Govt mulls ways to control diesel price

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Govt mulls ways to control diesel price
By Watcharapong Thongrung
The Nation
2011-02-05

Resized to 51% (was 500 x 225) - Click image to enlarge


The Energy and Finance ministries will brainstorm how to keep diesel prices under control next week, as renewed global price spikes are depleting the Oil Fund's Bt5 billion subsidy budget.

"Price restrictions are a temporary measure," said Energy Minister Wannarat Charnnukul. "Whether the subsidy scheme is reviewed depends on economic conditions, and this needs to be discussed with the Finance Ministry."

Following fresh increases in subsidies to B3 and B5 diesel approved yesterday by the Energy Policy Administration Committee, the subsidies on B3 and B5 diesel stand at Bt3 and Bt3.55 per litre, respectively.

Daily subsidy costs will rise from Bt148 million to Bt164.7 million at a time when just Bt1.56 billion of the Oil Fund's Bt5 billion budget remains. This will last eight days if global oil prices do not ease.

Pissawan Achanapornkul, chair of Shell Company of Thailand, said the higher biodiesel price, soon to rise to Bt67 per litre, is depleting marketing margins.

Shell is ready to cancel the forthcoming sale of B5 diesel at 570 stations, she said, noting that the government planned to delay compulsory sales of B5 diesel due to palm oil shortages anyway.

Pissawan suggested the government restrict subsidies to certain sectors such as transport and allow diesel prices to fluctuate in line with market conditions. She also suggested a single diesel grade containing 35 per cent biodiesel, which would increase flexibility.

Diesel prices are being kept below Bt30 per litre amid recent spikes in global oil prices. The government fears that allowing diesel to exceed Bt30 could lead to spiralling inflation.

But while oil prices are kept low, other input costs are increasing and the prices of many goods could rise once the Commerce Ministry's freezing scheme ends after next month.

The Bank of Thailand forecasts headline inflation this year of 2.5-4.5 per cent, boosted by domestic demand.

Crude oil prices are climbing towards the US$100 per barrel mark. Driving the rise is the betterthanexpected economic performance of the United States, the world's biggest consumer of crude.

Continuing protests in Egypt have raised concern among investors that shipments through the Suez Canal could be disrupted.

Analysts also attribute diesel price rises to higher palm oil costs. It is compulsory that diesel contains at least 3 per cent palmoilbased biodiesel.

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Diesel price likely to pass 30 baht a litre 
Bangkok Post: 5 Feb 2011
Diesel likely to pass 30 baht
Government review of other subsidies urged

The government is highly likely to fail in its attempt to keep diesel prices below 30 baht a litre as promised, as the world's oil prices continue rising.

"Global oil prices have increased too much," said Energy Minister Wannarat Channukul. "The 5 billion baht allocated from the Oil Fund to subsidise petrol is likely insufficient."

The allocation is expected to run out in nine days after the Energy Policy Committee agreed yesterday to subsidise another 40 satang a litre for B3 and B5 diesel.

The government has already spent 3.436 billion baht of the 5-billion budget, leaving 1.564 billion or enough to cover nine days.

"Next week when the fund runs dry we will discuss the programme with the Finance Ministry," said Mr Wannarat.

He said the discussion would include whether to let diesel prices move above 30 baht a litre or increase the subsidy budget through an excise tax increase or another allocation from the state Oil Fund.

The Oil Fund has cash on hand of 23.38 billion baht, a significant drop from 27.5 billion before the subsidy programme started on Dec 17.

The Shell Company in Thailand expects global crude oil will stay above $90 per barrel over next two months.

Chairwoman Pissawan Achanapornkul said crude in the global market rose above $80 once the cold season started late last year and had surpassed $100 due to political conflicts in many North African countries.

"I don't see any signs or hints that the price will drop," she said. "We encountered $140 per barrel in the past, and hitting that level again is not beyond expectations."

She urged the government to review the existing subsidy programme that now covers several petroleum products such as compressed natural gas, liquefied petroleum gas and diesel.

"Subsidies should be given to just one product, not all of them," she said. "A subsidy should also be short-term, because otherwise people will ignore saving energy, and exploration will eventually become difficult while prices rise. The subsidy comes from taxpayers' money. It should instead be spent on energy-saving mass transit or rail development."

Shell, the first oil trader to sell only B5 biodiesel, is running down its B5 stocks and shifting to sell B3 biodiesel at its pumps nationwide due to the product's better gross margins and uncertainty about government policy for alternative fuel development.

The move is also aimed at stabilising palm oil prices, which have soared because of shortages and left food producers facing high costs.


http://www.bangkokpost.com/business/economics/219976/diesel-likely-to-pass-30-baht