Government corporations in Malta have always been looked upon by the general public – as well as, in certain cases, by industry, business and commerce at large – as benevolent societies, strictly existing to provide a cheap service well below cost, or to provide employment for thousands of workers, even if that means running at a loss. In some cases in the last 35 years, some corporations also served as employment agencies for the political convenience of whichever party was in power.
These entities are, to some extent and very mistakenly, looked upon by all and sundry as a God given right that is there to provide for us all, with most of the expense of running them made good by the government through public funds.
As a prime example we have the Enemalta Corporation, which is presently in the limelight due to the proposed new energy and water tariffs that are being imposed by the Infrastructure, Transport and Communications Minister.
Government is rightly insisting that the cost of generating electricity, which includes the running of the power stations as well as the cost of the total fuel consumption required to produce electric power, is to be paid for in full by the consumer. Government’s present dictum is “the consumer pays” principle and notwithstanding what is being said with reference to social and economic impact assessments to determine such a move, the only way of arriving at a logical and fair price for everyone, without favour, is to carry out a pure accounts exercise in this matter to arrive at the exact electrical unit price per KW/H.
This has to be based on the mean price of crude oil, which has fluctuated between $28 per barrel in 2003 to somewhere near $147 earlier this year. The present price is somewhere around $78 per barrel, with a forecast for the next 12 months of around $95. Cheap oil is a thing of the past, and had the world not been hit by the present financial crisis, the oil producing countries would be actively pressing to maintain its price at $100 per barrel.
In Malta we seem to be obsessed with Environmental Impact Assessments as well as Socio-Economic Assess-ments, both of which are expensive but good ways of determining what and who is going to be affected, to what extent and when. But there are times when we cannot hide behind these studies, due to the realities of the facts of the world and the times in which we are living.
Everyone is prone to bring in the argument of social justice, when some sectors of the population are going to be affected somehow. What is social justice? Social justice is a system in which everyone should get a fair deal, but it does not always work out like that. In effect, social justice means that someone is getting something free at the expense of somebody else, that is, someone is given an advantage while disadvantaging somebody else.
It is a system of two weights and two measures for the same thing and a double-edged sword. The arguments that are being brought forward with reference to the tariff reform are:
1. Some sectors of the population are going to be badly affected financially, and
2. Trade, business, commerce and industry will be effected in such a way that they have to lay off workers due to the increase in their running costs.
The minister has said that last year Enemalta received €68 million from government towards the cost of oil over and above the surcharge paid by consumers. Now we all know that there are some 30,000 low-income families who do not pay the surcharge and that certain industrial concerns and hotels have a capping rate above which they do not pay any surcharge. It has been said that these concerns only pay some €8 per unit, when the price of production by Enemalta is €18 per unit.
Excuse me, but who is finally paying for this shortfall – the shortfall which, last year alone, amounted to €68 million? It is each and every one of us, through the payment of our taxes, who has to make good for this. It is the middle classes who always have to foot the bill. So where does social justice for the middle classes come into all this?
The GRTU is insisting that the capping system should be abolished. The Malta Employers’ Association is painting a picture of doom and gloom if the capping system is terminated. The MHRA is stating that if the capping system is removed, they may have to lay off employees. If the only profits that are being generated by the members of these associations is the difference between the capped price of energy and water for which they have been paying these past three years and the price they will have to pay from 1 October, when the capping system is revoked, then they are running their businesses solely on government handouts – with the excuse that they are providing employment and offering a service to the tourist trade in Malta – and not as profitable businesses. They know very well that if any commercial entity, and this includes government corporations, is run at a loss, year in, year out, that business will become extinct more quickly than the proverbial dinosaur. The unions have their own agenda in trying to protect their members’ pay packets and, finally, the Opposition spokesman for finance is urging the government to give respite to industry and households until the economic situation begins to improve and to create incentives for people to work more in the belief that their extra efforts will not be penalised by more taxes. At the same time, rather than suggesting tangible solutions to achieve what he is recommending, he is criticising the government for being strapped due to the fact that the deficit and public debt in the first eight months have outrun all estimates. Who, for heaven’s sake, is going to pay the boatman? Are we coming or going?
