STRONG CASE FOR GOVT TO FLOAT THE PRICE OF GAS

If anything, huge subsidies for liquefied petroleum gas (LPG) and the gas shortage last year could serve as a reminder to the National Energy Policy Council that floating the gas price would be the best solution to ensure efficient use of the fuel.

The council, chaired by Prime Minister Abhisit Vejjajiva, will meet today and topping the agenda is the decision to manage the LPG price. So far, the Energy Ministry, under minister Wannarat Charnnukul, has been adamant that the prices of LPG for transportation and household use must be set differently.

The good news is that the proposed price increase of Bt6 per kilogram for transportation will be revised down. As the average gas price is estimated at US$570 (Bt19,900) per tonne, against an earlier estimate of $700-$800, vehicle owners could instead be asked to pay Bt2.70 a kilogram more, said a source in the ministry.

Behind the proposal to create the two-tier price is the realisation that the cheap gas price has encouraged a number of owners to convert their vehicles to run on gas, which in turn unreasonably raised the government's subsidy costs that were meant only for household use.

Moreover, they are reluctant to float the gas price due to the fear that households would be affected amid a number of negative factors.

However, by refraining to float the price now, the government would be passing on the problem to future administrations.

For years, the domestic LPG price has been fixed at $330 per tonne. The price has for years distorted the market mechanism. Household users have been sheltered from any changes in the world market and the environment is not persuading them to use the gas efficiently.

Cheap prices also led a number of vehicle owners turning to LPG, though the gas - better known as cooking gas - is generally for household use. As global prices were high, refineries were encouraged to use LPG in their refining facilities or exports, rather than supplying the market. Coupled with higher demand from the transportation sector, the market experienced a shortage last year.

As households could not live without cooking gas, the authorities stepped in to ease the shortage. National energy giant PTT had to import gas and shoulder the price difference.

At the end of 2008, the cost was Bt7.9 billion and PTT will be repaid only when the gas price is increased.

"Without floating the price, consumers will not be responsible enough to cut down consumption and they will be encouraged to use the gas for non-cooking purposes," said an expert who asked not to be named.

Such trends also affected motorists in general, as the Oil Fund has been shouldering the difference between domestic and global prices.

Notably, the fund's only source of revenue is contributions from motorists.

"It sounds unfair for motorists to support those who run their cars with LPG, particularly when oil prices are high," the expert added.

When the price of gas spiked over $900 per tonne last year, the subsidies skyrocketed, increasing the burden of motorists who were already suffering from high oil prices.

Now that the price of gas is expected to ease in line with fuel prices, it offers a golden opportunity for the government to stop fixing the price. Energy experts have said that this is the first time in 10 years that the global price of gas is down to $380 per tonne. Floating it now would require both motorists and households to shoulder a slight increase in gas bills. But as the price reflects the actual level, they stand to benefit as there will be no shortage.

Motorists experienced all this when fuel prices were floated. They suffered when fuel prices spiked, but in return they were promised all-time availability.

Notably, if the government is so concerned about household gas bills, after the flotation, they can simply give out discounts on the purchase of the next tanks. By doing so, the Abhisit government would not be blamed later for passing on the headache to its successors.