26 October 2005

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Business Today

Government unleashes massive 55 per cent utility surcharge

Matthew Vella

Government yesterday unveiled a 55 per cent surcharge in electricity prices and a 3.3 cents increase in excise for every litre of LRP and unleaded petrol as part of measures intended to make good for the increase in the international price of oil.
The new electricity surcharge will be revised every two months with a 1.1 per cent increase, starting from December, whilst transport fuels will be adjusted every month according to the market fluctuations of the price of oil. The additional excise duty on LRP and unleaded petrol will be reduced by 0.125 cents every month to be totally abolished over a period of two years. Diesel and kerosene prices have been left untouched.
Enemalta will be taking on the rest of the burden through loans which will finance some Lm30 million, whilst another Lm30 million will be collected through the new increases for consumer electricity bills and fuel prices.
The new measures were described as “shocking” by Labour leader Alfred Sant, who said the surcharge will be adding great pressure on enterprises and families, as well as adding instability to the Maltese economy.
The new electricity surcharge is set to increase electricity bills by some Lm38 for every Lm100 currently spent on utility bills, with increases of 1.1 per cent every two months, reaching up to a total 84 per cent surcharge within two years.
Around 13,000 consumers with social needs will be exempted from the surcharge. The government capped the maximum bill for industry at some Lm21,000, which represents a maximum increase of Lm16,000 for industry tariffs.
Investments Minister Austin Gatt yesterday said the price of fuel oil had increased from Lm60 per metric tonne since December 2004 to Lm117 in September this year, whilst gas oil has increased from Lm133 to Lm215.
The original surcharge, 34 per cent, was divided equally between Enemalta and consumers. The latter will now be taking on an additional 38 per cent of the surcharge.
Enemalta will also increase its lending to take on Lm29 million of the burden, through loans and self-financing of the surcharge.
Prime Minister Lawrence Gonzi yesterday said the worldwide increase in oil was a reality which affected Malta and which had increased much greater than earlier projected, especially since July. Enemalta will be ending up with an Lm8 million loss this year.
Gonzi said the government would not accept a 102 per cent increase and looked at different options with which it could ease the burden by taking on a part of it. Gonzi said it had been the government’s financial consolidation and past decisions which enabled it to come to a decision that would not see the consumer take on the entire burden of the fuel increases.
But the Labour opposition and the Green Party yesterday slammed the new increases, both arguing there was a clear absence of an energy policy and little consideration given to alternative energy production.


Alfred Sant was unequivocal about government’s “shock” measures, as he described it: “The way the increase was announced, their magnitude, and its implications, give an impression of a government which has been caught napping and shifted the burden on industry and families.”
Sant said the international increase in oil was a phenomenon that had been predicted since the mid-90s and was due to great demand from the Indian and Chinese economies. Queried by the Nationalist press, Sant defended his one-off tax on electricity meters back during his short-lived 1996-98 government: “The future was clear. Prices were going to rise. We had guts and we decided to take steps. This shows we did take the crucial steps beforehand.”
Sant again plied arguments in favour of hedging on oil prices, saying even a member of the government fuel procurement committee had proposed the measure back in March. He discounted government statements that the oil price had been mitigated by events such as Hurricane Katrina: “hedging is ideal because we are an island-state which requires a drop compared to the bigger nations’ oil demands. We can resort to hedging because the amount we buy is so small. This price increase was not due to any hurricane but the development of the Asian economies, and this was foreseen.”
Sant also lambasted the “lack of transparency” with which the increases were announced, saying there had been no concrete estimates. Instead ministers were offering different data, the Labour leader said: “we want to know how much of that Lm60 million increase is due to inefficiencies at Enemalta.”
Green party spokesperson on finances Edward Fenech echoed similar misgivings on the new surcharge: “we are facing the consequences of a complete lack of national policy on energy, the lack of long-term thinking and concerted action on alternative energy as well as the complete removal of hedging techniques, which means the country has to bear the full brunt of the increase in the price of oil… it puts the economy at risk of stagflation.”
Fenech said the government was trying to appear as if it was absorbing part of the fuel price increase, but it was actually loading the Lm30 million onto Enemalta: “it is already in a precarious position.”
Fenech also expressed disappointment at the fact government did not consider its six-point plan, part of which included the postponement of capital expenditure on the Mater Dei hospital for the ensuing two years. Prime Minister Gonzi called it a “solution which was not a solution.”

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