The Ministry of Economic Affairs said it would review its policy of having state-run petroleum refiner CPC Corp, Taiwan (CPC) partially absorb increases in global crude oil prices when calculating domestic fuel prices.
“We will meet this week to review the policy,” said an official on Monday, who spoke on condition of anonymity because of the sensitive nature of the matter.
With the EU banning oil imports from Iran, the price of crude oil could hit US$150 a barrel and the ministry needs to prepare for such a contingency, the official said.
“The ministry needs to review its current measures and come up with new proposals,” he said.
CPC vice president Chen Ming-hui (陳明輝) said the current approach of having CPC absorb half of any increase in crude oil prices above US$100 per barrel, with the other half being passed on to Taiwanese consumers, had cost the company NT$28.5 billion (US$960 million) in revenues last year.
The measure, which was put into practice on Dec. 6, 2010, was part of the government’s effort to stabilize consumer prices as crude oil prices rose above US$100 a barrel.
Chen said CPC, which posted a NT$38.7 billion loss last year, was charging NT$3.7 less per liter of gasoline and diesel as of Sunday than it would have if prices were determined by market forces.
For every NT$0.1 per liter the company absorbs rather than passes on to consumers, CPC stands to lose an additional NT$1.2 billion a year, Chen said.
The official said that to stem CPC’s losses, the ministry would have to carefully review the existing measure and it could possibly allow prices at the pump to rise to reflect high crude prices.
“Reverting to a market mechanism would be the norm,” the official said, adding that the ministry hopes CPC would not have to lose money on a long-term basis, which he said would not be good for the country or the company.