[Manbo Jeongdam] "SAF Should Also Be a National Strategic Technology... Excise Tax Exemption Needed for Raw Materials"

Park Juseon, Chairman of the Korea Petroleum Association and Korea-Saudi Arabia Industrial and Trade Association
"Sustainable Aviation Fuel Market Expected to Grow 20 Times by 2027... US and Japan Provide Bold Support
Not Consumption of Heavy Oil for Raw Materials... Improvement Expected in the 22nd National Assembly
Visiting Saudi Arabia Next Month... Will Serve as a Bridge Between Korea and Saudi Arabia"

Park Joo-sun, Chairman of the Korea Petroleum Association and the Korea-Saudi Arabia Industrial and Trade Association, is currently working tirelessly to designate sustainable aviation fuel (SAF) production facilities as a national strategic technology, which is the biggest wish of the refining industry. SAF is an eco-friendly energy promoted by refining companies, which are high carbon-emitting industries, and national-level support is crucial for its commercialization. He plans to actively seek help from both ruling and opposition parties once the 22nd National Assembly convenes, not just from the government.

Chairman Park emphasized, "The United States has allocated about 320 billion KRW in subsidies for facility investments, and Japan also provides 260 billion KRW in subsidies for SAF manufacturing facilities. Major foreign countries offer groundbreaking policy support for SAF at the same level as semiconductors or batteries."

Manbo Jeongdam - Park Juseon, Chairman of the Korea Petroleum Association, is being interviewed by Asia Economy. Photo by Jo Yongjun jun21@

In January, the refining industry succeeded in including the phrase "contributing to carbon neutrality" in petroleum-related laws. The phrase "contributing to carbon neutrality and supporting the sound development of related businesses" was added to Article 1, the purpose clause of the Petroleum and Petroleum Alternative Fuel Business Act. This provides a basis for receiving government support when promoting businesses in line with the global trend of carbon neutrality. Chairman Park evaluated this as significant in that the perspectives of the executive and legislative branches, which previously viewed the refining industry as a regulatory domain, have shifted in response to changing times and environmental conditions.

Chairman Park is a former politician who served as the vice chairman of the 20th National Assembly. He shared, "It has already been one year and six months since I joined the economic sector. I am promoting the contributions of the refining industry to the national economy and working to resolve industry difficulties."

Since March, he has also served as the inaugural chairman of the Korea-Saudi Arabia Industrial and Trade Association (KOSIA). He invited Ammar Al-Khudairi, former chairman of the Saudi National Bank, to Korea and facilitated meetings with domestic financial institutions. To support companies wishing to enter Saudi Arabia, they agreed to establish a "Korea-Saudi Growth Fund (tentative name)" worth about 10 trillion KRW, with an initial fund of approximately 3 billion USD. In June, he will visit Saudi Arabia to act as a bridge for Korean companies entering the local market.

Below is a Q&A with Chairman Park.

-The legal basis for the SAF business has been established. Are there any demands from the industry?

▲The SAF market is expected to increase about 20-fold by 2027 compared to now. The Ministry of Economy and Finance designated SAF as a "national new growth source technology business" under the Restriction of Special Taxation Act in January, and the Ministry of Trade, Industry and Energy included it as a key carbon-neutral item to achieve "7,000 billion USD in exports in 2024" in February. However, it is necessary to additionally designate SAF as a "national strategic technology commercialization facility," alongside semiconductors and secondary batteries. Korea is the world's top exporter of aviation fuel. Refining companies are also focusing on establishing production and export bases for SAF. Major foreign countries such as the U.S. and Japan provide groundbreaking policy support for SAF at the same level as semiconductors or batteries.

-There is significant dissatisfaction in the industry regarding the individual consumption tax imposed on heavy oil used as raw material.

▲The individual consumption tax on heavy oil used as raw material should be exempted. Domestic refiners import heavy oil, which was previously used only as fuel, to use as petroleum refining raw material to produce high value-added products such as gasoline, in response to management uncertainties. However, the individual consumption tax, which should be imposed at the final product consumption stage, is levied at the raw material stage, acting as a tax burden on petroleum product costs. This also widens the competitiveness gap between domestic and imported products. We have explained to the government that revision of the Individual Consumption Tax Act is necessary. Relevant government departments acknowledge that it is incorrect under the tax law system and that it should not be imposed because it is not a consumption act. However, due to difficult tax revenue conditions and opposition parties raising the issue of excess profits tax, they have asked us to wait as granting tax benefits to refiners might reduce the justification for the excess profits tax. We are waiting. The 22nd National Assembly has stated that since our claims have no flaws in justification or content, they should be pursued (before the general election). This issue contradicts the principle of legality in taxation and, considering the reality faced by our industry, it is a problem that needs to be resolved as soon as possible.

