1

THAILAND’S EXPERIENCE IN

OIL PRICE DEREGULATIONby

Piyasvasti Amranand

Paper Preparedfor

Roundtable Discussion on Downstream Oil & Gas Restructuring in Indonesia

Borobodur HotelJakarta, 15-16 October 2002

2

MAJOR PLAYERS INVOLVED IN DEREGULATION

MAJOR PLAYERS INVOLVED IN DEREGULATION

GOVERNMENT

NATIONAL ENERGY POLICY OFFICE (NEPO) INTERNAL TRADE DEPARTMENT PROVINCIAL AUTHORITIES

STATE OWNED OIL COMPANIES

PETROLEUM AUTHORITY OF THAILAND (PTT), BANGCHAK (BCP)

PRIVATE OIL COMPANIES

SHELL, ESSO, CALTEX, THAIOIL

3

OIL PRICE DETERMINATION BEFORE DEREGULATION

OIL PRICE DETERMINATION BEFORE DEREGULATION

EX-REFINERY & IMPORT PRICES DETERMINED BY GOVERNMENT BASED ON SINGAPORE POSTING AND SPOT PRICES

MARKETING MARGIN DETERMINED BY GOVERNMENT AND RARELY CHANGED

EXCISE AND MUNICIPAL TAXES ON SPECIFIC BASIS (BAHT/LITRE)

RETAIL PRICES DETERMINED BY GOVERNMENT AND RARELY CHANGED

OIL FUND LEVY/SUBSIDY ACTED AS STABILIZER OF RETAIL PRICES

RETAIL PRICE = EX-REFINERY/IMPORT PRICE + OIL FUND

+ TAXES + MARKETING MARGIN

4

OIL MARKET BEFORE DEREGULATIONOIL MARKET BEFORE DEREGULATION

RETAIL TRADE CONTROLLED BY 4 MAJOR OIL COMPANIES (PTT, SHELL, ESSO, CALTEX)

MARKETING MARGIN KEPT CONSTANT FOR MANY YEARS

A FEW INDEPENDENT OIL COMPANIES INVOLVED IN WHOLESALE TRADE

OIL IMPORTS WERE CONTROLLED WITH QUOTA SYSTEM

NO NEW ENTRANTS INTO OIL BUSINESS DUE TO GOVERNMENT POLICY (NO LICENSE ISSUED FOR ARTICLE 6 OIL TRADER)

DOMESTIC REFINING CAPACITY APPROX. 50% OF DEMAND

MANY REMOTE AREAS DID NOT HAVE PETROL STATIONS. CONSUMERS BOUGHT OIL FROM “DRUM PUMPS” WHOSE PRICES WERE NOT CONTROLLED AND WERE 1-3 BAHT/LITRE HIGHER THAN SERVICE STATION PRICES.

5

PREPARATION OF OIL PRICE DEREGULATIONPREPARATION OF OIL PRICE DEREGULATION

INCREASE COMPETITION IN DOMESTIC OIL MARKET

IMPROVE DETERMINATION OF EX-REFINERY & IMPORT PRICES TO MORE ACCURATELY REFLECT WORLD PRICES

IMPROVE TAX AND RETAIL PRICE STRUCTURE OF PETROLEUM PRODUCTS

INTRODUCTION OF AUTOMATIC FUEL ADJUSTMENT CLAUSE FOR ELECTRICTY TARIFF

CREATE PUBLIC UNDERSTANDING ABOUT NATURE OF OIL MARKET

CREATE CONFIDENCE THAT OIL COMPANIES WOULD NOT TAKE ADVANTAGE OF CONSUMERS

6

INCREASE COMPETITION IN DOMESTIC OIL MARKETINCREASE COMPETITION IN DOMESTIC OIL MARKET

REVISE CRITERIA FOR ISSUEING ARTICLE 6 OIL TRADING LICENSE AND ISSUE PERMITS TO ENCOURAGE NEW ENTRANTS

ABOLISH IMPORT CONTROL

INCREASE REFINING CAPACITY BY ALLOWING EXISTING REFINERIES (ESSO, THAIOIL, BCP) TO EXPAND AND GIVING PERMITS FOR 2 NEW REFINERIES (SHELL, CALTEX)

REVISE REGULATIONS FOR ESTABLISHING PETROL STATIONS IN ORDER TO REDUCE COSTS AND TIME FOR OBTAINING PERMITS AND ALLOW CONSTRUCTION OF SMALLER PETROL STATIONS

ALLOW BANGCHAK REFINERY TO SELL OIL TO ALL OIL TRADERS

ALLOW PTT AND BANGCHAK TO COMPETE IN OIL MARKET AND ENCOURAGE BANGCHAK TO SET UP SMALL DIESEL OUTLETS WITH AGRICULTURE COOPERATIVES

7

IMPROVE DETERMINATION OF EX-REFINERY & IMPORT PRICES TO MORE ACCURATELY REFLECT WORLD

PRICES

IMPROVE DETERMINATION OF EX-REFINERY & IMPORT PRICES TO MORE ACCURATELY REFLECT WORLD

PRICES

PREVIOUSLY EX-REFINERY AND IMPORT PRICES WERE SET BASED ON SINGAPORE POSTING WITH UNCLEAR TIME LAG AND FORMULAE WERE CHANGED FROM TIME TO TIME UPON REQUEST BY OIL COMPANIES.

A CLEAR SET OF FORMULAE WAS DEVISED - ESSENTIALLY LINKING IMPORT PRICES TO CIF PRICE OF SINGAPORE SPOT MARKET WITH A TIME LAG OF ONE WEEK.

