Thu, Oct 12, 2006 - Page 12 News List

CPC defends its pricing strategy

COMPLAINTS The firm said it was expecting a loss of NT$25 billion this year, but had streamlining plans in the works that could spark profits in a few years

By Jackie Lin  /  STAFF REPORTER

Chinese Petroleum Corp (CPC) vice president Tsao Mihn, left, points to a graph outside the company's headquarters in Taipei yesterday as he denies that CPC's prices are too high, as Consumers' Foundation vice chairman Cheng Jen-hung looks on. The meeting had been planned as a sit-down discussion between CPC and the foundation, but at the last minute it was changed to an outdoor debate in front of CPC headquarters when Cheng unexpectedly brought some reporters with him.


Amid continual complaints from consumer groups that retail gasoline prices should be cut further, state-run Chinese Petroleum Corp (CPC, 中油) yesterday defended its pricing strategy and reiterated its determination to streamline its refinery and personnel structures.

The nation's largest refiner in 2004 initiated a six-year investment project to build new plants and replace old pipelines, among others, in a bid to boost efficiency and the value of output, CPC vice president Tsao Mihn (曹明) said yesterday.

The NT$64 billion (US$1.9 billion) project will help the firm generate pre-tax profits of NT$25.4 billion to NT$31.8 billion per year, he added.

CPC has also reduced its workforce from 25,000 to 14,680 over the past seven or eight years and slashed new employees' salaries to the same level of those provided by the privately owned Formosa Petrochemical Corp (台塑石化).

"We hope to compete with Formosa Petrochemical on the same footing by 2010 as we trim our refinery and personnel costs," he said.

Over the first nine months of the year, CPC booked accumulative losses of NT$25.7 billion, compared with a profit of more than NT$10 billion a year ago, owing to skyrocketing crude oil prices.

Tsao expects that the firm will rake in revenues of NT$700 billion this year, with losses expected to hit NT$25 billion.

He attributed the growing corporate losses to the firm's inability to fully reflect crude oil price fluctuations, as it is saddled with policy burdens to stabilize consumer prices.

"Formosa Petrochemical hiked retail gasoline rates by NT$2.4 [in August] last year when crude costs surged, but CPC cannot follow suit, as the government fears it might trigger consumer product markups," he said.

The Consumers' Foundation (消基會) has fired a volley of criticism against CPC's pricing structure, as well as the "floating pricing mechanism" the refinery launched late last month based on fluctuations of West Texas Intermediate (WTI) crude oil prices for its weekly adjustments.

CPC on Tuesday announced that it was reducing wholesale and retail prices of gasoline and diesel oil products by NT$0.2 per liter to reflect softening global crude oil prices.

Considering the fierce competition, rival Formosa Petrochemical yesterday matched CPC's price adjustment on wholesale products at 10am, although retail rates will be left up to contracted gas stations to decide, the private firm said.

The Consumers' Foundation yesterday accused CPC of a lack of sincerity in adjusting gasoline prices and demanded that it reduce prices by NT$2.6 before adopting a floating rate system.

According to the advocacy group's figures, the price of crude oil on Monday dropped to US$59.97 per barrel, similar to the US$61 level recorded on Feb. 13, while CPC's 95-octane unleaded gasoline was selling for NT$27.2 per liter on Monday, which is still NT$2.6 higher than the price of NT$24.6 on Feb. 13.

"We don't oppose the floating rate scheme, but we strongly demand that the new measure be carried out on a fair footing," said Cheng Jen-hung (程仁宏), the foundation's vice chairman.

He said a big question mark should be placed on whether CPC's corporate losses were directly linked to spikes in crude oil prices, as the firm has claimed.

The foundation urged CPC to make public its financial structures and boost operational efficiency, instead of passing on additional costs to motorists.

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