Surcharge to be announced today

The new electricity surcharge will be announced today and will apply up to the end of September or October, when a new system of power tariffs will be introduced, Infrastructure Minister Austin Gatt told Parliament yesterday .

Introducing the Enemalta Corporation estimates for 2008, Dr Gatt said that at current oil prices (and taking hedging into consideration), the surcharge should rise from the current 50 per cent to 115 per cent. Without hedging, the surcharge would have been 160 per cent.

The government will announce if the full 115 per cent surcharge will be charged or if it will be in a position to mitigate this economic reality through a higher subsidy than its planned €37 million for this year.

Between 2005 and 2007 the government had forked out €72 million in subsidy to keep the surcharge as low as possible, but it must be underlined, he said, that the subsidy still came out of the people's taxes.

In a hard-hitting speech Dr Gatt said that the surcharge had been introduced as a temporary measure, but history had shown that the high cost of oil was here to stay.

The surcharge had been introduced at 17 per cent and was at its highest at 67 per cent. It had been 50 per cent since August 2007 in spite of a 68 per cent increase in the cost of oil.

It had now become clear that the high cost of oil was not a temporary situation, so the country had to adapt to it. It was no longer a case of having a surcharge, and the government last April embarked on an exercise for a structural tariff reorganisation. The exercise was well advanced but the government wanted to evaluate everything to mitigate the effects on the weak, with the state paying for those who could not afford to. It did not want to burden consumers more than necessary. If Enemalta had inefficiencies they should be carried by the corporation and not by consumers.

In line with fair competition and the removal of subsidies, the rates for commercial and industrial sectors had to exploit all the possibilities given by EU rules without economic realities being evaded. Tariffs also had to be progressive and socially fair, promoting water and energy conservation.

Dr Gatt said that in 2006 Enemalta had launched two energy plans which should take the corporation to 2015. These were for electricity generation and distribution and were complementary. They included a number of projects that had to be implemented for a strong infrastructure with adequate generation that could keep up with future economic expansion.

One of the energy-generation projects included the buying of new plant, and negotiations were expected to be concluded by the end of summer.

Another was for a long-term contract for the provision of natural gas to operate the power station turbine, reducing CO2 and sulphur emissions. Enemalta would shortly be deciding on one of three offers received.

The most important project was for the laying of a cable linking Malta to Sicily, giving the country direct contact with the European grid. This would give the country more flexibility of what electricity to buy and from where. The provision would substantially replace the electricity produced at Marsa power station, which was to close down in four years' time. Dr Gatt said that a contract had been signed with an Italian company last week to help Enemalta draw up a feasibility study on this cable.

He said substantial investment had been made in the building of distribution centres, sub-stations and tunnels.

The corporation would soon inaugurate the second phase of the Mosta distribution centre. The Kappara centre was in construction and work on the tunnel linking SmartCity to Marascala was to start soon.

The infrastructure had been continuously strengthened. Without such investment, the country would lose its competitiveness, eventually leading to a loss in tourism and economic investment which would have much worse consequences than the increases in rates.

Dr Gatt said the country also had moral and practical obligations to reduce emissions, but alternative sources would not necessarily mean lower costs. Technology was still expensive, especially for small systems like Malta's, but the contribution of these sources could balance the movements in the cost of oil. The government was encouraging production from alternative sources and wanted the country to have a credible amount of energy produced from alternative sources. It would soon be in a position to announce a study on wind farms.

He said that once Malta connected to the European grid, it would immediately seek the best prices and least polluting alternatives.

Consumers were being encouraged to introduce in their residences small installations of sources of energy, making more use of sun and wind. Moreover, one should look at one's lifestyle and make conservation choices.

Concluding, Dr Gatt said he hoped that in the debate that would precede the announcement of the new rates in November, everyone would rise above party politics and come out with proposals for the benefit of all the nation.

