TAIWAN is stepping up its privatisation programme. The sale of state-owned telecoms giant Chungwha Telecom, the star attraction, is already under way in what amounts to Taiwan’s largest IPO. The privatisation of Aerospace Industrial Development Corporation and Taiwan Chung Hsing Paper should be complete by Christmas, and Taiwan Salt Industrial Corporation plans to float by the end of 2002. Chinese Petroleum Corporation is expected to follow by the end of 2003.

But a big question mark hangs over the sale of Taiwan Power, the state-owned electric utility. Officially scheduled for December 2005, it is beset by controversy surrounding the construction of a nuclear power plant near Taipei.

It took Taipower 15 years to win approval for the $5.5 billion (£3.8 billion) plant, Taiwan’s fourth nuclear power facility. The project was a feature of the previous Kuomintang Government’s strategy, but when the Democratic Progressive Party (DPP) took office in May, Chen Shui-bian, the new President, ordered a fundamental rethink.

Chen questions the safety of the proposed nuclear plant, echoing the doubts of the vociferous, and increasingly influential environmental lobby within his party and the country at large. A majority of Taiwanese industrialists support the project but Wang Yung-ching, chairman of Formosa Plastics, opposes it, arguing that his own coal-fired generators would be more protective of the environment and cost a third of the price.

The Government faces a dilemma over whether to give the nuclear power plant the green light or cancel it. Either way, the decision will be costly. A nuclear facility is more expensive to build but once operational, say its proponents, its fuel costs take up only 15 per cent of the expense of power generation, against 80 per cent when burning the rival liquefied natural gas. Cancellation would also confirm Taiwan’s dependence on imported oil, with its adverse economic and environmental implications.

The Economics Ministry estimates that cancelling the project, which is 30 per cent complete, would incur a loss of $2.9 billion, including compensation for breach of contract and payment for outsourced work. The American Chamber of Commerce, a powerful business lobby with obvious political clout, has already made warning noises over General Electric’s $1.8 billion contract to supply reactors and other equipment. Other big suppliers, including Hitachi and Mitsubishi, are waiting in the wings with potential lawsuits.

Lin Hsin-yi, Taiwan’s Economics Minister, is said to be tilting towards cancellation. Tang Fei, the Prime Minister — a Kuomintang appointee — is ready to resign if it is cancelled. Meanwhile construction continues.

Standard & Poor’s, the credit rating agency, gives Taipower a AA billing, reflecting its strategic role in the national economy, limited competitive pressures and a supportive regulatory environment. But S&P has ominously revised its rating on Taipower from stable to credit watch “with negative implications”. The fate of Taiwan’s fourth nuclear power plant hangs in the balance.

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