Price hikes helped avert bankruptcy: economist

UTILITIES HURTING:A 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

Thu, May 29, 2008 - Page 1

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.

Legislative Speaker Wang Jin-pyng (王金平) suggested yesterday that the Cabinet change the way it announces price hikes, when he was approached by reporters for comment.

“People’s feelings should also be taken into consideration when the Cabinet is drawing up the policy,” he said.

Meanwhile, Kaohsiung Mayor Chen Chu (陳菊) urged the central government to notify local governments before it makes such announcements, so that they can take measures to ensure order.

The DPP stalwart was referring to the long lines of vehicles lined up outside gas stations nationwide on Tuesday night after the Cabinet’s announcement.

Kaohsiung Police Bureau Director Tsai Chun-chang (蔡俊章) told the Kaohsiung City Council that the bureau had to dispatch 446 officers to maintain order near stations.

The DPP criticized the government for raising fuel prices and failing to map out complementary measures to minimize the impact.

DPP spokesman Cheng Wen-tsang (鄭文燦) said the KMT administration owed the public an apology and should offer a plan to minimize the burden of the hikes on low and medium-income families.

“The new government is an out-and-out price-raising Cabinet,” Cheng said. “The Ma Ying-jeou (馬英九) administration has failed its first test since taking office.”

ANTICIPATION

Cheng criticized the administration for failing to stabilize commodity prices and the economy. He said the hikes triggered anticipation of more increases and led people to hoard fuel.

The lack of complementary measures would be a significant blow to wage earners and the disadvantaged in particular, he said.

The increases focused mainly on petroleum for consumer products, while oil for industrial purposes rose just 50 percent, Chen said.

During the DPP administration, Cheng said the increase of commodity prices was kept to less than 2 percent, but the consumer price index is estimated to increase to 4 percent or higher under the KMT.

In addition, the KMT administration had already said utility prices would go up in July, he said.

DPP Chairwoman Tsai Ing-wen (蔡英文) said that the Ma administration had not considered the psychological impact of the hikes and public anticipation of an overall jump in commodity prices.

She said the administration’s economy stimulus package might make things worse. It would only do more harm than good if the 12 infrastructure projects and other packages aimed at increasing domestic demand brought more foreign labor and imported goods, she said.

Ma had said that the price hikes were necessary and the longer the government waited, the more painful the hikes would be, Tsai said. But she said the short-term pain might turn into an incurable disease.

The DPP legislative caucus urged the Cabinet to immediately ban the exportation of petroleum-related products.

“The Cabinet decided to raise gas prices but also decided to decrease gas taxes for exported products. That obviously benefits Formosa Petrochemical Corp (台塑石化), since it has been increasing exports of petroleum-related products since January,” DPP Legislator Lin Shu-fen (林淑芬) told a press conference yesterday.

Lin said Formosa Petrochemical Corp would earn an additional NT$1.3 billion (US$43 million) a month now that taxes on exported products dropped.

COMBATING PRICES

In related news, in an effort to combat summer electricity price hikes set to take effect in July, the Taipei City Government and six major retailers joined forces to promote energy conservation and low-carbon products that can save 10 percent to 50 percent more energy compared with regular products.

Consumers will receive discounts, gift certificates or zero interest rates when purchasing products with an energy-saving logo between June 1 and July 30 at six retail stores in Taipei, the city government said.

More information on the promotion can be found on the Internet at mall.energylabel.org.tw.

The Taipei City Rapid Transit Corp said the number of passengers using Taipei’s MRT soared yesterday morning, with about 17,000 more people than usual.

Taipei City Bus Association numbers showed a 3 percent increase in bus passengers.

Additional reporting by Jimmy Chuang

Also see: EDITORIAL: Price hikes and poor politics

Also see: Fuel hikes weigh down transport, industry stocks

Also see: Formosa raises gas, diesel prices