Thai Govt's Diesel Subsidy May Last Till June

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ENERGY WOES

Diesel subsidy may last till June

By Watcharapong Thongrung

The Nation

The government is likely to maintain its subsidy on diesel until June, holding the price at Bt30 per litre, with plans to have the Energy Fund Administration Institute (Public Organisation) help the Oil Fund to shoulder the cost.

An Energy Ministry source said that Prime Minister Abhisit Vejjajiva wanted to maintain the policy until June as higher diesel prices could affect the government's popularity ahead of an election.

It is expected that the government will announce dissolution of the House of Representatives early next month.

"The government has an agreement with transport-service operators to maintain diesel at Bt30 per litre. If the price is allowed to exceed that level, the transporters may request a hike in service fees," the source said. "It has also been a policy of the government to avoid reducing the oil excise tax [to maintain oil prices] because that would affect the government's revenue. However, while the subsidy is shouldered by the Oil Fund, the burden is passed on to petrol consumers."

The Energy Policy and Planning Office earlier completed a study that showed that every Bt1 increase in retail diesel prices would hike inflation by 0.1 of a percentage point.

A senior director of the Bank of Thailand's Domestic Economy Division, Mathee Supapong, said yesterday that some manufacturers now anticipated inflation to exceed 6 per cent.

However, he said these people accounted for only a small group of overall manufacturers, most of whom maintained the view that inflation would remain within a 2- to 4-per-cent range.

The central bank expects inflation to range from 3 to 5 per cent this year. In the first quarter it reached 3.01 per cent, but HSBC Global Research commented that inflation this month could be as high as 4.5 per cent if all subsidies and price-freeze schemes ended.

Higher prices, as well as impacts from the Japan earthquake disaster and conflict in North Africa and the Middle East, will be key factors discussed by the central bank's Monetary Policy Committee at its meeting on April 20. The bank's economic-growth forecast of 3 to 5 per cent could be revised then.

The director of the Energy Fund Administration Institute (EFAI), Sivanan na Nakhon, said the Oil Fund was sitting on Bt12 billion in cash, excluding a Bt7-billion debt burden incurred by supporting cooking gas prices and other subsidies.

The National Energy Policy Committee will be updated on the financial status on April 27, so that it can make a decision then on how to continue with the diesel policy.

As one of the main threats to the Thai economy, oil yesterday climbed for a third day in New York, trading at a 30-month high. Crude for May delivery gained as much as 80 cents to US$108.74 a barrel in electronic trading on the New York Mercantile Exchange, the highest since Sept 2008. Dubai crude oil has risen above $110 per barrel.

The Energy Policy Administration Committee yesterday promptly approved a 30-satang-per-litre hike in the diesel subsidy, which raises the daily cost of the subsidy to Bt348 million.

Energy Minister Wannarat Charnnukul, as chairman of the committee, said the hike would ensure compliance with the government's policy to keep the retail price of diesel below Bt30 per litre.

The subsidy was raised to Bt5.40 per litre, after being hiked 12 times since December 17. The daily cost of the subsidy rose from Bt307 million to more than Bt340 million, and the aggregate cost of the subsidy to the Oil Fund has risen to Bt17.2 billion.

Heightened violence in the Middle East and signs of economic recovery in the United States have pushed oil prices up.

The Energy Policy Administration Committee also approved a new reference price for crude palm oil for biodiesel production. Earlier, Thailand based the crude palm-oil price on the Malaysian price plus Bt3 per kilogram. The new reference price will be set by the Internal Trade Department, plus Bt2.25 per kg.

-- The Nation 2011-04-05

[Sam Drucker]

Has anybody ever seen a reason given by the government for choosing to subsidize only diesel fuel? Why benefit one group of tax payers, while excluding the vast majority using gasoline-powered vehicles including millions of motorcycle riders who presumably can't afford cars?

Edited April 5, 2011 by Sam Drucker

[whybother]

Has anybody ever seen a reason given by the government for choosing to subsidize only diesel fuel? Why benefit one group of tax payers, while excluding the vast majority using gasoline-powered vehicles including millions of motorcycle riders who presumably can't afford cars?

