Editorial: We can't afford to be ripped off

A number of gas stations selling Formosa Petrochemical Corp's (FPC, 台塑石化) petrol were deserted by motorists last week, because the private refiner announced a 10 percent price hike, while its only competitor, the state-owned Chinese Petroleum Corp (CPC, 中油), did not raise prices. This situation is not just a matter of whether inflationary concerns will be eased, but is a dramatic reminder of the lack of sufficient competition that exists in the gasoline retailing market here.

As the price of international crude oil has climbed recently, it is understandable that the government would try hard to prevent state-run CPC from raising fuel prices, as the rising costs of gasoline have become a public concern that may introduce higher commodity prices and cause consumers to ratchet down spending, thus hurting the economy overall.

Since CPC is 100 percent owned by the goverment, there's little doubt that the company will continue to serve as an important policy tool to help stabilize commodity prices. But in view of the fact that the two refiners have raised or lowered prices in sync more than 20 times since 2002 (except this time), it's hard to believe that price-fixing is a thing of the past.

This is especially true when the nation's market watchdog, the Fair Trade Commission, is scheduled later this month to release the results of a second-round investigation into whether these two refiners are guilty of price-fixing. In the commission's previous investigation last October, both CPC and FPC were fined NT$6.5 million each for hiking or lowering prices simultaneously. If they were to be confirmed a second time for violating the Fair Trade Act (公平交易法), they would be subject to a maximum fine of NT$50 million each, and company executives would face a maximum of NT$100 million in criminal ties and three years in jail.

What makes people even more angry is that the prices for crude oil futures are soaring, with October contracts trading at US$67.57 a barrel in New York on Friday, while oil purchased by both CPC and FPC will only cost the two companies between US$53 and US$57 a barrel as of the end of October, the Liberty Times reported yesterday, citing an internal document from the Ministry of Economic Affairs. If CPC were to raise its prices, the company should convince consumers of the reasons why and what cost structure its decision is based on.

Still, the gasoline price fiasco last week reminded us of what a brief but more competitive market it was two years ago, when Esso Petroleum Taiwan Inc (台灣埃索), was in the retail business in the competition with both CPC and FPC.

Esso Petroleum, a joint venture between ExxonMobil Corp and Taiwan's Pan Overseas Corp (匯僑), started supplying oil to local pumps in April 2002 and had staged price wars with its two stronger rivals on and off since that September. Sometimes, Esso Petroleum announced price cuts at its franchise stations that immediately prompted its rivals to follow suit; at other times, this company offered giveaway items to woo motorists, while both CPC and FPC announced they would raise prices.

Despite the chaotic market that appeared at the time, consumers were the biggest beneficiaries in a market where three players had the best deals on offer. Unfortunately, Esso Petroleum later decided to quit Taiwan, and formally withdrew from this market in December 2003 because of increasing losses. Since then, the market has become an oligopoly, in which CPC and FPC collude and consumers get ripped off.

Demanding a more competitive market in the fuel-retailing business is sometimes considered far-fetched, as tacit agreements are often reached between companies as to when and how much prices will be hiked. But it is both the government and the consumers' responsibility to unwind this tangled skein of collusion and demand fair competition.