In this week’s edition of Market Trends, we will discuss North Korea’s dynamic gasoline market. For details, we turn to special economic reporter Kang Mi Jin.
Daily NK has received reports that the price of diesel and regular gasoline is decreasing in North Korea. This price reduction comes as welcome news for consumers, but merchants in the gasoline industry view the situation differently.
Gasoline prices have continued to fluctuate in recent weeks. In an even more disruptive development, North Korea has begun to set up and operate state-owned gas stations, creating a formidable source of competition for the private gas supply businesses.
Merchants have been selling gasoline in secret for years, so it seems difficult for the authorities to put a dent in their business. Why are the merchants so unhappy with this development?
As you alluded to, private merchants are not officially permitted to sell gasoline and diesel. However, it’s possible to purchase gasoline by asking around in the markets. Gasoline merchants tend to be known in their local areas, so customers seek them out to buy gas whenever they need it.
However, the growing presence of state-owned gas stations all across the country is threatening this business model.
Because gasoline sold at the state-run stations is fixed to a price below the market rate, most consumers are switching suppliers.
Naturally, this comes as quite a blow to the private merchants, who are now having a hard time making a living. In addition to this new competition, there are occasional crackdowns on illegal gasoline sales, where the authorities seize diesel and regular gasoline that is being sold from individual houses.
What happens to the gasoline that gets seized by the authorities?
First, the seized gasoline is collected by the local police. Then, either cadres use it, or it’s sent to a local state-run gas station to be sold. On some occasions, the gasoline is returned, but in most cases it’s not.
The reason that most of the seized gasoline isn’t returned is because the bribe required to get it back is more expensive than the cost of simply purchasing more. The result is that the authorities, or whichever security agency seizes the gasoline, make the most profit.
Because these crackdowns happen with relative frequency, those engaged in the private sale of gasoline usually try to store their supply in hidden places so the authorities can’t find it. They only bring out the exact quantity they intend to sell during any given transaction. This ensures that the secret storage location remains well hidden, even to customers.
Can you provide a little context that might help us to understand the story of how the authorities came to enter the market with state-owned gas stations?
In 2010, the number of taxis, cars, and vehicles on the road began to increase all over the country. In response to this trend, the authorities began to construct gas stations. As the situation continued to develop, residents became surprised to see that the authorities were selling products to the people. Some residents remarked that, “it’s now a totally capitalist system, so why do they still produce socialist propaganda?”
The authorities are harnessing capitalism to their advantage, and using it as a way to create new sources of revenue. From the authorities’ perspective, entering the market this way allows them to earn money while also positioning themselves as suppliers of national goods. They probably realized that there are now a sufficient amount of privately-owned cars on the road to make gasoline sales a good enterprise.
Can you break down the price difference between the state-owned stations and the private merchants?
To take Ryanggang Province’s Hyesan city as an example, individual merchants are selling gasoline for 8400 KPW per kg, while the state-owned stations are selling it slightly cheaper at 8200 KPW.
The price difference isn’t that big, but customers are also attracted to the state gas stations because they are concerned that the gas sold by individuals merchants might not be of sufficient quality. On the other hand, the general perception is that gas being sold by the state-run stations is always genuine. As the state consolidates its market power, it will become harder for individual merchants to compete.