Victor Carachi
Subsidising the electricity tariffs
One of the prime arguments made against subsidising the utility
tariffs is that taxpayers' money should not be wasted on subsidising the market price of oil but, alternatively, should be invested productively elsewhere.
For one thing it is good to question whether the tariffs really reflect the market price of oil. When the new tariffs' structure came into being in October 2008 we were told that the rates had to be increased accordingly because the market price of crude oil was hovering at about $147 per barrel. Now that the price of crude oil stands at about $86 per barrel, the utility tariffs implemented in January 2010 are back to what they were in October 2008.
The technical report commissioned by the trade unions proves this and, so far, no one has contradicted this. This clearly demonstrates that the electricity tariffs are way over-priced and do not reflect the prevailing market price of crude oil. They will definitely fuel inflation to the detriment of the competitiveness of our industry and damage the tourism sector and consumers at large. A rise in inflation will also have a domino effect on the cost of living adjustment (COLA) and this could, in turn, trigger a wage-price spiral that risks prolonging the recession.
There is also a solid case of why the government should continue to subsidise the electricity tariffs.
Malta, unlike other countries, is still fully dependent on fossil fuels, particularly heavy fuel oil, to generate its electricity needs. To compound matters further, our power plants, especially the one in Marsa, are very old and inefficient.
Some may argue that the price of oil has increased for everybody and, therefore, the status quo has been maintained. The reality is totally different. For one thing, those countries that have modern power stations, even if they run on heavy fuel oil, are producing electricity much more efficiently and cost-effectively when compared to the situation in Malta. This is the same as comparing the efficiency of a 20-year-old car to a modern one, the latter obviously giving more miles to the gallon.
Secondly, and unfortunately, while the energy sector in Malta was neglected, other countries, such as Germany and Norway (even though this country is a leading oil producer), saw the writing on the wall. These countries anticipated that the price of oil was bound to rise with the expansion of the Asian economies, particularly that of India and China, and they wisely invested along the years in green technology to generate their power needs. They now have a competitive advantage over other countries, such as Malta, which did not invest in this technology at the right time.
Therefore, if we are to ensure that our exports and services remain competitive in the global economy the government must continue to subsidise the electricity tariffs until such time that the new green technology investment by private industry and the government, through Enemalta, is put into place.
This is why it made a lot of sense when all social partners suggested to the government to raise the tariffs incrementally over a period of time so as to give industry a chance to invest in green technology and remain competitive. Instead, the government shocked industry and consumers alike.
It is such decisions and not peaceful protests that negatively affect potential investment! Today, countries such as the UK, which, up to a decade ago or so, boasted of a vibrant manufacturing sector, are cursing themselves for not having done as much to protect this sector and, instead, pursued a speculative economic model rather than a model based on the real economy.
It is not too late for the government to revise its decision and strike a deal with all the social partners at the Malta Council for Economic and Social Development. Subsidising the electricity tariffs and giving some breathing space for industry to invest in green technology should be considered by the government as an investment to protect industry, tourism and jobs. Other tangible benefits will come in the form of reduced dependency on fossil fuels and our carbon footprint. That will be a win-win situation!
Mr Carachi is president of the General Workers' Union
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J Martinelli
Apr 10th 2010, 18:37
@ james grech
"...lack of investment in the existing power stations?" Not true at all unless you mean adding generating capacity. It is worth noting that when it was feared that there was insufficient capacity, both stations generated 434 megawatts, but for some strange reason they failed at 210 megawatts! Explain that. Investment had nothing to do with the recent blackouts.
The Marsa station was maintained as it should but bearing in mind that its life expectancy expired and EU regulations mandate it to be closed in two years. One major upgrade was done when it was converted back to oil after it had been operated for several years on sulphur laden coal during the Socialist years. Remember the mountains of coal near the station? Funny how black dust was tolerable in those days!
How can one criticize the government for using available technology for the Delimara extension when more efficient equipment is not available? Efficiency is the ratio of fuel oil burned to the output of electrical energy. I needed to clarify that, in case you describe 'efficiency' in some other terms.
