The purpose of this study is to propose means for privatizing public companies and efficiently restructuring the electric power industry.
As Korean economic paradigm shifts from a government-driven economic development model to a market economy model, privatizing public companies—one of the key tasks of public sector reform—is being delayed. It is due in part to the strong resistance from employees, as well as relaxed reform drives because of economic recovery. However, more fundamental causes lie in the government’s lack of understanding of privatization, as well as weakness in implementation plans.
Conventionally, the electric power industry has been regarded as a naturally monopolistic sector that operates under the principle of economies of scale. However, as combined cycle power generation technology has advanced, economies of scale are suboptimal for the energy generation field. Moreover, advances in transaction methods and information technology now can address transaction cost issues, allowing for transition into a competitive industrial structure. In order to restructure the electric power industry to be more efficient, a comprehensive approach should be adopted so that both electricity pricing and KEPCO’s privatization issues can be addressed.
Since the late 1980s, electricity tariff schemes have been misapplied to maintain low prices, in order to stabilize prices to support the industry, which resulted in serious side effects such as wasted energy resources, difficulties in securing sites for supply facilities such as power plants, and the insolvency of KEPCO.
Some of the difficulties of electric power industry restructuring include:
1) A strong backlash from the union, concerned about job insecurity following restructuring
2) Fear of price hikes from the general public.
It should be clearly communicated to the general public that restructuring does not increase electricity prices but rather, despite restructuring, electricity prices should be upwardly adjusted, and artificial low energy price policy is causing serious problems. Current issues of cross-subsidization between different industries and sectors should be addressed as well, as part of rectifying the distorted pricing scheme, before privatizing KEPCO.
However, the government is avoiding direct tactics to raise prices and repealing cross-subsidization, trying to solve the issues through privatizing KEPCO. It also is unable to induce substantive competition in the industry after the horizontal divestiture of the power generation business, and clearly does not understand the need for revising industry, regulatory, and competition policies.
Electricity consumption growth should be made lower than GDP growth rates and, to this end, it would be most effective to adjust prices so that consumers will be encouraged to reduce electricity use. Distortion of resource distribution caused by incorrect pricing should be addressed by price adjustment, not privatization.
전력산업 구조개편(Restructuring of the electric power industry)
|Subject Country||South Korea(Asia and Pacific)|
|Subject||Industry and Technology < Energy|
|Holding||KDI; KDI School|