Ministry tells state-run oil company to freeze gas prices

Drivers and motorcyclists can take a break from rising fuel prices, as the Ministry of Economic Affairs yesterday ordered state-run CPC Corp, Taiwan (CPC) to leave gasoline prices unchanged until an improved floating price mechanism is determined within two weeks.

"We will adjust the pricing mechanism based on advice from different sectors," Minister of Economic Affairs Steve Chen (陳瑞隆) told a press conference yesterday.

The ministry plans to complete the proposal to improve CPC's floating price mechanism by Aug. 14 and submit the new mechanism to the Cabinet for approval, Chen said.

Private refiner Formosa Petrochemical Corp said later that it would match CPC's move to freeze current prices for the next two weeks.

To reflect costs, CPC started last September to adjust gasoline prices based on 80 percent of the change in the price of West Texas Intermediate (WTI) crude oil traded on the New York Mercantile Exchange.

The price per liter now for 98-octane unleaded gasoline is NT$31.3, 95-octane unleaded gasoline is NT$29.8, 92-octane unleaded gasoline is NT$29.1 and premium diesel oil is NT$26.6.

Based on CPC's formula, that would mean a NT$0.4 per liter hike in fuel prices, which would send gasoline prices to another record high.

By putting gasoline prices on hold, CPC would have to absorb about NT$111 million in costs this week, said Liao Tsang-long (廖滄龍), deputy director of CPC's public relations division.

Crude oil prices have surged over the past six weeks, pushing CPC's retail gasoline prices to all-time highs and drawing complaints from both the public and lawmakers.

The ministry had defended CPC's pricing mechanism, saying it was the best measure available. But it has softened its stance after President Chen Shui-bian (陳水扁) said on Monday that he hoped the sharp fluctuations in oil prices would not add to public insecurity and suggested CPC lower its profit target.

Responding to lawmakers' criticism about the high bonuses awarded to CPC executives and employees, Minister Chen said that the bonuses were determined in accordance with rules governing state-owned enterprises.

Chen also said that the executive bonuses had nothing to do with oil pricing issues.

Meanwhile, to help stabilize commodity prices, CPC would not be required to pay its profits to the treasury next year, Director-General of the Directorate General of Budget, Accounting and Statistics Hsu Chang-yao (許璋瑤) said yesterday.

"We estimate that CPC will make a profit of NT$ 6.5 billion [US$198 million] next year, but CPC does not need to submit its surplus to the treasury," Hsu said at a press conference to publicize the government's budget request next year.

Hsu said that CPC, which suffered a loss of NT$17.9 billion last year, can use the surplus earned this year and next to make up for previous losses.

Some Democratic Progressive Party lawmakers said that the Chinese Nationalist Party (KMT), which dominates the legislature, was responsible for the hike in oil prices, as KMT lawmakers had demanded that the CPC set a surplus target of NT$18 billion this year.

Additional reporting by Shih Hsiu-chuan