Issue link: https://maltatoday.uberflip.com/i/1504697
15 maltatoday | SUNDAY • 30 JULY 2023 NEWS THE Nationalist Party was quick to crunch the numbers and esti- mate that the cost of the power outages to the economy topped €200 million. This was based on a similar cal- culation made by former finance minister Edward Scicluna in 2009. Back then, Scicluna said a blackout of several hours would cost the country around €10 mil- lion. Meanwhile, MaltaToday reached out to economists Phil- ip von Brockdorff and Marie Briguglio to understand the full impact of the power cuts on the economy, and all the variables that go into calculating it. Von Brockdorff noted that little is known at this stage about the full economic impact of wide- spread and long-duration power interruptions, especially in terms of indirect costs and related econ- omy-wide impacts. "As a result, any estimated cost of such power interruptions with- out an in-depth analysis would be presumptuous or at best incom- plete," he said. Briguglio noted that the costs of the major electricity outages go beyond the obvious and directly quantifiable out-of-pocket costs, like lost working hours, tourist re- funds and spoiled food. "The costs also include various non-market costs like loss of sleep and impacts on physical and men- tal health which can arise from the inability to cool living/working spaces, to cook, to work, to pump/ heat water, to use lifts or other es- sential electric equipment, to use digital technology but also to plan ahead," she said. There are also longer-term costs like reputational losses to Malta for foreign direct investment and tourism. "If the outages persist, they will also have multiplier effects – each shock creating a ripple effect in the broader economy. For exam- ple, if one business contracts as a result of prolonged outages, it im- pacts another business negatively (e.g. its supplier), which impacts another and so on." However, there are some eco- nomic players that could benefit from the outages. "The rush to repair cables and the infrastruc- tural investment has created an injection and more demand for some construction companies," Briguglio said. "Demand for repairs and main- tenance of electric goods has in- creased, creating more work for electricians and technicians. De- mand for electric substitutes like generators is likely to surge, while expenditure may also rise for goods and services that do not rely on electricity." However, von Brockdorff said there is no question that the re- cent outages have cost millions of euros to businesses, with retail outlets, restaurants and hotels be- ing hit hardest. "Of course, house- holds have also been impacted and at a cost too," he said. Von Brockdorff referred to a published study that estimated the costs of a 48-hour power outage to the Austrian economy. "This was estimated to be about €1.7 billion, and by far, the largest costs asso- ciated with outages were business disruption and lost revenue. It is worth noting that these would be opportunity costs from the out- age, rather than direct costs asso- ciated with fixing it." While the Austrian economy is much larger than the Maltese one, applying the same methods of the study locally would lead to a total economic cost that would run into the millions. "That said, an ad hoc and in- depth analysis is required to esti- mate the economic costs based on the outages experienced in recent days. What is certain, however, is that businesses will claim com- pensation resulting from disrup- tion and lost revenue. That could be substantial if estimations are based on opportunity cost," he said. Regardless, von Brockdorff not- ed that overall business disrup- tions, whether due to outages or climatic factors, are infrequent compared to countries like the United States. "Hence, the outages experienced in recent days should be considered as an exceptional occurrence." But this doesn't negate the fact that these outages do not impact everyone the same way. Briguglio noted that the vulnerable, the ill and the elderly were particularly hit by the power outages. Low- er-income households might also not have the financial means to take remedial action for the dam- age incurred. "In short, the outages create di- verse economic impacts: short and long term, direct and indirect, market and non-market, negative and positive. They also do not im- pact everyone in the same way. This would make a great study and its results should inform En- emalta's investment plans, going forward," Briguglio said. Heatwaves and power cuts The cost of power cuts: Millions of euros and sleepless nights Malta and Gozo experienced 10 days of sporadic power cuts in the middle of an unprecedented heatwave. Some businesses had to close their doors to customers and affected households had to throw out perishable goods from their fridges. But what has been the cost on the economy? NICOLE MEILAK speaks to two economists Nationalist Party spokespersons Mark Anthony Sammut (centre), Jerome Caruana Cilia (left) and Mario de Marco estimated that the cost of the power outages on the economy stood at €200 million based on past calculations by former finance minister Edward Scicluna Marie Briguglio: Extensive power cuts have non-market costs such as lack of sleep, inability to cook and use a lift, causing major distress to elderly and vulnerable people Philip von Brockdorff: A cost running into millions of euros