Political obstacles curb energy reforms: Expert

Political obstacles curb energy reforms: Expert

SINGAPORE (Reuter): The pace of deregulation of the oil
markets in many Asian countries has slowed in the face of social
and political obstacles and rising crude prices, a leading
American energy expert said yesterday.

But the need to get prices down and get private capital in
will ensure that some of these countries keep pushing for
reforms, said Dennis Eklof, senior consultant with U.S.-based
Cambridge Energy Research Associates.

"I see more caution because some fundamental things are
standing in the way," Eklof told Reuters in an interview.

He said Asian countries were deregulating their energy sector
either to lower manufacturing costs or to attract private sector
capital to develop power and refining capacity.

The unwillingness of people to pay high prices for their fuel
needs simply to ensure supplies, as was the case in the 1970s,
also increased pressure for reforms, he said.

"People have a certain degree of comfort in maintaining supply
from the Middle East. There is more emphasis now on cost
competitiveness and less on security," Eklof said.

Previously, Japan was willing to pay higher prices for its
liquefied natural gas (LNG) as an alternative to oil for security
reasons, but now it was not, he said.

Japan deregulated its energy markets last April and the first
year of reforms resulted in a major shake-up leading to leaner
operations and competitive prices.

The increased competition forced 26 gasoline stations to close
in 1996, but analysts expect the current number of petrol
stations, 60,000, to be reduced to about 38,000 in 2005.

The retail price of gasoline has fallen by about 13 percent in
Japan over the past two years.

But protected economies such as India and China are not likely
to enjoy similar benefits, said Eklof.

Large government subsidies on kerosene and diesel, which have
kept prices artificially low in India, make it very hard the
sector there to deregulate.

"The social and political backlash is too much. The removal of
price subsidies is more difficult in a rising market," Eklof
said.

He said unless international oil prices fell, it would be
tough to push reform as retail prices would have to be raised in
a liberalized market to keep up with the higher costs.

Reforms are also being handled cautiously in countries such as
Taiwan, China, Indonesia and Vietnam where state-owned companies
have a monopoly in the retail oil market.

Eklof said it such cases the government was giving the state
monopolies more time to rationalize their operations before
introducing deregulation measures.

"It will cost CPC a substantial market share," he said of
Taiwan's China Petroleum Corp.

Taiwan is due to open its refined oil product market to
domestic competition in 1999 when Formosa Plastics opens a
refinery.

China Petrochemical Corp (SINOPEC), the state giant which owns
about 80 percent of all Chinese refining capacity, is also
working hard to bring its costs down to stay competitive ahead of
the inviable reforms.

To give SINOPEC more time, the Chinese government has kept
foreign companies out of the domestic refining sector. Indonesia
and Vietnam have yet to announce deregulation plans.