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Published on November 5, 2007

Companies have been adjusting their business strategies to cope with rising oil prices by implementing energy-saving measures and increasing energy efficiency.

Those interviewed by The Nation also said the immediate impact would be limited, although they were cautious about the long-term impact and the possibility of passing the burden on to consumers.

Darmp Sukontasap, senior vice president of Tesco Lotus, said oil prices had been increasing steadily for the past two years and therefore the company already had plans in place, especially for energy-saving and increased efficiency.

Since the company has been prepared for some time to deal with the situation, the immediate impact will be minimal, he said, though conceding: "If oil prices keep going higher we believe that it will hit not only business operators but more importantly consumers. As a retailer, and with the cooperation of our suppliers, it is our policy to maintain low prices for our products as long as possible for the benefit of consumers."

Tesco Lotus has recently switched its entire fleet of trucks to the use of B5 biodiesel, aiming at cutting fuel costs by 5 per cent. The switch is made possible through collaboration with Tesco Lotus's exclusive logistics suppliers Linfox Transportation (Thailand) and Eternity Grand Logistics.

Tesco Lotus used to consume about 22,500 litres of diesel every month in 400 tractor trailers that hauled products from its central warehouse and distribution centre in Wang Noi in Ayutthaya.

Crude oil prices are now hovering over US$80 (Bt2,720) a barrel while refined-oil prices are moving towards the $100-per-barrel level. Today the Energy Ministry will reduce contributions to the Oil Fund, aiming to delay a further increase in domestic retail prices.

Petrol and diesel prices are at historic peaks.

Many investors believe tight supplies will drive crude prices to $100 a barrel or higher and look to price declines as buying opportunities.

Pornsilp Patcharintanakul, vice chairman of the Board of Trade, said the oil-price rise had certainly affected business as price rises by their nature pushed up business costs, especially transport. "The oil price is one of the key factors pushing up costs, because it increases raw-material prices."

Nonetheless, he said the private sector had learned to adapt to the situation. "They know that the oil price will continue to break records and rise further."

He said the Thai government should look for alternative energy sources, especially nuclear and wind power, to ease the pressure from too much dependence on world oil supplies. He added that the cost of solar energy might be too high, though nuclear energy was a possibility.

Pornsilp said that alternative crops were another option but the supply of these crops as raw materials might not be sufficient. He suggested the government promote the use of GMO crops for use as a fuel.

Wichian Mektrakarn, president of the largest cellular operator Advanced Info Service (AIS), said AIS had addressed the rising costs following the oil-price surge by trimming unnecessary expenses such as office decoration, and turned off some air-conditioners at cell sites to save energy.

However, AIS has not set a cost-reduction target.

Thana Thienachariya, chief commercial officer of second largest cellular operator Total Access Communication, said the firm had tried to control energy costs and would trim marketing costs.

For some industries the cost of oil does not significantly affect business operations. Prasert Marittanaporn, director and executive vice president for accounting and finance of Ch Karnchang, said the effect of the oil price was minimal for the construction company given that it accounted for only 5-10 per cent of operating costs.

The impact from an increase in construction-material prices is nil, he said, given that for each construction project contractors and suppliers were committed to agreed prices. "They shoulder all the extra costs, and this poses no problem to us."

The Bank of Thailand (BOT) believes that crude-oil prices will continue to surge as long as geopolitical risks and speculation remain. When these things stabilise, the price will be lower based on the world's economic fundamentals. The demand for oil is expected to decrease due to a global economic slowdown.

The BOT forecasts that in its base-case scenario the oil price at the Dubai market will average $75 a barrel in the fourth quarter, allowing the economy to grow by 4.4 per cent. The economy could grow by 4.3 per cent as projected if the oil price jumps to $80 a barrel in Dubai or $100 for WTI.

For every increase of $1 per barrel in the crude-oil price, the retail price will rise Bt0.3 per litre. However, the strong baht will help absorb the shock. For every Bt1 appreciation of the currency against the dollar, the retail price will drop Bt0.5-Bt0.6 per litre.

Business Reporters

 The Nation