Government raises electricity, gas prices to help save Kepco

Electricity meters are set up at a residential building in Seoul on May 15. [YONHAP]

The Korean government raised electricity and gas prices Monday to ease snowballing deficits at state-run utilities.

However, the finalized hikes are widely considered insufficient to resolve the tens of billions of dollars in losses at these utilities.

Stocks of Korea Electric Power Corp. (Kepco) and Korea Gas Corp. plummeted by more than 1 percent following the announcement of the rate increase by the Energy Ministry.

Korea's electricity rates will jump by 8 won per kilowatt-hour, a hike that will come into effect starting Tuesday.

A household with four members is expected to pay an additional 3,000 won ($2.24) per month, according to the ministry.

Gas prices will also be increased by 1.04 won per megajoule, which will see four-member households pay an additional 4,400 won per month.

Lee Ho-hyun, an official responsible for energy policy at the ministry, said that the government considered different factors, including people's livelihoods, explaining why the increase is less than expected.

Kepco is saddled with an accumulated loss of 44.7 trillion won since 2021, as of the first quarter of this year.

To address the daunting deficit, the Energy Ministry said it has to increase electricity rates by 51.6 won per kilowatt hour for this year only.

In the first quarter, it decided on an increase of 13.1 won.

Besides the debt issue, the ministry cited persistently high fuel and natural gas prices as another reason for the hike.

"Energy prices that saw a drastic rise in the wake of Russia's war in Ukraine have stabilized but remain higher than normal," Energy Minister Lee Chang-yang said in a briefing on Monday.

"Even if the global energy market goes back to normal, it takes up to six months for international energy prices to be reflected in the domestic market," the minister said.

Kepco announced a 25-trillion-won restructuring plan to restore its fiscal soundness that will run through 2026.

In its latest plan, the company promised to cut costs by delaying facility construction projects and investments and reducing operating expenses while working with the government to reform the current market system to cut spending on purchasing electricity.

The money-losing company will sell its office building in Yeouido, western Seoul, one of its most valuable assets in the greater Seoul area while slashing or canceling salary raises or bonuses for its executives and employees ranked Grade 2 or higher.

Lee Ho-yun said "it's hard to say" whether the measure will do the trick to solve the financial problem, given the sheer amount of Kepco's losses.

BY PARK EUN-JEE [park.eunjee@joongang.co.kr]