Infrastructure Minister Austin Gatt made a public apology on behalf of Enemalta Corporation for yesterday's power cuts. He said he was sure this was not sabotage but a technical fault, even though it coincided with the Enemalta budget debate in Parliament, as happened two years ago.
He said Enemalta engineers and workforce had done their utmost to restore the service in the shortest possible time. The corporation would do its best to avoid a repetition.
Introducing the motion for the House to approve the corporation's estimates for 2009, Minister Gatt referred directly to the utility tariffs and said that the social fallout from tariff increases meant that subsidies had had to be handed out to 32,000 households, costing the government €68 million and Enemalta another €77 million - a total of €135 million.
He underlined that hedging, through which the government had made between €2 million and €3 million profit, was not part of the equation, Notwithstanding, this was not enough to make ends meet.
If Malta used to be shocked at the €22 million subsidy given to the Drydocks, was it now right to give €135 million for energy consumption? he asked. To continue on the same stream one must either cut other votes or raise taxes.
Minister Gatt said he was relieved to read that Opposition Leader Joseph Muscat had told The Sunday Times that he could not commit the party to future price reductions on utility rates before he had the matters in hand. He said that this reflected a logical and politically-responsible conclusion that had always been taken by the government.
Dr Gatt reminded Dr Muscat that neither the PL nor the GWU had taken up his invitation to verify Enemalta's accounts. Yet Dr Muscat's statement could be the start of a serious debate on the effects of the price of oil on the Maltese economy and how the tariffs could be worked out based on no principle other than that subsidies should be given only to those in need. Last year had been a difficult year for all sectors. Between January and July there had been a 12 per cent drop in demand for oil, but the price had still shot up from US$60 a barrel to a record US$150 a barrel. It was this chain of events that had triggered the surcharge. The government had only promised not to raise the surcharge before June 2008. Yet oil prices had veered between US$32 per barrel and US$71 between September and March this year. In May, oil prices had risen by a record US$15 per barrel in one month.
Tariffs bore no relation to actual oil prices. Dr Gatt said he understood and acknowledged the enormous burden tariffs had put on consumers who had had to review and rearrange their priorities. This had also produced political effects and, even worse, produced economic and social fallout which meant subsidies to 32,000 households at nearly 100 per cent. These subsidies had cost the government €68 million and Enemalta another €77 million, a total of €135 million. Hedging, through which the government had made between €2 million and €3 million, was not part of the equation. Notwithstanding, this was not enough to make ends meet.
Dr Gatt said one needed to be more sensitive regarding the high tariffs, and a new approach could be thought up. The government could not continue to fork out €135 million a year to balance energy costs.
If Malta used to be shocked at the €22 million subsidy given to the Drydocks, was it now right to give €135 million for energy consumption? To continue on the same stream one must either cut other votes or raise taxes.
Dr Gatt said that at least Dr Muscat had acknowledged that there was a problem which needed a solution. But surely the solution did not lie in subsidising those who wasted or who did not try to curb consumption. The government was not ready to subsidise those who were economically comfortable. It was not socially obliged to help those not in need.
In 2008 Enemalta had paid €332 million to international oil companies for oil supplies. Through the tariffs, €299 million had been recouped, a shortfall of €33 million. So the tariffs had not even covered oil supplies, let alone wages, conversion to electricity and distribution.
In 2007 the cost of fuel had been €284 million against the sum of €289 which had been billed, a profit of €5 million which had been lost in conversion to electricity. Could Malta afford to continue subsidising? It would be irresponsible to say yes, he said.
Dr Gatt said maybe decisions could have been taken differently, but they had to be taken. Maybe the government should have taken an earlier decision to stop subsidies by Enemalta and phased in the correct bills over a four- or five-year period.
It could well have started transition from October over three or four years to subsidise €60 million for 2009, but funds would have had to come from somewhere else. Maybe one could have handled the process differently. Instead of going to MCESD with the tariffs and then discussed methods, maybe one should review at which level one must start subsidising those on social assistance to make more people qualify. But steps must be taken to cover costs.
In the run-up to the April revision, the government had discussed principles before the tariffs, carrying out wide consultations. But the PL and the GWU had not given any feedback.
Dr Gatt listed five basic principles: pay for what you consume; subsidise only those in need (and define need); separate between service and consumption (fixed costs versus variable costs); possibly do not allow for any cross-subsidisation; and that electricity must not be sold below the cost of oil.
Each country had its own social practice. Germany, for example, subsidised big users down to below cost. But if Malta applied this principle, others would suffer higher tariffs. Maybe one could arrive at a decision to reduce tariffs for households and increase others.
Dr Gatt extended an invitation to the PL and the constituted bodies to sit and agree on building up tariffs based on acceptable principles. He said he would have no problem to sit with anybody so long as it was agreed that this was an economic and not a political problem.
In the first five months of 2009 there had been less demand for oil and less supply, but the price had still shot sky-high. On Monday it had been US$95 per barrel. Futures were US$71 and market indications were that prices would continue to soar.
The minister said that after December, the first review had taken place in April. Dr Muscat had asked how it could be that the tariffs were being imposed so high when the price of oil was decreasing. Dr Gatt recalled that in April there had been a change in the methodology of arriving at the tariffs, taking the real cost for January to March and the price of the futures for the next months. This was a forward-looking approach. Nobody had predicted that futures in March would be at US$71.
Dr Gatt said that one must continue to sustain one's principles. Other countries worked differently. Italy had reduced its tariffs by two per cent while Malta had reduced them by 24 per cent.
He underlined that no hedging had been calculated into the April tariffs, which must continue to follow the present economic realities.
Concluding, Dr Gatt said that there should be more input from the politicians, the social partners and the public, keeping in mind the principle that only the needy must be helped and that the country had to be economically sound.