Thai FM Korn Not In Favour Of Continuing Diesel Price Ceiling

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Korn not in favour of continuing diesel price ceiling

By Watcharapong Thongrung

The Nation

Finance Minister Korn Chatikavanij hinted at the possible scrapping of the ceiling on retail diesel price before April as oil prices continue their upward trend, while oil retailers urged the government to resort to other measures in addition to subsidies from the Oil Fund.

Korn admitted that removing the ceiling could be politically unpopular but said economic policy must be based on facts.

"We need to accept the impact if the Bt30-per litre ceiling is lifted, due to the limited capacity of the Oil Fund. If the price is higher than expected, we need to accept it," he said. "I don't deny the negative consequence on popularity, but we can't damage the country."

He insisted that the Oil Fund's reserves would not be used up to maintain the price. He declined to comment on whether the oil excise tax of Bt5 per litre should be cut as the issue is still pending discussion with the prime minister and the energy minister.

Oil prices have shot above US$100 (Bt3,000) per barrel. High oil prices have also sparked demand for commodities, especially gold. On Wednesday, gold rose to an all-time high of $1,440.32. It eased yesterday on speculation that turbulence in Libya may come to an end, but in Thailand, gold bar peaked near Bt20,800 per baht weight, despite the Thai currency's appreciation against US dollar.

Thailand's Energy Policy and Planning Office, chaired by the energy minister, will meet today. They are expected to approve another 50 satang per litre subsidy. Thanks to the subsidy, which will then rise to Bt4.50 per litre, diesel price will be kept below Bt30 per litre. The actual price should be Bt34.49 per litre, against the managed price of Bt29.99.

Oil retailers, who will today jack up petrol prices, are waiting for additional subsidy.

Chakkrit Charuchinda, PTT's vice president for Strategic Retail Marketing Department, said if crude oil price increases $3 per barrel, diesel marketing margin could fall from 84 to 25 satang per litre.

He suggested the government come up with additional measures to ease the impact from the spike in oil prices, like a cut in oil excise tax and widening the diesel price ceiling by Bt1-Bt2.

Anusorn Sangnimnuan, president of Bangchak Petroleum, also favoured widening the ceiling to Bt32, to reduce pressure on oil retailers.

"The higher ceiling will help retailers stay in business, but it might lead to an increase in the prices of goods, inflation and higher interest rates. Without additional measures, retailers would face losses," Chakkrit said. He added that the burden on the Oil Fund is huge, as it shoulders many kinds of subsidies, including the Bt400-million monthly subsidy for natural gas for vehicle and Bt1.5 billion to Bt2-billion subsidy for liquefied petroleum gas.

-- The Nation 2011-03-04

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Bank of Thailand warns of negative impact of extended diesel subsidy

BANGKOK, March 4 – The government should not peg the domestic price of diesel fuel at no more than 30 baht per litre for an extended period because it could undermine the country’s economic stability in many aspects, according to a senior official at the Bank of Thailand (BoT).

Songtum Pinto, senior director of BoT Office of Macroeconomic Policy and Analysis, said the central bank did not agree if the government wants to subsidise diesel prices in the long term since it could distort the oil price structure, discourage the public to economise on oil consumption, and fuel the government’s budget burden.

He said the effort to stabilise diesel prices also caused a feeling of unequal and unfair treatment among gasoline consumers since the government applied funds taken from higher gasoline prices to the State Oil Fund to subsidise the diesel prices.

In the long run, he said oil prices would definitely continue to rise. Because of this, the government should not peg fuel prices at a particular level for long.

Instead, it should peg the prices for the short run, if necessary, to help ease the public burden to a certain extent.

Simultaneously, the government should signal fuel price rises and gradually raise the price so that the public can adjust to the realities of the energy situation.

Mr Songtum said what should be of greater concern now is the indirect impact of worries that the political violence in Libya would spill into other countries, which are the world’s key oil production sources such as Nigeria, Saudi Arabia, and the United Arab Emirates. (MCOT online news)

-- TNA 2011-03-04