4 oil refiners fined W434 bil. for collusion

Updated May  27, 2011

By Kim Tong-hyung

The country’s four oil refiners have been fined a collective 434.8 billion won (about $400 million) following an antitrust ruling by regulators Thursday.

The Korea Fair Trade Commission said the firms ? SK Energy, GS Caltex, Hyundai Oilbank and S-Oil ? colluded among themselves to limit competition among gas stations and take the air out of pricing battles. Their under-the-table arrangements included refraining from opening new stations near existing ones operated by rivals, and avoiding undercutting each other when seeking new filling stations as customers.

Aside from the fines, the fair trade watchdog said it will ask the prosecution to investigate three of the companies ? SK Innovation (parent company of SK Energy), GS Caltex and Hyundai Oilbank ? citing the severity of their behavior.

However, the firms balked at the claims and were reportedly preparing countersuits, indicating that regulators are strapped in for a lengthy trial.

SK Energy, the country’s largest refiner, was hit with a 138-billion-won fine. GS Caltex was hit with 177.2 billion won, while Hyundai Oilbank and S-Oil were levied with 74.4 billion and 45.2 billion won, respectively.

The FTC, which has become an unorthodox government tool for fighting inflation, began investigating the refiners shortly after President Lee Myung-bak declared an “all-out war” against inflation at the start of the year. With policymakers struggling in their fight to contain inflation, companies in heavily-regulated industries such as energy and telecommunications have been on the receiving end of price-control measures.

In claiming the existence of anti-competitive practices involving the operation of gas stations, the FTC backed the suspicion of policymakers that refiners have been abusing their dominant market positions to keep prices at a high level.

The refiners first entered into an agreement over restricting competition among filling stations in 2003. Since 2001, the government has been allowing gas stations to carry multiple brands of gasoline to increase competition, but SK Energy, GS Caltex and Hyundai Oilbank conspired to beat the system by taking off their pole signs from stations that sought to switch supplier.

The subdued competition among stations appears to have led to customers paying too much, FTC officials claimed. The lack of price competition, they said, is reflected in the market shares of each company that have barely changed over the past decade.

SK Energy’s market share was 36 percent in 2000 and 35.3 percent at the end of last year, while GS Caltex saw its market share decrease microscopically from 26.5 percent to 26.3 percent during the span. Hyundai Oilbank and S-Oil controlled 18.7 and 14.7 percent of last year’s market respectively, a marginal change from their positions in 2000.

Refiners, however, strongly denied accusations of collusion.

“This is a complete fiction. We have never met and agreed on anything like what the FTC is now accusing us of. We continued to compete during those years,” said a Hyundai Oilbank official.

Government officials have been pressuring refiners to lower their prices since President Lee Myung-bak claimed in January that something was “strange” about the rapid rise in the prices of gasoline and other fuels here.

A panel of civilian experts and officials from the Ministry of Knowledge Economy and Ministry of Strategy and Finance announced in a report in April that refiners have been setting prices “asymmetrically,” charging dramatically more when international oil costs went up, but slow to react when crude prices fell.

Bowing to public pressure, the refiners announced a temporary 100 won per liter cut in their gasoline and diesel prices for filling stations in April. However, drivers complain they are paying pretty much the same as before, with stations exploiting the discounts to increase their profit margins.

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