[Reporter’s Notebook] Political Circles Bring Up Recovering Excess Profits from Oil Refiners

A gas station in Seoul on the 19th. As oil prices continue to soar, the government is considering lowering the fuel tax cut to the legal maximum limit. The government is finalizing plans to reduce the fuel tax to the legal maximum of 37% and is expected to announce it as early as the first emergency economic ministers' meeting on the same day. Photo by Kim Hyun-min kimhyun81@

[Asia Economy Reporter Oh Hyung-gil] Concerned that soaring prices might be further aggravated, the government and political circles are hastily rolling out measures to address fuel prices. The government has decided to extend the current 30% cut in fuel tax, which was set to expire at the end of next month, to a 37% reduction and prolong the period until the end of the year.

Meanwhile, the transportation tax, which had been collected at a higher rate due to the application of a flexible tax rate, has been reverted to the statutory tax rate. This is expected to lower the prices of gasoline, diesel, and LPG butane by about 7 percentage points compared to before, roughly 57 won per liter.

However, as public opinion arose that consumers do not feel the impact directly, both ruling and opposition parties competitively proposed additional fuel tax cuts. All parties agreed to push for legislation to expand the current 30% fuel tax reduction to 50%.

In reality, domestic fuel prices have skyrocketed. This is due to the rising trend of linked international oil prices. Recently, at some gas stations, both gasoline and diesel prices have exceeded 3,000 won. Truck drivers, delivery workers, self-employed individuals, and ordinary citizens alike are crying out in pain. It usually takes about two weeks for fuel tax cuts to translate into price drops that consumers can feel. This means prices are likely to continue breaking ceilings for the time being.

The issue lies in the methodology. The Democratic Party of Korea presented specific figures aiming to reduce gasoline and diesel prices by more than 200 won and even mentioned the excess profit recovery system. They argue that since refiners are profiting from refining margins, they should share the burden.

In the market, there are concerns that excessive pressure on refiners could backfire, akin to killing the goose that lays the golden eggs. Refiners experienced a severe crisis during the early days of the COVID-19 pandemic in 2020, with annual losses reaching 5 trillion won.

The political circles, which turned a blind eye when refiners were struggling with deficits, are now complaining that "they are being pressured to hand over money" just as the industry is emerging from the recession tunnel. Furthermore, even after the fuel tax cut period ends, refiners may have to continue bearing the burden without being able to raise petroleum product prices.

Currently, refiners are facing a critical period as they prepare to transition their core businesses ahead of the decarbonization era. They are betting their lives on securing sustainable growth engines such as secondary batteries and hydrogen. Political circles should not hinder but rather support corporate investments in discovering future growth engines.