Of course investment should be ongoing, although thirty years ago it was but a pipe dream.
james grech
Apr 10th 2010, 19:10
Yes, I restate, that the present situation was foreseen, more then 4 years ago (pls note Enemalta's report for the years 2006-2010) and Gov. did next to nothing to ensure that the country does not reach the current situation.
The Marsa Power station should have been closed, and this was promised by Hon. Fenech Adami way back before GPN materialised. The mediocrity of this Gov. has lead us to an unbearable situation. Actually I think that the recession issue was a blessing for GPN, in that any existing and new problem were attributed to this recession.
And pls stop twisting the arguments. Gov. opted out, (for reasons which are beyond anyone's understanding) to use HFO as a solution for the NEW extension, rather then take the recommendations, highlighted in the said report, which were ALL IN FAVOUR of using cleaner and much more proven technologies. I suppose that from your throne you (have not and) will not be effected by any critical situation that might arise should the prototype filters not work as its being stated. Why can't you be unbiased in your comments? Preferring blue, does not mean that one cannot have an unbiased opinion, right?
james grech
Apr 10th 2010, 14:54
@J Martinelli
If Mr Carachi's arguments were full of holes, with your arguments you little succeeded in filling them up. Why didn't you highlight the lack of investment in the existing power stations? Why has Gov. dragged its feet with rgrds to the Marsa Power station? You should also have reminded the readers that even Gonzi's predecessor had claimed that this would be closed down when the Delimara power station was built? Furthermore you claim "Modern power stations are not much more efficient than the Delimara station since fossil fuel generation techniques have not changed much in the last few decades". Why then didn't you criticise the government on its decision to opt for heavy fuel oil rather then a proven, cleaner and more efficient technology? Had Malta invested 20 years ago, both the country and the Maltese would now be in a better situation. As you know quite well, investment should not be a one off exercise, but one which is ongoing. Furthermore, when investing, one has to do this wisely, something which GPN has more often then not, failed to do.
J Martinelli
Apr 10th 2010, 13:46
@ Victor Carachi Part 1
Your arguments are full of holes. You question the tariffs in October 2008 when the price of oil was $147 a barrel to today's tariffs when oil is at $86 a barrel. What you should have mentioned is that in October 2008, even after the tariffs were increased, the government was still subsidizing fuel more than it is today. Therefore the reduction of the cost of oil has prevented from today's tariffs from being higher.
Malta is still dependent on fossil fuels, but not unlike many other countries. Had the United States, for example, closed all its coal fired stations, its share of the world's pollution would drop in the vicinity of 20%. The Marsa station is indeed old but also scheduled to close once the Delimara station is upgraded.
Modern power stations are not much more efficient than the Delimara station since fossil fuel generation techniques have not changed much in the last few decades. Malta does not have the space to make solar energy generation a viable significant alternative. Ditto for wind generation, otherwise the government would not have opted for more expensive off shore windmills.
Continued
J Martinelli
Apr 10th 2010, 13:44
Part 2
Pointing at neglecting the energy sector in the last few years while Germany and Norway forged ahead with green technology as opposed to Malta, is like comparing apples to oranges. How much would a modest green energy source contribute to the national grid? And if the main beef here is the cost of energy what would the cost be, using 'free' solar and wind generation? What about initial costs of equipment? What about fluctuation in production due to loss of wind and sun affecting both systems?
Had Malta invested "at the right time", say 20 years ago, the technology available at that time would be mostly obsolete by now since better green technology is evolving as we argue about it today. How much more is the public willing to fork out for green energy when the GWU is still talking subsidies?
The GWU continues to incite the public over the cost of electricity, the sole reason being purely political. It hopes to help the Labour Party gain power so that the GWU bosses can raise their feet up on their desks and let Labour dictate without the Union even uttering a whimper.
E.Muscat
Apr 10th 2010, 11:21
You live in DoDo land,Mr.Carachi! How can you compare our efforts to those of Germany and Norway?Germany is blessed by a great industrious people and Norway is full of oil,fisheries and water power : Our industrial giants,The Malta Drydocks,could not manufacture solar water heaters and buses let alone wind turbines and supertankers.What they expected was handouts,subsidies,and political and union interference and great losses!
You need to lead the workers to greatness:you lead them to ruin!