Korean refineries get hefty fines for price-fixing

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Korean refineries get hefty fines for price-fixing

..........SEOUL (October 2) : South Korea's five oil refineries were slapped with the country's largest ever penalties for colluding to fix high prices for military procurement and blocking competition, the Fair Trade Commission (FTC) said.

..........After a three-month investigation, the FTC said in a statement on Saturday the five petroleum companies had formed a cartel for military procurement bidding between 1998 and 2000, causing the defence ministry to overpay by 123 billion won ($110.4 million), compared with prices state enterprises paid.

..........The commission levied a total of 190.1 billion won in penalties on SK Corp, S-Oil. LG Caltex Oil, Hyundai Oil Refinery and Inchon Oil Refinery.

..........The amount was twice the 79 billion won in fines imposed on the top five conglomerates last October by the FTC for illegal trading among their affiliates.

..........The five refineries broadly conspired on bids for the defence ministry "by plotting who would win which kinds of bids for oil products at what price," the FTC said.

..........The oligopoly by the five petroleum suppliers in South Korea was stitched together to compensate for losses after domestic oil prices were deregulated in 1997, the FTC said.

..........Officials in charge of military procurement bidding at LG Caltex, S-Oil and Inchon Oil, admitted to the charges, the FTC said.

.........."Their collusion was fundamentally blocking competition in the bidding process, falling under the FTC's clause of unfair group action," it said.

..........They faced penalties of up to five percent of sales turnover, though the fines against LG and S-Oil were reduced by one third, after taking into consideration their co-operation in the investigation process, the FTC said.

..........The country's largest oil refinery, SK Corp, was fined 47.5 billion won, or 13.8 percent of its 1999 net profit.

..........Hyundai Oil and its affiliate Inchon Oil that Hyundai took over last year, were fined a similar amount..

..........LG Caltex, the second largest petroleum supplier, and S-Oil were fined 23.8 billion won each.

..........The commission said the five refineries cancelled bids for five defence ministry tenders early this year after the ministry lowered its oil budget in line with then prevailing lower international prices.

..........Under the current bidding system, the defence ministry tenders a package of procurement bids for annual demand early in the year.

..........Bidders are allowed to continue to participate in the tender or tenders, if the first one breaks down.

.........."To keep up the price, the five refineries continued bidding at higher prices and pushed the army to the brink of an emergency situation by tapping into reserve oil by more than 20 percent of its total reserves (in early 2000)," it noted.

..........The military has bought 192.4 billion won worth of oil from the local petroleum suppliers so far this year, less than half of 1998's 302.3 billion won.

.........."We have asked the defence ministry to amend the current unfair oil bidding system," the commission said, referring to the practice of procuring all its oil needs at the start of the fiscal year.

..........The existing system also has problems in that the army's oil budget is calculated based on prices reported by the oil refineries.

..........But no criminal charges were brought against the officials involved in the price-fixing as they acknowledged their wrongdoing and promised to be held accountable for their behaviour, the FTC said.-Reuters .......... http://www.brecorder.com/story/S00DD/SDJ02/SDJ02162.htm

-- Carl Jenkins (Somewherepress@aol.com), October 02, 2000


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