The protection of certain sectors over other sectors, in terms of electricity prices, is not allowed by the EU and the government’s concessions and the capping exercise – although done in good faith to give industry a breathing space due to mounting costs – has been against EU law all along.
Moreover, it has been very clearly recommended to the government by the International Monetary Fund mission, which was in Malta recently, that it finds ways and means of achieving full cost recovery on our fuel bill as soon as possible. The government has obligations and commitments to meet and the large industrial enterprises and hotels that, for the last three years, have been reaping handsome profits through these concessions and the capping system, should have realised long ago that this arrangement was not permanent and they should have planned for its eventual removal during this period.
The writing has been on the wall for a long time that such concessions could not be sustained forever. We have to thank our lucky stars that Malta is a full member of the European Union and that our currency is the euro, which is one of the two strongest currencies in the world today. We would really have been in dire straits, had we remained outside the EU and the eurozone, as was the thinking in 1996/98.
As a rule, a process such as the reform of the energy
tariff has to be viewed from the point of view of a major project.
For a project to succeed, it needs to have a focused and clear mission statement that includes the following components: what needs to be done, when it needs to be done and what measure will be used to evaluate success. On a project such as this, where you have multiple stakeholder groups, viz all the members on the MCESD including the opposition and Government, there is a very strong likelihood, as we have already seen, that each stakeholder group is going to have a specific agenda that they will bring to the discussion or debating table.
It is crucial to get a very consistent view of what your project is intended to accomplish via the use of a clear mission statement and to ensure that the stakeholders understand the mission and are brought into the picture to resolve it. There are always going to be those who resist the project and who do not want to cooperate because it means significant changes to or even elimination of their job or organisation. We witnessed this on TV a few days ago, so it is vital to address these problems early in the mission statement and to identify the concerns of all stakeholders.
Communication is the vital key to such issues and all stakeholders, whether they are the unions (both workers’ as well as employers’), industrial associations, or political parties, etc., should be involved from the very start.
The mission is that government has to run Enemalta in a sustainable commercial manner, eliminating losses and stopping subsidies to both the power supplier and external beneficiaries – subsidies that are being unfairly borne by other consumers or by the taxpayers, thus creating a lopsided social justice conundrum through which we are robbing Peter to pay Paul and at the same time not conforming with our obligations as a nation with EU law.
On the other hand, Enemalta must identify its operational and energy supply inefficiencies, which are not only attributable to transmission and distribution networks, but also to network design, operation and maintenance, as well as to losses due to non-technical issues such as electricity that could not be invoiced and that is mainly lost due to illegal network connections or theft of domestic supply.
The average loss in the electric network in Europe is 7 per cent, compared to the world average of 8.8 per cent. I am positive that inefficiency losses in Malta are way above this average, which makes the Enemalta estimate of €4 million a year way off the mark.
All this, coupled with the very low operating efficiency of the Marsa power station which operates at an average efficiency of only some 23 per cent due to the very old and obsolete power plant fitted there, poses a massive problem for the government to create a fair system of tariffs that places everyone on a level playing field.
The already planned 100MW extension to the Delimara power station, as well as the high voltage submarine cable linking Malta to the euro-grid through Sicily, cannot be installed too soon and the government must start on these projects immediately with assistance from EU grants and possible bond issues to finance them. Alternative power generation through wind turbines, which involves very high capital expenditure and the environmental issue of where to install such a plant, can wait for the moment as time is running out for experimentation.
A good in-house clean-up is required, and a thorough look and revision of our lifestyles is recommended – not only as a result of the current world economic and financial turmoil that we are experiencing and that seems to be here to stay for the foreseeable future, but also because we will have to start paying for whatever we consume in full. Businesses that require or expect subsidies in order to exist are only creating problems for our economy and milking away taxpayers’ money that can be used more profitably elsewhere for the common good of all. European Union rules are very clear on this.
Reno Spiteri is a marine and industrial consultant and is a certificated First Class marine engineer and holds a diploma in Business Administration, majoring in Project and Industrial Management.