Thai Oil Fund Set To Run Dry

[webfact]

MIDEAST CRISIS

Oil fund set to run dry

By The Nation

Govt may have to borrow Bt10 bn to maintain diesel subsidy till end of April

The government looks likely to have to borrow more than Bt10 billion to cap the price of diesel at Bt30 per litre until the end of April, as the Oil Fund will reportedly run out of money in the next 20 days.

The Energy Ministry will seek approval from the National Energy Policy Committee, chaired by the Prime Minister, to get loans to extend the diesel price subsidy as planned. Prime Minister Abhisit Vejjajiva said yesterday there was confusion about the actual status of the Oil Fund.

The Energy Ministry's move came after rising world oil prices touched US$100 a barrel last week, up from about $80 at the end of last year. This hike has depleted the Oil Fund rapidly to about Bt7 billion currently - and the fund is expected to go into the red in 20 days, if the government continues to cap the diesel retail price at Bt30 a litre until the end of April.

Diesel oil-tank fillers are expected to enjoy the subsidised price for this and next months - lower than the market price by Bt5.5 a litre - as the government opts for a way to borrow to extend its subsidy and keep the fuel price at or below Bt30 a litre.

With the Oil Fund likely to dry up in 20 days, an oil subsidy loan of at least Bt10 billion is expected, a source at the Energy Ministry said.

The Energy Ministry will seek approval from the Nation Energy Policy Committee for a loan to extend a period of capped diesel prices not exceeding Bt30 per litre until the end of April as per the government policy, the source said.

Fears oil price could hit $200

The government and private sector have upgraded their forecasts for the average retail price of diesel at $100-110 a barrel, from the previous forecast of $80-$90 a barrel. Up to now, the diesel subsidy has been Bt5 a litre. But the source said the Energy Policy Administration Committee would meet this week to raise the subsidy by 50 satang a litre, making it Bt5.5 a litre.

As of Saturday, the Oil Fund had been depleted by Bt302 million a day, the Energy Ministry source said. Based on this figure, the government would need Bt16.6 billion more to cap the diesel retail price for 55 days from March 5 to April 30, resulting in a loss of Bt9.6 billion by the Oil Fund.

"No one knows what the world oil price is, saying that it might climb up to hit US$140 a barrel which was the same rate as it was in the past few years. If Libya's political unrest spreads into Saudi Arabia, the oil price might touch $200 a barrel," the source said.

The Energy Policy Administration Committee meeting had ordered the Energy Fund Administration Institute (EFAI) recently to study options for a loan. The move would be submitted to Cabinet for approval.

Two alternatives are - issuing bonds or directly borrowing from financial institutions, said the source, adding that initial talks would be held with financial institutions ahead of the Cabinet meeting. "The financial cost during the second and third quarter is expected at about 2.75 per cent," the source said.

doubts over oil fund's viability

The source added that the government could borrow the money to compensate the depleted Oil Fund when the fund has no cash flow left in four to five months. As of last Friday, the Oil Fund still had a cash flow of Bt20.93 billion.

Prime Minister Abhisit Vejjajiva yesterday insisted the Oil Fund still had up to Bt30 billion in its coffers.

He dismissed reports only Bt7 billion was left.

"It's a mix-up. Confusion has arisen because of intervention in the cooking-gas price," the premier said during his weekly TV programme.

Many people have expressed concern that efforts to fix the diesel-oil price at no more than Bt30 per litre till the end of April won't be successful because the fund was drying up. Abhisit explained, however, that the Oil Fund still had up to Bt30 billion. But he said agencies would meet today to discuss how to calculate the outstanding amount in the Fund.

-- The Nation 2011-03-07

[Ricardo]

It's deja-vue all over again !

Remember the retail-price of diesel being held-down, in the months running-up to the 2005-election, and the price-increase a week after DL's re-election ?

This sort of thing is not good for the economy, just the short-term interests of the politicians, and is wrong now, as it was then ! But it does fool the voters.

[Bagwan]

I maybe accused of straight line thinking here but isn't it a fact that the Government doesn't have any money and all the cash in their coffers belongs to the Thai people? So why have an Oil Fund when the Thai people are going to pay in any event? They will either contribute in higher taxes or pay at the pumps. Cut out the middle men, something Thailand isn't very good at.

