07 April 2004

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Government warns against subsidising fuel prices

Labour says ‘hard-headed’ opposition to hedging brings about increase in prices

By Matthew Vella

The increase in fuel prices by 33 per cent, Labour MP Joe Mizzi claims, is the cause of having local prices reflect international fluctuations. The Opposition’s speaker for infrastructural services said the price in diesel had increased three times already within the matter of a year and a half, now having hit 29c for every litre of diesel from 28c2, an increase of 2.9 per cent per litre.
The increase in price, Mizzi said, was because the government was being ‘hard-headed’ in not using the system of hedging with which the state would buy fuel at a favourable price in order to stabilise domestic prices. “If the government maintains this stubborn line, it won’t be long until the country will have to resort and increase water and electricity rates,” the Labour MP said.
Mizzi also the price in unleaded petrol had increased from 35c6 to 36.3c per litre, an increase of 1.96 per cent for every litre, LRP from 38c6 to 39c3, and kerosene fuel from 13c2 to 13c4.
“The increase in these prices is tantamount to an increase in families’ cost of living, and business costs. These increase do not augur well against the loss of jobs and the creation of new employment.”
In recent years, unleaded petrol has increase from USD199 per tonne in October 2001 to the present USD329 per tonne. Diesel has increased from USD215 per tonne in the same period to USD281 per tonne.
Since 1 January 2002, the government has been using a specific formula to ensure domestic fuel prices are convergent with international market fluctuations. Until this formula was introduced, fuel was subsidised. However, according to the IT and Investments Ministry said the subsidy system had revealed those consumers of petrol were effectively paying for the heavily-subsidised diesel prices.
“Government sought to remove this subsidy over a period of three years, until all prices would be a reflection of the real market prices,” the Ministry said. “The price regulation formula seeks to address both the cost of Enemalta purchasing the fuel and the gradual adjustment of the subsidy. In order not to have a large fluctuation in the price, the formula addresses the need to converge the diesel and petrol prices on a period of three years, which will terminate in 2004. The three-year period would have given space for everybody to adjust to this change.”
The Ministry for Information Technology and Investments, in reaction to a GRTU statement on the increase in fuel prices, expressed surprise that the association, in its position as a promoter of free market and the removal of subsidies, had asked the government to subsidise the price of fuel when international prices increase.
The Ministry said that subsidies effectively pass the burden onto consumers of petrol.
“The GRTU knows as much as this government that price adjustments of diesel, petrol and gas are regular exercises in a free-market economy. This Ministry believes it is fundamentally wrong to ignore the increase in international prices of fuel or to absorb this increase in the form of subsidies. Subsidies mean nothing but added taxes.”
The Ministry also said that in the last year, the international price of oil had increased whilst the value of the American dollar had decreased against the Maltese Lira, leading to a reduced impact on the price increase in Malta.

Copyright © Newsworks Ltd. Malta.
Editor: Saviour Balzan
The Malta Financial & Business Times, Newsworks Ltd, Vjal ir-Rihan, San Gwann
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