17 May 2006

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Business Today

Calming the oil turbulence

It is time to look elsewhere for our energy needs

The price of a barrel of crude oil has increased to over USD75 for the first time, making front-page headlines, as perhaps it should. Inevitably, petrol prices in Malta also soared last week, reaching the third highest in Europe.
Naturally, governments use fuel as a means of tax collection and when the base cost goes up they are loath to reduce their tax intake. Exactly what this will equate to at the local petrol pump is in many ways irrelevant. Whatever it is, the price of petrol is destined to rise and government may seek to extract more tax revenues to balance its deficit and try to recoup part of the increased cost of electricity generation, which threatens to exacerbate Enemalta’s losses.
One may lament that our economy is in a fragile state and is ill-prepared to cushion such additional burdens.
The Maltese government is striving to cut the deficit, reduce the national debt partly through privatisations, curb inflation and create more jobs. Party apologists confirm to us that such belt tightening is making headway in meeting convergence objectives in order to qualify for adopting the single European currency by January 1, 2008. However, the galloping international price of oil, on which we are so dependent, is a serious drag on our economic progress. Economic growth risks being stunted by ever higher fuel prices. But let us look at and discuss the background, particularly the political uncertainty which is fomenting such a price hike. No doubt these are difficult times and rarely over the past 40 years has the international scene been so turbulent. And yet we can make it. If the oil price explosion of the early seventies is any indication of the future then I am sure we can make it. Ironically, a lot depends on Mr Ahmadinejad, the president of Iran. He can moderate his country’s intentions concerning the production of uranium of quasi bomb quality and instead contemplate that his country does not need alternative energy apart from its vast oil fields. He could, of course, be fanning the current oil price if he continues to mull over more advanced arsenals. Astutely and to give Iran some time to reconsider the Security Council decided against immediate imposition of sanctions. In the short term there is no solution in sight and the oil price will most likely continue to rise rapidly unless Saudi Arabia mandates a higher output. Economists remind us that this is all a question of supply and demand.
The nature of our global economic system is that as something becomes scarce, it becomes more valuable and so more consumers want it. Unfortunately we can only grin and bear it since we are dependent entirely for our energy supply on only one source – burning fossil fuel.
It is useless to compare the ill fated price-hike of more than USD72 a barrel to the balmy level of USD12 in 1998. Who are the losers and are there any plans to reallocate the glut of petrol dollars?
The answer depends whether you are a user or a producing country. Just consider the ballooning, almost indecent profits posted recently by the oil companies. New producers have come on stream. For example Canada is now quoted as a big player in the 21 century energy game with its vast wilderness tracts of tar-soaked sands in northern Alberta. Obviously as OPEC countries and speculators ratchet up prices, non-OPEC territories can have their energy resources exploited by fat cats like BP and Shell with profits last year of GBP24 billion tucked beneath their belt. It is not surprising that the motor industry is embarking upon a new breed of cars called hybrids that use battery power supported by a smaller use of fuel powered engines. These have lower consumption, or no fuel consumption at all, as their main selling point.
On the other hand SMEs and the tourism industry in Malta, whose energy bills reflect the surcharge imposed on utility bills, are not coping. The GRTU has submitted specific proposals concerning structural changes at Enemalta and fiscal changes to boost the economy particularly for the harder hit smaller industries. They retort and not without merit that the government needs to shoulder its responsibilities for not having been able to source cheaper fuel imports, for not curbing inefficiencies at Enemalta and for ignoring petitions to introduce viable alternative energy sources.
It was ironic that Malta had, for years, started a solar energy research centre in Marsaxlokk but we were so parsimonious in our investment. By contrast we spent millions to bale out white elephants and a bloated civil service payroll but spared only pennies for developing alternative energy. Sadly this also impinges on our inertia to combat the high level of asthma sufferers due to bad quality of air. It is no consolation that the issue of air quality and climate change was one of the main environmental challenges listed in the recently-published National Sustainable Development Strategy Report.
Typically this report says that electricity generation and transport are the main contributors to air pollution.
As a densely populated island the challenge is to ensure efficient production and use of energy as well as a cost-effective transport system while improving air quality. But in this country reforms seem to surface too late and often consultants’ reports are not implemented due to hidden agendas, instead they are left on shelves in perpetual hibernation. Has the penny dropped that we need to look elsewhere for our power generation or at least start the long path towards implementing a green energy programme?
The responsibility falls squarely on MRA who as a government financed authority is answerable to come up with solutions on energy issues. The MRA has long been promising that it is studying the situation. Currently it has been reported that it was evaluating various alternatives as part of an energy policy, including linking up to the European power grid. That is great. Granted this would entail substantial costs but would provide a fallback facility to the alternative of generating electricity from the old Marsa plant linked to the Delimara behemoth. The time has dawned on us that the huge task facing the government is to lessen the impact on competition levels of industry yet at the same time tackle the deficit and complete capital projects that have drained the state coffers like Mater Dei hospital and the road network.
But not everything is doom and gloom and we notice that recently a tangible benefit is being offered to encourage more solar heaters. Conscious of the effect of the fuel surcharge, the government has extended and expanded on the solar water heating system initiative, increasing the refund from 15 per cent to 25 per cent to a maximum of Lm100 as opposed to Lm50. A solar water heating system costs around Lm650 and the family investing in one would be given Lm100 back, apart from savings on consumption. It has been calculated that savings would amount to Lm53 for the first year, Lm62 in the fifth and Lm75 in the 10th, meaning a family would save Lm633 in the space of 10 years.
As regards photovoltaic systems in private homes - the generation of energy from the sun - these could easily be connected to the national grid, helping the country to cover some of the peak demand of electricity during the day. Ideally, we can expect more households that could benefit from lower electricity bills by installing such a system. Domestic consumers investing in a photovoltaic system would benefit from a 20 per cent refund to a maximum of Lm500 for the first kilowatt peak installed, and to a maximum of Lm250 for every kWp up to 3.7 kWp. Most welcome is the system of refunds covering the installation of photovoltaic systems. Surplus power generated by photovoltaics can be sold to Enemalta, and the corporation is installing the metre at no charge.
The oil turbulence has again caught us unprepared. The opposition blasts that this is symptomatic of the way things are done in Malta. Whatever it takes to shake us of our insularity one can hope that the penny has dropped and we can look forward to a national effort to encourage private investment to generate alternative energy in a sustainable way.

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