Tue, Jul 14, 2009 - Page 12 News List

CPC Corp denies worker costs had impact on profits

By Elizabeth Tchii  /  STAFF REPORTER, WITH BLOOMBERG

Contrary to allegations made by the Control Yuan, state-run oil refiner CPC Corp, Taiwan (CPC, 台灣中油) yesterday said that worker costs were not the reason for its continued losses, as the rate of worker costs to sales stood at only 2.4 percent last year.

“It won’t exceed 4 percent,” CPC president Chu Shao-hua (朱少華) told a media briefing yesterday, projecting NT$780 billion (US$23.5 billion) in sales this year, up from last year’s revenues of NT$978 billion.

CPC employs 14,700 people, challenging the Executive Yuan’s mandate that it reduce its headcount to 11,612.

Chu said experienced human capital was key to its success in operating newly opened facilities in Kaohsiung, Taoyuan and Dalin.

As to why its private rival, Formosa Petrochemical Corp (台塑石化), is able to turn a profit amid the same economic conditions, Chu said: “CPC is required by the government to supply gasoline and diesel to the public at discounted rates through the state’s previous heavy-handed price freeze, but Formosa, as a private entity, was able to export oil products and turn a profit.”

The government’s policy had forced CPC to supply fuel at the lowest prices in the region, when compared with neighboring countries such as Japan and South Korea, and the domestic oil giant was continuing to accrue losses, Chu said.

“CPC’s market share exploded in 2008 at the expense of incurring heavy losses,” Chu said.

According to CPC data, the oil refiner maintains 81 percent, 88.8 percent and 91.3 percent market shares in gasoline, diesel and fuel oil, compared with 75 percent, 81.6 percent and 86.1 percent in 2007.

“If the oil business is so profitable like everyone imagines, why don’t we have a third party entering the market? There are no barriers to entry in Taiwan,” Chu said yesterday.

Meanwhile, CPC is in talks with Qatar on a second long-term contract and expects to extend its agreement with Malaysia and boost the nation’s energy supplies, Chu said.

The oil refiner has secured “enough supplies” to replace expiring agreements, Chu told Bloomberg at CPC’s new Taichung terminal, which will boost the nation’s capacity to handle liquified natural gas (LNG) cargo by 40 percent.

Ras Laffan Liquefied Natural Gas Co, a Qatari joint venture with Exxon Mobil Corp, started supplying LNG to CPC last year under a 25-year contract for as much as 3 million tonnes a year.

The Taiwanese refiner also aims to complete talks with an Exxon-led venture this year to buy LNG from Papua New Guinea, Chu said.

CPC, which has existing multi-year contracts to purchase the fuel from Indonesia, Malaysia and Qatar, may buy as much as 2 million tonnes a year from the Papua New Guinean project, he said.

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