The Federation’s Deputy President of the Malta Federation of Industry, Helga Ellul, said that Government’s proposals to revise power and water tariffs could lead to severe adverse effects on economic activity in Malta as the options are unsustainable.

She Ellul said that all of the proposals aim at restoring the financial position of the utility providers (Enemalta and Water Services Corporation) in an immediate manner without any concern for the socio-economic implications of such an action.
If this approach is pursued, there will be immediate unsustainable increases in tariff rates for industry and households, with severe adverse consequences for employment and income in our country.
The financial position of Enemalta and the Water Services Corporation is imperiled not only by the increase in international oil prices, but also and perhaps more importantly, by decades of short-term oriented policies. In the Federation’s view, it can only be restored when and if the entire economy, including households and business, will be in a position to afford it.
“The tariff increases proposed by Government are clearly not affordable at this stage. It is unacceptable that Government should present such a one-sided approach to policy formulation, which caters only for the immediate financial sustainability of utility providers and completely rescinds its obligations to the rest of the economy and society” said Mrs Ellul.
The Federation pointed out that in line with EU practices, pricing in such situations should be set through an appropriate regulatory structure which balances the needs of consumers with those of the service providers, ensuring that the consumers do not pay for inefficiencies or monopolistic exploitation while guaranteeing a smooth development of the market. Furthermore, the smallness and isolation of Malta’s energy and water networks lead to higher costs. Such costs should not be borne by consumers, thereby placing them at a disadvantage relative to international counterparts, but are to be borne by Government as they constitute a clear instance of market failure.
The negative impact does not affect only large companies but also SMEs. Export oriented companies would suffer from decreased competiveness with other countries whilst those Companies producing for the local market would have to face even stiffer competition at a time when they are still coming to grips with an open liberalized market.
Ellul also pointed out that apart from being expected to absorb the increased costs arising out of the new electricity tariffs, a number of companies are also being burdened with substantial additional cost of water.
“This reaction arises from the initial consultation with our membership, which unanimously expressed grave concern that the proposed increases could not be sustained” continued Ellul.
The Federation fails to understand why in the tariff reform proposals, the Government chose to ignore a parallel economic and social impact assessment. The aim of the reform is to place the Utility companies on a financial sustainability track, but sidelines the major impacts that such tariffs would have on the ability of enterprise in Malta to be able to compete internationally, or even be able to absorb the costs on a local level, particularly so, in a time of global economic crisis and slowdown.
The Government did not present any mitigation measures to soften the impact or any staggering of the implementation. Further, during the compilation of the tariff models, which we understand took some months to compile, the FOI were not consulted in any way, even though a pre-budget consultation process is currently underway. To add to the concern, Government expressed its intention to introduce the new tariffs retroactively as from 1st October. This would be strongly opposed by the Federation.
This will create a sudden economic shock, which will directly affect the current and planned investment expansions decisions as well as general business confidence level in the economy.
“Clearly, we feel that there will be an impact on employment, as these proposed tariffs will threaten thousands of jobs. There will be an increase in inflation rates and slow down of the growth of the economy. Of course, due to fall in competitiveness, Malta’s ability to enhance exports and its capability to attract new investment will decrease” said Ellul.
The multiplier effect of large enterprises on SMEs and enterprises operating in other sectors of the economy must not be underestimated.
The Federation maintains that the proposals come at a time of international economic crunch and uncertainty of business and investment flows, from which, locally based companies, particularly the international ones, are surely being affected. Further, this is a time when enterprises would have already designed their 2009 operational budgets, including recruitment needs and plans in adjustment in wages. The increase in residential tariffs will create greater pressures on employers for compensatory demands by employees. Therefore, the FOI questions the sensitivity and timing of proposals.
”We sincerely hope that Government does not insist to only consider the immediate financial sustainability of the noted utility corporations in isolation, but rather through a balanced-out approach through a serious economic assessment, whereby carefully-phased mitigation plans need to be introduced to avoid economic shocks. Such plans need to be integrated with other Government plans of an energy link with the continental Europe and sustainable renewable energy sources” concluded Ellul.

The FOI position is being endorsed by the Malta Chamber of Commerce and Enterprise.
Present for the press conference were also Tancred Tabone, President of the Chamber of Commerce and Enterprise as well as Council Members of the Federation.