The move is prompted by the likelihood that more subsidies will be concocted to counter renewed spikes in global oil prices.

Taking part in the study are oil companies operating in Thailand, the Energy Policy and Planning Office and the Bank of Thailand. They have been working on the report for four months.

"There is a chance that the government will once more subsidise oil prices, if crude prices keep escalating. But, as we know, a cap [on retail fuel prices] brings about both negative and positive results. The organisations involved want to accumulate the results of this study and prepare a set of suggestions, before the government embarks on any new policy," said an Energy Ministry source.

Crude oil futures recently shot up to nearly US$80 (Bt3,040) per barrel. In Singapore yesterday, the price retreated to $74.21.

In 2004, when oil prices spiked from $45 per barrel to more than $60, the Thaksin government decided to delay increases to retail fuel prices in fear of hyperinflation. The Oil Fund made up the difference between the retail price and the real price. Inflationary pressure was low then, but the subsidy, which was virtually lifted in July 2005, resulted in a financial burden of about Bt90 billion to the Oil Fund.

Recently, without subsidies from the Oil Fund, PTT Plc has been playing a key role in delaying price increases and its losses have been covered by revenue from other businesses, particularly refining.

Experts say subsidies represent a big distortion of market mechanisms and mislead the public about the actual situation, resulting in low consumption efficiency.

The chairman of Shell Companies in Thailand, Tiraphot Vajrabhaya, said the report would suggest the consequences if the government should interfere with price movements, retail price benchmarks or the pricing mechanism. Shell is one of the companies involved in the study project.

He said the retail oil business was in tough times. As retail prices have not freely been adjusted in line with global levels, marketing margins have been unusually low and that has led to the closure of petrol stations, particularly small independent ones in the provinces.

"High competition is not as scary as market distortion, no matter if it is [done] at a policy level or through cross-subsidisation at a corporate level. It affects the whole market," he said. He urged the government to educate the public on price movements, to ensure they grasp the pricing mechanism and are better prepared for future increases, and so they use fuel more efficiently.

He said the parent Shell company had no complaint so far about the distorted market mechanism, but "it's kind of disappointed [with the government's attitude] and we need to be careful that such things can damage our credibility".

Achara Deboonme

The Nation