Energy crisis looms in Korea as it's utilities vs. consumers

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Energy crisis looms in Korea as it's utilities vs. consumers

Electricity meters outside a buildling in Seoul. [NEWS1]

Electricity meters outside a buildling in Seoul. [NEWS1]

 
Wholesale prices of electricity and gas are skyrocketing amid the continued rise of oil prices globally, and losses at utilities are expected to rise.
 
Korea is facing its own energy crisis as the winter approaches, with deficits at the companies hitting astronomical levels, while households, already weighed down by debt and higher food prices, try to keep the lights on and their homes warm.  
 
Gas on a wholesale basis in Korea has more than doubled in price over the past year. As Russia's gas supply is being cut to Europe, prices could rise further. 
 
The wholesale price of electricity is at an all time high, breaking records set in 2012.
 
Imports of crude oil, coal and gas last month were $18.52 billion, up 91.8 percent from the same month last year, according to the Ministry of Trade, Industry and Energy.
 
Korea Electric Power Corporation (Kepco) and Korea Gas Corporation (Kogas) have been facing huge losses and have to raise their prices to consumers as a result of the high prices they pay, otherwise they will face even bigger losses.  
 
Kepco recorded a net loss of 10.76 trillion won ($7.8 billion) in the first half of the year alone from a net loss of 550 billion won in the same period last year. According to Kepco's financial forecast, the operating loss this year is expected to reach 27.2 trillion won.  
 
"This year's deficit could be much larger than expected," a Kepco official said.
 
As of Sept. 5, Kogas had 5.4 trillion won ($7.8 billion) of uncollected payments. At the end of last year, the outstanding amount was 1.8 trillion won. Kogas expects its outstanding amount to exceed 12.6 trillion won by March next year.
 
A solution for growing losses and increasing deficits is to raise their rates to customers. However, the government is concerned about the effect of this on consumers and the political fallout of any changes.
 
Last month, inflation hit 5.7 percent, down from 6.2 percent in July.  
 
City gas and electricity rate increases were planned for October in accordance with the government's decision at the end of last year. In terms of electricity rates, the standard billing price is expected to increase by 4.9 won per kilowatt-hour. The gas rate will be raised from 1.9 won per megajoule to 2.3 per megajoule.
 
The thinking on the rate increases is mixed, as some are concerned about the weakening finances of the utilities while others are worried about any changes in rates just as the weather is getting cold. Losses at Kepco and Kogas are getting so large the reliability of the supply could soon be in jeopardy and consumers could end of suffering anyhow.
 
"If we care only about prices, the stability of electricity and city gas supply may be compromised," said Yoo Seung-hoon, professor of energy policy at the Seoul National University of Science and Technology. "Since we are facing an energy crisis, we need to consider a rate increase in terms of giving a signal to the public that demand should be reduced."
 
The Ministry of Trade, Industry and Energy is negotiating a plan to raise the gas standard fuel cost in addition to the planned increase next month. But within the Ministry of Economy and Finance, among others, there is a strong negative sentiment due to hardship that households could experience if prices are increased.
 
"The standard fuel cost among gas rates will be increased in October, and the adjusted unit price for electricity has reached the annual upper limit of 5 won per kilowatt-hour, so after changing the prices this year, it should be raised from the beginning of next year," Yoo said.
 
Food prices continued to rise despite the fall in inflation last month. Food prices rose 8.4 percent in the last month on year, the most since April 2009, according to the Korean Statistical Information Service run by Statistics Korea.
 
 
 

BY CHUNG JONG-HOON, BAE JAE-SUNG [lim.jeongwon@joongang.co.kr]
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