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Published on March 13, 2008

To avoid a political backlash over rising oil prices, the government yesterday decided to subsidise the price of diesel by Bt0.90 per litre as crude soared to a record of US$109 (Bt3,440) per barrel.

The subsidy will come from two sources: the first, for Bt0.40, will be provided by the Oil Fund and is effective from today. The rest is to be supplied by the Energy Conservation Fund from tomorrow.

Energy Minister Poonpirom Liptapanlop said the subsidy programme would probably end in July, when PTT is able to distribute compressed natural gas more widely.

"We'll have to live with high oil prices as our subsidy [for diesel] is only for a temporary period," Poonpirom said.

Simon Hirst, general manager

for retail sales at Shell Thailand,

said the local unit of the Anglo-Dutch oil giant would raise prices of all

products by Bt0.50 a litre despite

the government's subsidy.

Shell has been shouldering an average loss of Bt2.35 a litre because it had been unable to adjust prices in the past few months to reflect the actual ex-refinery price and marketing margins.

Since January 1, the firm has suffered a Bt400-million loss, he said, adding that the Bt0.90-per-litre subsidy would help, but Shell's retail prices still needed to go up by another Bt1 per litre.

PTT, the largest oil retailer with more than 30 per cent of the market, has been keeping the crucial diesel price - widely used in the transport sector - at Bt29.94 per litre for some time, fearing a price above Bt30 would lead to a public outcry.

However, critics have said the latest subsidy move, albeit temporary, would hurt petrol-powered vehicles as well as upcoming mass-transit projects since funds are being diverted to favour users of diesel vehicles.

The previous government imposed a Bt0.50-per-litre levy on petrol sales to be used as funds for building mass-transit systems, but this will now be suspended.

The Nation