Reference is made to David Darmanin’s article in the edition of the 7 September 2008 in your paper (‘As oil prices fall, surcharge remains sky-high’).
The statement is based on an overlying assumption that the June revision of the surcharge rate was based on Enemalta having purchased oil with a hedged rate higher than the current international fuel prices. Specifically, Mr Darmanin wrote that Enemalta is purchasing oil at $121.95 till the end of the year.
This is a completely wrong assumption which misleads your readers.
Though current international crude oil prices are lower than the heights they had reached earlier this year they are nowhere near as low as to create a reasonable expectation for reduced electricity costs since they have gone nowhere near as low as prices already hedged by Enemalta and further subsidised by the Government.
The end of June surcharge revision was based on fuel costs for the period April to June 2008 and the prices used were US$637 for fuel oil and US$993 for gas oil (representing cost of fuel based on stocks and purchase). It was the average price of crude oil for this mentioned period that stood at US$121.95.
The mentioned prices quoted above gave a surcharge rate of 160%. This was reduced to 115% in view of the hedges agreements undertaken by Enemalta Corporation. This was further revised downwards to 95% following a direct Government subsidy to lower the rate for consumers.
The table A gives a snapshot comparison of the July, August and first week of September cost of fuel averages compared with the actual prices used to calculate the surcharge rate at the end of June (covering period April to June).
Therefore, the expectations that the recent decrease in price of crude oil on the international markers should lead to an immediate reduction in the 95% surcharge rate are off target. This is because the 95% surcharge rate was based on the fuel costs for the period of April to June 2008.
Comparing statistics for the April-June costs with the first week of September prices including the dollar rate effect, the following comparative scenario emerges.
The table B gives a clear indication as to the present position of the current oil prices vis-à-vis the surcharge rate.
Enemalta Corporation has practically hedged 100% of its fuel requirements for this year and 50% of its requirements for 2009. These hedging agreements resulted in considerable savings to the local consumer, with Enemalta Corporation netting over US$55 million (when considering hedges carried out both on fuels for electricity generation and those on petrol and diesel) which were transferred in favour of its customers.
So, even at the current oil pricing, Enemalta still made considerable savings with its fuel-hedging measures. One has to point out as well, that consumers cannot expect to pay less because of reduces prices in such volatile market, at least, not unless prices go substantially below the average US$95 negotiated by Enemalta on its hedging agreements.

Roderick Agius
Communications Co-ordinator
Ministry for Infrastructure, Transport and Communications

Editorial Note:
In an email dated 25 August, replying to press questions used for the story entitled “As oil prices fall, surcharge remains sky-high”, the same Roderick Agius claims: “Crude prices influence hedges as Enemalta hedge against crude,” hence the conclusion that the price of crude hedged against does influence the cost Enemalta incurs to generate electricity. This is not an “assumption” as Agius claims. Furthermore, in the same replies the ministry spokesperson said that the average price of crude for the period hedged against was $121.95. In the featured story, in no way does the author imply that Enemalta prices are based on spot prices, but rather makes it clear that the surcharge model is based on Enemalta fuel costs for the previous period, as Agius’ replies had clearly pointed out.