BANGKOK -- Shares in six major Thai oil refiners are still under pressure days after the government said it was in talks with them for a profit-sharing system to help boost the State Oil Fund so that it can continue to provide subsidies to consumers at a time of spiraling inflation.
Energy Minister Supattanapong Punmeechaow said on June 13 that the government was in talks with oil refiners to help build up that fund, which has racked up almost 100 billion baht ($2.8 billion) in debt.
The government has not finalized how much it will ask the oil companies to contribute. National Economic and Social Development Council chief Danucha Pichayanan on Thursday said the system would pump 7 billion to 8.5 billion baht into state coffers per month for the next three months, for a total of up to 25.5 billion baht ($722 million). But Energy Ministry sources have separately told Nikkei Asia that the government was only asking for 1 billion baht per month.
Thailand is not alone in making oil companies cooperate on taming a rising cost of living. In late May, the U.K. decided to impose a windfall tax on oil and gas giants, at the rate of 25% of their profits. The tax will be phased out when global commodity prices settle down.
Shares in Thai Oil, PTTGC, IRPC, Bangchak, Esso and Star Petroleum Refining have tumbled 10% to 18% since Supattanapong's announcement.
"The falling value of share prices of the six companies is worth a total 66 billion baht as of June 17. That is much more than the profit margin the government expected to cut from the refineries," said an analyst at Kasikorn Research Center.
The State Oil Fund was set up decades ago as a mechanism to control oil prices. Sources at the Energy Ministry said the government wants to keep the price of diesel at its current cap of 35 baht per liter. This compares with a global average price of 66 baht per liter from early March to the middle of this month, according to Globalpetrolprices.com.
According to the Energy Ministry, the Thai refinery margin -- the difference between crude oil prices and refined prices -- stood at 0.88 baht per liter in 2020-2021, when the COVID-19 pandemic and lockdowns sharply cut oil demand. But by June this year, the margin had leaped to 5.2 baht per liter as economies bounced back and demand surged amid uncertainties stoked by supply chain problems and Russia's invasion of Ukraine.
The profit-sharing system has support from other politicians. Korn Chatikavanij, leader of the Kla Party and also a former finance minister, had proposed the same idea to help reduce the burden of high oil prices on consumers.
But the Petroleum Refining Industry Club of the Federation of Thai Industries argued that the refinery margin of 5.20 baht per liter did not reflect net profit of the six refineries, as they had other costs to bear.
Other critics said that cutting the margins of refineries for the purposes of boosting the subsidy fund could work in the short term, but risks damaging foreign investor confidence and could backfire if it caused them to withdraw from Thailand.
"It implies that the government can intervene [in the business] all the time if it wants to and the free trade mechanism can always be distorted," said an analyst at Asia Plus Securities.