[Person人] Kim Jong-gap, "Heavy Responsibility as the Savior of Electricity Rate Reform"

During Hynix Semiconductor Presidency
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Focus on Electricity Rate Realism

[Asia Economy Reporter Moon Chaeseok] "We need to recover the cost of electricity, but even I, the CEO of Korea Electric Power Corporation (KEPCO), receive subsidies from the government." "The tofu (electricity price) is cheaper than the soybeans (raw material cost)..."

This is a remark left by Kim Jong-gap, CEO of KEPCO, who reached the midpoint of his three-year term after assuming office in April 2018. From his first day in office, he prioritized 'improving financial structure' and has consistently voiced opinions regarding the rationalization of electricity rates.

With 32 years in public service including as Vice Minister of the Ministry of Trade, Industry and Energy, and 12 years in private management at Hynix Semiconductor and Siemens, Kim’s 44-year career can be summarized as "securing technological and cost competitiveness to enhance financial stability." As the head of KEPCO, he must present a plan to reform electricity rates, which greatly affect the lives of the public, within the first half of the year. Only one week remains.

◆ Kim Jong-gap’s Management Principle No. 1: 'Financial Stability' = Having honed his skills for over 30 years at the Ministry of Trade, Industry and Energy, he had to immediately take on the role of a 'crisis management savior' upon transitioning to private management. It was natural for him to make 'improving financial structure' the top priority of his management philosophy. He has emphasized that technological innovation and governance improvement are ultimately necessary conditions for 'financial stability.'

During his tenure as CEO of Hynix Semiconductor in 2010, Kim famously stated in his New Year's address, "Although the market is in a downturn, we must overcome it through technological and cost competitiveness," citing 'financial stability' as the ultimate goal. When he took office in 2007, Hynix was in crisis due to intensified global competition, with operating profits shrinking from 2 trillion won the previous year to 500 billion won. In 2008, the global financial crisis led to a deficit, recording an operating loss of 1.9 trillion won.

Kim tackled the crisis head-on through rigorous restructuring. At the end of 2008, he reduced executives by 30% and implemented voluntary retirement and unpaid leave. Subsequently, Hynix Semiconductor returned to profitability in the third quarter of 2009 after eight quarters of losses, and in 2010, as Kim declared in his New Year's address, operating profits grew to 3 trillion won, establishing a stable financial structure.

In 2011, as CEO of the German electrical and electronics company Siemens, he began actively engaging in the energy business. Siemens’ main businesses include energy, urban infrastructure, and manufacturing. In his third year as Siemens CEO in 2013, he succeeded in attracting investment for Siemens Energy Solutions’ Asia regional headquarters. The Asia regional headquarters oversees gas and thermal power systems across Asia-Pacific and the Middle East, including Korea, Japan, Taiwan, Australia, and Singapore.

◆ Electricity Rate Reform Remains Uncertain = Having steadily enhanced financial soundness and managed energy businesses in the private sector, Kim aims to replicate this at KEPCO. Just before his appointment in the fourth quarter of 2017, KEPCO recorded an operating loss of 129.4 billion won, its first deficit in four and a half years, plunging into crisis. Kim inherited the difficult task of simultaneously restructuring business and financial structures as government policies shifted toward 'nuclear phase-out and coal phase-out.' Like his debut at Hynix Semiconductor a decade ago, he had to take on the role of 'firefighter' immediately.

From his inaugural speech, Kim had no choice but to declare, "We will operate under emergency management until profitability structurally improves." Since then, he has advocated for ▲rationalizing electricity rates ▲raising nighttime industrial electricity rates ▲sunsetting various special electricity rate discounts, some of which have been implemented. Discounts for residential energy saving, traditional market electricity rates, and electric vehicle charging fees will not be extended. Except for the residential energy saving discount, the others will be maintained until the end of this month, after which supplementary measures will be prepared.

However, in two years since his appointment, electricity rate rationalization has not been achieved. Although about 70% of his three-year term has passed, he still has 'empty hands.' Electricity rate rationalization is central to improving KEPCO’s financial structure and a task that must be fulfilled according to Kim’s management philosophy, but negotiations with the government and ruling party have not been smooth. There were voices suggesting KEPCO might introduce a 'fuel cost linkage system' as international oil prices plummeted, but this was shelved due to the economic downturn caused by COVID-19. Amid this, KEPCO announced last year that it would reform electricity rates within the first half of this year. Some even say this might be the last chance within Kim’s term.

However, it is becoming uncertain whether the electricity rate reform plan will be discussed at the KEPCO board meeting on the 26th. The energy industry speculates the reform may be postponed to the second half of the year. The previously mentioned likely reform measures include ▲improving the essential usage guarantee deduction system ▲introducing seasonal and time-of-use rates for residential customers. Even if the reform plan is not on the agenda that day, KEPCO is expected to present its position in some form. Attention is focused on whether Kim, who said, "A stock company cannot pursue only public interest without profitability. I want to create a new KEPCO model that contributes to both the government and shareholders," will achieve his goal.