EX-REFINERY PRICES STILL BASED ON SINGAPORE POSTING BUT WITH CLEARER GUIDELINES.

THIS ALLOWED A MORE REGULAR FLOW OF IMPORTS INTO THAILAND.

8

IMPROVE TAX AND RETAIL PRICE STRUCTURE OF PETROLEUM PRODUCTS

IMPROVE TAX AND RETAIL PRICE STRUCTURE OF PETROLEUM PRODUCTS

TAX AND RETAIL PRICE STRUCTURE WERE PREVIOUSLY VERY DISTORTED LEADING TO ADULTERATION OF PRODUCTS, ENGINE MODIFICATION AND SHIFT TO DIESEL VEHICLES.

DURING 1985-91 TAXES AND RETAIL PRICES WERE GRADUALLY ADJUSTED TO REDUCE THE DISTORTION.

BAHT/LITREBAHT/LITRE

19841984 19971997

TAX &TAX & RETAIL TAX &RETAIL TAX & RETAIL RETAIL

OIL FUND OIL FUND PRICE OIL FUND PRICE OIL FUND PRICE PRICE

PREMIUM GASOLINE 2.7898 11.70 3.4449* 9.95*REGULAR GASOLINE 2.4410 10.80 3.4155* 9.50*HIGH SPEED DIESEL 0.7431 6.70 2.9634 8.81LPG (BAHT/Kg) -0.2684 10.74 1.9636 9.72

* PRICES AND TAXES OF UNLEADED GASOLINE** DOMESTIC OILFUND

9

PRICE STRUCTURE OF PETROLEUM PRODUCTS (1997)PRICE STRUCTURE OF PETROLEUM PRODUCTS (1997)

UNIT : UNIT : BAHT/LITREBAHT/LITRE

UNLEADEDUNLEADED UNLEADEDUNLEADEDHIGH SPEEDHIGH SPEED

PREMIUMPREMIUM REGULARREGULARDIESELDIESEL

EX-REFINERY 5.1358 4.7105 4.9546EXCISE TAX 2.4400 2.4400 2.0700MUNICIPAL TAX 0.2440 0.2440 0.2070OIL FUND 0.0800 0.0800 0.0800ENCON FUND 0.0300 0.0300 0.0300VAT 0.5551 0.5253 0.5139WHOLESALE PRICE 8.4849 8.0298 7.8555MARKETING MARGIN 1.3693 1.3740 0.8920VAT 0.0958 0.0962 0.0625RETAIL PRICE 9.95 9.50 8.81(BKK)

10

IMPLEMENTATION OF OIL PRICE DEREGULATIONIMPLEMENTATION OF OIL PRICE DEREGULATION

USE THE OPPORTUNITY CREATED BY FALL IN -WORLD OIL PRICE AFTER THE END OF IRAQ KU

WAIT WAR

DEREGULATION WAS CARRIED OUT FOR GASOL INE, KEROSENE, DIESEL AND FUEL OIL

“ SEMI DEREGULATION” IMPLEMENTED AT THE END OF MAY 1991

“ FULL DEREGULATION” IMPLEMENTED ON 19 1991AUGUST

11

SEMI DEREGULATIONSEMI DEREGULATION

SERVICE STATIONS TO POST VISIBLE PRICES (EACH LETTER > 15 CM. HIGH)

GOVERNMENT REDUCED WHOLESALE PRICE BY REDUCING OIL FUND LEVY

GOVERNMENT ENCOURAGED OIL TRADERS TO REDUCE RETAIL PRICES

WHEN ACTUAL RETAIL PRICE WAS LOWER THAN MAXIMUM PRICE, GOVERNMENT ABOLISHED MAXIMUM RETAIL PRICE

GOVERNMENT STILL ESTABLISHED EX-REFINERY & IMPORT PRICES ON WEEKLY BASIS

OIL FUND LEVY WAS FIXED AT A CONSTANT LEVEL AND WHOLESALE PRICES WERE ALLOWED TO CHANGE EVERY WEEK IN LINE WITH EX-REFINERY PRICES

OIL COMPANIES CHANGED RETAIL PRICES IN LINE WITH CHANGES IN WHOLESALE PRICES BUT WITH A TIME LAG

OIL COMPANIES WERE RESPONSIBLE FOR SETTING PRICES AT THEIR SERVICE STATIONS AND CLOSELY MONITOR THEM

OIL COMPANIES HAD TO INFORM NEPO OF EACH CHANGE IN RETAIL PRICES

PETROL STATIONS HAD TO REPORT PUMP PRICES EVERY MONTH

12

FULL DEREGULATIONFULL DEREGULATION

FULL DEREGULATION OCCURRED ON 19 AUGUST 1991

GOVERNMENT ABOLISHED DETERMINATION OF EX-REFINERY/IMPORT & WHOLESALE PRICES

REFINERIES ANNOUNCED THEIR EX-REFINERY PRICES

PRICES SOLD TO ARTICLE 6 OIL TRADERS PRICES SOLD TO SMALL CUSTOMERS

AN IMPORT LEVY WAS IMPOSED TO PROTECT DOMESTIC REFINERIES. THIS WAS LATER FOLLOWED BY CHANGES IN OIL RESERVE REGULATIONS TO FURTHER INCREASE PROTECTION.

