Government Will Not Reduce Oil Tax

As a countermeasure to soaring oil prices, the government has decided to make efforts to improve its physical constitution by changing the energy industry structure into a system of low prices and high efficiency rather than administering short-term remedies like oil-related tax reductions.

Accordingly, consumers are expected to cover the rising expenses of oil-related home products for the time being as the international oil price soars.

The government held a Cabinet council on May 18 under the superintendence of President Roh Moo-hyun at Chong Wa Dae, and decided to reorganize the energy consumption structure and expand oil exploration as countermeasures to rising oil prices.

According to its countermeasures, the government made a decision to deduct 7 percent of the tax for 2,057 high-energy consumption businesses, which account for 32.8 percent of domestic energy consumption, if they use the high-efficiency building materials or invest a certain amount of money to energy reducing processes.

The government will also lend more than a certain level of building expenses for energy reduction in order to popularize ultra-energy-saving buildings. As for foreign oil field development projects, the government decided to increase its oil exploration support ratio up to 10 percent (from 3.0 percent at present) by 2010, expanding its financial support from 57 billion won last year to 100 billion won this year, and up to 200 billion won next year.

But the government decided not to enforce the policy of reducing taxes imposed on oil.

Meanwhile, the Dubai oil price on May 17 has broken the 36-dollar mark for the first time since September 28, 1990 (37.40 dollars), reaching 36.32 dollars a barrel, which showed a 0.40 dollar increase compared to that of May 14. Western Texas oil (WTI) prices also maintained its high price of 41.49 dollars a barrel, an increase of 0.17 dollars.

The international oil price soared today on the news that Izzedine Salim, the U.S. appointed president of the Iraqi Governing Council, was killed in a bombing blast.

Related to this, the AP news agency reported on May 18 that “it is highly probable that the Organization of Petroleum Exporting Countries (OPEC) will hold a meeting in Amsterdam, Netherlands on May 22, and decide to increase oil production by 6 percent as proposed by Saudi Arabia.”

However, the Financial Times pointed out on the same day that “since the Saudi Arabia responded too late to the rising oil price, even an increase in oil production cannot contain the soaring oil price.”

Ki-Jeong Ko Sung-Won Joo koh@donga.com swon@donga.com