The price is right

Infrastructure Minister Austin Gatt insists that the new water and electricity rates will not drive any firm out of business. Over the years, people have become used to paying for what they consume, he tells Herman Grech.

To what extent is the price of refined oil linked to crude oil?

Usually, crude oil works a couple of months later into the refined price, but the refined price then depends on where your refinery is and how many refineries are working at a given point in time.

But how closely is the price of crude oil connected to refined oil?

We buy from a refinery in the Mediterranean and every day the price is quoted on the PLATTS' website.

Up until a few months ago, the government was harping on the fact that the price of crude oil had shot through the roof. Now that the price is down drastically, we're hearing that we should take the price of refined oil into consideration. What's happening?

Oil is a very difficult subject. The reality is that we buy refined oil and most people find it very simple to quote crude oil; but that's not the reality of Enemalta.

There is a connection between crude oil and refined oil.

Of course there is.

So the price of refined oil must be down.

Of course.

Substantially.

It's going down.

The goalposts have shifted. Since you started drawing up the new tariffs, the price of crude oil is down from $147 to $42 a barrel. Isn't it about time this is reflected in the cost of electricity?

You're right but you don't change the price of electricity every day.

You have proposed to change it every six months.

Yes. You take in a bit of the past (price) and the future - that's the way it should be done or else you cause economic shocks every time you change it. Let's remember that the price of oil is down but the dollar against the euro has appreciated by some 20 per cent and that works against us. We're working on a prediction of €219 million expense for oil in 2009. If we go below that, we'll decrease tariffs, if we're above that, we'll increase tariffs.

Last Sunday, Labour leader Joseph Muscat pointed out that there was no surcharge when the price of oil was $42 per barrel...

He's wrong. We introduced the first surcharge when the price of crude was around $45 a barrel, though crude is not the benchmark.

Some would say that the government is conveniently citing a complicated formula to justify these tariffs.

We didn't invent this formula.

The British government yesterday urged electricity providers to start reducing prices for consumers...

... and they didn't.

But the British government is pushing it. Why are we different?

There's a big lag between what happens in the market and what happens for refined oil to be turned into electricity. We lag six weeks behind because our storage systems are planned that way. There are inbuilt time factors which don't reflect what's going on in New York. We haven't had a single shipment this month and therefore the $43 a barrel won't affect us.

Seeing the reductions we've experienced since July...

... again it's another misconception. If we retained the surcharge, which was worked out three months behind, we would have a surcharge of 195 per cent now, just to recover what we paid for the period of July to September.

Do you still believe it was the right time to introduce these tariffs considering the international situation?

The international situation doesn't affect the oil situation in Malta.

I know, but the government is creating a problem we've avoided so far.

I disagree. The problem abroad is related to banks, which we don't have.

Yes, but governments around the world are doing their utmost to reduce taxes, ploughing millions into the economy to make sure the economy stays on course...

... and we're doing the same thing through capital projects....

... while hitting everyone's pockets with the new tariffs.

That's a different thing. If you ask me if we're affecting people's disposable income, I would agree.

By touching people's disposable income, aren't you creating uncertainty?

No, you're not. You're ensuring there's less inflation.

In what way?

Because you are restraining the purchasing power at a time when inflation is going down and that helps it...

... and potentially driving companies out of business and families below the poverty line.

I'm sorry, that's not true at all. They might be driven out of business because of the international situation and the possible recession that seems to be on the horizon.

So why have all the social partners been up in arms against the new tariffs?

Because nobody wants to pay more tariffs. I can go into detail with anyone on anything in any industry and prove that it's not true that anyone will shut down because of the new tariffs.

And you're convinced of that?

Convinced - 100 per cent.

Any business?

Even small businesses.

What about low income earners?

They are subsidised - 30,000 account holders out of 190,000 holders will see no increases.

And you are convinced these tariffs won't create a slowdown and uncertainty.

Absolutely.

A lot of shop owners during this festive season would beg to differ.

When they receive the bills they'll know exactly what their bill is.

