The island has issued exploratory drilling licences to various companies over the past 50 years. All this has culminated in just 12 dry wells and the hopes of striking it rich, as has been the case with neighbours like Libya, Sicily and Tunisia, have been dashed. Our neighbours are bankrolling their state coffers with proceeds derived from discovered oil.
Alas, our wells have always turned up dry and it is now a taboo subject and more so prior to an election. It is a paradox for the baby boomers who hoped to win the lottery and retire early when and if oil exploration succeeded in discovering the riches hidden under the seas. So why is the subject being mooted again?
According to Dr Bill Higgs – who heads Mediterranean Oil and Gas, (MOG) a company planning to drill for oil next year – oil and elections do not mix well. In truth, oil and elections were perfectly blended in previous years when high hopes were raised by the Nationalists who engaged an Italian operator (funded under the Italian protocol) to drill onshore in Gozo.
The well proved hopeful but official announcements recorded that the gas found was not in commercial quantities. One is excused for asking but why ask our competitors (Italian oil companies are present both onshore and offshore in the adjacent Ragusa basin) to tell us whether our rock oil deposits are viable? It is like McDonalds engaging Burger King to survey the nutritional quality of their products. It sounds surreal but life on the islands goes on while the tax and spend mentality of the early nineties have gradually accumulated a debt mountain which consists of local bonds issued to institutions and general public on a carousel repayment terms.
This means that we borrow today to service interest and redeem bonds of yesterday. It is true that efforts are being made (as Brussels dictates better governance and tighter budgets) to trim annual deficits just under the 3% glass ceiling; but this policy flies in our face as we must work harder to pay the principal.
For a moment stop and contemplate what we can do if about €250m which now consists of annual interest on bonds can be recycled in the economy. Glory to heaven if for once the dismal pot holes of Tal-Wej in Mosta roads - now in their thirtieth year of ineffective patching – can be redeemed. Surely, no matter what Mosta mayor promised prior to the last election campaign, she went all very silent now when elected and found no funds to build broken roads.
I feel dismayed with her reply when I wrote to her to honour her pledges. But again this is symptomatic of the surreal world in which Net TV proudly announces a multi-million dollar restoration of the Mdina bastions and the surrounding ditches, when we cannot enjoy decent residential roads in Mosta (dusty in summer and ready for tadpoles in winter)! Perhaps this artificial state of economic imbalance reminds one of the cautious words uttered by Josef Bonnici, the Governor of the Central Bank. He warned about the fragile condition of the government finances and the hidden factors which show that the green-eyed monster (inflation) is rearing its ugly head. We all know that inflation is public enemy number one: it erodes competition and makes the feel-good factor currently enjoyed from reading NSO announcements rather short-lived. According to the learned governor (he was previously minister for economic development before being nominated an auditor in Brussels) the real inflation is higher than what meets the eye. This is the Harmonised Index of Consumer Prices (HICP), which regrettably has accelerated in recent months, with the annual rate rising from 1.7% in January to 4.4% in June, before moderating slightly in July.
The HICP index is the instrument used to compare inflation internationally. As a result, the view from abroad is that Malta has the second or third highest inflation in the eurozone. The public debt has also soared to 75% of GDP in the first three months. No doubt part of the debt includes the increase to finance Malta’s share of the European Financial Stability Facility, the bailout fund, and excludes Greece /Ireland bailout guarantees. Knowing that we promised and declared in our Constitution that the 60% maximum debt target is met, it isn’t the right moment to be profligate yet sadly the government in the 2013 budget has hardly any room for fiscal manoeuvre. Bonnici reminds his colleagues in Castille that governments should cut debt during good times, leaving room to reverse the process during recessions. He was responsible for the economy in the good times yet it looks like the kettle is calling the pot black; all the more reason for looking at other ways on how to redress our chronic debt malady. Having lived beyond our means for the past 20 years, and after having proudly sold our family silver (sometimes on the cheap) there is nothing left to pawn. More so rings the cautious note by Dr Jeffrey Pullicino Orlando, (JPO) chairman of the Malta Council for Science and Technology when he told timesofmalta.com that without wanting to denigrate the work done by the Malta Resources Authority in relation to oil exploration, it was pertinent to note that there had only been 12 exploratory wells drilled in the past 50 years in our vast territorial waters. JPO reiterates “If one were to use the activity in the field by neighbouring Italy as a yardstick, we would have to have drilled 400 wells (onshore and offshore) to reach the same density of exploratory activity in the same period in our waters.
“It is obvious that more can be done in the field of oil exploration to make Malta more attractive for oil companies”
Surely discovering oil will throw a glimmer of hope to future generations to be able to redeem the debt burden, which we are bequeathing. But why did we drag our feet in this sector and only drilled 12 wells at a time when our annual deficits kept on increasing? Was it perhaps a political ploy that the island can continue to improve its livings standards based on irregular handouts from Italy and lately from Cohesion funds? The answer was given by JPO when he said:
“It is obvious that more can be done in the field of oil exploration to make Malta more attractive for oil companies. A proper geological survey may be one of them.” Perhaps, again quoting Dr Higgs of MOG, the chances of striking oil have never been better than today. Mediterranean Oil and Gas has an exploration licence for Area 4 to the south of Malta in the zone where the sea border with Libya is not in dispute with Libya after it took ten years to be delineated by the Inter-national Court of Justice. Can you blame MOG for getting excited about the seismic data that has given them strong indications the area may contain anything between 130 million and 300 million barrels of oil. At today’s Brent oil price his could fetch around €20 billion of which say a tax of 40%may render a windfall in the next decade, enough to wipe out accumulated debt which by 2022 may reach €12 billion. It will not make us rich - there will not be chocolate fountains flowing freely in every square but at least it will sustain our profligacy.
To conclude, one cannot be reticent in such difficult financial times. MEP John Attard Montaldo warned us of Mintoff’s caution against the oil curse. Mintoff saw the curse as well as the blessing and according to the MEP, he was happy for it to be available for future generations. Mintoff argued that if Malta discovered oil its independence and freedom would be more difficult to secure and there is a strong probability that workers will go lazy as happened in many oil rich African counties. But the Mintoff saga is over and a new leaf is turned .We pay so much for precious oil, that for years the Arabs have had us over a barrel, quite literally, and forced us to pay through the nose for our energy - could it finally be the right time to spruce up MRA to seek the necessary funds to engage in one-to-one negotiations with oil giants (Exxon, BP, GasProm, Chevron etc), who after paying a signature price seriously invest in professional 3D seismic tests to free us from the bondage that is keeping us away from harvesting our heritage under the blue seas?
[email protected]
The writer is a partner in PKF an audit and business advisory firm