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Thrift gas stations seek suppliers

After five years, critics question if fuel is actually much cheaper
July 06,2017
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More than five years have passed since low-cost public gas stations were opened nationwide as part of a government initiative to stabilize oil prices and offer cheaper fuel options to consumers. However, a myriad of controversies, such as whether the government intervention into the local fuel market ended up distorting market dynamics, continue to linger.

Korea National Oil Corporation (KNOC) and the National Agricultural Cooperative Federation (Nonghyup) posted a bidding notice on Tuesday to find suppliers for some 1,200 government-backed gas stations, known as thrift gas stations.

KNOC and Nonghyup are likely to pick bidders with the lowest supply prices, as they are the most crucial component in keeping down the price of fuel at these stations. The chosen bidders will be supplying gasoline and diesel to thrift gas stations across Korea for two years starting this August. In 2015, Hyundai Oilbank and GS Caltex won the tender.

The idea of thrift gas stations was first introduced in late 2011 by the Lee Myung-bak administration in order to drop gas prices in Korea, which remained relatively high despite the fall of global oil prices.

The government first considered recycling oil waste from petrochemical companies to bring down the consumer price; however the amount of fuel extracted was not sufficient to meet the needs. As a result, major oil refineries were called in to take part in the project as suppliers. The government also gave tax breaks and financial support.

The total amount of government spending on thrift gas stations exceeded 21.3 billion won ($18.5 million) from 2012 this year. Combined with tax relief, it is speculated that as much as 100 billion won was poured into the initiative.

By number, thrift gas stations are on the rise across the nation. The number of stations stood at 884 in 2012, the year that they were officially introduced into the market. This number jumped to 1,174 as of May this year, or 10 percent of the total number of gas stations in Korea - public or private.

Even so, some consumers are yet to benefit from the thrift gas stations.

“I don’t think I have seen many around,” said a driver surnamed Choi who lives in Dorim-dong, western Seoul. “Rather than trying to locate one, it is a more realistic option to use credit cards that offer discounts [at private gas stations].”

As of last year, the number of thrift gas stations in Seoul stood at a meager 11, only 2 percent of the gas stations located in the capital. Over 17 percent of thrift gas stations are located in Jeju Island. Difficulty in finding these gas stations is one problem, but another concern is whether the fuel is actually cheaper.

According to Opinet, a gas price information provider operated by KNOC, the average price of gasoline from thrift gas stations was 1,454.3 won per liter ($4.79 per gallon) in May, merely 30.4 won cheaper than stations operated by major oil refiners. From the consumers’ perspective, it may make more sense to use credit cards with discount options that can trim the price down by as much as 400 won.

There are also criticisms that the state-run companies’ intervention in the fuel market ruins competitive neutrality between private and public companies and discourages competition, a key ingredient that could maximize consumer benefit.

An official from KNOC refuted such claims, however, and said, “The barrier of entry was high and the market was dominated by four major oil refiners who were able to manipulate prices. The introduction [of thrift gas stations] created certain standards for the price [of gasoline].”

Players in the oil industry, on the other hand, say they are forced to bid out of concern that they might be at a disadvantage if they refuse to partake in the government-run operation.


BY LEE SO-AH [choi.hyungjo@joongang.co.kr]