PTT, Bangchak slash gasohol pump prices

Concern mounts over Oil Fund changes

State-controlled PTT Plc and Bangchak Petroleum are cutting gasohol prices to help draw motorists back to alternative fuels after sales dropped sharply over the weekend following government-mandated price cuts on normal petrol.

Sales of ethanol-based gasohol fell 18% over the weekend at Bangchak stations even as regular petrol sales jumped 200%, thanks largely to smaller price differentials at the pump after the government Friday cut levies to the state Oil Fund for diesel and 95 and 91 petrol.

Bangchak president Anusorn Sangnimnuan said effective today, gasohol prices will fall by 60 satang a litre, while 91 petrol prices will be hiked by 60 satang, effectively increasing the margin between regular petrol and 91 gasohol to 1.43 baht per litre from just 23 satang earlier.

But even with the price changes, it remains uncertain whether motorists will return to alternative fuels, considering that 91 gasohol had been as much as 7.40 baht per litre cheaper than regular petrol before last week's adjustments.

Last Friday, the government announced it would cut value-added tax and levies paid by refineries to the Oil Fund by 8.02 baht per litre for 95 petrol, 7.17 baht for 91 petrol and 3 baht for diesel.

Authorities said the price cuts will benefit farmers, the transport sector, motorcycle drivers and owners of older cars unable to use ethanol-based fuels in their engines.

But the fall in prices sharply reduces the incentives for motorists to use alternative fuels, potentially undermining long-term energy policies and the country's growing ethanol industry.

Bangchak in particular has been a strong promoter of alternative fuels and previously announced plans to scrap sales of pure petrol next year. The company already has withdrawn 95 petrol in favour of 95 gasohol, a blend of 5% ethanol with 95% petrol.

Thanks to price discounts ranging from 20-60%, use of gasohol over the past five years has jumped sharply and now accounts for up to 60% of total petrol sales. Demand for ethanol has risen from nearly zero in 2004 to 1.3 million litres a day.

Energy Minister Pichai Naripthaphan said the ministry would hold talks with oil traders and ethanol producers this week to discuss the impact of the price changes.

He stressed the cuts on the Oil Fund levies will last less than one year and that the Energy Ministry was committed to a long-term restructuring of retail energy prices.

"We definitely see the potential of renewable energy in Thailand and won't do anything to hurt the industry," Mr Pichai said.

Tevin Vongvanich, the chief financial officer of PTT Plc, said he believes the government will introduce measures to support gasohol and ethanol producers.

"We have to accept the fact that the cost of renewable energy is still higher than fossil fuels. Every country as a result still provides support to the industry, either through taxes or subsidies," he said.

Gasohol and biodiesel enjoy a price discount to petrol and diesel thanks to lower taxes and levies - now cancelled - charged by the Oil Fund. The fund currently collects 10 satang per litre for 91 gasohol and 2.40 baht per litre for 95 gasohol, compared with zero for 91 and 95 petrol.

Sirivuthi Siamphakdee, chairman of the Thai Ethanol Manufacturers Association, said authorities should phase 91 petrol out of the market altogether in favour of 91 gasohol.

Prices for liquefied petroleum gas and compressed natural gas should be allowed to rise to reduce the financial burden of the Oil Fund, he added. The petrol and diesel levy cuts are estimated to reduce revenues by over 6 billion baht per month for the fund.

Mr Sirivuthi said scrapping normal petrol and reducing LPG and CNG subsidies would help not only the ethanol industry, but also sugarcane and cassava farmers that produce the feedstock for ethanol production.

Krisda Monthienvichienchai, the president of Mitr Phol Sugar Corporation, said the government's cut of levies has sent confusing signals to the market about energy policies.

"They said they are promoting renewable energies, but they cut the prices of petroleum-based oil," he said.

"They say it's a temporary cut, but ethanol producers will suffer for the next six months."

Mr Krisda suggested excise taxes on ethanol should be cut to increase the price difference with fossil fuels.

Mitr Phol may look to raise exports of ethanol, now 30% of total production, if domestic demand falls. It produces 55 million litres of ethanol per year.