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| S-Oil's Ulsan paraxylene production plant. Courtesy of S-oil |
By Kim Hyun-bin
Local refineries went through one of their historically worst earning periods in 2020 as most industries were hit by the devastating effects of the COVID-19 pandemic, but luckily they were able to make a turnaround in the first quarter of this year with a recovery in global shipping demand.
But the government is set to apply a hefty burden on the companies at a time when they are still struggling to recover from the losses of last year. Specifically, the government is scheduled to raise the mandatory quota of bio-diesel they must produce from the current 3 percent to 3.5 percent as part of its goal of reducing greenhouse gases.
Local refineries have requested the government to postpone the implementation of the scheduled quota increases as they are still recovering from last year's crisis, but the government is set to enforce the increase as planned.
After the bio-diesel proportions are raised to 3.5 percent, there will be another hike of 0.5 percentage points every three years until it reaches 5 percent by 2030.
Refineries must prepare to pay hundreds of billion won in costs through 2030.
The government said the use of bio-diesel will expand the renewable energy market and in turn benefit the overall national economy, however, many experts point out the move will place even more burden on consumers.
The mandatory quota for bio-diesel will force local refineries to establish additional infrastructure, and as the price is higher than ordinary diesel fuel, this will lead to a price hike in the final product, which will be passed on to consumers.
In addition, starting next year, the aircraft fuel produced by refineries will also go through a quality inspection by the Korea Petroleum Quality & Distribution Authority, and companies are expected to be hit with a 3 billion won annual fee for the testing.
Local refineries will face difficulty in handling the fee.
The first quarter rise in revenue was mostly due to the rise in crude oil prices that they had in their inventory and industry watchers believe the second quarter profitability will be lower.
"In the long-run the direction the government is taking is the right path as European nations and the U.S. are leading in environment friendly measures, but when implemented too quickly, they will become a burden on local companies," a major refinery company official said. "The government announced an increase in bio-diesel proportions to 5 percent, but when specific measures for the carbon neutral 2050 plan come to light, it will inevitably increase the prices of refined goods with the burden going to consumers."
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