Thursday, July 3, 2008

Subsidies to cost B63bn, says Thailand's PTT

Unrealistic LPG prices the biggest burden


PTT Plc, the majority state-owned oil and gas company, expects the government's oil and gas subsidy policies to cost it 63 billion baht this year, according to chief executive and president Prasert Bunsumpun. The liquefied petroleum gas (LPG) price-support scheme alone is projected to cost the company around 50 billion baht, as it needs to import the fuel at a price of US$950 a tonne but has to sell it for the equivalent of $330.

The subsidy for compressed natural gas (CNG or NGV) by five to six baht baht a kilogramme for the transport sector is estimated to cost PTT another five billion baht this year.

As well, Mr Prasert said, delays in raising retail petrol prices would cost PTT another eight billion baht this year.

The LPG subsidy would be the heaviest burden due to the sharp increase in demand. The number of vehicles running on LPG rose to 1.2 million units at the end of last month from 70,000 80,000 vehicles a year ago.

One million tonnes of LPG are expected to be shipped into the country this year.

The government recently gave PTT approval to raise its CNG retail price by four baht a kilogramme at the end of 2009 from 8.50 baht now.

But for LPG, authorities have prolonged the price subsidy indefinitely instead of floating prices this month as earlier planned, after transport operators cried foul.

Mr Prasert predicted that even if the government decided to fully float LPG prices to reflect the world market price, its demand among motorists would not drop because it would still be cheaper than other types of fuels.

To cope with the high demand, PTT may have to upgrade its LPG port and facilities, which can now handle a maximum of 20,000 tonnes only.

''Government subsidies are an effective tool to help consumers but only for a short term,'' he said. He added that it remained a question where the massive amount of money needed would come from.

''PTT can shoulder these costs but only as long as we can. Look at national oil firms in other countries like China, India, even Malaysia. They can't stand huge losses from so many years of subsidies,'' he said, responding to calls by activists and senators for more subsidies.

''It's time Thai society and the state decided whether they need more subsidies or to cut consumption by using more alternative fuels. If you want us to be the organisation for subsidies, issue a new law to change our status to a non-profit organisation and delist us from the Stock Exchange of Thailand.''

Meanwhile, Energy Minister Poonpirom Liptapanlop affirmed yesterday that CNG supply and facilities were now ready to service motorists.

She added the number of refill stations would rise to 250 this month and to 355 by the end of this year, in line with supply rising to two billion tonnes by year-end from 1.8 billion last week.

However, she refused to say whether the government would continue fixing the LPG price.

Brent North Sea crude for August delivery surged to a peak of $145.96 in early morning trade yesterday. New York's main oil contract, light sweet crude for August delivery, rose to a record high at $145.09.

PTT Plc, the largest company on the SET, reported first-quarter profits of 26.1 billion baht on revenues of 505.7 billion. Profits reached 97.8 billion baht in 2007 on revenues of 1.55 trillion. PTT shares closed yesterday at 298 baht, down six baht, in trade worth 772.5 million baht.

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