Many actually agree on the need to reduce subsidies but why didn't you phase them out over a period of years?

We were not subsidising Enemalta - but the consumption by individual families. The €56 million or so we're subsidising in 2008 is merely going towards oil. Consumption should not be subsidised.

So you reckon people are just going to get used to paying higher tariffs?

I think people have changed a lot and are now used to paying for what they consume.

Before the budget you walked out of one of the meetings with the social partners saying that there was no more space for manoeuvre in drawing up the new tariffs. Within days they were tweaked. What happened?

We had a clear deadline by when we had to reach agreement at Cabinet level. The tariffs were approved; the unions sent letters to the Prime Minister who decided to reopen the negotiations.

Were you involved in the discussions throughout?

No.

Why not?

The Prime Minister took over.

Why? Because he thought you were steamrolling...

You have to ask the Prime Minister. (Finance) Minister Tonio Fenech and myself had a clear mandate by which date we had to go to Cabinet with proposals.

The unions are now accusing the government of misleading them when it claimed that 73 per cent of families would be benefiting from the eco-reduction on tariffs, when in reality it was including vacant and secondary properties.

They were wrong. I was exceedingly clear within MCESD that I was referring to account holders and not families. The figure of 190,000 account holders does not include garages or empty homes.

Do you deny that you misled the unions in any way?

I always used the term 'account holders'.

Wouldn't it have made sense to tackle Enemalta's wastage before upping the tariffs?

Enemalta's wastage is being tackled.

How?

Define 'wastage'.

Enemalta's avoidable losses total €27 million a year.

That's not true. We explained in detail why it was wrong.

That's a conservative estimate.

It's not true at all.

We have it confirmed by independent analysts.

It was not confirmed by anyone. You never published your sources. We gave you a clear explanation why it wasn't €27 million.

Enemalta agreed to the 13 per cent loss, which would work out at losses of €50 million, of which €23 million are unavoidable.

Avoidable losses are grid-related losses, which are only retrieved by investing more. There's a limit with investment. Shutting down Marsa will give us a higher efficiency ratio in electricity to power generation, but that would mean an investment of €350 million. So we'd have to raise tariffs.

Why is there a proposal to extend the Marsa plant when it should have been closed down years ago? One of the reports the government sent to the EU when we joined the bloc claimed Marsa would be closed down by 2010.

I can't argue with that.

We've been hearing that the Marsa power station is going to be shut down for years.

It needs investment. According to this popular argument, we shouldn't be investing in new power generation and getting our return in capital. So who's going to pay for it?

Isn't this lack of foresight from the government?

Till now, everyone's been arguing that the government should be investing in a power station to shut down Marsa, but nobody is going to pay for it.

Enemalta's Electricity Generation Plan says that as from 2009, the outage of any plant during the summer peak months will imply power cuts in a number of areas and that action needs to be taken. Were the steep electricity rates a means of reducing demand?

I don't think so, for one simple reason - with a surcharge of 95 per cent, people did not reduce their electricity consumption.

So do you deny that the new tariffs were introduced as a means to reduce demand?

One hundred per cent.

When will the new bills be issued?

They're working on the numbers and software; probably later this month.

During the Christmas period.

We're already late and it's created great cash flow problems for Enemalta.

A union official told me Austin Gatt has managed to do what no other minister managed to do in years - bring all the unions together in a united front against the government. Don't you think it helps to actually discuss matters with the social partners before you implement things?

If it was coming from a General Workers' Union official I'd find it very strange. It was the only organisation which at MCESD level didn't submit a proposal in writing.

There was a common front that the tariffs should not be introduced in this manner.

Everyone argued that the government should fork out €30million to €40 million from the budget. And we disagreed. We very rarely discussed the technicalities of how the tariffs should change. When Lino Spiteri writes that we shouldn't use taxes to subsidise consumption, it's OK. When we say it, it's not. That's the irony of everything in life.

Do you think it was right to propose the new Għadira road a month before applying for EU funds?

