Korn rebuts talk of fuel subsidies

ENERGY

Efforts to develop alternative energy in Thailand will make little progress if domestic fuel prices do not increase, said Finance Minister Korn Chatikavanij.

He played down comments made earlier this week by Pruektichai Damrongrut, a deputy finance minister, that the government could cut fuel taxes or even implement outright subsidies if crude oil prices continue to rise.

"The government has no policy to leverage the State Oil Fund to subsidise retail fuel prices to the point that it runs a loss," Mr Korn said.

The State Oil Fund has a positive financial position but faces a burden of 600 million baht per month to offset excise tax increases made last month.

Although the Senate rejected the government's decree to raise the excise tax ceiling from five to 10 baht per litre, authorities remained committed to the basic premise of the law, he said.

The government also has no plans to reduce the current excise tax, set at seven baht per litre from five baht earlier.

"If we subsidise fuel, even though our country is a net oil importer, it will only hinder our efforts to develop alternative fuel sources, something which is critical for our future and beneficial for our farm sector," said Mr Korn.

He said that raising fuel taxes in the middle of a downturn was a difficult decision, but ultimately the need to maintain fiscal discipline and offset the costs of other fiscal stimulus programmes was more important.

Sugarcane and cassava, two major crops in Thailand, are key feedstocks for ethanol production.

The government has already pushed the introduction of E20, a blend of 20% ethanol and petrol, and is reviewing tax policies for E85-powered vehicles.

Oil is now trading around $69 per barrel compared with just $32 last December at the height of the global economic crisis.

But prices remain well short of the record high of more than $147 set in mid-2008.