Stefan Buontempo (MLP) said Malta had fallen far behind in the quest for alternative energy sources, and should take full advantage of the EU's initiatives in this sector. But the government did not seem to be fully committed to alternative energy.

Without taking distribution costs into account, the cost for Enemalta to generate one unit of electricity was around €0.12. The government should make haste to keep its electoral promise of distributing five energy-saving lamps to every household, because this would mean a reduction of 29.4 megawatts of energy, or six per cent. This would result in reducing household energy consumption by about 24 per cent.

Dr Buontempo said that out of 120,000 residences, only 13 had taken the initiative to convert to alternative energy - just 0.01 per cent. This showed the sort of effort that must be made to inculcate this trend of thought.

There was no alternative to alternative energy. Households were spending more than 15 per cent of their resources on energy.

Nationalist MP Ċensu Galea said Enemalta had invested heavily to keep up with the demand for the generation of electricity over the years. The time had now come for the corporation to expand on the system of underground culverts when passing service cables, putting to rest all arguments by people who did not want cables affixed to the fronts of their residences.

Any investment in alternative energy was sure to pay its way in the long term. But this would not necessarily mean lesser tariffs to pay, especially because of initial outlays and limited economies of scale in a country the size of Malta.

Mr Galea said the recent hike of around 10 per cent in vehicle fuel was not slight, but it was inescapable in the circumstances. People must make amends by taking a closer look at their consumption. Enemalta, too, must closely examine its operations to try to cut down on their costs.

Architects seemed to have fallen back on traditional methods of design and construction of buildings with a view to making greater use of natural lighting, among other aspects, concluded Mr Galea.

Roderick Galdes (MLP) said that families' outlays on energy had grown by some 135 percentage points over recent years, and this had had severe consequences on families' standards of living.

Not enough had been done to reduce the country's dependence on fossil fuels. Promised percentages and datelines on the inroads that renewable energy was expected to make had remained unrealised over the past 20 years, mostly because the government had provided no real direction.

One of the government's latest utterances had held out the prospect of an offshore wind farm that would generate some 20 per cent of the combined output of Enemalta's power stations at Delimara and Marsa. Observers were now suspecting that the project had been all but abandoned. This and other unkept promises had dented the government's credibility over the years.

Mr Galdes recalled other ploys that the government had resorted to in the bid to cut down on fossil energy use. These had included rebates on appliances that economised on energy: a project that had since been discontinued. There was no hint of any upward changes in the subsidies that Enemalta gave to families installing photovoltaic cells on their rooftops.

Concluding, Mr Galdes said Enemalta needed a new vision and direction in order to adequately fulfil its present and foreseen commitments.

Labour MP Josè Herrera said there was nothing to show that current solar energy technology would affect Malta's energy consumption in a big way, due to the size of the islands. Even other technologies were less promising, but the government should rule nothing out at this stage. If there had been any move to start installing infrastructural changes, Malta would probably have started to benefit by now.

Due to its lack of alternative energy supplies it was no surprise that Malta was deemed to be contributing the greatest amount of greenhouse gases. This showed the urgency and priority of tackling the problem.

The Enemalta estimates showed that Malta's dependence on fossil fuels was increasing year by year and by greater percentages than had been foreseen. This was even more disquieting and showed the need to go from words to deeds. Any project that was seriously considered should be preceded by large-scale impact assessment studies.

Labour MP Silvio Parnis said that the government had been saying for weeks that the cost of tariffs would have to go up, but it had not yet given any indication of what the increase was to be. Keeping people in the dark would not help. People needed to budget.

Now that the surcharge was to go up again, greater attention should be given to the financially weak, who could not afford the additional payments. Mr Parnis noted that if the government had heeded the Opposition's advice to continue using hedging policies, Maltese families would have saved a lot of money.

Opposition whip Joe Mizzi said that the energy sector was not high on the government's agenda. There had been no investment to modernise the sector or find alternative sources of energy. The government did not have a national energy policy.

