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Gas Price Relief for Highway Drivers

Posted June. 07, 2006 07:17,   


It appears that gas prices in highway stopovers will be lowered as early as next month.

It has been persistently pointed out that gasoline prices in highway gas stations were higher than those of average gas stations. The gas price in highway gas stations between January and March 2006 was, on average, 1,511.53 won or 40.64 won more expensive than average stations.

The Korean Highway Service Area Facility Association, consisting of service area and gas station businesses, announced on June 6 that it was in the last stages of negotiation with the Korea Highway Corporation and oil companies, in order to lower gas prices on highways from as early as July.

Highways Oil Prices to Become Similar to Ordinary Gas Prices—

Kim Kil-saeng, president of the Highway Facility Association, explained the background of the negotiations to lower gas prices, “At a recent survey conducted on customers of highway service areas, their highest discontent was with the high oil prices. With such price competition, highway oil stations will all be out of business.”

According to the Highway Corporation, 136 highway oil stations sold 122.37 million liters of oil between January and March of this year, and when this amount is multiplied by the price differential with average gas prices, the highway gas stations reaped about six billion won more in profits.

In order to lower gas prices, the association proposed for gas station businesses to lower their net margin by 50 percent, the Highway Corporation, which is in charge of managing highways, to lower the rental fee of gas stations by 30 percent, and oil companies to provide oil to stations at prices similar to average gas stations.

The association claims that if these demands are met, highway gas prices will drop as much as 35 won per liter when compared to average prices between January and March of this year, and hence nearing the average gas station prices.

In other words, when one completely fills up a Grandeur with a 75 liter fuel capacity, one will save about 2,625 won.

Position of Oil Companies to Determine Outcome of Negotiations—

The Highway Corporation is positive on the suggestion of the association, but the oil companies agree in principle but are reluctant to formally agree. That is because oil companies might suffer excessive losses.

They argue that if gas prices are lowered by 35 won per liter, the gas station will lose six won, the Highway Corporation seven won, but oil companies might lose up to 22 won.

An official of GS Caltex stated, “We agree to the proposal to lower gas prices on the highway and plan to abide by it. However, there are some highway gas stations that have unpaid credit bonds or where the initial investment for facilities has not been broken even, so we can provide lower priced oil, but it will be difficult to provide oil at similar prices to average gas stations.”

In response, Kim argued, “The oil companies are using their monopoly and providing gas expensively with no specific bases, making highway drivers pay more,” and said that if oil companies did not agree to the proposal, they would post bids for highway oil providers and disclose the prime costs of oil on the Internet.

The three concerned parities, the service association, the Highway Corporation, and oil companies will meet again some time soon and finalize their negotiations to lower gas prices.

Seung-Heon Lee ddr@donga.com