NEWS | Wednesday, 12 December 2007

Investments Ministry: Government’s policy on surcharge revision ‘not set in stone’

Charlot Zahra

The Government has denied any suggestions of a u-turn for political convenience in its decision to change its policy about the revision of the surcharge rates after three years from once every two months to a seven-month revision period.
Asked by BusinessToday about the reasons that led the Government to change its policy about the matter, a spokesperson for the Ministry for Investments and IT said that “the policy on periodical revision of the surcharge rate has never been cast in stone. It was first set when the surcharge was introduced in 2005 and has since been revised to adapt to rapidly changing circumstances.
“The advantage of frequent revisions is to allow adjustments made to the surcharge to follow closely the changing behaviour of the market and the impact that has on the price of oil.
“However the disadvantage of this system is that the more frequently revisions are made the more difficult it is for industry and tourism establishments to forecast their expenditure and set their prices for products sold in coming seasons.
“The current procurement contracts fixed by Enemalta for the coming few months have afforded the company visibility on its expected expenditure and placed it in a better position to afford to undertake with consumers a price visibility for the coming six months,” the spokesperson told this newspaper.
Quizzed as to the reasons for that led the Government to also change its policy with regards to the forward buying of fuels after three years, the spokesperson for the Ministry said: “Your impression is completely mistaken. There has been no shift in policy on the procurement of fuels in any shape or form.
“Hedging, collars and other financial instruments in the procurement of oil for the generation of electricity has been in constant use since April 2005 and periodically before that. Hedging on the value of currency exchange has been constantly entered into by Enemalta from even before that.
“This has been consistent with our policy instructions to Enemalta to purchase oil with prudence but resorting to all financial instruments available to it to procure oil for the cheapest possible price,” he told BusinessToday.

Asked whether this decision was a political u-turn as the Opposition was claiming or were there technical reasons behind it and the reasons why, the spokesperson for the Ministry said: “As my previous reply explains, whatever the Opposition may be alleging, there has been no change in positions, in policies or in methods of procurement of oil.
“Certainly not since April 2005 so December 2007 would be an odd time for either the Opposition or your newspaper to enquire about changes in policies, let alone u-turns,” he said curtly.
Asked to identify the Ministry’s technical advisers in this respect, the Ministry’s spokesperson said emphatically: “Enemalta procures oil, not the Ministry. The Ministry does not employ experts in procurement of fuel from the international markets. This is a highly specialised business that requires highly specialised expertise.
“However the Ministry did appoint a Fuel Procurement Advisory Committee to advise the Board of Enemalta on its policies for procuring fuel. That Board is chaired by Roderick Chalmers and includes Saviour Briffa, Joe Falzon, Godwin Debono and Gordon Cordina.
“It was appointed in November 2005 and was indeed a successor committee to another advisory committed appointed months earlier by Minister Gatt. Incidentally, I should point out that the Opposition neglected its duty towards such an important subject, when Joe Mizzi refused to appoint an expert on the said committee.
“At any rate, their recommendations were published by the Ministry and tabled in Parliament by Minister Gatt. Those recommendations had explicitly included the prudent use of financial instruments for procuring oil and at the publication of those recommendations Minister Gatt had publicly and in Parliament announced those recommendations to have been adopted by the Government as policy. All this can be verified in the public record and from the website of Parliament,” the spokesperson explained.
Asked what were the recommendations given to the Ministry by the technical advisers and when these recommendations were made, the MIIT spokesperson told BusinessToday: “The recommendations by the Fuel Procurement Advisory Committee are in the public domain and readily available. They were tabled in Parliament and endorsed as adopted policy of the Government and as such a policy direction to Enemalta following the conclusion of the report of the FPAC appointed in November 2005.”
Asked to give a breakdown of how much the government is estimating to spend in subsidy for fuel oil next year, how much it will be estimating to save as a result of forward buying, and much of the cost will be borne by the consumer, the Ministry’s spokesperson explained that only the prices up to November 2007 are known.
Taking into account therefore known prices and projecting costs with three different and possible scenarios of the price of crude oil, the impact during the current financial year ending in September 2008 would be as follows (see Graph 1)
The Ministry spokesperson added that apart from the Lm23 million the Government expected to pay in subsidies to compensate for the surcharge, another Lm9.5 million in subsidies have been budgeted to reduce the price of electricity to consumers.
Asked to give a breakdown of how much subsidy was paid by the Government for fuel oil and how much was paid by the consumer since the surcharge was introduced in 2005, the Ministry’s spokesperson explained that the total amount of surcharge until the end of September this year was Lm86.6 million, with the Government subsiding Lm42.1 million and the consumer forking out the remaining Lm58.6 million. The following is a breakdown year-by-year of how the burden was apportioned between the consumer and the Government (see Graph 2)
Asked whether it was still financially feasible for the Government to continue subsidising the electricity surcharge to the tune of Lm20-Lm22 million a year, as the latest Government projections showed, or not, and the reasons why, the Ministry spokesperson said: “It would of course be more desirable had there been no increase in the international price of oil. Certainly there are many other ways these moneys can be spent.
“However the country’s finances are in a sufficiently stable position to reduce the burden on consumers of this international reality while still reigning in public expenditure and being now rather close to a balanced budget.
“Our policies to subsidise electricity are transparent and quantifiable and undertaken with responsibility and with a proven balanced impact on public finances. This is in contrast with the wildly under-estimated and erratically vague promises being made by the Opposition that you may also wish to query with the appropriate rigour that a party proposing to run the country on the basis of irresponsible promises should expect from the press,” he said curtly.

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