The Oil Fuel Fund Office (Offo) is facing significant financial difficulties, with massive losses and accrued debt attributed to subsidies for oil and gas prices over the past five years. In light of these challenges, authorities are exploring amendments to the 2019 Offo Act to enhance the fund’s liquidity and address the financial strain from these subsidies.
To inform these amendments, Offo has commissioned a study from a prominent university to assess the fund’s problems and propose solutions, particularly in the context of rising global oil prices and Thailand’s shift towards a low-carbon future.
Proposed Changes to the Offo Act
One key recommendation is to restrict the eligibility for price subsidies to ensure more effective management of the dwindling fund. Energy authorities and analysts suggest that subsidies should focus on vulnerable groups, including street food vendors, truck drivers, and public transport operators, rather than being applied universally.
The national oil and gas company has already implemented a targeted approach, granting subsidies for compressed natural gas specifically to taxi and public bus services. The head of policy and strategy at Offo emphasized the need to support only those who merit assistance, as the universal subsidies granted in 2022 have led to substantial debt concerns.
During a recent public hearing, energy analysts voiced support for this targeted assistance model. They highlighted the importance of defining a “fuel price crisis” clearly to ensure that subsidies are justified and appropriately allocated to those most in need.
Rapid Drainage of the Fund
The rapid depletion of the fund is attributed to soaring global oil and gas prices, particularly following geopolitical events in 2022. Government expenditures on fuel subsidies reached 130 billion baht that year, significantly depleting resources that once exceeded 30 billion baht.
To address its financial obligations, Offo secured a loan of 105 billion baht in 2022, although this is only sufficient for interest payments. Authorities are committed to repaying the principal amount of 1 billion baht due this November.
Despite ongoing financial burdens, the continuation of subsidy programs raises concerns about fiscal sustainability. Officials acknowledge the need for a balanced approach to stable funding and effective spending management.
Offo has also implemented levies on gasohol users to finance subsidies, but this has sparked discussions about fairness, as high gasoline taxes support lower diesel and LPG prices.
Broader Impacts of Energy Price Subsidies
Extensive subsidies pose risks beyond financial strain, potentially undermining efforts to encourage energy efficiency as part of climate change initiatives. Experts warn that low fossil fuel prices can hinder progress towards carbon neutrality, as consumers may become less inclined to conserve energy.
With the government subsidizing fossil fuels, incentives for energy-saving behaviors may diminish, leading to increased energy consumption. Analysts stress the need for a reevaluation of subsidy strategies to align with long-term goals for sustainable energy usage.
