The National Statistics Office has just published the report on the Industrial Producer Price Indices for November 2008. It has the following introduction:
“Provisional estimates show that when comparing November 2008 to the corresponding month the previous year, the industrial producer price index of the sampled enterprises increased by 15.5 per cent primarily due to higher energy prices. “
In November 2008, we did not yet know exactly how badly hit we were going to be by the power cost increases to be applied retroactively from October 1. It is not clear if the 15.5 per cent increase in the price index was based on the actual (do we have an actual today?) price or on the previous power rates. In any case, an index increase of 15.5 per cent in one year is enough bad news.
It is bad news because the most justified pre-electoral exhortations of GonziPN concerned the need for Malta to become more competitive. It was the one sentiment that everybody agreed with. PN detractors felt it was so obvious that it should not have been mentioned as with the PN in power for practically 20 years any decline in competitiveness could only be laid at the PN’s door.
Today we have a situation where Government induced costs are a significant contributor to wrecking our competitive position at a time when factories are making employees redundant, going on reduced time and considering relocation. We are also seeing a decline in tourism and worse is expected as the recession bites our traditional markets even harder. When the power surcharge was introduced, disagreements concerned the size of the surcharge. Yet everybody agreed that with the increase in the price of oil, the cost of energy had to increase. Now that oil prices have crashed, John Citizen expects the same logic to apply and that power rates should recede.
But Government says no. It appears that Government is committed to pay a high price for fuel oil up to some indefinite date – hopefully up to this March. Despite calls for clarity and transparency, details on this agreement are scanty. We have had a statement that this agreement led to substantial initial savings but these savings rapidly evaporated as the international energy price fell. We have been told that the aim of the Enemalta fuel purchasing policy was not to generate more profits but to stabilise prices – and that this aim was achieved. John Citizen can be forgiven if he understands that stable prices mean prices that do not rise. Throughout the lifetime of this agreement we have had a series of surcharges and the final new rates bombshell that exploded retroactively. What aim was achieved is not really clear. What the statement seems to imply is that we can look forward to heftier losses and therefore higher costs.
Somebody seems to have boobed. It is difficult not to recall John Dalli’s words that, as far as he was concerned, oil price hedging was tantamount to gambling. John Dalli was once again proved right. Who will take the responsibility? Probably no one will – except perhaps the consumer who has to pay up. And it will be more difficult for the consumer to meet this extra cost if his income – or that of his customers – is cut because of four day weeks, work place economies, redundancies, relocations, closures, lower tourism revenue and the other problems we are starting to experience.
Is it too impossible to sit down and start afresh? Can we look at the situation now and reconsider the situation? Probably the European Investment Bank/ Enemalta loan agreement to provide some cash to renew our ageing generation facilities required that Enemalta makes enough profits to be able to repay the loan. It is also true that even with this loan we are woefully late in doing something about demand versus supply projections and that reduced demand is a good thing as it buys Malta more time to put in new plant. However to enjoy long term benefits we need to survive in the short term. It is now pointless asking for resignations. We are in the same boat and it is taking in water. Let us forget partisan pressures and look at redefining a coherent economic policy that gives due weight to energy, its costs, its security and its impacts.
