an upward adjustment of the price of electricity due to the very high oil prices.
Speaking on Radio 101 yesterday, Parliamentary Secretary Tonio Fenech gave a brief outline of the proposed price hike: this will be based on a mechanism which will tax consumption but also induce people to use less electricity.
Those who do not use too much electricity, Mr Fenech said, will not be taxed unduly by the new price rise.
Oil prices closed at record highs on Friday amid continuing worries over supplies of heating stocks in the US, strong demand in China and unrest in Iraq.
New York light crude closed at $55.17 a barrel in New York, after having hit $55.50 in trading.
In London, Brent crude went as high as $51.65, before closing at $51.22.
Prices are about 80 per cent higher than a year ago, but would need to hit $80 a barrel in order to surpass the all-time 1981 record in inflation-adjusted terms.
Oil prices have gone up more than $10 a barrel since September.
It seem, from Mr Fenech’s words, that the yet to be announced mechanism will be on a rising scale and linked to consumption.
Mr Fenech however warned that the whole country must be far more careful as to the amount of energy it consumed. We see around us, all the time, he said, countless evidence of wasteful use of fuel and energy, especially as regards people leaving air-conditioners on when they do not need it.
Supply worries stem from an oil production fall in the Gulf of Mexico, where output is still down due to damage from Hurricane Ivan in September.
US Energy Information Administration data on Wednesday showed stocks of heating oil and diesel fuel fell for the fifth straight week.
The world’s available oil production capacity is just slightly above one per cent it uses daily, leaving little room in the event of a supply outage.
And further fears of disruption in production in Iraq, Venezuela, Nigeria and Russia continue to influence traders.
China’s increasing appetite for oil imports has also helped push prices higher.
Data on Friday showed economic growth has slowed for a third straight quarter in China as government efforts to rein in booming expansion continue to take hold.
But at 9.1 per cent its pace of expansion remains strong, observers say.
“Demand (for oil) is still quite strong and the outlook will depend on how quickly China’s economy continues to grow,” said analyst Marshall Steeves, from Refco.
If we all consume less, Mr Fenech said, the price of oil, which is market-led, will fall.
Mr Fenech came out strongly against the Opposition arguments that the government should have hedged its purchase of oil. Many, not just the Opposition, argue that it is suicidal for the government to persist in purchasing fuel on the spot market when others are hedging their purchases.
Mr Fenech saw it otherwise. It makes sense to hedge, he said, when oil prices are going up. It does not make sense to hedge when the price of oil is $50 a barrel and when the price may come down.
As an ad hominem example, he added, the price of oil in 1996 was $21 a barrel. By 1998 it came down to $12 a barrel. Had the Labour government done what it today suggest top government, ie hedged oil prices, the resulting loss would have wrecked the country’s economy.
And, when the price of oil was so low compared to today’s, Dr Sant’s government pushed through high electricity and water tariffs that even today’s prices are nowhere near. Dr Sant also introduced a door to door tax and a tax per meter.
Besides, a year ago, no-one predicted that oil prices would rise, in fact all were predicting a decrease in oil prices. In 1999, the newly-elected PN government immediately took steps to reduce the electricity rates brought in by Dr Sant.
This rise in oil prices is impacting negatively on Enemalta and Air Malta. Enemalta has seen its cost base rise by Lm7 million since the beginning of the year and Air Malta has seen its expenditure rise by Lm1.5 million and this may even rise to Lm3.5 million by the end of the year.
As for Enemalta, the Lm7 million loss already made might go up to Lm12 million by year-end. And if oil prices go up to $55 a barrel, Enemalta’s losses for the year could rise to Lm19 million.
The government has already informed MCESD that it intends to take immediate action. The first reaction by MCESD members was to tell the government that Enemalta absorb this price rise but, Mr Fenech added, there is simply no way that Enemalta can assimilate this huge rise.
Alternatively, the oil price rise will have to be paid out of the Consolidated Fund, which would mean increasing taxes.
A caller reminded Mr Fenech about the importance of finding alternative sources of energy, but Mr Fenech said that it is an illusion to think this can amount to much. Even technologically advanced countries are finding that alternative sources of energy do not add more than five per cent of electricity provision.
There are then practical difficulties. Many mention wind farms but is anyone aware of the impact a large area of huge windmills would have on the Maltese landscape and on land use? If they were to be located on a man-made island, that would cost money to build.
There is no quick fix, but the government is actively studying what can be done.
A more efficient method is to curb consumption through building more energy-conscious buildings. With Malta’s weather, it makes no sense to construct buildings with huge windows which then require much air-conditioning. The new government apartments being built at Birkirkara are energy-saving houses, with higher ceilings and smaller windows.