Korean oil refiners to bask in record profits with hefty bonuses

Employees at South Korea’s oil refiners are expected to receive hefty bonuses after their companies posted record earnings last year amid higher oil prices and decent refining margins.

The country’s four major oil companies – SK Innovation Co., GS Caltex Corp., S-Oil Corp. and Hyundai Oilbank Co. – plan to pay up to 1,500% of their monthly base salary to employees as a performance bonus, industry sources said on Wednesday.

GS Caltex will pay 1,000% of the basic salary to its executives and rank-and-file employees this Friday. The bonus is equivalent to nearly half their annual salaries. Hyundai Oilbank has already paid 1,000% of the base salary in such bonuses.

S-Oil, the Korean unit of Saudi Arabian Oil Co., is also known to be paying a performance bonus to the tune of 1,000%.

SK Innovation, the country’s largest oil refiner, is in talks with its unionized workers over the size of its performance bonus, with some company officials saying it would reach 1,500%.

The hefty bonuses come as a result of the oil refiners’ strong business performance last year.

The market consensus for SK Innovation’s 2022 operating profit is a record 5.42 trillion won ($4.4 billion), while S-Oil is forecast to post an all-time high profit of 3.76 trillion won.

The oil companies’ profits surged to record highs last year on higher refining margins as the resumption of economic activities following the COVID-19 pandemic boosted demand.

A refining margin is the difference between the total value of petroleum products and the cost of crude and related services and is considered a key indicator of refiners' profitability.

Global crude oil prices usually move in sync with refining margins.

WINDFALL TAX

Their stellar earnings came amid controversy over the possible introduction of a windfall tax, a tax on refiners’ extra gains from surging oil prices.

Lee Jae-myung, a lawmaker and the leader of the main opposition Democratic Party of Korea, on Wednesday called for the introduction of a windfall tax on oil and gas producers’ profits to benefit consumers.

Critics, however, said it would be inappropriate for the government to adopt a windfall tax since local refiners’ profits largely come from petroleum refining and running gas stations, whereas global energy giants have diverse means of generating revenue and can enjoy stronger returns when oil prices surge.

According to Opinet, a market tracker operated by state-run Korea National Oil Corp. (KNOC), local premium gasoline prices stood at 1,863 won a liter in the second week of January, the 19th lowest among the 23 member countries of the Organization for Economic Cooperation and Development (OECD).

Local diesel prices were hovering around 1,691.5 won a liter, ranking 22nd.

“Imposing a windfall tax on local oil refiners could backfire. They may feel less interested in running gas stations only for thin profit margins” said an industry official.

Write to Ik-Hwan Kim at lovepen@hankyung.com
In-Soo Nam edited this article.