13

MEASURES TO PROTECT DOMESTIC REFINERIES

MEASURES TO PROTECT DOMESTIC REFINERIES

DOMESTIC REFINERIES HAVE TO PAY “SPECIAL BENEFITS” TO THE GOVERNMENT

2% OF GROSS REVENUE FOR ESSO, SHELL, CALTEX 35% OF GROSS PROFIT FOR THAI OIL NONE FOR BANGCHAK BUT BANGCHAK FACED OTHER

DISADVANTAGES

REMOVAL OF “SPECIAL BENEFITS” IS POLITICALLY DIFFICULT SO PROTECTION WAS PROVIDED BY USING IMPORT TAX AND OIL RESERVE REGULATIONS

14

MEASURES TO PROTECT DOMESTIC REFINERY (CONT)

MEASURES TO PROTECT DOMESTIC REFINERY (CONT)

IMPORT TAXES

STANG/LITRESTANG/LITRE

BEFORE BEFORE DEREGULATIONDEREGULATION AFTERAFTER

GASOLINE, DIESEL 1.0 6.5KEROSENE

FUEL OIL 0.1 1.0

OIL RESERVE % OF % OF

VOLUMEVOLUMEBEFORE BEFORE

DEREGULATION AFTER DEREGULATION AFTER

CRUDE OIL HELD 4% 5%BY REFINERIES

LOCALLY REFINED FINISHED 3% 5%PRODUCTS HELD BY OIL TRADERS

IMPORTED FINISHED PRODUCTS 3% 10%HELD BY OIL TRADERS

15

PROBLEMS RESULTING FROM OIL PRICE DEREGULATION

PROBLEMS RESULTING FROM OIL PRICE DEREGULATION

CONSUMER PERCEPTION

MARKETING MARGIN TOO HIGH RETAIL PRICE INELASTIC IN DOWNWARD DIRECTION PRICE COLLUSION BY OIL COMPANIES

COLLUSION BY PETROL STATIONS IN CERTAIN REMOTE AREAS

RETAIL PRICE DOWNWARD MOVEMENT SLOW BUT ADJUST UPWARD QUICKLY

SOME PETROL STATIONS DO NOT POST PUMP PRICES

16

GOVERNMENT CONTROLS IN CURRENT SYSTEM

GOVERNMENT CONTROLS IN CURRENT SYSTEM

IN PRINCIPLE, SHOULD FULLY DEREGULATE BUT IN TRANSITION PERIOD CERTAIN CONTROLS ARE STILL NECESSARY

EXISTING CONTROLS

OIL TRADERS ARE STILL ENCOURAGED TO DETERMINE PRICES AT THEIR SERVICE STATIONS

NEPO STILL ISSUES “TRANSPORT COST ACCOUNT” AS GUIDELINES FOR OIL COMPANIES TO DETERMINE PRICES IN EACH DISTRICT

NEPO AND INTERNAL TRADE DEPARTMENT CLOSELY MONITOR PRICES AND MARKET CONDITION

WARNING ISSUED FROM TIME TO TIME FOR OIL TRADERS TO REDUCE MARKETING MARGIN

17

CHANGES IN OIL MARKET AFTER DEREGULATION

CHANGES IN OIL MARKET AFTER DEREGULATION

INITIALLY MARKETING MARGIN MORE THAN DOUBLED INITIALLY MARKETING MARGIN MORE THAN DOUBLED BUT REFINING MARGIN DECLINED SUBSTANTIALLY. BUT REFINING MARGIN DECLINED SUBSTANTIALLY.

MARKETING + REFINING MARGIN ADJUSTED FOR MARKETING + REFINING MARGIN ADJUSTED FOR CHANGES IN PRODUCT SPECIFICATION HARDLY ROSE.CHANGES IN PRODUCT SPECIFICATION HARDLY ROSE.

NUMBERS OF OIL TRADERS AND SERVICE STATIONS NUMBERS OF OIL TRADERS AND SERVICE STATIONS HAVE SUBSTANTIALLY INCREASED.HAVE SUBSTANTIALLY INCREASED.

DISTRICTS WITH NO SERVICES STATIONS HAVE DISTRICTS WITH NO SERVICES STATIONS HAVE SUBSTANTIALLY DECLINED. REMOTE AREAS ARE SUBSTANTIALLY DECLINED. REMOTE AREAS ARE SERVED BY A NEW BREED OF SMALL SCALE SERVICE SERVED BY A NEW BREED OF SMALL SCALE SERVICE STATIONS.STATIONS.

REDUCTION IN COLLUSION IN REMOTE AREAS.REDUCTION IN COLLUSION IN REMOTE AREAS.

REFINING CAPACITY RISES SUBSTANTIALLY AND REFINING CAPACITY RISES SUBSTANTIALLY AND SURPLUS CAPACITY BEGAN TO EMERGE IN 1996SURPLUS CAPACITY BEGAN TO EMERGE IN 1996.

18

CHANGES IN OIL MARKET AFTER DEREGULATION (CONT)

CHANGES IN OIL MARKET AFTER DEREGULATION (CONT)

COMPETITION IN OIL MARKET INTENSIFIES PARTICULARLY AS OIL COMPANIES WERE CARVING UP MARKET SHARE BEFORE SURPLUS DEVELOPS IN 1996.

IMPROVEMENT IN QUALITY OF SERVICE.

GREATLY FACILITATE IMPROVEMENT IN OIL QUALITY FOR ENVIRONMENTAL PROTECTION.

19

OIL MARKET SINCE 1999OIL MARKET SINCE 1999

INTENSE COMPETITION IN OIL MARKET DUE TO SURPLUS REFINING CAPACITY LARGE NUMBER OF TRADERS AND SERVICE STATIONS CONSUMER SENSITIVITY TO PRICE DIFFERENTIALS

SURPLUS REFINING CAPACITY IN GASOLINE AND DIESEL HAS E - XERTED PRESSURE ON EX REFINERY PRICE TO SHIFT FROM “F

- OB SINGAPORE + TRANSPORT COST” TO “FOB SINGAPORE T RANSPORT COST”

BRAND LOYALTY IS DISAPPEARING RAPIDLY AS CONSUMERS R EGARD OIL SOLD BY ALL TRADERS AS THE SAME COMMODITY.

