Wed, Apr 11, 2012 - Page 2 News List

Academics, firms debate hikes

AT ODDS:Critics of the energy rate rises said CPC and Taipower’s pricing mechanisms were outdated, while company representatives said being state-run hindered them

By Chris Wang  /  Staff reporter

Academics and company representatives from state-run Taiwan Power Co (Taipower) and CPC Corp, Taiwan (CPC) yesterday debated recent and planned price hikes for fuel and electricity.

Academics accused the two companies of using opaque pricing formulas when calculating price rises during a public hearing hosted by the Democratic Progressive Party (DPP) caucus.

CPC Corp dropped a longstanding price freeze and raised gas prices by more than 10 percent on April 1 and the Ministry of Economic Affairs (MOEA) has reportedly approved an electricity price hike of more than 10 percent from next month.

The government’s citing of market mechanisms and cost recovery as the reasons behind the increase did not make sense, National Taipei University economics professor Wang To-far (王塗發) said, because the oil market in Taiwan has always been a monopoly dominated by CPC and the privately owned Formosa Petrochemical Corp, and Taipower has been the sole electricity provider.

With CPC’s refusal to reveal its oil purchasing agreement, the floating fuel price mechanism becomes questionable, he said. He added that Taipower’s insistence on keeping capacity reserve rates high — 23.4 percent in 2010 — and low electricity rates for industrial use were behind the rate hikes.

“Taiwanese do not necessarily oppose price increases. However, the companies’ high personnel costs and the bonuses they distribute to employees regardless of profitability were why people deemed the raise unreasonable,” retired National Taiwan University professor Kenneth Lin (林向愷) said.

National Chiao Tung University professor Huang Yu-lin (黃玉霖) said Taipower’s “outdated” pricing formula had not changed since 1960, and the company would be able to cut costs by NT$100 million (US$3.39 million) for every capacity reserve rate it reduces, which could eliminate the need to raise electricity fees for households.

In response, Taipower chairman Edward Chen (陳貴明) said that his company was efficient and that the price rise was necessary because of increases in the global price of fossil fuels.

CPC chairman Chu Shao-hua (朱少華) said that the nation’s fuel market encourages free competition, but no foreign oil company was interested in operating in Taiwan because of low gas prices and low profitability.

“The current gas price — even after the price increase — remains lower than its cost,” Chu said.

Chen and Chu said that their companies were hindered by being state-run, which binds them to government policy, and that they welcomed privatization and free competition.

However, DPP lawmakers were not happy with the responses, with Tsai Chih-chang (蔡其昌) saying that the hearing would have been unnecessary if the two firms had been run better and Chen Ou-po (陳歐珀) adding that people were questioning why the price rise was announced only after January’s elections.

“We oppose the second planned gas price increase and the scheduled electricity increase in May until CPC and Taipower unveil their cost structure and fuel purchasing deals,” DPP Legislator Chen Ting-fei (陳亭妃) said.

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