Commentary

Support measures essential for Taiwan electricity rate rise

(CNA)

• Publication Date：05/19/2012
• Source： Taiwan Today
• By  Wang Jiann-chyuan

ROC President Ma Ying-jeou’s announcement that electricity rates will go up in three stages is a welcome development, but the policy must be supported by complementary measures if it is not to slow industrial upgrading.

A one-shot hike, as originally planned, would cause a dramatic spike in business costs, and the reflection in retail prices would lead to widespread inflation.

A staggered rise, on the other hand, will ease pressure on the 40 percent of Taiwan’s households that already have trouble making ends meet.

For large companies whose electricity fees are only a small fraction of operating costs, imposing the rise all at once could actually stimulate energy-saving measures and the development of new sources of energy. The majority of Taiwan’s firms are small and medium enterprises, however, and their ability to respond to changing conditions must be taken into consideration.

The impact on SMEs, especially those in sectors such as plastics, machinery, textiles and tape that are intensive energy users, may be greater than has been anticipated. According to the original proposal announced by the Ministry of Economic Affairs, the price of electricity for industrial use would have gone up 30 percent in one fell swoop, and in off-peak hours by more than 60 percent.

(Photo: Huang Chung-hsin)

Mid- and downstream domestic industries primarily export semifinished and finished goods, so to maintain competitiveness amid the economic slowdown in Europe, Japan and the U.S., they have not been able to pass on rising costs through price hikes. Thus a stepwise increase in electricity rates will help these SMEs retain their position relative to exporters in other countries.

This move will also keep companies from moving their plants out of the country or shutting them down, and thereby avoid exacerbating unemployment. Firms that have been able to continue operating in Taiwan despite rising labor costs tend to be highly automated. Automated equipment often has to run 24 hours a day, which means that a big jump in off-peak hour electricity rates would influence operating costs to a very great extent.

Small factories might need to pay more than 1 million NT dollars (US$33,865) in additional power charges, while medium-sized plants could face an extra NT$50 million to NT$100 million. If cost transfers from larger upstream plants, transportation expenses and higher prices from peripheral industries are factored in, the total would be even higher.

Another argument against a one-time power rate increase is that the positive effects of the Cross-Straits Economic Cooperation Framework Agreement (ECFA) on the plastics, machinery and metals sectors, which have benefited from the pact’s early harvest list and reduced tariffs, would be discounted when suddenly rising electricity prices were reflected in operating costs.

(Photo: Chang Su-ching)

Implementing the rate hike in stages, then, is a necessary move that will provide industries with a sorely needed grace period, but it cannot succeed without certain complementary measures.

These include stepping up government inspections to prevent profiteering, and if necessary, handing out stiff penalties to keep inflation from getting out of control. At the same time, during the grace period, subsidies and grants could be used to encourage businesses to accelerate energy-saving measures and development of alternative energy sources.

A review of flaws in state-run Taiwan Power Co.’s operating procedures could improve the utility’s efficiency, as well as bolster arguments for the rate increase.

As they implement policy, government officials ought to keep in mind the struggles of the public, and do their utmost to understand the effects of mounting inflation.

Finally, the country should be opened up at a faster rate to independent mainland Chinese travelers, as this move would stimulate economic growth and increase income, thus counteracting inflation. Citizens will only support the government’s mid- and long-term reforms when they can see for themselves that economic recovery is under way. (THN)

Wang Jiann-chyuan is vice president of the Chung-Hua Institution for Economic Research. These views are the author’s and not necessarily those of Taiwan Today. © 2012 by Wang Jiann-chyuan

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