Charlot Zahra speaks with MEA Director-General Joseph Farrugia on the impact of the proposed new utility tariffs on industry and other productive sectors of the Maltese economy.
Both the Federation of Industry and the Chamber of Commerce had warned that thousand of jobs will be lost once the new tariffs are introduced. Joseph Farrugia shares the view of the other employers’ organisations with regard to the looming job losses. “Undoubtedly,” he said as we spoke at his office in Valletta on Monday afternoon. “We made a joint questionnaire with the FOI, which was circulated among the members of both organisations, and the indications are undoubtedly what you have said – that thousands of jobs might be lost.”
He said that the feedback of the MEA members confirmed this projection. “Naturally, at a time when you have an international recession ongoing, this is undoubtedly not the right time for one to increase burdens by having an immediate revision of water and electricity tariffs.”
Farrugia pointed out that not only manufacturing, but also tourism are expected to be the sectors that will be mostly hit after the proposed tariffs are enacted.
“It looks likely that the sector that will be hit hardest will be the manufacturing sector – not only traditional manufacturers but also high-value-added manufacturing companies such as manufacturers of car components, electronics and pharmaceuticals.
“The tourism sector will also be hit hard as there have been a lot of cancellations of conferences as a result of the global economic situation,” he explained.
Moreover, with 40 per cent of tourism being generated from the UK market, there have also been cancellations because of the recession that is hitting this country.
“If we add the immediate revision of the new tariffs to the burdens already being faced by this sector, then this will surely not be beneficial,” he lamented.
“At the same time when many governments are trying to help their home industries to survive the international economic crisis, we are going to add more burdens on our industry.”
Asked whether the Government was justified in removing capping at this stage in view of the impact that this could bring on local industry, Farrugia explained that although the MEA has defended capping until now, “we are not saying that one should not pay for what one consumes.
“We agree with this principle – what we are disagreeing about is the manner in which this principle should be introduced. The timing of the decision is fundamentally wrong,” he insisted.
“That is why we have come out with a proposal which would enable government to introduce this principle without damaging the economy, especially in view of the current circumstances.”
When faced with Finance Minster Tonio Fenech’s rejection of this proposal, the MEA Director-General explained that around a week ago, the association had come out with this idea first. “We said that in view of the current economic circumstances, it would be better if government postponed the revision of the utilities’ tariffs to March.
“One should make a difference between procrastination and caution. We are not saying that one should avoid facing the problem; we’re saying that the problem is there and should be faced.
“However in an international scenario where a global recession has arisen, and the government is thinking of increasing burdens on the productive sector, then this would surely cause problems to the country’s economic sector,” he said.
The social partners had also proposed that in the event that the price of oil continues with this downward trend and reaches a floor, after March the government could, instead of reducing the tariffs immediately, reduce the tariffs in a gradual manner to enable it to gain back the revenue that it had lost in the meantime.
“This is not a measure to postpone the problem; it a measure that would stabilise matters,” the MEA Director-General insisted. “In the meantime, capping could be phased out over a number of years,” he added.
However, the GRTU has come up in arms against the government for distributing the burden of capping among all business consumers, including those who do not benefit from the capping mechanism.
Farrugia said that the MCESD proposal was in the interest of both the large businesses as well as the smaller ones. “In Malta we have a lot of business-to-business transactions, where small companies depend on larger firms as they do business with them.
“In addition, small businesses benefit indirectly from the big employers since they employ thousands of people, generating a lot of expenditure in the retail sector.
“Now if these employees have their jobs threatened, this will impinge on consumption and expenditure, thus affecting small businesses as well.
“Do we want to have an economic slowdown in the coming Christmas season, because at a retail level, a large percentage of sales are made during December? This is yet another reason why it is not wise to give all these shocks now,” Farrugia insisted.
The impact on local consumption once these new tariffs are introduced could be substantial.
Until now, the international recession has not hit us as hard as other countries like the US, UK, and Iceland, among others. “The issue now is whether the wave that will hit us is dissipated by the time it reaches us or whether it will grow in a tsunami that will threaten to wipe away everything,” Farrugia said.
“We do not know yet. What we do know is that those companies whose work depends exclusively on international demand have already been affected negatively.
“That is why in the past few days we learnt that Toly Products has reduced its staff, Trelleborg has shifted to a four-day week and other companies are doing the same, therefore the impact is already being felt to some extent,” he said.
What is happening abroad, he explained, is that if there was concern and trouble, one postpones purchases. “In fact, the fear of those countries that are injecting money into their economies is that even if you give money into the hands of people, the psychology of recession leads one to keep that money instead of spending it to have something on which to rely.
“In Malta we should not create circumstances that would give people this message. Rather, we should do the opposite and the government should accept this proposal which was endorsed by all the social partners last week so as not to have a slowdown in the economy.
