Float all prices of energy products, experts urge govt

At a PTT-sponsored seminar yesterday themed "Public Benefits from Energy Price Flotation", PTT senior executive vice president Pailin Chuchottaworn urged the government to proceed with its plan to revamp the universal energy-pricing formula, which should lead to a cut in subsidies.

The government also needs to educate the public on the actual cost of green energy products, which have higher nominal cost than conventional products but are more environmentally friendly and hence require less money to address environmental impacts, he said.

Prices should better reflect supply and demand and environmental impacts, Pailin said.

Through the Oil Fund and excise taxes, the government subsidises several types of products, including diesel fuel, gasohol, NGV and LPG. As the market price of the two gas products is fixed, PTT had to bear the cost of the subsidies, amounting to Bt10 billion a year, while the Oil Fund pays out more than Bt20 billion a year for LPG subsidies.

The government was attacked heavily for its move last week to suspend the Oil Fund levy on premium (non-ethanol) petrol, which encouraged the public to switch from gasohol, while more consumers are encouraged to buy diesel-powered vehicles because of lower fuel prices.

Chen Namchaisiri, vice chairman of the Federation of Thai Industries, said the measure was nonsense, as the government had no policy to end price distortion at the same time. The measure just added to the doubts on the direction of the Thai energy sector, and this would jeopardise energy security and the environment.

He insisted that the business sector welcomed flotation of LPG and NGV prices, and this would also require the general public to change their consumption behaviour. "Our only request is that if all trucks are to be powered by NGV, we should be assured of wider availability of such fuel."

Energy expert Manoon Siriwan said: "The government should show courage in floating energy prices so that consumers can adjust accordingly."

He attacked the ruling Pheu Thai Party for the latest measure, claiming that the Oil Fund was being used for political gain. However, he said it could be a good start for a revamp of the energy sector.

Manoon said excise taxes should be a major tool to make fuel products attractive or less attractive, not contributions to the Oil Fund. As the Oil Fund exists to serve its original purpose - stabilising energy prices - this should free it from political intervention.

He added that subsidising NGV and LPG was not the fund's objective.

"Certainly, the latest measure is a marketing plan, to strike first and hard for public support. I'm sure the government has learned that the measure will affect gasohol consumption and it should have a plan now or in the future to address the price discrepancy," he said.

Bank of Thailand chief strategist Yunyong Thaicharoen quoted International Monetary Fund studies as saying that in developing countries, high-income earners gain more benefits from energy subsidies than the poor. In Thailand, 40 per cent of the benefits of diesel subsidies fall on high-income people. He said that if subsidies were to benefit the poor, a new implementation model was necessary.

Against the government's claim that subsidies - through price maintenance - lowered inflation, he said this was true only in the short term, as prices spiked once market mechanisms returned. This was evident after the subsidies of 2004-05, he noted.

One of the Pheu Thai Party's energy policies is to create a sovereign wealth fund to invest in energy sources. Thailand Development Research Institute research director Somchai Jitsuchoon supported the plan, but said it was crucial that such a fund have a high-calibre manager.

Besides, details of the proposal are yet to be discussed, particularly on how to finance it, as the government cannot use foreign reserves without dealing with debts incurred during the creation of such reserves.

Somchai believes contributions to the Oil Fund should be used to finance energy purchases.