07/07/2011 (Bangkok Post) - Plans by the Pheu Thai Party to scrap the state Oil Fund could result in a palm oil surplus and low prices for fresh palm nuts, as there would be no incentive to make biodiesel from the output, warns a senior Agriculture Ministry official.

The incoming government yesterday announced six urgent policies, among them cuts in the Oil Fund levies on three fuels - currently 7.50 baht on premium (octane 95) petrol, 6.70 baht on regular (octane 91) petrol and 2.40 baht on diesel.

Levies on gasohol would remain unchanged.

Premium petrol is now 48.84 baht a litre at the pump, regular petrol 42.64 baht and diesel, already heavily subsidised, 29.99 baht.

Pheu Thai's Yingluck Shinawatra pledged to scrap the Oil Fund in a speech two days before Sunday's election.

Apichart Jongskul, the secretary-general of the Office of Agricultural Economics (OAE), warns the policy would cause a surplus of domestic crude palm olein (CPO), of which 250,000 litres already entered the market last month.

CPO stocks were 220,000 litres in May, up from 156,000 litres in April and rising to 250,000 litres in June and July.

The Energy Ministry was asked to use more CPO by producing B4 diesel to absorb the potential palm oil surplus.

About 75,000 tonnes of CPO are used to produce cooking oil each month, while 30,000 tonnes are blended to produce B3 biodiesel.

Upgrading to B4 production would consume an additional 10,000 tonnes.

Mr Apichart said the proposed tax restructuring would reduce revenue collection, meaning the government might come up short on funds for subsidising alternative energy.

An appropriate level for CPO stock would have been 150,000 tonnes in June and July, while yields of fresh palm nut are projected at 139,000 tonnes a month, he said.The OAE will propose to the new government that it restructure palm oil pricing in order to seek an appropriate level for oil extract factories, refineries and farmers.

As it will take some time for the new government to be formed and start operating, the price of fresh palm nuts may drop due to increasing output.

There is no policy in place to help palm nut planters since the compensation policy ended last Thursday.

For the earlier shortage of cooking palm oil, refineries will be compensated 1.79 baht per litre of CPO on the condition that they had to purchase fresh palm nuts at 6 baht a kilogramme.

Anusorn Sangnimnuan, the president of Bangchak Petroleum Plc, also wondered why Pheu Thai plans to scrap the Oil Fund, since that would affect the biofuel development plan initiated by the former Thaksin Shinawatra administration.

The Oil Fund now subsidises E85 gasohol at 13.50 baht a litre, biodiesel at 4.05 baht and E20 gasohol at 1.20 baht.

These figures exclude an estimated 4 billion baht a month the fund needs to subsidise other types of alternative energy such as compressed natural gas and liquefied petroleum gas, said Dr Anusorn.