The government will cap the diesel price at 30 baht per litre as part of efforts to ease the impact from increasing world oil prices.
The Energy Ministry announced the move Tuesday, saying world oil prices have fluctuated greatly for two months. The price of Dubai crude rose US$15.30 (490 baht) per barrel on Saturday to cost more than $77.
The spike in the crude oil price resulted in the price of diesel in Southeast Asia soaring by about $17 to $93.24 per barrel.
This resulted in the price of diesel in Thailand jumping by 3.82 baht per litre in one day.
"The prime minister [Prayut Chan-o-cha] is very concerned about the impact steady increases in world oil prices have had over the past two months," Energy Minister Siri Jirapongphan said.
As a result, the Energy Ministry will use the State Oil Fund to cap the diesel price at not more than 30 baht per litre until the development of B20 fuel reaches commercial viability. As of Tuesday, the local diesel price had reached 29.79 baht per litre, he said.
B20 is an alternative fuel created by mixing regular diesel, with 20% of biodiesel produced by agriculture products. The selling price of B20 will be 3 baht a litre lower than regular diesel.
In Thailand, diesel is the main fuel for the transport and manufacturing sectors. The higher fuel price will force up the cost of services and production.
Under the scheme to ease fuel price impacts, the State Oil Fund will subsidise 50% of the price increase. For example, if fuel prices increase one baht, the fund will cover 0.5 baht, said Mr Siri.
In the worst-case scenario, if the price of Brent crude reaches $90 per barrel, the diesel price reference in the Southeast Asian market will increase to $105 per barrel. In such a case, the State Oil Fund which remains at 30 billion baht can subsidise the local diesel price at 50% for 10 months, he said.
Still, the minister, said it is expected that B20 fuel will be commercially viable in early July. As a result, public transport operators will not be allowed to increase fares to cover increasing fuel costs.
Suchinda Cherdchai, or Jeh Kiew, owner of the country's largest bus building firm and major inter-provincial bus operator, demanded that the Transport Ministry allow public bus operators to increase fares due to the sharp hike in diesel prices.
The Energy Ministry will table the subsidy plan and seek its endorsement from the Committee on Energy Policy Administration this week.
The diesel price in Thailand was capped from 2011 to 2014, but this ended when the Prayut Chan-o-cha administration took office following the coup. The cap was lifted by then Energy Minister Narongchai Akrasanee.
It was introduced by the Abhisit Vejjajiva government in April 2011.
Mr Abhisit wrote in a Tuesday post on social media that unlike the Thaksin Shinawatra administration, the diesel price cap during his tenure did not damage the State Oil Fund.
He said the diesel price late on during his term in office was the same as it is now, despite the fact that the crude oil price during his government was $30 higher than the current price.