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Thailand Introduces Temporary Cut In Oil Levy

by Mary Swire,, Hong Kong

30 August 2011

On August 26, Thailand’s Committee on Energy Policy Administration (CEPA) decided to cut the collection from refineries of the Oil Fund levy on diesel and petrol products.

The Oil Fund collects contributions from diesel and petrol sales to help subsidize alternative fuels, such as 'gasohol' (which includes ethanol). As part of its alternative energy policy, since 2007, Thailand has encouraged both consumers and petrol retailers to migrate to ethanol products to reduce imports, such that their demand has risen sharply and petrol sales have been much reduced.

However, Energy Minister Pichai Naripthaphan announced that the CEPA had decided to reduce the Oil Fund collection from the two grades of petrol – grade 95 by THB7.17 (USD0.235) per litre and grade 91 by TB8.02 per litre - and from diesel by THB3 per litre. As a result, on August 27, the retail prices of petrol grade 95 and 91 will fall to THB39.32 and THB34.77 per litre respectively, while the retail price of diesel will drop to THB26.99 per litre.

It was said that, initially, the collection cut will take effect only for six months to one year. It is expected to cause the income of the Oil Fund to shrink by THB6.16bn per month. The Fund currently has a cash reserve of THB15.6bn and a total debt of THB14.6bn, and it is estimated to be able to subsidize fuel prices until January next year.

The resolution is in compliance with the decision of the National Energy Policy Committee, which is chaired by Thailand’s new Prime Minister Yingluck Shinawatra. She said that the Oil Fund collection levy cuts were part of the government's policy commitment to ease consumer expenses for ordinary citizens.

However, the levy reductions have also placed the new government’s commitment to alternative energy into doubt, while a shift away from ethanol products could cause difficulties for those parts of the agricultural sector, which have previously switched to fuel crop production.

TAGS: tax | economics | business | fiscal policy | energy | Thailand | oil and gas | excise duty

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