PRICE BECOMES THE BIGGEST FACTOR INFLUENCING CONSUME R CHOICE FOLLOWED BY SERVICE QUALITY

A 0.10 BAHT/LITRE DIFFERENTIAL COULD LEAD TO CHANGE IN VOLUME BY 10%

LARGE INCREASE IN NUMBER OF SERVICE STATIONS TOGETHE R WITH DECLINE IN DEMAND RESULTING FROM ECONOMIC REC

ESSION HAS CAUSED THROUGHPUT VOLUME PER SERVICE STA TION TO FALL SUBSTANTIALLY

20

OIL MARKET SINCE 1999 (CON’T) OIL MARKET SINCE 1999(CON’T)

CHARACTERISTIC OF OIL MARKET SINCE 1999

INITIAL SHARP DROP IN MARKETING MARGIN IN 1999

FOLLOWED BY STABILIZATION

RAPID DOWNWARD PRICE ADJUSTMENT BUT SLOW UPWARD

ADJUSTMENT

PUMP PRICES ARE THE SAME FOR ALL MAJOR BRANDS

PRICE WAR PREVALENT THROUGH OUT THE COUNTRY,

INITIALLY PRICE WAR WOULD BE STARTED BY MINOR BRANDS

BUT NOW MAJOR BRANDS ALSO START PRICE WARS.

FURTHER IMPROVEMENT IN SERVICE QUALITY

IMPLEMENTATION OF DRASTIC COST REDUCTION PROGRAM BY

OIL COMPANIES

UNPROFITABLE SERVICE STATIONS CLOSING DOWN

21

AVERAGE RETAI L PRI CES

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 20026

8

10

12

14

16

18

1991 - 2002 (JAN - SEP)

BA

HT

/L

ITR

E

UNLEADED PREMIUM GASOLINE REGULAR GASOLINE HIGH SPEED DIESEL

22

PRI CE OF UNLEADED GASOLI NE(ULG 95)

| 1990 | 1991 | 1992 | 1993 | 1996 | 1997 | 1998 | 1999 | 2000 | 2001 | 2002

6

8

10

12

14

16

18

DATE:(JAN 1,1990 - OCT 4,2002)

BA

HT

/L

ITR

E

RETAIL(AVG) WHOLESALE(AVG)

8.45

11.05(Iraq - Kuwait War)

Baht Floatation

17.5916.29

23

PRI CE OF HI GH SPEED DI ESEL

1990 | 1991 | 1992 | 1993 | 1996 | 1997 | 1998 | 1999 | 2000 | 2001 | 20024

6

8

10

12

14

16

DATE: (JAN 1,1990 - NOV 9,1999)

BA

HT

/L

ITR

E

RETAIL(AVG) WHOLESALE(AVG)

6.10

8.40 (Iraq - Kuwait War)Baht Floatation

15.04 14.29

24

MARKETI NG MARGI N OF PETROLEUM PRODUCT

| 1991 | 1992 | 1993 | 1994 | 1995 | 1996 | 1997 | 1998 | 1999 | 2000 | 2001 | 20020

0.5

1

1.5

2

2.5

JAN 1991 - SEP 2002

BA

HT

/L

ITR

E

25

GROSS REFI NI NG MARGI N

| 1996 | 1997 | 1998 | 1999 | 2000 | 2001 | 20020

1

2

3

4

5

6

7

8

(JAN 1996 - SEP 2002)

US

D/

BB

L

26

PRICE STRUCTURE OF PETROLEUM PRODUCTS(OCTOBER 4,2002)

PRICE STRUCTURE OF PETROLEUM PRODUCTS(OCTOBER 4,2002)

UNIT : UNIT : BAHT/LITREBAHT/LITRE

GASOLINEGASOLINE UNLEADEDUNLEADEDHIGH SPEEDHIGH SPEED

95 RON95 RON 91 RON91 RONDIESELDIESEL

EX-REFINERYEX-REFINERY 8.92188.9218 8.39588.3958 9.1509 9.1509

EXCISE TAXEXCISE TAX 3.68503.6850 3.68503.6850 2.3050 2.3050

MUNICIPAL TAXMUNICIPAL TAX 0.36850.3685 0.36850.3685 0.23050.2305

OIL FUNDOIL FUND 0.50000.5000 0.30000.3000 0.50000.5000

ENCON FUNDENCON FUND 0.04000.0400 0.04000.0400 0.04000.0400

VATVAT 0.94610.9461 0.89520.8952 0.85590.8559

WHOLESALE PRICE WHOLESALE PRICE 14.461414.4614 13.6845 13.6845 13.082313.0823

MARKETING MARGINMARKETING MARGIN 1.70901.7090 1.50051.5005 1.12871.1287

VATVAT 0.11960.1196 0.10500.1050 0.07900.0790

RETAIL PRICERETAIL PRICE 16.2916.29 15.29 15.29 14.29 14.29

(BKK)(BKK)

27

NUMBER OF GAS STATI ONS1991 - 2002(Q2)

