Companies call for electricity rate cuts amid rising energy costs

• Published date: 01 March 2023
• Publication title: The Korea Times

Business groups are calling for electricity rate cuts, in the form of lowering the ratio for both value-added tax and contributions to energy funds, according to market watchers, Thursday.

Consumers' monthly electricity bills charge a value-added tax of 10 percent in addition to a contribution rate of 3.7 percent of the electricity used every month.

Businesses have long cited the two as the chief culprit in the rise of fixed costs, undermining corporate competitiveness. The energy fund contribution, established in 2000, is taking all the more flak, as evidenced by repeated recommendations by the Board of Audit and Inspection and the National Assembly to overhaul the system.

Propelling the collective move is an expected sustained spike in global energy costs, brought on by Russia's prolonged invasion of Ukraine. Korea experienced the fallout of the military conflict in the form of heating costs more than doubling over the past two months from a year earlier. The energy crisis is unlikely to see a breakthrough any time soon, as indicated in large part by the worse-than-expected record-high operating losses last year of state-run energy firms Korea Electric Power Corp. (KEPCO) and Korea Gas Corp. (KOGAS). KEPCO and KOGAS registered operating losses of 32 trillion won ($24 billion) and 8.6 trillion won last year, respectively.

Data from Korea Industry Alliance Forum (KIAF), a coalition representing the interests of the country's 16 leading manufacturing industries, showed that Korea is expected to pay 8.3 trillion won in value-added tax and 3.1 trillion won in energy fund contribution. The figures are up 1.7 trillion won and 600 billion won, respectively.

Similarly, the Federation of Korean Industries (FKI), the country's largest business lobby, said the fund expenditure should be monitored and closely scrutinized to tackle the problem of state resources being wasted and to assist the underprivileged and vulnerable income groups.

Immediate assistance needed

"Local firms need immediate government assistance in reducing energy costs," said Yoo Hwan-ik, the FKI's corporate policy division head.

The energy funds contribution rate is directly tied to changes in the amount of electricity used and rates charged thereafter. This, in his view, is why the country is certain to experience an even heavier burden in the months to come, unless a drastic revision is made to lower the contribution rate.

"The price of electricity is determined by the amount used and the raw costs...