Amendments to the Excise Duties Act raising excise duty on fuel imports started being debated in Parliament yesterday.
Parliamentary Secretary Tonio Fenech said the adjustment would have no impact on consumer prices but was required ahead of the liberalisation of fuel imports.
The Enemalta financial estimates, debated by the House last month, had included a downward revision in the corporation's profit margin for all fuels, with the decrease (estimated at Lm8.3m) due to be compensated for by an equivalent increase in excise duties, making the exercise price-neutral for consumers. The decrease in profits to Enemalta will be refunded through a Public Service Obligation agreement.
Mr Fenech pointed out that Enemalta was keeping electricity prices as low as possible through internal subsidies. Losses of Lm8 million were being made up for through profits from sales of petroleum products.
If the government did not take adequate measures ahead of the liberalisation of fuel imports, liberalisation would mean that the profits that Enemalta was using to counter the rising costs of oil would go to other sectors, and other ways would have to be found to subsidise Enemalta.
Through this Bill the government would be raising excise duties on liberalised oil imports and transferring the funds to Enemalta to cover losses on electricity generation, especially since social cases were not paying the fuel surcharge. This would guarantee the maintenance of stable prices for the generation of water and electricity.
Mr Fenech said there were four products involved in the adjustment: duty per 1,000 litres would rise from Lm183 to Lm224.60 on leaded petrol, which was no longer imported; from Lm166 to Lm203.60 for unleaded petrol; from Lm105.40 to Lm142.70 for biodiesel and from Lm105.40 to Lm142.70 for kerosene.
This notwithstanding, the market prices for the consumer would remain unchanged because Enemalta would now be renouncing its erstwhile profits and selling its products at cost price.
The Lm8.3 million hitherto made in profits by Enemalta would now be going to the government as excise duty, and the government would channel them back to Enemalta as a subsidy on the generation of electricity for the domestic sector. The corporation's financial situation would therefore remain basically unchanged.
Mr Fenech said the rate of excise duty on unleaded petrol was still one of the lowest in the EU, while that on kerosene was only 1m more per litre than the lowest in the EU. The excise duty on diesel would continue to be on the same level as the EU minimum.
Mr Fenech looked forward to liberalisation, saying the government augured that this would yield greater consumer choice, better quality and, hopefully, lower prices as well as more economic activity.
Competition in prices on a more open market could lead to petrol stations showing different prices for petroleum products, depending on where their suppliers sourced their products.
He said that while the liberalisation of petroleum products was agreed with the EU, the generation of energy was completely different. The EU recognised that Malta and Cyprus had particular situations since they operated isolated electricity generating systems.
The MRA was evaluating various alternatives as part of an energy policy, including linking up to the European power grid. This would entail substantial costs but would provide a fallback facility. At present Enemalta had to make certain investments on standby equipment.
There were no social obligations with regard to petroleum sales and the government felt it should, therefore, no longer be involved in this area of activity.
This activity would therefore be turned over to the private sector for competitive marketing and pricing.
Mr Fenech also spoke about rising oil, and hence electricity prices, saying this was a crisis not only for Malta but for all countries which depended on oil consumption. There was no quick solution to the problem.
He said the government was promoting the use of alternative energy through two main schemes. The first made available assistance for domestic use of solar heating, raising the subsidy from Lm50 to Lm100 per installation. More than 350 families had taken up this scheme over the past year, with 267 others requesting the subsidy in the first four months of 2006 for solar water heating and domestic wind farms. All this would help to ease pressure on Enemalta's generation of electricity.
The second scheme involved photovoltaic systems to generate electricity either for families' own use or to feed into the national grid. For the first photovoltaic cell the government was subsiding 25 per cent of the cost of installation up to a maximum of Lm500, with Lm250 of additional help for any other cell. In this case Enemalta was waiving the Lm20 charge for the installation of meters to measure the amount of energy fed into the national grid. There was also a system of set-off between units fed into the grid and others taken up when needed.
If the system could produce more electricity than a household needed and the surplus was fed into the grid, the family would be paid 3c for every such unit.
Malta had its limitations because of its small land size, but the government was still studying the possibilities of setting up wind farms at sea.
Concluding, Mr Fenech said that without the measures being taken through this Bill, electricity costs would be prohibitive.