Thai Govt Diesel Subsidy Will Only Promote More Inefficiency

[webfact]

EDITORIAL

Diesel subsidy will only promote more inefficiency

By The Nation

The government is falling into the trap of appeasing the public with unsustainable handouts to secure votes ahead of the next election

The Abhisit government's decision to use Bt5 billion from the Bt27-billion Oil Fund to subsidise retail diesel prices over the next three months is irresponsible and unnecessary. First of all, the subsidy isn't a wise decision because it is impossible to calculate the actual cost, considering the certain fluctuation of oil prices in the future. Secondly, the subsidy will not promote efficient energy-consumption because the public does not realise the real cost of energy prices.

The government last week decided to cap diesel prices at around Bt30per litre. The three-month subsidy is based on the assumption that the price of crude oil on the world market will remain in the range of US$80-90 per barrel. The government has no choice in this plan but to use money from the Oil Fund, which will create a monthly burden of Bt538 million, according to the Energy Ministry.

However, the crude oil price on the world market can be highly unpredictable. If that proves to be the case and prices jump, the burden on the Oil Fund will be greater than the government initially forecast.

Although the government says the measure is aimed at helping to reduce the cost of living at a time of rising oil prices, the measure could actually do more harm than good in the longer term.

Let's be realistic: the diesel subsidy is not a sustainable measure. The subsidy will simply deplete and waste the Oil Fund. In the worse case scenario, in which the world oil price rises above $90 per barrel, the Oil Fund will be almost squandered. Without proper management, the Fund will be running in the red. If that turns out to be the case, will the government be held accountable for throwing the money away?

In addition, the subsidy will always send the wrong signal to voters and consumers. In fact, we should be concentrating on getting people to adjust their lifestyles to consume energy more efficiently, not handing it out as if it were an endless resource. And the most effective way to force the public to consume energy efficiently is to let energy prices float in accordance with the market price. Whenever the energy price rises, the public will naturally learn to save and will become better aware of the true costs of power generation.

Subsidising energy prices will simply encourage the public to continue wasting fuel. The government does not have to look far to see the failure of its "environmentally-friendly" policy. For example, the campaign to encourage the public to reduce the use of plastic bags has not been successful in Thailand because department stores and shops still give away plastic bags for free. The campaign would have been more successful if department stores and shops were forced to charge consumers for the cost of plastic bags, in the same way that many European countries have successfully done. It is therefore necessary to make consumers aware of the costs and effects of energy and over-consumption on our environment.

The Abhisit government obviously hopes t the oil subsidy will help the coalition parties win more votes in the next general election. But the policy could have more lasting negative effects than positive ones. The government should instead focus on sustainable solutions such as efficient energy consumption and the promotion of alternative energy sources.

But instead the Abhisit government has so far implemented only short-term policies such as providing free electricity and water. It also plans to cap the LPG rate. Again, this will only promote irresponsible consumption.

The other concern for the government is that it cannot count on support from the very voters who benefit from these policies. In fact, people may not agree with these subsidies because they know that the negative impact on energy efficiency and the waste of public money will affect them more severely in the longer-term than temporary cheap fuel prices.

-- The Nation 2010-12-22

[CMX]

While the essential truth of this piece is realistic, there are two other factors to consider.

Diesels are inherently more efficient than benzine/gasahol machines. Should there be more put into service (new ones with clean-burn technology), it is a good result.

Many farm machines (in addition to the barges that city people drive) use diesel. To the degree (and I do not know to what degree) that this decision distributes wealth in the direction of the working poor, it is good.

[asiawatcher]

Diesel engines may be more efficient but have higher pollution levels. I disagree regarding diesel subsidies. If you can't afford it - then go without. The constant taxing of people to offset others 'wishes' is not a way to assist economies. Look at the vehicles they are wanting to claim subsidies for - many are new. So if they can afford to buy or finance, they can afford to run them. Farmers need assistance for sure but the Govt should increase the prices of return to farmers from the middle men who artificially hold up prices and not allow the farmers to benefit. The continuing greed - even corrupt - practices continue.

Edited December 22, 2010 by asiawatcher

[Northman061]

If the "Elites" paid the "cattle class" of Thais an honest and fair living wage, these communist style Government "price controls" would not be needed!

[aussiebebe]

While the essential truth of this piece is realistic, there are two other factors to consider.

Diesels are inherently more efficient than benzine/gasahol machines. Should there be more put into service (new ones with clean-burn technology), it is a good result.

Many farm machines (in addition to the barges that city people drive) use diesel. To the degree (and I do not know to what degree) that this decision distributes wealth in the direction of the working poor, it is good.

That's a good way of looking at it; it's a redistribution of wealth and will help the working classes who drive the economy. I've noticed those song-taow pickups are the first to increase prices when diesel rises and an extra 2b per day can hit working Thai's really hard - how does the Nation's editor view that, I wonder?

The editor shouldn't have lumped the LPG rate-freeze into his argument; LPG clearly helps somewhat and people only use what they need. The editor advocates free-market fuel pricing and charging of plastic bags but overlooks the case of Makro, for example, which Thais are free to shop at, where prices are lower and no bags are issued.

Edited December 22, 2010 by aussiebebe

[billd766]

How much of the goods bought on a daily basis in Thailand are carried by trucks and trailers?

If diesel goes up the haulier needs to charge the shopkeepers more who in turn will pass it on to the people who buy goods from the shops and a lot of them got and enormous 15 baht a day pay rise.

The SRT cannot transport the goods to anywhere near where they are needed as the rail transport system is so neglected and even if they could trucks will still be needed to shift it all from the stations.

[yellow1red1]

Who wrote the OP? who has a good memory, or can search? Korn was saying same/same.

do i smell a rift?

EDIT ''' that was EZ

http://www.thaivisa.com/forum/topic/424338-thai-finance-minister-korn-says-no-to-oil-excise-tax-cut/

Korn is RIGHT!!! Abhisit is WRONG

on this issue anyway, . , er

i thot i smelled an infight

Edited December 22, 2010 by yellow1red1

[billd766]

Who wrote the OP? who has a good memory, or can search? Korn was saying same/same.

do i smell a rift?

EDIT ''' that was EZ

http://www.thaivisa.com/forum/topic/424338-thai-finance-minister-korn-says-no-to-oil-excise-tax-cut/

Korn is RIGHT!!! Abhisit is WRONG

on this issue anyway, . , er

i thot i smelled an infight

It was the editorial in the Nation today.

Unfortunately no names, no pack drill.

[Ricardo]

A short-term fuel-subsidy was wrong, when Thaksin/TRT did it pre-election (in 2005 ?), and it's wrong now, price-smoothing to counteract the day-to-day volatility of the global oil/gas-prices is however something else.

There should be a clearly-stated policy on price-smoothing, which should be followed by whoever is in power, and full-time not just in the run-up to an election. In a perfect world, that is.

Edited December 22, 2010 by Ricardo