The truth about the surcharge

Labour's leader could be a man of many talents. Consistency is not one of them. If they were not such a tragedy, the numerous occasions that earned him the 'U-turn' label would have been quite funny. The man relies on an Orwellian premise that is perfectly possible to erase the past, to defend with conviction a position and a view in direct contradiction with the view held yesterday; that it is possible therefore to persuade everyone that what they remember has never really happened.

Alfred Sant, unlike what he wants us to believe, is not a new kid on the block. Ten years ago - ages ago, it seems - he was Prime Minister; even before that he was president of the Labour Party during its dark ages, which he vehemently tries to tuck away in his political closet. Then he trebled electricity rates when the raw material used to generate electricity was being sold at its cheapest in living memory. When it was cheaper for his government to generate electricity, the cost of electricity for a mid-range consuming family of three increased by 189 per cent. Dr Sant's reasoning back then was simple: Enemalta is inefficient but that's too bad, someone has to pay for it and it wasn't going to be him.

In January 2005 we introduced the electricity surcharge when the price of oil had increased in multiples over what it had been when Dr Sant indulged in his spectacular hike. The final cost of electricity as a result of that surcharge was nowhere near Dr Sant's rates. One would have expected him to stay wisely quiet. But wisdom is another talent not in the man's portfolio. He denied the price of oil had anything to do with the price of electricity (!), he insisted that the surcharge was only introduced to cover inefficiencies at Enemalta (which several independent reports confirmed it hadn't) and he blamed the increase on a supposed government-induced hostility to hedging.

The government confirmed it had no ideological problem with hedging when purchasing oil. Speaking personally, I do not claim to have mastered the esoteric skill of buying oil (which is why I leave the experts to do the job), but listening to Dr Sant talking you'd think the only reason he's not an oil-rich tycoon is that he sacrificed his genius for oil trading in favour of his genius for Opposition politics. Indeed his financial mastermind landed him the highest fiscal deficit ever registered in our country's history.

And indeed, on the expert advice of our Fuel Procurement Advisory Committee led by the eminent Roderick Chalmers, Enemalta uses hedging when it purchases oil. It has done so for years now and of course a hedge on occasion returns a surplus for Enemalta and sometimes it does not.

Securing a surplus as a result of hedging is not unlike securing winnings from a gamble, where the stakes are high but where market intelligence, experience, competence and prescience can make a difference: though not all the time.

We have created a fund where we save any surplus Enemalta makes from hedges that turn out to be advantageous. There we save our winnings and top them up from extraordinary income the government makes, say, from disposal of property or privatisation. And we use that fund to help us keep the surcharge rate stable to ensure our economy is cushioned within the limits of reality from the international movement of oil prices.

Which part of this did Dr Sant not understand?

The accompanying table isolates from the final surcharge rate we pay on our bills the effect of hedging (sometimes beneficial, sometimes not) and the subsidy the government pays to cushion the blow.

The subsidy the government pays does not fall like rain from an unclouded sky. Some of it comes from the fund we have created. Some more comes from a special temporary tax on petrol we introduced in 2005 (and which we reduce every month). Some more from Enemalta's own savings as it strives to cut waste and gain efficiency.

And after this the net result is that the surcharge in November 2006 is of 59.5%, instead of the 71% it would have been had we not cushioned substantially the real impact of the international fuel prices.

How does Dr Sant react to all this? He says the surcharge can be cut by 50 percentage points. He never really says from what exactly the 50 points are to be deducted. Does he mean half of what the surcharge should really be (half of 71%)?; half of what it is (half of 59.5%)?; cut 71 by 50 points to 21%?; cut 59.5 by 50 points to 9.5%?

And what he really never says is what he's paying the difference from. How is he going to double the subsidies we are already putting into it? Like the truth, money in Dr Sant's world, seems to fall unbidden like rain from an unclouded sky.

Dr Gatt is Minister of Investment, Industry and IT.