Ax the oil tax, pleasePrice controls, which many will remember from the days of military governments, have been revived. The Lee Myung-bak administration forced four private oil refinery companies - SK Energy, GS Caltex, Hyundai Oilbank and S-Oil - to cut their oil prices by 100 won ($0.09) per liter for three months. Adam Smith’s “invisible hand” of the market is now in the grip of the government’s very visible hand.
The government will not be able to avoid criticism that it violated the rights of stockholders of SK Energy and S-Oil, both listed companies, leaving the door open to lawsuits. With GS Caltex’s largest shareholder, Chevron, owning 50 percent of the company’ stock and with S-Oil’s major shareholder, Saudi Aramco, possessing 35 percent of the company’s stock, the government’s meddling will certainly be seen as an attempt to suppress the market economy.
It all started with President Lee’s January remark that he couldn’t understand why oil prices were so high, which hinted at a possibility of refinery companies playing dirty with consumers. Immediately after his remark, Kim Dong-soo, chairman of the Fair Trade Commission, stepped forward as his hatchet man to take on the oil companies, and he was followed with alacrity by Minister of Knowledge Economy Choi Joong-kyung and Minister of Strategy and Finance Yoon Jeung-hyun.
Despite the launch of a task force comprising of government officials from three ministries, refinery companies, oil experts and civic groups, the government failed to identify unlawful practices in the refinery industry, which eventually led to the forceful demand by Minister Choi.
The oil companies had to yield. SK Energy on Sunday announced oil price cuts that will risk a loss of 300 billion won. Choi immediately issued a statement welcoming the company’s decision. The rest of the refinery companies followed suit without hesitation and at the same level as SK.
Ministers opine that they only want to ease the citizens’ pain. But unless the government finds legal proof of wrongdoing, it has no right to meddle in the pricing decisions of the market.
The best way for the government to lower oil prices is reduce the tax on oil. The refinery industry’s profit margin stands at only 2 to 3 percent of consumer oil prices, but the tax amounts to 50 percent. That’s profiteering. Because of rising prices, the government is raking in money from gas stations and consumers. Why doesn’t it cut its share for the sake of the citizens?