Better spent on hydrogen

Lee Hyun-sang
The author is an editorial writer at the JoongAng Ilbo.

President Moon Jae-in is big on hydrogen vehicles. He shrugged off his security detail to take a demo ride on the Kyungbu Expressway in a Nexo self-driven Hyundai Motor fuel-cell sports utility vehicle in February. While in Paris, he took time to hop on a Nexo hydrogen SUV to drive to the next recharge station. He mentioned the vision of a hydrogen-powered economy six times at recent events. The industry, trade and energy minister outlined a plan to promote hydrogen vehicles in its report on policies for the new year. Under the plan, 65,000 fuel-cell vehicles will be supplied and 301 hydrogen refill stations installed by 2022.

The campaign will be costly. Despite its merits as a clean and renewable fuel of the future, hydrogen is shunned by states and carmakers around the world due to the economics of using it. The Nexo, powered by hydrogen, costs about at 70 million won ($62,244) to make. But a consumer can buy one at less than 40 million won. Up to 35 million won is subsidized by the central and by local governments. It would take more than 2 trillion won for the state to subsidize 65,000 fuel-cell vehicles. The money naturally would come from tax coffers. A refill station costs about 3 billion to install, of which half would be subsidized by the state. At total of 500 billion won in public funds would be needed to build 310 recharging stations.

Running the stations also cannot be easy. Assuming 65,000 cars each recharge a week, one station would receive about 30 cars a day. According to industry figures, a pump station needs at least 100 cares a day to make ends meet. Billions of won would be needed to keep them open. Meeting the government scheme would cost need nearly 3 trillion won.

Hyundai Motor this year spent 570 billion won to buy back its own shares and another 970 billion won to cancel them. Despite worsening performance, the carmaker has been spending around 1 trillion won annually in recent years to indulge shareholders. Korean companies have all been reinforcing shareholder reward programs, but Hyundai Motor would not have gone that far if not for meddling outside activist fund Elliott. The company is using cash reserves to protect its management rights against outside forces instead of on future growth. Even its union complains that the money going into retirement of treasury shares should be spent on building hydrogen refill stations.

The government should not give preferential treatment to a certain chaebol entity. But this should be seen in the industrial policy context. Companies are wasting their valuable cash resources to defend management rights, and the government must spend tax funds to fill the gap. The government could have saved a lot of tax revenue if it only enhanced the mechanism t

o protect Korean companies from outside speculative forces instead of pressuring them to improve their ownership structure.

Samsung Electronics spent even more. It has retired its entire treasury stock with spending over the last two years amounting to 40 trillion won. Cancellation of treasury stock raises the stake of the large shareholders. Even a 0.1 percentage point in equity holding is valuable to Samsung’s owner family as regulators are about to push for revision in the act that would force Samsung Life Insurance to shed its holdings in Samsung Electronics. To please the government’s “fair economy” agenda, Korea’s biggest companies are squandering their intelligence and money to sustain management instead of on corporate future.

Moon told the Industry Ministry that the government should consider the criticism that the country lacks an industrial policy. But without actions, the awakening would be useless. Action should come from companies. Self-interest can inspire innovation. Adam Smith famously said, “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.” Recognizing and encouraging the corporate pursuit of self-interest should be the keystone of industrial policy. No effective policies can come out of a government preoccupied with the idea of separating the owners from their enterprises. The administration must think whether it has any knowledge on how industry works in the first place.

JoongAng Ilbo, Dec. 21, Page 34