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| KEPCO headquarters in Naju, South Jeolla Province Korea Times file |
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Korea Electric Power Corp. (KEPCO) should adopt a policy that allows volatile global oil and coal prices to be reflected in billed utility rates without government intervention, according to economists and company officials Monday.
The renewed recommendation is buttressed by the state-run energy firm's staggering operating loss of nearly 8 trillion won ($6.3 billion) in the first quarter of this year, a drop far bigger than its 5.86 trillion won operating loss for all of last year.
Behind the steep loss was a freeze in electricity rates despite surging global oil and coal prices amid geopolitical uncertainties and an energy crisis amplified by Russia's invasion of Ukraine. KEPCO posted a 4 trillion won operating profit in 2020.
Market watchers say the easiest and surest way to temper soaring inflation is for the government to cap the electricity rate, but this short-term price stabilization measure will only add to the long-term buildup of losses that will fall entirely on taxpayers.
"The policy is the answer to the longstanding problem, and the government knows it," Seoul National University economist Lee In-ho said.
The rational and reasonable step in principle, however, loses momentum, largely because energy costs account for a significant portion of living expenses, especially for low-income households.
"The government has to rein in price increases to lessen the cost of living, but it cannot disregard the surging global commodity prices for months on end."
The government in his view is "priming the pump" to normalize electricity rates gradually, as evidenced by the state-run energy firm's plan announced May 18 to counter this year's expected operating loss of 30 trillion won. Korea already raised its gas and electricity prices in May, with additional hikes in store in the coming months.
KEPCO said a financial restructuring in the amount of 6 trillion won will be in order, mostly through selling off local and overseas assets and reorganizing overseas investment portfolios to scale back ongoing construction activities. About 700 billion won will come immediately from selling real estate owned by KEPCO's 18 energy affiliates.
Over 1.9 trillion won will be secured through the sale of all overseas coal power plants that are currently operating or under construction.
"The efforts will strengthen the case for the rate hike, bolstering KEPCO's claim that it has exhausted all possible measures to avoid rate hikes. The government will then find it easier to dispel public criticism," Lee said.
KEPCO said it will reduce corporate expenses by up to 30 percent as long as the cutbacks do not interfere with power supply stability and safety.
"We will accelerate innovation by streamlining reorganizing workforce operations and removing redundancies in key tasks," a KEPCO official said. "We will turn this acute financial crisis into a growth opportunity to help us better tackle structural and institutional challenges in the long term."
