Halt to oil levy approved

Big cuts in petrol, diesel prices today; gasohol unaffected

The National Energy Policy Committee yesterday resolved to suspend the Oil Fund levy on diesel as well as octane-95 and octane-91 petrol, effective today.

The Oil Fund now collects Bt7.50 per litre from octane-95 petrol. This will also affect the excise tax, which is calculated on the overall price.

The octane-95 petrol price will immediately come down by Bt8.02 per litre: Bt7.50 as the contribution to the Oil Fund and Bt0.52 as excise tax. The price of octane-91 will drop by Bt7.17, and that of diesel by Bt3 per litre. After the cuts, octane-95 petrol will retail at Bt39.32 a litre, down from Bt47.34, while octane-91 will drop to Bt34.77 from Bt41.94. Diesel will cost Bt26.99, down from Bt29.99.

Prime Minister Yingluck Shinawatra, chairing the committee's meeting for the first time yesterday, said that the approval of the government policy to reduce the price of petrol and diesel by lowering the levies on these fuels to the Oil Fund has been granted. The matter has now been handed to the Energy Policy and Planning Office (EPPO) for further implementation.

In addition, the meeting approved a study to be undertaken to determine what impact the levy reductions will have on gasohol, and whether the Oil Fund will be used to subsidise alternative energy prices. The outline of the intended study has been forwarded to the EPPO for further consideration.

The Energy Policy Administration Committee, chaired by Energy Minister Pichai Naripthaphan, also met yesterday after the meeting of the National Energy Policy Committee.

Pichai said after the meeting that the committee agreed to reduce the price of octane-95 petrol, octane-91 petrol and diesel starting at 6 am today. The resulting price reduction of these fuels across the country will follow the approval of the National Energy Policy Committee.

"The policy will wipe out Bt1.6 billion in monthly contributions to the fund," Pichai said, adding that the compensation would run up to about Bt3 billion.

Last night, a ministry caravan kicked off an inventory check for the calculation of compensation to fuel station owners.

Retailers to be compensated

To shield oil traders from losses on fuel remaining in storage that will now be sold at the new lower prices, the commission has allocated Bt3 billion to compensate filling stations. In addition, the commission has approved Bt7 million for Energy Ministry officials and provincial energy departments to inspect the inventory of 17,000 filling stations across the country from midnight last night to 6am today.

With regard to the expected loss of Bt6.16 billion from levy deductions to the Oil Fund, it is worth noting that the fund has a current outstanding balance of Bt1.06 billion. The expected cash flow to the fund is Bt15 billion, which is sufficient to subsidise gasohol, NGV and LPG to January of next year. After that period, the Energy Fund Administration Institute (EFAI) will consider borrowing from financial institutions or issuing government bonds for an amount of Bt20 billion, which will be used to continue subsidies and will need to be approved by the EPPO.

Prasert Bunsumpun, CEO of PTT, expressed his concern over the suspension of the Oil Fund levy, stressing that the inventory inspection and compensation to oil traders before and after the price changes must be transparent and fair to all parties. PTT is also concerned whether the government is able to fund subsidies for price differences between petrol and gasohol, and whether these funds come from the Oil Fund or from reduction of excise taxes. If the government is committed to fund and maintain the price differences, then PTT will go ahead with its plans to invest in alternative energy.

Accordingly, Prasert believes that the measure will not affect the financial status of the Oil Fund because it's a short-term policy. But if there is not enough money, the government will have to borrow to make up any shortfalls.

He further stated that these price reductions will not affect the consumption of LPG and NGV, because the price of these fuels is still lower. However, if the government has to cap the price of NGV at Bt8.50 per kg, then the government may have to find ways to support this low price.

Seree Denworalak, president of the Thai Tapioca Traders Association, said that the government should have measures to keep the gap between the price of benzene and gasohol at Bt6 per litre in order to ensure a stable price for cassava.

"The government previously announced that it would have some measure to shoulder the cost of gasohol and keep the retail price lower than benzene. It should urgently consider reducing collection for excise tax to help promote the use of gasohol," he said.

Seree added that the government might also provide soft loans or subsidise the retail price of gasohol for a while.

The market price of cassava is currently quoted at Bt2.20-2.30 a kilogram. If the price remains stable, farmers will not suffer from the lower price of petrol, he noted.