News | Sunday, 01 February 2009

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Hedging to cause $30 million losses in coming months

Sources close to Enemalta have said that if the price of oil keeps falling or remains as it is today, the Maltese taxpayer is expected to lose around $30 million in the next three months thanks to the government’ controversial hedging agreement.
The Infrastructure Ministry on Friday released statistics regarding hedging (whereby oil is purchased at a pre-negotiated price, regardless of fluctuations) but nothing was revealed about the specific agreed price, or about who the companies involved in this agreement are.
Instead, Friday’s revelations – which were prompted by questions put to the Office of the Prime Minister and Minister Austin Gatt by MaltaToday – indicated that government has already lost over US $35.9 million in the last three months.
The 1997 Labour administration was criticised by the Opposition for entering into a hedging agreement. Surprisingly, however, when in government the Nationalist Party also opted for hedging. Friday’s statement outlined profits and losses accrued as a result of the hedging agreement, but salient details about the hedging price and duration of the hedging agreement were conveniently not mentioned at all.
In October last year, when the price of oil started to drop, government announced it would introduce new water and electricity tariffs, justifying its decision on the basis of losses incurred by Enemalta. It now appears, however, that the decision was in reality fuelled by the sudden realisation that the government’s own hedging agreement would lead to massive losses, as Malta continued to buy at fixed rates while the price of oil dropped to all-time lows. Just a day after MaltaToday asked both the Prime Minister and Minister Austin Gatt to reveal hedging details and the profits and losses incurred from a bungled-up hedging agreement, Enemalta issued a balance of their revenue made from hedging on Friday.
The company revealed that between September 2008 and December 2008 it had incurred enormous losses of $35.9 million on account of its hedging agreement.
The losses amounted to $288,480 in September; $7.02 million in October; $12,582,136 in November; and $16,078,448 in December 2008.
Enemalta said it had recently changed its financial year to a 15-month year, so that it could end its financial year on 31 December 2008.
The resultant positive balance, from October 2007 to December 2008, was therefore of €10,775,008.
On a 12-month basis for 2007, however, the balance was a $3,482,048 (€2,703,033).
Enemalta said that “hedging, as advised by experts, allowed the price of electricity to remain stable for consumers.”
But Malta’s only energy provider did not explain why the new electricity tariff structure was announced last October. Instead, the State-owned corporation said the balance stayed positive in the first months of the year when the price of oil was on the increase; and it added that the $46 million profit during this period was used to keep the energy surcharge lower than what it could have been without a hedging agreement on oil.
In the last four months of the year, Enemalta said the oil market crumbled in step with the financial crisis, and the previous profits were totally annulled. “Clearly, hedging did not increase the electricity bills any higher.”
The corporation reminded that a policy paper authored by its hedging committee, chaired by BOV chairman Roderick Chalmers, had stated that hedging was not to be used for Enemalta’s profits but to maintain stability of tariffs in times of fluctuations in the price of oil.
“This aim has been reached,” Enemalta said.
Labour calls for clarifications
At the Labour Party general conference, PL deputy leader Anglu Farrugia hinted there were other reasons for the exorbitant energy tariffs.
“Government must give details as to who is responsible for the purchase of oil, including the quantities, from where it’s being purchased, and the contracts made for the purchase of oil in the last 18 months.”
Farrugia said a new Labour government would investigate anyone involved in the purchase of oil in the past 18 months.
The price of oil had gone done from $174 per barrel down to $32 – a decrease of 78%, but government had increased tariffs “exaggeratedly”.
“Consumers have to compensate for the increase in tariffs, and to (finance minister) Tonio Fenech it’s as if nothing’s taking place. Other countries are addressing the financial crisis by reducing taxes and incentivising work; but on the contrary, the Maltese government is burdening the Maltese,” Farrugia said.
“Instead of attacking Enemalta’s inefficiencies, it is increasing tariffs. It is not finding ways of buying oil cheaply, as other Labour governments did in the past. It is using an environmental justification to introduce a drainage tax and has increased car licences substantially,” the PL’s deputy leader said.
“STMicroelectronics is being forced to pay €1 million a month in tariffs. In his panicked state, the prime minister is not going to solve any of the problems he has created.”
Farrugia also said it was scandalous that Enemalta has yet to audit three years of financial statements.
“Enemalta is €222 million in debt while past Labour governments saw this corporation reap profits,” he claimed. “If there is the smallest of suspicions that the people will be taking on this burden on its own, or there has been some form of abuse, a new Labour government will bind itself to investigate everything and keep those involved in this abuse responsible.”

MRA in denial over energy tariffs revision

On Friday night, 11 trade unions said the Malta Resources Authority was going to order utility providers to revise the water and electricity bills retroactively to October 1.
But the claim was immediately denied by the MRA, which said that any revisions would not be retroactive.
The unions held a two-hour meeting with MRA officials on Friday, with GWU secretary-general Tony Zarb emerging to describe the development as a “major victory” for unions.
MUT president John Bencini said the entire saga had been “amateurish” and told consumers who had received any bills not to pay them until they receive new instricutions.
He said the unions had been proven right that fewer domestic customers would be eligible for the eco-refund than the Prime Minister originally claimed.
The MRA now estimates that 53% of domestic accounts would be eligible for the deduction, and that included summer residences, Bencini said.
MRA also categorically denied that it was calling for a revision of the energy tariffs. It said it met the unions for a two-hour meeting, in which it explained the MRA’s verification process.
“As stated by the unions… the next revision of tariffs will consider the possible change in Enemalta’s cost base, including the price of oil and some fine-tuning of tariffs that could be proposed and accepted.”
In a counter-statement issued yesterday, the unions called on the MRA to resign after what it called “this latest U-turn”.
“We are shocked by the MRA’s press release in which it denied whatever was agreed to with the union representatives,” the unions said. “We reiterate what we said yesterday, that is that MRA officials and regulator confirmed that they were ready to recommend revisions to the tariffs that would be automatically backdated to October 2008.”

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