Who Pays and Who Profits From High Energy Prices in Thailand?

Pacific Money | Economy | Southeast Asia

PTT is the biggest vitality firm in Thailand, and the Ministry of Finance is the controlling proprietor with a 51 p.c stake. Including subsidiaries and joint ventures, the consolidated agency straddles the vitality sector from oil and gasoline exploration and extraction to petrochemical manufacturing, refining actions, retail gross sales, and international buying and selling. Thanks to skyrocketing vitality costs, the previous few years have been superb for PTT.

Revenue hit $96 billion in 2022, a 34 p.c improve in comparison with 2019. PTT paid over $1.2 billion in dividends on $3.5 billion in after-tax earnings final 12 months. These windfall earnings are much like these of Petronas, the Malaysian state-owned vitality large which additionally had a tremendously good 12 months in 2022. The pandemic dried up demand for oil and gasoline, however the revived post-pandemic economic system despatched vitality costs hovering. And whereas surging vitality costs are a very good factor for PTT, they don’t seem to be so nice for customers.

The Metropolitan Electricity Authority (MEA) is the first distributor of electrical energy for Bangkok and surrounding areas. Although MEA’s gross sales are recovering from their pandemic hunch, the utility nonetheless bought 3 p.c much less electrical energy in 2022 than it did in 2019. Despite promoting much less electrical energy, income was 9 p.c larger than it was 4 years in the past. The easy clarification is that the MEA is charging extra for electrical energy than it did earlier than the pandemic.

Electricity costs in Thailand embody a base price plus an Automatic Tariff Adjustment, which they name the Ft price. The base price displays assumptions concerning the mounted prices of producing electrical energy. The Ft price is a cost that may go up or down relying on adjustments in variable prices, like gasoline. If the worth of pure gasoline will increase, it turns into costlier to generate electrical energy. Some of this elevated value is handed onto customers by the next Ft price. The price is reviewed each few months by the Energy Regulatory Commission.

Throughout 2021, when households have been being pummeled by the pandemic, the Ft cost was -15.32 satang per kWh (a satang is 1/100 of a baht). In 2021 and 2022, the worth of fuels like coal, oil, and gasoline began spiking world wide. To stop electrical energy turbines from absorbing everything of those value will increase, the Ft price began rising in January 2022, reaching 93.43 satang per kWh in September 2022. It is at the moment nonetheless above 90. This means because the finish of final 12 months, typical MEA clients in Bangkok have been paying practically one baht above the bottom price for every kWh of electrical energy they use.

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Thailand just isn’t alone right here. EVN, Vietnam’s state-owned electrical utility, tried to soak up larger vitality prices and defend customers for so long as it might earlier than elevating costs lately. EVN arguably waited too lengthy, depleting its money reserves significantly earlier than lastly asking customers to share within the burden. Indonesia raised the worth of gasoline in 2022, when consuming the losses from excessive oil costs merely turned untenable for public funds. The Philippines makes use of an identical system to the Ft cost, and utilities usually cross larger vitality prices onto customers.

This provides us a peek right into a broader debate about who ought to pay and who ought to revenue from larger costs throughout inflationary occasions. Should worth will increase fall totally on customers, whereas companies larger up within the manufacturing chain reap large earnings? Should it’s the facility vegetation, or distributors like MEA, who take up the worth will increase and settle for decrease revenue margins? And who needs to be making these selections? The market? The state?

Thailand’s reply to those questions is a regulated market strategy. Firms like PTT stand to revenue handsomely in occasions of excessive international vitality costs. But those self same excessive costs make producing electrical energy costly, significantly when you import a whole lot of gasoline as Thailand does. In the facility sector, a few of these value will increase are handed onto customers by the Ft cost, topic to regulatory oversight from the ERC.

In this manner, Thailand has tried to strike a steadiness between state and market mechanisms, in addition to the pursuits of customers and producers. But it’s a steadiness that clearly requires and expects customers to soak up a portion of regulated worth will increase throughout occasions of excessive inflation. Whether that steadiness is perfect or honest, and the way it would possibly change below future management situations, is a unique and presumably much more attention-grabbing query.