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29 April 2013
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Policy mix recommended to end reliance on subsidies

Governments should consider all energy reform policies available rather than relying on a single policy to help affected groups, says a researcher at the Canada-based International Institute for Sustainable Development (IISD).

Populist schemes did not change the way fuels were priced, says Ms Laan. THANARAK KHOONTON

“Despite good social programmes which were quite successful, it didn’t change the way fuels were priced,” said Tara Laan, a research associate at IISD’s Global Subsidies Initiative.

“Whether subsidies are appropriate for Thailand is difficult to say, but the best of different reform policies should be taken and put all together.

“There’s no easy solution, and we have to do this over time,” said Ms Laan, speaking on the sidelines of a workshop about fuel subsidies jointly hosted by the Thailand Development Research Institute (TDRI).

She said Indonesia, for example, put off subsidies in 2005 and compensated with cash transfers and programmes like reduced education fees and loans for industries. But subsidies were relaunched in 2008 when prices started to rise.

Thailand last year spent as much as 195 billion baht on fuel and electricity subsidies. That amount, said Ms Laan, could be better spent on stimulating the economy by helping the poor.

TDRI researcher Adis Israngkura na Ayutthaya said Thailand will not be able to avoid high oil prices, even if measures are put in place to increase domestic supply and decrease the number of fuel imports used.

“Thais have a false belief,” said Mr Adis, “that by importing less energy and supporting domestic production, fuel prices will not fluctuate in line with global prices. But in fact it is unavoidable, as domestic oil companies will always push for an increase in prices.

“We will always depend on global prices as long as fuels are considered tradable goods.”

The issue of subsidies is sensitive, as politicians often use them as a way to gain votes, said Mr Adis, also with the National Institute of Development Administration’s School of Development Economics.

“Scandals might also arise if the government provides subsidies for certain types of fuel, with claims that officials might be financially supporting a group they have personal interests in,” he said.

Cutting fuel prices does benefit the poor, but Thailand’s subsidies of diesel, natural gas and liquefied petroleum gas (LPG) are universal.

A 2012 report of the International Energy Agency said Thailand’s subsidies for LPG and diesel benefited the poor the least of all, with only 5-6% going to the lowest-income people.

Meanwhile, 9-10% of electricity and natural gas subsidies reached the lowest-income group.


Adis Israngkura, Ph.D.
Advisor for Resource Sustainability and Mitigation Policy