Filling stations may get a break on contract rules

Filling stations may be permitted to break their contracts with the nation's two suppliers -- Chinese Petroleum Corp (中油) and Formosa Petrochemical Corp (台塑石化) -- for several months next year when foreign oil companies enter the market, a government official said yesterday.

Cheng Yu (鄭優), vice chairman of the Fair Trade Commission, told the Taipei Times yesterday "permitting a window for companies to exit supply contracts without penalty would ensure opportunities for new foreign competitors."

Foreign firms will be allowed to sell gasoline and diesel in the domestic market for the first time beginning from Jan. 1.

The period being discussed is around two months, starting in January, Cheng said.

The proposal would break a lock Chinese Petroleum and Formosa could place on gas stations by insisting on long-term contracts and inserting clauses that will penalize the buyer if they switch suppliers, he said.

"We want to open the market to foreign companies on a basis of fair competition, which means allowing a period for the new companies to make inroads," Cheng said.

Jeremy Lin (林達三), spokesman for Pan Overseas Corp (匯僑實業), which is partnering with ExxonMobil and hopes to supply up to 200 stations next year, applauded the proposal saying it would be vital for new companies to establish a foothold in the market.

"There needs to be a proper period to give new oil importers time to build up a basic market share," Lin said.

A "proper period" would be between two to six months, he said, adding that reports some new entrants would be happier with a year would cause disruption and unpredictability in the market.

"If the period is longer we can get more stations to join ExxonMobil," Lin said.

However, as gas-station owners are the most aggressive in seeking bargains from the suppliers, a lengthy period free of long-term contractual obligations would cause instability in the market, he said.

Ensuring a fair market place for foreign firms is foremost on the government's agenda, Cheng said.

Indeed, "if there is no initial period for new suppliers to secure customers then liberalization of the market would be in name only," Lin said.

Locking in buyers to long-term contracts that would carry over the date of market liberalization is a violation of Article 10 of the Fair Trade Law 2000, Cheng said. The commission will meet with industry heads this week to discuss the matter and is expected to make a decision by the end of the month.