Subsidising the electricity tariffs

One of the prime arguments made against subsidising the utility

tariffs is that taxpayers' money should not be wasted on subsidising the market price of oil but, alternatively, should be invested productively elsewhere.

For one thing it is good to question whether the tariffs really reflect the market price of oil. When the new tariffs' structure came into being in October 2008 we were told that the rates had to be increased accordingly because the market price of crude oil was hovering at about $147 per barrel. Now that the price of crude oil stands at about $86 per barrel, the utility tariffs implemented in January 2010 are back to what they were in October 2008.

The technical report commissioned by the trade unions proves this and, so far, no one has contradicted this. This clearly demonstrates that the electricity tariffs are way over-priced and do not reflect the prevailing market price of crude oil. They will definitely fuel inflation to the detriment of the competitiveness of our industry and damage the tourism sector and consumers at large. A rise in inflation will also have a domino effect on the cost of living adjustment (COLA) and this could, in turn, trigger a wage-price spiral that risks prolonging the recession.

There is also a solid case of why the government should continue to subsidise the electricity tariffs.

Malta, unlike other countries, is still fully dependent on fossil fuels, particularly heavy fuel oil, to generate its electricity needs. To compound matters further, our power plants, especially the one in Marsa, are very old and inefficient.

Some may argue that the price of oil has increased for everybody and, therefore, the status quo has been maintained. The reality is totally different. For one thing, those countries that have modern power stations, even if they run on heavy fuel oil, are producing electricity much more efficiently and cost-effectively when compared to the situation in Malta. This is the same as comparing the efficiency of a 20-year-old car to a modern one, the latter obviously giving more miles to the gallon.

Secondly, and unfortunately, while the energy sector in Malta was neglected, other countries, such as Germany and Norway (even though this country is a leading oil producer), saw the writing on the wall. These countries anticipated that the price of oil was bound to rise with the expansion of the Asian economies, particularly that of India and China, and they wisely invested along the years in green technology to generate their power needs. They now have a competitive advantage over other countries, such as Malta, which did not invest in this technology at the right time.

Therefore, if we are to ensure that our exports and services remain competitive in the global economy the government must continue to subsidise the electricity tariffs until such time that the new green technology investment by private industry and the government, through Enemalta, is put into place.

This is why it made a lot of sense when all social partners suggested to the government to raise the tariffs incrementally over a period of time so as to give industry a chance to invest in green technology and remain competitive. Instead, the government shocked industry and consumers alike.

It is such decisions and not peaceful protests that negatively affect potential investment! Today, countries such as the UK, which, up to a decade ago or so, boasted of a vibrant manufacturing sector, are cursing themselves for not having done as much to protect this sector and, instead, pursued a speculative economic model rather than a model based on the real economy.

It is not too late for the government to revise its decision and strike a deal with all the social partners at the Malta Council for Economic and Social Development. Subsidising the electricity tariffs and giving some breathing space for industry to invest in green technology should be considered by the government as an investment to protect industry, tourism and jobs. Other tangible benefits will come in the form of reduced dependency on fossil fuels and our carbon footprint. That will be a win-win situation!

Mr Carachi is president of the General Workers' Union