It is indisputable that raising electricity and gas fees is the only solution in the current situation to prevent majority state-owned public enterprises Korea Electric Power Corp. (KEPCO) and Korea Gas Corp. (KOGAS) from going bankrupt.
Their losses have snowballed because they failed to reflect sharp international energy price increases in their fees.
KEPCO suffered an operating loss of 32.65 trillion won ($24.8 billion) last year alone. It has to pay 3.8 billion won each day in interest payments alone.
Its loss largely stems from former President Moon Jae-in’s nuclear phase-out policy. Korea had to import more fuel to offset the reduction in nuclear energy output. As international fuel prices surged, so did the cost of power generation. But the Moon administration suppressed the necessary electricity fee hikes to avoid losing votes in elections, eventually shifting the responsibility for raising them to the next administration.
KOGAS expects its total accumulated losses to increase from 8.6 trillion won late last year to 12.9 trillion won late this year if rates are not adjusted additionally this year. Its annual interest burden is forecast to reach as much as 470 billion won.
The Yoon Suk Yeol administration and the ruling People Power Party held a meeting on electric and gas fees late last month. They were expected to announce an agreement to raise them for the second quarter, but they temporarily held off on the decision.
As a major reason to put the brakes on the inevitable increase of electricity and gas fees, the ruling party cites the difficulties ordinary people face because of high inflation and the slumping economy. It is understandable that the ruling party thinks hard about whether to hike fees considering people’s economic plight.
But KEPCO and KOGAS are in such a dire situation that they cannot put off raising rates anymore. They have avoided rate hikes for too long.
If fee hikes are postponed over and over again, the domestic energy market will be further distorted and the two state enterprises’ losses will only mount.
The government and the party held off on making a decision on March 31, a day before the second quarter began. Their abrupt move seems to have been affected by low approval ratings for the Yoon administration as well as consideration of the economic conditions.
The ruling party is said to be concerned that popular sentiment may deteriorate further if fees are raised. The administration is currently embroiled in controversy over its proposal to compensate Koreans conscripted to work in Japanese factories and mines during the Japanese occupation of Korea as well as its plan to increase the number of working hours in the workweek beyond the current maximum 52 hours.
The ruling party and its supporters have criticized the Moon administration for causing financial distress to state-owned energy firms by putting off raising charges. But what's the difference between them and the Moon administration if they put off making a decision on public utility fees out of concern over falling approval ratings? The Yoon administration vowed to do what must be done, even if it is unpopular.
The second quarter is a relatively easy time to hike these fees. Increasing rates will be more burdensome in the third quarter when demand for air conditioning surges and in the fourth quarter when winter is approaching.
If the government holds off on raising energy fees to a realistic level now, it is unlikely to accomplish them before the general election in April next year. Neglecting principles of the market economy and putting off hiking fees even though doing so is inevitable can be viewed as populism ahead of the coming elections.
If the government begins to put off other tasks as it is doing with energy fees, it is questionable if it can accomplish more difficult tasks, such as pension system, education and labor reforms.
Even if the public is having a hard time getting by, there is no other solution but to hike fees steadily. The government and the ruling party must decide quickly on rate hikes for the second quarter. A stitch in time saves nine.
