Although the maximum price system for petroleum products is approaching its 10th implementation, the first loss compensation for four refiners has not been carried out for over six months. This is because only costs incurred on domestic sales of gasoline, diesel, and kerosene need to be covered, and there are about 100 detailed contentious issues surrounding the scope of cost recognition, making it time-consuming to establish standards. Since the government's secured contingency fund of 4.2 trillion won will disappear if not spent by year-end, the first settlement is expected to be possible only around the end of the year.
According to the refiner industry on the 16th, the government has implemented the maximum price system for petroleum products nine times since March, but loss compensation for refiners continues to be delayed. The maximum price system is a measure in which the government sets price caps for gasoline, diesel, kerosene, and other products to prevent sharp increases in international oil prices caused by the war between the United States and Iran from being directly reflected in domestic petroleum product prices. Refiners are unable to supply petroleum products above the maximum price set by the government but receive compensation for losses incurred during this process afterward.
By implementation number, the 1st (March 13–26) applied maximum prices of 1,724 won per liter (L) for gasoline, 1,713 won for diesel, and 1,320 won for kerosene; the 2nd through 6th (March 27–June 26) applied 1,934 won, 1,923 won, and 1,530 won respectively; and the 7th (June 27–July 24), 8th (July 25–August 21), and 9th (August 22–present) applied maximum prices of 1,784 won, 1,773 won, and 1,380 won respectively. The government plans to hold a meeting with relevant ministries and agencies this week to decide the 10th maximum price.
The settlement committee has been conducting its first settlement work targeting the period from March 13 to June 30. The delay in settlement is not because a major principle for loss compensation could not be established. The principle of calculating losses based on "cost standards" is already specified in the ordinance. The current contentious issue is "how far the scope of costs should be recognized." It must be decided one by one whether individual costs such as crude oil purchase prices and sales management expenses are included in the settlement target costs, and if so, up to what level they will be recognized. It has been reported that there are about 100 detailed issues to review.
The complex production structure of petroleum products makes it difficult to calculate costs simply, which is increasing the burden on settlement work. When crude oil is refined, multiple products such as gasoline, diesel, naphtha, and jet fuel are produced simultaneously, but only three products—gasoline, diesel, and kerosene—are subject to the maximum price system. This means that only the costs incurred for these products must be separately extracted.
Domestic and export volumes must also be distinguished. Although refiners export a significant portion of their produced petroleum products, the loss compensation target under the maximum price system is limited to gasoline, diesel, and kerosene sold domestically. Accordingly, work is needed to separate costs incurred for the production and supply of exported products so they are not included in the cost base for loss compensation.
Differences in accounting systems and cost handling methods among refiners also pose variables. Even when the same data is requested, it may be difficult to extract data in a specific format from certain refiners' accounting systems, so coordination is underway on how to unify company-specific data based on certain standards. Accordingly, the settlement committee has distributed a "Data Submission Guideline" detailing what data refiners should submit and in what format, and refiners are currently submitting their data with the end of this month as the deadline.
Ultimately, the scale of the first settlement is expected to be revealed no earlier than early December. The government and the settlement committee aim to begin calculating loss amounts in earnest from next month and complete the first settlement within this year. This is because if the 4.2 trillion won secured as a contingency fund for loss compensation by the government is not spent by year-end, the budget cannot be used.
The industry is responding cautiously, as this settlement could set a precedent for future operation of the maximum price system. An industry official said, "If loss compensation is abandoned due to immediate performance reasons, it could affect the principles of loss compensation when similar systems are implemented in the future." Another official added, "When the maximum price system is implemented during poor market conditions, losses can increase further, so this settlement standard is important as a precedent for future application."
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