Thailand Diesel Subsidy Raised To Bt4 Per Litre

Diesel subsidy raised to Bt4 per litre

By Watcharapong Thongrung

The Nation

The Energy Policy Administration Committee yesterday approved an additional subsidy on the retail diesel price, pushing the B3 diesel subsidy to Bt4 per litre as oil spikes take hold on the back of the uprising in Libya.

Effective immediately, the extra 50satang subsidy will cost the Oil Fund Bt217 million per day or Bt6.5 billion a month. Given the reserves of Bt22.8 billion at present, the subsidy could deplete the fund within three months, said Energy Minister Wannarat Charnnukul.

The decision follows the policy of the National Energy Policy Committee (NEPO) to maintain diesel below Bt30 per litre until the end of April, or until the reserves fall as low as Bt10 billion.

"Based on the current situation, within a month, the reserves would fall to Bt10 billion. We should need to convene again then," he said.

"Personally, I think that if the price maintenance stays [and the Oil Fund's reserves are depleted], there will be no tool to take care of volatility [in the energy industry]. The government should resort to other tools if this price maintenance is to stay," he said, adding that without the subsidy, diesel would retail at Bt34 per litre.

Most retailers now sell diesel at Bt29.99, except Bangchak Petroleum and Esso (Thailand).

The committee yesterday also approved the extension of the biodiesel pricing formula from February to March. The formula is based on the domestic price of palm kernels plus the refining margin of Bt2.25 per litre. Under the formula, crude palm oil would cost Bt48.60, below the Commerce Ministry's reference price of Bt51.20.

Wannarat noted that biodiesel for transport purposes was not responsible for the palmoil shortage. As the required mixture of biodiesel has been reduced from 3 per cent to 2 per cent since February 11, PTT and Bangchak Petroleum's purchases of crude palm oil dropped from 6,0007,000 tonnes each during DecemberJanuary to 600700 tonnes in February.

On Wednesday, the NEPO approved the subsidy for liquefied petroleum gas until the end of June. Wannarat said the Oil Fund's subsidy for gas would amount to Bt1.57 billion per month, based on the global LPG price of US$800 per tonne and the monthly import of 100,000 tonnes. The NGV (natural gas for vehicles) subsidy will cost Bt404 million monthly.

The minister said the LPG price for industrial use would be floated in July.

Oil spikes are expected to push inflationary pressures, and to Business Monitor International (BMI), the pressures pose a severe threat to political stability in emerging markets and also create major dilemmas for fiscal and monetary policies that may negatively affect the global recovery.

A BMI report showed that though commodity prices could ease in the second half, risks of commodityprice spikes and upward wage pressures should not be underestimated, and could yet have a negative impact on the global economic recovery.

Inflationary pressures are being felt most keenly in emerging markets, where policy makers will have to find a balance between tightening measures intended to contain prices on the one hand, and maintaining export competitiveness and sustaining growth on the other.

-- The Nation 2011-02-25