Energy price populism can’t resolve the debt

An energy price freeze can provide immediate relief. But good bargains empty the purse.

State utility Korea Electric Power Corporation (Kepco) and the government announced Wednesday that electricity rates for industrial use would rise by an average 9.7 percent starting Thursday, while the charges for households will stay unchanged. Factories account for 53.2 percent of the country’s electricity consumption. The rates for big manufacturers such as chipmakers and steelmakers would increase by 10.2 percent and smaller companies by 5.2 percent. The hike in the industrial rate would bump up electricity revenue by about 5 percent, or 4.7 trillion won ($3.4 billion) a year.

Kepco is in dire financial straits because it was forced to supply electricity below its producing cost since the pandemic. Its deficit from 2021 has piled up to 41 trillion won as of June despite incremental raises from 2022. Total debt amounted to 203 trillion won as of June, costing an interest payment of 12.2 billion won per day and 4.45 trillion won for a full year in 2023. Given the deepening financial crisis of the state utility company, it is unavoidable to raise the electricity bill.

But the problem is that the government chose to use a “quick fix” targeting only the industrial utility charge without raising the charge for general consumers. The general rates charged on households and shops have stayed untouched this year as well as last year.

Korea’s household electricity rates are the fifth-cheapest among 38 OECD member countries. Japan and France charge double Korea’s amount and Germany triple. The government’s decision to exempt households and shops that make up 98.3 percent of Kepco customers can only be suspected of a populist motive.

The government also has deferred the lifting in oil taxes since the last cut in November 2021. Oil taxes were lowered to ease the shock from the spike in international prices amid the pandemic. But the sustained cap on oil taxes while inflation stabilized worsens fiscal deficit. According to Democratic Party Rep. Ahn Do-geol, the cut in oil taxes kept for the last three years shaved tax revenue by a whopping 13 trillion won.

An energy price freeze can provide immediate relief. But good bargains empty the purse. The energy demand will become astronomical in the AI-driven age. But the deficit-ridden Kepco cannot make timely investments to upgrade and reinforce its power infrastructure, which is essential to sustaining our industrial competitiveness. The cap on the oil tax is only worsening fiscal coffers amid tax shortages from the ongoing slump. It may be unpopular for now, but electricity rates and the energy tax must be incrementally normalized to lessen the shock later.