S. Korea: Govt plans to hike energy rates may impact local businesses

Local businesses are reportedly expected to face worse business conditions in the upcoming months, driven by the government's intention to raise industrial electricity rates, inflation, severe devaluation of the won against the dollar, and quick increases in both cost of borrowing as well as vital raw material prices, as per market watchers.

Fears of a worldwide economic crisis fuel the collective concern, with inventory storage, and costs tightly linked to profitability if tighter consumer sentiment decreases market demand.

The logical outcome of firms looking to offset unexpectedly rising production costs is that consumers will be burdened in the form of rising prices for products and services. Some estimate that this will lead to a rise in inflation of around 1 percentage point.

KEPCO (Korea Electric Power Corp.) as well as the Ministry of Trade, Industry, and Energy stated on September 30 that this month's industrial energy tariffs will increase by up to 16.6 won ($0.01) per kWh. The cost per kWh for homes with four people will increase by 7.4 won ($0.0051).

According to estimates, increasing industrial electricity tariffs by 10 won ($0.0069) per kilowatt-hour would cost Samsung Electronics 180 billion won ($124 million) and SK Hynix 90 billion won ($62.3 million) in additional costs.

As per an industry official, prices for products and services have risen drastically in recent months. The notable weakening of the won and rise in borrowing costs will undoubtedly put additional strain on Korean firms.

The official added that the state's ultimate objective should be to improve energy efficiency, an action plan that is unlikely to succeed in a nation where electricity rate pricing is primarily defined by political calculations instead of market principles.

He also explained that the government emphasizes the importance of overcoming the energy crisis, such as the promotion of a country-wide energy-saving campaign. However, setting the electricity costs without considering the key input materials cost will not result in any sustainable solutions.

Source credit: https://www.koreatimes.co.kr/www/tech/2022/10/419_337146.html