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EDITORIAL: Energy
firms’ shocking track record
Following the April announcement that fuel prices would go up by NT$3, prices
have dropped for 12 consecutive weeks. This is because CPC Corp, Taiwan has been
following a policy by which it sets prices that fully reflect any increase in
cost, but only reflect half of any price cuts. This is to make up for past
losses, but the company has now redeemed enough of those. Next month, fuel
prices will once again begin to fully reflect both increases and decreases in
international oil prices. However, we should not expect this to put an end to
the fuel price controversy. The government should use the recoil created by the
double increase in fuel and electricity prices to push through the privatization
of state-run CPC and Taiwan Power Co (Taipower) to avoid the same thing
happening again.
The main reason the price increases have generated such a heavy backlash is that
they were intended to merely cover losses and lacked any supporting policy
rationale. If the hikes had been part of a governmental environmental protection
policy designed to reduce carbon emissions by reflecting the true cost of fuel
and electricity, environmentally aware people could have swallowed that bitter
pill and given their support to the policy — even if it would have prompted
unavoidable consumer complaints — because it would have been the right long-term
policy. However, the public is finding it very difficult to accept these price
increases because they were designed to compensate for losses caused by prices
distorted for political reasons.
The Ministry of Economic Affairs has borne the brunt of the impact of the
increases, and while Minister of Economic Affairs Shih Yen-shiang seems to have
ridden out the storm, he clearly sensed the public’s anger at both state-run
firms. Shih first replaced Taipower chairman Edward Chen (陳貴明), followed by CPC
chairman Chu Shao-hua (朱少華), and then parachuted in two of his vice ministers,
Hwang Jung-chiou (黃重球) at Taipower and Lin Sheng-chung (林聖忠) at CPC. Hopefully
this will rid these state-run companies of the personnel millstones they are
forced to bear as well as kick-starting reforms and improving efficiency.
Despite the huge scale of these two firms — and the enormous impact these
market-dominating monopolies, or at least oligopolies, have on the public —
keeping them as state-run enterprises does allow for greater integration with
government policy and makes it easier to maintain stable living standards. The
lesson to be drawn from the fuel price controversy is that government
intervention in the setting of market prices can only be maintained for a short
period of time. In the end, it will be necessary to return to a normally
operating market.
Petroleum companies in most other countries are privately run and oil prices
fluctuate day to day in step with international prices. Although prices are
high, the public has no choice but to accept them and the government avoids both
criticism and losses.
A comparison of the level of management efficiency and the operational profits
of CPC and Formosa Petrochemical Corp shows that privately run FPC far
outperforms CPC, which carries the burden of state ownership and is constantly
held back by non-economic factors resulting from government policy and
interference by elected representatives. The result is that CPC has become less
competitive than FPC and that can only be changed by removing the fetters of
state ownership.
Chunghwa Telecom Co is similar to CPC and Taipower: its market capitalization is
huge, it enjoys a monopoly or oligopoly and it affects virtually everyone. It
was privatized a long time ago without violating its fundamental function as a
public utility and it has weathered challenges presented by private
telecommunications companies, such as Taiwan Mobile Co and Far EasTone. If
Chunghwa Telecom can do it, then why not CPC and Taipower?
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