[Oil Prices and War] Oil Prices Controlled... But Chaos Has Grown Larger

[Part 2] Budget Gas Stations and Petroleum E-commerce for Over 10 Years
Decline in Gas Stations... "Government Leads Unfair Trade"
Online Transaction Procedures Are Cumbersome and Additional Charges Apply

[Asia Economy Reporter Oh Hyung-gil] Whenever ordinary citizens complain about the pain caused by high oil prices, the government has repeatedly urged the refining industry to "promote competition" as if it were a trump card. The market is dominated by four refiners, and it is seen as engaging in so-called "brazen business" by not lowering fuel prices rather than competing. Because of this, discount gas stations with prices lower than regular gas stations have appeared, and an online market for buying and selling petroleum on the Korea Exchange has also been established.

More than ten years have passed since then, but the pain caused by high oil prices remains. Even if increasing competition had some effect in lowering fuel prices, the controversy over fuel prices continues to repeat. Critics point out that there are limits to institutional improvements aimed at controlling fuel prices while leaving tax systems such as fuel taxes, which account for more than half of the fuel price, and tariffs imposed on crude oil unchanged.

On the 6th, vehicles lined up at the Altteul Gas Station in Mannam Square Rest Area, Seocho-gu, Seoul, to refuel. Although the fuel tax reduction rate was increased from 30% to 37% starting this month, the decrease in fuel prices has been minimal, so consumers do not feel the impact. According to Opinet, the oil price information site of the Korea National Oil Corporation, as of the afternoon of the 5th, the average nationwide gasoline price at gas stations was 2,117.18 KRW per liter, down 3.40 KRW from the previous day, and the diesel price was 2,150.78 KRW per liter, down 2.30 KRW from the previous day. Photo by Kim Hyun-min kimhyun81@

Now, more than one out of every ten gas stations operating nationwide is a discount gas station. According to statistics from the Korea Petroleum Management Service, as of the end of January, there were 11,136 gas stations nationwide, of which 1,307 were discount gas stations. The proportion of discount gas stations approaches 12%. This exceeds the 10% target set in December 2011 when the Korea National Oil Corporation, NongHyup, and Korea Expressway Corporation started the discount gas station project.

The reason is the low price. As customers flock to discount gas stations, the number of regular gas stations converting to discount gas stations is increasing. Because of this, discount gas stations are increasing every year, while regular gas stations are decreasing.

Discount gas stations are supplied by the Korea National Oil Corporation, NongHyup, and the Expressway Corporation, which jointly purchase large quantities of gasoline and diesel from refiners. They also reduce operating costs by eliminating services such as giveaways and using self-service fueling to cut labor costs. This is the secret to selling at low prices, but there is another pitfall: the deficits of the business operators.

According to data submitted by the Korea National Oil Corporation to Hong Jung-min, a member of the Democratic Party, the discount gas station project recorded a deficit of 8.4 billion won as of last September. Although it posted a surplus of 23.5 billion won the previous year, profits decreased by a whopping 31.9 billion won in just one year. This was because when international oil prices soared, they bought oil expensively and supplied it cheaply to gas stations. Because of this, when the Ministry of Strategy and Finance announced last year that it would reduce functions competing with the private sector as part of public institution innovation, discount gas stations were even mentioned as the top candidate for elimination.

On the 6th, citizens are refueling their vehicles at the budget gas station in Mannam Square Rest Area, Seocho-gu, Seoul. Although the fuel tax reduction rate was increased from 30% to 37% starting this month, the decrease in fuel prices has been minimal, so consumers do not feel the impact. According to Opinet, the oil price information site of the Korea National Oil Corporation, the average nationwide gasoline price at gas stations on the afternoon of the 5th was 2,117.18 KRW per liter, down 3.40 KRW from the previous day, and the diesel price was 2,150.78 KRW, down 2.30 KRW from the previous day. Photo by Kim Hyun-min kimhyun81@

There are also gaps in quality control. Illegal activities such as selling substandard or counterfeit petroleum products have repeatedly occurred. From 2017 to August last year, a total of 143 Korea National Oil Corporation-operated discount gas stations were found to have violated the Petroleum Business Act. NongHyup discount gas stations had 90 violations, and Expressway Corporation discount gas stations had 9. Furthermore, gas stations with prices even lower than discount gas stations have emerged, reducing price competitiveness.

Professor Hong Woo-hyung of Hansung University pointed out, "The government's policy of supplying cheap fuel only to some gas stations through discount gas stations itself constitutes unfair competition," adding, "The gas station market is close to a zero-sum game; discount gas stations benefit from increased sales volume, but regular gas stations suffer from decreased sales volume."

Petroleum e-commerce, launched in 2012, the year after the discount gas station policy was implemented, has yet to become active. From the beginning of this year until the 21st, the average daily gasoline traded on the Korea Exchange was 7.2 million liters. Considering that 38.5 million liters of gasoline were sold daily in South Korea last year, online trading volume accounts for less than 20% of the total. Moreover, one-third of the online trading volume is accounted for by petroleum import-export traders selling domestic petroleum products overseas.

The online trading price is 1,447 won per liter, cheaper than the refiner supply price of 1,515 won. Still, e-commerce has not been activated because the procedures are cumbersome, such as having to deposit a transaction guarantee with a financial institution in advance. Buyers also have to bear additional costs such as delivery fees, commissions, and VAT. The tax credit (0.2% of the purchase amount) that was provided to buyers also ended at the end of last year.