The refining industry, which has been negotiating with the government over criteria for compensating losses under the petroleum price cap, is said to have reached consensus to accept the government's proposal to calculate loss compensation based on costs. As oil prices surged due to the war between the United States and Iran, the government implemented the petroleum price cap on Mar. 13 and pledged to compensate refiners afterward for losses incurred because they could not reflect the increase in oil prices.
According to the government and the refining industry on the 15th, the Ministry of Trade, Industry and Resources plans to announce the settlement criteria for loss compensation related to the petroleum price cap within this month and to form a price cap settlement committee. The four refiners—SK Innovation, GS Caltex, HD Hyundai Oilbank, and S-Oil—are holding talks with the Ministry of Trade and Industry (MOTI) over crude import prices, production expense, and other matters.
The government's position is that, as a matter of principle in fiscal support, the amount of loss must be calculated based on costs. The refining industry has pushed back against the government plan, saying that, due to the nature of the process in which gasoline, diesel, and kerosene are produced simultaneously, it is difficult to calculate the cost of a specific product separately, and that costs are classified information.
Refiners had demanded using the Singapore oil products price (MOPS) as the benchmark and reflecting the differential (opportunity loss) arising from the petroleum price cap. They argued they could not earn proper profits due to the petroleum price cap and the government's export controls. The refining industry estimated that such opportunity expense amounts to 3 trillion won.
The refining industry's recent shift toward accepting the government plan appears to stem from the judgment that continued confrontation with the government would not help negotiations over loss calculation. It is also seen as feeling pressure from the fact that prosecutors and other investigative authorities are probing the four refiners over alleged collusion, and that the political sphere is discussing improving unfair practices between refiners and gas stations.
Another reason cited for the tilt toward accepting the government plan is that refiners' results have improved sharply this year due to rising oil prices. The combined operating profit of the four refiners in the first quarter reached 5.9635 trillion won. Profits are expected to continue rising in the second quarter.
Some refiners are said to have submitted to the government their view that compensation is needed for valuation losses on inventories that occur when oil prices fall. When oil prices decline, it leads to valuation losses on crude purchased at higher prices, reducing refiners' book profits.
A refining industry official said, "At the start of the talks, we argued the loss calculation criteria should be changed, but we judged that, realistically, the government was unlikely to accept the industry's demands and only the discussion period would drag on," adding, "We concluded it would be better to fix the criteria sooner and reduce uncertainty."
Meanwhile, the government said the previous day that it could consider lifting the petroleum price cap if international oil prices fall below $90 per barrel.