The government plans to announce the electricity and gas rate hike proposals for the second quarter of this year on the 11th. The electricity rate is likely to be raised by about 7 won per kWh (kilowatt-hour), while the gas rate is reportedly still under final adjustment.
According to the government and energy industry on the 10th, the government has decided to announce the second-quarter electricity rate hike proposal the next morning and has begun final practical work. Inside and outside the government, considering the inflationary pressure and increased burden on low-income households due to public utility rate hikes, it is known that a plan to raise the rate by about 7 won per kWh, roughly half of the first quarter's increase (13.1 won), is likely. In this case, it would be about a 5% increase from the current electricity rate of 146 won per kWh, and a four-person household (using 307 kWh) is expected to bear an additional average monthly cost of about 2,400 won.
According to the government, after discussions between the ruling party and the government, there is consensus to raise the electricity rate for the second quarter, and once the final decision is made within the government on the day, the adjusted electricity rate will be officially announced the following day. Korea Electric Power Corporation (KEPCO) is also expected to officially announce its financial restructuring plan and the scale of the second-quarter electricity rate hike in line with the government's rate hike announcement. A KEPCO official explained, "We plan to announce the rate hike the next morning," adding, "We have settled on releasing it together with the financial restructuring plan."
The government has delayed the decision on the second-quarter electricity rate for more than 40 days, considering concerns about inflation linked to the electricity rate hike and public opinion. Some speculated that the second-quarter energy rates might be frozen, but it is interpreted that the government has decided to raise the rates to resolve KEPCO's accumulated deficit nearing 40 trillion won.
A ruling party-government meeting to formalize the electricity rate hike is scheduled for the morning of the 11th. Around the same time, preparations are underway for an extraordinary KEPCO board meeting to decide on the electricity rate adjustment proposal and for the Ministry of Trade, Industry and Energy's Electricity Committee, the legal body that reviews and approves KEPCO's submitted hike proposal. Since the ruling party has demanded strong self-rescue measures from KEPCO before the rate hike, KEPCO reportedly submitted a new self-rescue plan to the government that includes selling the Yeouido Namseoul Headquarters and KEPCO Art Center buildings and consolidating regional business offices. In particular, the Namseoul Headquarters asset price is estimated to be in the trillions of won, suggesting that KEPCO's self-rescue plan scale will significantly increase from the previous '20 trillion + α.'
Small Electricity Rate Increase... Insufficient KEPCO Financial Restructuring
Meanwhile, some in the industry evaluate that a rate hike of about 7 won per kWh is insufficient to fundamentally resolve KEPCO's operating loss structure. As of the end of last year, KEPCO's total debt was 192.8 trillion won, an increase of 47 trillion won from the previous year-end. The debt ratio reached 459.1%. As of last month, KEPCO's accumulated corporate bonds totaled 77.153 trillion won, including 69.37 trillion won in long-term won-denominated bonds, 2.89 trillion won in short-term won-denominated bonds, and 4.893 trillion won in foreign currency bonds. This is 73.7% of KEPCO's corporate bond issuance limit (104.6 trillion won).
Previously, the government stated that to normalize KEPCO's management by eliminating accumulated deficits by 2026, electricity rates should be raised by 51.6 won per kWh this year. If this continues, excluding the 13.1 won increase already implemented in the first quarter, an additional 38.5 won increase will be required within this year.
Meanwhile, as the government raises the second-quarter electricity rates, it also plans to increase city gas rates, which had been frozen since the 'heating bill bomb' incident last winter. Korea Gas Corporation is scheduled to announce its first-quarter performance on the 11th, and the market expects city gas arrears to have increased to the 11 trillion won level.
According to the Korea Securities Depository's securities information portal, Gas Corporation issued a cumulative 1.47 trillion won in corporate bonds (special bonds) over four months this year, 2.8 times the 510 billion won issued during the same period last year. The industry expects that if gas rates are not raised, arrears, which approached 9 trillion won last year, could increase to 12.9 trillion won by the end of this year.
Government Announces Changes to Energy Rate Pricing Method
The pricing method for energy rates is also expected to change going forward. Concerns about the 'politicization of energy' have increased due to the delay in the second-quarter electricity rate hike, raising uncertainty among companies. Minister Lee Chang-yang of the Ministry of Trade, Industry and Energy said at a press briefing the day before, "Energy rates are an economic variable, so (politicization) is not desirable. It should be minimized," citing the same reason.
As an alternative, Minister Lee said, "We have already started a study on the electricity and gas rate determination system a long time ago," adding, "The study, which began last year, is expected to produce results on electricity rates by next month and on gas rates by September or October." Based on this, the government plans to gather opinions from gas and electricity experts and the industry to improve practices and systems and to take necessary legislative measures.
Minister Lee added, "We will collect various opinions to create a new electricity rate policy with objectivity and expertise," and "After reviewing the study results, we will gather opinions from experts, the industry, the public, and even the political sector."
Minister of Trade, Industry and Energy Lee Chang-yang is delivering a greeting at the American Chamber of Commerce in Korea (AMCHAM) seminar held on the 29th at the Hyatt Hotel in Yongsan-gu, Seoul. Photo by Dongju Yoon doso7@
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