SK Group in crosshairs

By Yoon Ja-young

SK Group has become the target of the government in its efforts to fight inflation. The group is trying to respond by lowering prices of oil and telecommunication rates, while complaining about how they are the scapegoat. Interestingly enough, SK Group is the only conglomerate as both a telecom firm and oil refinery that is facing the government’s double whammy.

Government’s double whammy on SK

The government has been pressuring SK Group multi-dimensionally in the form of verbal pressure from top government officials to more direct suppression, as in a tax probe.

Strategy and Finance Minister Yoon Jeung-hyun is visiting Paris to attend the G20 finance ministers’ meeting and put on some verbal pressure again. At the meeting with Korean correspondents in Paris, he said the refineries and telecommunication companies should yield part of their profits. He said at a number of occasions recently that refineries and telecommunication carriers should lower their prices.

Yoon is not the only official engaged in verbal pressure. Knowledge Economy Minister Choi Joong-kyung also criticized refineries to encourage lower oil prices. The Fair Trade Commission (FTC) and the Korea Communication Commission (KCC), the country’s broadcasting and telecommunications regulator, have also aided the government’s fight against inflation.

SK Group, which has businesses in both refinery and telecommunications, is feeling more heat in the anti-inflation drive than any other of the other conglomerates.

The government is wielding the most powerful sword ― a tax probe ― as well. The National Tax Service has been probing SK Telecommunication, but it soon extended the probe to SK’s partner companies and suppliers. Other SK Group subsidiaries like SK Corporation and SK Telesys and the group chairman Chey Tae-won are known to be under investigation.

SK yielding

SK Group seems to be surrendering to the government. “We understand the government’s decision to pull down oil prices to stabilize inflation. We are going to cooperate,” SK Innovation CEO Koo Ja-young said at the meeting with the press last week. He even went on to say that the happiness of the people and the government matters more than profit in business.

SK Group is “cooperating” with the government in the anti-inflation fight. SK Gas froze LPG prices for February, and SK Telecom launched a price package for teenagers, which is cheaper. SK Innovation announced that it cut kerosene prices by 50 won per liter, which is expected to lessen the burden on the working class who often use kerosene for heating.

SK shackled from birth

SK was a small conglomerate until the 1970s, but made a quantum leap by acquiring giant public enterprises. In 1980, for example, it acquired the government’s oil business. It helped SK to jump as the top fifth conglomerate in the country. SK Telecom, its main cash cow, became a subsidiary of the group in 1994 as SK took over the government’s telecommunication business.

Both SK Telecom and SK Innovation, which are SK Group’s main subsidiaries, are license businesses where profit is guaranteed thanks to a monopolistic position in the market. However, it can’t be free from the government which exerts control.

As most of SK Group’s businesses are domestic market oriented, it has no choice but to accept the government’s words. The group thus has been making efforts to advance into markets overseas, to little avail until now.

Businesses complaining

Complaints are growing that it is outdated action for the government to try to tame inflation by pressuring businesses. Right after President Lee Myung-bak’s announcement that the 3 percent inflation target should be achieved, the government summoned food companies and retailers last month and got pledges that they won’t raise prices until Lunar New Year’s Day. Some food makers, which had raised prices around the end of last year, even reduced them back.

Though they obey the government, businesses complain that they can’t last long as global commodities are rising by double digits as well.

Oil companies say that they are conducting businesses on a small margin. Crude oil prices and government tax take most of the oil revenue. The government, however, isn’t lowering taxes on oil.