Reneging on a promise

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Reneging on a promise

In an interview, Kim Jong-gap, president of state utility Korea Electric Power Corp. (Kepco), argued to raise electricity charges. “Residential rates are 70 percent of the production cost and rural rates are slightly above 30 percent.” He plans to disclose the production cost per category regardless of the ramifications. He indicated potential rate increases, arguing that 4 to 6 percent returns should be made on the production costs to keep up investment.

He argued that all of the temporary rate reliefs should stop, meaning that the discounted rates for households using less power or for electric vehicle charging would be eliminated. Sung Yun-mo, the minister of trade, industry and energy, disagreed with scrapping all of the discounts, but nevertheless said that rates could be overhauled “according to the law.”

Kepco has been sinking in losses. Last year, it incurred an operating loss of 2.2 trillion won ($1.9 billion) — an epic reversal from the 4.9 trillion won in profit in 2016. Its loss already reached 2.15 trillion won in the first half alone. Global rating agency Standard & Poor’s has cut its debt rating to BBB- from BBB.

Kim blamed oil prices for the swelling losses. But that cannot be entirely true. International oil prices have sharply dropped this year. In fact, the government slashed the tax for LNG-fueled power stations to 23 won per kilogram from 91.4 won per kilogram. The real reason for the utility firm’s deteriorating income is the government’s phase-out from nuclear energy. Kepco has to pay 8 trillion won due to its obligation to use renewable energy and other costs related to emissions this year, according to Kim. He was suggesting that if not for the government’s rash phase-out and migration to renewables, Kepco would be in a better state.

Two years ago, when the Moon Jae-in administration announced a plan to gradually wean the country off nuclear and fossil fuel, it assured no changes to electricity fees. It claimed the rise would stop at 1.3 percent by 2022 and 10.9 percent by 2030. State think tank Korea Energy Economics Institute had to hurriedly retract its report that said otherwise.

Kepco’s income sheet will continue to suffer if the government insists on phasing out nuclear power. Losses at a state utility firm will translate into a public burden. “If we don’t pay now, someone in the future should,” Kim said. The government must either revise its energy policy to lessen the pressure for hikes in electricity fees, or be honest with the public to seek their understanding and support for the renewable policy.
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