As the government is implementing a petroleum price ceiling to prevent a surge in fuel prices due to the Middle East crisis, the government and refiners are drawing different pictures over the scope of loss compensation, setting the stage for a fierce numbers game ahead. Above all, refiners hope to include the opportunity cost lost from the implementation of the price ceiling in the compensation, but the government is not considering it.
According to the refining industry on the 15th, the four refiners estimate their sales losses at about 1.2 trillion won over the four weeks since Mar. 13, when the first and second rounds of the petroleum price ceiling were implemented. This is the sum of the estimated losses of about 340 billion won during the two weeks of the first round and about 820 billion won during the two weeks of the second round.
The refining industry estimates sales losses by assuming supply to gas stations at international petroleum product prices instead of the government-set ceiling price and multiplying by the average daily fuel sales volume for 2025.
From the refiners' standpoint, in a situation where international petroleum product prices have surged, they could increase sales by boosting export volumes or setting domestic prices in line with export prices. However, the government did not reflect the entire increase in international petroleum product prices in the ceiling price.
From Feb. 27, just before the United States and Israel attacked Iran, to Mar. 12, the day before the first ceiling price was released, gasoline rose 68.3% and diesel 115.6% in the international market. However, the first ceiling price released by the government was 1,724 won per liter (L) for gasoline and 1,713 won for diesel. Even assuming a gas station margin of 200 won per liter, the prices translate to increases of only 13.7% for gasoline and 19.8% for diesel compared with Feb. 27.
From the government's perspective, the refiners' arithmetic amounts to an opportunity cost based on the assumption of selling at the higher international petroleum product prices. This is where the refiners' view of the sales range could collide with the government's. On this, an official at the Ministry of Trade, Industry and Resources said, "We will generally follow common sense and logic for international petroleum product prices," indicating the full increase will not be reflected.
When implementing the price ceiling, the government said it would provide fiscal support to compensate refiners' losses. However, for refiners to receive compensation, they must calculate the loss amount, including costs, undergo an audit by a certified accounting firm, and report it to the Ministry of Trade, Industry and Resources. The ministry will then form a "Ceiling Settlement Committee" with accounting, legal, and petroleum market experts to verify the losses presented by refiners and calculate the appropriate loss amount.
The refining industry expects disagreements with the government over calculating losses because it cannot tell whether the "cost" the government refers to means international crude prices, crude import prices, or other benchmarks. They also question whether the government can apply a uniform standard, as refiners use different bases to calculate costs.
Refiner A calculates materials and supplies prices based on the average cost of inventory. In contrast, Refiner B calculates materials and supplies expense on the assumption that crude brought in earlier is first fed into refining facilities. A refining industry official said, "Because the timing of crude procurement differs by refiner, it is not easy to apply a uniform standard, and it will also be difficult to fully factor in each refiner's circumstances."
The government also appears to be grappling with loss compensation. Kim Yong-beom, the presidential policy chief, noted in a Facebook post the previous day about the price ceiling that "the reliability of loss settlement is the most sensitive point. To that end, there is a separate settlement committee and an external accounting verification process," while adding, "That said, regardless of the design, the potential for disputes over actual cost calculation and margin computation still exists. This will be a key variable that determines future policy credibility."
The government plans to compensate refiners' losses on a quarterly basis. Depending on the refiners' readiness, settlement could take place as early as June. An official at the Ministry of Trade, Industry and Resources said, "The faster the government prepares on the working level, the sooner the settlement will be done," adding, "We will discuss with corporations later, but loss compensation will be based on cost plus a reasonable necessary profit."
Meanwhile, through the "2026 supplementary budget to overcome the Middle East war crisis," the government set the compensation amount for refiners' losses from the price ceiling at 5 trillion won. Yang Ki-uk, head of industrial resource security at the Ministry of Trade, Industry and Resources, said on the 9th, "It is currently difficult to predict how long the price ceiling will last, but as it has only been a month and a half, it is hard to say resource spending has exceeded expectations."