The Oil Price Cap Settlement Committee will announce the first compensation estimates for refineries due to the implementation of the oil price cap by the end of this month. As this is the first settlement since the system was introduced in March, there is significant interest in both the scale of compensation and the extent of losses recognized by the government.
According to industry sources, the initial compensation calculations for refineries covering the period from March 13 to June 30 are expected to be communicated by the end of this month. Refineries will have 30 days from the notification date to file objections, and the government plans to review these objections before finalizing the compensation amounts and completing payments within the year.
Once the initial calculations are announced, differences between the government and the refining industry regarding the recognition of losses are likely to become apparent. The government intends to compensate based on actual crude oil import costs and production and sales expenses, including a reasonable profit margin. In contrast, the industry argues that the difference between international oil product prices and domestic supply prices should also be recognized as a loss. The extent to which potential sales revenue, which could have been secured without price controls, is reflected in the compensation could lead to differing views on the compensation scale.
Even if the settlement is cost-based, disputes are anticipated during the process of allocating detailed expenses. In the refining process, crude oil is used to produce multiple products, including gasoline, diesel, kerosene, naphtha, and aviation fuel. However, compensation is limited to gasoline, diesel, and kerosene sold domestically. The amount of production costs recognized for gasoline, diesel, and kerosene sold domestically will affect the compensation amount.
Differences in accounting practices among refineries also present variables. If the committee does not recognize certain expenses submitted by each company or adjusts the allocation methods, these issues could become major points of contention during the objection process. The level of 'reasonable profit' added to costs will also influence the compensation amount, leading to expected disagreements over the basis for calculations.
This settlement is significant as it will present the actual compensation amounts and calculation bases for the first time since the system's implementation. Refineries are likely to consider not only the compensation amounts for the first half of the year but also the impact of these criteria on second-half loss settlements.
Estimates within the refining industry suggest that the required compensation could reach 7 trillion to 8 trillion won, while the government has allocated 4.2 trillion won in contingency funds for loss compensation this year. The government believes that by basing the settlement on costs and reasonable profits, compensation can be provided within the budgetary limits.
An industry official stated, "Given that the results of this settlement could serve as a benchmark for future loss compensation, we are closely monitoring the situation. With the restrictions on diesel exports and the prolonged price cap, the announced compensation amounts and calculation bases are crucial."
* This article has been translated by AI.
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