FKI calls for stronger government support in overcoming the crisis in the petrochemical industry
- [Key Policy Tasks]
① Mitigate cost burdens and provide tax relief:
- Reductions or exemptions on electricity charges, Extend the taxation deferral period on gains from transfers, etc. in areas for preemptively responding to industrial crisis1
② Reform the corporate management landscape:
- Foster an environment for rapid business reorganization (Provide exemptions on restrictions toward business combination)
③ Support transition toward a high-value-added and low carbon industry:
- Upgrade eco-friendly technologies to national strategic technology status, Support establishment of pilot and demonstration complexes, etc.
- It is crucial to veto the proposed amendments to the Commercial Act, as it may impede the reorganization of the petrochemical industry
1) Eco-friendly certification labels (Examples): Ministry of Environment Eco-Label, Energy Star, Organic Certification, Carbon Footprint Certification, etc
The Federation of Korean Industries (FKI) has submitted its Emergency Policy Recommendations for Overcoming Crisis in the Petrochemical Industry to the Ministry of Trade, Industry and Energy. The recommendations reflect the collective stance of major FKI member companies on the government’s Competitiveness Enhancement Plan for the Petrochemical Industry (hereinafter, Government Support Plan), unveiled in December 2024.
With the Government Support Plan set for implementation in the first half of 2025, the FKI urges the integration of its policy recommendations into the execution of supportive measures. The FKI’s policy recommendations span across 3 areas (13 specific items), including, ‘Mitigate cost burdens and provide tax relief,’ ‘Reform the corporate management landscape,’ and ‘Support the transition toward a high-value-added and low carbon industry.’
Grant reductions or exemptions on electricity charges for businesses in areas for preemptively responding to industrial crisis
Industrial electricity rates for large-scale customers (Type B) in October 2024 surged from KRW 165.8 to KRW 182.7 per kWh (+10.2%), leading to significant cost burdens on manufacturers.
Electricity expenses account for approximately 3.2%2 of major production costs in the petrochemical industry and the recent price hike raises concerns about a decline in global price competitiveness. Meanwhile, Korea’s key competitor economies are carrying forward3 industrial electricity rate reductions or exemptions to enhance the competitiveness of their manufacturers. Thus, the FKI requests the government to utilize government funds and grants for reductions or exemptions on industrial electricity rates in areas for preemptively responding to industrial crisis.
2) Major production expenses (Unit: KRW 1 million, as of 2022): Electricity expenses (3,845,397), Subtotal (121,537,929)
3) (Germany) Power price relief package for industries (2023), (EU) Action Plan for Affordable Energy (2025), etc
Extend the taxation deferral period on gains from transfers in business reorganizations of crisis-affected industries
The Government Support Plan unveiled late last year would extend the current tax relief measure4—which offers a 4-year corporate tax deferral period on capital gains from transfers in business reorganizations, followed by a 3-year payment period—would be extended to a 5-year deferral and 5-year payment period.
However, the FKI indicates that the taxation deferral period under the Government Support Plan would have only a limited crisis-mitigation effect, as the crisis leading to the sales of assets by petrochemical companies stems from excessive global supply.
Additionally, a National Assembly Budget Office analysis5 revealed that corporate tax reductions or exemptions on capital gains from transfers in business reorganizations amounted to less than KRW 100 million annually, underscoring the limited legislative impact of current special taxation provisions. The FKI recommends that the deferral period for taxation on capital gains from transfers be extended to business closure for industries undergoing crisis-related reorganization, including the petrochemical industry.
4) Act on Restriction on Special Cases Concerning Taxation, Article 121-26 (Special Taxation for Assets Sold by Domestic Corporations for Repayment of Financial Debts and Investment)
5) National Assembly Budget Office (NABO) , ‘ 2025 Tax Expenditure Budget Analysis (2024)’
Foster an environment for rapid business reorganization
(Provide exemptions on restrictions toward business combinations, etc.)
To support the petrochemical industry’s business reorganizations, the current Government Support Plan includes provisions for advance consultations with the Fair Trade Commission as well as a joint consultation channel between the Ministry of Trade, Industry and Energy and the Fair Trade Commission. These measures would expedite the review process for business combinations, including joint venture establishments and mergers and acquisitions (M&As).
However, achieving rapid business reorganization of the petrochemical industry remains a challenge. Under the Fair Trade Act, for example, a business combination that results in the biggest aggregate market share in the relevant business area is presumed to substantially restrict competition and this would trigger regulatory restrictions. Such a scenario is highly likely to materialize if the domestic petrochemical industry undertakes consolidations or mergers among similar businesses to address the issue of excessive supply.
The FKI recommends providing exemptions in the Fair Trade Act that would allow business combinations in the reorganization of the petrochemical industry and other industries in crisis.
Upgrade eco-friendly technologies among new growth engines and source
technologies to national strategic technology status
As Korea’s domestic petrochemical industry, traditionally centered on generalpurpose products, faces intensifying competition with China and the Middle East, it is essential to transition toward high-value-added and low carbon products. The FKI recommends upgrading the classification for key technologies—including pollution prevention, resource circulation6, biochemistry7, and CCUS8 technologies—from new growth engines and source technologies to national strategic technology status.
6) Waste plastic mechanical recycling technologies and industrial fuel conversion technologies through chemical recycling, etc.
7) Bioplastics manufacturing, biochemical materials development and bio-foundry technologies for microorganism discovery, etc.
8) Carbon Capture, Utilization & Storage
Reclassifying these technologies would increase tax credits9toward business
facility investments from 3-12% to 15-25%. The FKI emphasizes that such an investment
support measure would accelerate the petrochemical industry’s transition to secure new
growth engines while bolstering the industry’s global competitiveness
9) Act on Restriction on Special Cases Concerning Taxation, Article 24 (Integrated Investment Tax Credit)
Support the establishment of pilot and demonstration complexes for the petrochemical industry
Pilot and demonstration complexes would allow the petrochemical industry to validate new products and processes, preventing errors and risks in commercialization procedures in advance. However, the recent rise in construction expenses10 has negatively impacted the early-stage business feasibility of capital investments (CAPEX) in such complexes.
10) Construction Cost Index (Korea Institute of Civil Engineering and Building Technology): 46.1 (2000), 100.0 (2020), and 130.9 (Jan 2025)
The FKI urges the government to spearhead efforts to secure public land for establishing pilot or demonstration complexes and to explore measures for shared manufacturing process support infrastructure, including wastewater treatment facilities.
Sang-ho Lee, vice president of Economic and Industrial Research at FKI noted, “The growth strategy of domestic petrochemical companies—largely dependent on exports of general-purpose products—has reached its limit due to excessive global supply. Rapid business reorganization is critical for the petrochemical industry’s survival and for bolstering its competitiveness. Substantial support must be provided, and a veto should be exercised against the proposed amendments to the Commercial Act, which may engender major complications in restructuring, including M&As.”
※ [Attachment] Key Details of the Overcoming Crisis in the Petrochemical Industry: Emergency Policy Recommendations
※ [Supplementary Attachment] Overcoming Crisis in the Petrochemical Industry: Emergency Policy Recommendations
