Tue, Jun 26, 2012 - Page 8 News List

EDITORIAL: Energy firms’ shocking track record

Following the April announcement that fuel prices would go up by NT$3, prices have dropped for 12 consecutive weeks. This is because CPC Corp, Taiwan has been following a policy by which it sets prices that fully reflect any increase in cost, but only reflect half of any price cuts. This is to make up for past losses, but the company has now redeemed enough of those. Next month, fuel prices will once again begin to fully reflect both increases and decreases in international oil prices. However, we should not expect this to put an end to the fuel price controversy. The government should use the recoil created by the double increase in fuel and electricity prices to push through the privatization of state-run CPC and Taiwan Power Co (Taipower) to avoid the same thing happening again.

The main reason the price increases have generated such a heavy backlash is that they were intended to merely cover losses and lacked any supporting policy rationale. If the hikes had been part of a governmental environmental protection policy designed to reduce carbon emissions by reflecting the true cost of fuel and electricity, environmentally aware people could have swallowed that bitter pill and given their support to the policy — even if it would have prompted unavoidable consumer complaints — because it would have been the right long-term policy. However, the public is finding it very difficult to accept these price increases because they were designed to compensate for losses caused by prices distorted for political reasons.

The Ministry of Economic Affairs has borne the brunt of the impact of the increases, and while Minister of Economic Affairs Shih Yen-shiang seems to have ridden out the storm, he clearly sensed the public’s anger at both state-run firms. Shih first replaced Taipower chairman Edward Chen (陳貴明), followed by CPC chairman Chu Shao-hua (朱少華), and then parachuted in two of his vice ministers, Hwang Jung-chiou (黃重球) at Taipower and Lin Sheng-chung (林聖忠) at CPC. Hopefully this will rid these state-run companies of the personnel millstones they are forced to bear as well as kick-starting reforms and improving efficiency.

Despite the huge scale of these two firms — and the enormous impact these market-dominating monopolies, or at least oligopolies, have on the public — keeping them as state-run enterprises does allow for greater integration with government policy and makes it easier to maintain stable living standards. The lesson to be drawn from the fuel price controversy is that government intervention in the setting of market prices can only be maintained for a short period of time. In the end, it will be necessary to return to a normally operating market.

Petroleum companies in most other countries are privately run and oil prices fluctuate day to day in step with international prices. Although prices are high, the public has no choice but to accept them and the government avoids both criticism and losses.

A comparison of the level of management efficiency and the operational profits of CPC and Formosa Petrochemical Corp shows that privately run FPC far outperforms CPC, which carries the burden of state ownership and is constantly held back by non-economic factors resulting from government policy and interference by elected representatives. The result is that CPC has become less competitive than FPC and that can only be changed by removing the fetters of state ownership.

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