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'Cut PTT, power-producer profits to lower prices'

Jun 25. 2014
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PTT AND private power producers are raking in excessive profits that should be brought down, leading economists from the National Institute of Development Administration said.
Speaking yeserday at a Nida seminar on “Thai Energy Reform: For What and for Whom?”, Dr Thiraphong Vikitset, a professor at Nida’s School of Development Economics, said the “discount rate” given to PTT based on the gas-pipeline tariff formula should be cut from 12.5 per cent to 8 per cent per annum, which would help lower the prices of electricity and liquefied petroleum gas.
Nattapong Thongpakde, also a professor at the school, said research by Nida had found that PTT was not profiteering on fuel prices but Thailand’s energy problems actually stemmed from the gas-price structure in which PTT has a natural monopoly in the transmission system.
The Nida academics were making their energy-reform recommendations as the military’s ruling National Council for Peace and Order (NCPO) expects to conclude its plan to restructure the energy sector by the end of this month. 
During the past few years, PTT and state regulators have come under fierce attacks from various non-governmental organisations that claimed a lack of transparency and conflict of interest were causes of Thailand’s soaring energy prices.
Thiraphong said Nida’s suggested 8-per-cent discount rate for PTT’s pipeline tariff was based on the Bank of Thailand’s current 3 2-per-cent policy interest rate, plus 3-per-cent inflation, and “risk premium” allowance.
“There is no other business that is guaranteed a minimum investment return of 12.5 per cent [per annum] for 20 years, without the need to advertise, have a marketing plan, and collect debts. I think [the rate] is quite high,” he said.
In comparison, the return on investment enjoyed by the Electricity Generating Authority of Thailand (Egat) is only 7.5 per cent, and that of the two power-distribution utilities 5 per cent.
The current gas-pipeline tariff comprises a demand charge that reflects fixed investment costs and a variable tariff that reflects the commodity cost. Bringing down the discount rate to 8 per cent would cut the demand charge from about Bt20 per million British thermal units by 26 per cent to about Bt15. Every Bt1 reduction of the pipeline tariff would cost PTT Bt1.5 billion per annum.
Dr Vichit Lorchirachoonkul, a lecturer at Nida’s School of Applied Statistics, said no one should be allowed to make excessive profits from selling natural gas, other fuels and electricity because these commodities are the “upstream” part of all industries.
Thiraphong said the power sector should also be reformed through the setting up of a central electricity market and a separate system operator for commanding the national power grid that would help create true competition, and limiting the role of Egat to that of a pure power producer. Private power producers should be allowed to compete in the central market and be able to bypass Egat to sell their electricity directly to the Metropolitan Electricity Authority and the Provincial Electricity Authority.
The Nida researchers also suggested that the NCPO cut the profits of local oil refineries through reformulating ex-refinery prices to make them equal to Singapore’s, excluding extra costs such as insurance, freight, and quality improvements.

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