SEOUL—South Korea's government said it will provide gasoline to independent filling stations to sell below existing pump prices, a move aimed at lowering costs for drivers as Seoul continues to tamp down on high consumer prices.
The step marks a direct challenge to the nation's oil refiners, who operate most of South Korea's filling stations and have been under pressure from the government to lower the cost of gasoline as part of a broader battle with inflation.
Under the plan announced Thursday, state-run Korea National Oil Corp. and the National Agricultural Cooperative Federation will jointly purchase large volumes of oil products such as gasoline and diesel from domestic and foreign refiners and distribute them to independent filling stations nationwide. Deliveries are slated to start before the end of the year.
The government estimates the plan, combined with other streamlining measures such as providing more self-service pumps, will trim average gasoline prices by about 4% to 5%.
As of the end of last year, there were around 13,000 filling stations in South Korea, of which 700 were independently run. The government expects a total of 500 to be part of the new program by the end of next year and the number to increase to 1,300 by 2015 as more filling stations opt to become independent.
All four refiners declined to comment on the plan or say whether they would participate in an auction to sell oil products to the government for the program. An official at an oil-refining industry body, who declined to be named, expressed skepticism over the plan because he said independent filling stations would struggle to make a profit.
"The success of the plan would depend on how many filling stations would turn independent and we don't think many will do so. They will be eventually pressured by the government not to take robust profits," he said.
Earlier this year, the four refiners each cut prices of gasoline and diesel at the pump by 100 won, or less than one cent, a liter for three months through July 6 in response to government pressure. S-Oil Corp. said its refining business fell into the red in the second quarter because of the price cut. In May, the government's antitrust body fined the refiners a total of 434.8 billion won for price-fixing.
South Korea, the world's fifth-largest crude-oil importer, relies almost entirely on imports, with more than 80% of shipments coming from the Middle East. A decline in the value of the won since August has increased import costs for refiners.
The government's intervention in the oil product market is the latest of a series of moves this year to manage consumer prices in sectors such as mobile-phone charges and consumer staples such as pork and milk. Inflation in South Korea has remained relatively high all year but has been easing in recent months.
Refiners' share prices underperformed the broader market Thursday. Shares of SK Innovation Co., the country's largest oil refiner by revenue, were down 3% at 161,500 won ($144), while shares of GS Holdings Corp., the holding company of unlisted GS Caltex, were down 2.6% at 60,900 won. S-Oil Corp. shares fell 2.5% to 116,000 won.
The government has budgeted 7 billion won for the oil product distribution program in 2012.
