No Need for Oil Import Diversification?
The South Korean government is planning to abolish a tax incentive for Korean importers of crude oil from non-Middle East countries next year.
The government has been providing tax refunds to importers of non-Middle East crude oil from 2014 in order to lower the country’s dependence on the Middle East. However, it is considering repealing the tax rebate as the percentage of Middle East crude oil in total imports dropped to the 70 percent range in the first half of this year.
According to oil and petrochemical industry sources on Sept. 17, the state-funded Korea Energy Economics Institute (KEEI) is scheduled to release a research report related to the planned abolition of the tax refund system at the end of this year
South Korean refiners pay a tariff of 16 won (US$0.01) per liter of imported crude oil to the Korea National Oil Corp. However, the government has been returning the tariff to local refiners that import crude oil from sources other than the Middle East from 2014. This is part of the government’s efforts to diversify crude oil supply sources and stabilize the supply and demand of crude oil by cutting local refiners’ transportation costs for non-Middle East crude oil.
The total import tariff imposed on six oil refiners by the government for four years between 2014 to 2017 amounted to 236.7 billion won (US$210.12 million), including 76.8 billion won (US$68.18 million) in 2014, 56.6 billion won (US$50.24 million) in 2015, 47.1 billion won (US$41.81 million) in 2016 and 56.2 billion won (US$49.89 million) in 2017. The level of dependence on Middle East crude oil during the same period stood at 84 percent in 2014, 82.3 percent in 2015, 85.9 percent in 2016 and 81.7 percent in 2017.
As the nation’s reliance on Middle East crude oil gradually declines, the government believes that the policy objective has been achieved. However, some industry sources speculate that the government is conscious of Saudi Arabia which plans to build nuclear power plants. Korea is seeking to win the projects.