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Full Float of Diesel Prices Imminent: Subsidy Timetable Will Be Shortened

Posted on: Saturday, 9 July 2005, 00:00 CDT

Jul. 9--Government policymakers yesterday indicated that diesel prices could be floated shortly in light of steady increases in global crude prices.

Authorities announced last month that diesel subsidies, in place since January 2004, would be gradually cut over the next several months and be fully floated by the end of the year.

But Finance Minister Somkid Jatusripitak said yesterday that the timetable could now be brought forward faster.

"I believe the public can adjust to higher fuel prices, so it's appropriate that we allow diesel to rise to market prices before our original schedule," he said.

Diesel prices currently are 1.36 baht per litre lower than actual market rates due to a temporary reduction in excise taxes. Subsidies through the state oil fund have cost the government nearly 100 billion baht since early 2004.

Analysts argue that the subsidies have removed incentives for the public to cut consumption, resulting in Thailand's oil imports and current account deficit ballooning because of high global prices.

The current account deficit in the first five months of the year stood at 180 billion baht, or 2.6 percent of gross domestic product and well above the government's policy ceiling of 2 percent of GDP.

Light, sweet crude futures contracts for August rose 62 cents to $61.35 a barrel yesterday in European trade, while Brent futures in London rose 64 cents to $59.92.

Local oil companies, with the exception of state-owned PTT, plan to hike petrol prices by 40 satang a litre and diesel prices by 30 satang today. The increase will put premium petrol prices at 25.74 baht a litre, with regular petrol at 24.94 baht a litre and diesel at 22.09 baht a litre.

Prime Minister Thaksin Shinawatra yesterday met with key economic ministers to discuss the need for new measures to promote energy conservation and prop up the slowing economy.

Among the measures expected to be approved include tighter restrictions on outdoor billboards to cut electricity usage.

Sources said the government also planned to bring forward a salary increase for civil servants in October instead of the original schedule of April 2006, as well as impose tougher rules on state agencies and state enterprises to accelerate spending of some 500 billion baht in undisbursed budget funds.

Energy Minister Viset Choopiban said the ministry was reviewing different options on diesel prices, and the potential impact on economic growth and domestic fuel consumption.

Ministers also discussed ways to boost the use of alternative fuels such as natural gas to help relieve the country's dependence on crude oil.

Natural gas for vehicles (NGV) is currently sold at 8.50 baht per litre compared to diesel prices of 22 baht and premium petrol prices of more than 25 baht. Authorities want to expand the use of NGV to over 10,000 public and private vehicles by the end of the year.

State-owned PTT Plc plans to open 57 new NGV refilling stations by December, and will also help subsidise engine modifications for those interested in using the fuel.

PTT president Prasert Bunsumpan said that fuel prices would increase further next week if crude oil prices remain at current levels.

"We currently lose money with every litre of diesel sales, while the margin on petrol is only 30 satang per litre, compared with one baht earlier this year," he said.

Mr Prasert said he favoured a full float of diesel prices.

"[If prices rise], the public will face more realistic costs and eventually and automatically, adjust their consumption behaviour," he said.

Fully floating diesel would cut fuel consumption growth to zero compared with current growth of 5-6 percent, Mr Prasert added.

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Source: Bangkok Post

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