Energy Minister Poonpirom Liptapanlop needs to demonstrate better judgement, insight, foresight and good governance as a maker of this country's energy policy. Her decision to reverse the policy of her predecessor Piyasvasti Amranand to float the local LPG price, by capping it at 18.13 baht/kg; and reinstating the subsidy for diesel fuel, at 90 satang/litre, is not the right way to solve national energy problems.

Despite being surrounded by energy experts at the ministry from whom she can obtain good advice, Lt-Gen Poonpirom has chosen to take the easy, stereotypical decision which only repeats the serious mistakes the Thaksin Shinawatra administration committed. The Thaksin government mismanaged energy policy by subsidising pump prices between Jan 2004 and July 2005, causing 92 billion baht in deficit to the Oil Fund. That debt was cleared last December, two years ahead of schedule, as former Energy Minister Piyasvasti insisted on consumers embracing the reality of the oil market and stepped up contributions to the Oil Fund at times of low global oil prices.

What the new Energy Minister has done is only a political gimmick to boost the image of the Samak Sundaravej administration. The 52-year-old wife of seasoned politician Suwat Liptapanlop, seems too preoccupied with producing something swiftly to show her constituency in Nakhon Ratchasima that she is delivering on promises made during the campaign, that she would tackle soaring energy prices. She ignored repeated warnings from senior energy planners that the petroleum price distortion and interference was bad for the economy and that the public would eventually need to pay the price.

By defying the reality of the global petroleum value through price distortion, even for the short term until July (as she claims), Lt-Gen Poonpirom is not doing anything meaningful to solve problems.

First, the size of the subsidy is not big enough to produce any significant effect on costs, though it may give consumers the illusion that all is well with diesel fuel prices. The ministry's continued inclination to use the state-controlled energy group PTT to intervene in local petroleum prices poses another serious problem. The PTT has again and again been made to bear the brunt of this populist policy. From last month till March 13 alone, it racked up about one billion baht in losses for such conduct, adding to nearly three billion baht in losses last year due to delays in raising prices.

Other oil firms are suffering, too. Bangchak Petroleum incurred a loss of 500 million baht last year, while Shell lost more than 400 million baht so far this year because it was unable to increase prices fast enough to match global benchmarks. More and more service stations, especially in rural areas, are closing down or are having supplies from oil companies curtailed, as oil firms try to limit losses as a result of having to sell products at prices below cost.

Clearly, this petroleum price intervention and subsidy are damaging the structure of the Thai oil market, further dampening the philosophy of free market and investment climate in the eyes of foreign investors.

Lt-Gen Poonpirom's decision to cap LPG prices will also mean that Thailand will have to import LPG for the first time in many years, beginning next month with 20,000 tonnes, as subsidies have sharply pushed up consumption by motorists and industrial plants.

Without the subsidies, LPG prices would have been around 30 baht/kg.

The subsidies for LPG were ideally meant for household use only, but price incentives have encouraged usage in the transportation and industrial sectors.

LPG usage in the transport sector surged 24.6% in 2007 and consumption by industries rose 17.8% , while household use increased by only 9.5%.

The new Energy Minister's LPG price policy will only fuel LPG misuse by unintended parties as well as encourage greater smuggling of LPG to neighbouring countries where prices are much higher.

As of Feb 11, LPG was priced at 38 baht/kg in Cambodia, 36.15 baht in Vietnam and 33.60 baht in Laos.

Her request for the PTT to shoulder the huge disparity between capped local price import (US$320 a tonne) and actual import costs ($822 in April) should prompt PTT's shareholders to react.

It is imperative that Lt-Gen Poonpirom continue with the unpopular but pragmatic fundamentals laid down by her predecessor. She should be receptive to sound advice such as devising a scheme to turn all public transport including buses, taxis, river and klong boats, into CNG-fuelled, by using the Oil Fund to cover the conversion costs.

That is a much more meaningful way to make use of the Oil Fund, rather than subsidising oil and LPG prices.

Boonsong Kositchotethana is Deputy Assignment Editor (Business), Bangkok Post.