Pheu Thai to go for revamp of energy policy

Coss · July 7, 2011

Election winner 'to control ministry', end levies on three fuel products

The end to Oil Fund levies on three fuel products marks the beginning of the Pheu Thai government's revamping of energy pricing, including ex-refinery prices, and possible exploitation of petroleum royalties, Energy Ministry and Government House sources said.

"The party made it clear that it will control the Energy Ministry. The minister is someone proficient in energy affairs and he will overhaul the energy price structure, particularly gasoline prices, for fairness to consumers particularly the grassroots who contributed massive votes to the party," said the Energy Ministry source who asked not to be named.

Ending contributions from fuel product sales to the Oil Fund could be implemented immediately, with the endorsement of the National Energy Council chaired by the prime minister, he said.

The Oil Fund levies are Bt7.50 per litre for 95-octane petrol, Bt6.70 for 91-octane petrol and Bt1.27 for diesel.

The levy for gasohol 95 with 10-per-cent ethanol content is Bt2.40 and for gasohol 91 with similar ethanol content is Bt0.10. The fund subsidises Bt1.30 and Bt13.50 per litre for gasohol 95 with ethanol blends of 20 and 85 per cent.

The decision to scrap contributions from the two petrol products will not hurt the Oil Fund much. Based on daily consumption of 7 million to 8 million litres of 91-octane, and 100,000 litres of 95-octane, the fund would lose only about Bt60 million a day from the decision.

It would also be giving up Bt67.3 million by scrapping the diesel contribution, based on a daily consumption of 53 million litres.

The government's decision will leave intact the levies on gasohol 95 and gasohol 91 with combined daily consumption of 10 million to 12 million litres. The Oil Fund - due to the stiff subsidies for diesel and gas - is saddled with Bt1.13 billion debts.

"The party originally wanted to please motorcyclists with the campaign to end the Oil Fund. However, that would require a new mechanism as the Oil Fund is still needed to subsidise cooking gas and other products like gasohol E85," the source said.

Over 10 million motorcycles nationwide are running on regular or premium petrol.

Part of the overhaul would be a change in the ex-refinery price, which now references the Singapore price. To attract investment in refineries, the government allows refineries to add to the Singapore price the cost of transporting oil from Singapore, even though there was no such transaction. Without the extra cost, the ex-refinery prices would be lower and so would pump prices.

Besides the new pricing formulas, an oil stock is part of the plan for energy security, which is in line with the International Energy Agency's recommendations. Such stocks are used in countries without a mechanism like the Oil Fund to stabilise prices. For instance, the IEA earlier this month released 60 million barrels of its stock to ease global demand, and this effectively reduced global oil prices.

The oil reserve depots would be part of the Land Bridge project in the South, which was part of Pheu Thai's election platform, the source added.

Krairit Nilkuha, director-general of the Alternative Energy Development and Efficiency Department, said the loss could be addressed by the Energy Conservation Fund, which accumulates Bt4 billion to Bt5 billion annually through the contribution of 25 satang per litre from various fuel products.

Royalty income from petroleum concessions, worth nearly Bt50 billion per year, could be used to cover the Oil Fund's support of alternative fuels like gasohol E20, E85 and liquefied petroleum gas, which is much lower.

"I'm convinced that the promotion under the 15-year alternative energy development plan [2008-2022] would remain and this requires further subsidies," he said.

In the US, petroleum concession holders are required to remit 10 per cent of output to the government. The government then resorts to the stock at times of high global prices, or sells it to make profits.

The Government House source said no legal amendment is needed if royalties would be used for this purpose. Under the Fiscal Reserve Act, that could be done only with the approval of the finance minister, with a clear set of spending plans.

Then the royalty income now parked at the Mineral Fuels Department would be exploited. However, such a change would give the spending mandate to the department's chief or the related ministry's permanent secretary, and the off-balance spending would not be subject to parliamentary scrutiny. For the sake of transparency, a new committee may be set up to manage the fund.