Treading dangerous ground

The sharp rise in fuel prices over the past months is creating an uneasy feeling in the country. The Prime Minister last week added more "fuel to the fire" when he admitted that the government was worried about the current and future oil prices and that he would be studying the situation following the huge rise in the price of imported fuel over the past six months.

What is even more worrying is that the government and Enemalta Corporation may have to take remedial action if the situation does not change. The Minister for Economic Services, Prof. Josef Bonnici, said the government was considering all options and was not ruling any options out.

Whether or not oil prices return to more decent levels depends on the outcome of a meeting in New York between Bill Clinton and OPEC power Saudi Arabia this week. Although a positive outcome could help to bring down fuel prices, the question remains: how is the Maltese government going to recoup the extra millions of liri spent on fuel bills in the first six months of the year?

The government is fully aware that increasing the price of domestic oil products will certainly result in an outcry from the public. In the last Budget, the government's decision to include VAT, at the rate of 15 per cent, on fuel did not go down well with the public, business community or the unions.

Nine months on, the government is once again hinting at the possibility that fuel prices will go up. The major social partners have all commented negatively in this regard and, politics apart, agree that such a move will only harm the economy and industry's competitiveness.

The country is certainly not going through a blooming period. While the government is trying to reduce its deficit, it has had to fork out more than Lm45m to foot the country's fuel bills this year, twice that for the same period in 1999. This has only helped to increase the country's widening deficit. Whatever the statistics may show, the public is feeling the pinch. Retail price indices which go down by one-tenth of a point are of little comfort to those who are struggling to pay their bills or seeing their investments going awry. If the government had to increase the price of fuel again, there is no doubt that the impact on the whole economy will be negative.

The bulk of Malta's fuel is imported through Enemalta from Libya at preferential rates. Over the years Enemalta entered into a number of hedging agreements with various oil companies. While this could prove to be risky, it also saved Enemalta Corporation up to US$4m by December 1999. In 1998, the Labour government had taken two decisions on hedging agreements. The first covered the period February 1998 to December 1998; the second, signed in August 1998, covered the year 1999.

In September last year, the Minister for Economic Services told The Malta Business Weekly that the government preferred short-term rather than long-term purchasing agreements. This resulted in Enemalta not having a hedging agreement for 2000.

While this decision may or may not have totally contributed to the present situation, hedging agreements in the past have proved to be beneficial. Although the government tends to risk losing money if the price of oil goes below that established in the agreement, on the other hand it stands to gain a lot if oil prices do go up.

The government is now in a very awkward position, so much so that it has very little room in which to manoeuvre. One way or another, it will have to take a decision - increase the price of domestic fuel or else find alternative ways to make good for the added expenditure on fuel. Either way, the consumer and business will suffer.

Dr Fenech Adami's government must take stock of the situation and address the problem before his Finance Minister presents his budget for 2001. The government is committed to reducing the deficit, and rightly so. We hope, however, that the solution will not be that of adding further burdens on the people.

Dr Alfred Sant learnt his lesson in 1998 when utilities were increased. The government would do well to look back at what happened. After two years in power, the government is treading dangerous ground. And it only takes one wrong step.