Bangkok--2 Sep--Fitch Ratings
Fitch Ratings (Thailand) Limited has said the temporary removal of levies on refined petroleum products has no significant impact on Thai refiners rated by the agency. The refiners are Thai Oil Public Company Limited (‘AA-(tha)’/Stable/‘F1+(tha)’), PTT Aromatics and Refining Public Company Limited (‘A-(tha)’/Rating Watch Positive/‘F2(tha)’), IRPC Public Company Limited (‘A-(tha)’/Stable/‘F2(tha)’) and ESSO (Thailand) Public Company Limited (‘F1(tha)’).
The government of Thailand recently announced that it is temporarily removing levies on certain grades of gasoline and diesel as well as reducing levies and increasing subsidies on gasohol products (a mixture of gasoline and ethanol). These measures are aimed at lowering the retail prices of these fuels.
While lower retail prices and the narrowed price differential between gasohol and gasoline as a result of the removal of levies should boost demand for diesel and gasoline, the impact on demand and consequently overall refining margins is likely to be marginal.
Fitch notes that the levy removal may result in resources at the State Oil Fund being stretched, possibly leading to a delay in providing subsidies to the refiners on liquefied petroleum gas (LPG) and EURO IV-compliant products. The State Oil Fund, which was set up to manage retail oil prices, collects levies on domestic sales of refined oil products and provides subsidies to LPG, natural gas and EURO IV-compliant refined petroleum products. The government has plans for the State Oil Fund to issue debt to fund any shortfalls. Nevertheless Fitch does not expect any such delays to impact the refiners significantly as these subsidies represent only a small share of their total receivables.
The government has indicated that the removal of the levy is a temporary measure that is unlikely to last beyond 12 months. However, Fitch believes that reinstating the levy can be challenging, as long as oil prices remain high. Without sufficient subsidies, demand for ethanol will be muted and will constrain the government’s policy of promoting ethanol as alternative energy. Thailand’s ethanol capacity is significantly higher than demand; in 2010, Thailand consumed 1.2m litres of ethanol per day, whereas the total installed capacity was 2.9m litres per day.
Contact:
Ekapan Prompraphant
Analyst
+66 2 655 4753
Fitch Ratings (Thailand) Limited
Wave Place 13th Fl.
Wireless Road, Lumpini, Patumwan
Bangkok 10330, Thailand
Lertchai Kochareonrattanakul
Senior Director
+66 2 655 4760