THAILAND’S EXPERIENCE IN
OIL PRICE DEREGULATION
by
Piyasvasti Amranand
Paper Prepared
for
Roundtable Discussion on Downstream
Oil & Gas Restructuring in Indonesia
Borobodur Hotel
Jakarta, 15-16 October 2002
1
MAJOR PLAYERS INVOLVED IN DEREGULATION
GOVERNMENT



NATIONAL ENERGY POLICY OFFICE (NEPO)
INTERNAL TRADE DEPARTMENT
PROVINCIAL AUTHORITIES
STATE OWNED OIL COMPANIES

PETROLEUM AUTHORITY OF THAILAND (PTT),
BANGCHAK (BCP)
PRIVATE OIL COMPANIES

SHELL, ESSO, CALTEX, THAIOIL
2
OIL PRICE DETERMINATION BEFORE DEREGULATION
EX-REFINERY & IMPORT PRICES DETERMINED BY GOVERNMENT
BASED ON SINGAPORE POSTING AND SPOT PRICES
MARKETING MARGIN DETERMINED BY GOVERNMENT AND
RARELY CHANGED
EXCISE AND MUNICIPAL TAXES ON SPECIFIC BASIS
(BAHT/LITRE)
RETAIL PRICES DETERMINED BY GOVERNMENT AND RARELY
CHANGED
OIL FUND LEVY/SUBSIDY ACTED AS STABILIZER OF RETAIL
PRICES
RETAIL PRICE = EX-REFINERY/IMPORT PRICE + OIL FUND
+ TAXES + MARKETING MARGIN
3
OIL MARKET BEFORE DEREGULATION
RETAIL TRADE CONTROLLED BY 4 MAJOR OIL COMPANIES (PTT,
SHELL, ESSO, CALTEX)
MARKETING MARGIN KEPT CONSTANT FOR MANY YEARS
A FEW INDEPENDENT OIL COMPANIES INVOLVED IN WHOLESALE
TRADE
OIL IMPORTS WERE CONTROLLED WITH QUOTA SYSTEM
NO NEW ENTRANTS INTO OIL BUSINESS DUE TO GOVERNMENT
POLICY (NO LICENSE ISSUED FOR ARTICLE 6 OIL TRADER)
DOMESTIC REFINING CAPACITY APPROX. 50% OF DEMAND
MANY REMOTE AREAS DID NOT HAVE PETROL STATIONS.
CONSUMERS BOUGHT OIL FROM “DRUM PUMPS” WHOSE PRICES
WERE NOT CONTROLLED AND WERE 1-3 BAHT/LITRE HIGHER
THAN SERVICE STATION PRICES.
4
PREPARATION OF OIL PRICE DEREGULATION
INCREASE COMPETITION IN DOMESTIC OIL MARKET
IMPROVE DETERMINATION OF EX-REFINERY & IMPORT
PRICES TO MORE ACCURATELY REFLECT WORLD PRICES
IMPROVE TAX AND RETAIL PRICE STRUCTURE OF
PETROLEUM PRODUCTS
INTRODUCTION OF AUTOMATIC FUEL ADJUSTMENT CLAUSE
FOR ELECTRICTY TARIFF
CREATE PUBLIC UNDERSTANDING ABOUT NATURE OF OIL
MARKET
CREATE CONFIDENCE THAT OIL COMPANIES WOULD NOT
TAKE ADVANTAGE OF CONSUMERS
5
INCREASE COMPETITION IN DOMESTIC OIL MARKET
REVISE CRITERIA FOR ISSUEING ARTICLE 6 OIL TRADING LICENSE
AND ISSUE PERMITS TO ENCOURAGE NEW ENTRANTS
ABOLISH IMPORT CONTROL
INCREASE REFINING CAPACITY BY ALLOWING EXISTING
REFINERIES (ESSO, THAIOIL, BCP) TO EXPAND AND GIVING
PERMITS FOR 2 NEW REFINERIES (SHELL, CALTEX)
REVISE REGULATIONS FOR ESTABLISHING PETROL STATIONS IN
ORDER TO REDUCE COSTS AND TIME FOR OBTAINING PERMITS AND
ALLOW CONSTRUCTION OF SMALLER PETROL STATIONS
ALLOW BANGCHAK REFINERY TO SELL OIL TO ALL OIL TRADERS
ALLOW PTT AND BANGCHAK TO COMPETE IN OIL MARKET AND
ENCOURAGE BANGCHAK TO SET UP SMALL DIESEL OUTLETS WITH
AGRICULTURE COOPERATIVES
6
IMPROVE DETERMINATION OF EX-REFINERY & IMPORT
PRICES TO MORE ACCURATELY REFLECT WORLD PRICES
PREVIOUSLY EX-REFINERY AND IMPORT PRICES WERE SET BASED
ON SINGAPORE POSTING WITH UNCLEAR TIME LAG AND FORMULAE
WERE CHANGED FROM TIME TO TIME UPON REQUEST BY OIL
COMPANIES.
A CLEAR SET OF FORMULAE WAS DEVISED - ESSENTIALLY LINKING
