Messing up the market

Minister of Knowledge Economy Choi Joong-kyung has warned local oil refiners against a sharp hike in gasoline and diesel prices when a three-month price cut expires on July 6. But his approach was more than subtle.

On April 7, the country’s four oil refiners agreed to cut fuel prices by 100 won per liter and maintain prices at that level for three months in a half-hearted show of support for the government’s efforts to fight inflation.

The minister praised the cut as noble and indirectly urged the companies to raise prices in the same spirit in which they were cut. When asked if he was pressuring the industry, he was blunt. “I hope they feel that way,” he said.

GS Caltex, the second-largest in the industry, was the first to comply. It announced that it would raise fuel prices gradually instead of implementing a one-time hike as planned. The other three refiners will inevitably follow suit, as they did with the synchronized cut.

Choi is a veteran Finance Ministry bureaucrat. He was vice finance minister and senior secretary to the president on economic affairs before he taking up his current post. Although he has a doctorate in economics, he has no economic basis for bullying private companies. He more or less sacked Oh Kang-hyun, chair of the Korea Petroleum Association, who was widely expected to serve an extended term, for resisting the government’s intervention in oil prices.

Cutting local fuel prices was not entirely Choi’s idea. He acted after hearing President Lee Myung-bak’s concerns about inflation. Yet the 100-won cut proved to be no more than a show. According to petroleum market monitoring group Consumers Korea, gas stations actually ended up lowering fuel prices by around 60 won. Of the 1,200 gas stations nationwide, less than 5 percent complied with the 100-won cut. As the three-month period nears expiration, gas stations are turning away customers as they wait for prices to increase and oil refiners have been reducing supplies. The government’s meddling has only ended up messing up the market.

If the minister really wants to stabilize oil prices, he should stop beating around the bush and instead present data showing that the industry has not fulfilled its promise on the cut and then outline clear guidelines for a price increase.