KEPCO Caught Out Favouring Chaebol in Cheap Power Deals

The Korea Electric Power Corporation (KEPCO) is under fire for selling electricity at a price cheaper than its cost of production to multiple conglomerates. The Board of Audit (BAI) yesterday presented its audit report conducted from Sept. 20 to Nov. 23 last year into nine state-run corporations, including KEPCO and the Ministry of Trade, Industry and Energy.

According to the report, KEPCO sold the electricity used in industrial sites of the country’s largest conglomerates at about 85.8% lower than the production cost. It said that KEPCO should have received a total of 5.23 trillion won ($4.61 billion) for the electricity from the corporations.

The BAI said that KEPCO was operating such business loss in order to strengthen the competitiveness of those large conglomerates. It added that KEPCO should stop the practice because the ratio that the electricity accounts for in conglomerates’ total manufacturing cost is only about 1.17% as of 2011, down from 1.94% in 1995.

The BAI said that selling electricity at night is also a problem. KEPCO offers electricity at a discounted price in order to increase the effectiveness of operating coal generators. But since too many conglomerates use night time electricity, it often experienced power shortages at night, making them operate oil and gas generators that create more expensive production costs to meet the demand.

The BAI said that the night time power used by conglomerates was sold at a 34-37% discounted price, incurring about 1.97 trillion won losses for KEPCO. From July 2011, the government started implementing a policy that charges more for electricity when the energy cost for raw material increases, but KEPCO never applied the policy to the conglomerates.

Due to the unprofitable business practices, KEPCO’s sizable debt has been rapidly mounting. It was 31.1 trillion won in debt as of 2011, up from 14.6 trillion won in 2007.

The average amount of power being used in residential areas is only half that of other OECD countries, KEPCO said, but the total energy consumption is 1.75 times higher than the OECD average, meaning that a smaller amount of power is being used in residential areas. But almost twice as much power is being spent at industrial sites compared to the OECD average. The BAI notified the Ministry of Trade, Industry and Energy to apply the appropriate electricity bills to conglomerates and also to adjust the night time electricity cost.