IMPORT PRICES TO CIF PRICE OF SINGAPORE SPOT MARKET WITH
A TIME LAG OF ONE WEEK.
EX-REFINERY PRICES STILL BASED ON SINGAPORE POSTING BUT
WITH CLEARER GUIDELINES.
THIS ALLOWED A MORE REGULAR FLOW OF IMPORTS INTO
THAILAND.
7
IMPROVE TAX AND RETAIL PRICE STRUCTURE
OF PETROLEUM PRODUCTS
TAX AND RETAIL PRICE STRUCTURE WERE PREVIOUSLY VERY
DISTORTED LEADING TO ADULTERATION OF PRODUCTS, ENGINE
MODIFICATION AND SHIFT TO DIESEL VEHICLES.
DURING 1985-91 TAXES AND RETAIL PRICES WERE GRADUALLY
ADJUSTED TO REDUCE THE DISTORTION.
1984
TAX &
RETAIL
OIL FUND
PRICE
PREMIUM GASOLINE
REGULAR GASOLINE
HIGH SPEED DIESEL
LPG (BAHT/Kg)
2.7898
2.4410
0.7431
-0.2684
11.70
10.80
6.70
10.74
BAHT/LITRE
1997
TAX &
RETAIL
OIL FUND
PRICE
3.4449*
3.4155*
2.9634
1.9636
9.95*
9.50*
8.81
9.72
* PRICES AND TAXES OF UNLEADED GASOLINE
** DOMESTIC OILFUND
8
PRICE STRUCTURE OF PETROLEUM PRODUCTS (1997)
EX-REFINERY
EXCISE TAX
MUNICIPAL TAX
OIL FUND
ENCON FUND
VAT
WHOLESALE PRICE
MARKETING MARGIN
VAT
RETAIL PRICE
(BKK)
UNLEADED
PREMIUM
UNIT : BAHT/LITRE
UNLEADED
HIGH SPEED
REGULAR
DIESEL
5.1358
2.4400
0.2440
0.0800
0.0300
0.5551
8.4849
1.3693
0.0958
9.95
4.7105
2.4400
0.2440
0.0800
0.0300
0.5253
8.0298
1.3740
0.0962
9.50
4.9546
2.0700
0.2070
0.0800
0.0300
0.5139
7.8555
0.8920
0.0625
8.81
9
IMPLEMENTATION OF OIL PRICE DEREGULATION
USE THE OPPORTUNITY CREATED BY FALL IN
WORLD OIL PRICE AFTER THE END OF IRAQKUWAIT WAR
DEREGULATION WAS CARRIED OUT FOR
GASOLINE, KEROSENE, DIESEL AND FUEL OIL
“SEMI DEREGULATION” IMPLEMENTED AT THE END
OF MAY 1991
“FULL DEREGULATION” IMPLEMENTED ON
AUGUST 1991
19
10
SEMI DEREGULATION
SERVICE STATIONS TO POST VISIBLE PRICES (EACH LETTER > 15 CM. HIGH)
GOVERNMENT REDUCED WHOLESALE PRICE BY REDUCING OIL FUND LEVY
GOVERNMENT ENCOURAGED OIL TRADERS TO REDUCE RETAIL PRICES
WHEN ACTUAL RETAIL PRICE WAS LOWER THAN MAXIMUM PRICE,
GOVERNMENT ABOLISHED MAXIMUM RETAIL PRICE
GOVERNMENT STILL ESTABLISHED EX-REFINERY & IMPORT PRICES ON
WEEKLY BASIS
OIL FUND LEVY WAS FIXED AT A CONSTANT LEVEL AND WHOLESALE PRICES
WERE ALLOWED TO CHANGE EVERY WEEK IN LINE WITH EX-REFINERY PRICES
OIL COMPANIES CHANGED RETAIL PRICES IN LINE WITH CHANGES IN
WHOLESALE PRICES BUT WITH A TIME LAG
OIL COMPANIES WERE RESPONSIBLE FOR SETTING PRICES AT THEIR
SERVICE STATIONS AND CLOSELY MONITOR THEM
OIL COMPANIES HAD TO INFORM NEPO OF EACH CHANGE IN RETAIL PRICES
PETROL STATIONS HAD TO REPORT PUMP PRICES EVERY MONTH
11
FULL DEREGULATION
FULL DEREGULATION OCCURRED ON 19 AUGUST 1991
GOVERNMENT ABOLISHED DETERMINATION OF
EX-REFINERY/IMPORT & WHOLESALE PRICES
REFINERIES ANNOUNCED THEIR EX-REFINERY PRICES


PRICES SOLD TO ARTICLE 6 OIL TRADERS
PRICES SOLD TO SMALL CUSTOMERS
AN IMPORT LEVY WAS IMPOSED TO PROTECT DOMESTIC
REFINERIES. THIS WAS LATER FOLLOWED BY CHANGES
IN OIL RESERVE REGULATIONS TO FURTHER INCREASE
PROTECTION.
12
MEASURES TO PROTECT DOMESTIC
REFINERIES
DOMESTIC REFINERIES HAVE TO PAY “SPECIAL BENEFITS”
TO THE GOVERNMENT