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 (Q2)0

5,000

10,000

15,000

20,000

3,475 3,764 4,186

5,765

8,014

10,045

12,208

14,04415,03415,40715,683

16,706

NO

. O

F G

AS

ST

AT

ION

S

MAJOR BRAND MINOR BRAND INDEPENDENT

28

NUMBER OF SERVICE STATIONS

TRADER Q4/1992 Q2/2002 TRADER Q4/1992 Q2/2002

PTT 1,025 1,414 MP - 112

SHELL 915 690 BP 25 -

ESSO 757 682 Q8 23 128

CALTEX 547 514 PT - 243

BCP 41 1,073 TPI - 75

SUSCO 95 131 JET - 137

COSMO - 99 PA - -

MOBIL 50 - INDEPENDENTS - 11,383

TOTAL 3,764 16,706

NUMBER OF SERVICE STATIONSNUMBER OF SERVICE STATIONS

29

DI STRI CT WI TH NO SERVI CE STATI ONS1991 - 2000

1991 1992 1993 1994 1995 1996 1997 1998 1999 20000

50

100

150

200 184

160

185

100 94 93

52

3020 18

DI STRI CTS

NOTE : 1993 WAS ROYAL DECREE ANNOUNCING THE ESTABLISHING NEW PROVINCES, RESULTING IN A LARGER NUMBER OF DISTRICTS

30

36%

19%

19%

9%

4%

12%

967

896

711

513

23

375

1,290

991

811

589

659

1,425

1,414

690

682

514

1,073

12,333

1,498

1,040

871

598

1,187

7,014

1. PTT

2. SHELL

3. ESSO

4. CALTEX

5. BCP

6.-29. OTHERS

COMPANYMARKET SHARESMARKET SHARES NUMBER OF GAS STATIONSNUMBER OF GAS STATIONS

1991 1994 1997 2002

(Q2)

30%

15%

13%

9%

8%

25%

36%

15%

16%

9%

6%

18%

34%

22%

23%

11%

3%

8%

2002 (7 MTHS.)

199719941991

TOTAL 100% 100%100%100% 3,475 5,765 16,70612,208

31

REFINING & MARKETTING MARGIN(Before and after Deregulation)

BEFORE 91 - 01 JAN - SEP 02 BEFORE 91 - 01 JAN -SEP 02

1.39

2.26 2.28

1.23

1.791.96

Ref. Margin Mark. Margin Cost for Ql. Cost for Add&Res.

0.77

0.62

0.64

0.23

1.27

0.12

0.24

0.38

1.54

0.12

0.74

0.49

0.57

0.27

0.85

0.10

0.33

0.27

1.26

0.10

HSDHSDULGULG

32

PRICE STRUCTURE COMPARISONBetween Price Control and No Price Control

Cases

CONTROL NO CONTROL CONTROL NO CONTROL0

5

10

15

20

25

16.85 16.2914.73 14.29

UNI T : BAHT/ LI TRE

EX-REFINARY PRICE TAX FUND VAT MARKETTING MARGIN

ULGULG HSDHSD

( OCTOBER 4, 2002 )

33

DEMAND-SUPPLY BALANCE FOR PETROLEUM PRODUCTS IN 2001

GASOLINEPREMIUM UNLEADEDREGULAR UNLEADED

KEROSENEJET FUELDIESEL

HIGH SPEED (0.05%S)LOW SPEED (0.05%S)

FUEL OIL

DEMANDDEMAND DOMESTIC DOMESTIC PRODUCTIONPRODUCTION

NET IMPORT NET IMPORT (EXPORT)(EXPORT)

UNIT: M.LITRESUNIT: M.LITRES

6,8573,0013,856

573,717

15,22615,121

1054,564

8,3274,1964,131

5874,237

16,66716.559

1086,466

(1,336)(1,098)

(239)(395)

(484.3)(1,325)

(1,3321)(4)

(1,504)

34

Petroleum Products Demand & Supply Balance

0

100

200

300

400

500

600

700

800

900

1,000

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

TORC ESSO BCP RRC SPRC TPI RPC GSP DEMAND

KBD

35

Q1/95 Q2 Q3 Q4 Q1/96 Q2 Q3 Q4 Q1/97 Q2 Q3 Q4 Q1/98 Q2 Q3 Q4 Q1/99 Q2 Q3 Q4 Q1/00 Q2 Q3 Q4 Q1/01 Q2 Q3 Q4 Q1/02 Q2 Q3-50

-40

-30

-20

-10

0

10

20

30

UN

IT :

KB

D

IMPORT

EXPORT

IMPORT & EXPORT OF GASOLINE IMPORT & EXPORT OF GASOLINE 1995- 2002 (Q3)1995- 2002 (Q3)

IMPORT & EXPORT OF GASOLINE IMPORT & EXPORT OF GASOLINE 1995- 2002 (Q3)1995- 2002 (Q3)

36

Q1/95 Q2 Q3 Q4 Q1/96 Q2 Q3 Q4 Q1/97 Q2 Q3 Q4 Q1/98 Q2 Q3 Q4 Q1/99 Q2 Q3 Q4 Q1/00 Q2 Q3 Q4 Q1/01 Q2 Q3 Q4 Q1/02 Q2 Q3-100

-50

0

50

100

150

UN

IT :

KB

D

IMPORT

EXPORT

IMPORT & EXPORT OF DIESEL IMPORT & EXPORT OF DIESEL 1995-2002 (Q3)1995-2002 (Q3)

IMPORT & EXPORT OF DIESEL IMPORT & EXPORT OF DIESEL 1995-2002 (Q3)1995-2002 (Q3)

37

Q1/95 Q2 Q3 Q4 Q1/96 Q2 Q3 Q4 Q1/97 Q2 Q3 Q4 Q1/98 Q2 Q3 Q4 Q1/99 Q2 Q3 Q4 Q1/00 Q2 Q3 Q4 Q1/01 Q2 Q3 Q4 Q1/02 Q2 Q3-600

-300

0

300

600

900

1,200

UN

IT :

