Flawed Thai Govt's Energy Policy Designed To Garner Votes

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EDITORIAL

Flawed energy policy designed to garner votes

By The Nation

Unrealistic oil subsidies cannot last, but the government persists with them in order to appease the public ahead of the next election

The decision to control oil prices must be considered carefully because it could bleed the Oil Fund dry and distort the market. The government has again tried to beat the market and appease voters by maintaining subsidised diesel prices. But the result may backfire. The public may have to carry the burden of the deferred cost.

The Abhisit administration decided to maintain the diesel price at Bt30 per litre as well as reduce the oil excise tax to Bt0.005 per litre from Bt5.32 per litre. But the timing of the reduction comes as the Oil Fund will soon be running in the red, with world fuel prices also rising.

To date, the Oil Fund has racked up aggregate subsidies of more than Bt20 billion and, with only around Bt4.5 billion left in its coffers, the fund is barely large enough to continue the task of continuing the subsidies until the end of this month.

Economists all contend that it is difficult to argue with the market, which is driven in part by speculation. Therefore, it is impossible to know how high the fuel prices on the world market will go. The recent spike in the crude oil price from US$80-$90 per barrel late last year to nearly $120 now is evidence of how it is impossible to predict the budget needed to subsidise the oil price in the coming months. The target ceiling for diesel of Bt30 per litre may not be realistic.

Although the short-term prospects are not positive, the government is again trying to curb price rises. The attempt can be seen as the government's attempt to buy time and votes before the election. The government does not want to see local diesel prices exceed the psychological barrier of Bt30 as it fears a spike in consumer goods prices and production costs, and hence higher inflation. This would not be good news ahead of the expected general election later this year.

The decision to subsidise the diesel price was not a wise one. It is debatable to what extent the measure has helped curb the inflation rate, as the government had hoped for. Instead, the price control measure may only benefit some quarters of society such as transport operators and some producers. It also distorts the market system.

The government should instead tell the public the truth and urge people to adjust to cope with the external factors that we have no control over. People should face the plain fact that they must consume energy efficiently. Controlling the oil price will not encourage the public to realise this fact. Instead, people will continue to squander vital energy resources.

The government should lead a campaign to urge the public to realise the reality of the situation. A series of measures to encourage the efficient consumption of energy should be introduced and vigorously implemented. The current policy sends a confusing signal to the market over the direction of the government's energy policy. For instance, how will alternative energy be incorporated into measures to alleviate the real effect of rising diesel prices?

The market distortion of keeping prices too low will only lead to unreasonable consumption, as in the case of natural gas and liquefied petroleum gas consumption, which expanded 30 per cent and 10 per cent, respectively, last year.

Smart consumption must be the answer for the longer term. In the meantime, the government and private sector should work together to consume fuel more effectively and promote cheaper sources of alternative energy.

The government should not implement policies just for the sake of its short-term political gain. It must take into account the market reality because, after all, it's the public that has to pay the ultimate price.

-- The Nation 2011-04-20

[givenall]

Well you have to buy the people’s vote one way or another