Malta is one of five countries that could be slapped with a hefty fine for allegedly allowing speculative sugar hoarding in the run-up to EU membership last May.

The EU is expected to announce a decision on April 20 whether to fine Malta, Cyprus, Latvia, Slovakia and Estonia, according to an EC draft communication, which is going to be the basis for discussion.

The total fine for all the countries is expected to range in the region of €90 million, with Estonia footing more than half the sum.

Cypriot sources have told The Sunday Times that the Commission believes that Cyprus and Malta have extra stocks of between 15,000 to 20,000 tonnes each and are both risking a fine of between €7 million to €10 million if the stock is not eliminated by April 30.

Officials from the Rural Affairs Ministry are understood to be in constant touch with the EU to try and mitigate the fine, if any.

Concerned about traders filling warehouses and families snapping up sugar to sell again after their country joined the bloc in 2004, the EU has threatened hefty fines for newcomers whose sugar stocks are unusually high.

The idea was to stop the hoarding of sugar and other commodities such as beef and cereals for sale later at EU prices that are way above the world average.

A Commission regulation dated January 14, 2004, laid down transitional measures in the sugar sector for the 10 new member states.

Among others, the regulation states that: "there is considerable risk of disruption on the markets in the sugar sector by products being introduced into the new member states before their accession for speculation purposes. Provisions facilitating the transition should therefore be made to avoid such speculative movements in view of the accession of the new member states."

Determination of the surplus stocks were carried out by the Commission on the basis of trade developments, production and consumption trends in the new member states during the period May 1, 2000 to April 20, 2004.

Each new member state was obliged to identify any abnormalities in the market and single out who was responsible for it.

The Commission believes Estonia has the largest illegal stockpile with surplus stocks of some 91,000 tonnes, for which there would be a fine of €55 million. In total, all five countries are believed to have over 180,000 tonnes of extra sugar.

EU observers believe, however, that the fine could be reduced because it is politically too sensitive.

Apart from imposing the fine, the EU orders each country breaching the regulations to either destroy the surplus sugar, export it to non-EU countries or use it as animal feed.

States will be requested to dispose of the extra stocks until October 31 - by either exporting it without subsidies, or transforming it into ethanol or animal food.

According to the regulation, the fine should be paid by the private stock holders, however if this is not done on time, the government of the member state involved will have to fork out the money.

Sources said that in the case of Malta, it was mainly one major company, involved in the manufacturing of powder for instant drinks, which was involved.

However, if it had to pay the fine, the company will probably go bankrupt. Sources close to this company told The Sunday Times that the firm does not sell any of its sugar stocks on the local market and almost all of its products are exported to third countries.

Therefore the argument that there was speculation in the Maltese sugar market does not really hold water and is one of the major arguments being used by Maltese negotiators with the Commission.

Secondly, the company is arguing that the price of sugar in Malta remained the same after accession, due to a government subsidy. Therefore, there was no point in sugar hoarding since the price has not changed.

Rural Affairs Minister George Pullicino said the Maltese government presented its case to the Commission last November to prove that there was no wrong-doing.

"We based our case on facts and figures and there is absolutely no reason why we should be accused of breaching any regulations. We will fight this till the end," Mr Pullicino said.

The ministry's permanent secretary Philip von Brockdorff said that the figures worked out by the Commission were worked on "mistaken coefficients."

"We have built a strong case based on legitimate arguments to show that we are not in the wrong," Dr von Brockdorff said.

The Maltese Permanent Representation in Brussels did not wish to comment on the matter.

This is not the end of the story. The EU is also expected to probe other products with guaranteed prices, such as milk powder, butter, seeds, alcohol, and beef.