Petrol price decrease not politically motivated

The Middle East crisis, which forced fuel prices up in most countries had less of a bearing locally because the formula adopted by government to establish the price for petrol is based on a three-month average during which price hikes could be neutralised by lower prices.

The government’s decision to lower the price of unleaded and normal petrol by one cent seemed to defy logic when international fuel prices were on the rise owing to the Middle East conflict. Political observers viewed the decision as a move to mitigate some of the damage done by the Nationalist party’s disastrous performance in the local elections.

But Economic Services minister Josef Bonnici denied such claims reiterating that the price adjustment was determined by market forces according to the formula established by government in November.

Prof. Bonnici told The Malta Financial and Business Times that although international prices were on the increase in March, they had been decreasing over the preceding two months.

"This yielded average prices that were lower than the fuel prices that had been established in the November budget speech," Prof. Bonnici remarked.

He further explained that all international price fluctuations would have an impact upon local fuel prices but as part of a three-month average. "Lows could very well compensate for highs, hence the ultimate effect will depend upon the duration of a ‘crisis’ as much as on its severity," the minister added.

The formula adopted by government in the budget to peg local petrol prices to international market movements includes a corrective factor for diesel, which would have otherwise shot up incredibly causing a ripple effect on various sectors of the economy. The formula has seen unleaded petrol go down twice consecutively while petrol increased in November and was brought down again in April. Diesel went up in November but did not move in April.

All international price fluctuations in the period 1 April to 30 June 2002 would be reflected in the next price adjustment, due in 3 months time.