The government said yesterday that Enemalta Corporation has recommended to the Malta Resources Authority that the fuel surcharge on electricity and water should be 50 per cent for the period 1 August to the end of September. This increase includes the 1.21 per cent monthly adjustment as the temporary monthly subsidy to ease the surcharge paid from duty added temporarily on petrol sold at the pumps, is reduced.

The rise covers only a small part of the cost to Enemalta to pay for the oil it buys on international markets and which, over the last three months, has risen considerably.

Various factors were given by market analysts as the causes for the increases. They include :

1. Higher speculation in the oil markets that exploit the opportunities of volatile prices;

2. A sustained higher demand for the product with higher consumption in fastly-developing economies;

3. Recent troubles in Nigeria, the largest oil producer in Africa and

4. Lower refined oil production at the refineries, which are not keeping up with world demand.

Over this period, the prices of fuel oil had gone up from $311 per ton to $411, which is the highest price in international markets in the last four years.

On the basis of these prices, the surcharge rate should go up to 75 per cent (excluding the positive effect of Enemalta hedging, and the subsidy element on petrol for the coming two months) to cover the full rise in Malta’s oil costs over the last two months. But the government feels that such an increase would be too much on the Maltese economy so the decision has been taken that a large part of this increase – 25 per cent – would be absorbed by Enemalta and the government.

The elements which, over the coming two months, will achieve the difference between the surcharge that should be charged, and the surcharge being recommended by the corporation are:

1. Some hedging made over the past months which led to a gain of two per cent;

2. The sale of all hedges presently held by the corporation, which translate into a once only income for the corporation of about Lm1 million, and mean a reduction of 12.5 per cent in the surcharge rate and

3. Another Lm1 million subsidy by the government, amounting to another reduction of 12.5 per cent in the surcharge rate.

It was also worth mentioning the subsidy element paid from the temporary duty on petrol which, over the next two months, amounts to another 3.5 per cent cut in the surcharge.

If all these factors were eliminated, the surcharge rate would be 80.5 per cent.

Apart from this, Enemalta will be investing in a number of new hedges that will cost some $2.2 million to hedge against other increases in international oil prices in the coming months.

The purchase of the new hedges will be fully paid by the government so that there will be no impact on the prices paid by consumers.

In all, over the coming two months, the government will be spending Lm1.7 million in subsidy to reduce the impact on the economy and families of the rise in international oil prices. This was apart from the amount that Enemalta had absorbed and will continue to absorb.

The government said these subsidies were responsible and something the country could carry. They were conscious decisions to help the economy and livelihood of families. It should be clear that the measures were possible because the country’s finances were sound and could make this contribution without harming national finances.

This was in contrast to the superficial slogans of the Opposition which was making promises that ignored reality. Such as that the surcharge would be cut by half without saying half of what, how much such a measure would cost, and what would pay for it.