2% OF GROSS REVENUE FOR ESSO, SHELL, CALTEX
35% OF GROSS PROFIT FOR THAI OIL
NONE FOR BANGCHAK BUT BANGCHAK FACED OTHER
DISADVANTAGES
REMOVAL OF “SPECIAL BENEFITS” IS POLITICALLY
DIFFICULT SO PROTECTION WAS PROVIDED BY USING
IMPORT TAX AND OIL RESERVE REGULATIONS
13
MEASURES TO PROTECT DOMESTIC REFINERY (CONT)
IMPORT TAXES
STANG/LITRE
BEFORE DEREGULATION
AFTER
GASOLINE, DIESEL
KEROSENE
1.0
6.5
FUEL OIL
0.1
1.0
OIL RESERVE
% OF VOLUME
BEFORE DEREGULATION
AFTER
CRUDE OIL HELD
BY REFINERIES
4%
5%
LOCALLY REFINED FINISHED
PRODUCTS HELD BY OIL TRADERS
3%
5%
IMPORTED FINISHED PRODUCTS
HELD BY OIL TRADERS
3%
10%
14
PROBLEMS RESULTING FROM OIL PRICE DEREGULATION
CONSUMER PERCEPTION



MARKETING MARGIN TOO HIGH
RETAIL PRICE INELASTIC IN DOWNWARD DIRECTION
PRICE COLLUSION BY OIL COMPANIES
COLLUSION BY PETROL STATIONS IN CERTAIN REMOTE
AREAS
RETAIL PRICE DOWNWARD MOVEMENT SLOW BUT ADJUST
UPWARD QUICKLY
SOME PETROL STATIONS DO NOT POST PUMP PRICES
15
GOVERNMENT CONTROLS IN CURRENT SYSTEM
IN PRINCIPLE, SHOULD FULLY DEREGULATE BUT IN
TRANSITION PERIOD CERTAIN CONTROLS ARE STILL
NECESSARY
EXISTING CONTROLS




OIL TRADERS ARE STILL ENCOURAGED TO DETERMINE
PRICES AT THEIR SERVICE STATIONS
NEPO STILL ISSUES “TRANSPORT COST ACCOUNT” AS
GUIDELINES FOR OIL COMPANIES TO DETERMINE PRICES
IN EACH DISTRICT
NEPO AND INTERNAL TRADE DEPARTMENT CLOSELY
MONITOR PRICES AND MARKET CONDITION
WARNING ISSUED FROM TIME TO TIME FOR OIL TRADERS
TO REDUCE MARKETING MARGIN
16
CHANGES IN OIL MARKET AFTER DEREGULATION
INITIALLY MARKETING MARGIN MORE THAN DOUBLED
BUT REFINING MARGIN DECLINED SUBSTANTIALLY.
MARKETING + REFINING MARGIN ADJUSTED FOR
CHANGES IN PRODUCT SPECIFICATION HARDLY ROSE.
NUMBERS OF OIL TRADERS AND SERVICE STATIONS HAVE
SUBSTANTIALLY INCREASED.
DISTRICTS WITH NO SERVICES STATIONS HAVE
SUBSTANTIALLY DECLINED. REMOTE AREAS ARE SERVED
BY A NEW BREED OF SMALL SCALE SERVICE STATIONS.
REDUCTION IN COLLUSION IN REMOTE AREAS.
REFINING CAPACITY RISES SUBSTANTIALLY AND SURPLUS
CAPACITY BEGAN TO EMERGE IN 1996.
17
CHANGES IN OIL MARKET AFTER DEREGULATION (CONT)
COMPETITION IN OIL MARKET INTENSIFIES
PARTICULARLY AS OIL COMPANIES WERE CARVING
UP MARKET SHARE BEFORE SURPLUS DEVELOPS IN
1996.
IMPROVEMENT IN QUALITY OF SERVICE.
GREATLY FACILITATE IMPROVEMENT IN OIL QUALITY
FOR ENVIRONMENTAL PROTECTION.
18
OIL MARKET SINCE 1999
INTENSE COMPETITION IN OIL MARKET DUE TO



SURPLUS REFINING CAPACITY
LARGE NUMBER OF TRADERS AND SERVICE STATIONS
CONSUMER SENSITIVITY TO PRICE DIFFERENTIALS
SURPLUS REFINING CAPACITY IN GASOLINE AND DIESEL HAS
EXERTED PRESSURE ON EX-REFINERY PRICE TO SHIFT FROM “FOB
SINGAPORE + TRANSPORT COST” TO “FOB SINGAPORE TRANSPORT COST”
BRAND LOYALTY IS DISAPPEARING RAPIDLY AS CONSUMERS
REGARD OIL SOLD BY ALL TRADERS AS THE SAME COMMODITY.
PRICE BECOMES THE BIGGEST FACTOR INFLUENCING CONSUMER
CHOICE FOLLOWED BY SERVICE QUALITY
A 0.10 BAHT/LITRE DIFFERENTIAL COULD LEAD TO CHANGE IN
VOLUME BY 10%
LARGE INCREASE IN NUMBER OF SERVICE STATIONS TOGETHER
WITH DECLINE IN DEMAND RESULTING FROM ECONOMIC
RECESSION HAS CAUSED THROUGHPUT VOLUME PER SERVICE
STATION TO FALL SUBSTANTIALLY
19
OIL MARKET SINCE 1999 (CON’T)
CHARACTERISTIC OF OIL MARKET SINCE 1999

