Global oil and natural gas prices have been higher since Russia’s invasion of Ukraine, but state-run oil refiner CPC Corp, Taiwan (CPC) and utility Taiwan Power Co (Taipower) have reported significant losses because of a government policy that instructs them to absorb part of the cost increase rather than pass it on to consumers.
CPC last week said its accumulated losses had as of the end of last month reached NT$75.1 billion (US$2.53 billion), or more than 50 percent of its paid-in capital of NT$130.1 billion, while Taipower said in a financial statement that as of the end of the first quarter, it had accumulated losses of NT$59.5 billion, up from NT$41.4 billion a year earlier.
Last week, West Texas Intermediate crude oil futures for June delivery settled at US$113.23 per barrel, rising 2.4 percent for their fourth consecutive weekly gain, while natural gas futures on the New York Mercantile Exchange hovered around multiyear highs, as escalating geopolitical tensions continued to disrupt transportation and the supply of energy commodities.
CPC has said that once global oil prices reach US$150 per barrel, its accumulated losses would total NT$500 billion, or nearly four times its paid-in capital. Since January last year, the government had required CPC to freeze natural gas prices for retail users, so the refinery’s natural gas business already had mounting losses. CPC was last month allowed to raise natural gas prices to power generation and electricity distribution businesses, such as Taipower, by 10 percent and by another 20 percent this month.
To improve CPC’s financial picture, its board of directors last week resolved to continue to petition the government to be allowed to reflect higher imported energy costs by raising its domestic oil and natural gas prices by a reasonable amount. The board discussed ways to increase income and reduce expenses, drafted plans to revitalize idle assets and is looking to the government for help in obtaining low-interest loans to pay off old debts.
Although neither CPC nor Taipower can go under, because they are state-owned and government-funded, their losses are shared by all taxpayers no matter how the government backs them. While all end users appear to benefit from CPC and Taipower absorbing added energy costs, those benefits are not evenly shared. The more oil and electricity consumed by wealthy people, energy-hungry companies and other big users, the greater the subsidy they receive, while low-income households that use less energy receive a smaller subsidy.
While the government’s control over utility prices has eased price pressure, it has created huge losses for CPC and Taipower. In theory, the government should adopt a more reasonable energy policy, allowing fuel prices to be determined by the market while it addresses social injustice, but in reality, rising utility prices are more likely to be shouldered by regular consumers, not their wealthier peers, putting the government in an awkward position ahead of the nine-in-one elections in November.
However, as long as the government sets up a sustainable energy policy and effectively cares for the disadvantaged, it is doing the right, responsible thing and should be supported by most people.
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