Fuel Subsidies Under Fire As Oil Prices Skyrocket

[george]

Asia's fuel subsidies under fire as oil prices skyrocket

BANGKOK: -- As Asia grapples with global oil prices racing towards 50 dollars a barrel, several governments in the region are facing unmanageable costs of fuel subsidies that analysts say could put economies at further risk.

The governments of China, India, Indonesia and Thailand -- home to nearly half the world's population -- all proclaim that their elaborate subsidy schemes are necessary to dampen the shock of record high fuel prices on their citizens and developing economies.

"Oil prices have now reached such levels that it's costing governments too much money to subsidise them," said analyst Michael Stead of Kim Eng Securities in Bangkok.

"The subsidies are criticised because they keep high costs from people who would obviously cut back on fuel use if prices were at more realistic levels," he told AFP. "They have to scrap them."

Countries that do not, he and other experts said, are encouraging a surge in fuel consumption, either by consumers or speculators who benefit from low local rates, that the government and its citizens could be saddled with paying off for years to come.

In China, the second-largest consumer of oil after the United States, rising oil prices are now expected to slow the country's economic growth by at least 0.8 percentage points as it pays more for its crude imports, senior State Information Centre economist Niu Li was quoted as saying by the China Daily.

If oil prices were to remain at current levels, China, a net importer of oil, would have to pay an extra 8.8 billion dollars to import its planned 120 million tonnes, or 880 million barrels, of oil this year, Niu said.

Beijing's price caps on refined oil products such as gasoline and diesel have so far protected the consumer, but many of the country's midstream producers have been forced to take on the burden of higher crude prices.

It poses a risk to those companies' business, which then pass on increases to the consumers. This in turn can stall consumption -- a part of China's economic engine that the government wants to see carry more weight.

"If crude prices do go to 50 dollars a barrel then the government is going to have to increase prices for the consumer as well," Liang said.

High oil costs are also due to slash consumption in India, whose government has agreed to absorb spiralling prices by cutting customs duty on petrol and diesel to 15 percent from 20 percent and slashing excise duty on petrol in a bid to control inflation.

The duty cuts and fuel subsidies will cost the Indian government over 25 billion rupees (543 million dollars) in fiscal 2004-2005, according to finance ministry sources.

Analysts have already trimmed growth forecasts for India to 5.5 percent to 6.5 percent from 7.0 to 8.0 percent for the financial year ending in March 2005.

Indonesia, a member of the OPEC oil producers' cartel, has earmarked 14.5 trillion rupiah (1.56 billion dollars) for subsidy spending this year, and 21 trillion in 2005.

Government officials say the annual subsidy may rise to a whopping 50 trillion rupiah in future depending on prices.

Thailand is prepared to shell out a minimum total of 70 billion baht (1.9 billion dollars) for its oil subsidy, particularly of diesel, which began in January and is due to end in April 2005.

"If the government does not subsidise diesel then there will be more repercussions," the kingdom's Prime Minister Thaksin Shinawatra warned in a national radio address Saturday.

The governor of the central Bank of Thailand reportedly acknowledged the "political reason" for the subsidy, which comes ahead of national elections early next year that Thaksin is tipped to win.

But analysts warned that the subsidy program has damaged Thailand's trade balance. Bank of Thailand statistics show a trade deficit of 308 million dollars in March and 357 million dollars in April, largely due to high oil imports, they said.

Thai oil imports in June surged 22 percent in volume and 63 percent in value over the same period last year, according to reports.

Meanwhile the government has capped diesel at 14.59 baht (35 cents) per litre, a full 25 percent lower than market rates, to prevent knock-on effects on other goods and services, according to the country's Energy Policy and Planning Office (Eppo).

"How can people be encouraged to save energy when they can consume oil so cheaply?" said one Eppo official in the Nation newspaper.

"The government's economic stimulus policy, under which future money is used for today's consumption, has encouraged a surge in diesel oil consumption."

-- AFP 2004-08-21

[astral]

Correction.

India is not subsidising, they are reducing the tax to compensate, which is not quite the same as the subsidies here. Motorists will foot the bill for the subsidy fund here, any tax payer in India can be a traget of compensatory taxes.

Indian fuel prices are almost twice those in Bangkok!!

It is also stretching credulity a little to lump Thailand with China, India and Indonesia and say we make up half the world's population.

By comparison Thailand is just a piss in the ocean.

[Khutan]

It suits me, I drive a Diesel truck, and I enjoy having my fuel subsidised.