Government "We cannot compensate for oil refinery losses at international prices... it does not fit the purpose."

(Seoul = Yonhap News) Reporter Shin Chang-yong = The government reaffirmed the principle that compensation for oil refinery losses resulting from the implementation of the maximum oil price system is calculated based on cost.

A line was drawn on the application of the Singapore International Petroleum Product Price (MOPS) standard that the oil refining industry had been demanding.

Yang Ki-wook, director of the Ministry of Trade, Industry and Energy's Office of Industrial Resources and Security, said in a video briefing on the highest oil price on the 13th, "We have already specified that it will be based on cost since the announcement of the notice (related to loss compensation) last March, and we have fully explained it to the oil refining industry."

Regarding the scale of the first loss compensation from March 13 to June 30, he said, "Based on the data reviewed to date, it can be sufficiently covered within the reserve fund."

The government set a reserve fund of 4.2 trillion won on the premise that the maximum oil price system will be implemented for six months. Considering that the system continues until the fourth quarter of this year, 1.4497 trillion won was also reflected in next year's budget.

So far, the oil refining industry has argued that losses should be calculated based on MOPS rather than actual cost. The logic is that the opportunity cost should be compensated as the quantity that can be exported at international prices is sold domestically at the highest price set by the government.

However, the government did not accept it, saying it did not fit the purpose of introducing the maximum price system.

Director Yang pointed out, “If settlement is based on Singapore’s international price, we have no choice but to look back and see whether there is any point in implementing the maximum price system in Korea and having the country compensate for the loss.”

He added, “In a situation where the oil refining industry is making trillions of operating profits through exports in the first to third quarters of this year, it is not in line with the purpose of implementing the maximum price system if even domestic sales are compensated by applying the same international price.” He added, “Compensation for losses is ultimately a financial support that involves taxpayers’ money, so it has no choice but to be judged on a cost basis.”

The government believes that there will be no significant difference between the loss amount submitted by oil refineries and the government's final settlement amount.

Director Yang explained, “The settlement data submitted by oil refineries was also prepared in accordance with the cost-based guidelines first presented by the government,” adding, “There will not be a significant difference between the amount submitted by oil refineries and the government settlement amount.”

The government plans to calculate the final amount of oil refinery losses incurred from March 13 to June 30, notify the oil refineries at the end of this month or early next month, and disclose it to the outside world.

The maximum price settlement committee is reviewing the amount of loss, and the final compensation amount is confirmed after consultation with relevant ministries.

The government plans to pay the compensation within the year, but if oil refineries file objections, payment may be delayed until next year.