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Thailand: Refineries hit back at tax
A proposal to temporarily charge a tax on the oil refinery margin appears to be a last-ditch effort by the government to control soaring energy prices, but major refineries question the move aimed at trimming some of their profits.
Thai Oil Plc (TOP) and IRPC Plc insisted the refinery margin, which is based on prices of refined oil in Singapore, does not represent the “real” profits of oil refineries and warned against any attempts to intervene in oil refinery margin, according to their statements on Thursday.
TOP and IRPC are the oil refining and petrochemical arms, respectively, of national oil and gas conglomerate PTT Plc.
Officially called “gross refinery margin” (GRM), it is the difference between prices of crude oil and refined oil, referring to costs added to the crude oil price during the refining process.
The GRM eventually becomes part of the retail oil price drivers pay at petrol stations, so if the refinery margin is reduced, drivers pay less.
The cabinet resolved on June 21 to approve a plan to ask for cooperation from oil refineries to channel their profits into the state Oil Fuel Fund for three months, from July to September, to help control fuel prices.
Authorities are pushing ahead with a plan to better manage the GRM, though it is uncertain whether the Petroleum Refining Industry Club, a unit of the Federation of Thai Industries, will agree with this attempt to limit fuel prices.
WINDFALL TAX
To curb the refinery margin, authorities are studying whether they can impose a tax on the GRM, but will focus only on “windfall profit” added to GRM after the war between Russia and Ukraine broke out in late February.
Permanent energy secretary Kulit Sombatsiri said a working panel has been set up to look into laws or regulations that will authorise officials to collect this new tax.
Previously the GRM was only two baht a litre on average, but after the war started, it rose to 3.27 baht a litre, according to statistics compiled by the Energy Policy and Planning Office.
The additional GRM of 1.27 baht, viewed as a windfall profit, is what authorities propose to tax.
However, during a recent talk with six oil refineries, they insisted average GRM stood at only 1.19 baht a litre in the first quarter of this year, said Mr Kulit.
The six refineries are PTT Global Chemical Plc, TOP, IRPC, Esso Thailand Plc, Star Petroleum Refining Plc and Bangchak Corporation Plc.
The Petroleum Refining Industry Club said GRM for the second quarter will be announced in August.
“We have to make a careful consideration before drafting a law to collect this windfall tax,” said Mr Kulit.
The tax collection is expected to last only three months.
Chawalit Tippawanich, president and chief executive of IRPC, said GRM covers only some major costs during the refining process such as crude oil and transport, but not depreciation and maintenance costs, which have increased significantly.
These costs explain why refineries are not making high profits, as suggested by some observers, he said.
If one country decides to manipulate the GRM, which is determined by supply and demand in the crude and refined oil markets, at a different rate than other countries, it will risk “distorting the free market”, said TOP president and chief executive Wirat Uanarumit.
DWINDLING FUND
The tax measure is the latest state effort to help the Oil Fuel Fund, which is shouldering a heavy financial burden to put a cap on diesel and liquefied petroleum gas (LPG) prices.
Diesel is an important fuel in transport and many industries, especially logistics, while LPG is used as cooking gas by households.
The fund is nearly 100 billion baht in the red, causing the government to carefully manage the inflow and outflow of cash.
During a global oil price surge from 2004 to 2005, the fund ran a large loss of 92 billion baht, but the Finance Ministry helped pay for it by selling state bonds at attractive interest rates.
However, under the Oil Fuel Fund Office Act of 2019, the office became a public organisation, so debts incurred by the fund are no longer guaranteed by the government.
The situation caused Energy Minister Supattanapong Punmeechaow to announce earlier the government needs to limit its subsidy programme by only subsidising more than half of the diesel price above 30 baht per litre from May.
He also said energy officials are talking with the state legal advisory body, the Council of State, and the Office of the Attorney-General about whether it is possible to scalp some of the profits made by Thai oil refineries to better manage Oil Fuel Fund spending.
Source: https://www.bangkokpost.com/business/2332993/refineries-hit-back-at-tax