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Discount Stores to Be Allowed to Sell Gas

Posted March. 26, 2008 03:03,   


Large discount stores will be allowed to set up their own gas stations from the end of the year.

Following the lead of advanced economies, Korean consumers will be able to fill up their cars after shopping at discount stores in a move greatly expected to change consumption patterns.

In addition, the prices of 52 items including private education tuition, snacks and noodles with stir-fried bean paste will be monitored by the government each month.

The Strategy and Finance Ministry yesterday reported plans to monitor prices of household necessities and countermeasures at a Cabinet meeting.

○ Price competition for oil

The ministry will choose 52 household necessities frequently bought by the bottom 40 percent of households with an average monthly income under 2.47 million won and monitor their prices regularly.

The list includes flour, instant noodles, Chinese cabbage, radish, tofu, green onions, garlic, hot pepper paste, cooking oil, eggs, apples, snacks, detergent, gasoline, diesel, liquefied petroleum gas, pants, noodles with stir-fried bean paste, subway and bus fares, private education and nursery tuition, mobile phone charges and cable television fees.

For products whose prices have increased due to higher costs, the government will strive to cut their prices by improving distribution and applying a tariff quota system. Authorities will also crack down on collusion, cornering and hoarding.

Gasoline, diesel, and kerosene will be subject to government measures to cut prices by improving distribution processes.

The Finance Ministry will lower tariffs on imported oil products from three percent to one percent and allow large discount stores to directly import and sell oil on the domestic market. If oil tariffs are cut as scheduled, the price of imported gas from the Middle East will fall 17 won per liter, that of kerosene will fall 18 won and that of diesel will drop 19 won per liter.

The ministry said large discount stores can compete against established oil refineries if they lower import prices by buying in bulk and tolerating lower profits.

Yim Jong-yong, head of the ministry’s economic policy bureau, said, “I’ve heard that some discount stores have plans to begin selling oil. If the government promotes fair competition by lowering import barriers, the landscape of Korea’s oil market, which has been long dominated by several major refineries, will change drastically and result in price cuts.”

○ Selection of the 52 items

The government said it chose the 52 items based on four principles: frequency of purchase by low-income brackets, share of household spending, contribution to the livelihood of families on lower incomes and price increases.

In the beginning, the National Statistical Office had selected items based on frequency of buying and share of household spending. Later, other items were excluded and pants for men and women were integrated into one category to get the list to 50 items.

After lobbying by six private institutions including a housewives association, and the Korea National Council of Women, detergent and products for babies and infants were added to the list and sneakers were removed, thus completing the list of 52 items.

Others, however, say the ministry chose the 52 items arbitrarily. They find fault with putting cable TV fees and pants on the list instead of public television charges and shirts.

○ “No control” vs. “effective control”

In a briefing session, ministry director Yim said, “The government neither intends to directly regulate prices nor has measures to control prices.” He said the government only wants to show its strong will to stabilize prices to business and consumers.

A source from an instant noodle maker said, “We’re planning to temporarily stop raising prices even if raw material prices increase. For this to happen, we have to strive to cut costs. But it’s not surprising that the government’s announcement to control prices of certain products pressures businesses. We consider the measures an effective price control.”