Facing mutiny from the private sector and social partners alike, Infrastructure Minister Austin Gatt challenges anyone to come up with an alternative to the €55 million Enemalta subsidy without raising tariffs

At face value, Austin Gatt’s doctrine couldn’t be simpler: it is not the government’s business to subsidise the energy consumption bill. Someone ultimately has to pay for the €55 million hole in Enemalta’s coffers if subsidies are removed. What remains to be seen is whether his government will succeed in its attempt to pass this cost onto the consumer.
“The money has to come from somewhere. If we do not pay for this shortfall from raising tariffs, we will have no choice but to increase taxes. This idea that government’s money is not the people’s money is false.”
To (literally) press the point home, Austin Gatt has no qualms in revealing that his own household consumes an astounding 17,000 units of energy consumption per year... making the point that everyone has to pay for what he consumes.
Surely Gatt will not be benefiting from the eco-reduction mechanism through which the government will subsidise households consuming 1,300 units of energy per person in consumption per year.
Still, his personal example shows that anyone who can’t bear the summer heat without resorting to air-conditioning will have to pay dearly.
“I have many air-conditioners. This is what makes my bill more expensive. Otherwise, I only have one washing machine, a freezer and fridge and two televisions.”
Prof. Edward Mallia claimed that the 1,300 units per year threshold is practically unachievable. Even the frugal Mallia household, which relies on photo-voltaics for 10% of its energy needs, consumes 2,000 units of energy – 600 units less than the government ceiling.
But Gatt disputes Mallia’s claim, insisting that unlike himself most Maltese families are frugal and would qualify for this benefit.
“We did not invent this figure. From every 190,000 households in Malta, 109,000 use less than 1,300 units. This means that 109,000 households already qualify for this incentive. One cannot dispute numbers. Perhaps they are more efficient in their energy use than Prof. Mallia.”
Still irrespective of the eco-reduction benefit Maltese households will end up paying more for their bills.
And judging by statistics quoted by Gatt, his own household’s energy consumption is an anomaly.
“We are one of the least users of energy in Europe. The average consumption in Malta is around 1,500 to 1,600 units of energy. In France the average consumption amounts to 2,300 units of energy.”
But Malta also uses far less alternative energy than most European countries. I remind Gatt that before the election the government promised to embark on the installation of wind farms in deep water. Are we still on track?
Gatt is quick to point out that he is not responsible for this project.
“I think we are still on track. But I have to say that nobody yet has told me how much this will cost. I think that irrespective of the cost the country needs this investment. But probably it will be more expensive than conventional energy, and people will have to pay for it.”
Perversely, Gatt has camouflaged his argument for a shock price hike in energy bills appealing to everyone’s sense of social justice.
“What is socially unjust is that last year the government had to fork out €55 million to subsidise Enemalta directly. This is a hole financed by the taxes of the people.”
Using impeccable logic, the Minister divides the € 55 million subsidy between the 250,000 clients billed by Enemalta and concludes that everyone was benefiting from an invisible subsidy of €200, irrespective of income differences and energy consumption levels.
“This means that someone on the minimum wage was saving as much money as someone on a top salary. This is socially unjust… It is unfair someone like me who lives in a big house fully serviced with air-conditioning was enjoying the same benefit as someone living in three rooms. This is not fair.”
Still, the virtual €200 which nobody has seen in his or her pocket pales into insignificance when compared to estimates presented by the Union Haddiema Maqghudin and sister paper Illum which show water and electricity tariffs increasing by €178 for a one-person household to a maximum of €500 a year for a five-person household.
“I am not denying that there will be a shock. I am simply arguing that these extra €200 per person must come from somewhere…When presenting the budget Tonio Fenech has to explain how to pay these €55 million. What are we exactly asking for? Shouldn’t we pay for these €55 million?”
Austin Gatt is even surprised that nobody seems to be agreeing with him.
“I cannot understand why nobody is agreeing with me on this. I am not saying that there won’t be a shock. Of course there will be a shock but we have no choice but to recover this money.”
But why apply this logic now, when for the whole period between August 2007 and July 2008 the surcharge was kept at a subsidised rate of 50% even if the actual surcharge fluctuated between 54% to over 100%? Wasn’t the government itself digging this financial hole before the election?
Austin Gatt acknowledges that part of the surcharge was always subsidised but insists that the international price of oil peaked in July and August – four months after the elections – and that it was during this period that most losses were accumulated.
Still, before the election people were under the impression that the country’s finances were rock solid and were being taken care of by a safe pair of hands. Wasn’t this deceitful?
“We seem to forget that the elections took place in March. The price of oil exploded in July – six months after the election.”
But wasn’t this increase foreseeable at the time of the elections?
“Of course we foresaw this eventuality. Thanks to our foresight we made a profit of €62 million from hedging arrangements. Still, although we used these €62 million to buy oil we still had to spend an extra €55 million.”
Is government simply scaring people with the prospect of an astronomic increase in tariffs, in order to present a less radical solution later on which would be more palatable than the one Gatt is presenting now?
Gatt replies by presenting an even more terrible scenario: that of increasing the surcharge to 160%.
“The easiest option for the government is to do nothing. We could have simply kept the surcharge mechanism. According to the formula agreed at MCESD level we could have simply raised the surcharge to 160%. Should we have done so?”
But isn’t there a midway option, that of keeping a degree of subsidy funded by taxpayers’ money to reduce the shock impact of tariff increases?
“At the end of the day, subsidies will be payed by the taxpayer in a socially unjust way. We would be simply saving money for those who afford to pay more, or those who waste energy.”
But what’s socially unjust about subsidising Enemalta with monies derived from taxation, which in itself is progressive because the rich pay more than the poor?
