Despite having the third-highest fuel prices in the EU, the government has defended its pricing policy, saying that for the past two years, prices at the pumps were below EU average bar for the recent outbreak of COVID-19.

However, an analysis carried out by Times of Malta shows that from the start of 2019 the price of petrol in Malta was above the EU average for 17 weeks, while this was also the case for the last six weeks for diesel.

What is this policy?

Introduced shortly after the Labour Party was elected to government in 2013, the government’s fuel hedging policy has come under the spotlight as motorists have not benefitted from the historic slump in oil prices caused by the coronavirus pandemic.

Many were left wondering why the price of petrol and diesel in Malta was still at the same level as last August when prices around the world had gone down. According to the latest weekly oil bulletin published by the European Commission, petrol in Malta is 22c higher per litre, while the discrepancy for diesel is 17c.

Under the government’s hedging policy, state energy company Enemed buys large stocks of fuel in advance in order to keep the price locked for months. This strategy was justified on grounds that it guarantees price stability for businesses.

The energy ministry declined to say when the next revision in prices was due

However, critics had warned the policy was risky, akin to taking a gamble. While it offers protection against a sudden spike in fuel prices, with the current exceptional circumstances it would backfire, not allowing consumers to benefit from cheaper fuel.

Ministry says policy has been successful

Contacted by Times of Malta, the energy ministry declined to say when the next revision in prices was due. The last revision took place in August when petrol and diesel were both increased by 5c per litre to €1.41 and €1.28 respectively.

The ministry spokeswoman insisted that for the last 104 weeks, with the exception of “these last couple of weeks (due to COVID-19 impact)” the strategy of stability was successful as fuel prices in Malta were below the EU average.

From an analysis of price fluctuations, based on the weekly oil bulletin published by the European Commission, it transpired that petrol in Malta was above the EU average from the start of 2019 until February 25, by as much as 3c per litre.

Since then, both petrol and diesel were consistently below EU average by as much as 13c and 15c respectively. The gap started narrowing from last summer, albeit remaining below the EU average.

The alarm bells started ringing in mid-February when all of a sudden due to the global drop in demand, fuel prices abroad fell drastically and have been in decline ever since by as much as 22c per litre on petrol.

While one can argue it might only remain like this for a few weeks, it might take months to make up for this ‘loss’ due to the huge discrepancy involved.  

While confirming that fuel consignments were not bought at spot prices (current price) but through hedging agreements, the ministry noted that such deals were made when the market was in ‘backwardation’ – the term used for those periods when the future price was lower than the spot price.

However, the ministry added that at present the market was going in the opposite direction (contango), meaning that future prices were higher than the spot price.

What about utility rates?

Apart from fuels, the government also came under fire from employers and the opposition for its refusal to cut utility rates. According to the Nationalist Party, Malta was losing millions as it was not profiting from the drop in prices of gas (LNG), which is used to generate electricity at the Delimara plants.

This was due to a variety of reasons, including the 18-year power purchase agreement with Electrogas (the consortium which built the new plant) and the involvement of Azerbaijan State energy company SOCAR as an intermediary in the purchase of LNG, the PN said.

LNG price not dependent on crude oil, ministry says

The energy ministry noted that claims that the drop in oil prices would automatically result in a slide in LNG prices were “completely baseless” as this gas was not derived from oil.

The spokeswoman said utility tariffs had been slashed by 25% in 2015 when there had been the conversion from heavy fuel oil to LNG in Malta’s power generation plants. This conversion also meant a fixed price for utility rates for five years, which brought about stability.