ECONOMY

Utility rates in line with CPI

The government is planning the automatic adjustment for inflation of public utilities’ charge rates, through a special bill to apply after 2008. Economy and Finance Minister Giorgos Alogoskoufis is examining the application of a standardized mechanism for the calculation of the annual increase in utility rates, through a specific mathematical formula based on consumer price inflation (CPI). The formula will use a rate smaller than that of inflation, which may fluctuate depending on the utility concerned and social policy. The increase rate will have to be smaller than that of inflation. A special provision in a bill to be passed in Parliament is required for that and the government intends to tackle that provision after next year’s general elections. There are three benefits from the rule that must restrict the rise rate to below that of inflation: Utility administrations will have to contain operation costs. They will have to try each year to increase their turnover, not through rate rises but by strengthening sales in services offered, and inflationary pressures will ease; a 1 percent rise in public utility rates immediately notches up inflation by 0.08 percent. The clause proposed follows the general philosophy of the law for public utilities regarding rationalization and efficiency: By knowing in advance the annual rise in charge rates, utilities will be able to make more reliable budgets of revenues and expenditures and to calculate with greater precision their cash flow. Furthermore, it will diminish debates on the political cost for utility administrations or competent ministers. This year the deficit of utilities will grow to -1.33 billion, against -1.16 billion in 2006 and -1 billion in 2005.