The right way forward

The government’s need to increase electricity and water charges to industry is not an unexpected move. All of us in industry had already calculated what our electricity costs would be if the Lm25,000 capping were to be removed and replaced by a 95 per cent surcharge. Indeed, some of our retail businesses have already incurred these increases.

What we never expected and what is so damaging to Malta’s industrial and tourism base is the government’s belief that it can increase these charges by an astronomical 300 per cent in one quick move and backdated too! Many of Malta’s large industrial consumers have reinvested in recent years because they have not been confronted with "surprise announcements" like this and have confidence that we have a stable business climate.

The right way forward is for the government to establish with the industrial and hotel users what the correct market prices should be. In other words, how much of the proposed charges are fair costs and how much are due to inefficiencies that need to be eradicated.

When agreeing on the correct charges, we must bear in mind what costs our competitor countries are charging and Enemalta must be given a brief to operate within these established costs. In other words, industry must not pay for inefficiencies and Enemalta has to ensure that its investment strategy is as competitive as possible. If the resulting charges are too high for a competitive industrial and tourist base, then we have market failure.

Once this benchmark and reassessed market rate is agreed to, industry and hoteliers must be given a three-year period of adjustment. In other words, the increases would be split over this period.

I wish to point out that the proposed charges amount to a 300 per cent increase in costs and not the 95 per cent surcharge already levied to householders. This can break the back of a factory or hotel if absorbed in one go. There is no way such increases in cost can be passed on to our customers. Electricity costs to industry are part of the cost of production and vary according to production levels rather than an overhead cost that it is to other business sectors. If the government sticks to its position we would all be constrained to reduce our other costs, investments and, in many cases, sustain losses until such increases can be passed on. Employment numbers would definitely be affected.

By spreading the agreed in­creases over three years, industry can at least plan in an organised way how to invest in alternative energy sources, so long as the right incentives are granted.

In 1999, water prices to industry were increased five-fold from Lm0.12c5 per cubic metre to Lm0.60 per cubic metre. Agreement was reached with the government that they should be spread over four tranches, that is, three years. This gave heavy users time to plan for water-saving measures. We already have the most expensive water in the world. By further hiking the price by another 40 per cent we are now "super leaders". The least the government can do is not charge for the inefficiencies in the Water Works Department and there are many such costs. At Farsons water is our lifeline. Having to purchase the most expensive water in the world is, therefore, an inherent disadvantage, which limits our competitiveness.

As I stated earlier, what has confounded industry and damaged Malta’s reputation as a "stable" economic environment is the government’s belief that we can take these increases in the same way the government is proposing to solve Enemalta’s deficit – at one stroke. Business confidence has been dented by the fact that the government has even contemplated this strategy. I appeal to the government’s better judgment.

Mr Farrugia is CEO of the Farsons Group of Companies.