The Malta Independent
Utility rates are very politically sensitive. Labour government came to an untimely abrupt end in 1998 partly because it did not manage well the utility rates increases announced in that year`s budget.
Public opinion was not shaped up in advance for the unavoidability of increasing utility prices, given the precarious state of public finances and the losses then being incurred by Enemalta. The present government when faced with the hard reality that lowered utility rates that brought it back into power in 1998 are no longer sustainable, did not fail to learn the lesson on the need to shape up public opinion for the expected increases.
We have had a good two months run-up to the budget being constantly reminded that the price of oil was reaching record levels and that this makes utility rates upward revision absolutely unavoidable. Then in presenting the budget the Prime Minister told us that Enemalta was absorbing more than half the increased cost of Lm16 million and the announced utility raised revisions will only cover 48% of the increased procurement cost of imported energy. (How Enemalta can afford to carry this subsidy when it is virtually bankrupt remains to be seen.)
This is all well and good except that the facts have been misrepresented and we have clearly been treated with contempt. Are we stupid idiots expected to swallow whatever propaganda government decides to throw at us to justify the hard measures which are being taken for very different reasons than those stated.
Let me start with the price of oil. The oft quoted price of crude oil is irrelevant to our case. Enemalta does not import crude oil. Enemalta imports refined products. The correlation between the prices of crude oil and the prices of refined products is tenuous. For example between August 2003 and November 2004 the cost of crude oil increased in US dollar terms by 48%. On the contrary the cost of Fuel Oil, one of the main refined products imported by Enemalta to generate electricity, went down by 15% in case of the High Sulphur version and by 4% in case of the low sulphur version.
Dollar depreciation in the meantime means that every Lm1, one gets 17% more US dollars now than one used to get in August 2003. So in Maltese lira terms the Fuel OiI that Enemalta burns to generate electricity is cheaper than it was in August 2003. It is also cheaper though by a lesser margin than the price levels for such fuel oil in Lm terms as at January 2004.
So why on earth are we being fed false information forcing to us accept utility rate increases on the basis of increased acquisition cost of crude oil which we do not import, when in fact the finished refined products we do import are cheaper than they were last year`
The truth, for those who want to know the truth, is that because of EU regulations we are being obliged to burn low sulphur fuel oil which is far less environmentally offensive than high sulphur fuel oil. The problem is that low sulphur fuel oil is about 40% more expensive (approx. US dollars 50 more per metric ton), and this on its own runs up an increased import bill of some Lm7 million more.
Of course I agree we should welcome the use of more environmentally friendly fuel; but we should call a spade a spade and say it costs more and not hide behind the irrelevance of increase in crude oil prices.
Government`s contempt doubles up when one realises that whilst the consumers are being loaded with the expense burden of this environmental measure, the government is lining up its pockets by netting Lm3 million more in 2005 in excise duties on imported petroleum, probably due to he application of excise duty on kerosene or the expected shift of use from kerosene to diesel.
So while we all have to pay surcharges on our utility bills, higher prices on kerosene which saw its subsidy abolished (this was socially atrocious when Labour did it in 1998 only to be reversed by the PN government for political convenience; now it has become socially responsible), and industry is having to pay 50% more for Light Heating Oil apart from additional cost in the utility tariff, government on the other hand is loading on an additional excise tax of Lm3 million. Rather than soften the blow it is actually accentuating it.
Seeing all this misrepresentation, what value can the consumer give to the assurance that the surcharge on utility bill will be removed once oil prices return to normality Prices of imported refined oil products used for electricity generation are already quite normal in Lm terms and the major cost difference is due to the use of more environmentally friendly low sulphur oil. So how, may I ask, can we hope for the abolishment of the utilities surcharges` Certainly we cannot go back to use high sulphur fuel oil!
And if the government truly believes in accountability why not publish the benchmarks costs of the imported products (with specifications of such costs i.e. whether they are spot prices, monthly averages or quarterly averages) and of the applicable US dollar rate vs the Maltese Lira. Only through publication of such information can we hold government accountable to the promise to reduce or remove the surcharges when procurement costs in Lm terms recede.
The Minister responsible for Enemalta was reported as saying that the corporation has no expertise in using hedging techniques for energy imports and other financial derivatives.` If this is so than I regret that for all the expensive new recruitments at senior level Enemalta has lost rather than gained expertise in these sectors. I well remember the period when in 1998 as chairman of Mid-Med Bank I was being consulted on the hedging offers Enemalta was considering, we had concluded deals which eventually rewarded Enemalta not just with certainty of costs but with substantial savings both on the price of imported refined oils as well on its foreign exchange transactions and balance sheet exposures. There certainly seemed to be no lack of such expertise within Enemalta`s ranks at that time.
I appreciate these could be quite complex matters and the Minister can pontificate with impunity when there is no one to correct his misstatements; but that does not mean that we, as citizens and consumers who are being forced to carry the burden of his decisions, are not being treated with utter contempt.