INITIAL SHARP DROP IN MARKETING MARGIN IN 1999 FOLLOWED BY
STABILIZATION

RAPID DOWNWARD PRICE ADJUSTMENT BUT SLOW UPWARD
ADJUSTMENT

PUMP PRICES ARE THE SAME FOR ALL MAJOR BRANDS

PRICE WAR PREVALENT THROUGH OUT THE COUNTRY, INITIALLY
PRICE WAR WOULD BE STARTED BY MINOR BRANDS BUT NOW
MAJOR BRANDS ALSO START PRICE WARS.

FURTHER IMPROVEMENT IN SERVICE QUALITY

IMPLEMENTATION OF DRASTIC COST REDUCTION PROGRAM BY OIL
COMPANIES

UNPROFITABLE SERVICE STATIONS CLOSING DOWN
20
AVERAGE RETAI L PRI CES
18
BAHT/ LI TRE
16
14
12
10
8
6
1991
1992
1993
1994
1995
1996
1997 1998
1991 - 2002 (JAN - SEP)
U N LEAD ED PR EM I U M GASO LI N E
R E G U LA R G A S O LI N E
1999
2000
2001
2002
H IGH SPEED D IESEL
21
PRI CE OF UNLEADED GASOLI NE(ULG 95)
18
1 7.5 9
1 6 .2 9
16
BAHT/ LI TRE
14
1 1 .0 5
12
(Iraq - Kuwait War)
B a h t F lo a t a t io n
10
8 .4 5
8
6
|
1990
|
1991
|
1992
|
1993
|
1996
|
1997
|
1998
|
1999
|
2000
|
2001
|
2002
DATE:(JAN 1,1990 - OCT 4,2002)
R ETA I L(AV G)
W H O LESALE(AV G)
22
PRI CE OF HI GH SPEED DI ESEL
16
1 5 .0 4
1 4 .2 9
BAHT/ LI TRE
14
12
10
8 .4 0
B a h t F lo a t a t io n
(Iraq - Kuwait War)
8
6 .1 0
6
4
1990
|
1991
|
1992
|
1993
|
1996
|
1997
|
1998
|
1999
|
2000
|
2001
|
2002
DATE: (JAN 1,1990 - NOV 9,1999)
R ETAI L(AV G)
W H O LESALE(AV G)
23
MARKETI NG MARGI N OF PETROLEUM PRODUCT
2 .5
BAHT/ LI TRE
2
1 .5
1
0 .5
0
| 1991 | 1992 | 1993 | 1994 | 1995 | 1996 | 1997 | 1998 | 1999 | 2000 | 2001 | 2002
JAN 1991 - SEP 2002
24
GROSS REFI NI NG MARGI N
8
7
6
USD/ BBL
5
4
3
2
1
0
|
1996
|
1997
|
1998
|
1999
|
2000
(JAN 1996 - SEP 2002)
|
2001
|
2002
25
PRICE STRUCTURE OF PETROLEUM PRODUCTS
(OCTOBER 4,2002)
GASOLINE
95 RON
EX-REFINERY
EXCISE TAX
MUNICIPAL TAX
OIL FUND
ENCON FUND
VAT
WHOLESALE PRICE
MARKETING MARGIN
VAT
RETAIL PRICE
(BKK)
8.9218
3.6850
0.3685
0.5000
0.0400
0.9461
14.4614
1.7090
0.1196
16.29
UNIT : BAHT/LITRE
UNLEADED
HIGH SPEED
91 RON
DIESEL
8.3958
3.6850
0.3685
0.3000
0.0400
0.8952
13.6845
1.5005
0.1050
15.29
9.1509
2.3050
0.2305
0.5000
0.0400
0.8559
13.0823
1.1287
0.0790
14.29
26
NUMBER OF GAS STATI ONS
1991 - 2002(Q2)
NO. OF GAS STATI ONS
2 0 ,0 0 0
1 4 ,0 4 4
1 5 ,0 0 0
1 5 ,6 8 3
1 5 ,0 3 4 1 5 ,4 0 7
1 6 ,7 0 6
1 2 ,2 0 8
1 0 ,0 4 5
1 0 ,0 0 0
8 ,0 1 4
5 ,7 6 5
5 ,0 0 0
0
4 ,1 8 6
3 , 4 7 5 3 ,7 6 4
1991
1992
1993
1994
M A JO R B R A N D
1995
1996
1997
M INOR BRAND
1998
1999
2000
2001 2002 (Q2)
IND EPEND ENT
27
NUMBER OF
SERVICE
NUMBER
OFSTATIONS
SERVICE STATIONS
TRADER
PTT
Q4 /1992 Q2 /2002
