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.
Now the price of gasoline has been raised by NT$3.1 per liter to make up for last year’s loss.
If CPC is privatized, the tens of billions of dollars it makes in profit each year will flow into the hands of a small number of big corporations.
In Taiwan, where the average taxable income of the richest 5 percent of households is now 93 times that of the poorest 5 percent, surely we should think long and hard before allowing CPC to be privatized.
Privatization may give rise to many other problems.
One of them is that it can cause a company to become less public-service oriented.
For example, based on profit considerations, a privatized CPC might decide to stop operating filling stations in rural areas and it might seek to maximize profits by closing down loss-making stations.
The result of that would be that people living or traveling in isolated areas might not be able to buy gasoline.
Issues of national security and the nation’s supply of energy should also be taken into account.
Taiwan has very few energy resources of its own.
The nation depend on imports for 97 percent of its energy needs.
If, following privatization, overseas investors were able to manipulate CPC or interfere in its operations by buying and selling its shares, Taiwan’s energy resources would come under foreign control.
In this day and age, when countries all over the world are vying to get their hands on oil, privatizing CPC would be a very bad decision indeed.
If CPC were privatized and then it performed poorly, and the quality of its service declined, the government, holding only a small proportion of the company’s shares, would find it difficult to monitor its operations and look after the public interest.
If CPC were privatized and the government then found there to be serious problems, it would be very difficult for the government to buy back the company.
Considering how badly depleted the nation’s finances are, how could the government afford to renationalize CPC?
In view of these factors, the question of whether CPC should be privatized cannot be considered only from the aspect of improving efficiency. The question should be given more profound consideration, taking all the possible aftereffects into account.
Discussions about CPC’s poor performance cannot be wrapped up with just a casual mention that the company could possibly be privatized.
Can there really be no one among all our government officials capable of resolving inefficiency in a state-run enterprise?
There are plenty of precedents to demonstrate that privatization does not necessarily bring about efficiency.
Privatizing CPC would lead to even higher fuel prices. It would widen the gap between rich and poor, and there are worries that it would profit big business corporations, while weakening the nation’s energy security.
What the government should be thinking about is how to attract talented people to work for CPC and to give them a free hand to transform CPC for the better.
That is the way to make the company more efficient. Just privatizing CPC would be an abrogation of the government’s responsibilities.
Liu Ming-te is an associate professor at National Sun Yat-sen University’s institute of public affairs management. Tsai Hsin-yi is a research assistant at the institute.
Translated by Julian Clegg