Fuel subsidies till 2026 – is this feasible?

Government will spend around €320 million in fuel subsidies every year until at least 2026, or until Malta fixes its electricity supply.

In a press briefing ahead of the budget, Finance Minister Clyde Caruana explained that the government will bring the unit cost of electricity down before it can start phasing out the costly fuel subsidies.

He said this will be done through investing in offshore renewable supplies and a second interconnector.

But in an environment where fuel and electicity have been politically contentious, is the government’s decision to subsidise energy feasible in the long-term? MaltaToday asked two former Enemalta chairmen for their opinion.

Robert Ghirlando, a professor of engineering, said that he is against the indiscriminate application of the subsidy, instead wondering if the government should use different measures to prevent fuel poverty.

“In the UK, the government was giving a subsidy to pensioners struggling with the cost of living. What would happen if the government were to, say, widen the tax bands instead?”

He also pointed to the water tariffs offered in Malta, where basic water consumption is billed at subsidised rates whilst, beyond that amount, commercial rates apply.

“One of the biggest issues is not talking about energy consumption,” Ghirlando pointed out. “We speak very little about the need to reduce consumption. Not by reducing the standard of living, but measures to improve energy efficiency.”

He also said that the blanket subsidy on energy contradicts other efforts to push for sustainable energy sources. “We keep pushing for decarbonisation, yet we subsidise petrol and diesel. Should we start subsiding waste?”

Charles Mangion, the Labour Party’s former finance spokesperson while in Opposition, says the fuel subsidies are an important stabiliser to promote economic growth and safeguard businesses, consumers, and families.

“I think that, as long as the country can tolerate it, those subsidies should continue. Whether modification will be needed, only time will tell.”

Mangion described the subsidies as an anchor to keep stability, but whether the subsidies can be feasible in the long term depends on the circumstances of the time.

“The future is so unstable; one needs to adjust to the circumstances. Will Russia go back to its former border? How will the switch from carbon energy take place? All of these are discussions that will need to be addressed.”

Energy’s political implications

Oil, gas and electricity have been political points of contention that transcend political cycles.

The 1996-1998 Labour government was pilloried when it revised electricity tariffs upward as part of an austerity programme to fix Malta’s debt problem. Roll forward 10 years and in 2008, when Austin Gatt, who was a minister at the time, introduced a surcharge on utility bills because of the international rise in the price of oil. The price hike became a troubling factor for the Nationalist Party in government, spurring protests and widespread disgruntlement.

Enemalta was eventually downgraded by credit ratings agency Standard and Poor, as a result of the large debt the corporation had accumulated.

In 2013, MaltaToday broke the Enemalta oil scandal, which shed light on corruption in oil purchases by Enemalta.

Energy then became the singularly most important policy plank of Labour for re-election, promising a gas plant and a 25% cut in household and business energy bills.

But the scandal around energy and electricity didn’t subside. In 2017, Daphne Caruana Galizia reported on an elusive company called 17 Black, describing it as “the company which those crooks use to move money in and out of Dubai”.  Later that same year, The Malta Independent published a story claiming that an investigation by the FIAU found 17 Black had received money from the agent of the LNG tanker in Delimara.

Years later, energy remains a suspected motive for why Daphne Caruana Galizia was assassinated, with her reporting on 17 Black being linked back to the alleged mastermind of her murder, Yorgen Fenech.