CPC to formally adopt flexible oil price mechanism

The government yesterday said state-run Chinese Petroleum Corp (CPC, 中油) would formally start applying a flexible pricing mechanism to energy prices next Monday, Minister of Economic Affairs Steve Chen (陳瑞隆) said during a press conference.

Chen's comments came after CPC had completed a three-month pilot run of the new pricing mechanism.

He said the pricing mechanism will be implemented on a permanent basis to better cope with ever-changing international oil prices while helping safeguard profits for the state-run oil refiner.

As a result, CPC, the nation's biggest oil refiner, will adjust wholesale prices for gasoline and diesel oil products every week, starting on Jan. 3.

The company, which shoulders the responsibility of helping the government stabilize the nation's consumer prices, would adjust gasoline and diesel prices in accordance with trading prices at the New York Mercantile Exchange, Chen said.

In the first eight months of this year alone, CPC posted a NT$25.4 billion (US$778 million) loss as the company did not raise energy prices high enough to cope with a spike in international crude oil prices.

Last year, the company posted a net profit of NT$8.34 billion, down 47 percent from NT$16 billion in 2004, the CPC Web site said.

Chen said yesterday that the ministry had also decided that it would adjust liquefied petroleum gas (LPG) prices and fuel oil prices on a monthly basis so as to better reflect oil costs in the international market.

He said the price of LPG will be adjusted based on various factors including the carriage paid price published every month by Saudi Arabia's national oil company and supply and demand issues in the international and domestic markets.

Monthly changes in the price of Singapore Platts' high sulfur fuel oil 180 (HSFO 180) will be used as the reference for domestic oil price changes, he added.

Warning that the new measures, added to expected higher oil prices, could affect the operations of Taiwan Power Co (台電), Chen suggested that Taipower should try to work out strategies to keep oil supplies and prices stable.

additional reporting by CNA