Korea’s first independent discount gas station was launched Thursday after a months-long tug of war between the government and major refiners that has stirred controversy over state intervention in petrol prices.

The much-touted outlet in Yongin on the outskirts of Seoul is a byproduct of the government’s ambitious drive to contain sky-high fuel prices and take apart four major refiners’ tight control over domestic oil supplies.

Kyung Dong Industrial Co., a local coal miner, joined the crusade and took over the store a month ago. It set the opening prices at 1,843 won ($1.60) per liter for gasoline and 1,694 won for diesel.

The figures are significantly low -- the prices at other 25 vendors in the region were averaged at 1,912 won per liter for gasoline and 1,792 won for diesel.

“Since this store is based on the concept of social contribution, our profit margin is just enough to pay five employees and keep the business sustainable,” Eric Choi, managing director of Kyung Dong’s new business promotion unit, told The Korea Herald. 

“Our ultimate goal is to diversify our coal-focused business portfolio and to transform into an all-round energy developer that deal with not just coal and crude but also biomass and other clean resources.”

To maintain low price tags, the government teamed up with two state-run firms to buy petrol in bulk from refiners and resupply it to the nascent vendors. It aims to shift about 1,300 gas stations nationwide, or 10 percent of total, into discount outlets by 2015.

The plan has not been running smoothly, however.

After two rounds of delayed auctions, GS Caltex and Hyundai Oilbank were picked as suppliers for the low-price gas stations last week.

In the initial bidding processes, the government failed to strike a bargain with SK Energy, GS Caltex and S-Oil -- Korea’s three largest refiners -- over prices. Hyundai Oilbank signed up later in the final round of negotiation.

Consequently, the prices are still short of the government’s 100-won discount target. Compared with the second-cheapest outlet, the one operated by E-Mart in that city, the difference is a mere 7 won for gasoline.

The latest self-serve station in Yongin also drew a protest from nearby vendors.

A neighboring outlet carrying GS Caltex’s logo put up a placard saying “The government must stop the launch of discount gas stations.”

Many owners of gas stations in the city have witnessed their business reeling as large retailer-owned self-serves expand, now boasting more than 34 percent of market share there, according to the Korea Oil Station Association.

“(The discount gas station) is totally against the government’s policy,” a gas station owner said, declining to give his name.

“Why has President Lee Myung-bak been trumpeting fair society and mutual growth between big companies and smaller ones if he wants to squeeze the livelihoods of people like us? If the government really wants to see lower gas prices, they should first cut taxes on it.”

Transportation, mileage, education and other taxes together take up nearly half of pump prices in Korea.

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