Taipower defends itself against ‘Next’

COUNTERATTACK::Taipower’s chairman said that the utility was working on fixing its financial structure, but it needed to raise electricity rates again to cover losses

By Helen Ku  /  Staff reporter

Thu, Aug 29, 2013 - Page 13

Taiwan Power Co (Taipower, 台電) defended itself yesterday against accusations from Chinese-language Next Magazine that its planned rate hike is unreasonable given its controversial management practices.

The state-run power company on Tuesday announced the pricing levels for its next rate hike — set to take effect in October.

A story in Next’s latest issue, released yesterday, said Taipower had no reason to raise rates because many of its business strategies are controversial.

The article listed what it said were five corrupt practices at the company: overspending on the electricity bought from local independent power producers (IPP); issuing debt to build new power plants; continual additions to its annual budget;, a “rotten” corporate culture; and improper distribution of employee compensation.

Taipower chairman Hwang Jung-chiou (黃重球) told a press conference yesterday that the utility is undergoing a series of “changes” to fix its financial structure.

However, it needs to raise rates because of its rising losses, he said.

“Taipower has accumulated losses [of more than NT$200 billion (US$6.7 billion)] since 2003 because it has not adjusted its pricing structure for a long time,” Hwang said.

“The October rate hikes are set to reflect increases in international fuel prices,” which include coal, oil and natural gas, he added.

The Next article cited a study conducted by Chinese Nationalist Party (KMT) Legislator Lo Shu-lei (羅淑蕾) that found the IPPs that Taipower buys from, such as Star Energy Corp (星能電力), Sun Ba Power Corp (森霸電力), Mai Liao Power Corp (麥寮汽電) and Ever Power IPP Ltd (長生電力), have earned a combined profit of NT$120 billion since 2003 while Taipower has posted about the same figure in accumulated losses over that period.

Taipower said its financial health is unrelated to the profitability of the IPPs.

The company denied that the IPPs made “huge profits,” as the magazine claimed, saying the average investment among the producers is NT$30 billion and their annual return on investment is about 4.3 percent. Taipower officials refuse to say if that return rate was high or low.

The magazine said Taipower had inappropriately increased its budget for building new plants, including the Fourth Nuclear Power Plant in New Taipei City’s (新北市) Gongliao District (貢寮).

Taipower said the additional budget reflected changes made to construction projects, rises in the consumer price index and the costs of delays to construction work caused by environmental protests.

As for Lo’s claim that the utility’s large workforce has been a serious burden, Taipower said it has laid off 5,074 staff and cut employee compensation by 45 percent since 1992.

The article cited a company employee as saying: “Taipower has too many senior executives who read newspapers, rest in air-conditioned rooms, receive fat paychecks, but contribute nothing to the company.”

Taipower said it would continue its plan to reduce the NT$1.54 billion it spends annually to buy electricity from IPPs, as well as liquidating land assets to increase its revenue.

MANUFACTURERS COMPLAIN

In related news, semiconductor and steel manufacturers said the October rate hike will increase their costs and squeeze their profitability. Their rates would rise 10.4 percent to 12.2 percent, less than the previously proposed hike of 11.6 percent to 13.6 percent.

Advanced Semiconductor Engineering Inc (ASE, 日月光半導體), the world’s biggest chip packager and tester, said the rate hike, is expected to cut its gross margin by about 0.2 percentage points.

Even though the rate hike will be lower than expected, the increase will still have an impact on operations, ASE said. Electricity rates account for 3.5 percent to 4 percent of its total operating costs.

Siliconware Precision Industries Co (矽品精密) also expects the higher rates to increase its operating costs, as electricity bills make up about 3.5 percent of its total costs. It did not give further details.

China Steel Corp (中鋼) said that based on an 11 percent hike, it will be paying between NT$2.78 and NT$3.1 per kilowatt hour more, which means it might have to spend an additional NT$200 million on electricity for the fourth quarter. That would raise its operating costs for next year by almost NT$800 million.

Feng Hsin Iron and Steel (豐興鋼鐵) said it pays about NT$200 million per month for electricity and the higher rates would add NT$20 million per month to its bill.

Additional reporting by CNA