Surcharge to cover rise in price of fuel oil, Gatt insists

GovernmenT Investments Minister Austin Gatt has categorically denied that the 17 per cent surcharge on water and electricity rates announced in the budget was in any way related to Enemalta's accumulated losses.

Speaking to The Sunday Times, Dr Gatt insisted that it was completely false to state that the surcharge has anything to do with the internal problems that Enemalta was facing or that the surcharge was in any way connected to what Enemalta had spent to purchase fuel oil this year.

The surcharge was introduced due to the expected rise in the price of fuel oil for 2005 in which year Enemalta expects to pay between Lm6 million and Lm8 million over 2004.

"To say that the government has introduced the surcharge on electricity to make up for Enemalta's accumulated losses is, to put it mildly, totally incorrect. The issues of inefficiency or accumulated losses of Enemalta do not feature in this equation. In fact the PriceWaterhouseCoopers report categorically excludes any other variables, such as any technical inefficiencies."

Dr Gatt said that the surcharge was simply related to the price of fuel oil which next year is expected to increase significantly: "So much so that even though Enemalta has introduced the surcharge, Enemalta was still expected to lose up to Lm5 million."

He also stressed that what Enemalta paid for fuel oil this year was irrelevant: "The surcharge has not been introduced but it was always meant to come into effect on January 1, 2005, and it aims to make good for the expected increase in the cost of fuel oil in 2005. There was no surcharge for 2004 so the price of fuel oil in 2004 has no bearing whatsoever on the surcharge announced for next year. The surcharge is there for future projected costs.

"Moreover, we never tried to hide what we were paying to buy fuel oil for 2004. Last year the estimates of Enemalta presented in Parliament clearly showed that we were expecting to pay less for fuel oil for 2004 compared to 2003. This year, the PriceWaterhouseCoopers report clearly shows that the cost of buying fuel oil is set to increase by Lm6 million to Lm8 million during 2005.

"I also want to stress that the base year on which the surcharge was calculated was 1999, which was the last time that the rates were adjusted. In other words the 17 per cent surcharge will go back to zero if the costs of fuel oil for Enemalta will go down to Lm31.6 million, which is the figure extrapolated by PriceWaterhouseCoopers based on 1999 tariffs. The projected cost of fuel oil for next year is of Lm47-Lm48 million, which means there is a difference of Lm16 million from fuel costs in 1999.

"I want to emphasise that 52 per cent of that Lm16 million will be absorbed by the government and only 48 per cent of that figure will be borne by the consumer through the introduction of the 17 per cent surcharge. So the surcharge was not calculated on the basis of 2005 against 2004 but against the extrapolated figures of PriceWaterhouseCoopers of 1999."

Dr Gatt said that in 1999 Enemalta spent Lm18.2 million on fuel oil. Next year it is estimated that we will pay Lm48 million. One has to point out that today we purchase fuel which is significantly less harmful to the environment than the one we used to purchase in 1999. However, the dramatic increase is mainly due to international fluctuations in the price of fuel.

He said the government has already published the formula it will be using to make sure that if the price of fuel oil will go down, the surcharge will go down too. "Whoever is saying that the government does not intend to change the surcharge irrespective of the price of fuel oil is simply lying."

Dr Gatt said that Enemalta was still expected to incur significant losses because the surcharge was only meant to cover the increase in price to purchase fuel oil: "This is definitely alarming and a situation which cannot really be sustained much longer. The reasons for the expected loss are different, ranging from a workforce which is much too large, antiquated work practices and in-built inefficiencies which range from electricity theft to late collection of bills.

"There is also a very weak management structure. This year we have put in place the top management team and we are now working on the middle management structure. We are also changing the billing system and taking action to collect debts and ensuring that people pay their electricity bills on time, but there is much more that needs to be done.

"I also want to stress that the government has decided that this year it will not increase the price of LPG or gas cylinders. We are losing Lm1.24 on every 12-kg cylinder, which is crazy. At some point in time this will also have to be sold at a commercial price. The real problem at Enemalta is that the selling price of both electricity and gas are rock bottom and do not reflect market reality.

"Although Enemalta might be overstaffed and inefficient, it has to work within these parameters. We have the cheapest rates for electricity in Europe. We cannot be so cheap to the extent that we are not in line with the operational cost. Therefore even if we reduce the working force at Enemalta and if we are 100 per cent efficient, we would still be in the red because the rates do not reflect the reality of the market. The fact is that the rates have remained unchanged for five years and it seems that everyone assumes that government products do not fluctuate in terms of price."

Dr Gatt also said that the government intends to take action to tackle the workforce of Enemalta, which is believed to be far too large: "We shall soon be running a human resources audit and once the exercise is concluded we will see what actions need to be taken in that direction."