Thu, May 03, 2012 - Page 8 News List

Privatization not an option for CPC

By Liu Ming-te and Tsai Hsi-yi 劉明德,蔡欣嶧

With consumer prices in Taiwan rising under the influence of increased fuel prices and planned electricity price increases, a lot of people have been talking about how to make state-run petroleum refiner CPC Corp, Taiwan (CPC, 台灣中油) more efficient.

President Ma Ying-jeou (馬英九) has said the government does not exclude the possibility of privatizing CPC, but would privatization really get to the heart of the problem? Could privatization make the company more efficient?

If state-run enterprises such as CPC and the Taiwan Power Co were privatized, could the public still trust them and would the public still be able to keep an eye on their operations?

The trend for privatizing state-owned companies started in the UK.

Between 1986 and 1994, following the privatization of the UK’s regional water authorities, the price of water approximately doubled. In some places the price of water in 2004 was as much as five times what it cost before privatization.

As for Britain’s railways, ticket prices have continued to rise since they were privatized. According to a 2009 report, the price of a return ticket between Cornwall in southwest England and the Scottish Highlands came to a stunning £1,002 (US$1,622).

Privatization does not necessarily bring high efficiency and high quality of service.

Following the privatization of the UK’s rail network, private rail companies whose foremost interest is the pursuit of profit have kept cutting costs and have been unwilling to increase spending on quality and safety. Many accidents have occurred as a result.

Returning to Taiwan, we may consider how efficient Chunghwa Telecom, a former state-run company, has been since it was privatized.

According to a report released by the Consumers’ Foundation in January this year, Chunghwa Telecom’s charges for broadband Internet access are the second-highest in the world, yet it offers no bandwidth guarantee.

The foundation said that Chunghwa Telecom’s average download speed was 13 megabytes per second, which would make it the fourth slowest among the 30-plus members of the Organisation for Economic Co-operation and Development (OECD), if Taiwan were in fact a member.

These examples show that the public has not gained any great benefit from privatization.

On the contrary, people have suffered a lot because private profit is the overriding purpose of any private business and privatization does not necessarily improve a company’s overall efficiency.

Privatizing CPC would also widen the gap between rich and poor.

As things stand, CPC, as a state-run enterprise, has to pay a certain proportion of its profit over to the national treasury, so everyone in the country gets to share in it to some extent. However, if CPC were privatized it would not have to pay over any of its profit, so its profit would only be enjoyed by a small number of people — its shareholders.

Privatization may have the purpose of profiting certain big business groups by transferring wealth that originally belonged to the whole nation into the hands of large corporations, making the poor poorer, while the rich get richer.

Financial data may shed some light on the issue.

CPC made NT$14.3 billion (US$489.8 million) in profit in 2007, NT$28.9 billion in 2009 and NT$24.1 billion in 2010. If it had not been for the policy of only increasing fuel prices by half the amount required to cover the rising cost of oil imports, CPC would not have made a loss of NT$36.1 billion after tax last year.

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