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Analysis

Price reform challenges energy supremo

It remains to be seen whether during this year Energy Minister Pongsak Ruktapongpisal can further push forward the government's policy of energy-price reform amid opposition from many parties.

The ruling Pheu Thai Party has not yet completely achieved its reform of the price structure, which it first announced a year ago.

Its attempt to increase energy prices to reflect actual costs has been met with stiff opposition from many quarters, from truck operators and taxi drivers to civic groups. Attempting to reform the pricing structure for diesel through to liquefied petroleum gas (LPG) is a daunting task for all governments. Recent administrations have all subsidised energy prices to keep them lower than production costs, and consumers have naturally got used to the low prices.

It is not surprising that LPG, NGV (natural gas for vehicles) and diesel are synonymous with the term "political products". All governments prefer to fix the prices to floating them, as part of their populist policies.

The longer energy prices are subsidised, the higher the consumption of those fuels, which has continued to increase the burden carried by the Oil Fund.

The present government's announcement of its intention to restructure energy prices can be deemed a brave act, but Pongsak's two immediate predecessors - Pichai Naripthaphan and Arak Chonlatanon - did not completely achieve the goal.

What they did manage to do was increase the price of LPG in the industrial sector to reflect the ex-refinery price of Bt30.13 per kilogram, and raise the NGV price to Bt10.50 per kilo from Bt8.50.

At a meeting of the Energy Policy Administrative Committee last month, Pongsak reaffirmed that the price of LPG for the household sector must also be raised, and this is expected to happen in February. The committee appointed a sub-panel to find ways to ease the impact of the LPG price float.

It decided to expand the base of those who will possibly be affected to cover those using not more than 90 units of electricity per month - totalling 8.3 million households - up from the original 50 units per month, covering 3.67 million households.

As part of the plan to ease the impact on street vendors, the committee approved the use of Bt50 million of Oil Fund money to hire an expert to develop a database of such vendors, who number about 500,000. The task is expected to take about 60 days.

KNOCK-ON EFFECTS

However, the low LPG price for households, which is below the prices applicable to other sectors, has resulted in LPG for household purposes being used by the transport and industrial sectors.

Another of Pongsak's concerns is that the cheap gas will be smuggled out of Thailand to meet demand in other Asean countries, which have higher LPG prices.

The current Thai retail LPG prices are Bt18.13 per kilo for the household sector, Bt21.13 for transportation and Bt30.13 for the industrial sector.

Retail LPG prices are currently Bt47.80 per litre in Vietnam, Bt47.30 in Laos, Bt40.50 in Cambodia and Bt34 in Myanmar. Can't use; don't have equivalents in kilos, so info not usable for comparison -brian/ds

Once Pongsak made it clear that an increase in the price of LPG price was unavoidable, civic groups rushed to stage protests out of concern that the move would be unfair on low-income earners. They even threatened to file a legal charge against him.

The Foundation for Consumers also asked Prime Minister Yingluck Shinawatra to get the government to revoke the plan to float the price of household LPG.

Currently, the subsidised price of LPG is US$333 per tonne, little over a third of the imported price of $900. The low price has led to a continued rise of LPG consumption in all sectors, as a result of which Thailand has become a net LPG importer from previously being an exporter of the gas.

The Oil Fund has experienced a loss of Bt17 billion from the need to subsidise the LPG price.

According to the Energy Business Department, monthly LPG consumption last year was 605,000 tonnes, some 60,000 tonnes per month higher than in the previous year. Higher demand was witnessed in all areas except the industrial sector. The transport sector saw the biggest rise in consumption, at 15 per cent.

LPG imports last year are expected to total 1.7 million tonnes, or 144,000 tonnes per month, some 24,000 tonnes a month higher than in 2011.

Meanwhile, although the price of NGV was raised to Bt10.50 per kilo from Bt8.50 last January, interested parties have still to reach a conclusion on its actual cost. Pongsak has, however, instructed PTT to expand the number of NGV fuel stations before the price is further floated.

PTT has increased the number of NGV stations from 180 in 2008 to 479 at present, but more are required as the number of NGV-using vehicles has increased from 127,735 to 352,000 over the same period.

However, the biggest challenge for the Pheu Thai Party is the flotation of diesel prices.

Consumption of diesel last year was 55.8 million litres per day, and its price has been capped at Bt30 per litre. Thailand imported 929,000 barrels of oil per day, worth Bt1.096 trillion, in the first 11 months of last year.




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