Power surcharge raised to 55%

The electricity surcharge has been raised from 17 per cent to 55 per cent as the government yesterday announced wide-ranging measures to cushion the impact of the spiralling oil prices.

Unleaded and lead replacement petrol prices will increase by 3c a litre, though kerosene and diesel prices will remain unchanged. Petrol prices will now be reviewed monthly and not every quarter.

The government and Enemalta will next year cover Lm31.2 million in fuel costs while the new surcharge rate, the subsequent adjustments and the new excise duty on petrol are expected to raise about Lm33 million from consumers.

"We'd be irresponsible to ignore the reality of the soaring oil prices. We can't be the exception," Prime Minister Lawrence Gonzi told a news conference at Auberge de Castille, as he announced the much-anticipated hikes.

As expected, Opposition Leader Alfred Sant condemned the "shocking" measures, warning they would lead to uncertainty and instability. On the other hand, the social partners described the announcement as a necessary evil, with some evidently having braced themselves for worse news.

The increase in electricity surcharge will come into effect on November 1. A monthly increase of 1.2 per cent in the surcharge will be levied in January and from then on will be reviewed every two months to factor in the current international oil prices.

No changes to VAT or other taxes have been imposed and 13,000 social case families will not pay the surcharge.

Investments Minister Austin Gatt said the government had accepted a request by the Union Haddiema Maghqudin to factor in the inflationary price increases in January's retail price index adjustment. The figure will be announced in the budget on Monday. Moreover, the government will include the full adjustment also for senior citizens to ensure that they are not adversely affected by the increases.

The government and Enemalta have decided to retain the cap introduced last year in favour of heavy consumers in industry and tourism. However, the government believes that the present cap (Lm5,000) should move proportionately in line with the increase in the surcharge which means that it will be increased to Lm21,000.

This means that the maximum effect on the industries in question will be Lm16,000 a year. The cap will be set for the full financial year and will only be reviewed next October to reflect prevailing market conditions and the corresponding surcharge rate.

In order to further assist the manufacturing industry, agriculture and hotels, Enemalta is introducing a new product as a substitute for diesel, namely gasoil 0.2%. The government will be introducing a scheme whereby manufacturing industry, farmers and hotels can claim back from the Finance Ministry 6.3c for every litre of gasoil 0.2% consumed.

Dr Gatt gave out copies of the workings to justify the unpalatable decision.

When the government introduced the 17 per cent fuel surcharge on water and electricity consumption last January, Enemalta was buying fuel oil and gas oil at Lm59.92 and at Lm133.32 per metric ton respectively. Last month, Enemalta paid Lm117.62 per metric ton of fuel oil and Lm215.87 per metric ton of gas oil.

The result of these higher than expected fuel prices was that while the surcharge raised Lm7.7 million, Enemalta under-budgeted its fuel requirements for 2004/05 by Lm6.8 million.

Enemalta, Dr Gatt explained, will take a fresh loan of Lm9.3 million in addition to the Lm8.4 million loan last year. The total financing to be covered by Enemalta will be Lm20.6 million in addition to the current fuel commitments and Lm8.4 million financed through its cash flow as it did last year.

The minister insisted that that any other organisational inefficiency was not being passed on to the consumer but will be absorbed by Enemalta this year as was the case last year.

Dr Gatt said the Malta Resources Authority was preparing a wide-ranging study on the energy generation options available.

Enemalta has also set in motion discussions with key energy players in the region to explore the options of connecting to the European grid and also to connect to a gas pipeline. Dr Gonzi said he believed the government had struck a reasonable balance between the burden on the state, the unions and employers.

The government could have imposed an electricity surcharge of 102 per cent to bridge the gap but it took into consideration the effect on the economy, the country's competitiveness and, above all, the social impact, he said.

The fact that the government was meeting its financial objectives meant that it could absorb a good chunk of the impact.

The government was looking at alternative sources of energy like wind farms but the island's size often made it impossible to invest in them. However, he promised that in the coming budget, the government would be introducing new incentives to encourage consumers to tap feasible alternative energy sources.

Malta and EU minimum excise taxes