NEWS | Wednesday, 27 August 2008

As oil price falls, surcharge reduction remains out of the question

Charlot Zahra

Despite the fact that the price of crude oil in the international markets went down by more than 20 per cent since when the electricity surcharge was increased, a reduction in our electricity bills is not on the minister’s cards, as this would be “unrealistic”.
Since the surcharge revision two months ago, the price of crude oil on the international markets has gone down from more than $144 per barrel to $109.40. Asked whether, in view of such developments, the Government is contemplating reducing the fuel surcharge, a spokesperson for the Ministry for Transport, Infrastructure and Communications (MITC) said: “Actual surcharge will depend significantly on actual deliveries and crude prices for the whole period July to September, not the spot price on one day.
“In addition, it is based on fuel oil and gas oil purchases not crude prices. It is however to be stated that crude prices influence hedges as Enemalta hedge against crude oil,” he said. “One may also note that Enemalta is practically 100 per cent hedged till year end up to 50 per cent hedged for 2009, including a number of hedges that are still below the current market levels.”
He added that the end of June revision was based on fuel costs for the period April to June and the prices used were $637 for fuel oil and $993 for gas oil, representing cost of fuel based on stocks and purchases. The average of crude oil for the period was $121.95.
“These numbers gave a surcharge rate of 160 per cent that was reduced to 115 per cent due to hedges,” the Ministry spokesperson said.
“Conscious of the fact that a 115 per cent surcharge would place undue pressure on consumers, the government had decided on a 95 per cent surcharge until September, and to take on the 20 per cent difference.
“The Government had also decided that in spite of the increasing amount of subsidies it has to pay up, it will continue to do its best to protect families in need as well as particular economic sectors.
“In this regard, some 30,000 families who used to benefit from the energy benefit, continued to receive the same support, and the capping on industry and hotels remained the same as it was prior to 30 June 2008,” the MITC spokesperson told Business Today.
Asked as to why didn’t the Government think that a decrease of 24 per cent in the price of crude oil over the space of less than two months warranted a reduction in the fuel surcharge to a level which adequately reflected the changed market realities, especially in view of the negative impact that the surcharge was having on the inflation rates, the spokesperson said:
“The 95 per cent surcharge was not based on the US$144 figure you refer to,” proceeding to provide a schedule of rates as illustrated in Figure 1 featured above.
“Of course all of these rates (in Figure 1) are purely indicative and largely to show that a further reduction in the 95 per cent based on current prices is not realistic. Actual surcharge will depend significantly on actual deliveries and crude prices for the whole period July-September, not the spot price on one day,” he reiterated.
Finally, asked as to what the Government’s economic advisers are saying in this respect, the Ministry said: “The market is uncertain as to what the direction is – in the circumstances we appreciate Enemalta’s policy to maintain prudent hedging.”

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