The government has come up with another package of measures to bring down soaring fuel prices. The latest steps announced on Thursday, however, are unlikely to have much impact.
Government officials have long blamed high fuel prices on the dominance of the four refiners ― SK Innovation, GS Caltex, Hyundai Oilbank and S-Oil ― in the domestic oil product distribution market.
These big refiners earn high margins, officials explain, by forcing exclusive supply contracts on gas stations. They can impose long-term deals on gas stations because they have far superior bargaining power.
This form of business relations is a legacy of the pole sign system, which had been in place until 2008. Under this system, a gas station was required to buy oil products from a single refinery whose brand name it used on its pole sign.
The government scrapped this system to lower fuel prices by stimulating competition among refiners. Yet the four refiners have virtually revived it to retain their control over gas stations.
Hence the latest package is focused on breaking the oligopoly of the refiners. For this, it has allowed Samsung Total Petrochemicals to enter the domestic petrol retail market.
Yet the impact of Samsung’s entry is expected to be negligible. The company is not a refinery but a producer of chemical products. It makes a small amount of gasoline ― about 1 percent of total domestic consumption ― as a byproduct of its chemical manufacturing process.
Thus far Samsung has exported its gasoline to Japan. Starting June, it will sell its output to Korea National Oil Corp., a state-run oil development company. KNOC will in turn deliver the fuel to discount gas stations, which refer to independent, self-service gas stations not affiliated with the four refiners. These bargain gas stations sell petrol at a discount of up to 100 won per liter.
Samsung plans to increase its gasoline output, but no big jump can be expected unless it builds refining facilities, which are costly.
To stimulate competition among the refiners, the package also allows gas stations to blend fuel supplied by different refiners. It also calls for providing tax benefits to companies that import oil products from abroad through electronic transactions.
These measures are well-intended but few would bet that they would cut fuel prices by much. To curb gas prices, the government needs to cut the hefty oil taxes. At the same time, it needs to stage a strong fuel conservation campaign.