“There is no relation between taxes and tariffs. For me there is one argument. One has to pay for the amount consumed.”
So is the full recovery of €55 million from consumers’ pockets non-negotiable for the government?
“We cannot do otherwise. It’s not a choice.”
So what’s left to be discussed with the social partners?
“What’s certain is that nobody is saying that Enemalta should make losses. Otherwise we will not have money to pay workers’ wages. The argument is how are we going to pay for the shortfall. Should we increase taxes or tariffs? This is the only choice. There are no two ways about it. One can either use tariffs, the surcharge or taxes. One of these three, or a mixture of them all, should compensate for the shortfall. We have to find the fairest mechanism.”
But all the social partners are against you. Is this not enough of an indication that the mechanism chosen is not fair?
Gatt is quick to point out that the GRTU is in full agreement with the government that subsidies should be scrapped.
“While they favour the surcharge, we want to revise the tariff system simply because the surcharge was only intended as a temporary measure.”
Why not phase in the new tariffs over a period of years to avoid the shock?
“Let’s say we leave the tariffs the same as they are today and raise the surcharge to 160% and subsidise Enemalta by €30 million. We will still have to recuperate these €30 million through taxation.”
What’s wrong in cushioning the impact through a progressive decrease, instead of an abrupt end to subsidies?
“What’s wrong in that one should not use the budget to subsidise consumption. I fully concur with Lino Spiteri on this point. This is a way of bankrupting the country.”
One issue which has infuriated a segment of the business class was the removal of the capping of utility bills.
Craftily, Austin Gatt manages to discredit a mechanism which was introduced by his own government by exposing the unfairness of having households subsidising the bill of 87 companies. He goes as far as claiming that without capping people would have paid a 75% instead of a 95% surcharge.
“Capping is revenue neutral for the government. We had 87 companies whose bill could not exceed €50,000. The difference between their actual bill and the €50,000 was transferred to the other 250,000 users.”
According to Gatt, these 87 companies saved a total of €15 million.
“If there was no capping instead of 95%, the surcharge would have amounted to 75%. Because of capping we put 20% more on the people.”
Still, Gatt had no qualms in retaining this mechanism until Dr Frank Portelli took the government to the Office of Fair Trading.
“For the government and Enemalta this makes no difference at all, as we were still collecting the money. We could have retained it. But we were faced by a case presented by Dr Frank Portelli, in which he argued that capping was in breach of EU law.”
Gatt acknowledges that from the very first day the government knew that mechanism could be attacked.
“We had made this clear to the MCESD. But everyone was in favour. And we tried to keep it. Now we face circumstances which have forced us to remove it.”
Gatt would not miss the opportunity to hit out at the hypocrisy of those who are opposed to government subsidies on everything else, but are now protesting against the removal of this subsidy.
“Now we are accused by those who were always opposed to granting operational aid and subsidies to other entities.”
But was it fair for common households and small businesses to subsidise the bill of 87 businesses?
“It was not fair. It was a temporary economic measure which was meant to give a breathing space to industry during which heavy users of energy could invest in reducing their energy bill.”
But why not phase out the capping mechanism in stages, to avoid a shock to industry in these dire times marked by a global financial crisis?
Gatt is unequivocal: “I cannot afford to lose a case in the law courts about capping.”
The Marsa power station, which supplies half Malta’s electricity, works at an efficiency rate of 27%. Are we expected to pay more for the lack of investment in this sector in the past?
He is quick to point out that when calculating efficiency, the top figure is never above 48%. He also makes it clear that technical inefficiencies are not factored in the revised tariffs. Technical and non-technical efficiencies currently cost Enemalta €4 million and consumers were never expected to pay for this shortfall from the surcharge.
The Minister has confirmed that the Marsa power station will close down in 2015. What will happen afterwards?
“As soon as Marsa is closed we will have an additional 100 megawatts from Delimara, which costs €80 million, and we will develop a submarine cable linking us to Sicily which will cost us a further €200 million. But we still have to recover the bank loans to make this investment possible.”
After long years of artificial subsidies, consumers will have to get used paying the full price of water which was practically given for free.
Gatt makes it clear that this is not a choice.
“The simple truth is that the EU’s water directive forces us to recover the full cost of water production.”
On Tuesday Minister George Pullicino warned that anyone who fails to register a borehole will be fined, and that nobody will be allowed to drill new boreholes in the next year. But he stopped short of introducing meter readers to charge those who get underground water for free. Some of these people are understood to own bowsers, through which they sell cheap water used to fill swimming pools and to water lawns.
In the absence of a clampdown on illegal extraction by raising water tariffs, is the government not encouraging people to buy water at a cheaper price from bowsers?
Gatt turns the table on the interviewer inviting him to be consistent on this issue.
“Well, till some time ago you said that tariffs are so low that there was no disincentive for people to waste water. Now you say that by increasing the price of water, people would buy from bowsers. You should decide where you stand on this question.”
But doesn’t it make more sense to simultaneously raise water tariffs while introducing tariffs on borehole extraction?
“I am not the Minister responsible for boreholes. But I tend to agree with charging those who extract this water. Yes, I would favour such a measure. The water table is a national asset which should be valued.”
For better or worse, Austin Gatt does not get caught in any contradiction. Everyone has to pay the full price. He even applies this to the 6,500 cubic meters of purified sewage being dumped in the sea at Cirkewwa, instead of being recycled.
While some environmentalists hoped that this water would be provided free to farmers as an alternative to boreholes, Gatt would have none of this insisting that to do so he will have to spend money on pumps, pipelines and a new polishing plant.
“If farmers start paying for this water, we will invest… If we give it to farmers for free we will have to put the cost on households. Should we do this? Someone has to pay for it.”