Debt-ridden state companies are moving to hike prices as part of a government-led debt restructuring program, drawing harsh criticism that they are passing the burden onto the public

2014-01-03 17:41

State firms pass burden to public

By Na Jeong-ju
Debt-ridden state companies are moving to hike prices as part of a government-led debt restructuring program, drawing harsh criticism that they are passing the burden onto the public.Korea Gas Corp. (KOGAS) unexpectedly raised gas prices for households by 5.8 percent on average on Dec. 31. It was the firm’s third price hike in 11 months; it raised 4.4 percent in February and 0.5 percent in August.
Korea Electric Power Corp. (KEPCO) is seeking to raise the electricity bill again this year following a 5.4 percent increase in November. Korea Railroad Corp. (KORAIL) has also set up a draft plan to hike ticket prices by more than 5 percent this year.
Behind these moves are the Ministry of Strategy and Finance and the Ministry of Trade, Industry and Energy.
“It’s virtually impossible for state firms to raise prices without government consent because their price hikes usually lead to increase in overall consumer prices,” an industry source said. “The price hike may boost their profits, but will add burden to the public.”
KOGAS, KEPCO and KORAIL are all facing government-led restructuring for accumulated losses from years of poor management.
For example, KOGAS suffered a combined deficit of some 600 billion won ($568 million) for the past three years from its failed investment in financial derivatives.
Last year, the Board of Audit and Inspection, the state auditor, revealed that the firm wasted 10 trillion won ($9.5 billion) in taxpayers’ money by importing gas at “abnormally high” prices.
The auditor said KOGAS failed to predict a fall in gas prices, caused by the global shale gas boom, when it signed contracts with foreign gas suppliers.
Its debt totals 32 trillion won and its debt ratio reaches 385 percent, making it one of the most indebted state firms.
However, KOGAS pays the staff more than any other public energy firms in Korea.
The average annual salary for one KOGAS employee was 80 million won ($75,800) last year ― the highest among all public energy firms here. Its CEO was paid a total of 299 million won ($283,000) last year, including bonuses.
KOGAS said the series of price hikes was inevitable.
“We couldn’t raise gas prices to optimum levels in past years due to the government’s policy of keeping inflation low. That’s the main reason for the worsened bottom line,” a company spokesman said.
If KOGAS raises prices by 6 percent, households must pay an additional 2 trillion won ($1.9 billion) in gas bill, according to analysts.
An official from the energy ministry said it is pressuring indebted public firms to reduce debts by selling assets, cutting benefits for employees, and giving up unprofitable businesses.
“These are some of the restructuring measures demanded for struggling state firms. Their managers will also be held responsible if the firms fail to meet our demands,” the official said.