Four refiners and military in court fight

Korea’s major oil refiners are fighting the Defense Acquisition Program Administration (DAPA) in court, asking the government organization to pay back nearly 140 billion won ($123 million).

According to industry insiders and media reports, SK Energy, GS Caltex, S-Oil and Hyundai Oilbank filed separate law suits against DAPA in November and December to collect unpaid bills for oil.

SK Energy is seeking 56.7 billion won, GS Caltex 39.6 billion won, S-Oil 32.8 billion won and Hyundai Oilbank 9.3 billion won.

DAPA, which controls the procurement of military supplies, said it didn’t pay for oil purchased from September to November because the organization had been overcharged in the past.

The dispute began in September when the Board of Audit and Inspection of Korea ordered DAPA to retrieve money that has been paid to the companies. The government’s administrative?watchdog found DAPA was miscalculating the payment system and paying too much for the oil.

According to the audit board, since oil companies don’t import fully refined oil from overseas, but instead bring in heavy oil and then refine in their local plants, it should not be treated as an overseas product. Therefore, DAPA paid unnecessary charges, such as international distribution fees, insurance fees and tariffs.

DAPA informed the refiners that it will deduct overpayments from 2007-11 and additional money for alleged damages. The beginning of this process was apparently not paying for military oil supplied from September to November.

However, refiners said they were only following their contracts. DAPA officials declined to comment, citing the ongoing lawsuits.

Meanwhile, the matter is an additional headache for the top four oil companies that saw their operating profits decline last year and are looking to find new sources of revenue.

SK Innovation’s operating profit plunged 42.5 percent year-on-year to 279.1 billion won in 2012, while GS Caltex repoted a 73.7 percent year-on-year plunge. S-Oil and Hyundai Oilbank also experienced drops of 53.9 percent and 48.3 percent in their operating profits, respectively.

Lower profits also have led to reduced investment in R&D.

SK Innovation spent 149.4 billion won on R&D last year, down 2.8 percent from 2011, while GS Caltex cut 7.6 percent to 43.4 billion won.

By Joo Kyung-don [kjoo@joongang.co.kr]