Following Lee comments, officials move to rein in petroleum prices

The presidential office and the antitrust regulatory body are poised to turn up the heat on major oil refiners in a drive to tame inflationary pressures.

President Lee Myung-bak said Thursday that the prices of petroleum products need to be “carefully analyzed” to determine whether they are at “reasonable levels.”

In addition, the Fair Trade Commission is reported to have launched an investigation into refiners including SK Energy and GS Caltex for their alleged price fixing and other irregularities.

“The FTC is said to be looking into the industry, but we do not have any details about what they are investigating,” a spokesman at SK Energy said Friday.

The government’s willingness to curb fuel prices was also confirmed by Vice Finance Minister Yim Jong-ryong.

“Gasoline and other petroleum products are the barometer for consumer prices that is directly linked to the lives of people,” Yim said at a policy meeting of government officials in Gwacheon on Friday. He added that the problem of gasoline prices rising faster than international oil prices when the latter rises, and falling by smaller margins when international prices are falling has been pointed out numerous times in the past.

“As people are sensitive to gasoline prices, the situation will be thoroughly reviewed and measures will be drawn up,” Yim said.

He said a task force led by the Ministry of Knowledge Economy with participation from the Finance Ministry, the FTC and private experts will be formed immediately to take a fundamental look at petroleum prices.

Yim, however, ruled out lowering taxes as a tool for controlling prices, saying that measures such as promoting competition within the industry and the price structure of petroleum products will be reviewed.

Regarding the government’s apparent intentions to bring about a cut in fuel costs, he said that the company did not yet have an official position but that it is “considering diverse options” without clarifying whether such options are aimed at a price reduction.

Officials at the FTC, however, declined to comment citing the commission’s policy of neither confirming nor denying reports regarding its investigations.

While the government appears to be piling on the pressure on refiners, those in the industry point to taxes as the key to controlling fuel prices.

According to industry data, 50 percent of the price of gasoline is tax while 44 percent is refiners’ supply price before the taxation. The remaining 6 percent is profits for gas stations and distributors.

As such, the industry’s position is that it would be difficult to lower prices without changes in taxes as their profit margin is too small to effect any significant changes in retail prices.

Despite such claims, some are calling for refiners to lower prices as the rate at which fuel prices have increased in Korea exceeds that of international crude prices.

According to the Korea National Oil Corp., the average price of petrol came in at 1,817.31 won ($1.6) per liter in the first week of January, up 4.4 percent from the 1,740.58 won per liter recorded in the second week of December. However, prices in Seoul have reached far above the national average with some gas stations selling gasoline at 2,300 won per liter.

Over the same period, Dubai crude prices increased by 2 percent. On Dec. 6 Dubai crude was closed at $88.52 per barrel on the New York Mercantile Exchange, which rose to $90.35 by Jan. 7.

By Choi He-suk  (cheesuk@heraldcorp.com)