Policymakers, refiners argue over whether the cause is tax or profit margins
The average price of regular unleaded gasoline in Seoul broke through the 2,000-won level for the first time in more than 30 months on Wednesday, despite the government’s recent efforts to control the country’s rising fuel prices.
According to state-run Korea National Oil Corp., the price of regular unleaded gasoline on Tuesday had reached 1903.04 won ($1.7) per liter, up 9.02 won from a day before. The last time this type of trend was shown was during the 2008 global financial crisis.
The recent fuel price hike has been a big concern for the country over the past three months, which was driven by high winter demand and international commodities prices.
Policymakers and oil refiners ― SK Innovation, GS Caltex, S-Oil and Hyundai Oilbank ― still remain in loggerheads as to whether to cut margins or fuel taxes.
Refiners have been wary of cutting prices because of small margins, which stand at around 2 percent. Rather, they say the government has to cut fuel taxes which account for over 50 percent of fuel prices.
Yet Minister of Strategy and Finance Yoon Jeung-hyun on Wednesday reiterated the need for a pricing structure reform in the local refining industry, hinting at little chance of fuel taxes being cut, in a meeting with key economic policymakers.
He said that Korea needs to revamp its refinery and communications industries to promote fair competition and restrict unjust price hikes by monopolistic players.
In particular, Yoon pledged to look thoroughly into the local oil pricing structure as doubts have been voiced regarding the country’s high fuel prices and their imbalance with international prices.
“Fuel taxes in the country’s oil prices account for a lower ratio than those of its Organization of Economic Cooperation and Development peers, while the price of oil products here before taxes are higher than the OECD average,” he said.
Korea currently ranks 19th among 22 OECD nations regarding the ratio of fuel taxes to prices, and their prices before taxes are more than 13 percent higher than the OECD average, he added.
The government began to harden its scrutiny after President Lee Myung-bak raised questions about runaway fuel prices on Jan. 13.
Following Lee’s remarks, the Ministry of Knowledge Economy also launched a taskforce to look into petroleum prices together with the Finance Ministry, the Fair Trade Commission and private experts.
Industry insiders, however, countered Yoon’s remarks by saying that the country’s oil products are relatively cheap compared to its OECD peers considering prices and quality.
“The government keeps saying that oil prices are ‘too high’ without putting forward any concrete plans to improve the situation. If the task force comes up with one, we will follow it,” an industry insider said.
The average price of gasoline and diesel throughout the country on Wednesday stood at 1,842 won per liter and 1,640 won per liter, respectively.
By Koh Young-aah (email@example.com)