Lax gas managementIt has been revealed that the Korea Gas Corporation has been managed in a slapstick manner.
According to a report in the JoongAng Ilbo yesterday, the Korean company buys liquefied natural gas at a much higher price than Japan does.
Last year, for instance, the price that Korea Gas Corporation paid to import LNG was 11.8 percent higher than the price Japan paid. If the Korean company bought LNG for the same price as Japan, it could have saved $2.1 billion.
In the past nine years, Korea has never bought LNG at a lower price than Japan. The amount the company has wasted amounts to a whopping $10.6 billion.
It is unbelievable that the Korea Gas Corporation has wasted money worth 14 percent of the entire LNG import volume.
The Korea Gas Corporation blames the government for privatizing the corporation between 1998 and 1999 when LNG was cheapest.
Since the government was busy working on privatization plans, it did not sign a long-term contract to import LNG at a cheap price, according to the corporation.
The government, it seems, demanded that the corporation postpone signing any actual contract.
It is also true that 80 percent of LNG is to be imported over a long period so the average price varies depending on when a long-term contract is signed.
However, it does not free the Korea Gas Corporation from its responsibility for its lax management practices.
Experts and people working in the field have constantly pointed out that the state gas corporation has been paying too much for importing LNG.
For the Korea Gas Corporation, there is no incentive to try to import the gas at a lower price, because even when it imports LNG at a high price, the government will compensate.
The corporation admitted that it had been more concerned about securing the quantity of LNG imports than the actual price. When LNG is imported at a high price, the economy takes a hit.
The effect flows to the economy through overheads. An electric power company that uses LNG for fuel has to raise electricity fees, which lowers our industries’ competitiveness and forces consumers to pay more for their gas.
The best resolution is to introduce competition to the industry. The Korea Gas Corporation currently has a monopoly as importer and wholesaler. These sectors must be fully open. Some private companies import LNG, but their imports account for merely 3 percent. The monopoly system must be dismantled in order for the price of LNG to go down. The government must keep its promise, as it announced last year, to introduce competition in importing and wholesaling LNG. We also advise an examination into privatizing the entire gas corporation.