A Foresta 2000 management report drawn up by Din l-Art Ħelwa and Birdlife last year said they were aware that there was a secondary road which would run at the back (of the site). I found out recently that in 2005 a proposal for a tunnel was already tabled.

It was never put out for public consumption.

Birdlife and Din l-Art Ħelwa knew about it.

What if the sandy part of the beach simply moves inland?

If the studies show that, we'll abandon the project. Why aren't others prepared to accept a study that the beach can be replenished that way? It takes two to tango. We haven't even applied to Mepa. I insist that the garigue we want to pass through has been excluded from Foresta 2000.

Were you aware of the Seabank Hotel's Silvio Debono presentation to build a similar road to your predecessor a few years ago?

I knew Silvio wanted to do this project but I didn't know about the application he mentioned.

Was there any part of Mr Debono's initial proposal which played a part in your proposal now?

Not really. But now I've discovered that he had commissioned the EIA consultants report we're publishing - I didn't know that when we started the discussions.

So do you deny claims that Mr Debono has been pushing the ministry...

...absolutely not. But if it benefits him, why not? He owns one of the big hotels we have today. He has an application to extend it, as does the Danish Village. The entire country will enjoy a bigger beach.

Don't you think he will eventually apply for a beach concession?

The Danish Village has an application for a beach concession. Mr Debono hasn't applied for a beach concession yet, as far as I know.

You keep bringing in the Danish Village, whose management didn't take too lightly to your comment...

... I find it very strange to be told by the Danish Village that they're not very interested in the beach and then I find out they're applying for a beach concession. They are applying for 13 new rooms and they have an outside development zone application and Din l-Art Ħelwa didn't object to that, Nature Trust did.

You said the Danish Village can sell their business if they don't like the road proposal. Is this the way to speak to somebody who has been bringing in so many tourists for years?

That came as a reaction to something. They were saying 'you will do this road over our dead body'.

No, they simply objected to the road - and they have every right to do that.

Of course they have every right. But they said they'd shut down if we went ahead with the road. It's the attitude of many people here in Malta to make threats to reach their objective.

So don't you regret your comment?

Yes, I regret, I shouldn't have said it. But people have to understand this kind of absolutism; that everyone is right because they have an opinion (is not acceptable)... You can't fault either Jesmond Mugliett or myself when we try to find a solution. You can't simply keep saying 'no'.

But with the exception of the Seabank Hotel, there seems to be a national front against this proposal. You say there is no choice, but in fact there is. Doing nothing is an option, even if we lose the beach.

If it means losing the beach, it isn't an option. We cannot lose Mellieħa beach.

When you have climate experts telling you that we are going to lose the beach anyway because of sea level rises...

That's a ridiculous argument.

I spoke to a climate expert who claimed that.

If that's the argument, then I'd put the road further in. Do people know that just 50 metres from our proposal there is an existing road? Why are people objecting to an Environmental Impact Assessment?

What do you make of comments that Malta has two prime ministers - Lawrence Gonzi and Austin Gatt.

Rubbish. There's only one Prime Minister - and a very good one at that. If people think that I go into a major project without first having cleared it with the Prime Minister they don't know how politics works.

The government is constantly being accused of arrogance. Is it a misconception or doesn't this party realise it has been re-elected by the skin of its teeth?

Today, we're going down very much the way of Italian politics. People expect politics to be a never-ending discussion. I read yesterday that one of the unions was saying it's offended that the government published the tariffs (without first consulting it). That kind of concept is passé. That's 1960s, 1970s stuff in Europe. The government holds a period of consultation and then it decides. You can't keep discussing an issue.

You've been in politics for several years. Do you see a different way of doing politics this time round?

Every prime minister has his own style. I think it's a matter of evolution. The reality is that in its first nine months, this government has raised a hell of a lot of questions on subjects nobody's ever decided upon. We've tackled rent, Mepa and transport reform...

... it's the same party which has been in government and sitting on these decisions for 20 years.

Agreed, but you don't expect all these decisions to be taken at once. It's evolution.

See interview on timesofmalta.com.