As the process to calculate the losses the refining industry incurred after the government implemented the "oil price cap" is underway, the mood among refiners is subtly diverging. Initially, the refining industry spoke with one voice, saying the losses from the government's control of oil product prices far exceed the government's estimates.
However, after prosecutors recently indicted refiners on charges of price collusion and legal risk emerged with additional investigations by the Korea Fair Trade Commission, a move has appeared to accept the government plan early, unlike the initially hard-line stance, widening the temperature gap among companies.
According to the government on the 24th, the Ministry of Trade, Industry and Resources announced on the 22nd at 12 a.m. that the ninth oil price cap, to be applied for one month, would be frozen at the existing eighth-level. The oil price cap, first implemented on Mar. 13, has continued into its sixth month.
When the Strait of Hormuz was blocked due to U.S.-Iran tensions, the government implemented an oil price cap that sets a ceiling on domestic prices of oil products such as gasoline and diesel to respond to a surge in international oil prices.
Anticipating that the four domestic refiners (SK Energy, GS Caltex, S-Oil, HD Hyundai Oilbank) would take losses due to the artificial control of oil product prices, the government decided to provide ex post compensation of a set amount. Last month, it prepared a notice on fiscal support for loss compensation and launched the "maximum amount settlement committee" by bringing in experts.
The government is adhering to the principle of compensating based on cost (crude import cost, production and sales expense, other expense) plus a reasonable margin when calculating refiners' losses. Initially, on the premise of maintaining the system for six months, the government set aside 4.2 trillion won in reserve funds, and so far it judges that it can respond sufficiently within the reserve.
Refiners, on the other hand, argued that they should be compensated for the difference between the normal market transaction price if the oil price cap had not been applied—that is, international oil product quotations—and the capped price. In that case, the expected loss amount would reach several trillion won per refiner, prompting opinions that the government's reserve funds are insufficient. There were also claims that inventory asset valuation losses due to future oil price declines should be covered.
Then the mood shifted as prosecutors recently indicted refiners including HD Hyundai Oilbank and SK Energy on charges of price collusion. Prosecutors indicted the two refiners on charges of "collusive conduct" for exchanging price information with each other to determine pricing policy from July 2024 to February this year. At the first trial held on the 20th, the refiners denied all price-collusion charges.
In addition, the Korea Fair Trade Commission (FTC) reportedly conducted on-site inspections early this month to see whether the four refiners banned gas stations from selling other companies' products. Such conduct violates Article 45, Paragraph 1, Item 7 of the Monopoly Regulation and Fair Trade Act. Following the price-collusion case, authorities began probing whether there were new legal violations.
After authorities began their investigation, it is understood that a current formed—centered on some refiners that grew wary of legal risk—saying, "Let's accept the government standard and receive early settlement to reduce risk."
A refining industry official said, "For now, getting settlement from the government is important," and added, "We judged it advantageous to accept the government plan based on cost and cooperate as much as possible to reduce risk."
On the other hand, there is also a hard-line view that says they must secure more compensation even through post-settlement appeals. The reason is that the expected compensation per company is around 1 trillion won, far too little to cover losses. Some also raise suspicions that refiners whose group owner risk has come to the fore are the first to actively cooperate with the government.
Another refiner official said, "Some refiners' positions have changed from the early days of the system's implementation," and added, "As the size of loss compensation is calculated and coordination with the government proceeds, the interests among corporations are diverging."
Meanwhile, the government is proceeding with the first settlement process for losses incurred in the first half (Mar. 13 to Jun. 30). After review by the maximum amount settlement committee, it plans to pay the first round of compensation in November–December. While it maintains that it can respond within the previously allocated 4.2 trillion won in reserve funds, it is also reviewing additional resources in parallel in case the system continues through year-end.
The refining industry expects the first settlement results to serve as the standard for the second settlement and is focusing on the first settlement criteria.