Sunday, March 23, 2008

PTT Chief warns of recession and wants Russian investment

PTT CEO warns of recession

Wants Gazprom to invest in the South


High volatility in global crude oil prices could lead to a global economic recession, warns Prasert Bunsumpun, the president and chief executive officer of PTT Plc.

Mr Prasert noted that diesel prices in Asia went as high as $131 per barrel last week, a level that could cause economic growth to collapse.

Prices have swung wildly over the past few days, with diesel dropping to $125 on Thursday. Crude prices rose over $110 per barrel before slumping to around $100 on global concerns about the US economy, slowing US petroleum consumption and the collapse of the investment bank Bear Stearns.

''I would say it was fortunate that there are emerging countries in Asia and the Middle East that are still healthy to help support the world economy. That's the reason why the impact of the US sub-prime crisis has been limited to a certain extent,'' Mr Prasert told the Bangkok Post.

But smaller economies, including Thailand, will inevitably be affected by turmoil in the global market.

Price subsidy programmes can help ease the financial burden on consumers from soaring energy prices over the short term. But Mr Prasert said Thailand needed to take a number of steps to help improve efficiency in energy usage, including a new city plan, investments in mass transit, logistics and energy management systems for buildings.

He acknowledged that PTT, 52% controlled by the Finance Ministry, had an obligation to help the public under government-mandated subsidies.

But long-term price supports would only weaken PTT's competitiveness, as well as the government budget, he added.

For example, PTT is spearheading the promotion of natural gas for vehicles (NGV) by selling it for 8.50 baht per kilogramme, far below the market price of 13 baht.

''At 13 baht, we can only cover the operating expense, and we have no intention to make a profit from NGV, [because NGV] is one of our corporate social responsibility products,'' he said.

PTT is currently losing 5-6 million baht a day on NGV sales.

However, it remains the largest and most profitable company on the Stock Exchange of Thailand, earning 97.8 billion baht on revenues of 1.55 trillion last year.

Yet Mr Prasert said that holding gas prices below market rates could create other distortions. Because domestic natural gas supplies are limited, imports will be needed to meet rising demand from drivers and price increases will be inevitable.

PTT is preparing to expand NGV production to 3,700 tonnes daily by the end of the year to meet demand, with a total of 700 stations nationwide targeted.

Demand for NGV is currently around 1,400 tonnes daily, up from 1,000 tonnes a year ago, and headed for 2,500 tonnes by year-end. PTT plans to lift NGV prices slightly next year with a ceiling set at half the diesel retail price.

Apart from focusing on alternative fuels, PTT has been in talks with the Russian gas giant Gazprom for the past two years about a possible supply deal.

''Gazprom is interested in doing business with us, but we also need to look for a form that could bring benefits to both of us,'' Mr Prasert said.

He said that in the past Thailand imported limited crude shipments from Russia because the distance resulted in costly freight rates. Most Russian products go to Europe, and in Asia only Japan and Korea are regular customers.

He suggested the government could create a partnership with Gazprom by convincing the Russian firm to build an oil refining and distribution hub in southern Thailand.

With a refining base in Thailand, Gazprom could improve the variety of crudes and have competitive logistics costs to attract clients in the region.

''Russia can use us as a base to gain a presence in Asia. At present it has only a small share in the region due to the logistics cost,'' he said.

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