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Published on November 7, 2007

Former Prime Minister Anand Panyarachun has suggested the current government allow retail oil prices to be set by market mechanisms and focus more on rail transportation, to save energy costs.

"The government should not focus on road or bridge construction, but rather on improving rail and water transport. This will reduce energy consumption and distribute wealth among the provinces," he said yesterday after presiding over a presentation of awards to 48 projects aimed at countering detrimental effects on the environment.

Anand, whose government paved the way for improvements in several areas of infrastructure, said it was also necessary to ensure that there was no corruption in the State Railway of Thailand. With good governance, the enterprise should not incur losses, given its ownership of land around the country that is capable of generating more income, he said.

His comments followed the Energy Ministry's decision to cut sales tax on fuel products by 40 satang a litre, delay an increase in retail oil prices and shelter the economy from the full-blown impact of soaring oil prices.

PTT president, Prasert Bunsumpun is also in favour of using market prices to promote energy savings at a time when Thailand has cheaper alternatives like gasohol, biodiesel and natural gas. In saying this, Prasert inferred the government would find it difficult to reduce sales tax on diesel by as much as Bt1 a litre, given that Thailand consumed 50 million litres of diesel per day.

He said PTT was monitoring the global oil-price situation before making a decision on when to raise retail oil prices.

At present, refined petrol prices in Singapore have risen to US$99 (Bt3,400) per barrel, while refined diesel is as high as $105. One barrel equals roughly 159 litres.

Maintaining Thai domestic retail prices now results in a negative marketing fee of 50 satang a litre, or about Bt60 million a day, he said.

Meanwhile, the National Energy Policy Committee will consider the Energy Conservation Fund's revised spending plan on November 16, following a decision to commission the fund to co-finance both rail-network construction and preparations for nuclear power plants.

The fund's spending plan for 2008-12 was approved in September, but it must be revised. This follows the Cabinet's recent approval of plans to involve the fund in financing the rail network and in the first three years of preparation for a nuclear power plant, from 2008-11, said Energy permanent secretary Pornchai Rujiprapha.

He said the Energy Conservation Fund would earn about Bt1 billion or Bt1.2 billion per month from the collection of sales tax of 50-70 satang a litre on petrol and diesel. Over a five-year period, that would amount to about Bt70 billion.

The right to collect the tax will be transferred from the Oil Fund, which is legally barred from spending the proceeds on other causes, after it clears all of its debts incurred from previous fuel subsidies.

The Energy Conservation Fund will then channel the proceeds to co-finance railway construction, focusing on projects that would save energy and increase energy efficiency. Eligible projects must be approved by both the National Economic and Social Development Board and the Finance Ministry.

Pornchai said discussions between the Finance, Transport and Energy ministries had reached preliminary agreement that Bangkok's rapid-transit projects - the Red Line (Bang Sue to Rangsit) and the Blue Line (Bang Sue to Bang Yai) - were eligible for the funding.

"The benefits will be in line with sales tax collected in each region. Preliminary figures suggest that 70 per cent of the tax is generated in Bangkok and the surrounding provinces, as well as the Central region, Eastern Seaboard and West. The rest is from the remaining regions," Pornchai said.

Further discussions with the Finance Ministry are needed on the proportion of funding for each project. Recipients are also entitled to return the money to the Energy Conservation Fund under prescribed conditions and in accordance with a time frame.

Work during the first three years of preparations for development of nuclear power plants is expected to require about Bt450 million a year for legal, infrastructure and public-education purposes, Pornchai said. The Energy Conservation Fund will contribute Bt250 million a year, or a total of Bt750 million.

Meanwhile, Industry permanent secretary Chakramon Phasukavanich said rising oil prices would not aggressively diminish the competitiveness of Thailand's industrial sector, partly because of the strength of the baht. Soaring fuel prices have negatively affected transportation rather than manufacturing. However, some industries have been strongly hit, including sugar, because more than 30 per cent of its total costs involve transportation.

"Oil prices affect not only Thailand, but all countries. Moreover, the baht's appreciation eases the tension of high oil prices," he said.

Chakramon showed more concern about government policies promoting alternative energies and setting up nuclear power plants.

He said changes in policy would cause delays to investment in alternative energy and that operators would have fewer choices with which to adjust themselves if the oil price continued to surge.

 Energy Reporters

 The Nation