Utility rates are very politically sensitive. Labour government came to an untimely abrupt end in 1998 partly because it did not manage well the utility rates increases announced in that year`s budget.
Public opinion was not shaped up in advance for the unavoidability of increasing utility prices, given the precarious state of public finances and the losses then being incurred by Enemalta. The present government when faced with the hard reality that lowered utility rates that brought it back into power in 1998 are no longer sustainable, did not fail to learn the lesson on the need to shape up public opinion for the expected increases.
We have had a good two months run-up to the budget being constantly reminded that the price of oil was reaching record levels and that this makes utility rates upward revision absolutely unavoidable. Then in presenting the budget the Prime Minister told us that Enemalta was absorbing more than half the increased cost of Lm16 million and the announced utility raised revisions will only cover 48% of the increased procurement cost of imported energy. (How Enemalta can afford to carry this subsidy when it is virtually bankrupt remains to be seen.)
This is all well and good except that the facts have been misrepresented and we have clearly been treated with contempt. Are we stupid idiots expected to swallow whatever propaganda government decides to throw at us to justify the hard measures which are being taken for very different reasons than those stated.
Let me start with the price of oil. The oft quoted price of crude oil is irrelevant to our case. Enemalta does not import crude oil. Enemalta imports refined products. The correlation between the prices of crude oil and the prices of refined products is tenuous. For example between August 2003 and November 2004 the cost of crude oil increased in US dollar terms by 48%. On the contrary the cost of Fuel Oil, one of the main refined products imported by Enemalta to generate electricity, went down by 15% in case of the High Sulphur version and by 4% in case of the low sulphur version.
Dollar depreciation in the meantime means that every Lm1, one gets 17% more US dollars now than one used to get in August 2003. So in Maltese lira terms the Fuel OiI that Enemalta burns to generate electricity is cheaper than it was in August 2003. It is also cheaper though by a lesser margin than the price levels for such fuel oil in Lm terms as at January 2004.
So why on earth are we being fed false information forcing to us accept utility rate increases on the basis of increased acquisition cost of crude oil which we do not import, when in fact the finished refined products we do import are cheaper than they were last year`
The truth, for those who want to know the truth, is that because of EU regulations we are being obliged to burn low sulphur fuel oil which is far less environmentally offensive than high sulphur fuel oil. The problem is that low sulphur fuel oil is about 40% more expensive (approx. US dollars 50 more per metric ton), and this on its own runs up an increased import bill of some Lm7 million more.
Of course I agree we should welcome the use of more environmentally friendly fuel; but we should call a spade a spade and say it costs more and not hide behind the irrelevance of increase in crude oil prices.
Government`s contempt doubles up when one realises that whilst the consumers are being loaded with the expense burden of this environmental measure, the government is lining up its pockets by netting Lm3 million more in 2005 in excise duties on imported petroleum, probably due to he application of excise duty on kerosene or the expected shift of use from kerosene to diesel.
So while we all have to pay surcharges on our utility bills, higher prices on kerosene which saw its subsidy abolished (this was socially atrocious when Labour did it in 1998 only to be reversed by the PN government for political convenience; now it has become socially responsible), and industry is having to pay 50% more for Light Heating Oil apart from additional cost in the utility tariff, government on the other hand is loading on an additional excise tax of Lm3 million. Rather than soften the blow it is actually accentuating it.
Seeing all this misrepresentation, what value can the consumer give to the assurance that the surcharge on utility bill will be removed once oil prices return to normality Prices of imported refined oil products used for electricity generation are already quite normal in Lm terms and the major cost difference is due to the use of more environmentally friendly low sulphur oil. So how, may I ask, can we hope for the abolishment of the utilities surcharges` Certainly we cannot go back to use high sulphur fuel oil!
And if the government truly believes in accountability why not publish the benchmarks costs of the imported products (with specifications of such costs i.e. whether they are spot prices, monthly averages or quarterly averages) and of the applicable US dollar rate vs the Maltese Lira. Only through publication of such information can we hold government accountable to the promise to reduce or remove the surcharges when procurement costs in Lm terms recede.
The Minister responsible for Enemalta was reported as saying that the corporation has no expertise in using hedging techniques for energy imports and other financial derivatives.` If this is so than I regret that for all the expensive new recruitments at senior level Enemalta has lost rather than gained expertise in these sectors. I well remember the period when in 1998 as chairman of Mid-Med Bank I was being consulted on the hedging offers Enemalta was considering, we had concluded deals which eventually rewarded Enemalta not just with certainty of costs but with substantial savings both on the price of imported refined oils as well on its foreign exchange transactions and balance sheet exposures. There certainly seemed to be no lack of such expertise within Enemalta`s ranks at that time.
I appreciate these could be quite complex matters and the Minister can pontificate with impunity when there is no one to correct his misstatements; but that does not mean that we, as citizens and consumers who are being forced to carry the burden of his decisions, are not being treated with utter contempt.
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