Various PN governments had ignored adherence to other EU directives, including the EU national emissions ceiling directive, that for renewable resources of energy and efficiency in the use and generation of energy.

How did the government address the deficiencies in the electricity producing plants? Who was to bear the additional costs after lack of investment? Certain problems had been known as far back as 1993 when foreign consultants had told Enemalta that the Delimara power station was not in conformity with EU directives.

What about the directives which stipulated transparency in the price of electricity paid by the consumer?

Mr Mizzi said the government's lack of a serious plan or direction had been counter-productive. Those companies that had invested in Malta years ago were now studying plans to take their operations elsewhere because production costs in Malta were rising. How could the government expect to attract new investment to Malta?

Malta was losing its credibility with the international community with regard to its obligations under the Kyoto Protocol. Malta was at the bottom rung of the ladder, both internationally and within the Mediterranean region.

Capital and infrastructural projects, such as the Mater Dei Hospital, lacked energy-saving measures. The amount of waste-generated gas was not even sufficient to service one factory.

Mr Mizzi said he had repeatedly warned that various administrations were not investing adequately for Enemalta to face future challenges. Now, it would pay the government better to buy electricity from the European grid than to let Enemalta produce it. Because of its outdated power stations, Enemalta could die a natural death.

He said that 10 days after the election result, the corporation had borrowed a substantial sum from a bank to make up for its massive deficit. Management did not know how much inefficiency or what sort of overheads the corporation had.

How could the corporation secure provisions for the future when it had problems on the security of supply?

Millions of euros had been lost in structural and cohesion funds which could have been used for research into alternative sources of energy.

Nationalist MP Edwin Vassallo said that had Mr Mizzi heard what Minister Gatt had to say in the morning's session, he would not have spoken the way he had.

Claims that the government had not done anything about improving the sustainability of energy sources were unjustified.

During the electoral campaign the prime minister had not tried to sugar-coat his words; he had admitted that there would be problems in the future.

The government should do away with the word "surcharge" because this was misleading: It gave people the idea that they were paying something extra, when in actual fact this was the real price of energy.

Malta had to see how it could deal with this rising price, while remaining competitive and sustainable. Measures in next year's budget would have to ensure that consumer power would not be eroded. If the budget offered incentives to help Maltese households, it would create peace of mind.

Joseph Falzon (PN) said that the government had always tried to ease this burden of rising consumer prices, but certain increases could not be avoided because they were happening the world over. Labour's electoral promise to halve the surcharge was incomprehensible. The PN had at least admitted this was a problem. It was time to acknowledge that there was a problem and address the challenge by working together to minimise negative effects.

The principle of keeping down prices of energy had done away with the need to consider alternative energy sources. Companies which had already started looking into such sources had an advantage over those which still used fossil fuels.

Contrary to what the opposition alleged, the government had indeed looked into renewable sources. It was time to strengthen the economic situation of the country because the government had to make good whatever was not paid by the consumer or industry.

Michael Falzon (MLP) said Enemalta had vast social ramifications, the more so where pricing was concerned. One must not look only at the corporation's balance sheet.

Energy prices generated by Enemalta were important not only for industry but also for the sheer existence of the Maltese people. The easiest way for those supplying energy was to put up prices, but the consumer would then suffer. Unlawful and inefficient energy losses must not be tolerated.

Dr Falzon found fault with the lack of energy-saving measures at Mater Dei Hospital: Lighting, solar heaters and water catchment areas. Fluorescent tubes, which gave better lighting power and cost less to use, were already known to exist when the hospital was being built. Admittedly, the capital outlay would have been greater, but it would have paid for itself in the long run.

An energy audit should be made on all public buildings, even the House itself. Dr Falzon called for generous and timely incentives to encourage residents to use solar heaters and photo-voltaic cells. Refunds for eco-friendly measures should not be delayed. It just did not make sense to raise the surcharge whenever the price of oil went up.