I hope that an eagle eye is kept on the oil companies to ensure that profiteering isn't taking place.

[Ricardo]

Crude-oil prices can jump about disturbingly, while business supposedly prefers stability and fewer variables, so one can make a theoretical-case for 'price-smoothing', increasing-tax to raise retail-prices when oil-prices are low but returning the tax as a subsidy when oil-prices are high.

Rationally the current 'spike' in global oil-prices is probably due partly to the recent/on-going social-disturbances in various Middle-Eastern countries, so any government can claim to be acting in the best medium/long-term interests of the economy by cushioning the blow, but a cynic might suspect that the coming election might also be a factor, this time round just as previously.

[powderpuff]

Soviet style Central Planning works well don't you think?

[bdenner]

Enjoyed it during 2008 when the price up here reached 43 Baht for diesel and close to 50 for 91 octane. Roads were clear of the idiots just out joy riding on modified Waves and driving their pickups around just for the h#ll of it.

Did have some sympathy for those trying to make a living but at least they were safer too!

[otherstuff1957]

Economist say "we eat oil", that is, diesel is used by farm machines to grow the food and by trucks to deliver it. Raising the price of diesel will cause a corresponding increase in the price of food.

Everybody eats.... even the poor. But the poor will be disproportionally hurt by an increase in food prices.

Yes, this policy is unsustainable, but it should be kept in place as long as possible.

[rogercw]

I maybe accused of straight line thinking here but isn't it a fact that the Government doesn't have any money and all the cash in their coffers belongs to the Thai people? So why have an Oil Fund when the Thai people are going to pay in any event? They will either contribute in higher taxes or pay at the pumps. Cut out the middle men, something Thailand isn't very good at.

I hope that an eagle eye is kept on the oil companies to ensure that profiteering isn't taking place.

What oil companies are you talking about? Isn't a company's purpose in life to make a profit for its' shareholders?

[marquess]

There is nothing wrong with trying to keep Diesel prices down, but it should be on a refund basis to those who have registered businesses, pay the market price and then claim back the 5 Baht per litre; rather than have other motorists subsidising 4 wheel drivers and anyone else who happens to use a Diesel vehicle for private use.

[SGD]

Enjoyed it during 2008 when the price up here reached 43 Baht for diesel and close to 50 for 91 octane. Roads were clear of the idiots just out joy riding on modified Waves and driving their pickups around just for the h#ll of it.

Did have some sympathy for those trying to make a living but at least they were safer too!

I bought a car when fuel was around 15 baht a litre. A year later it had more than doubled and then as you say, it marched on to the high 40s. Filling up costs started to become noticeable but as you say, it took a good few idiots off the road. Drove some long journeys at that time and loved the quiet roads though stopping to refuel hurt a little !

[Bagwan]

I maybe accused of straight line thinking here but isn't it a fact that the Government doesn't have any money and all the cash in their coffers belongs to the Thai people? So why have an Oil Fund when the Thai people are going to pay in any event? They will either contribute in higher taxes or pay at the pumps. Cut out the middle men, something Thailand isn't very good at.

I hope that an eagle eye is kept on the oil companies to ensure that profiteering isn't taking place.

What oil companies are you talking about? Isn't a company's purpose in life to make a profit for its' shareholders?

All of them, particularly the ones that Bush, Rumsfeld and their cohorts are involved with.

No argument about companies making profits; they are necessary for research and to encourage further investment. If a company doesn't make profits people lose jobs, hence no income, no personal taxes. The company wouldn't be paying much in the way of taxes either. Profiteering is a different kettle of fish and is immoral, not in the public interest and should be heavily punished.

[lee68]

Enjoyed it during 2008 when the price up here reached 43 Baht for diesel and close to 50 for 91 octane. Roads were clear of the idiots just out joy riding on modified Waves and driving their pickups around just for the h#ll of it.

Did have some sympathy for those trying to make a living but at least they were safer too!

I remember it well. Had just got back from uk and drove from chiang mai to chiang rai for the weekend,and the roads were empty,never seen anything like it,no loonys on the road.plus my sons school was traffic free as well,not the normal everybody taking the car to school.Dont get me wrong i dont like paying more for fuel,but its just a fact of life that its going to get higher.