Utility price hikes should be considered positively
President Yoon Suk Yeol hates populism.
Yoon has accused his predecessor of avoiding the inevitable for fear of popular backlash, vowing he would be different.
One such thing is increasing energy prices, mainly power and gas rates, which have been all but frozen for years. However, the government and ruling party decided last week to shelve the scheduled hike in fuel bills.
Officials cited the need to ease financial burdens on inflation-stricken people, tighten the belts of state utilities and reflect downward trends in international fuel prices. All these ostensible reasons appear plausible, but are nothing new.
The real reason was Yoon's plunging approval rating. Due to the diplomatic fiasco in Tokyo and an unpopular labor reform, his popularity rating has fallen to the lowest level in four months. "The government will minimize the burden on the working classes by adjusting the scope and speed of increase in energy prices," Yoon said during a recent economic policy meeting.
That will only prolong the deficit operation of Korea Electric Power Corp. and Korea Gas Corp. The two state-run companies' cost recovery rates are 60 percent and 70 percent. KEPCO accumulated 32.6 trillion won ($24.8 billion) in debt last year, paying 3.8 billion won in interest a day. KOGAS' accounts receivable ― virtual deficit ― are projected to increase from 8.6 trillion won last year to 12.9 trillion won this year.
Korea is the eighth-largest energy consumer worldwide. The country produces not a single drop of oil and its shift toward renewables remains sluggish at best. Still, people wear only short-sleeved shirts at home in winter and shops leave their doors open with air conditioners on in the summer. Little wonder Korea ranked 130th in energy security last year. All this points to the need to increase the unreasonably cheap electricity and gas prices. However, successive governments have avoided belling the cat.
The Yoon administration should push ahead with price hikes as soon as possible. Consumers change their behaviors when the government gives clear signals according to market principles. Even if the government freezes energy prices, it will try to compensate for losses at state utilities with public funds. In the end, taxpayers are always left holding the bag. It's better to get it over with. The government must persuade people that "heating (or cooling) bill bombs" are inevitable temporarily for the national economy and climatic sustainability.
It should prevent the "energy divide" by supporting poor people through energy vouchers. Still, Yoon must suppress the temptation to expand the help to middle-income families, because doing so will muddle the entire energy policy. The government must also speed up, not slow down as it is doing now, the shift to renewable energy, considering it is the only indigenous ― and cheap ― source in the long run. No less important is to increase the efficiency in energy use. Like heat pumps drew attention in Europe recently, the government should incentivize Korean families to retrofit their homes to make them better at keeping warm and cool.
More fundamentally, the time has passed for Korea to establish an independent agency that decides energy prices. Like the Monetary Policy Committee, it should be free from the government's influence financially and otherwise, adjusting power and gas rates according to market theory and reflecting international trends.
Even if the nation introduces such an agency, it will not run properly if the political elite, including the chief executive, meddles in its operation. We can't help but recall the recent warning from Bank of Korea Governor Rhee Chang-yong about the government's indirect pressure not to raise the benchmark interest rate because of the stagnant economy.
We also imagine how it would have been had Yoon been more popular by dealing with Japan squarely, giving people more rest, not work, damaging the environment less, and saving the Earth.
Under a presidential political system, too much depends on the chief executive. That explains why most Koreans remain pessimistic about sound energy policymaking under an unpopular president.