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1 THAILAND’S EXPERIENCE IN OIL PRICE DEREGULATION by Piyasvasti Amranand Paper Prepared for Roundtable Discussion on Downstream Oil & Gas Restructuring.

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Presentation on theme: "1 THAILAND’S EXPERIENCE IN OIL PRICE DEREGULATION by Piyasvasti Amranand Paper Prepared for Roundtable Discussion on Downstream Oil & Gas Restructuring."— Presentation transcript:

1 1 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, October 2002

2 2 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

3 3 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

4 4 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.

5 5 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

6 6 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

7 7 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.

8 8 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 TAXES AND RETAIL PRICES WERE GRADUALLY ADJUSTED TO REDUCE THE DISTORTION. BAHT/LITRE TAX &RETAIL TAX & RETAIL TAX &RETAIL TAX & RETAIL OIL FUND PRICE OIL FUND PRICE OIL FUND PRICE OIL FUND PRICE PREMIUM GASOLINE * 9.95* REGULAR GASOLINE * 9.50* HIGH SPEED DIESEL LPG (BAHT/Kg) * PRICES AND TAXES OF UNLEADED GASOLINE ** DOMESTIC OILFUND

9 9 PRICE STRUCTURE OF PETROLEUM PRODUCTS (1997) UNIT : BAHT/LITRE UNLEADEDUNLEADEDHIGH SPEED PREMIUMREGULARDIESEL EX-REFINERY EXCISE TAX MUNICIPAL TAX OIL FUND ENCON FUND VAT WHOLESALE PRICE MARKETING MARGIN VAT RETAIL PRICE (BKK)

10 10 IMPLEMENTATION OF OIL PRICE DEREGULATION USE THE OPPORTUNITY CREATED BY FALL IN WORLD OIL PRICE AFTER THE END OF IRAQ- KUWAIT 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 19 AUGUST 1991

11 11 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

12 12 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.

13 13 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

14 14 MEASURES TO PROTECT DOMESTIC REFINERY (CONT) IMPORT TAXES STANG/LITRE BEFORE DEREGULATIONAFTER GASOLINE, DIESEL KEROSENE FUEL OIL OIL RESERVE % OF VOLUME BEFORE DEREGULATION AFTER CRUDE OIL HELD4%5% BY REFINERIES LOCALLY REFINED FINISHED 3%5% PRODUCTS HELD BY OIL TRADERS IMPORTED FINISHED PRODUCTS3%10% HELD BY OIL TRADERS

15 15 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

16 16 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

17 17 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. 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 REFINING CAPACITY RISES SUBSTANTIALLY AND SURPLUS CAPACITY BEGAN TO EMERGE IN 1996.

18 18 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 IMPROVEMENT IN QUALITY OF SERVICE. GREATLY FACILITATE IMPROVEMENT IN OIL QUALITY FOR ENVIRONMENTAL PROTECTION.

19 19 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

20 20 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

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26 26 PRICE STRUCTURE OF PETROLEUM PRODUCTS (OCTOBER 4,2002) UNIT : BAHT/LITRE GASOLINEUNLEADEDHIGH SPEED 95 RON91 RONDIESEL EX-REFINERY EXCISE TAX MUNICIPAL TAX OIL FUND ENCON FUND VAT WHOLESALE PRICE MARKETING MARGIN VAT RETAIL PRICE (BKK)

27 27

28 28 NUMBER OF SERVICE STATIONS

29 29 NOTE : 1993 WAS ROYAL DECREE ANNOUNCING THE ESTABLISHING NEW PROVINCES, RESULTING IN A LARGER NUMBER OF DISTRICTS

30 30 36% 19% 9% 4% 12% , ,425 1, ,073 12,333 1,498 1, ,187 7, PTT 2. SHELL 3. ESSO 4. CALTEX 5. BCP OTHERS COMPANY MARKET SHARES NUMBER OF GAS STATIONS (Q2) 30% 15% 13% 9% 8% 25% 36% 15% 16% 9% 6% 18% 34% 22% 23% 11% 3% 8% 2002 (7 MTHS.) TOTAL100% 3,4755,76516,70612,208

