Surcharge to rise

Finance Minister Tonio Fenech yesterday admitted that a rise in the utilities surcharge after next month is inevitable.

Speaking to The Times following a meeting of EU Finance Ministers in Brussels which discussed the high oil and food prices and their effect on the European economy, Mr Fenech said the current oil prices are unprecedented and will definitely have an impact on the Maltese economy.

"Currently, Enemalta is concluding various agreements, including hedging contracts, in order to assure the supply of oil for our power stations for the coming months.

"Although we are not buying oil at the current rate of $127 a barrel, we are still going to end up paying much more than a few months ago. This will obviously affect the surcharge," he said.

Pressed to state whether there will be a steep rise after next month, Mr Fenech said "a rise is inevitable at this stage".

"The government will do its part to try to cushion the effect but, unfortunately, everyone will still have to pay more."

The current surcharge level has been maintained at 50 per cent since last December following hedging agreements entered into by Enemalta for the supply of oil until the end of next month.

The surcharge will now be revised upwards to reflect the higher price to be paid by Enemalta for oil.

The highest ever surcharge since its introduction in 2005 was in March and April 2006 when it peaked to 67.5 per cent (see table). The government is keeping an eye on the current trends in world oil prices as these will also affect its budget deficit which this year is projected to go down to less than two per cent of GDP.

"We are obviously concerned about the international situation. As the price of oil goes up, so will the government's bills. However, we are still confident that we will stay within our deficit targets. This is a challenge but through good budgeting, we should reach our objectives even this year," he said.

Following yesterday's Ecofin (Economic and Finance Ministers council) meeting, EU Economic and Monetary Affairs Commissioner Joaquin Almunia said all of the eurozone ministers and the European Central Bank are worried about the high level of inflation.

"We are suffering strong external shocks from the oil price, food prices and other commodities, so I think everybody is concerned," he told a press conference.

Despite slowing growth, the ECB has kept interest rates on hold since mid-July last year to keep inflation in check. Slovenian Finance Minister Andrej Bajuk, whose country holds the rotating EU presidency until the end of next month, praised the ECB's response to the challenges facing the eurozone economy.

"Nobody has inflation under control but we are very happy with the way the European Central Bank has been reacting to the problems... and we expect it will continue doing that," Mr Bajuk said.