PTT Chief Urges Thai Junta to End Fuel Subsidies: Southeast Asia

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Piyasvasti Amranand, chairman of PTT Pcl. Close

Piyasvasti Amranand, chairman of PTT Pcl.

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Photographer: Dario Pignatelli/Bloomberg

Piyasvasti Amranand, chairman of PTT Pcl.

Thailand’s junta should remove fuel subsidies that have cost $15.6 billion over the past three years to free up funds for crucial infrastructure projects, PTT Pcl (PTT) Chairman Piyasvasti Amranand said in an interview.

“When you have absolute power, it has to be easier” to deregulate energy prices, said Piyasvasti, 61, who was appointed energy minister after a military coup in 2006 and was asked to lead the state oil company’s board after the army again seized power on May 22. “If it’s not done at this time, it will be first coup d’etat that we do not see price reform.”

Since ousting Yingluck Shinawatra’s government, the junta has made payments to more than 800,000 rice farmers and sped up budget spending to revive an economy that contracted in the first quarter. Dismantling subsidies would help the military government, known as the National Council for Peace and Order, fund a 2.4 trillion baht ($75 billion) plan to modernize Thailand’s transport system, Piyasvasti said.

“The junta government appears more able to move quickly on what would be more politically sensitive reforms under an elected government,” Chua Hak Bin, a Singapore-based economist at Bank of America Merrill Lynch, said yesterday by e-mail.

Photographer: Dario Pignatelli/Bloomberg

Piyasvasti estimated that the latest round of energy subsidies in the past three years may cost government around 500 billion baht ($15.6 billion), on par with cost of rice subsidy. Close

Piyasvasti estimated that the latest round of energy subsidies in the past three years... Read More

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Photographer: Dario Pignatelli/Bloomberg

Piyasvasti estimated that the latest round of energy subsidies in the past three years may cost government around 500 billion baht ($15.6 billion), on par with cost of rice subsidy.

Thailand imports about 85 percent of its crude oil consumption, according to data from the energy ministry. It subsidizes prices of diesel, ethanol-blended gasoline and liquefied petroleum gas through a state oil fund that levies taxes on fuel users.

Price Review

The junta’s economic chief, Air Chief Marshal Prajin Juntong, said on May 30 that prices should move in line with the market, raising speculation that subsidies may be removed.

“We need to come to an understanding so we can solve the problem sustainably,” Prayuth Chan-Ocha, head of the NCPO, said on June 6, referring to a review of energy prices that’s yet to be completed.

The junta may succeed where the democratically elected administration ousted in the coup and the previous appointed government of Abhisit Vejjajiva failed, Piyasvasti said.

Yingluck faced more than six months of protests from groups opposed to the political dominance of parties linked to her brother Thaksin Shinawatra, which have had a lock on electoral majorities since 2001 with a platform of expanded public services and aid to lower-income households. Thaksin was toppled by a military coup in 2006.

“The distortion came back again around 2005 when Thaksin was prime minister,” Piyasvasti said. “Everything was deregulated again after the coup d’etat and then distortions came back again when Abhisit became prime minister, to be followed by even more distortion under Yingluck.”

Price Distortions

Piyasvasti said 95-octane gasoline costs about 48 baht ($1.49) per liter in Thailand, compared with an equivalent price for natural gas for vehicles of 12.7 baht per liter. Removing that distortion will depend on the junta’s ability to convince consumers that Thailand isn’t “the Saudi Arabia of the east,” he said.

“Energy price rationalization is usually a negative for political capital, especially when an elected government needs to seek a fresh mandate,” said Bernard Aw, a research analyst at Forecast Pte in Singapore. “The NCPO will have freer reins to restructure energy prices without fearing it will not perform well in the next general elections.”

The junta this week approved the budget for the fiscal year starting Oct. 1, which includes 450 billion baht of spending on projects such as a dual-track train network and an extension of Bangkok’s mass-transit system. The junta has said it will complete a review this month of its eight-year, 2.4 trillion-baht infrastructure plan.

Indonesia, Malaysia

The central bank in June raised its forecast for economic growth next year to 5.5 percent, citing an expected increase in government spending and a recovery in confidence. It cut its gross domestic product estimate for this year to 1.5 percent because of weakness in the first half, before the May 22 coup.

Fuel subsidies remain a challenge for neighboring Southeast Asian economies including Indonesia, where measures to contain prices are straining the nation’s trade balance and tying up funds that could be used to build roads, bridges and railways. Presidential candidate Joko Widodo would refrain from raising fuel prices for a year if he’s confirmed as the winner of last week’s election, a member of his economic team said yesterday.

Indonesia’s fuel-subsidy bill amounted to about 3.4 percent of GDP in 2013, compared with 2.9 percent in Malaysia and 1.4 percent in Thailand, Bank of America’s Chua wrote in a report last month.

Political Sensitivity

“While the extent of subsidy is certainly different, we can take some lessons from Indonesia, where years of fuel subsidy have led to the current problems the economy is facing,” Gundy Cahyadi, a Singapore-based economist at DBS Group Holdings Ltd., said by e-mail. “This subsidy will be difficult to withdraw in the future, given the kind of political sensitivity it has.”

Energy subsidies have cost Thailand an estimated 500 billion baht in the past three years, according to Piyasvasti, similar to the burden of the previous government’s rice subsidy program, which the army cited among reasons for the coup.

Piyasvasti, who joined PTT as chairman on July 4, has played a key role in deregulating the energy industry once before. As head of the Thai National Energy Policy Office and energy minister in the 1990s, he led efforts to end oil price subsidies and repay debt incurred by the state oil fund.

He left politics in 2009 to lead Thai Airways International Pcl (THAI), where he oversaw a fleet modernization and cost cuts that helped the state-owned carrier rebound from its largest ever loss the year before to a record profit in 2010. The airline slipped to another loss in 2011 as fuel expenses jumped.

Thai Airways

Piyasvati was fired in 2012 after Thai Air said communication difficulties were hampering efforts to meet profit goals, a decision he said at the time could have come from “the top of the political spectrum.”

Then-premier Yingluck said the decision was made by the company’s board, while Anik Amranand, Piyasvasti’s wife and a member of parliament in the opposition Democrat Party, told the Bangkok Post the move was politically motivated. Both Thai Air and PTT are 51 percent-owned by the Ministry of Finance.

After the May 22 coup, Piyasvasti received a phone call “from somewhere near here” asking whether he “would be willing to be chairman” of PTT, he said in an interview at his home on July 10, declining to name the caller.

In meetings since the coup, Piyasvasti said he’s urged members of the junta to consider boosting tax revenue in favor of taking on more state debt to fund infrastructure projects.

“You can’t go on implementing mega-projects simply through borrowing,” he said. “What PTT can do is try to educate the general public on pricing reform, but eventually it will have to be the government’s decision.”

To contact Bloomberg News staff for this story: Suttinee Yuvejwattana in Bangkok at suttinee1@bloomberg.net; Supunnabul Suwannakij in Bangkok at ssuwannakij@bloomberg.net

To contact the editors responsible for this story: Stephanie Phang at sphang@bloomberg.net Tony Jordan, Dick Schumacher

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