Formosa in gas alliance

The Formosa Petrochemical Corp (台塑石化) scored an important victory over arch rival Chinese Petroleum Corp (中油) yesterday when it signed up a major domestic gas station chain to its nation-wide sales and supply alliance.

Formosa inked a deal with the National Petroleum Corp (全國加油站) whereby the company's 54 gas stations would join Formosa's alliance of gas stations.

Lai Cheng-shih (賴正時), chairman of National Petroleum said the decision to join Formosa's alliance was due to its "impeccable management systems and competitive oil products."

While neither company would comment on what the specific conditions of the contract were, its has been acknowledged that it certainly included significant discounts on gasoline and diesel purchases.

Under the deal, all of National's stations will display the Formosa trademark and pump their annual 500,000-kiloliter capacity of gas purchased from Formosa Petrochemical instead of state-run Chinese Petroleum.

Like every other gas station up until last year, National had no choice but to purchase its petroleum products from the state-run Chinese Petroleum. But in September, the gasoline and diesel market was flung open to private competition.

Since that time Formosa has been steadily chewing away at its state-run rival's lead and now, with the addition of National Petroleum stations, counts 433 stations -- or over 20 percent of the market -- as part of its alliance.

Chinese Petroleum operates 603 stations nationwide and supplies another 1,077 with petroleum products.

Formosa has said it is aiming at stealing away 50 percent of the domestic petroleum market in terms of sales by the end of this year.

The move has angered Chinese Petroleum, which used to supply National, with executives saying they would lodge an appeal with the Cabinet-level Fair Trade Commission (公平會) over what they allege is a breach of contract.

Chinese Petroleum has also indicated it will not return a NT$15 million bond to National.

National president Tsai Chia-chang (蔡佳璋), however, denied that his company had broken any contract, adding that the discounts on gas offered by Formosa couldn't be matched by Chinese Petroleum.

Formosa's vice president Wang Wen-chao (王文潮) said his company would do whatever it could to support National.

Wang, who traveled to National's Guanhsi station in Hsinchu to witness the signing of the partnership, said that the inclusion of National stations into the alliance "not only broadened distribution channels for Formosa's oil products, it also offered more inroads into the lucrative Taipei market."

Currently, National has five stations in Taipei, which together with Formosa's five mark a significant gain on the 30-odd stations Chinese Petroleum operates in the capital.

The government is hoping that the sector can become more competitive before WTO entry.