By Kim Hyun-cheol
Staff Reporter
The Ministry of Strategy and Finance recently released a report comparing the price of petroleum products between South Korea and Japan, which revealed local gas prices are much higher than most advanced countries.
It especially stressed a huge downward shift of prices in Japan since the early 1990s. At that time, one liter of gasoline was 382 won ($0.37) in Japan compared to 277 won in Korea, 206 won in Germany and 148 won in the United States.
The order was a lot different last year. For the same amount of gasoline, Korean customers had to pay 661 won, ahead of 629 won in the United States, 624 won in France and 592 won in Japan.
In the report, the ministry said that the introduction of a competitive system and deregulation led to this price reversal in the two neighboring countries, hinting currently skyrocketing diesel and gasoline prices can be curbed through some controlling measures regarding local refineries.
The oil refining business here has long been a stable oligopoly. The four major companies ― SK Energy, GS Caltex, S-OIL and Hyundai Oilbank ― have distinctive characters in profit structures, rarely infringing on each other's territory.
Gas stations and refineries are given discretion regarding setting local prices of oil products, according to a liberalization policy established in 1997. Gas stations, however, say they don't have complete control over prices.
This is because they have no choice but to buy products at refinery-set prices, even without knowing what these constitute, said the Korea Oil Station Association (KOSA).
The organization says it is station owners who face complaints from customers while major oil firms bask in benefits made during a high-growth industrial era so as to foster the industry, noting the current ceaseless price upturn is mostly because their price policies are not transparent.
"These days we often get phone calls from angry customers, but the truth is, most stations don't dare put enough margin on the original prices due to excessive price competition,'' a KOSA official said on the condition of anonymity.
``Some station owners even tell us they don't want to have many customers now because it will just add more to red figures to their books,'' the official said.
Suspicions are rising that companies arbitrarily fix prices by abusing the current system allowing refineries to link changes in international markets to the local one, saying they are reflected a lot faster ― almost in real time ― than they should be.
This is especially the case for diesel, with hikes in global prices replicated here even though imports only account for approximately 1 percent of the market, with the rest being produced by local refineries.
Regulations are also in favor of refineries. Under what is often dubbed a ``pole sign policy,'' a gas station can only deal with one oil brand when it chooses to have the logo of particular brand on its signboard. Violation of this law is subject to legal punishment, for the station only.
Interestingly, the recent turbulence in oil prices has not done much good for local oil companies, mainly due to losses from the soaring won-dollar rate.
GS Caltex posted a 23.3-billion-won deficit for its first-quarter sales, the first in 11 years. In the same period, others also had high increases in sales written off by operations.
Recent actions by policymakers show they are beginning to set their sights on these problems. In February 2007, the Fair Trade Commission (FTC) imposed a 52.6 billion fine on the four refineries for a sweetheart deal involving a hike in their prices.
The antitrust body also filed the case with the prosecution and the court imposed a further 450-million-won fine to that of the FTC, which was appealed by the defendants.
The government is also purportedly considering removing the pole sign policy ― the FTC had a couple of meetings on the regulation in April.
``We definitely welcome the move,'' KOSA said. ``What we want is simple ― to build a proper system of competition between refineries for more choices not only for us, but for our customers.''