Selling Assets and Cutting Labor Costs to Resolve KEPCO and Gas Corporation Deficits?..."Short-sighted Desperate Measure"

KEPCO and Gas Corporation to Announce Management Innovation Measures This Month... '28 Trillion + α Cost Reduction'
"Government and Ruling Party Shifting Responsibility... Fuel Cost Linkage System Must Function Properly"

There is growing criticism that the additional self-rescue measures announced by Korea Electric Power Corporation (KEPCO) and Korea Gas Corporation (KOGAS), which include asset sales and labor cost reductions, are short-sighted desperate measures. It is pointed out that the government and ruling party are postponing the realization of energy prices and shifting the burden of deficits onto energy public enterprises.

At the 'Energy Public Enterprise Management Innovation Status Review Meeting' held on the 11th, KEPCO and KOGAS announced that they would promptly prepare and announce management innovation measures including additional self-rescue plans such as labor cost reductions and additional asset sales. Specific measures are expected to be announced as early as next week.

Earlier, at a meeting with the Democratic Party on the 6th, the two companies had already announced plans to reduce costs by a total of 28 trillion won, 14 trillion won each by 2026. However, Park Dae-chul, Policy Committee Chairman of the People Power Party, said, "I mentioned that we need to think more deeply about whether the public can agree to this level," and emphasized, "Efforts for restructuring that cuts to the bone must precede until the public says 'this is enough'." As a result, they have come to a situation where additional self-rescue measures must be presented.

KEPCO and KOGAS have decided that all employees will maintain an emergency management system until deficits and unpaid receivables are resolved. The new management innovation measures to be announced will include additional self-rescue plans such as cost reductions including labor costs, unnecessary asset sales, and equity adjustments.

Experts have responded by calling these measures a "stopgap solution." Professor Yoo Seung-hoon of Seoul National University of Science and Technology criticized the labor cost reduction, saying, "KEPCO has about 23,000 employees, and labor costs amount to about 2 trillion won at most," adding, "Given that KEPCO is running deficits in the trillions every month, it is unlikely to have a significant effect." Professor Yoo explained, "Labor costs are only a small part of KEPCO's expenditures, and more than 80% of expenses go to investment in transmission and distribution facilities or power purchases, so reducing labor costs will not help resolve the deficit."

He also expressed concern that asset sales could lead to a loss of national wealth. Professor Yoo said, "If overseas assets that are earning higher returns than market interest rates, such as coal-fired power generation or renewable energy projects, are hurriedly sold, they will be sold at a bargain price, so we need to consider whether that is desirable," and explained, "The profits earned from these high-quality assets contribute to stabilizing electricity rates, but if they are sold off, the deficit could worsen."

In the case of KOGAS, the assets available for sale are limited. A KOGAS official lamented, "Most of the assets are facilities, so there are almost no assets that can be sold." Facility assets are ultimately assets necessary for supplying natural gas, such as tanks and pipelines, so the only assets that can be sold are employee housing or overseas investment stakes. Moreover, as of last year, KOGAS has not recovered any investment funds from 14 out of 31 overseas resource development projects in which it holds shares. There is no guarantee that projects with poor profitability will be sold.

Ultimately, there are calls to expedite the postponed rate hikes even now. Professor Yoo said, "International energy prices have risen, but the political sphere has not reflected this in the rates," adding, "It is the result of blocking the fuel cost linkage system, which should naturally operate, so it is difficult to blame KEPCO and KOGAS for the deficits."