Global oil and gas markets are in turmoil. Although prices have fluctuated with developments throughout the US and Israel against Iran conflict, increases are a certainty.
Taiwan Power Co (Taipower), through efforts on multiple fronts, earned about NT$70 billion (US$2.19 billion) last year, slightly offsetting accumulated losses of more than NT$400 billion. It had originally hoped that this year would deliver relatively stable oil and gas prices so that it could continue to generate profits and further reduce its losses, which stood at NT$357.3 billion at the end of January.
However, with the outbreak of the war, the National Security Council on March 4 introduced price stabilization measures.
Taipower and state-owned oil refiner CPC Corp, Taiwan will bear the brunt of the policies, being expected to absorb price increases while relying on debt rollover to sustain operations.
It is unclear how they will raise sufficient funds to comply with the government’s price stabilization policy.
Taipower, CPC, and Taiwan Semiconductor Manufacturing Co (TSMC) each hold substantial amounts of debt in Taiwan. The difference between them is that TSMC borrows to finance new, profitable investments, whereas Taipower and CPC borrow mainly to service debt.
For Taipower alone, annual interest expenses last year were about NT$30 billion.
Throughout last year, Taipower’s monthly balance sheets were in dire condition. In April last year, total liabilities accounted for as much as 94 percent of assets. Although the ratio declined slightly in the following months as the company began to turn a profit, it stayed above 90 percent.
Were it not a state-owned enterprise, banks would likely have long since withdrawn lending support.
The Executive Yuan had originally budgeted several hundred billion New Taiwan dollars to support Taipower’s normal operations, but legislators from the Chinese Nationalist Party (KMT) and the Taiwan People’s Party (TPP) jointly blocked the proposal. Their reasons were fourfold: Losses stem from the flawed nuclear-free homeland policy; subsidies would distort prices; Taipower requires structural reform rather than subsidies; and there are concerns about increasing the government’s fiscal burden.
The legislators’ intentions are understandable. In peacetime, partisan disputes among the KMT, the TPP and the Democratic Progressive Party might incur only minor costs, but with energy prices spiking due to the Iran situation, the disruptions to Taipower’s and CPC’s operations might have extreme effects.
With the Strait of Hormuz effectively under an Iranian blockade, countries dependent on oil and gas are scrambling to secure alternative suppliers. Taiwan, facing a disruption of more than 30 percent of its natural gas supply, is no exception.
With severely weakened balance sheets, it is unclear how CPC and Taipower can obtain sufficient financing and compete internationally for supplies.
Since the outbreak of the Russia-Ukraine war, I have made repeated calls for action to make up for the substantial losses of CPC and Taipower, largely to no avail.
At this critical juncture of the US-Israel-Iran conflict, I once again urge pan-blue and white camp legislators, and the Executive Yuan to either assist CPC and Taipower in appropriately increasing prices, or to reintroduce the subsidy budget. Only by doing so can Taiwan compete in the global scramble for energy supplies, weather the natural gas shortage, and avoid power outages or gas shortages.
Liao Huei-chu is a professor in Tamkang University’s Department of Economics.
Translated by Gilda Knox Streader
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