New oil-pricing regime still leaves out public
By Ma Hongman (China Daily)Updated: 2007-02-08 10:09
Monopoly has brought huge profits to the big three. In the first half of last year, the combined profits of these oil giants amounted to 118.2 billion yuan ($15.2 billion), an all-time high.
Given the high profit margin, the State began to tax their windfall profits at the start of last year.
What policymakers should bear in mind is that without breaking up the monopoly, the new pricing regime may not solve the old problems; rather, new problems may occur in the implementation of the new rule.
In a competitive market, prices represent a balance between supply and demand. The new pricing regime, while strengthening the ability of the government to regulate prices, has largely ignored concerns on the demand side.
Technically, it is impossible for the government to set the level of rational profits for these oil producers in a rational way.
Part of the existing contradictions, the government levies a windfall profit tax on the monopoly oil enterprises while handing these same State-owned enterprises huge subsidies. Clearly the government is unable to establish the real profit margin of these enterprises.
With the government allowing the oil giants to monopolize the sector, they pocket exorbitant profits every year. At the same time, it is hard to determine their profit margin, because they are not in a competitive market.
As a result, the so-called "rational" profit margin serves as a tool for the oil enterprises to lobby the regulators in their favor. The interests of consumers have been shunned.
It is obvious that the problem lies in monopoly.
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