Korea to extend tax incentive for non-Middle East crude oil importers for 3 years

A driver fills up his car at a gas station in Seoul. Korea Times file

By Lee Kyung-min

The government has decided to extend tax incentives for importers of crude oil produced in non-Middle Eastern countries, in a measure to diversity procurement of the key import item, the energy ministry said Monday.

The hastily arranged move was put in place due in large part to an acute shortage of diesel exhaust fluid (DEF), a solution critical to operating diesel vehicles. Also known as "urea water," it is a nontoxic solution of 67.5 percent purified water and 32.5 percent ultra-pure automotive-grade urea.

Korea experienced the shortage after China imposed a ban on Australia-produced coal ― from which it extracted urea ― in retaliation for Australia blaming China for the COVID-19 pandemic. Korea which almost exclusively relies on China for the cheap urea and the solution narrowly missed a full-fledged transport, logistics and public services crisis.

The Ministry of Trade, Industry and Energy said the tax incentive granted to the importers set to expire this year will be extended for three years.

"The government will revise related ordinances to make the incentive valid until the end of 2024," a ministry official said.

Currently, the government provides 16 won ($0.01) per liter in a tax refund for crude oil imported from the Americas, Europe, Africa and other regions away from the Middle East.

The per-liter incentive is the difference in shipping costs between crude oil imported from the Middle East and the other oil producers.

The ministry initially planned to end the tax incentive program as scheduled, and to decide on possible reintroduction later after efficiency reviews, as supported by the ministry-commissioned studies by state-run institutes.

However, it decided to place greater priority on energy security, an issue that took center stage following the shortage of DEF.

Data from Korea Petroleum Association showed that over two-thirds, or 69 percent, of crude oil imported by Korea was from the Middle East, a high dependence certain to wreak much greater havoc on the economy than the fluid shortage, in the event of a supply disruption.

The figure that once hovered around 80 percent has been on a steady decline over the past five years, but uncertainties among oil producers in the geopolitically volatile region cannot be underestimated, the ministry said.

Meanwhile, oil refineries remain skeptical about the sudden shift to crude oil produced in non-Middle Eastern countries, as illustrated by their infrastructure set up and managed for optimal refining of the high-quality product.

"Crude oil from the Middle East is of excellent quality and shipping costs are relatively low, a reason why most of the facilities are tailored for the products from the region. Diversification efforts will mean a substantial increase in manufacturing costs," an industry official said.

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