Taiwanese have enjoyed low electricity prices for decades, and given the skyrocketing price of coal, gas, oil and increasing losses at Taiwan Power Co (Taipower), there is no way to avoid a hike in electricity rates. However, the government has bungled the process by playing coy in an effort to deflect criticism.
On Thursday, the Ministry of Economic Affairs announced plans to raise electricity rates progressively by between 8 and 37 percent next month — just one day after it blocked Taipower’s proposal to increase rates by as much as 26 percent for households and 60 percent for some industrial users on the grounds that Taipower needed to rethink its plan. The ministry had made that announcement after a three-hour meeting of government agencies and private groups failed to produce a consensus on the extent of a rate hike, which made it a bit difficult to believe that in less than 24 hours, Taipower was back with a better plan.
However, it is not just this week the government has been playing a shell game over utility rate hikes. Less than a month ago, on March 16, Premier Sean Chen (陳冲) hedged in answering questions about rumors of a rate hike or two this year, saying Taipower’s price advisory committee would handle the matter according to the law.
He then added the caveat that any move to increase prices “shouldn’t be described as a price hike, but a resumption of a normal pricing mechanism.”
The problem is that for decades, the normal pricing mechanism has been for the government to subsidize utility costs by requiring state-run Taipower to absorb increases in raw material costs in order to stabilize domestic commodity prices. President Ma Ying-jeou (馬英九) has promised to end the subsidies, which still have not been enough in recent years to keep Taipower in the black. The company said this week that it lost NT$117.9 billion (US$3.99 billion) as of the end of last year and that it was on track to lose another NT$100 billion this year without a rate hike.
Obviously, such losses cannot be allowed to continue, but how, when and by how much electricity rates should be raised is a question that requires substantial debate — and agreement, not an overnight diktat. The plan as it stands now pleases almost no one.
Some Chinese Nationalist Party (KMT) lawmakers went on the defensive, blaming the problem on — no surpise — the former Democratic Progressive Party (DPP) administration for freezing utility prices. The trouble is, the KMT already used that excuse when electricity prices were increased in October 2008, ignoring that Taipower had also raised prices by an average of 5.8 percent in July 2006, the first such rate increase in 23 years. They also ignored the fact that low electricity prices had long been a key component of the KMT’s industrial policy.
Minister of Economic Affairs Shih Yen-shiang (施顏祥) was right in saying the era of cheap energy prices was over, but to try and rectify such a long-standing problem in one fell swoop is too punishing. The ministry says the recent 10 percent hike in gasoline prices and the electricity rate hike could limit economic growth by 0.48 percentage points this year and boost the consumer price index by 0.83 percent, but those figures seem wildly optimistic.
Since most workers have not seen a pay raise in years, while inflation has steadily reduced purchasing power, the size of the electricity rate hikes should be cut, and their implementation spread out over a two to three year period to give consumers and industry time to adjust. Taipower should also be required to make its pricing and purchasing operations more transparent and more efficient.