malta’s inflation is still much higher than the average in the EU.

According to the latest Eurostat figures, while inflation in Malta stood at 3.7% last month, the EU average stood lower, at 3.4%. This is even though in most EU member states, there are no state subsidies on energy prices.