State-run refiner CPC Corp, Taiwan (CPC, 台灣中油) ought to factor its management efficiency and fluctuations in crude oil prices into its pricing formula for the domestic market, the Taiwan Institute of Economic Research (TIER, 台經院) said yesterday.
Asked last month by the Ministry of Economic Affairs to amend a formula used by CPC to price fuels, the think tank yesterday suggested that CPC should add a “management performance factor” into its formula to reflect its crude oil purchasing, refining, storing and delivering efficiencies.
TIER said CPC should document and publicize the timing, cost and quantity of its crude oil purchases, so the public can access the data and determine if CPC’s losses are caused by management problems.
CPC’s pricing formula should also fully reflect the fluctuation of crude oil prices, including Dubai and Brent oil prices, and set a benchmark to compare current prices with to decide if a price adjustment is necessary.
“CPC should make a thorough review of its current formula and amend it to allow the public to understand the real costs of fuel products,” the institute said.
The company may consider factoring in misery indices — the unemployment rate and inflation rate — when modifying its formula. It could also consider separating its total costs and factoring them in when modifying its formula, TIER said. CPC currently sums up its crude purchasing costs, refining costs, and delivery costs as its pre-tax fuel selling price used in its formula.
George Hsu (許志義), an economics professor at National Chung Hsing University, said he agreed with TIER’s suggestions, but “the government could invite a new private-owned refiner as the third player into the current-oligopoly market, so price competition would not be that intense.”
A new formula should be set using professional analyses, without government interference, Hsu said.