KEPCO tightens belt to close deficit

Korea Electric Power Corp. has adopted a series of cost-cutting measures to offset its deficit caused by the nation’s below-cost electricity rates.

Officials at the state-run company said they have saved about 1.4 trillion won ($1.2 billion) on average annually from in-house measures over the past four years.

The cost-saving measures included a voluntary return of salaries of executives in 2008 and a wage freeze of employees and executives in 2009 and 2010. 

KEPCO has also downsized its organization by slashing 2,420 employees from the payroll.

The company also cut costs by revamping its purchasing and distribution system.

It is challenging for the power company to cut costs because the majority of its budget ― including about 84 percent spent for power purchase, 2.8 percent for labor costs, depreciation costs and interest payments ― is inflexible.

The remaining part is largely management expenses such as repair and maintenance costs of facilities and investment for research and development, which cover financially the most necessary areas, the company said.

Upon speculation that the economy will be slower to recover from the European debt crisis than expected, the company raised its contingency plan from the second level to the third, the highest alert level, on July 3.

The company became stricter in approving its budget and assembled a separate task force led by the chief financial officer to monitor and minimize the financial deficit. As a result, it secured an additional 600 billion won from real estate and other sources.

KEPCO CEO Kim Joong-kyum also led the in-house reform measures. Officials said the CEO pushed for restructuring in the organization, the largest in scale of its kind since the company was founded in 1961.

Taking office on Sept. 27, 2011, Kim encouraged overseas operations to create more profit and job opportunities. The president emphasized that a horizontal operational monitoring system among different divisions will boost the corporate quality and ultimately cost cutting.

KEPCO said the company’s monthly “management report day” session and public display of conference materials contributed to strengthening ties between employees and the CEO.

By Chung Joo-won (joowonc@heraldcorp.com)