Government's restrictions leave CPC in the red

Chinese Petroleum Corp (CPC, 中油), the state-owned oil and gas company, said it's losing as much as NT$2 billion (US$62 million) a month from its natural gas sales because of government price controls and soaring import costs.

The company may have to borrow to cover losses on fuel sales, the company's vice president Tsao Mihn (曹明) said yesterday.

Costs of importing liquefied natural gas (LNG) jumped 32 percent in the first four months of this year from a year earlier, according to the Bureau of Energy.

CPC last increased natural gas prices on Aug. 3 last year.

The government has blocked the company from increasing fuel prices because of concern this stoke inflation, which accelerated at the fastest pace in nine years last year.

The refiner's financial strength has deteriorated because it is unable to fully pass on higher crude oil costs, the debt ratings company Standard & Poor's said last Wednesday.

"The government asks us to take on social responsibility," Tsao said during a telephone interview yesterday.

At the same time, it "has to consider letting us adjust prices," he said.

CPC may go bankrupt in two years if the government continues to block price increases, the Chinese-language Economic Daily News reported yesterday.

The company may post a loss of NT$54.2 billion this year because of higher crude oil costs, compared with a profit last year of NT$9.6 billion, the paper said.

"We don't think it'll happen," Tsao said, commenting on the potential risk of bankruptcy.

Standard & Poor's may cut its debt rating on CPC if the refiner keeps posting losses, Daniel Hsiao (蕭黎明), an analyst at Taiwan Ratings Corp (中華信評), a local unit of Standard & Poor's, said by telephone yesterday.

CPC, which has an A+ rating from Standard & Poor's, had a pretax loss of NT$13.8 billion in the first quarter, company chairman Wenent Pan (潘文炎) said on April 13.

Minister of Economic Affairs Morgan Hwang (黃營杉) was opposed to the company's plan to raise gasoline prices again after the last round of increases in April, the Economic Daily News reported on June 15.

Tsao declined to comment on financial forecasts and gasoline prices.

The refiner increased gasoline and diesel prices for domestic customers by between 7.3 percent and 9.3 percent on April 19. CPC controls more than 70 percent of the domestic gasoline market and is the only supplier of natural gas.

LNG, which accounts for more than 90 percent of the nation's natural gas needs, is gas that has been cooled for transport by ship. Import terminals return the LNG to gas form so that it can be sent through pipelines to customers such as factories and households.

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