Thu, May 29, 2008 - Page 1 News List

Price hikes helped avert bankruptcy: economist

UTILITIES HURTINGA research fellow at the Institute of Economics at Academia Sinica said adjusting the cost of fuel and electricity would lessen the firms’ losses

By Flora Wang, Mo Yan-chih, Shih Hsiu-chuan and Ko Shu-ling  /  STAFF REPORTERS

CPC Corp, Taiwan (中國石油) and Taiwan Power Co (Taipower, 台電) would likely have gone bankrupt this year if the government had not raised gasoline and electricity prices, an economist involved in Tuesday’s rate hikes said yesterday.

Liang Chi-yuan (梁啟源), a research fellow at the Institute of Economics at Academia Sinica, said in a telephone interview with the Taipei Times that bailing the state-run companies out of their financial difficulties was the main reason for the price hike.

Liang was one of the academics whom Premier Liu Chao-shiuan (劉兆玄) consulted before abruptly announcing a big rise in gasoline and electricity prices on Tuesday.

Liu said gasoline prices would rise by NT$6.5 per liter and premium grade diesel fuel prices by NT$7.2 per liter, minus subsidies.

The adjustment of prices ended a six-month-long freeze on utility and fuel prices imposed by the former Democratic Progressive Party government last December.

“This year, the CPC has suffered a loss of NT$100 billion [US$3.276 billion] because of the price freeze, and its capital is just NT$130 billion. Taipower is expected to be NT$150 billion in the red this year [about half its capital],” Liang said.

The companies’ total losses would be up to NT$300 billion this year if their profit capabilities are taken into consideration, Liang said, referring to CPC’s yearly surplus of NT$20 billion and Taipower’s NT$30 billion.

Liu’s Cabinet proposed complementary measures to cushion the impact of the price rise on the public. These include a reduction in the excise duty on gasoline to absorb 20 percent of the hike, having the CPC absorb another 20 percent of the increase, subsidizing the increased cost of mass transportation and a limited subsidy for taxi drivers.

“The complementary measures will cost NT$32 billion, making hiking the rates a better choice compared with a possible loss of NT$300 billion,” Liang said.

Liang, however, disapproved of reducing the excise duty on oil.

The economist said this approach was inconsistent with the policy of raising energy prices as a way of controlling demand.

“Reducing excise duty on oil should be a temporary measure, which is not supposed to last more than six months,” Liang said.

“The government should get ready to impose an energy tax and put it into practice when global oil prices go down,” he said.

Liang also suggested the government review and adjust oil prices on a weekly basis, instead of just once a month.

The government was initially planning to raise fuel prices as of midnight this Sunday, but moved the announcement forward to Tuesday evening in a bid to combat hoarding by gas stations and individuals.

Liang, however, said that hoarding could still be a problem.

Executive Yuan Spokesman Vanessa Shih (史亞平) said the government will consider the weekly price hike idea.

The Chinese Nationalist Party (KMT) partially defended the Cabinet’s price hikes yesterday, calling them “the most appropriate decision at the most inappropriate time.”

“This problem [gasoline prices] was left behind by the Democratic Progressive Party (DPP) government,” KMT caucus secretary-general Chang Sho-wen (張碩文) told a press conference.

“The KMT is cleaning up after the DPP. Therefore, all the government chiefs from the DPP administration should apologize to the public,” he said.

Chang also cautioned Cabinet officials not to talk about price hike plans before policies are finalized to prevent people from trying to stockpile gasoline again.

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