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Why we should not subsidize LPG - 08 Jun 2012 on Thai PBS

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Published on Jun 12, 2012

Why we should not subsidize LPG - 08 June 2012

For more than 20 years now, the retail price of fuels in Thailand, like benzene, gasohol and diesel, have been floated to reflect the changes in the world oil price. However, LPG continues to be heavily subsidized by the Government through the state Oil Fund, which does so by collecting levies on petroleum products.

With all its other financial responsibilities taken into account, such as subsidizing gasohol E20 and E85, the Oil Fund is currently running more than 22 billion Baht in the red.

Manoon Siriwan - Energy Expert: "At the moment, the greatest strain on the Oil Fund is the state's subsidy on LPG, which the Government subsidizes to the tune of about 3 billion Baht per month, or over 30 billion Baht per year. This explains why the Government needs to reform the LPG price structure to better reflect the world price."

Widely used in cooking, transport and industry, the LPG used in Thailand is partly extracted from the Gulf of Thailand and partly imported.

Although the price of imported raw LPG has already exceeded 26 Baht per kilogram, the Government continues to cap it at 10 Baht 33 Satang, while subsidizing the difference.

As of May 1st this year, including other price components, namely taxes, Oil Fund levy and marketing margin, the LPG price for cooking is around 18 Baht, approximately 21 Baht for transport and 30 Baht for industrial uses.

This makes the LPG retail prices, such as LPG for cooking, considerably cheaper than that of our neighbouring countries.

According to an energy expert, the enormous subsidy on LPG is not what the Oil Fund was actually established to do.

Weerin Wangjiraniran - Assistant Director, Energy Research Institute at Chulalongkorn University: "The first function of the Oil Fund is, really, to serve as a bumper in stabilizing domestic retail fuel prices, while the raw prices of petroleum products follow the world market. The second function is to act as a reserve in time of emergency, to prevent fuel shortages in the country."

Apart from putting a strain on the Oil Fund, subsidizing LPG also leads to the problem of arbitrage, as people smuggle cheaper Thai fuel to neighbouring countries for sale at higher prices, a trade estimated to amount to no less than 5,000 tons of LPG per year.

Furthermore, while there are Government measures to try to prevent people from using subsidized cooking LPG for transport and industrial uses, these measures have failed to stop the practice and the cheap price of the subsidized LPG has resulted in excess usage, as more and more motorists switch from expensive energy alternatives to LPG, while factories substitute liquid petroleum gas for the more efficient Fuel Oil.

Manoon Siriwan - Energy Expert: "The most important point is that natural gas from the Gulf of Thailand, if overused, will be depleted in the next 15 to 20 years. Therefore, we must set LPG prices at a point that reflects their true market value. If we continue to keep LPG artificially cheap, people will use it wastefully, without conserving this valuable, indigenous energy source."

The Thai people have, for a long time, enjoyed artificially cheap LPG. Energy experts stress that it is time for the Government to gradually allow the free market to work its own magic. While doing so, however, it is crucial that the Government put in place appropriate measures to help those who would be most vulnerable and hardest hit by higher LPG prices. Problems must be anticipated and addressed before disaster strikes.

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