The government has no plan to freeze fuel prices despite worries that a prolonged conflict in Libya could push crude oil prices higher, an economics official said yesterday.
Vice Minister of Economic Affairs Lin Sheng-chung (林聖忠) told a legislative committee meeting that tensions in Libya could trigger a new rise in global oil prices, but the state-run oil refiner, CPC Corp Taiwan (CPC, 台灣中油), would try to cushion the impact using methods other than a price freeze.
“The CPC is currently using a ‘slow rise’ mechanism, under which it absorbs half of the rise in crude prices,” Lin said.
If world oil prices continued to rise, however, CPC would activate a mechanism under which the company, the government and the public would equally share the burden of the price increase, with the government cutting the excise tax on gasoline by half.
CPC president Lin Maw-wen (林茂文) said the mechanism would be activated when the weighted oil price formula used by the company — 70 percent Dubai crude and 30 percent Brent crude — rose above US$120 per barrel.
Oil prices rose in early morning trading yesterday after the attacks on Libya by a Western coalition over the weekend, but fell back later in the day.
Spot contracts were up 1.35 percent from Friday’s close to US$115.84 per barrel for Brent and down 1.05 percent to US$108.77 per barrel for Dubai Fateh at 11:30 GMT.
The spot price for Dubai crude hit a high this year of US$113.60 per barrel on Feb. 24.
Lin said that because of Taiwan’s limited resources and dependence on energy imports, it had few options to keep prices at the pump in check.
“In the end, we have to adopt a multiple absorbing approach. If that fails, we cannot freeze oil prices,” he said.
Minister of Economic Affairs Shih Yen-shiang (施顏祥) said earlier this month that freezing fuel prices would not be a “responsible” way of coping with the problem, because CPC lost NT$139.7 billion (US$4.7 million) in 2008 when fuel prices were frozen for part of the year to cope with record-high crude oil prices.
The company also lost NT$20 billion and NT$4 billion in 2009 and last year respectively as a result of the policy and it was still operating in the red as of March, Shih said.
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