1 ,025
1 ,414
MP
Q4 /1992
-
TRADER
Q2 /2002
112
-
SHELL
915
690
BP
25
ESSO
757
682
547
BCP
41
514
1 ,073
23
-
128
CALTEX
Q8
PT
TPI
-
75
SUSCO
131
JET
-
COSMO
95
-
PA
-
MOBIL
50
99
-
137
-
INDEPENDENTS
-
TOTAL
3 ,764
243
11 ,383
16 ,706
28
DI STRI CT WI TH NO SERVI CE STATI ONS
1991 - 2000
DI STRI CTS
200
185
184
160
150
100
100
94
93
52
50
0
30
1991
1992
1993
1994
1995
1996
1997
1998
20
1999
18
2000
NOTE : 1993 WAS ROYAL DECREE ANNOUNCING THE ESTABLISHING NEW PROVINCES,
29
RESULTING IN A LARGER NUMBER OF DISTRICTS
MARKET SHARES
COMPANY
1991
1994
2002
1997
NUMBER OF GAS STATIONS
1991
1994
1997
(7 MTHS.)
2002
(Q2)
1. PTT
34%
36%
36%
30%
967
1,290
1,498
1,414
2. SHELL
22%
19%
15%
15%
896
991
1,040
690
3. ESSO
23% 19%
16%
13%
711
811
871
682
4. CALTEX
11%
9%
9%
9%
513
589
598
514
5. BCP
3%
4%
6%
8%
23
659
1,187
1,073
6.-29. OTHERS
8%
12%
18%
25%
375
1,425
7,014
12,333
100% 100% 100%
100%
3,475
5,765
12,208
16,706
TOTAL
30
REFINING & MARKETTING MARGIN
(Before and after Deregulation)
ULG
2 .2 6
0 .1 2
0 .2 3
HSD
2 .2 8
0 .1 2
0 .3 8
1 .7 9
0 .1 0
1 .3 9
1 .2 3
1 .2 7
0 .6 2
0 .7 7
1 .5 4
0 .6 4
0 .4 9
0 .8 5
0 .7 4
0 .5 7
0 .2 4
BEFORE
91 - 01 JAN - SEP 02
R e f. M a r g in
M a r k . M a r g in
0 .2 7
BEFORE
C o s t f o r Q l.
1 .9 6
0 .1 0
0 .2 7
1 .2 6
0 .3 3
91 - 01 JAN -SEP 02
Co st fo r A dd& R e s.
31
PRICE STRUCTURE COMPARISON
Between Price Control and No Price Control Cases
( OCTOBER 4, 2002 )
ULG
HSD
UNI T : BAHT/ LI TRE
25
20
1 6 .8 5
1 6 .2 9
1 4 .7 3
1 4 .2 9
15
10
5
0
CONTROL
NO CONTROL
EX-R EFI N AR Y PR I CE
CONTROL
TAX
FUND
V AT
NO CONTROL
M ARKETT ING M ARGIN
32
DEMAND-SUPPLY BALANCE FOR PETROLEUM
PRODUCTS IN 2001
UNIT: M.LITRES
DEMAND
GASOLINE
PREMIUM UNLEADED
REGULAR UNLEADED
KEROSENE
JET FUEL
DIESEL
HIGH SPEED (0.05%S)
LOW SPEED (0.05%S)
FUEL OIL
6,857
3,001
3,856
57
3,717
15,226
15,121
105
4,564
DOMESTIC
PRODUCTION
8,327
4,196
4,131
587
4,237
16,667
16.559
108
6,466
NET IMPORT
(EXPORT)
(1,336)
(1,098)
(239)
(395)
(484.3)
(1,325)
(1,3321)
(4)
(1,504)
33
Petroleum Products Demand & Supply Balance
KBD
1 ,000
900
800
700
600
500
400
300
200
100
0
1990
TORC
1991
1992
ESSO
1993
BCP
1994
RRC
1995
1996
SPRC
1997
TPI
1998
1999
RPC
2000
GSP
2001
2002
DEMAND
34
IMPORT & EXPORT OF GASOLINE 1995- 2002 (Q3)
30
20
IMPORT
UNI T : KBD
10
0
-10
-20
-30
-40
-50
EXPORT
Q1/95 Q2
Q3
Q4 Q1/96 Q2
Q3
Q4 Q1/97 Q2
Q3
Q4 Q1/98 Q2
Q3
Q4 Q1/99 Q2
Q3
Q4 Q1/00 Q2
Q3
Q4 Q1/01 Q2
Q3
Q4 Q1/02 Q2
Q3
35
IMPORT & EXPORT OF DIESEL 1995-2002 (Q3)
