Gas stations to gain more fuel-buying freedom as post-settlement pricing scrapped

Gas stations will be able to buy up to 40 percent of their fuel from refiners other than their contracted supplier, as long as they purchase at least 60 percent from that supplier. A pricing practice known as "post-settlement" — under which the final purchase price is set based on the monthly average price a month after delivery — will also be abolished in principle, with prices fixed at the time of order.

The changes are expected to intensify price competition among refiners and give gas stations greater autonomy in setting purchase and retail prices. As competition among gas stations grows, consumers are expected to benefit from lower fuel prices.

The Korea Fair Trade Commission revised the standard dealership contract for the petroleum retail sector Wednesday to reflect these changes. The standard dealership contract governs transactions between refiners that supply petroleum products and gas stations that resell them to consumers.

The revision comes after problems with exclusive dealing arrangements and post-settlement pricing between refiners and gas stations came to the fore amid a sharp rise in international oil prices driven by the Middle East war. Under exclusive dealing, gas stations were required to buy all their fuel from a single refiner, limiting their purchasing options. The post-settlement system — under which the final purchase price was not confirmed until roughly a month after delivery, based on the monthly average price — was also flagged as a problem.

Earlier this year, the Korea Gas Station Association and the four major domestic refiners signed a mutual cooperation agreement in April that included commitments to reform the exclusive purchasing practice and abolish the post-settlement system. The Fair Trade Commission incorporated the key points of that agreement into the revised standard contract after gathering industry input.

The revised contract specifies that gas stations must agree with their contracted refiner on a purchase volume of at least 60 percent of their total monthly purchases, leaving room to buy up to 40 percent from other refiners. Refiners are prohibited from unfairly discriminating on supply prices, volumes or trade terms on the grounds that a gas station engages in mixed purchasing.

However, mixed purchasing is not a new right granted by this revision. Under the current Fair Trade Act, refiners are already prohibited from forcing gas stations to buy 100 percent of their fuel from a single supplier. The commission said the revision is intended to improve trade practices by formally codifying existing industry agreements in the standard contract.

The post-settlement pricing system will also be abolished in principle. Refiners must now set payment based on the supply price at the time a gas station places an order. Under the current system, gas stations pay the order-time price upfront and then settle at the monthly average price a month later, creating a lag before the final price is confirmed. Abolishing post-settlement pricing is expected to improve transparency in trade terms and reduce operational uncertainty for gas stations.

Post-settlement pricing may still be applied as an exception at a gas station's request, but even then the final payment must be determined within seven days of the order, reflecting any changes in market conditions after the order is placed.

Consumers are also expected to benefit as price competition among gas stations intensifies. The commission said wider adoption of mixed purchasing would spur price competition among refiners and improve pricing transparency, allowing gas stations to set retail prices more freely.

The commission said it would encourage use of the revised standard dealership contract and plans to monitor whether trade practices in the petroleum retail sector are changing through inspections of dealership transactions.