Amid skyrocketing fuel prices, many people and even some politicians have begun to question the profits being made by private refineries. The issue angering critics and consumers is what is known as the gross refining margin, or GRM, of local oil refineries.
It is imperative the government look into controlling the GRM and in turn help cushion the impact of rising petrol costs on consumers.
All the same, while proposals to control GRM may sound reasonable and timely, the government must be careful here. Decisions on precisely how and where to apply market control measures must be principled, as any unfair application will send negative signals that could damage the country's long-term credibility among investors.
Last week, the cabinet asked oil refineries to cooperate by putting some of their profits into the state Oil Fuel Fund for a period of three months, from July to September, to help ease the pressure of high fuel prices.
Authorities are likewise pushing ahead with a plan to better manage the GRM, although it remains uncertain whether refineries will abide by this attempt to limit fuel prices.
Either way, recent actions targeting the industry have prompted oil refinery stocks to fall sharply, with an expectation of bottom-line losses for the year.
The government's move came after former finance minister and Kla Party leader Korn Chatikavanij criticised companies for a refining margin that has increased almost 10-fold per litre, now standing at 8.56 baht as of last Friday, compared with 0.87 baht on June 10 last year and 0.88 baht on June 10 in 2020.
Mr Korn said a higher margin places a financial burden on consumers and similarly "robs" the Oil Fuel Fund, which is now in the red.
He proposed the government impose a "windfall tax" on refineries as they already enjoy a high margin per litre.
For their part, oil refineries defend the current GRM by noting it is based on prices of refined oil in Singapore and so does not represent the "real" profits of local oil refineries. GRM covers, they say, only some major costs during the refining process such as crude oil and transport; it does not include depreciation and maintenance costs, which have increased significantly.
The industry also points out that GRM is not determined by oil refineries themselves but by market mechanisms. The GRM of late, refinery operators say, can be attributed largely to the Russia-Ukraine war and a resulting decline in global supply.
They further argue that it is wrong to compare GRM figures during the period of Covid-19 restrictions, when oil consumption was low, with current figures. The industry's claim, moreover, that GRM in the first quarter of this year increased by a mere 0.47 baht per litre is indeed backed by the Energy Ministry, which also says the GRM in June stands at 5.56 baht per litre, not at 8.56 baht as contended by Mr Korn.
Yet any such numbers game can cloud the issue. True, the difference between a GRM of 5.56 and 8.56 baht is not insignificant. However the big question is whether profits being made by refineries are too high in a time of great economic hardship.
Make no mistake, private businesses require profits to operate and fulfil their responsibilities to shareholders. Yet at the heart of the matter is whether a particular industrial sector is reaping substantial -- some might say outrageous -- gains during what are otherwise hard times for many. It is the duty of any government and its regulatory agencies to find out.