Manbo Jeongdam - Park Juseon, Chairman of the Korea Petroleum Association, is being interviewed by Asia Economy. Photo by Jo Yongjun jun21@

-The controversy over the excess profits tax is resurfacing.

▲Some in the political sphere argue that whenever oil prices rise or the refining industry's performance improves, it is as if they earned unearned income without any effort and call for imposing an excess profits tax. The refining industry views this as a typical populist claim. While only the industry's best performance is mentioned, the refining industry experiences alternating profits and losses every quarter, with high volatility depending on international oil prices and global supply-demand conditions. Imposing additional taxes only on profits without support for losses contradicts the principles of a free market economy and fairness. It is regrettable that the political sphere overlooks or distorts the refining industry's reality and approaches it with populism. Imposing an excess profits tax in addition to corporate tax results in double taxation, violating tax equality and the principle of legality in taxation, as the legal concept of "excess profits" is ambiguous. Shareholders may suffer from stock price declines due to reduced dividends. Since the full-scale rise in oil prices in 2007, the average operating profit margin of domestic refiners' refining divisions over 17 years has been only 1.8%. Korea has the cheapest fuel prices among OECD member countries. In contrast, the net profits of overseas oil majors that extract crude oil are more than 20 times larger than those of our refiners.

-What measures can enhance the competitiveness of the domestic petroleum industry?

▲Improving fairness between domestically produced and imported liquefied petroleum gas (LPG). Petroleum import charges are imposed on LPG produced domestically. Since 2000, LPG imported from abroad has not been subject to petroleum import charges. The competitiveness gap between refiners and LPG importers must be corrected.

-What led you to take on the role of chairman of the Korea-Saudi Arabia Industrial and Trade Association?

▲I was offered the chairmanship by political and business figures several times, but I initially declined. How could I lead when I lacked expertise on Saudi Arabia? However, the proposing side visited repeatedly. They valued my experience and connections across various fields such as prosecution, the Blue House, and the National Assembly, enabling smooth communication between the public and private sectors, and the fact that I am serving as chairman of the Petroleum Association, a quasi-economic organization. I thought it was my duty to contribute even a little to the development of our country and the prosperity of its people, so I eventually accepted. My mission is to serve as a private-sector bridge between Korea and Saudi Arabia as a "guide for entry into Saudi Arabia."

-I understand you have a visit to Saudi Arabia scheduled for June.

▲First, the KOSIA executive team will visit Saudi Arabia on the 10th of this month at the invitation of the Saudi Ministry of Investment. We will meet with ministers and vice ministers from the Ministry of Investment, Ministry of Industry, Minerals and Resources, Ministry of Communications and IT, Ministry of Urban, Rural and Housing, Ministry of Commerce, as well as the CEO of NEOM, the Public Investment Fund (PIF), and the CEO of Aramco to discuss key economic cooperation tasks between KOSIA and Saudi Arabia. Based on these discussions, in June, we will organize a large delegation of about 100 companies wishing to enter Saudi Arabia and visit the country. We plan to directly connect Saudi government agencies, giga project executing bodies such as NEOM, Saudi investment institutions, and Saudi companies needing Korean technology to ensure our companies' interests are fully reflected. We will not be satisfied with just one meeting or signing a memorandum of understanding (MOU) but will provide continuous management to complete full contract procedures. We also plan to establish an integrated information support center in Korea and Saudi Arabia for long-term follow-up management of companies that sign MOUs and contracts.

-What is the investment environment like in Saudi Arabia?

▲Some media have reported that NEOM City is being significantly downsized due to a shortage of cash reserves in Saudi Arabia, but high-ranking local government officials, including the Minister of Investment, are actively attracting investment, and the easing of tensions in the Middle East is expected to resolve this soon. Our association was not established solely to support companies participating in NEOM City development. It covers all fields including Saudi smart city construction, urban development, nano, energy, medical, smart farm technology, agricultural robots, and seed improvement technology, so the association's intentions are not significantly affected. We are discussing cooperation plans with the Korean Bar Association and some large law firms to help our companies respond appropriately to policy and legal changes.

Interview by Choi Il-kwon, Head of Industry IT Department

Compiled by Reporter Choi Seo-yoon