The most commonly accepted view about the Cabinet’s sudden decision on Monday to postpone the next round of electricity rate hikes scheduled for December is that the decision reflects the government’s concerns about the negative impact it would have on the nation amid increasing inflationary pressure and a slowing economy.
With exports falling 5.6 percent in the first eight months from a year ago and the annual inflation rate hitting a four-year high of 3.42 percent last month, it is reasonable to assume that the Cabinet decided to postpone the planned increase in electricity rates to October next year and demanded that the Ministry of Economic Affairs come up with supplementary measures to deal with losses at state-run Taiwan Power Co (Taipower), the nation’s largest electricity supplier and monopoly grid operator.
Some critics quickly accused the Cabinet of retreating from its earlier promise to support market mechanisms and to promote the rationalization of energy prices, calling it a populist move lacking vision.
People know that postponing the price hikes is not good for the nation’s long-term energy development, but considering Taiwan’s current economic health and the planned price hike’s impact on the public’s inflationary expectations and its ripple effect on domestic consumption, no one can deny that backing away from raising electricity prices at present will do more good than harm to Taiwan.
The next common criticism about the Cabinet’s about-face is that it was made out of political considerations, as President Ma Ying-jeou’s (馬英九) government has seen a steady decline in support in recent opinion polls, while the main opposition Democratic Progressive Party (DPP) has proposed a motion of no confidence against Premier Sean Chen (陳冲) and the Cabinet in the new legislative session.
While the DPP’s no-confidence vote against the premier is unlikely to pass, given the Chinese Nationalist Party (KMT) and its political allies’ dominance in the legislature and that no one believes more political instability would serve the country’s interests right now, the action of proposing a no-confidence vote has in general reflected a mounting disappointment over the Cabinet’s handling of economic issues.
However, the real force that triggered the Cabinet’s U-turn on electricity rate hikes is the growing public discontent over the slow progress made toward reforming Taipower and refiner CPC Corp, Taiwan after both state-run companies announced they would raise fuel and electricity prices in April.
People might be willing to accept the first round of rate hikes in service of the nation’s energy needs and environmental considerations, but they have found it difficult to accept another round of price increases at a time when the two state-run enterprises continue to have high personnel costs and distribute generous bonuses to employees regardless of profitability, on top of other problems associated with their management efficiency and cost structure, as well as a lack of transparency in their pricing mechanisms and purchasing contracts.
Therefore, saying that the Cabinet’s latest decision reflects the public’s concerns over economic woes only thinly disguises the challenge facing the government’s bid to reform the two state-run companies.
Minister of Economic Affairs Shih Yen-shiang (施顏祥) said later on Monday that the ministry would use the time until October next year to study a floating mechanism for electricity prices so that actual fuel costs can be reflected in prices, to adjust Taipower’s policy role in offering lower-priced electricity to residents on the outlying islands and remote areas to cut losses, and to look into the possibility of recapitalizing the debt-ridden Taipower to help it avoid bankruptcy.
No one knows the viability of these follow-up measures, but people’s dissatisfaction has finally forced the government to rethink its energy price policy, even though it came via a populist approach.
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