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Investments Minister Austin Gatt has finally come round to answering the questions put to him by this newspaper last week. The answers, published hereunder in an unedited form, were received yesterday afternoon (after the letters pages had already been sent to print).
Even though the Minister says he never linked Brent crude oil with Enemalta’s incremental fuel costs, the reality is that in various public occasions both Minister Gatt and the Prime Minister always quoted the price of Brent crude oil to justify utility price hikes.
The questions and answers:
MaltaToday: In quoting the price of fuel oil (Platt's Mediterranean), the Ministry failed to take into consideration the favourable exchange rate of the dollar to the Maltese Lira. Data clearly shows that the price of both LSFO and HSFO in Maltese Liri has not fluctuated wildly in 2004.
Indeed there were instances in the not too distant past when both types of fuel oils were more expensive. How can the Ministry justify the surcharge by linking it to the international price of Brent Crude Oil?
Minister Austin Gatt: The Ministry never linked the Brent with the incremental fuel costs. The PWC report and the MCESD presentation were extremely clear on this and quoted exclusively in Maltese Liri. The fuel surcharge is a mechanism that aims to establish a partial recovery of the incremental fuel costs in 2005 over 2004 but at the same time establishes the return to a zero surcharge at a baseline establishing the extrapolated cost of fuel in 1999.
MaltaToday: The Pricewaterhouse Coopers report published by the ministry shows that the Electricity Division's fuel bill will be down by more than Lm2 million for 2004 when compared to 2003. Given these circumstances why did the Minister persist in linking what are supposed to be Enemalta's additional losses for 2004 and 2005 to the electricity and water surcharge?
Minister: You are not only missing the fundamental point of the exercise but also failing to mention that in January 2004 this Ministry presented estimates in Parliament showing that in 2004 we would spend less than in 2003. The last time the tariffs were adjusted (downwards) was in 1999. The fact that the starting point of any price revision exercise is the snapshot of the last time the prices were revised is elementary. Throughout the years Enemalta kept incurring increasingly substantial fuel costs for its electricity generations. This is the base on the basis of which the comparisons can be made. Your continual reference to the 2004-2005 comparison are largely misleading and do not picture the material situation of the Corporation simply because the projected fuel increase in 2005 is additional to that of the 1999-2004 period.
MaltaToday: The PWHC report talks of an additional loss of Lm6 million for Enemalta in 2005 from higher fuel prices. Why has Government insisted in quoting Lm16 million instead, which is the loss in 2005 since 1999?
Minister: Firstly, it is not a loss but additional payments to buy fuel! Secondly, You seem to keep persisting on the 2004-2005 comparison. The PWC report is extremely clear that the incremental cost needs to be considered since the last revision in tariffs. The difference in this sense is that Government did not try to address the full losses of Enemalta through the fuel surcharge but merely part of the differential losses incurred as a direct impact of the incremental fuel costs between 1999 and the future.
MaltaToday: Is the surcharge aimed at recouping Enemalta's losses since 1999 when utility prices were reviewed downwards?
Minister: All the losses and incremental fuel costs of the Electricity Division up to 2004 were absorbed by Enemalta. In 2004 alone, these amounted to nearly Lm 19 million. From 1999 to 2004 the losses of the Electricity Division amounted to nearly Lm 60 million. What the fuel surcharge is aimed at is to recover 48 per cent of the incremental fuel costs (ie 16.1 million) over and above the baseline of 31.6 million established. The other 52 per cent will be absorbed by Enemalta. In fact the projected losses for the Electricity Division for 2005 (even after taking into account the revenue from the fuel surcharge) are estimated at Lm 15.7 million. This dissolves your argument that Government has tried to recoup the operational inefficiencies from the fuel surcharge. It is important to re-iterate that the incremental fuel cost does not include the operational losses which Enemalta incurs due to inefficiencies. This is more than clear in the PWC report, which for some reason unknown to us, you keep ignoring.
MaltaToday: In the brief given to PWHC, why did the Minister not ask PWHC to audit and verify the information and data handed to it by the Ministry and Enemalta?
Minister: You should be aware that PWC are the auditors of Enemalta. All the information given and the exercises carried out by PWC are based on the audited accounts of Enemalta, which are carried out by PWC themselves.
MaltaToday: For the past year, from where has Enemalta imported its fuel oil and at what price?
Minister: Enemalta has secured various contracts during the past years:
(a) HSFO - 30/09/03 to 31/12/04 from NOC FOB Low +$3.00 Delivery FOB;
(b) MSFO - 30/09/03 to 31/03/04 from Enel CIF High -$2.25 Delivery CIF;
(c) LSFO - 01/01/04 to 30/06/04 from Trafigura CIF Mean -$0.50 Delivery CIF; and (d) 01/07/04 to date from Trafigura CIF Mean -$1.50 Delivery CIF
MaltaToday: Who are Enemalta's procurement agents?
Minister: Enemalta does not use procurement agents.
MaltaToday: Why has Government now decided to set up a technical team composed of people outside Enemalta to advise on the purchase of oil products for the public Corporation?
Minister: The Ministry believes that fuel procurement is not a political matter which should be decided upon by politicians, but it is a purely technical and financial matter which needs to be decided upon by experts. The decision to set up a technical Advisory Committee has been taken and is intended to ensure that Enemalta makes use of the best financial instruments available. Moreover, the committee will also be composed of CBM representatives to integrate advise with regards to currency-related strategies. However, it has to be stressed that this is no panacea and gives no guarantees!
MaltaToday: Is Government satisfied with the way Enemalta bought its oil requirements on the international market over recent years?
Minister: This is a subjective question. If there was one single formula through which one could procure oil unmistakably and invariably at the best prices available the world over, all countries, corporations, oil companies and investors would apply it. One needs to be realistic and needs to try to get to terms with reality. What the Ministry is sure about is that whoever was involved in the fuel procurement of Enemalta - year in, year out - has tried to take the decisions in the interest of Enemalta and the general public. Being selective armchair critics of commercial decisions is the easiest thing to do. Sitting in the hot seat and taking them is another.
MaltaToday: Over the last five years has Enemalta entered into any hedging agreements to purchase its oil products?
Minister: Enemalta has not bought forward fuel oil or gas oil for the Power station. An option was purchased before the Iraq war for a 3 month period to protect against price increases.
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