KB

D

IMPORT

EXPORT

IMPORT & EXPORT OF FUEL OIL IMPORT & EXPORT OF FUEL OIL 1995-2002(Q3)1995-2002(Q3)

IMPORT & EXPORT OF FUEL OIL IMPORT & EXPORT OF FUEL OIL 1995-2002(Q3)1995-2002(Q3)

38

DEREGULATION OF LPG MARKET & PRICESDEREGULATION OF LPG MARKET & PRICES

LPG IS THE LAST PRODUCT TO BE DEREGULATED DUE TO COMPLEXITY OF CONTROLS AND ILLEGAL BUSINESS PRACTICES RESULTED FROM PRICE CONTROLS

LPG PRICES WERE CONTROLLED IN THE SAME WAY AS OTHER OIL PRODUCTS BUT IN 1986 UNIFORM PRICING SYSTEM WAS INTRODUCED. DISMANTLING THIS SYSTEM TURNED OUT TO BE EXTREMELY COMPLICATED

THE CONTROLS ALSO LED TO NUMEROUS ILLEGAL BUSINESS AND UNSAFE PRACTICES AS WELL AS CREATING UNEQUAL LEVEL PLAYING FIELDS AMONG TRADERS. SINCE 2000 OIL FUND ALSO HAD TO HEAVILY SUBSIDISE LPG PRICES.

39

LPG DEMAND-SUPPLY BALANCE 2001LPG DEMAND-SUPPLY BALANCE 2001

unit : MTON

PRODUCTION 3,183 PTT GSP 1,429 SHELL GSP 110 REFINERIES 1,480 OTHERS 164

DEMAND 2,400 COOKING 1,430 INDUSTRY 335 AUTOMOBILE 254 FEEDSTOCK 381

EXPORT 758

40

MARKET SHARES OF MAJOR LPG TRADERS IN THAILAND (%)

MARKET SHARES OF MAJOR LPG TRADERS IN THAILAND (%)

2001 2002(7 Months)

PTT 46 44Siam Gas 14 15Unique Gas 15 14World Gas 14 15Union Gas 9 9Caltex LPG 2 2Sang Thong 0.1 1

100 100

41

PRICE CONTROLS BEFORE DEREGULATIONPRICE CONTROLS BEFORE DEREGULATION

EX-REFINERY/IMPORT PRICES WERE INITIALLY DETERMINED BY CIF PRICE OF SINGAPORE POSTING AND/OR CONTRACTED PRICE OF SAUDI ARABIA (CP). ONCE THAILAND BECAME A NET EXPORTER OF LPG PRICES WERE BASED (SOMETIMES ) ON EXPORT PARITY

OIL FUND LEVY IS USED TO STABILIZE RETAIL PRICE

“UNIFORM PRICE” INTRODUCED IN 1986: WHOLESALE PRICES AT PTT’S 5 DEPOTS THROUGHOUT THE COUNTRY WERE THE SAME THROUGH SUBSIDY FROM OIL FUND FOR “STORAGE COST” AT DEPOT AND “TRANSPORT COST” FROM SRIRACHA (SITE OF PTT’S MAIN LPG TERMINAL)

PRICES AT OTHER LOCATIONS WERE MARKED UP BY TRANSPORT COST FROM NEAREST MAJOR DISTRIBUTION CENTRES

42

Refineries & Gas Sep. Plants

PTT Up-Country Depots

Retail Prices in Other Provinces

Retail Prices in Depot Provinces

Pay subsidy for world price change

Pay subsidy for transportation cost

(Same wholesale price)

(Same retail prices)

No subsidy for transportation cost

(Different retail prices)

STRUCTURE OF LPG SUBSIDIZATIONSTRUCTURE OF LPG SUBSIDIZATION

43

PRICES CONTROLS BEFORE DEREGULATION (CONT)

PRICES CONTROLS BEFORE DEREGULATION (CONT)

BEFORE 1991 SUBSIDY LEVY WERE DIFFERENT FOR DIFFERENT USES IN ORDER TO HELP LOW INCOME HOUSEHOLDS

SMALL CYLINDER LPG (13-15 kg) LARGE CYLINDER LPG (48-50 kg) AUTOMOTIVE AND INDUSTRIAL USES

THIS LED TO A NUMBER OF PROBLEMS ILLEGAL TRANSFER OF LPG FROM SMALL CYLINDERS

TO LARGE CYLINDERS AND AUTOMOTIVE USES CAUSING FIRE HAZARD

ILLEGAL REQUEST FOR SUBSIDY FROM OIL FUND

44

INITIAL ATTEMPT TO DEREGULATE LPG PRICEINITIAL ATTEMPT TO DEREGULATE LPG PRICE

THE GOVERNMENT ATTEMPTED TO DEREGULATE LPG PRICE ROUGHLY AT THE SAME TIME AS OTHER OIL PRODUCTS BUT DID NOT HAVE TIME TO COMPLETE

TO CREATE COMPETITION IMPORT CONTROL ON LPG WAS LIBERALIZED

DIFFERENCES IN SUBSIDIES FOR DIFFERENT USES WERE ABOLISHED : SAME SUBSIDY /LEVY IRREFFECTIVE OF USE

RETAIL PRICE CONTROL WAS LIFTED IN 1991 FOR AUTOMOTIVE AND INDUSTRIAL LPG

45

PROBLEMS FROM LPG PRICE CONTROLSPROBLEMS FROM LPG PRICE CONTROLS

POLITICALLY DIFFICULT TO ADJUST RETAIL PRICE IN LINE WITH WORLD PRICE LEADING TO INEFFICIENT USE, SUBSTITUTION OF LPG IN GASOLINE ENGINES, HEAVY SUBSIDY FROM OIL FUND AND ILLEGAL EXPORT. HEAVY SUBSIDY FROM OIL FUND WAS PARTLY RESOLVED BY INCREASING LEVY ON GASOLINE AND DIESEL, THEREBY FURTHER CREATING DISTORTION.