31 31 REFINING & MARKETTING MARGIN (Before and after Deregulation) HSDULG

32 32 PRICE STRUCTURE COMPARISON Between Price Control and No Price Control Cases ULG HSD ( OCTOBER 4, 2002 )

33 33 DEMAND-SUPPLY BALANCE FOR PETROLEUM PRODUCTS IN 2001 GASOLINE PREMIUM UNLEADED REGULAR UNLEADED KEROSENE JET FUEL DIESEL HIGH SPEED (0.05%S) LOW SPEED (0.05%S) FUEL OIL DEMAND DOMESTIC PRODUCTION NET IMPORT (EXPORT) UNIT: M.LITRES 6,857 3,001 3, ,717 15,226 15, ,564 8,327 4,196 4, ,237 16, ,466 (1,336) (1,098) (239) (395) (484.3) (1,325) (1,3321) (4) (1,504)

34 34 Petroleum Products Demand & Supply Balance KBD

35 35 IMPORT EXPORT IMPORT & EXPORT OF GASOLINE (Q3)

36 36 IMPORT EXPORT IMPORT & EXPORT OF DIESEL (Q3)

37 37 IMPORT EXPORT IMPORT & EXPORT OF FUEL OIL (Q3)

38 38 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.

39 39 LPG DEMAND-SUPPLY BALANCE 2001 unit : MTON PRODUCTION3,183 PTT GSP1,429 SHELL GSP 110 REFINERIES1,480 OTHERS 164 DEMAND2,400 COOKING1,430 INDUSTRY 335 AUTOMOBILE 254 FEEDSTOCK 381 EXPORT 758

40 40 MARKET SHARES OF MAJOR LPG TRADERS IN THAILAND (%)

41 41 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

42 42 Refineries & Gas Sep. Plants PTT Up-Country Depots Retail Prices in Other Provinces Retail Prices in Depot Provinces Pay subsidy for world price change Pay subsidy for transportation cost (Same wholesale price) (Same retail prices) No subsidy for transportation cost (Different retail prices) STRUCTURE OF LPG SUBSIDIZATION

43 43 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

44 44 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

45 45 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.

46 46 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

47 47 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

48 48 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)

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51 51 Unit : Baht/kg LPG PRICE STRUCTURE IN THAILAND

52 52

53 53 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) CURRENT STATUS OF LPG PRICE DEREGULATION

54 54 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 DEREGULATION OF LPG PRICES

55 55 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 DEREGULATION OF LPG PRICES (CONT.)

56 56 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 M. baht/month - Thailand has been in this stage since November 1, 2001 DEREGULATION OF LPG PRICES (CONT.)

57 57 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 DEREGULATION OF LPG PRICES (CONT.)

58 58 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 LPG MARKET REFORM

59 59 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 IMPROVEMENT OF LPG BUSINESS PRACTICES AND ITS SAFETY STANDARDS

60 60 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 IMPROVEMENT OF LPG BUSINESS PRACTICES AND ITS SAFETY STANDARDS (CONT.)

61 61 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 BENEFITS TO CONSUMERS (DERIVED FROM STAGE 1) BENEFITS TO CONSUMERS (DERIVED FROM STAGE 1)

62 62 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 IMPROVEMENT OF LPG BUSINESS PRACTICES AND ITS SAFETY STANDARDS (CONT.)

63 63 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 STAGE 2 : REMOVE ILLEGAL CYLINDERS FROM THE MARKET (CONT.) STAGE 2 : REMOVE ILLEGAL CYLINDERS FROM THE MARKET (CONT.) White Cylinder Exchange Program

64 64 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 : 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 STAGE 2 : REMOVE ILLEGAL CYLINDERS FROM THE MARKET (CONT.) STAGE 2 : REMOVE ILLEGAL CYLINDERS FROM THE MARKET (CONT.) White Cylinder Exchange Program (Cont.)

65 65 - Strictly enforce mandatory inspection and recondition of the cylinders every five years - Start this stage in 2003 Stage 3 Enforce stringent regulations on cylinder maintenance IMPROVEMENT OF LPG BUSINESS PRACTICES AND ITS SAFETY STANDARDS (CONT.)

66 66..SAWASDEE.. THANK YOU


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