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EDITORIAL: Pull the
plug on ill-advised rate hike
Taiwanese have enjoyed low electricity prices for decades, and given the
skyrocketing price of coal, gas, oil and increasing losses at Taiwan Power Co (Taipower),
there is no way to avoid a hike in electricity rates. However, the government
has bungled the process by playing coy in an effort to deflect criticism.
On Thursday, the Ministry of Economic Affairs announced plans to raise
electricity rates progressively by between 8 and 37 percent next month ˇX just
one day after it blocked Taipowerˇ¦s proposal to increase rates by as much as 26
percent for households and 60 percent for some industrial users on the grounds
that Taipower needed to rethink its plan. The ministry had made that
announcement after a three-hour meeting of government agencies and private
groups failed to produce a consensus on the extent of a rate hike, which made it
a bit difficult to believe that in less than 24 hours, Taipower was back with a
better plan.
However, it is not just this week the government has been playing a shell game
over utility rate hikes. Less than a month ago, on March 16, Premier Sean Chen
hedged in answering questions about rumors of a rate hike or two this year,
saying Taipowerˇ¦s price advisory committee would handle the matter according to
the law.
He then added the caveat that any move to increase prices ˇ§shouldnˇ¦t be
described as a price hike, but a resumption of a normal pricing mechanism.ˇ¨
The problem is that for decades, the normal pricing mechanism has been for the
government to subsidize utility costs by requiring state-run Taipower to absorb
increases in raw material costs in order to stabilize domestic commodity prices.
President Ma Ying-jeou (°¨^¤E) has promised to end the subsidies, which still have
not been enough in recent years to keep Taipower in the black. The company said
this week that it lost NT$117.9 billion (US$3.99 billion) as of the end of last
year and that it was on track to lose another NT$100 billion this year without a
rate hike.
Obviously, such losses cannot be allowed to continue, but how, when and by how
much electricity rates should be raised is a question that requires substantial
debate ˇX and agreement, not an overnight diktat. The plan as it stands now
pleases almost no one.
Some Chinese Nationalist Party (KMT) lawmakers went on the defensive, blaming
the problem on ˇX no surpise ˇX the former Democratic Progressive Party (DPP)
administration for freezing utility prices. The trouble is, the KMT already used
that excuse when electricity prices were increased in October 2008, ignoring
that Taipower had also raised prices by an average of 5.8 percent in July 2006,
the first such rate increase in 23 years. They also ignored the fact that low
electricity prices had long been a key component of the KMTˇ¦s industrial policy.
Minister of Economic Affairs Shih Yen-shiang (¬IĂC˛») was right in saying the era
of cheap energy prices was over, but to try and rectify such a long-standing
problem in one fell swoop is too punishing. The ministry says the recent 10
percent hike in gasoline prices and the electricity rate hike could limit
economic growth by 0.48 percentage points this year and boost the consumer price
index by 0.83 percent, but those figures seem wildly optimistic.
Since most workers have not seen a pay raise in years, while inflation has
steadily reduced purchasing power, the size of the electricity rate hikes should
be cut, and their implementation spread out over a two to three year period to
give consumers and industry time to adjust. Taipower should also be required to
make its pricing and purchasing operations more transparent and more efficient.
Utility price hikes are never easy to manage, but the government has done an
extremely poor job of handling this one. It needs to recognize its errors and
rethink the plan.
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