Asian govts bear brunt of high oil prices

Asian govts bear brunt of high oil prices

SINGAPORE (Reuters): Asian governments, mindful of inflation and social unrest like that which has paralyzed parts of Europe, are unlikely to reduce or scrap costly fuel subsidies despite surging oil prices, analysts said on Wednesday.

Oil prices at post-Gulf War highs and near 10-year peaks have so far resulted only in a few ad-hoc measures.

With some countries due to hold national elections this year, state-run enterprises may even be running up losses to avoid displeasing consumers, analysts said.

"I don't think any economy in Asia is making massive changes in their market micro-structure just because of the high oil prices right now," said Bhanu Baweja, regional economist at IDEAglobal.com in Singapore.

"Removing subsidies is counter to what you would expect at a time of high oil prices."

OPEC-member Indonesia's heavily subsidized oil market is due to see subsidy cuts next month with Jakarta expected to hike domestic fuel prices 12 percent as part of reforms under a loan package from the International Monetary Fund (IMF).

Plans to raise fuel prices earlier this year were postponed after a wave of mass protests. A similar across-the-board price increase in May 1998 triggered bloody riots nationwide.

Growing consumer unrest over sky-high fuel costs in China may lead the Beijing administration to defer the long-planned introduction of fuel taxes, and in the Philippines and Thailand, upcoming elections are likely to deter confrontation with voters.

Anger across Europe over rising oil prices has in recent days spread to Germany where haulage firms have followed the blockades set up by their French, Belgian and British counterparts.

"For the Philippines, inflationary pressure has been building up steadily and will go up much further if oil prices stay high," Joan Zheng, Chase Manhattan senior economist in Hong Kong, wrote in a recent report.

Both Philippine and Thai consumers have been to a large extent shielded from this year's high oil costs.

The Philippines oil sector is deregulated, but the government has repeatedly requested oil firms -- Petron, Caltex Philippines and Pilipinas Shell -- to temper pump price rises to protect consumers.

Philippine refiners on Tuesday raised pump prices for the seventh time this year, but Petron said the latest increase amounted to just one-third of its total losses on selling prices.

"In the Philippines, they are unwilling to pass on the price increases (to consumers) because they've got elections coming up," said Hong Kong-based Bob Broadfoot, managing director of the Political and Economic Risk Consultancy (PERC).

Broadfoot said an election year in Thailand might also deter the government from hiking prices in line with global oil rates.

"It will be a politicized issue," he said.

So far the Thai government has taken on a large part of rising import costs.

"The Petroleum Authority of Thailand (PTT) is selling retail at a loss for every liter to bring down prices," said Kannika Siamwalla, energy analyst at ING Barings Securities in Bangkok.

"PTT is government. It can run at a loss to subsidize consumers for some time," she said.

Thailand agreed last month to give partial diesel subsidies for three to four months to 75,000 truckers, who disrupted highway traffic to pressure the government to halt diesel's rise.

Net oil exporter Malaysia is considering cutting subsidies that keep domestic fuel prices low, but is worried about the impact on inflation.

Any subsidy cut would mark the country's first petrol price increase since 1983.