The Energy Policy Administration Committee (Epac) announced yesterday that it would cap the price of diesel at 30 baht per litre. Such a move was inevitable and is welcomed despite many critics questioning whether it will really benefit consumers.
Diesel is considered a strategic energy as it has been used in the supply chain -- mainly for logistics -- meaning its price affects the cost of goods.
Intervening in energy and oil prices is a complex issue as it involves many taxes and subsidies.
To keep the diesel price at filling stations at a fixed level, Epac has done the right thing in deciding to cut the Oil Fuel Fund's contribution to palm oil additives, which have been used to create diesel blends such as B7, B10 and B20.
The subsidy for B7 will be reduced from 1 baht to 0.1 baht per litre this month. Epac also approved the reduction of the biodiesel (B100) mix of B7 (7%) and B10 (10%) to B6 (6%), effective from Monday. As a result, only B6 and B20 will be available at filling stations.
The policy reflects how Epac has finally taken heed of critics who have slammed the energy ministry for using too much money from the Oil Fuel Fund to subsidise energy crops such as palm oil and ethanol, despite the price per unit of this alternative energy being expensive.
These power crops began receiving subsidies over a decade ago, when farm prices were low and oil was subject to unpredictable global prices. The need to phase out dirty fossil fuels also makes plants like palm oil and ethanol more viable alternatives.
Later, policy markers and advocates of a more progressive renewable energy policy decided to support farmers in producing alternative oil additives from farm waste such as sugar cane residue and oil palm shell to use as alternative energy -- by mixing it with diesel oil and benzene.
The government then paid attractive subsidies to farmers. In 2018, the state used money from the fund to buy palm oil to be used as fuel at electric power plants, just to help shore up the price of palm oil. But palm oil additives are now seen as costly and burdensome.
The policy reflects the problem of managing the Oil Fuel Fund, which has been used to advocate public policy. Derived from revenue from petrol sales, it has been used to regulate the price of energy.
The fund is divided into two accounts -- one that deals with petrol prices for vehicles, including subsidies for power crops, and another for managing the price of gas products. At present, there is 11 billion baht left in the first purse, while the second is the same amount in the red due to hefty cooking gas subsidies. Epac is now ready to ask the Office of the National Economic and Social Development Council (NESDB) if it can borrow money from the 500-billion-baht Covid loan fund to keep the price of cooking gas down.
But how long can the government keep financing this subsidy?
In addition to pandemic-related uncertainties, global oil prices have already surged from $40 a barrel early this year to almost $80 a barrel this month.
Energy experts have called for a change in policy on energy subsidies. Former senator Rosana Tositrakul has even demanded subsidies for power crops be axed, and excise taxes on oil products reduced. Others say diesel isn't deserving of any subsidies.
Make no mistake, the government must help consumers and small businesses get affordable petrol and cooking gas. The challenge is managing the fund better.