Most transport and farm vehicles use diesel, so an increase in diesel price potentially increases the price of anything that needs to be transported or produced on a farm.

A motorcycle rider buys about 3-4 litres of petrol when they fill up, so they would save a whole 5 baht once a week.

[Buchholz]

Has anybody ever seen a reason given by the government for choosing to subsidize only diesel fuel? Why benefit one group of tax payers, while excluding the vast majority using gasoline-powered vehicles including millions of motorcycle riders who presumably can't afford cars?

Most transport and farm vehicles use diesel, so an increase in diesel price potentially increases the price of anything that needs to be transported or produced on a farm.

A motorcycle rider buys about 3-4 litres of petrol when they fill up, so they would save a whole 5 baht once a week.

Another big and important user of diesel fuel is the quite sizable fishing fleet. They are also very vocal about diesel prices having protested rises in the past by parking their boats and refusing to go out.

It's encouraging that this government has limited the Oil Fund subsidy to the funds it currently has in its accounts. As long as it is in the black, the subsidy will continue. This differs from a previous administration that ran it into the red to the tune of 90 Billion Baht, which hurt many other areas.

.

Edited April 5, 2011 by Buchholz

[Sam Drucker]

Has anybody ever seen a reason given by the government for choosing to subsidize only diesel fuel? Why benefit one group of tax payers, while excluding the vast majority using gasoline-powered vehicles including millions of motorcycle riders who presumably can't afford cars?

Most transport and farm vehicles use diesel, so an increase in diesel price potentially increases the price of anything that needs to be transported or produced on a farm.

A motorcycle rider buys about 3-4 litres of petrol when they fill up, so they would save a whole 5 baht once a week.

Another big and important user of diesel fuel is the quite sizable fishing fleet. They are also very vocal about diesel prices having protested rises in the past by parking their boats and refusing to go out.

It's encouraging that this government has limited the Oil Fund subsidy to the funds it currently has in its accounts. As long as it is in the black, the subsidy will continue. This differs from a previous administration that ran it into the red to the tune of 90 Billion Baht, which hurt many other areas.

.

Okay, I understand these answers, thanks for commenting.

Of course, the problem is that this method allows millions of non-farm vehicles (i.e. pickups) to benefit at other taxpayers expense. Sounds to me like what they really need to do is implement a dyed diesel program where by farm and fishing vessels have access to lower cost diesel fuel that is dyed to ID it as for farm and fishing use only. Then Police do spot checks to insure that road vehicles are not using dyed diesel. If they are, they get fined. If they did that, they could subsidize to a greater extent and for a longer period of time for the groups the subsidy is truly intended for, by getting the road veicles (pickups) out of the subsidy program.

[whybother]

Okay, I understand these answers, thanks for commenting.

Of course, the problem is that this method allows millions of non-farm vehicles (i.e. pickups) to benefit at other taxpayers expense. Sounds to me like what they really need to do is implement a dyed diesel program where by farm and fishing vessels have access to lower cost diesel fuel that is dyed to ID it as for farm and fishing use only. Then Police do spot checks to insure that road vehicles are not using dyed diesel. If they are, they get fined. If they did that, they could subsidize to a greater extent and for a longer period of time for the groups the subsidy is truly intended for, by getting the road veicles (pickups) out of the subsidy program.

"Then Police do spot checks"

But besides that, a lot of pick up trucks are used for transport and farm work. It's also often poorer people that drive or use the pick up trucks, so making it cheaper for them is a vote winner.

[Sam Drucker]

"Then Police do spot checks"

Not sure why you think that's funny? What do you think the Police are already doing out on the highways when they randomly stop vehicles (usually pickups I might add?) Or have you not driven the rural highways?

But besides that, a lot of pick up trucks are used for transport and farm work. It's also often poorer people that drive or use the pick up trucks, so making it cheaper for them is a vote winner.

Agreed, but the current system has a lot of "leakage" for the intended recipients, and also leaves out a lot of taxpayers of other vehicles (such as cars and motorcycles.) And those people are voters too. What are motorcycles . . . 80%+ of all vehicular traffic? That's a big constituency somebody could cultivate, and the point is that if they narrowed the recipients of the subsidy, they could give more subsidy (say 50% instead of 15%) to the targeted group(s).