Dr Falzon said higher energy costs would undermine Malta's competitiveness in exports and eventually lead to loss of foreign currency, meaning a lower standard of living or greater unemployment. He called for greener measures to be fully exploited. The prime minister had said that he would make Gozo eco-friendly. Did this mean that Gozo would have its first wind farm?

New buildings should have double-glazed windows and insulation on roofs and walls exposed to the outside. Water wells legislation should be enforced.

Concluding, Dr Falzon said the situation in Enemalta had to be seen in a holistic way.

Winding up, Dr Gatt said most speakers had skirted the major problem faced by the country and no real suggestions had been forthcoming. This should not have been a debate on alternative energy, which was the responsibility of minister George Pullicino.

The government was convinced that alternative energy would feature strongly in its efforts. The production now of alternative energy would prove more costly than fossil fuels, and in that way it was not the overall solution. Even cutting down on energy use in streets and hospitals, for example, would not solve the real problem of the high cost of oil.

Alternative energy might become cost-effective if the price of oil kept soaring to over 140 dollars a barrel.

One of the reasons why the government was opting for the submarine cable with Sicily was the opportunity to buy alternative energy, whichever way it had been produced, especially if anything happened to Malta's own production. But that choice, too, would have its own financial consequences.

Dr Gatt said serious studies should be made into the cost of a kilowatt of energy produced by different methods. In certain circumstances he himself would be in favour of buying energy at a higher price. He refuted Mr Mizzi's allegations that the government had done nothing on alternative energy. It was the government that had taken all the measures indicated as time wore on, starting with the discontinuation of using coal to fire the power station turbines.

As Dr Falzon had said, the truest way of describing the difficulties was that whatever the government did to solve the problem, it would hurt. This was why the load must be carried by everyone. He agreed with Dr Falzon that Enemalta must be financially sustainable. In answer to Mr Mizzi's allegation that the government was trying to remove subsidies, Dr Gatt said the government would be forking out €52 million in subsidies just this year. He challenged Mr Mizzi to publish the secret report that he claimed to have.

Malta had liberalised the generation of electricity on the day that it had joined the EU. Any businessman who wanted to generate electricity was welcome to try. The same was true for petroleum, but businessmen were unwilling to enter the market.

Dr Gatt also refuted Mr Parnis' allegation that the government wanted to stop hedging, and that it had not engaged in it before 2004. The fact was that Malta had lost money on hedging in 2005-2006. On the other hand, because of the hedging agreement insurers had just paid Malta €8 million on a shipment of gas costing €28 million.

The movements in the price of oil were pushing towards a 4 per cent inflation rate in the EU. If the government were to heed populist demands to reduce taxes on diesel and petrol, it would only serve to increase inflation. At the end of the day, what interested Malta was how much Enemalta spent to produce energy. This compared well with the cost in bigger island states.

The true benchmark of efficiency was given by Euroelectric. The government must hold firm and look far ahead. The rise in the surcharge to be announced tomorrow would hit hard and would affect people's way of living. But whoever was not paying the surcharge would still not pay, and industries with capping on their bills would continue to have it.

Dr Gatt said the overall aim was Malta's capacity to continue to regenerate itself and add value to its product. If inflation ran away it would be more and more difficult to succeed, but it would be worse to succumb to demands that would only make things worse eventually.

The four major considerations that the government would continue to follow would be solidarity with the weak, help as necessary for economic sectors to add value, the introduction of anti-inflationary measures, and going for the changes to make Enemalta a financially-sound corporation. Even the law forbade Enemalta to make losses, but this was what had always happened in the bid to keep tariffs low for political purposes.

Concluding, Dr Gatt said the government would not be popular on Tuesday, but it was a government that had never promised to cut the surcharge or done what it knew was wrong for political expedience. The only possible solution in the present circumstances was to look forward to cyclical reductions in the price of oil in the years to come.

The estimates were approved after a division, with the opposition voting against.