The majority of households will have to fork out an extra €76 to €270 a year which will override the 95 per cent surcharge, according to the water and electricity tariffs being proposed by the government.

The proposal, which does not include government subsidies or eco-reductions, is one of the five the government presented to social partners yesterday during a five-hour-long meeting of the Malta Council for Economic and Social Development.

Representatives of the social partners told The Times they were not expecting such drastic changes, adding that this would result in a steep increase for families and industry. They would be analysing the proposals in depth.

This same proposal will see 39,000 of the 42,000 commercial clients shelling out an extra €10 to €46 per week, before government subsidies or eco-reductions.

The proposals were drawn up by the auditing firm KPMG, which was commissioned to analyse Enemalta Corporation's cost base and propose options to tariff structures.

Infrastructure Minister Austin Gatt explained that the five proposals were flexible and stressed they were just working suggestions.

The proposed tariffs were based on how much it cost Enemalta and the Water Services Corporation to generate and distribute electricity and water.

The common denominator of the proposed options was to recover the full cost and get a possible return on investment. Between 2008 and 2012 Enemalta is expected to invest €450 million in the generation and distribution of electricity.

To be in line with EU regulations, the tariffs cannot be discriminatory and cross-subsidies were to be abolished, he said.

Moreover, the government is proposing to only subsidise residential accounts and remove the capping system for non-residential clients because this was challenged by the EU.

With regard to water tariffs, the underlying principle is that Malta adheres to the Water Framework Directive 2000/60/EC, which imposes the requirement to recover the full cost incurred for the provision of potable water by 2009 and sewage water treatment by 2010.

Dr Gatt said the government was committed to having a transparent tariff system, which could be independently reviewed.

The new concept being introduced is that instead of subsidising Enemalta on behalf of the people who qualified for subsidies, the government pays the customer directly.

Moreover, the proposed tariffs are based on the polluter-pays principle, where consumers pay for what they consume. In line with this, the new eco-reduction mechanism would apply for clients who did not exceed a certain threshold of consumption.

These would enjoy reductions of between 15 and 20 per cent on their bills. The benchmark would be 1,300 units per person, per year, per household or 1,500 units in the case of people who lived alone.

Finance Minister Tonio Fenech said the 30,000 families who currently did not pay the surcharge would remain protected through a government subsidy.

The social partners have until October 18 to give their feedback on the proposed tariffs or else draw up their own proposals which, however, had to be in line with the government's principles.

A final decision will be taken by October 24 and will apply retrospectively from yesterday.

Mr Fenech said this year the government had handed out €43 million in subsidies to Enemalta, which amounted to 0.8 per cent of the Gross Domestic Product, consequently government deficit estimates for this year were derailed.

Mr Fenech said the government was aware of the effect this would have on families and was carrying out a socio-economic impact assessment on the proposed tariffs.

During yesterday's MCESD meeting, and again during a news conference later in the day, Enemalta chairman Alex Tranter explained the mechanism through which the corporation hedged on oil purchases.

He explained that the corporation hedged on the price of crude oil according to estimates of experts. Enemalta did not buy crude oil. It used the money it "earned" through hedging to invest in purchasing the oil the country actually used: fuel oil and gas oil. Through this arrangement Enemalta earned $62.5 million between October 2007 and last month. This was invested to keep the surcharge lower than it should be.