Countdown to Diesel Price Surpassing 3,000 Won... Complaints About Business-Centered Subsidy Policy (Comprehensive)

Government Expands Support for Freight Trucks and Others

Effectiveness Questioned Due to Limited Benefits for Low-Income People

Suspicions Arise Over "Tax Cut Not Reflected"

[Asia Economy Reporter Moon Chaeseok] As the average nationwide diesel price at gas stations has risen to around 2,000 KRW per liter, some gas stations have entered the final countdown to surpassing 3,000 KRW. Although the government announced plans to increase diesel fuel price-linked subsidies mainly for business operators such as freight trucks and taxis, there are criticisms that support for ordinary citizens driving diesel vehicles is insufficient.

According to Korea National Oil Corporation's Opinet as of noon on the 16th, diesel prices at some gas stations nationwide exceeded 2,900 KRW per liter. The highest prices were recorded at Seonam Gas Station (SK Energy) in Jung-gu, Seoul at 2,993 KRW, Seogye Gas Station (GS Caltex) in Yongsan-gu, Seoul at 2,985 KRW, Pildong Gas Station (GS Caltex) in Jung-gu, Seoul at 2,709 KRW, Hanseok Gas Station (SK Energy) in Yongsan-gu, Seoul at 2,665 KRW, and Yaksu Gas Station (GS Caltex) in Jung-gu, Seoul at 2,548 KRW. By local government, the prices were highest in Jeju (2,063 KRW), Seoul (2,024 KRW), and Gangwon (1,980 KRW), respectively.

Startled by the surge in diesel prices, the government decided to lower the subsidy payment reference price from the current '1,850 KRW per liter.' It is also reportedly considering raising the payment rate for the excess portion to 50% (with a cap of 183.21 KRW per liter). Since early this month, subsidies have been provided to commercial freight trucks, buses, and coastal cargo ships, but the government plans to expand the scope of support. Given that the Yoon Seok-yeol administration has presented 'price management' as its first economic task, the policy has attracted significant attention.

The problem is that while the direction is right, the effectiveness remains uncertain. In particular, there is much dissatisfaction over why only 'business operators' receive benefits. Some believe that the rise in diesel prices will lead to increases in fuel costs and freight charges, causing other 'ordinary citizens' price items such as parcel delivery to continue rising. There are even concerns that as the government cuts fuel taxes, the revenue from the driving tax, which constitutes part of the fuel tax and funds the fuel price-linked subsidies, may also decrease accordingly. Many think that the policy effect will not be significant given the amount of tax spent. Professor Lee Deok-hwan, emeritus professor of chemistry and science communication at Sogang University, said, "Since the Moon Jae-in administration exhausted the 'fuel tax cut expansion' card earlier this month when President Yoon was still president-elect, it will be difficult for the current government to prepare additional fuel-related measures."

There are also suspicions that oil refiners and gas stations are not properly reflecting the tax cuts in their selling prices. According to an analysis released this morning by the civic group Energy and Oil Market Monitoring Team, since the government increased the fuel tax cut rate from 20% to 30% earlier this month, only 25.1% (2,754 out of 10,958) of gas stations nationwide limited diesel price increases to '30 KRW or less per liter.' The reason for using '30 KRW' as a benchmark is that the time lag between the 58 KRW fuel tax cut and the 88 KRW international diesel price increase during the period is 30 KRW, so the price increase should be less than that.

The monitoring team has raised suspicions that gas stations raise prices more than the reflected fuel price and fuel tax increases whenever international oil prices rise, urging the government to establish a monitoring system. In response, oil refiners argue that the monitoring team's data lacks credibility and that company-operated gas stations and discount gas stations immediately reflect 100% of the tax cut. Ultimately, they contend that general independently operated gas stations, which account for about 80% of gas stations nationwide, influence the overall market price by lowering prices only after exhausting pre-tax-cut inventory.