MARKETING MARGIN WAS KEPT CONSTANT FOR MANY YEARS FORCING TRADERS TO RESORT TO ILLEGAL PRACTICES OR LEAVE THE MARKET

“UNIFORM PRICING” CREATED UNFAIR ADVANTAGE TO PTT, FURTHER FORCING OTHER TRADERS TO RESORT TO ILLEGAL PRACTICES AND DISCOURAGING NEW INVESTMENT AND NEW ENTRANTS.

46

ILLEGAL BUSINESS PRACTICESILLEGAL BUSINESS PRACTICES

CROSS FILLING AND TRADERS’ REFUSAL TO INSPECT AND REPAIR THEIR OWN CYLINDERS DUE TO CROSS FILLINGS

“WHITE CYLINDER” : CYLINDERS NOT BELONGING TO ARTICLE 7 TRADERS AND NOT SUBJECT TO REGULAR MAINTENANCE

OVERCHARGED CYLINDER DEPOSIT

UNDERWEIGHT FILLING VOLUME

47

STRATEGIES IN LPG PRICE DEREGULATION

STRATEGIES IN LPG PRICE DEREGULATION

PRICE DEREGULATION MUST BE ACCOMPANIED BY MEASURES TO ENCOURAGE COMPETITION AND ELIMINATION OF ILLEGAL AND UNFAIR BUSINESS PRACTICES IN ORDER TO ENCOURAGE FREE AND FAIR COMPETITION AS WELL AS BRING SAFETY LEVELS UP TO STANDARDS

TO ACHIEVE ABOVE GOAL DURING THE PAST 4 YEARS THE GOVERNMENT HAS GRADUALLY

REDUCED UNIFORM PRICING WITH OBJECTIVE OF FINALLY ABOLISHING IT AND CREATE COMPETITION

INCREASED MARKETING MARGIN REDUCED SUBSIDY BY OIL FUND BY ADJUSTING RETAIL

PRICES COMMENCED PROCESS OF PRICE DEREGULATION INTRODUCED MARKET REFORM

48

PHASING OUT OF UNIFORM PRICINGPHASING OUT OF UNIFORM PRICING

INITIALLY GOVERNMENT ABOLISHED SUBSIDY OF ‘STORAGE COST’ FOR LPG TERMINALIMPORT CONTROL ABOLISHEDTHIRD PARTY ACCESS FOR USE OF PTT’S LPG DEPOTALLOW LPG TO BE SOLD AT SERVICE STATIONREDUCE MINIMUM REQUIREMENT FOR BECOMING ARTICLE 7 LPG TRADER (FROM MINIMUM VOLUME OF 100,000 TONS/YEAR TO 50,000 TONS/YEAR)

49

Excise & Municipal Tax

Marketing Margin

Tax & Marketing Margin of LP Gasin Thailand

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 20022

2.5

3

3.5

Un

it [

Ba

ht/

KG

]

50

LPG PRI CES

JAN41 MAR MAY JUL SEB NOV JAN42 MAR MAY JUL SEB NOV JAN43 MAR MAY JUL SEB NOV JAN44 MAR MAY JUL SEB NOV JAN45 MAR MAY JUL SEP

0

100

200

300

400

10

12

14

16

18

MONTH : (JAN 1998 - OCT 2002)

PE

TR

OM

IN P

RIC

E :

US

D/

TO

N

RE

TA

IL P

RIC

E :

BA

HT

/K

ILO

KR

AM

PETROMIN PRICE RETAIL PRICE

51

Unit : Baht/kg

LPG PRICE STRUCTURE IN THAILANDLPG PRICE STRUCTURE IN THAILAND

Jan-01 Dec-01 Sep-02

Ex-Refinery Price 14.235 8.8419 10.2909

Taxes (All) 3.0870 3.2767 3.2767

Marketing Margin 2.9566 2.9566 3.0566

Retail Price (Should be) 20.2786 15.0752 16.6242

Subsidy 9.5786 1.4752 3.0242

Actual Retal Price 10.70 13.60 13.60

52

OI L FUND

90 | 91 | 92 | 93 | 94 | 95 | 96 | 97 | 98 | 99 | 00 | 01 | 02-14,000

-12,000

-10,000

-8,000

-6,000

-4,000

-2,000

0

2,000

4,000

6,000

8,000

DATE : (SEP 90 - 28 AUG 02)

UN

IT :

M.B

AH

T

7,780

69

-1,958

6,081

-5,702

-12,208

53

• LP Gas prices have been deregulated at retail level

• Retail prices for cooking LPG have been deregulated

since November 2 0 0 1

• Three common cylinder sizes of Cooking LPG are:

- Small (4 kg)

- 15Medium ( kg)

- Large (4 8 kg)

CURRENT STATUS OF LPG PRICE DEREGULATION

CURRENT STATUS OF LPG PRICE DEREGULATION

54

Step 1 : Preparatory Stage

Step 2 : Semi - Deregulation

Step 3 : Market Preparation prior to Full

Deregulation

(Period of Semi-floating Prices)

Step 4 : Full or Complete Deregulation

DEREGULATION OF LPG PRICESDEREGULATION OF LPG PRICES

55

Step 1 : Preparatory Stage

- Create competition in the market

- Inform market participants

and related organizations of government policy

Step 2 : Semi-Deregulation

- Decontrol retail price while still controlling

wholesale price (1 November 2001)

- Filling Plants and LPG Shops must post prices

- Article 7 LPG Trades must announce standard

prices

DEREGULATION OF LPG PRICES (CONT.)

