China Petroleum and Taipower Need Reform
China Times editorial (Taipei, Taiwan, ROC)
April 19, 2012
Summary: China Petroleum and Taipower are plagued by gross inefficiency. The Ministry of Economic Affairs can hardly escape blame. If the organization and management of China Petroleum and Taipower remain unchanged, then to expect a report of enhanced operational efficiency three months from now is the height of naivete. Gasoline and electricity prices have both been hiked. Everyone is demanding a review of the performance of China Petroleum and Taipower. These two state-owned enterprises should seize the opportunity to push through reforms so that their organizations may be reborn.
Full Text below:
Both gasoline and electricity prices have been hiked. This has led to price hikes in many consumer goods. Everyone is grumbling. Middle and low income people have been the hardest hit. China Petroleum and Taipower are losing money. Yet their employees continue receiving high salaries and excellent benefits. Even security guards receive one million NT annual salaries. Regardless of whether the companies earn profits or suffer losses, employee bonuses continue increasing. They have become a whole new category of fat cats. Gasoline and electricity prices have both been hiked. If China Petroleum and Taipower can turn their companies around. employees will receive even larger bonuses. The general public is being ripped off to enrich China Petroleum and TaiPower, The system is so twisted, it must be reformed.
Gasoline prices recently rose over 10%. Electricity prices rose between 16% and 31%. The Ministry of Economic Affairs estimates that gasoline and electricity prices will result in a 0.83% to 2.29% increase in this year's CPI. The growth rate will decrease 0.48%, lowering it to 3.37%. These averages imply tha tthe impact is limited. But many businesses are fighthing to survive. Taxi drivers are one example. Rising gasoline prices mean increased overhead and diminished profits. Consumer prices have steadily increased. The impact is not hard to imagine.
Taiwan's energy is totally dependent on imports, We lack the wherewithal to maintain low across the board gasoline and electricity prices. Attempting to do so encourages waste and forces taxpayers to subsidize the biggest users of gasoline and electricity. The result is an even greater injustice. Gasoline and electricity prices must reflect their costs, This is necessary and legitimate. But people have begun tightening their belts. China Petroleum and TaiPower's problems are long-standing, and must be closely scrutinized. Operating losses must not simply be covered by the price freeze.
China Petroleum and TaiPower are oligopolies. What sort of strange developments has this led to? A report from the Bureau of Audit tells all. Last year China Petroleum's pre-tax loss was 38.6 billion NT. Performance bonuses amounted to 4.8 billion NT. Last year Taipower's pre-tax loss was 43.3 billion NT. Performance bonuses amounted to 8.4 billion NT, This far exceeds the budget estimate of 3.9 billion NT. China Petroleum and TaiPower together lost 80 billion NT, Yet they paid out over 13 billion NT in bonuses. State-owned enterprises rack up one loss after another. Yet bonuses increase, again and again. China Petroleum and TaiPower say the performance bonuses were approved by the Ministry of Economic Affairs. No wonder Wang Chung-yu, Chairman of the ROC-USA Business Council, and former Chairman of China Steel, said "The poor performance of state-owned enterprises was caused by the government."
Now look at personnel costs, According to the Bureau of Audit, Last year China Petroleum personnel costs were over 24.7 billion NT. Each employee cost 1.62 million NT. Last year Taipower personnel costs were over 4.35 billion NT. Each employee cost 1.59 million NT. Such high personnel costs are roughly double the industrial and service sector average. The two companies' employees are aging. A crisis of continuity looms. China Petroleum and Taipower claim that personnel costs are not that high relative to total expenditures. But China Petroleum and TaiPower employee salaries are better than other private enterprises. That is an indisputable fact. Compare the annual per capita contribution made by the employees of China Petroleum against those of the Formosa Plastics Group. China Petroleum contributes only 160 million NT. Formosa Plastics contributes as much as 280 million NT. This further highlights China Petroleum's inefficiency.
Now look at employee benefits. Each year China Petroleum provides its employees with over $100 million NT in gasoline subsidies, as a fringe benefit. Each year Taipower provides its employees with over 27 million NT in electricity subsidies. Gasoline and electricity prices have both been hiked. China Petroleum and TaiPower employees meanwhile, enjoy generous gasoline and electricity subsidies. Naturally people are angry. Ruling and opposition legislators are blasting them. Taipower has decided to abolish several electricity subsidies. China Petroleum has said it will reduce or cancel gasoline subsidies. This shows that under the existing system of state owned enterprises, everyone dips into the same pot. Outside pressure must be overwhelming. Expecting China Petroleum, Taipower, and other state-owned enterprises to reform themselves from within, is expecting pigs to fly.
To quell public discontent, the Ministry of Economic Affairs recently established "Taiwan Power Company and Chinese Petroleum Corporation Business Improvement Teams." They recruited people from the business community, management experts, consumer advocates, and others, These people will conduct a comprehensive review of TaiPower and China Petroleum. They will examine their operational efficiency, procurement systems, personnel systems, privatization process, then submit a report in three months. How should we liberalize the market for gasoline and electricity? How should we accelerate the privatization of China Petroleum and TaiPower? These are the fundamental questions that will be asked.
Facing a financial black hole and a shortage of talent, Taipower Chairman Chen Ku-ming said, "I find it almost impossible to sleep at night." We wonder. Does the chairman of China Petroleum find it almost impossible to sleep at night? Rome was not built in a day. China Petroleum and Taipower are plagued by gross inefficiency. The Ministry of Economic Affairs can hardly escape blame. If the organization and management of China Petroleum and Taipower remain unchanged, then to expect a report of enhanced operational efficiency three months from now is the height of naivete. Gasoline and electricity prices have both been hiked. Everyone is demanding a review of the performance of China Petroleum and Taipower. These two state-owned enterprises should seize the opportunity to push through reforms so that their organizations may be reborn.