150
100
UNI T : KBD
IMPORT
50
0
-50
EXPORT
-1 00
Q1/95 Q2
Q3
Q4 Q1/96 Q2
Q3
Q4 Q1/97 Q2
Q3
Q4 Q1/98 Q2
Q3
Q4 Q1/99 Q2
Q3
Q4 Q1/00 Q2
Q3
Q4 Q1/01 Q2
Q3
Q4 Q1/02 Q2
Q3
36
IMPORT & EXPORT OF FUEL OIL 1995-2002(Q3)
1 ,2 0 0
900
IMPORT
UNI T : KBD
600
300
0
-3 00
-6 00
EXPORT
Q1/95 Q2
Q3
Q4 Q1/96 Q2
Q3
Q4 Q1/97 Q2
Q3
Q4 Q1/98 Q2
Q3
Q4 Q1/99 Q2
Q3
Q4 Q1/00 Q2
Q3
Q4 Q1/01 Q2
Q3
Q4 Q1/02 Q2
Q3
37
DEREGULATION OF LPG MARKET & PRICES
LPG IS THE LAST PRODUCT TO BE DEREGULATED
DUE TO COMPLEXITY OF CONTROLS AND ILLEGAL
BUSINESS PRACTICES RESULTED FROM PRICE
CONTROLS
LPG PRICES WERE CONTROLLED IN THE SAME WAY
AS OTHER OIL PRODUCTS BUT IN 1986 UNIFORM
PRICING SYSTEM WAS INTRODUCED. DISMANTLING
THIS SYSTEM TURNED OUT TO BE EXTREMELY
COMPLICATED
THE CONTROLS ALSO LED TO NUMEROUS ILLEGAL
BUSINESS AND UNSAFE PRACTICES AS WELL AS
CREATING UNEQUAL LEVEL PLAYING FIELDS AMONG
TRADERS. SINCE 2000 OIL FUND ALSO HAD TO
HEAVILY SUBSIDISE LPG PRICES.
38
LPG DEMAND-SUPPLY BALANCE 2001
unit : MTON
PRODUCTION
 PTT GSP
 SHELL GSP
 REFINERIES
 OTHERS
DEMAND
 COOKING
 INDUSTRY
 AUTOMOBILE
 FEEDSTOCK
EXPORT
3,183
1,429
110
1,480
164
2,400
1,430
335
254
381
758
39
MARKET SHARES OF MAJOR LPG TRADERS IN THAILAND (%)
2001
2002
(7 Months)
PTT
Siam Gas
Unique Gas
World Gas
Union Gas
Caltex LPG
Sang Thong
46
14
15
14
9
2
0 .1
100
44
15
14
15
9
2
1
100
40
PRICE CONTROLS BEFORE DEREGULATION
EX-REFINERY/IMPORT PRICES WERE INITIALLY DETERMINED
BY CIF PRICE OF SINGAPORE POSTING AND/OR
CONTRACTED PRICE OF SAUDI ARABIA (CP). ONCE
THAILAND BECAME A NET EXPORTER OF LPG PRICES WERE
BASED (SOMETIMES ) ON EXPORT PARITY
OIL FUND LEVY IS USED TO STABILIZE RETAIL PRICE
“UNIFORM PRICE” INTRODUCED IN 1986: WHOLESALE
PRICES AT PTT’S 5 DEPOTS THROUGHOUT THE COUNTRY
WERE THE SAME THROUGH SUBSIDY FROM OIL FUND FOR
“STORAGE COST” AT DEPOT AND “TRANSPORT COST” FROM
SRIRACHA (SITE OF PTT’S MAIN LPG TERMINAL)
PRICES AT OTHER LOCATIONS WERE MARKED UP BY
TRANSPORT COST FROM NEAREST MAJOR DISTRIBUTION
CENTRES
41
STRUCTURE OF LPG SUBSIDIZATION
Refineries & Gas Sep.
Plants
Pay subsidy for world price change
Pay subsidy for transportation cost
PTT Up-Country Depots
Retail Prices in Depot
Provinces
(Same wholesale price)
(Same retail prices)
No subsidy for transportation cost
Retail Prices in Other
Provinces
(Different retail prices)
42
PRICES CONTROLS BEFORE DEREGULATION (CONT)
BEFORE 1991 SUBSIDY LEVY WERE DIFFERENT FOR
DIFFERENT USES IN ORDER TO HELP LOW INCOME
HOUSEHOLDS

