President Yoon Suk Yeol signed off on the appointments of Kim Dong-cheol as the new CEO of Korea Electric Power Corp., also known as Kepco, and Bang Moon-kyu as trade minister this week, the very two figures in charge of the highly explosive issue of electricity rate hikes.
The idea of raising electricity rates is a sensitive topic for the government as many households find the sharp increase in August's electricity bills hard to swallow.
This year’s lengthy heat waves forced many households and companies to turn air conditioners on more frequently and for a longer period of time compared to last year. This, combined with the accumulated rate hikes of recent quarters, resulted in far higher electricity bills than people expected.
Loss-making Kepco has raised electricity rates five times since the second quarter of last year, resulting in an aggregate increase of 40.4 won ($0.03) per kWh, or 39.6 percent.
The drastic increase in electricity rates, however, is not enough to cover the snowballing debt and losses of the state-run utility giant Kepco, of which Kim Dong-cheol, a former four-term lawmaker, was appointed CEO, effective Tuesday.
Kim said Wednesday in his inaugural speech at Kepco’s headquarters in Naju, South Jeolla Province, that “nothing is more urgent than the normalization of electricity rates.”
Kim stressed the need for hiking the rates as a way to confront the financial problems facing Kepco, referring to the current situation in which the utility firm provides electricity to consumers at rates below production costs.
Kepco’s first politician-turned-CEO said that the company’s debt has soared to 47 trillion won since 2021, with its total debt ratio shooting up to 600 percent and total liabilities to 201 trillion won as of end-June.
Kepco posted a record operating loss of 32.6 trillion won last year, and the figure is forecast to reach 10 trillion won this year.
To stop the outsize losses, Kepco earlier demanded a hike of 51.6 won per kWh this year, but the rate hikes stopped far short of the company’s target as the Yoon administration and the ruling People Power Party were reluctant to make further increases for fear of worsening public opinion, especially ahead of the general election next year.
CEO Kim is supposed to find a breakthrough for Kepco after its former chief, Cheong Seung-il, stepped down in May, taking responsibility for the company’s continued losses.
But it is likely to be a fairly challenging task for Kim, as external conditions affecting electricity production costs are turning unfavorable. Crude oil prices hit a fresh 10-month high this week, translating to higher gas and electricity bills for consumers around the world. The strengthening of the US dollar against the Korean currency is another disconcerting factor that could raise production costs further.
Kepco said Thursday it has decided to fix the fuel cost adjustment fee to 5 won per kWh for the fourth quarter, the same rate from the third quarter. The government will reportedly review whether it will raise electricity rates later this year, which will be done through a hike in price components other than the fuel cost adjustment fee.
The Trade Ministry’s position is another factor that can complicate Kim’s plan to raise electricity rates. Trade Minister Bang Moon-kyu said in a parliamentary hearing last week that Kepco should push for a thorough restructuring before demanding a rate hike.
“Electricity rate adjustment could be the ultimate solution to the large-scale losses of Kepco,” Bang said. “But it should not talk about a rate increase before it makes full-fledged restructuring efforts.”
Debt-ridden Kepco needs all the help it can get from the government to pull itself out of dire straits, but policymakers are required to take into account various factors such as a rate hike’s strong impact on inflation, aside from its political implications, and the progress Kepco makes in its restructuring plan.
