VZCZCXYZ0001
RR RUEHWEB

DE RUEHIN #2412/01 1980638
ZNR UUUUU ZZH
R 170638Z JUL 06
FM AIT TAIPEI
TO RUEHBJ/AMEMBASSY BEIJING 5417
RUEHUL/AMEMBASSY SEOUL 7930
RUEHKO/AMEMBASSY TOKYO 7826
INFO RHMFIUU/DEPT OF ENERGY WASHINGTON DC

UNCLAS SECTION 01 OF 02 TAIPEI 002412 
 
SIPDIS 
 
SIPDIS 
 
EPA FOR OIA - DAN THOMPSON 
 
E.O. 12958: N/A 
TAGS: ENRG ECON SENV TW
SUBJECT: FACING REALITY--CHINA PETROLEUM AND TAIPOWER RAISE 
PRICES 
 
REF: A. 05 TAIPEI 3096 B. 05 TAIPEI 04548 
 
TAIPEI 00002412  001.2 OF 002 
 
 
¶1. (U) SUMMARY. Last year, Taiwan authorities vowed not to 
raise fuel or utility prices (ref a).  Facing rising 
international oil prices and mounting losses by state-owned 
energy and utility companies, the 
Executive Yuan relented and allowed price hikes at China 
Petroleum Company (CPC) and Taipower.  CPC has increased its 
gasoline prices by 15.6 percent since February.  Taipower 
raised electricity rates on July 1 by about 5.8 percent.  CPC 
and Taipower say that the latest price increases will reduce 
its financial losses due to rising oil costs.  The increase 
in prices could encourage energy conservation.  END SUMMARY. 
 
 
CPC PERSPECTIVE: PRICE HIKE ONLY TO CUT LOSSES 
--------------------------------------------- - 
¶2. (U) China Petroleum Corporation (CPC), a wholly-owned 
government company, increased its gasoline prices by NT$1.00 
per liter on July 7 to NT$28.6 per liter (NT$ 32.5 = $1.00). 
This follows a NT$2.00 increase in April and a NT$1.00 
increase in February for a cumulative increase of 15.6 
percent in gasoline prices.  CPC estimates that since January 
cumulative losses on gasoline sales have reached NT$200 
billion.  In the future, CPC plans to use an index price of 
gasoline in neighboring countries as a guide when considering 
price adjustments.  The Executive Yuan also lowered the 
import tax on petroleum from the current 10 percent to 5 
percent.  CPC sources told AIT that CPC is also considering 
raising its natural gas prices since that sector is losing 
about NT$2 billion per day. 
 
¶3.  (U) Formosa Petrochemicals, a subsidiary of 
privately-owned Formosa Plastics, also increased its gasoline 
prices by NT$2.00 on April 19.  Formosa Petrochemicals has 
not experienced the massive revenue losses that CPC has 
because its market is largely overseas, giving it more leeway 
to adjust prices in the absence of a state-owned competitor. 
According to news reports the latest gasoline price increases 
will likely drive Taiwan's inflation rate above 2 percent. 
 
NEXT: ELECTRICITY PRICES TO RISE 
--------------------------------- 
 
¶4. (U) Taipower Company has not raised electricity prices 
since 1983.  It has drawn from surplus revenue accrued over 
the years as a result of a  price structure which puts the 
heaviest burden on commercial users.  Households pay an 
average NT$2.4 for kW/hour versus an industry average NT$ 1.7 
kW/hour.  The 
higher revenue gathered from commercial and household users 
allows Taipower to keep industrial rates low.  Higher summer 
rates for electricity, which normally are in effect from June 
to late September are also a source of additional revenue. 
While these measures promote industry and exports by keeping 
production costs low, rising coal and fuel oil costs have 
forced the company to raise prices an average of 5.8 percent 
effective July 1.  Households using over 330 kW/hours per 
month will pay 3 percent more.  According to Taipower, the 
average monthly electricity use of small households is around 
328 kW/hours 
so many consumers will not be affected by the price 
adjustments.  Despite planned rate hikes Taipower estimates 
that it will lose NT$9.2-17.8 billion over the next two 
years. 
 
EFFECTS ON THE PUBLIC: MINIMIZED 
-------------------------------- 
 
¶5. (U)  Electricity rates for street lights, traffic signals 
and schools will not be increased in order to ease the burden 
on local governments.  Since June 21 Airlines have been 
adding fuel surcharges in their ticket prices.  One bus 
company claimed that new gasoline prices will add 
NT$300,000/day to its operating expenses.  However, bus 
companies with existing long-term contracts with CPC will not 
be subject to gas price increases.  Taxis will not be 
affected if they don't exceed a monthly quota of 550 liters. 
Bus companies are proposing to raise the base fare to 
NT$20.00 from the current NT$15.00.  Because city officials 
are concerned that immediate increases in bus and taxi fares 
would be disruptive, they 
are considering phased-in price hikes to minimize the impact. 
 The Ministry of Economic Affairs estimates that the 
increases will have a slight, less than one-tenth of one 
percent, negative impact on GDP. 
 
COMMENT 
 
TAIPEI 00002412  002.2 OF 002 
 
 
------ 
 
¶6. (U)  Taiwan's public has enjoyed cheap energy and utility 
prices for two decades largely due to the fact that policy 
makers have preferred to subsidize costs rather than face up 
to economic reality and pass energy costs along to consumers. 
 As a result, wasteful energy practices have continued, and 
CO2 emissions have increased.  Eminent Taiwan scientist Lee 
Yuan-tseh has called for Taiwan to reduce its CO2 emissions 
through energy conservation.  These latest price hikes may 
encourage the public and businesses to be more conscious 
about energy conservation and start thinking about 
alternative energy sources. End Comment. 
YOUNG