A surcharge of deceit

On Wednesday Government will meet business and trade union leaders sitting on the Malta Council for Social and Economic Development (MCESD) to try and justify the government's 17% surcharge on water and electricity bills. Prime Minister Lawrence Gonzi had promised that the tariff rate for water would not be increased. This is not the only issue where the Nationalist Party is going back on its word.

The water and electricity surcharge is just one of the several issues afflicting the middle class. More and more people are feeling that this country needs a change. They are becoming aware that the country is in such a bad state only because of the Nationalist government's mismanagement. Dr Gonzi and his colleagues deceived the people when they told us before the elections that the country's finances were sound.

After the European Commission told them to rein in the public deficit (which they have been insisting, since 1996, it does not exist!) they started imposing one tax after another. This is in fact a surcharge government. One of the definitions of 'surcharge' is "an additional or excessive load or burden". Families, pensioners and businesses are being burdened with more taxation lowering their quality of life and making our country more uncompetitive.

Government-induced costs, including the increase in VAT from 15% to 18%, the water and electricity surcharge, the tax imposed overnight in Fawlty Towers fashion on plastic bags, the exaggerated increase in the price of paraffin, are making it more difficult for families and pensioners to make ends meet and for business to be viable. Workers would not need to give up any of their holidays or make other sacrifices were it not for the country's predicament brought about by the Nationalist government's deceit and bad management.

On Wednesday Minister Austin Gatt is expected to give a power-point presentation on why Government has imposed a 17% surcharge on water and electricity bills. He will undoubtedly quote from a report prepared for him by PricewaterhouseCoopers (PWC) last November.

Anybody who has read this report knows that trying to use it to justify the 17% surcharge is like the emperor trying to hide his nakedness by covering himself with a see-through fig leaf. The ultimate decision to raise prices by 17% was Government's own. Nowhere does the PWC report state by how much the price rise should be, nor how it should be calculated, except to say how much Enemalta lost between 1999 and 2004 and that it could not sustain the losses any further.

PWC were engaged to "identify the effect of fuel prices on the results of the Electricity Division". The information used was: "As set out in this memorandum our review is based on information provided to us by officials of the Ministry and of Enemalta. We have relied on the integrity of this information, without any form of audit, validation or verification both historical and prospective."

The information PWC used was financial results of Enemalta between 1999 and 2002, management accounts by Enemalta (and therefore not audited) for financial years ended September 30, 2003 and 2004, and Enemalta's budget for 2005.

Based on guesstimates

Hence for the period 1999 to 2005, there were four years (1999-2002) of audited accounts, two years (2003-2004) of management accounts, and a budget for 2005. Apart from the four years of audited accounts, no reliance could be really made on the remaining three years because management accounts will inevitably vary from the true financial results (especially for a government corporation), whereas Enemalta's budget for 2005 was grossly overstated by Lm6.5 million. Therefore, much of the calculations found in the PWC report are guesstimates by Enemalta, especially for the budget of 2005.

PWC commented on the incorrectness of Enemalta's 2005 budget figures in paras 16 and 17 when they compared fuel prices quoted by the internationally known Platts, as against Enemalta's higher figures. PWC then quantified the discrepancy as Lm6.5 million in Enemalta's 2005 budget when in they remarked: "The corporation's latest estimates indicate, as explained in paragraph 33, that the incremental fuel cost detailed above could decrease by some Lm6.5 million."

PWC were not asked to verify the figures produced by Enemalta (and PWC's own report confirms that in what they were able to investigate, Enemalta over stated its budgeted loss for 2005 by Lm6.5 million) and they came to their conclusions on the basis of figures that Government knows cannot but be faulty.

On such an important issue that affects the social fabric of the whole population, the government therefore took its decision to raise water and electricity costs to consumers by 17% without basing it on real facts and figures.

Why, one may ask, are the accounts of Enemalta for the financial year that ended September 30, 2003, not yet completed and audited? Government used two years (2003/2004) of unaudited guesstimates for 2005 (proved grossly inflated by PWC) and instructed PWC to extract Enemalta's losses from 1999 so as to be passed on to consumers.

Throughout the report, PWC state that their exercise was to arrive at the losses by Enemalta from 1999, and this is spelt out in para 26: "Quantifying the effect of incremental fuel prices. As stated earlier, the main scope of our exercise is to quantify the effect of increasing fuel prices on the financial results of the Electricity Division to the extent to which they have not been absorbed by adjustments in tariffs. The last revision to the electricity tariffs was effected in 1999. The Division's fuel costs in 2004 increased by Lm21.5 million when compared to 1999."

And again: "Excluding volume changes, management has budgeted fuel procurement costs to total Lm30.7 million more in 2005 than in 1999, when electricity tariffs were last changed."

These paragraphs all go to show that Government's terms of reference to PWC (although not explicitly stated in PWC report) was to reaffirm the price differences in fuel costs from 1999 to 2004/5. In effect, the whole exercise can be described as a smoke screen because government wanted to recoup these losses all in one go on the pretext of rising fuel prices

In essence, what Prime Minister Gonzi said in August 2004, that (a) only electricity rates would be increased and (b) only raised over and above the international fuel prices prevailing in August 2004, was nothing less than a deception. Not only did the government not apply any fuel adjustment to the August 2004 prices, but instead imposed the 17% surcharge with the purpose of recovering Enemalta's losses from 1999 to date, and then also placed the surcharge on water consumption too.

evaristbartol@hotmail.com