[Exclusive] Government to Include Oil Refining Industry Loss Compensation Measures for 'Petroleum Price Ceiling System' in Supplementary Budget

Financial Support Possible Under Petroleum Business Act
Reserve Fund Increase Likely to Be Included
Chairman Jin Sungjoon: "I Think It Is Necessary"
Government Reviewing Positively: "An Essential Consideration in System Design"

The government's supplementary budget (extra budget) currently being prepared is expected to include measures to support the oil refining industry, which has suffered losses due to the implementation of the price ceiling system. However, since it is difficult to accurately predict the scale of these losses, the budget is likely to be secured in the form of a reserve fund rather than as a specific line item.

Jin Sungjoon, Chairman of the National Assembly Special Committee on Budget and Accounts, stated in a phone interview with The Asia Business Daily on March 19, "The law stipulates that losses incurred due to the introduction of the price ceiling system must be compensated," adding, "I believe this should be reflected in the extra budget."

Yonhap News Agency

According to Article 23, Paragraph 3 of the Petroleum and Petroleum Substitute Fuel Business Act (Petroleum Business Act), financial support may be provided to compensate for the losses suffered by petroleum refiners, importers/exporters, or retailers as a result of the designation of maximum petroleum sales prices.

The government's supplementary budget plan must be approved by the National Assembly after a final review by the Special Committee on Budget and Accounts. Previously, in July last year, the first extra budget of the Lee Jae-myung administration was approved at 31.8 trillion won, an increase of 1.3 trillion won compared to the original proposal submitted by the government.

Chairman Jin commented, "It is ultimately up to the government to decide, but I think the extra budget is necessary."

The government is reportedly reviewing the matter positively. A government official said, "The burden on the oil refining industry resulting from the implementation of the price ceiling system must be considered in the design of the policy," adding, "The specific method and scale will be determined through comprehensive discussions with relevant ministries, taking into account international oil price trends and loss estimates."

The petroleum price ceiling system, introduced for the first time in 30 years, has led to a reduction in gasoline and diesel prices. With the designation of the price ceiling, consumers have been able to benefit from stable fuel prices. However, since the price ceiling system is applied to the supply price set by refiners, the refiners are compelled to bear certain losses when international crude oil prices surge.

The problem is that it is difficult to accurately estimate the scale of losses in advance. Major variables such as international oil prices, exchange rates, inventory levels, and consumption volumes all fluctuate, making it challenging to determine losses at any given time. For this reason, it is deemed necessary to respond flexibly, rather than fixing the fiscal support mechanism to specific items.

Against this backdrop, "increasing the reserve fund through the supplementary budget" is emerging as a realistic alternative. Rather than increasing the budget for specific projects, the idea is to expand the reserve fund itself so that the government can allocate funding flexibly as needed. Given that the scale of losses can vary significantly depending on oil price trends, there is a consensus that it is more appropriate to secure broad-based funding in advance rather than fixing the items in advance.

President Lee Jae-myung is speaking at the Capital Market Stability and Normalization Meeting held at the Blue House on the 18th. Photo by Yonhap News

Oil refiners are facing their worst management crisis as they struggle with low margins compounded by the Middle East crisis. Over the past 18 years since 2007, domestic refiners have posted an average operating margin of only 1.6%. This is extremely low compared to last year's major manufacturing sectors such as semiconductors (26.1%), aviation (13.3%), and automobiles (6.3%). The imposition of tariffs by the second Trump administration and the prolonged war in Ukraine have increased global economic uncertainties, leading to a reduction in operating profits. In 2024, the operating profit of the oil refining divisions of the four major refiners turned into a deficit of 19.04 billion won.

With the Middle East war lasting longer than expected, refiners are finding it increasingly difficult to endure. An industry official stated, "We now have to import crude oil from non-Middle Eastern countries such as Africa and the Americas, but current logistics costs have tripled and insurance premiums have increased twelvefold. Furthermore, since most domestic refining facilities are designed for Middle Eastern crude, processing crude from the Americas or Africa results in lower refining efficiency, which in turn means further losses for the refiners."

This content was produced with the assistance of AI translation services.