SMALL CYLINDER LPG (13-15 kg)

LARGE CYLINDER LPG (48-50 kg)

AUTOMOTIVE AND INDUSTRIAL USES
THIS LED TO A NUMBER OF PROBLEMS


ILLEGAL TRANSFER OF LPG FROM SMALL CYLINDERS TO
LARGE CYLINDERS AND AUTOMOTIVE USES CAUSING FIRE
HAZARD
ILLEGAL REQUEST FOR SUBSIDY FROM OIL FUND
43
INITIAL ATTEMPT TO DEREGULATE LPG PRICE
THE GOVERNMENT ATTEMPTED TO DEREGULATE LPG
PRICE ROUGHLY AT THE SAME TIME AS OTHER OIL
PRODUCTS BUT DID NOT HAVE TIME TO COMPLETE
TO CREATE COMPETITION IMPORT CONTROL ON LPG
WAS LIBERALIZED
DIFFERENCES IN SUBSIDIES FOR DIFFERENT USES WERE
ABOLISHED : SAME SUBSIDY /LEVY IRREFFECTIVE OF
USE
RETAIL PRICE CONTROL WAS LIFTED IN 1991 FOR
AUTOMOTIVE AND INDUSTRIAL LPG
44
PROBLEMS FROM LPG PRICE CONTROLS
POLITICALLY DIFFICULT TO ADJUST RETAIL PRICE IN LINE
WITH WORLD PRICE LEADING TO INEFFICIENT USE,
SUBSTITUTION OF LPG IN GASOLINE ENGINES, HEAVY
SUBSIDY FROM OIL FUND AND ILLEGAL EXPORT. HEAVY
SUBSIDY FROM OIL FUND WAS PARTLY RESOLVED BY
INCREASING LEVY ON GASOLINE AND DIESEL, THEREBY
FURTHER CREATING DISTORTION.
MARKETING MARGIN WAS KEPT CONSTANT FOR MANY
YEARS FORCING TRADERS TO RESORT TO ILLEGAL
PRACTICES OR LEAVE THE MARKET
“UNIFORM PRICING” CREATED UNFAIR ADVANTAGE TO PTT,
FURTHER FORCING OTHER TRADERS TO RESORT TO ILLEGAL
PRACTICES AND DISCOURAGING NEW INVESTMENT AND NEW
ENTRANTS.
45
ILLEGAL BUSINESS PRACTICES
CROSS FILLING AND TRADERS’ REFUSAL TO INSPECT
AND REPAIR THEIR OWN CYLINDERS DUE TO CROSS
FILLINGS
“WHITE CYLINDER” : CYLINDERS NOT BELONGING TO
ARTICLE 7 TRADERS AND NOT SUBJECT TO REGULAR
MAINTENANCE
OVERCHARGED CYLINDER DEPOSIT
UNDERWEIGHT FILLING VOLUME
46
STRATEGIES IN LPG PRICE DEREGULATION
PRICE DEREGULATION MUST BE ACCOMPANIED BY
MEASURES TO ENCOURAGE COMPETITION AND
ELIMINATION OF ILLEGAL AND UNFAIR BUSINESS
PRACTICES IN ORDER TO ENCOURAGE FREE AND FAIR
COMPETITION AS WELL AS BRING SAFETY LEVELS UP TO
STANDARDS
TO ACHIEVE ABOVE GOAL DURING THE PAST 4 YEARS
THE GOVERNMENT HAS GRADUALLY





