E85 a priority as Thailand emulates Brazil

As announced by Prime Minister Samak Sundaravej on his radio show yesterday, the Cabinet is expected this week to put E85 on its national agenda.

While Bangchak Petroleum will be the first to retail the fuel in October, the government has axed the excise tax on the alternative fuel with a commitment to further slash taxes on E85-compatible vehicles to promote the local manufacture of flex fuel vehicles (FFV) that can run on conventional petrol or pure ethanol.

Ministers are confident the fuel has a bright future at a time of rising petrol prices.

With an ample supply of sugar cane and tapioca, the raw materials for ethanol are sufficient.

Auto companies have been advised that local manufacturing would benefit from the move, though Thailand is a relatively smaller market than Brazil, as FFV could be exported.

Convincing the ministries of finance, energy, agriculture and industry of benefits of E85 rests on a trend that shows global oil prices could rise further, perhaps to US$200 (Bt6,700) a barrel. As E85 would contain only 15 per cent petrol, it would shave off petrol demand as in the case of E10 gasohol.

According to the Energy Ministry, Thailand now consumes 20 million litres of petrol a day. Since E10 has been popular, with 8 million litres consumed daily, this reduces petrol consumption by 800,000 litres a day - worth Bt7.3 billion a year.

As ethanol is cheaper than petrol, the Kingdom saves another Bt2.3 billion a year by mixing it with ethanol.

Energy Minister Poonpirom Liptapanlop has been inspired to promote the higher ethanol mixture, to 20 per cent (so-called E20) or up to 85 per cent (E85), after her visit to Brazil.

Brazil embraced its ethanol policy in 1931 when sugar, its main crop, suffered plunging prices.

From 5 per cent, the portion of ethanol has been raised to 10, 15, 20 and 100 per cent in 1980 when E100-compatible vehicles were first produced.

E100 is priced about half of E20 and ethanol prices vary in different states depending on the sugar output.

Sugar-cane plantation areas in Brazil encompass 50 million rai or 1 per cent of the country's land area.

In 1989, when sugar prices spiked and brought up ethanol prices, E100 vehicles suffered dearly.

That was also the time when the Brazilian government promoted the use of FFV. The first batch of imports under special tariffs kicked off in 2003 before domestic production started.

At present, 86 per cent of vehicles sold in Brazil are FFV. With a total of 5.64 million units, they account for 23 per cent of vehicles on the roads in Brazil.

To date, Brazil produces 3.2 million units of FFV per year from plants of General Motors, Ford, Volkswagen and Fiat, which churn out more than 100 models. While 2.7 million is for domestic consumption, the rest is exported.

During an interview last week, Poonpirom attributed Brazil's success to the continuation of policy and cooperation among ministries in promoting and regulating the ethanol industry.

While sugar-cane plantations are promoted, the government ensures it would not lead to lower plantation areas for other crops.

Research and development help to boost yields and find ways to maximise the use of sugar cane. To prevent the use of lowly taxed ethanol for vehicles as edible alcohol, all ethanol must be sold to the national oil company Petrobras, which distributes the complete products to retailers.

Poonpirom said success would require cooperation among all ministries, including the Natural Resources and Environment Ministry, which must work harder in guarding forest areas. Assistance is also needed from those supervising the plantation of sugar cane and tapioca, processing, marketing and distribution.

A special unit must be created to oversee all aspects of ethanol development, while the public and private sectors must help with research and development.

There must be a special tax package and attractive pricing policy to encourage the public to switch to ethanol. "The success requires the government's commitment. Thailand could definitely trail Brazil as we have the raw materials. This would also diversify our energy portfolio," Poonpirom said.