“This is not only the proposal of the unions, of the employers’, or of the GRTU, but of all the social partners,” he said.
As to the possibility of a slow-down or a recession in the Maltese economy in the coming months, Farrugia said: “There could be a slowdown in terms of the country’s GDP growth, which from 3.9 per cent last year is expected to reach 3 per cent this year, but it could be even lower.
“However this does not mean that Malta will experience a recession like the UK is experiencing, where they are projecting that the real GDP growth will contract by 1 per cent this year. We are not in that situation, and we are not anticipating to be in that situation.”
Ironically, when you have a recession abroad, this might work in Malta’s favour. “For instance, the price of oil, which reached the USD 147 mark per barrel, and is now close to USD 60 per barrel, therefore the pressures that there were on the energy tariffs should not be there at a stage next year,” he said.
“Fortunately, in Malta, as opposed to other countries like Iceland, we have a diversified economy, therefore if there is a slow-down in a particular sector, there will be other sectors which will compensate for that.
“Moreover, in the past two years, the unemployment rate has been very low, therefore if there are any job losses, these will be partially absorbed by those sectors which are not doing so badly,” he said.
Asked whether the Government was fiscally justified in introducing these tariffs at a time when the price of oil was at the rate of USD 62 per barrel, the lowest rate in the past 17 months, Farrugia said: “The Government is justified in pursuing a policy of full cost recovery, and nobody is disputing that. Where the social partners are not agreeing is about its timing and its format.
“The MEA’s position is that the introduction of the tariffs should be postponed to next year, and that the capping is removed gradually. This would enable government to safeguard its income while at the same time enabling the industry to adjust to the new tariffs,” he reiterated.
Farrugia said that the government should not seek to adopt an alternative means of financing the increase in the country’ electricity bill.
“If the government had to sell an asset, such as a property, to make good for the shortfall in revenue or for the subsidy that it provided in the energy sector, that would be a one-off measure and a temporary one.
“However, the expense of generating electricity is a recurrent one and will remain there. Moreover, we also have to invest to improve the generation of electricity,” Farrugia told Business Today.
This also had to tie in with a strategy both in the short-term as well as in the medium-to-long-term to reduce Malta’s ever-increasing dependence on fossil fuels.
“For instance, the investment in the wind farm, incentives for alternative energy such as photovoltaic are important because they reduce our dependence on oil,” he said.
The MEA Director-General said that the social partners were not happy at the manner in which the Government treated them when introducing the new power tariffs.
“I believe that the Government has a very good relationship with the MCESD, however on the tariffs issue, it did not behave well. When the pre-budget document was issued, the government did not mention a single word about the new tariffs.
“After the social partners were asked to give their reaction to the pre-budget document, the government cropped up with this. The report with which the new tariffs are based had been under preparation for six months, since last April.
“We are saying that things should not be done in this manner. This was a case that caused concern among the social partners,” Farrugia insisted.
“The MCESD has never been or is now a talking shop. It is a consultative body which is functioning effectively.
“Our intention was to make concrete recommendations. I think that if the government takes the advice of every economist, he or she would have come up with similar advice to the one that social partners gave him.”
Since this interview was held prior to the announcement of the new energy tariffs as proposed, Farrugia was asked how much social dialogue between social partners has been damaged as a result of the government’s approach to the new tariffs, but he was “not disheartened that the situation will change and the government’s position will move slightly.
“The fact that you have a Government that had a plan and changed it after listening from the social partners’ advice would be a positive and a clear demonstration of the MCESD’s constructiveness,” he said.
With the recent merger between the FOI and the COC, Farrugia said that the MEA still had a unique role in this muted scenario. “The MEA has a unique function as a trade union for employers. Our members come from all the sectors of the economy.
“Nowadays our members represent companies that in total employ more than 50,000 people – a third of the labour force,” he said.
However the MEA looks positively at the merger between the FOI and the COC “because if it is a good thing for their members, then it is a good thing also for the entire business community in Malta.
“What I can say is that a lot of our members are also members of the FOI and the COC – there is a lot of dual membership. Nobody can exclude what can happen in the future,” Farrugia said.
“Therefore we do not feel as the odd ones out, as we feel that our activities complement the activities of the FOI and the COC. Everybody has his particular specialisation.
“In the case of the MEA this is labour law, social policy, and industrial relations legislation,” he added.
Asked whether there were any contacts with the MEA about a possible merger with the other two employers’ organisations, Farrugia said: “At this point in time, no. In the past there were contacts about the matter, but this was prior to me joining the MEA.”
“Undoubtedly,” he said as we spoke at his office in Valletta on Monday afternoon. “We made a joint questionnaire with the FOI, which was circulated among the members of both organisations, and the indications are undoubtedly what you have said – that thousands of jobs might be lost.”
