Value context and insight. lkm@koreatimes.co.kr
Companies call for electricity rate cuts amid rising energy costs
By Lee Kyung-min
By Lee Kyung-min
Business groups are calling for electricity rate cuts, in the form of lowering the ratio for both value-added tax and contributions to energy funds, according to market watchers, Thursday.
Consumers' monthly electricity bills charge a value-added tax of 10 percent in addition to a contribution rate of 3.7 percent of the electricity used every month.
Businesses have long cited the two as the chief culprit in the rise of fixed costs, undermining corporate competitiveness. The energy fund contribution, established in 2000, is taking all the more flak, as evidenced by repeated recommendations by the Board of Audit and Inspection and the National Assembly to overhaul the system.
Propelling the collective move is an expected sustained spike in global energy costs, brought on by Russia's prolonged invasion of Ukraine. Korea experienced the fallout of the military conflict in the form of heating costs more than doubling over the past two months from a year earlier. The energy crisis is unlikely to see a breakthrough any time soon, as indicated in large part by the worse-than-expected record-high operating losses last year of state-run energy firms Korea Electric Power Corp. (KEPCO) and Korea Gas Corp. (KOGAS). KEPCO and KOGAS registered operating losses of 32 trillion won ($24 billion) and 8.6 trillion won last year, respectively.
Data from Korea Industry Alliance Forum (KIAF), a coalition representing the interests of the country's 16 leading manufacturing industries, showed that Korea is expected to pay 8.3 trillion won in value-added tax and 3.1 trillion won in energy fund contribution. The figures are up 1.7 trillion won and 600 billion won, respectively.
Similarly, the Federation of Korean Industries (FKI), the country's largest business lobby, said the fund expenditure should be monitored and closely scrutinized to tackle the problem of state resources being wasted and to assist the underprivileged and vulnerable income groups.
Immediate assistance needed
“Local firms need immediate government assistance in reducing energy costs,” said Yoo Hwan-ik, the FKI's corporate policy division head.
The energy funds contribution rate is directly tied to changes in the amount of electricity used and rates charged thereafter. This, in his view, is why the country is certain to experience an even heavier burden in the months to come, unless a drastic revision is made to lower the contribution rate.
“The price of electricity is determined by the amount used and the raw costs needed to generate power, all of which have no prospect to shift to downside pressure any time soon,” he said. “The fastest and the most effective way across the board is to lower the contribution rate.”
Also strengthening the need for a review of the fund expenditure, he said, is recently unearthed fund mismanagement allegations, as laid bare by the anti-corruption task force under the Prime Minister's Office.
“The problem has been left unaddressed for years, with no one held accountable for who spent how much money where in the process,” Yoo said. “It is high time that the fund should restore the function with which the government sought balanced growth of densely populated metropolitan areas and sparsely populated remote regions.”
The 10 percent rate for the value-added tax should be lowered, according to the FKI official, in line with global moves to mitigate the energy crisis.
Spain, for example, has lowered the tax to 5 percent from the previous 10 percent, whereas the rate for gas was set at 5 percent, dramatically lower than the previous 21 percent.
The state-run energy firms' record-high operating losses more than warrant an increase in electricity costs. However, the vast majority of people feeling the pinch in the form of a rapid surge in living costs exacerbated by inflation is something that should not be neglected, he said.
“Temporary lowering of the value-added tax is something to think about,” he said.
KIAF maintains that such measures are needed to navigate the headwinds in the global trade uncertainties.
“Major industries do not contest that electricity should be priced by market principles,” said Jeong Kwang-ha, head of an institute under the KIAF.
“However, Korea is expected to see a material decline in exports this year and probably the next. The government should put in place emergency measures for energy cost cuts to help key growth driver industries lessen trade, economic and financial woes within the country and abroad.”
According to KIAF, KEPCO's electricity sales income will amount to 93.9 trillion won this year, up 25 percent from 75.1 trillion won last year.
Of the 18.8 trillion won increase, about half, or 9.9 trillion won, will be shouldered by industries. About 4.7 trillion won will be paid by small businesses and 2.4 trillion won by households.
Samsung Electronics, the semiconductor manufacturing and digital business affiliate of Samsung Group, is expected to pay 2.3 trillion won in electricity bills this year, up 300 billion won from the year before.
Hyundai Steel, the steel manufacturing affiliate of Hyundai Motor Group, is likely to pay over 900 billion won in production costs this year, up 130 billion won from 790 billion won last year.
“A rise of 1 won in electricity rates will lead to 10 billion won in production costs,” a Hyundai Steel official said.