Korean government in dilemma over Q2 electricity, gas fee hikes

Utility bills from KEPCO stick out from mailboxes at an apartment in Seoul. [Photo by Han Joo-hyung]

The South Korean government is facing a tough decision concerning whether to raise electricity and gas fees for the second quarter after a proposal with the ruling party was put on hold last month.

The ruling People Power Party is uneasy about enforcing a hike in utility fees ahead of the general elections next year but the industry argues that a rise is inevitable to cover losses at the state utility firms.

Sources from the political circle expect that the government is likely to push its decision until after Yoon Suk Yeol’s state visit to the U.S. that will begin on April 24.

The government and the ruling party are expected to collect industry opinions on Thursday in a meeting before making any decisions.

Many ruling party lawmakers oppose an immediate hike in electricity and gas fees as they may be conscious of the general elections next year. They believe that the spike in the bills in the summer and winter seasons may unfavorably affect the votes.

The ruling PPP has been pressuring the Korea Electric Power Corp. (KEPCO) and the Korea Gas Corp. (KOGAS) to introduce measures to cover their losses. The companies submitted self-rescue plans, including the measure to sell assets over the next five years.

The political circle, however, is still not satisfied.

“KEPCO and the Ministry of Trade, Industry and Energy are not doing their jobs properly,” one member of the ruling party told Yonhap News Agency.

Another lawmaker blamed the government by saying that “the energy ministry was so confident that no rate hike was necessary over the past five years in the earlier administration” and that “all of a sudden, we see this huge loss at KEPCO that needs to be covered.”

Electricity meters [Photo by Kim Ho-young]

Some party members note that issuing corporate bonds may help the woes at KEPCO and KOGAS for now. The National Assembly last year passed a bill that allows the utility firms to expand corporate bond issuance.

Concerns, however, remain over the issues as they could lead to higher interest rates in the market and drown out other corporate bond issuances.

The energy ministry, which has direct control over the gas and power bills, is facing pressure from both political and industrial circles, regardless of its own position towards a rate hike.

The ministry has reportedly presented the ruling party with three or four scenarios for an electricity rate hike, based on assumptions of an increase of around 10 won ($0.01) per kilowatt hour, and several scenarios for a gas rate hike.

The ministry believes that any decision must be made soon, particularly since there is a consensus for a rate hike between the government and the political party.

“Any delay in the decision is not desirable,” said an unnamed government official. “Costs that need to be covered may grow to a burdensome level if the hike decision is delayed, despite all the factors toward a raise in rates.”

The industry, including KEPCO and KOGAS, in the meantime, argue that they must raise the fees.

KEPCO is likely to exceed the threshold for corporate bond issuance stated by law if it sees another 5 trillion won in losses this year, it said. This will make it difficult for KEPCO to pay for power purchases or equipment and construction.