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24 Mar 2005


Three Baht/Liter Hike in Diesel Prices: Solution for Distorted Oil Consumption


Finally, the government has announced a one-time hike in diesel fuel prices by Bt3/liter after more than 15 months of subsidy. As a result, diesel prices immediately jumped to the base price of Bt18.19 from Bt15.19 a liter, effective from March 23, 2005. This was the second increase in diesel prices after they had been frozen since January 10, 2005. Prices first moved upward by 60 Satang per liter on February 22, 2005, to ease losses of almost Bt77 billion shouldered by the state oil fund. The government had up until then subsidized diesel prices by some Bt6.62/liter, though petrol prices have been floated to match market prices since October 20, 2004. However, this latest single hike of Bt3/liter in diesel fuel prices does not yet fully reflect the actual market price. The current diesel price is now still subsidized by the government at Bt3.62 a liter.

Kasikorn Research Center (KRC) is of the opinion that pegging oil prices over the last 15 months has clearly distorted the problem of diesel fuel utilization. It is evident that the proportion of diesel utilization in 2004 (after the government had pegged diesel fuel since January 10, 2004) has increased to 47.1 percent of all fuel consumption, from only 44.6 percent of all oil types in 2001. Meanwhile, utilization of most other types of oil is dropping. Even though gasoline had originally been pegged by the government at the same time as diesel, but floated on October 20, 2004, utilization has dropped quite evidently from 20.1 percent of total oil utilization in 2001, to only 18.4 percent in 2004. Utilization of other types of oil such as jet fuel, kerosene, and cooking gas, have all also been dropping in proportion, as well.