A quick and populist fix doesn’t solve problem

Kepco’s normalization can be a pipe dream without changing the rate-fixing structure.

The state utility firm Korea Electric Power Corporation and the government announced the one-month-delayed raise in electricity fees for the fourth quarter. The power rates for households, shops and small and mid-sized companies will stay the same, but the charge for large-capacity industrial use will increase by 10.6 won ($0.1) per kilowatt-hour. Overall, the power rate will go up by 0.2 percent. In cost-cutting efforts against snowballing losses, Kepco will streamline the headquarters organization by 20 percent.

The lifting of utility charges for industrial use, responsible for half of the country’s power consumption, is understandable, as cheap rate charge has been delaying energy-saving efforts by companies. Korean companies enjoying cheap power for manufacturing can stoke unnecessary trade friction, too. The United States slapped countervailing duties on Korean steel products by regarding low power rates as a type of government subsidy. But the selective raise for large companies goes out of sync with the conservative government’s pitch for tax cuts for them to spur corporate investment. Freezing the rates for residential and commercial use, which makes up 99.8 percent of electricity consumers, for two consecutive quarters can only be suspected of aiming to please voters ahead of the parliamentary election in April next year.

The marginal rate elevation can be of little help to ameliorate Kepco’s dismal financial state. Kepco’s debt hit 201 trillion won at the end of June, and its deficit accumulated from 2001 amounted to 47 trillion won. The hike in industrial-use power can improve the financial state by 400 billion won this year and 2.8 trillion won next year. But that can hardly be enough.

The government maintains the move was necessary to take inflationary pressure and hardship for consumers into account. But the suspension of power rates except for industrial use could bring about greater problems later. Since a rate hike will be difficult in the first quarter of next year due to the election in April, the government and Kepco should have tried to normalize the rates harder earlier this year.

Kepco’s woes only help delay its infrastructure investment and weaken power-generating subsidiaries and private operators, causing havoc on the power ecosystem. For the floating rate system to activate by reflecting the changes in energy prices, the rate decisions must go to an independent body free from political influence. If so, much of the conflict and cost over rate-setting can be saved. Kepco’s normalization can be a pipe dream without changing the rate-fixing structure.