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Samsung Total’s entry aimed at curbing petrol prices

Pan-governmental measures include a new petrol  supplier, tax breaks for discount gas stations and electronic trading


Samsung Total Petrochemicals Co. is set to break into the tightly controlled retail petrol market as part of the government’s across-the-board drive to rein in skyrocketing gas prices and revamp Korea’s fuel supply structure.

A pan-governmental task force headed by the Ministry of Knowledge Economy unveiled the proposal on Thursday, which also envisages an upsurge in electronic transactions, and tax cuts and other incentives for new operators of “discount” gas stations.

The package is the latest in a string of the government’s measures to boost competition and pricing transparency in the local retail petrol industry as sky-high pump prices squeeze budgets of low-income earners and everyday drivers. 

Seoul`s first discount gas station opened in January. (Yonhap News)
Seoul`s first discount gas station opened in January. (Yonhap News)

The announcement comes less than a week after President Lee Myung-bak ordered ministers at a meeting to look into “if constantly creeping fuel prices stem from an oligopolistic distribution system.”

The government expects a fall in retail prices by up to an additional 40 won (4 cents) a liter through the measures, which would cost 39 billion won each year. State-backed self-serves largely offer gas and diesel for about 50 won cheaper by sourcing petrol from two state-run resources firms with razor-thin profit margins.

Experts credit the government’s strong show of resolve but question whether the latest scheme would deflect a spike in international crude costs and dismantle a complex web of supply chains bossed by four major refiners.

An increasing number of drivers also see a limited impact and demand a reduction in fuel tax as a more instant and effective method.

“We anticipate that the participation of Samsung Total and other importers will liven up electronic trading and intensify competition in the market,” Knowledge Economy Minister Hong Suk-woo told a news conference.

“Along with Dubai crude nudging downward, we believe these policies will preferentially help rank-and-file citizens without implementing direct tax breaks (that may rather benefit the wealthy.”

Under the plan, Samsung Total will supply gasoline to the state-run Korea National Oil Corp. starting June to be distributed to discount gas stations only.

The Seoul-based firm is a 50-50 joint venture between Korea’s largest conglomerate and France’s oil and gas giant, established in 2003. It exports some 37,000 barrels of petrol to Japan a month and plans to raise its monthly output by 88,000 from May, according to the Commerce Ministry.

The government said it will curb income, corporate and property taxes by up to 50 percent for two years for discount outlet operators. It also decided to bankroll their land purchases and rents with up to 10 billion won of funds and provide 50 million won for all newcomers in Seoul for renovation this year.

A recent poll by the Korea Oil Station Association on its nearly 3,100 members shows that almost 2,600 respondents, or 84 percent, are willing to switch to discount stations.

However, despite the recent launch of an oil spot exchange, refiners, traders and vendors remain halfhearted, largely due to a low yield. Merely 160,000 liters of gasoline was traded via eight deals, led by importers, between March 30 and April 18.

To stimulate trading in its nascent bourse, the government plans to temporarily lift a 3 percent tariff on imported petrol, refund a 16-won-per-liter surcharge and exempt importers from a 15 percent biodiesel mandate for volumes of more than 150,000 kiloliters.

The government also plans to revise legislations to enable discount stations to sell a mix of petrol from different producers as much as they want. The Fair Trade Commission, the antitrust regulator, pledged to crack down on refiners’ illicit practices such as forcing exclusive contracts.

Korea is the world’s fifth-biggest crude buyer. Dubai spot prices edged up $0.40 a barrel to $115.58 in Singapore on Wednesday after topping $124 late last month.

The average pump price in Korea fell for the first time in 105 days on Thursday to 2,062.42 won per liter, down 13 won, KNOC data shows.

By Shin Hyon-hee (heeshin@heraldcorp.com)
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