REDUCED UNIFORM PRICING WITH OBJECTIVE OF FINALLY
ABOLISHING IT AND CREATE COMPETITION
INCREASED MARKETING MARGIN
REDUCED SUBSIDY BY OIL FUND BY ADJUSTING RETAIL
PRICES
COMMENCED PROCESS OF PRICE DEREGULATION
INTRODUCED MARKET REFORM
47
PHASING OUT OF UNIFORM PRICING
INITIALLY GOVERNMENT ABOLISHED
SUBSIDY OF ‘STORAGE COST’ FOR LPG
TERMINAL
IMPORT CONTROL ABOLISHED
THIRD PARTY ACCESS FOR USE OF PTT’S
LPG DEPOT
ALLOW LPG TO BE SOLD AT SERVICE
STATION
REDUCE MINIMUM REQUIREMENT FOR
BECOMING ARTICLE 7 LPG TRADER (FROM
MINIMUM VOLUME OF 100,000 TONS/YEAR
TO 50,000 TONS/YEAR)
48
Tax & Marketing Margin of LP Gas
in T h a ila n d
Unit [ Baht/ KG ]
3 .5
3
M a r k e t in g M a r g in
2 .5
E x cis e & M u n icip a l T a x
2
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
49
400
18
300
16
200
14
100
12
10
0
JA N 4 1
M AR
M AY
JU L
SEB
NOV
JA N 4 2
M AR
M AY
JU L
SEB
NOV
JA N 4 3
M AR
M AY
JU L
SEB
NOV
JA N 4 4
M AR
M AY
JU L
SEB
NOV
JA N 4 5
M AR
M AY
JU L
SEP
MONTH : (JAN 1998 - OCT 2002)
PE T R O M I N PR I CE
R E TAI L PR I CE
50
RETAI L PRI CE : BAHT/ KI LOKRAM
PETROMI N PRI CE : USD/ TON
LPG PRI CES
LPG PRICE STRUCTURE IN THAILAND
Unit : Baht/kg
Jan-01
Dec-01
Sep-02
Ex-Refinery Price
14.235
8.8419
10.2909
Taxes (All)
3.0870
3.2767
3.2767
Marketing Margin
2.9566
2.9566
3.0566
Retail Price (Should be) 20.2786 15.0752
16.6242
Subsidy
Actual Retal Price
9.5786
1.4752
3.0242
10.70
13.60
13.60
51
OI L FUND
8 ,0 0 0
7 ,7 8 0
6 ,0 8 1
6 ,0 0 0
4 ,0 0 0
UNI T : M.BAHT
2 ,0 0 0
69
0
-2 ,0 0 0
-1 ,9 5 8
-4 ,0 0 0
- 5 ,7 0 2
-6 ,0 0 0
-8 ,0 0 0
-1 0 ,0 0 0
-1 2 ,0 0 0
-1 4 ,0 0 0
-1 2 ,2 0 8
90 |
91
|
92 |
93
|
94 | 95 | 96 | 97 | 98 |
DATE : (SEP 90 - 28 AUG 02)
99 |
00
| 01
|
02
52
CURRENT STATUS OF LPG PRICE DEREGULATION
• LP Gas prices have been deregulated at retail level
• Retail prices for cooking LPG have been deregulated
since November 2001
• Three common cylinder sizes of Cooking LPG are:
- Small (4 kg)
- Medium (15 kg)
- Large (48 kg)
53
DEREGULATION OF LPG PRICES
Step 1 : Preparatory Stage
Step 2 : Semi - Deregulation
Step 3 : Market Preparation prior to Full
Deregulation
(Period of Semi-floating Prices)
Step 4 : Full or Complete Deregulation
54
DEREGULATION OF LPG PRICES (CONT.)
Step 1 : Preparatory Stage
- Create competition in the market
- Inform market participants
and related organizations of government policy
Step 2 : Semi-Deregulation
- Decontrol retail price while still controlling
wholesale price (1 November 2001)
- Filling Plants and LPG Shops must post prices
- Article 7 LPG Trades must announce standard
prices
55
DEREGULATION OF LPG PRICES (CONT.)
Step 3 : Market Preparation prior to Full
Deregulation (Period of Semi-floating Prices)
- Try to maintain Oil Fund subsidy at not more than
1 baht/kg
- Change wholesale prices in a line with Petromin contracted
prices. This will result in automatic change in retail prices
- Decrease Oil Fund debt by paying back LPG producers
at rate of 400-500 M. baht/month
- Thailand has been in this stage since November 1, 2001
56
DEREGULATION OF LPG PRICES (CONT.)
Step 4 : Full or Complete Deregulation
- Deregulate prices at all levels
- Producers and traders set their own prices
- Try to achieve this stage during the next few years
57
LPG MARKET REFORM
Improvement of LPG Business Practices and Its
Safety Standards
Stage 1 • Eliminate cross filling, illegal filling business
and unfair practices
Stage 2 • Remove illegal cylinders from the market
Stage 3 • Enforce stringent regulations on cylinder
maintenance
58
IMPROVEMENT OF LPG BUSINESS PRACTICES AND
ITS SAFETY STANDARDS
Stage 1 : Eliminate cross filling, illegal filling business
and unfair practices
- Traders and their filling plants to fill LPG into their own
cylinders only
- Filling plants to act as “filler” only and are not allowed to
buy and sell LPG
- All filling plants are required to register and obtain
official ID numbers
- Filling plants must seal valves of filled cylinders, which carry
their ID numbers
- Underweight filled cylinders could be traced by ID numbers
59
IMPROVEMENT OF LPG BUSINESS PRACTICES AND
ITS SAFETY STANDARDS (CONT.)
Stage 1 : Eliminate cross filling, illegal filling business
and unfair practices (Cont)
- Intensify LPG filling inspection by responsible
authorities
- New cylinder to have information in Thai
- Traders must issue receipt for deposit of cylinders
in order to allow consumers to more easily switch
brands
60
BENEFITS TO CONSUMERS
(DERIVED FROM STAGE 1)
Safety Improvement


3.5 M. used cylinders (47%) have been
reconditioned
2 M. new cylinders have been injected into
the market
Every filled cylinder has sealed valve
providing higher quality (i.e. no underweight
filling, a decrease in illegal cylinders)
Increased market competition has led to fair
pricing and better services
61
IMPROVEMENT OF LPG BUSINESS PRACTICES AND
ITS SAFETY STANDARDS (CONT.)
Stage 2 : Remove illegal cylinders from the market
To prohibit filling of uncertified cylinders
To remove “white cylinders” from the market through the white
cylinder exchange program
White Cylinders :
:
:
:
Cylinders not belonged to Art.7 traders
No regular maintenance
High risk of danger
About 2 Million in market circulation
62
STAGE 2 : REMOVE ILLEGAL CYLINDERS
FROM THE MARKET (CONT.)
White Cylinder Exchange Program
Stop new entries
• Prohibit cylinder manufacturers from producing
cylinders unless Art. 7 traders order
Collect circulating white cylinders from the market
• 50% cost sharing between government and LPG
traders on new standardized cylinders for exchange
63
STAGE 2 : REMOVE ILLEGAL CYLINDERS
FROM THE MARKET (CONT.)
White Cylinder Exchange Program (Cont.)
• Use retail shops to collect white cylinders from consumers
and then change for new std. cylinders at traders’ filling plants
• Divide the country into 10 zones and introduce the
exchange program zone by zone
• Implementation
: Jan-Nov. 2002
: 2 months/zone, with one-month lag
between the exchange in one zone
and that in the next one
• Allow a slight increase in margin to cover their cost for the program
64
IMPROVEMENT OF LPG BUSINESS PRACTICES AND
ITS SAFETY STANDARDS (CONT.)
Stage 3 • Enforce stringent regulations on
cylinder maintenance
- Strictly enforce mandatory inspection
and recondition of the cylinders every five years
- Start this stage in 2003
65
..SAWASDEE..
THANK YOU
66