Industries blast power price increase

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Industries blast power price increase


After the government decided to raise the cost of electricity by 6.4 percent for industrial use starting today, the business community says the new policy will increase costs and weaken competitiveness.

The Federation of Korean Industries, the nation’s largest business lobby, said Tuesday that electricity bills for the industry have increased 78 percent since 2000, including jumps of 12.6 percent in 2011, 6 percent in August 2012 and 4.4 percent in January.

“It will be a significant burden for mainstay industries like steelmaking and petrochemicals that consume much electricity,” the federation said in a release.

The Korea Federation of Small and Medium Business also said the frequent and high electricity increases are making it more difficult for SMEs.

According to data from the Korea Electric Power Corporation (Kepco) and the government, the top 20 electricity- consuming companies have paid more than 6.3 trillion won ($5.9 billion) last year, but with the hike, these companies are expected to pay at least additional 400 billion won with the new rate.

By industry, steelmakers seem to be more worried about the hike. Last year, Hyundai Steel and Posco were the two largest users and the entire steel manufacturing industry paid 4.2 trillion won, according to the Korea Iron and Steel Association (Kosa).

“The industry pays an additional 42 billion won a year whenever electricity costs go up 1 percent,” Kosa said in a release. “Some companies haven’t yet accounted for the electricity bill hike earlier this year in their business plan, and another hike makes the situation more difficult.”

The association said that companies operating electric furnaces are likely to have a worse operating profit ratio. Last year, they had a minus 0.4 percent operating profit-to-sales ratio, while the entire steel industry’s ratio has slipped 2.5 percentage points this year to 5.5 percent.

Petrochemical companies are also concerned that the electricity bill hike will further dent their business, which is already struggling with Chinese competition.

“We are trying to enhance our production process and recycle energy as much as possible, but the electricity bill hike is bad news because in some products electricity bills account for more than 60 percent of the total cost,” an employee at a petrochemical company said on the condition of anonymity.

Electronics, especially display and semiconductor makers, are also disappointed about the news because their production lines need to run around the clock since it is more costly to stop and reactivate the line.

These companies said they will try to find a solution by reducing power use in non-production facilities, such as offices.

Automobile and heavy industry companies, though not heavy electricity users, also are worried about rising costs for parts and other materials.

“Since we have a lot of production overseas and electricity usage is not high compared to plants in other industries, the pressure is not that high, but because automobile body sheets are coming from steel companies, there is a possibility of a hike in production costs,” said an official from Hyundai Motor.

According to data from the International Energy Agency in 2012, Korea had the third-lowest electricity costs for industry usage among 33 OECD countries. Only the United States and Norway had cheaper power prices.

The Federation of Korean Industries doubted the IEA statistics. Federation officials said the country’s electricity prices should be considered alongside various factors, such as purchasing power parity, amount of natural resources and the ratio of nuclear power plants.

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