DEREGULATION OF LPG PRICES (CONT.)

56

Step 3 : Market Preparation prior to Full

Deregulation (Period of Semi-floating Prices)

- Try to maintain Oil Fund subsidy at not more than

1 baht/kg

- Change wholesale prices in a line with Petromin contracted

prices. This will result in automatic change in retail prices

- Decrease Oil Fund debt by paying back LPG producers

at rate of 400-500 M. baht/month

- Thailand has been in this stage since November 1, 2001

DEREGULATION OF LPG PRICES (CONT.)

DEREGULATION OF LPG PRICES (CONT.)

57

Step 4 : Full or Complete Deregulation

- Deregulate prices at all levels

- Producers and traders set their own prices

- Try to achieve this stage during the next few years

DEREGULATION OF LPG PRICES (CONT.)

DEREGULATION OF LPG PRICES (CONT.)

58

Improvement of LPG Business Practices and It s

Safety Standards

1Stage • Eliminate cross filling, iiiiiii iiiiiii iiiiiiii

and unfair practices

2 •Stage Remove illegal cylinders from the markii

3 •Stage Enforce stringent regulations on cylindii

iiiiiiiiiii

LPG MARKET REFORMLPG MARKET REFORM

59

Stage 1 : Eliminate cross filling, illegal filling business

and unfair practices - Traders and their filling plants to fill LPG into their own

cylinders only

- Filling plants to act as “filler” only and are not allowed to

buy and sell LPG

- All filling plants are required to register and obtain

official ID numbers

- Filling plants must seal valves of filled cylinders, which carry

their ID numbers

- Underweight filled cylinders could be traced by ID numbers

IMPROVEMENT OF LPG BUSINESS PRACTICES AND ITS SAFETY STANDARDS

IMPROVEMENT OF LPG BUSINESS PRACTICES AND ITS SAFETY STANDARDS

60

Stage 1 : Eliminate cross filling, illegal filling business

and unfair practices (Cont)

- Intensify LPG filling inspection by responsible

authorities

- New cylinder to have information in Thai

- Traders must issue receipt for deposit of cylinders

in order to allow consumers to more easily switch

brands

IMPROVEMENT OF LPG BUSINESS PRACTICES AND ITS SAFETY STANDARDS (CONT.)

IMPROVEMENT OF LPG BUSINESS PRACTICES AND ITS SAFETY STANDARDS (CONT.)

61

Safety Improvement 3.5 M. used cylinders (47%) have been

reconditioned 2 M. new cylinders have been injected into

the market

Every filled cylinder has sealed valve providing higher quality (i.e. no underweight filling, a decrease in illegal cylinders)

Increased market competition has led to fair pricing and better services

BENEFITS TO CONSUMERS (DERIVED FROM STAGE 1)

BENEFITS TO CONSUMERS (DERIVED FROM STAGE 1)

62

Stage 2 : Remove illegal cylinders from the marketTo prohibit filling of uncertified cylinders

To remove “white cylinders” from the market through the white cylinder exchange program

White Cylinders : Cylinders not belonged to Art.7 traders : No regular maintenance : High risk of danger : About 2 Million in market circulation

IMPROVEMENT OF LPG BUSINESS PRACTICES AND ITS SAFETY STANDARDS (CONT.)

IMPROVEMENT OF LPG BUSINESS PRACTICES AND ITS SAFETY STANDARDS (CONT.)

63

Stop new entries

• Prohibit cylinder manufacturers from producing

cylinders unless Art. 7 traders order

Collect circulating white cylinders from the market

• iiii iiiiiii iiii iii iiiiiii iii iii iii5 0 %

iiiiiii ii iii iiiiiiiiiiii cy linders for exchange

STAGE 2 : REMOVE ILLEGAL CYLINDERS FROM THE MARKET (CONT.)

STAGE 2 : REMOVE ILLEGAL CYLINDERS FROM THE MARKET (CONT.)

White Cylinder Exchange Program

64

• i ii iiiiii iiiii ii iiiiiii i iiii iiiiiiiii iiii iiiiii iii and then change for new std. cylinders at traders’ filling plants • Divide the country into 10 zones and introduce the

exchange program zone by zone • - 2002Implementation :JanNov.

- 2: months/zone, with one month lag iiii iii iii iiiiiiii ii iii iiii and t hat i n t he next one • iiiii i iiiiii iiiiiiii ii i iiiii ii iiiii iiiii iiii iii iii ii

iiiii

STAGE 2 : REMOVE ILLEGAL CYLINDERS FROM THE MARKET (CONT.)

STAGE 2 : REMOVE ILLEGAL CYLINDERS FROM THE MARKET (CONT.)

White Cylinder Exchange Program (Cont.)

65

- Strictly enforce mandatory inspection and recondition of the cylinders every five years

- Start this stage in 2003

Stage 3 • Enforce stringent regulations on

cylinder maintenance

IMPROVEMENT OF LPG BUSINESS PRACTICES AND ITS SAFETY STANDARDS (CONT.)

IMPROVEMENT OF LPG BUSINESS PRACTICES AND ITS SAFETY STANDARDS (CONT.)

66

....SAWASDEESAWASDEE....

THANK YOUTHANK YOU