Institute proposes amendment to CPC floating oil price model

By Ted Chen,The China Post

TAIPEI, Taiwan — The Taiwan Research Institute (TRI, 台經院) yesterday proposed two separate drafts for the amendment of the CPC Corp., Taiwan floating oil price index at an industry symposium. The research institute reiterated CPC’s corporate social responsibility for stabilizing domestic fuel prices, while urging further changes in how accountability is determined concerning performance.

The TRI listed the three primary principles of upper limit, component separation, and neutrality in outlining its recommendation to CPC, while endorsing measures related to stabilization, mitigated impact and performance improvements for the company’s pricing structure for fuel. In addition, the TRI proposed the two operating models aimed at mitigating the impact of volatility in fuel prices and improving the company’s operating efficiency.

According to the TRI, the first model of mitigating the impact of volatile fuel prices is based on CPC’s inherent responsibility to society as a state-operated enterprise. Under TRI’s guidelines, when monthly price increases to fuel exceed 5 percent, stabilization measures may be initiated to limit price hikes to half of what is required to reflect cost. In addition, a price-freeze should be initiated when fuel price increases exceed 8 percent annually, with increments limited to the lowest pre-tax purchase price of fuel of Taiwan’s neighboring competitors in Asia, according to the TRI. The TRI recommends that changes to domestic fuel prices should be based on 90 percent of observed fluctuations in the international markets, instead of 80 percent. However, during periods of rising international oil prices, CPC may levy price increases according to what is required to cover costs if the company’s deficit exceeds NT$5 billion within a year, according to the TRI, adding that in times of declining international oil prices, price hike increments should be halved.

TRI’s second model of fuel price stabilization stipulates that price hikes should not exceed the lowest purchase price of oil offered by Taiwan’s neighboring competitors in Asia. Under this model, the TRI recommend the degree of price changes of fuel to be based on 100 percent of observed fluctuation in the international markets, instead of 80 percent.

For its two recommended operating models, the TRI recommends that CPC adopt 95-octane unleaded gasoline as the basis for its pricing model, instead of 92-octane.

The research institute indicated that its recommendations are still in the draft phase, and it welcomes additional opinions from experts of related fields.