Fuel prices have once again gone up, much to the disappointment of consumers who have to use their cars daily and businesses that depend heavily on fuel to provide the goods and services demanded by the market. The effect of the recent hefty increases is graphically explained by the simple statement that €10 spent on fuel in April 2011 results in more than a litre less petrol than one would have got for €10 in April 2010.

The latest increase has a double whammy effect on consumers because it contains 0.8 cents per litre charge to enable owners “to refurbish their stations and to cope with increasing running costs”. So, the Malta Resources Authority is asking consumers to finance the capital costs that every entrepreneur in a free economy is expected to incur in the expectation of earning a profit.

Many argue that the attitude of the regulator goes beyond reversing the business logic built on the maxim that risk capital is provided by the businessman and not by the consumer. The regulator is being rather patronising when it implies that consumers should be grateful for being asked to pay “only” 0.8 cents for this capital cost, rather than the full 3.2 cents requested by station owners.

The Malta Chamber for Small and Medium Enterprises – GRTU provided little comfort to consumers when it stated that it was happy with the deal. It tried to show empathy by stating: “Prices are rising every month and consumers can’t be burdened with more than they are already.” But it then adds a sting when it declares: “If the situation improves, we might start negotiations again.” Presumably the threats of industrial action and attendant lay-offs will also be revived.

Enemalta offered a generic explanation for the price increases when it stated that the “conflict in Libya has taken a serious toll on the global fuel economy”. Few would dispute the fact that retail fuel prices should reflect the movement in the price of crude and refined oil. What is unclear is whether the price consumers pay at the pump is really made up of the cost of raw materials, reasonable operating costs of Enemalta, a reasonable profit margin for station owners, and a sensible tax margin for the government.

It is still unclear, for instance, to what extent Enemalta is passing on the cost of its operational and administrative inefficiencies to the consumers. We also now know that petrol station owners expect the consumer to finance, at least in part, their capital costs. Similarly, it is not known why competition between petrol stations is still not being encouraged. Neither do we know why the government does not cap the tax it charges on fuel as has been done in the UK, at least when fuel price hikes become too steep and threaten economic stability. All these factors are as important in the determination of the price of fuel at the pump as the cost of the refined product bought in bulk by Enemalta.

It is the right time for the government and the regulator to come up with clear explanations on whether the consumers are really being charged a fair price for fuel. It is no good saying that the fuel prices in Malta are lower than in some other EU countries.

The recent price hikes raise more questions on the fairness of the pricing system than are answered by those involved in the supply chain. These questions need to be answered sooner rather than later.