Thai oil refiners in heat as Bangkok seeks to share profits

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BANGKOK – Shares of six major Thai oil refiners are still under pressure days after the government said it was in talks with them for a profit-sharing scheme to help boost the state Petroleum Fund so that it can continue to provide subsidies to consumers at a time of runaway inflation.

Energy Minister Supattanapong Punmeechaow said on June 13 that the government was in talks with oil refiners to help build the fund, which has accumulated nearly 100 billion baht ($2.8 billion). of debts.

The government has not finalized the amount it will ask oil companies to contribute. The head of the National Economic and Social Development Council, Danucha Pichayanan, said on Thursday that the system would inject 7-8.5 billion baht into state coffers per month over the next three months, for a total of up to 25.5 billion baht ($722 million). But Energy Ministry sources separately told Nikkei Asia that the government only charges 1 billion baht a month.

Thailand is not alone in getting oil companies to cooperate to control the rising cost of living. At the end of May, the United Kingdom decided to impose an exceptional tax on the oil and gas giants, at the rate of 25% of their profits. The tax will be phased out when world commodity prices stabilize.

Shares of Thai Oil, PTTGC, IRPC, Bangchak, Esso and Star Petroleum Refining have fallen 10% to 18% since Supattanapong’s announcement.

“The decline in the value of the six companies’ share prices is worth a total of 66 billion baht as of June 17. This is far more than the profit margin the government expected to cut from the refineries,” an analyst said. from the Kasikorn Research Center.

The State Oil Fund was created decades ago as a mechanism to control oil prices. Sources at the Energy Ministry said the government wanted to keep the price of diesel at its current cap of 35 baht per litre. That compares to a global average price of 66 baht per liter from early March to the middle of this month, according to Globalpetrolprices.com.

According to the Ministry of Energy, Thailand’s refinery margin – the difference between crude oil prices and refined prices – stood at 0.88 baht per liter in 2020-2021, when the COVID-19 pandemic and the blockages sharply reduced the demand for oil. But by June this year, the margin had jumped to 5.2 baht per liter as economies rebounded and demand rose amid uncertainty fueled by supply chain issues and the invasion of the Ukraine by Russia.

The profit-sharing system is supported by other politicians. Korn Chatikavanij, leader of the Kla party and also a former finance minister, had proposed the same idea to help reduce the burden of high oil prices on consumers.

But the Petroleum Refining Industry Club of the Federation of Thai Industries argued that the refining margin of 5.20 baht per liter did not reflect the net profit of the six refineries because they had other costs to bear.

Other critics said that cutting refinery margins in a bid to increase the subsidy fund might work in the short term, but would risk damaging the confidence of foreign investors and could backfire if it forces them to withdraw from Thailand.

“This implies that the government can intervene [in the business] all the time if it wants to and the free trade mechanism can still be skewed,” an Asia Plus Securities analyst said.

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