Finding new levers for energy subsidies

Finding new levers for energy subsidies

EXPLAINER: Authorities are urging the government to find other methods to subsidise diesel prices as the Oil Fuel Fund depletes

Fuel dispensers at a Bangkok filling station. (Photo: Somchai Poomlard)
Fuel dispensers at a Bangkok filling station. (Photo: Somchai Poomlard)

The expiry of the diesel price subsidy programme using the state Oil Fuel Fund on March 31 caused energy authorities to call on the government to change the way it regulates domestic diesel prices.

While agreeing with the need to continue with a cap on the retail price of diesel, the Oil Fuel Fund Office (Offo) suggested the government focus more on other methods such as a diesel excise tax cut or new budget allocation to ease the financial burdens of motorists and business operators.

The fund is facing a huge loss and needs to control its spending, said authorities.

Q: Why does Offo have to spend less money from the fund?

Offo is concerned the depleted coffers will make it more difficult to manage fund flow, causing the office to ask for more loans to maintain the fund's financial status.

On March 28, the fund reported a total loss of 98.2 billion baht, with 51.1 billion attributed to the subsidy for oil, including diesel and gasohol, and 47.1 billion for the liquefied petroleum gas (LPG) price subsidy.

Offo is authorised to request a loan totalling 110 billion baht to support the fund. As of February this year, up to 75 billion baht has been granted by banks.

An energy official who requested anonymity said in February the fund still had enough cash to serve as a buffer against energy price fluctuations after the fund posted a loss of 84.3 billion baht.

But last Friday, Offo director Wisak Watanasap expressed concern over the liquidity of the fund, following considerable spending to regulate diesel and LPG prices.

Diesel prices are subsidised by 4.17 baht a litre from the fund and a diesel excise tax cut of 1 baht a litre.

In order to keep diesel prices below 30 baht a litre, it costs Offo 8.7 billion baht a month, quickly eroding its liquidity.

Officials want the government to search for ways to better manage and support the fund.

Prasert Sinsukprasert, the energy permanent secretary, said earlier officials from the Energy and Finance ministries must hold talks to set a direction for the subsidy programmes.

Among the options are a continued reduction of the diesel excise tax or budget allocation to subsidise diesel prices, said Veerapat Kiatfuengfoo, director-general of the Energy Policy and Planning Office.

The moves aim to reduce the subsidy from the fund by 1-2 baht a litre, he said.

According to Offo, global diesel prices are expected to remain above $100 after averaging $104.03 from March 1-20.

At this level, it is not good for the fund's status if the current diesel price subsidy programme continues without adjustment, said Mr Wisak.

He said measures to carefully manage the fund are needed as the impact of geopolitical conflicts in the Middle East and Ukraine threaten to increase global crude oil prices.

If there is no aid from the state budget, the domestic prices of diesel may gradually increase, said Mr Wisak.

Q: Is it possible to continue the diesel excise tax cut?

With the diesel excise tax cut scheduled to expire on April 19, Deputy Finance Minister Krisada Chinavicharana said the ministry is in the process of considering whether to extend the reduction.

Authorities normally impose an excise tax of five baht on diesel users.

Mr Krisada said a key factor in the decision is government revenue collection.

If the government manages to meet or slightly surpass revenue targets, it could provide further support to oil prices. Conversely, if revenue collection falls short of targets, it will affect the fiscal position, he said.

The excise tax cut has reduced state revenue collection, which tallied 981 billion baht from October 2023 to February 2024, 25.1 billion or 2.5% lower than targets.

The government capped diesel prices at 30 baht per litre to ease the cost of living.

The strategy is common in recent years, with the diesel excise tax reduced nine times, resulting in the Finance Ministry losing revenue of 179 billion baht. For every 1 baht reduction per litre in tax, the state loses revenue of 2 billion baht per month.

The details of the nine diesel excise tax cuts since 2022:

  1. The first reduction, from Feb 18 to May 20, 2022, lowered the tax by three baht per litre, resulting in a loss of government revenue of 18 billion baht.
  2. A cut from May 21 to July 20, 2022, decreased the tax by five baht per litre, resulting in lost government revenue of 20 billion baht.
  3. From July 21 to Sept 20, 2022, a cut of five baht per litre caused lost government revenue of 20 billion baht.
  4. From Sept 21 to Nov 20, 2022, a reduction of five baht per litre resulted in lost state revenue of 20 billion baht.
  5. From Nov 21, 2022 to Jan 20, 2023, a cut of five baht per litre caused lost government revenue of 20 billion baht.
  6. From Jan 21 to May 20, 2023, a reduction of five baht per litre resulted in lost state revenue of 40 billion baht.
  7. From May 21 to July 20, 2023, a cut of five baht per litre led to lost government revenue of 20 billion baht.
  8. From Sept 20 to Dec 31, 2023, a reduction of 2.50 baht per litre resulted in lost state revenue of 15 billion baht.
  9. From Jan 10, 2024 to April 19, 2024, a cut of one baht per litre caused an estimated loss of government revenue worth 6 billion baht.
Do you like the content of this article?
COMMENT (7)