The government has effectively no basis for calculating the 5 trillion won ($3.6 billion) in contingency reserve funds earmarked to cover refiners' losses and other costs under the oil price ceiling system, an investigation has found.
According to documents that Rep. Ku Ja-keun of the People Power Party obtained from the Ministry of Trade, Industry and Energy (MOTIE) on Wednesday, the government has been unable to present any calculation basis for the 5 trillion won budgeted to respond to the oil price ceiling system and the naphtha supply crisis.
MOTIE responded that "the price ceiling system is operated by reflecting the rate of increase in international petroleum product prices every two weeks, making variability extremely high," adding that "loss estimates are difficult to predict at this point because they are affected by various variables including the duration of the war and petroleum supply conditions."
The ministry explained that actual costs can only be known when refiners calculate their quarterly losses themselves and request settlement after review by accounting firms and other auditors. MOTIE added that it "plans to conduct thorough verification through a price ceiling settlement committee composed of experts" afterward.
The 5 trillion won in reserve funds included in the supplementary budget is 125% more than the original budget allocation of 4 trillion won. Combined, total contingency reserves for this year are projected to reach 9 trillion won. Excluding the 9.7 trillion won in reserves allocated in 2021 due to COVID-19, contingency reserves over the past decade have ranged between 3 trillion and 5 trillion won. While the unprecedented increase makes it essential to assess the appropriateness of the amount, no specific calculation criteria have been established.
The senior specialist's office of the National Assembly's Strategy and Finance Committee also expressed concern. Senior Specialist Choi Byeong-kwon noted that "the government explains the increase in reserve funds by citing the implementation of the oil price ceiling system and response to the naphtha supply crisis, but it has not presented budget amounts for each intended use, lacking specificity," adding that "this creates a problem where the National Assembly cannot conduct an in-depth review of appropriateness."
Given the uncertainty over whether the Middle East situation will be prolonged, allocating a 5 trillion won budget as contingency reserves is justified, but specific calculation methods should still be presented, Choi argued.
Choi pointed out that "the government needs to compile the budget at an appropriate scale based on its projected duration of the oil price ceiling system, oil price forecasts, and rough estimates of losses." Regarding concerns that oil price forecasts could affect the real economy, he stated that "the appropriateness of the amount can be reviewed through confidential reporting."