Ministry readies for end of Oil Fund levies

The Ministry of Energy is preparing for the cancellation of the Oil Fund levies if the Pheu Thai Party follows through on its election promise.

A ministry source said the permanent secretary, Norkun Sitthiphong, had ordered his departments to be ready with measures to support the policy. He wants the ministry to be prepared to put it into practice as soon as the new government announces its final details to Parliament.

Yingluck Shinawatra announced during the campaign that she would abolish the Oil Fund if elected. She later decided that Oil Fund levies for three types of fuel - 91- and 95-octane petrol and diesel - would be scrapped.

The Energy Ministry is preparing measures either to spend the annual royalties of Bt40 billion collected from domestic producers and importers of oil to maintain subsidies, or gradually to float the price of liquefied petroleum gas for transport and household cooking, a policy that is currently set to become effective next Tuesday.

The source said that replacing the Oil Fund with royalties was the model that had been used in Malaysia, a major oil-producing country, which spends huge amounts on annual subsidies. Meanwhile, the model of gradually increasing the cost of gas and providing subsidies for only low-income households has worked quite well in India.

At present Thailand consumes 7 million litres per day of 91-octane petrol and levies a tax of Bt6.70 per litre, which is sent to the Oil Fund. This fuel is mostly consumed by more than 10 million older motorcycles, mostly found upcountry. Meanwhile, the country consumes 8 million litres of 95-octane petrol per day, with a levy of Bt7.50 per litre that is sent to the Oil Fund. Diesel consumption is 53 million litres per day, and a levy of Bt1.30 per litre is sent to the Oil Fund.

If these levies are eliminated, the Oil Fund will lose Bt120 million per day or Bt3.6 billion per month or Bt43.2 billion per year, which is roughly equal to the petroleum royalties received each year. If the price of LPG begins to float to world prices next Tuesday, this will reduce Oil Fund subsidies by about Bt1.2 billion per month.

Currently, the Oil Fund subsidises alternative energy, including ethanol, bio-diesel and cooking gas. If the government does not want to lose the revenue from eliminating the levy on the three kinds of fuel mentioned above, it can gradually reduce these levies and partially reduce excise tax, as it did with diesel fuel, and thereby minimise the impact on the Oil Fund.

The Oil Fund currently has an annual cash flow of Bt14.253 billion, but spends Bt14.853 billion on subsidies for cooking gas, natural gas for vehicles and alternative energy. Overall the Oil Fund has a deficit of Bt600 million.

The source said he did not agree with the proposal by PTT, which wants to invest in warehousing or stockpiling oil. He thinks this would oblige the government to spend lots of money on large stockpiling infrastructure, with the only real beneficiary the one holder of the licence to warehouse the oil.

As well, spending money from the reserves of the Bank of Thailand would cause political problems. Part of that money has come from Luang Ta Maha Bua, who initiated the royal programme for helping the country. Most of his followers would object to using this money for the PTT oil-warehousing proposal, the source said.