Public utility charges to rise to cover snowballing debts

The South Korean government will consider increasing public utility fees for the following year to offset widening deficits in the electricity, gas and subway sectors.

While the government is set to announce its plan on raising utility prices on electricity and gas within this week, Seoul subway fares are also expected to go up after a yearslong freeze.

According to the Ministry of Trade, Industry and Energy and the Ministry of Economy and Finance on Monday, the two government bodies are at the final stage of discussion for adjusting the country’s electricity rates for the first quarter of 2023.

The announcement was previously scheduled to be made on Wednesday, but was delayed as the ministries failed to reach an agreement. The base rate is expected to rise by 51.6 won (4 cents) per kilowatt-hour, up almost threefold from this year’s increase of 19.3 won.

Market experts forecast that the state-run Korea Electric Power Corporation, KEPCO, would be able to narrow its deficit once a hike takes place in the following year.

"The government has continuously rolled out supporting measures with the consideration of a state-run company's financial status. Chances are pretty high that the government will announce additional policies to benefit the KEPCO," Shinyoung Securities analyst Kwon Duk-min said. "It'll be swung to a deficit with an operating loss of 8.6 trillion won in the fourth quarter this year but it will reduce the debt next year backed by stable energy prices and electricity rate hike."

NH Investment & Securities also expressed a similar view. The brokerage house predicted the debt-ridden electricity firm will likely recoup its loss toward the end of next year, recording an operating loss of 12 trillion won in the first half and 2 trillion won in the second half.

"The upcoming price hike will less likely to be dramatic to make the company turn to a surplus but the fees will eventually rise gradually. ... Although the KEPCO is expected to make profits from the second half of next year, more time is needed to normalize its financial structure due to its accumulated excessive debt over the years," Lee Min-jae, an analyst at NH Investment & Securities, said.

The price rate increase for heating and cooking gas will likely be 1.5-1.9 times that of this year’s price rate increase. The Industry Ministry and Korea Gas Corp. submitted their plan to increase gas prices by 2.1-2.6 won per megajoule quarterly next year.

Recently, the Korean government unveiled its plan to raise utility prices on electricity and gas in phases to fill in losses and account receivables by 2026. The state-run Korea Electric Power Corp.’s deficit is expected to exceed 30 trillion won, while Korea Gas Corp.’s accounts receivable will reach about 9 trillion won by the end of this year.

Deputy Prime Minister and Finance Minister Choo Kyung-ho noted on Sunday that public utility price hikes are "inevitable" next year due to state-run electricity and gas companies’ large deficits. However, he did not mention specific percentage point rate hikes on the fees.

As operators have failed to secure sufficient funds to compensate for a growing deficit, subway fares in Seoul will likely rise next year. This will mark the first time in nearly eight years since the last hike in June 2015 from 1,050 won to 1,250 won.

On Saturday, the National Assembly passed a 638.7 trillion-won government budget for 2023, but did not allocate a budget for public service obligation (PSO) compensation to make up for the deficit caused by the free subway use policy, according to the Seoul city government.

Free subway rides were introduced for the elderly aged 65 and older, the underprivileged and people with disabilities in 1984 at the order of then-President Chun Doo-hwan.

Local authorities have continued to ask the government for financial aid, citing the huge burdens of operating costs and subsidizing free rides, which took up about 29 percent of the total deficit. The government has so far offered PSO-related funds to the state-run rail operator Korea Railroad Corp. under a law on rail industry development, with 379.6 billion won provided in 2021 and 384.5 billion won this year.

Last year, Seoul Metro, the city-run operator of Seoul’s subway system, logged a net loss of 964.4 billion won, up 64 percent from 586.5 billion won in 2019. The net loss widened as ridership plummeted amid the COVID-19 pandemic.