(EnergyAsia, Feb 24) — The Thai government has made a surprise move to cut fuel subsidies, causing retail diesel cost to rise 0.60 baht to 15.19 baht per litre at the pump on Tuesday (Feb22). (US$1=38 baht). Until early this month, there were still doubts that Bangkok would hold back on threats to slash fuel subsidies to reduce its growing oil fund deficit.


The fund has spent over 68 billion baht subsidising fuel prices since Jan 10, 2004. The government began cutting subsidies for gasoline in May 2004, and removed them altogether in October, according to the Bangkok Post.


Diesel is still being subsidised. Even with the price rise, diesel is still three baht per litre less than the actual market rate of 18.19 baht per litre.


The subsidy has been costing the oil fund 150 million baht per day, with costs likely to rise further should world oil prices, currently at more than US$50 per barrel, continue to increase.


Energy Minister Prommin Lertsuridej said the rise would not affect 2005 inflation or economic growth forecasts of 5.5 to 6.5%. The ministry’s Internal Trade Department estimates the 0.60 baht increase will have a negligible effect on industry production costs.


Prime Minister Thaksin Shinawatra has directed the Commerce Ministry to tighten its monitoring of prices to prevent profiteering.


However, business leaders were caught off guard by the sharp increase, and said their costs would definitely increase as a result. Santi Vilassakdanont, vice-chairman of the Federation of Thai Industries, said businesses had expected the government would gradually raise diesel prices by 0.20 to 0.30 per litre.


Bandid Nijathaworn, a deputy governor of the Bank of Thailand, said the increase was a positive development, would better reflect actual market conditions and encourage more efficient energy use by consumers. He said the increase was in line with central bank forecasts.