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| Noh Hyeong-ouk, deputy finance minister for fiscal affairs at the Ministry of Strategy and Finance, speaks at a media briefing on the restructuring of state-run energy firms held at the Government Complex in Sejong, Monday. / Courtesy of Ministry of Strategy and Finance |
State-run energy companies to sell overseas assets in rationalization
By Yoon Ja-young
The government will open the power supply market in phases to the private sector and allow the listing of power-generating subsidiaries of KEPCO and Korea Hydro & Nuclear Power on the bourse.
The Korea National Oil Corp. (KNOC) and Korea Gas Corp. (KOGAS) will sell off their overseas assets, while the Korea Resources Corp. (KORES) will withdraw from overseas resources development.
These come as part of a government-led plan to rationalize and reorganize its bloated state-run energy businesses, unveiled Tuesday.
According to the plan, five power-generating subsidiaries of KEPCO — Korea South-East Power, Korea Midland Power, Korea Western Power, Korea Southern Power, and Korea East-West Power — as well as Korea Hydro & Nuclear Power, KEPCO KDN and KOGAS Tech will be listed on the stock market.
However, the government will hold onto its management control of the energy companies.
"Even after listing, over 50 percent of the stake will be held by the government or public enterprises. It is different from privatization where managerial control is handed over," said Noh Hyeong-ouk, deputy finance minister for fiscal affairs, in a press briefing.
The government hopes that the businesses will be able to invest in new energy businesses with funding acquired through the IPOs, on top of paying off their debts and enhancing transparency.
Also included in the plan is opening up the electricity supply market, currently monopolized by KEPCO.
New energy businesses in the private sector, such as solar energy firms, will be able to directly sell their electricity to consumers. Currently, individuals or private firms can only sell their electricity to KEPCO.
Gas purchases and wholesales, which are currently monopolized by KOGAS, will also open to the private sector by 2025.
The plan also calls for restructuring of unprofitable sectors. Next year the Korea Coal Corporation will start decreasing production as well as slimming down its workforce. It also plans to raise the price of briquettes to decrease demand.
KNOC and KOGAS will sell most of their overseas assets while KORES will quit its overseas resources development operations step by step. The three companies became actively engaged in overseas resources development during the former President Lee Myung-bak administration, but a price plunge for global resources dealt them a blow. KNOC's debt ratio jumped to 453 percent last year from 64 percent in 2007, while KORES's debt ratio stands at a staggering 6,905 percent. According to the Board of Audit and Inspection, a total of 35.8 trillion won was invested in overseas resources development, with little gains so far. They both will be slashing jobs as well. KNOC will cut its workforce by 30 percent by 2020 while KORES will slash 118 jobs.
KEPCO, which has been seeking coal and uranium development overseas to secure resources for power generation, will withdraw from the projects. They will be handed over to its power-generating subsidiaries and Korea Hydro & Nuclear Power.
However, some show concern that Korea will lose its competitive edge in overseas resources development. "Now could be the right time for investment. Overseas resources development should be dealt with from a long-term perspective, putting the national interest ahead of all others," said Prof. Shin Hyun-don of Inha University at a forum.
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