Customers rushed to line up at gas stations nationwide yesterday as news broke that the Ministry of Economic Affairs had scrapped restrictions on fuel price increases, allowing state-run oil refiner CPC Corp, Taiwan (CPC, 台灣中油) to pass higher crude costs on to consumers.
Starting today, gasoline and diesel prices will rise between NT$2.3 a liter and NT$3.6 a liter, or an average of 10.7 percent, the steepest pace in nearly four years.
Minister of Economic Affairs Shih Yen-shiang (施顏祥) said the price hike reflects the soaring cost of crude oil and is aimed at keeping CPC’s finances from deteriorating,
“It was not an easy decision, but no country that heavily depends on oil imports can afford to subsidize oil consumption for an extended period of time,” Shih told a news conference, adding that Taiwan imports 99.4 percent of its oil supply.
Formosa Petrochemical Corp (台塑石化), the nation’s only private-run oil refiner, yesterday said it would increase its gasoline prices between NT$2.2 a liter and NT$3.7 a liter, while the price of diesel will rise by NT$3.2 a liter.
Since December 2010, the government has been subsidizing the nation’s oil products in an attempt to stabilize consumer costs by covering half of any necessary price increases.
With the subsidy in place, domestic oil and diesel prices rose 8 percent and 11 percent respectively during the past 16 months, Shih said. However, during that same period international crude prices surged 43 percent, Shih added.
Consequently, CPC incurred NT$36.1 billion (US$1.22 billion) in net losses last year and an additional NT$12.5 billion in losses in the first two months of this year, Shih said.
Energy Bureau Director-General Jerry Ou (歐嘉瑞) said the policy adjustment would allow CPC to recover only 60 percent of its cost burdens.
CPC will collect the remaining 40 percent in a progressive fashion by only passing on half of any price cuts — based on a floating price mechanism — should crude prices decline, Ou said, adding that the mechanism would remain in place until past distortions have been fully recouped.
The fuel price hikes would detract 0.22 percentage points from Taiwan’s GDP growth this year, forecast at 3.85 percent, and push up consumer prices by 0.37 percentage points, Ou said.
Hsu Chih-chiang (徐之強), an economics professor at National Central University, said the nation’s economy might weaken further if international oil prices continue rising.
“An annual 10 percent hike [in crude prices] could dent the nation’s GDP growth by 0.5 percent,” Hsu said by telephone.
However, the impact might not be evident for three to six months, as retailers tend to initially absorb extra costs to avoid damaging their businesses immediately, the professor said.
The government had no choice but to pass on the price increases to consumers, Hsu said.
However, the increasing costs will help lower demand for oil and encourage the development and sales of energy-efficient cars, home appliances and other products, which is positive for the environment, Hsu added.
According to Ou, car drivers will have to pay on average NT$700 more on fuel a month, while other motorists will spend an extra NT$40.
As of today, CPC’s 92-octane unleaded gasoline prices will rise from NT$31.7 to NT$34 a liter, while 95-octane unleaded will increase from NT$32.4 to NT$35.5 and 98-octane from NT$33.9 to NT$37.5, Ou said.