Korea Inc. pleads with gov’t to reduce its electricity bills

Business associations pleaded with the government Monday to lower electricity prices to help industries stay competitive in the global market.

A number of business associations, including the country’s largest, the Federation of Korean Industries (FKI), filed a petition with the Ministry of Trade, Industry and Energy, saying it is harder for local companies to compete with foreign competitors, especially in China, which has announced a plan to lower electricity prices.

“The Korea Electric Power Corporation [Kepco] earned a record-high operating profit of 11.3 trillion won [$9.7 billion] last year,” the FKI said in a press release on Monday, “since it was able to save some unit costs of production as prices of commodities including crude and coal have dropped.”

The dividends pocketed by the government and the majority shareholder, the Korea Development Bank, which has a nearly 30 percent stake, exceeded 1.9 trillion won.

The lobbying group argued that the electricity provider should lower electricity prices accordingly.

The FKI said China announced a plan recently to lower charges by 0.03 yuan per kilowatt in order to boost the local economy and that Chinese companies will be able to save nearly 12 trillion won a year after the cut.

“Korea’s exports to other countries have continued to fall for 14 consecutive months, and the government needs to make some changes to help local manufacturers stay competitive in the global market,” said Choo Kwang-ho, an assistant secretary general at the FKI.

The FKI said electricity prices for industrial use rose 76 percent since 2005 and that industrial consumers could save 293.2 billion won if Kepco lowers the price by one percent.

The nation’s electric power reserve rate has gone up, while growth in demand for electricity fell rapidly from the past, the FKI added.

The reserves rate rose to 16.3 percent in January 2015 from 5.5 percent in January 2011. The demand growth rate was around 2.2 percent between 2011 and 2015, which fell sharply from 9.9 percent in the 1990s and 6.1 percent in the 2000s.

The FKI said these are some of the reasons the government should reconsider its policy, since Korea is not running short of energy as it did in the past.

In the petition, the FKI and other business associations wrote specific suggestions to the government.

Currently, under a yearlong pilot program that started last August, small and midsize companies get discounts if they use electricity on Saturdays. The petitioners want the government to give the benefit to all companies that operate on Saturdays.

The petition also proposed the government exclude June from summertime electricity rates and November from wintertime rates.

The government set the months of June to August and November to February as peak seasons and charged companies higher rates since demand rises significantly during these periods. The FKI said the data shows June and November aren’t peak periods.

The group added that lowering electricity bills will also contribute to improving the domestic market. Citing a Bank of Korea study, the FKI said when lowering the power bill by 10 percent, the maximum drop in consumer prices would be 0.45 percentage points. The group said as a result, retail prices will fall and people will spend.

But there are also arguments that when the power bills for companies are lowered, reduced revenue by the power company will ultimately boomerang on households.

“We understand that we need to consider various factors such as prices for other commodities, but the government has always been straightforward about this issue and has no plan as of now to change our policy on electricity prices,” said Trade Minister Joo Hyung-hwan at a briefing Monday at the Sejong Government Complex.

BY KIM YOUNG-NAM [kim.youngnam@joongang.co.kr]