NEWS | Wednesday, 12 December 2007

Decision to retain surcharge rate for next seven months dismissed

Charlot Zahra

Last Thursday, Investments and IT Minister Austin Gatt announced that the surcharge rate would remain at 50 per cent from December till June after the government had resorted to forward buying of fuel oil in order to have set fuel prices in a volatile oil market which had peaked at more than USD 100 some time ago.
This strategy had previously been shunned by the Nationalist Government, arguing that forward buying of fuels was too risky in the current situation where prices varied wildly on a daily basis.
As a result of this strategy, Government’s contribution for the fuel surcharge will go down from 47 per cent to 40 per cent, while At current fuel oil prices, the total subsidy will have to reach between Lm18 to Lm20 million next year.
Labour Deputy leader for parliamentary affairs and the party’s main spokesperson for finance and the economy, Charles Mangion told BusinessToday: “The government’s move to revise the fuel surcharge rates every seven months, rather than every two, is no more than a politically convenient u-turn. They did not require a degree in rocket science to realise that frequent changes in surcharge levels were causing uncertainty.
“At least now with revisions every seven months consumers and industrialists can plan ahead in a more stable economic environment. Even so, this move has come too late in the day and it will take a long time to win back the confidence of the consumers,” Mangion lamented.
He said this change of policy also justified the MLP’s claims that the surcharge system, as operated by the Nationalist Government, was affecting negatively the economy. “The political opportunism of this government on the eve of a general election, is merely aimed to deceive the electorate with short-term morale boosting measures, only to be rudely waken up to a hard hitting reality when the elections are over.
“We have been here before. Weren’t Maltese families promised that the county’s finances were in pair of safe hands in the pre 2003 elections, only to be inundated with a deluge of taxes just after the elections?” Mangion insisted.
Asked whether Government’s decision to change its policy with regards to the forward buying of fuels after three years was a political u-turn or whether there were technical reasons behind this decision, Mangion said: “Hedging and forward buying of commodities are important tools which no sensible government will discard from its armoury to stabilise prices in the short and medium term and to promote economic growth. It was therefore silly for successive Nationalist administrations to disregard these tools for so long.
“We all remember how Minister Austin Gatt and Prime Minister Gonzi rubbished the Labour Party’s insistence that every possible tool, including hedging and forward buying of oil, should be used to stabilise prices.
“The Prime Minister was particularly politically irresponsible when he categorically stated in 2004 that the use of hedging in the purchase of fuels would lead to a greater loss for Malta,” Mangion said.
“It is indeed sad and shameful that various PN administrations, who love to pose as competent managers of the economy, treat the electorate as if they were just gullible morons incapable of understanding how they were deceived by dogmatic statements which then proved to be no more than expensive blunders.
“The cost and the pain of these policy blunders were of course not borne by the Prime Minister or his cabinet, but by hard working Maltese families who have seen their quality of life deteriorate steadily under the sheer burden of taxes since Gonzi has taken over the stewardship of this country,” Mangion told BusinessToday.
Asked for his reaction to the Government’s claim that it has now “reduced” the fuel surcharge by half as the Labour Party had been promising, Mangion said: “The Labour Party’s pledge to reduce the amount of surcharge being paid by consumers by 50 per cent stands. This is a pledge that we will honour, and there will be no u-turns on this”.
Quizzed whether in view of this development, the MLP would still insist on its electoral pledge to reduce the fuel surcharge by half or not, the Labour deputy leader reiterated the party’s position on the matter.
“As I said earlier, our pledge to Maltese families remains unchanged. The fact that the Nationalist Party is slowly back tracking on its policy on this issue, even if it is doing so in small steps, proves how justified the Labour Party was when it promised this measure.
“I reiterate that our proposal on the reduction of surcharge is the best way to restore the purchasing power of families who have seen their spending power eroded by an ever increasing tax burden,” Mangion told BusinessToday.
Asked whether he thought that it was financially feasible for the Government to continue subsidising the electricity surcharge to the tune of Lm20-Lm22 million a year, as the latest 4page 15
Government projections showed or not, Mangion explained that this measure should not be seen in isolation but “we need to think outside the box and see the big picture. We believe that the reduction in surcharge will bring about higher economic growth as the consumers will spend more and inject more money in the economy.
“Through the multiplier effect, this simple fact will result in a claw back in government revenue thereby offsetting part of the initial cost of introducing this measure.
“We also believe that this measure will incentivise people, especially in the middle and lower income brackets, to work more, and improve their standard of living. When this optimism returns in our families, even the export oriented sector of our economy will benefit,” Mangion told BusinessToday.
On its part, Alternattiva Demorkatika (AD) has encouraged government to change the present surcharge mechanism which it described as “calculator politics”. The party is instead proposing a system by which the rate of surcharge will vary according to usage and efficiency. AD is insisting that their proposal, unlike Labour’s, was cost neutral to government and therefore affordable.
AD explained that government and opposition were both wrong on the way the increasing cost of energy is being tackled.
According to party Chairperson Harry Vassallo, who spoke during a press conference on the subject a few weeks ago, “Government has yet not understood the polluter pays principle and insists on charging a uniform rate of surcharge. Although this system is designed to recover the increasing cost of fuel, by applying one rate of surcharge it that does not act sufficiently as an inducement to get people to be more efficient.
