CPC blasted over floating gas prices

PROPOSAL: The KMT and the PFP said they would back a suggestion by the Consumers' Foundation to freeze CPC's budget if it did not scrap its new price-setting mechanism

By Shih Hsiu-chuan and Jessie Ho  /  STAFF REPORTER

Thu, Nov 02, 2006 - Page 12

Pan-blue lawmakers yesterday backed a proposal filed by a consumer group requesting a motion to freeze the state-run Chinese Petroleum Corp's (CPC, 中油) budget for next year should the corporation refuse to cancel its floating price mechanism.

Consumers' Foundation (消基會) chairman Cheng Jen-hung (程仁宏) met with legislative caucuses to discuss his proposal yesterday, following the CPC's decision to hike wholesale gasoline and diesel prices by NT$0.3 per liter from midnight on Tuesday.

The price increase was the first time that the CPC had made an adjustment in the five weeks since it implemented the floating price mechanism, which lets the CPC determine gas prices in accordance with changes in the international market.

"The CPC shouldn't be increasing its prices now. Instead, it should be reducing the price by NT$1.8 per liter," Cheng said, adding that "the CPC didn't adjust the price downwards when international prices went down last time."

The CPC said the price increase was calculated using the change in price for West Texas International crude over the past week in New York trading.

But Cheng said that it was unreasonable for the CPC to follow the West Texas price, as the CPC purchases crude oil from Middle Eastern countries and Indonesia.

Chinese Nationalist Party (KMT) legislative caucus whip Tsai Chin-lung (蔡錦隆) said that the party would boycott reviewing the budget of the CPC and the Ministry of Economic Affairs' Bureau of Energy if the CPC persists with its floating price mechanism.

People First Party Spokesman Lee Hung-chun (李鴻鈞) said that the party would side with the KMT on this issue as the floating price mechanism would not bring stability to the economy.

In response, the CPC said in a statement yesterday that the three price hikes on Feb. 14, April 19 and July 7 did not fully match the rise in price of crude oil, and therefore it has no room to drop prices by NT$1.82 per liter as the Consumers Foundation suggested.

The government lowered the gasoline commodity tax by 25 percent in October last year, which effectively cut gasoline prices by NT$1.7 per liter. The tax cut was restored in January, but the CPC said it did not pass on the tax to vehicle users.

As a result, the company made NT$32.6 billion less for the first half of the year, the CPC said.

The CPC also argued that its prices are the lowest among neighboring countries such as Japan and Korea. Taking the rates before the adjustment on July 7 as an example, the CPC said the before-tax wholesale price of 92-octane unleaded gasoline was NT$15.63 per liter in Taiwan, lower than Japan's NT$18.14 a liter.

As for the weekly price adjustment mechanism which the company links domestic gasoline and diesel prices to benchmark WTI crude oil trading in New York, the CPC said it is on trial until the end of the year and it will inspect whether the measure is suitable then.

The CPC stressed that adjusting prices to properly reflect costs is reasonable.

Should it absorb the costs and incur losses, all taxpayers will have to cover the deficit for vehicle users, which is also unfair to those who do not drive, the CPC said.