“On the other hand we are faced with Labour’s economically unaffordable and environmentally-irresponsible ‘bulk discount’ of 50 per cent. This proposal goes contrary to the polluter-pays principle and will unfairly subsidise the heaviest users using taxes paid by those who are making an effort to be energy efficient.”
AD’s spokesperson on the Environment and Energy Ralph Cassar explained: “what we have proposed in this budget is the introduction of a mechanism that applies not one rate of surcharge across the board, but instead a system with different rates of surcharge that will be applied according to the rate of consumption per person in each household.
“With this system those families making an effort to be energy efficient will be rewarded by a lower rate of surcharge. On the other hand, those families that are clearly not making an effort to be energy efficient will be subject to a higher rate of surcharge than is presently applied. In this manner the heavy users will subsidise the efficient users.
“Our proposal is a refinement of the polluter pays principle, and we encourage government to adopt it, particularly since our proposal is cost neutral. Government should bury its pride on this matter and implement our proposal,” he insisted.
Vassallo added: What we are proposing is simple, workable, effective and cost neutral. It is a measure to alleviate financial burdens on those who are truly making an effort. We also must remark that it is very disappointing that government has no medium to long- term plan how to deal with the energy crisis affecting the whole globe.
“There is virtually no talk about serious investment alternative energy and even less talk about increasing efficiency of our power plants and measures to help families and businesses to install energy efficient devices.
“Government is simply shifting the burden onto the consumer without considering what needs to be done to tackle this very serious issue. It seems that only with the Greens in parliament will the energy issue be given due importance.
“This is a commitment we will take in order to tackle the issue short -term by addressing the need to have a differentiated surcharge and medium term by embarking on a serious program to invest in renewable sources of energy.”
On his part, far-right party Azzjoni Nazzjonali (AN) president Charles Attard described the Government’s decision to change its policy about the revision of the fuel surcharge rates as “definitely a pre-election measure.
“The computation of fuel-surcharge was originally intended to subsidize (or part-subsidize) the energy costs but it is evident that citizens and corporate bodies do not afford to pay this surcharge.
“The waiver of the computation for a seven-month period has not been explained so far, neither its modus operandi nor its sustainability,” Attard warned.
Asked whether he thought that the Government’s decision to change its policy with regards to the forward buying of fuels after three years was a political u-turn as the Opposition was claiming or whether there were technical reasons behind this decision,
Attard said cryptically: The government is taking many u-turns recently, but very often u-turns signify maturity and taking a u-turn is, at times, considered as an act of responsibility.”
Questioned to explain AN’s proposals about the fuel surcharge, Attard said: “Burdens are to be shared but this is not all. Azzjoni Nazzjonali feels that the government is doing nothing with regards to Natural Energy Policy. Azzjoni Nazzjonali will be publishing its policy soon,” he said cryptically.
Asked whether it was 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, Attard told BusinessToday: “The word ‘subsidising’ sounds jarring but in actual fact our citizens are not interested what the EU says about subsidizing; they just cannot afford to pay!
“Citizens expect the government to spend less on pampering our ministers and newly appointed bodies/ authorities/ committees; to cut the excessive advertising on the budget 2007 making it a political issue as well as a propagandistic instrument; to control effectively the expenses and consequently to be able to subsidize energy inflations,” Attard insisted.
On his part, economist Edward Scicluna told BusinessToday that the Ministry for Investments and Information Technology should not have involved itself so much directly in a decision which should effectively be left to the technocrats, now that Malta is an EU member.
“What is really odd with your four valid questions concerning the surcharge rate, including its subsidisation and its periodic revision, and the use of forward buying is the mention of government (ie the Ministry) in all the questions. It is obvious that government has obfuscated its clearly demarcated role which it promised to abide by as members of the EU.
“Government, as the sole shareholder of the energy corporation has every right to change its Board of Directors from time to time, and also to decide, if it feels the necessary, to subsidise the tariff to a certain degree. But its central role should then stop there.
“It was the function of the energy regulator to approve or otherwise the tariff increase, which we now call the surcharge. It was its role to demand how often the energy utility tariff should be revised.
“Even though energy prices are changing continuously on the international market in real time, it does not make sense to create consumer and producer pricing instability by frequent tariff changes.
“Once these parameters are clearly set and made public by the MRA, the onus would then be set on the operator, that is, Enemalta to use its most efficient purchasing strategies, including forward buying, to respect the regulators decision and avoid any losses. Its role is to be economically and financially viable, and not to act as a charitable institution.
“In our current debate in parliament and in the papers we have completely messed up all these clearly demarcated roles.
“Personally I believe Enemalta has a capable board and management team which could do a good job, only if left to carry on with their business without interference. On the other hand the MRA should be strenghtened and be given a powerful and authoritative voice, which at the moment it doesn’t seem to have,” Scicluna told BusinessToday.

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