South Korea Joins India, Malaysia In Raising Power Prices As Economies Grow
South Korea will raise power and gas
prices for the first time in more than a year, adding to
inflation and increasing pressure for a further increase in
interest rates.
Electricity prices will rise in August by an average 3.5
percent amid higher fuel costs and losses by state-run
utilities, the Finance Ministry said in a statement today in
Gwacheon. Gas prices will climb by an average 4.9 percent in
September.
The increases are the first since June 27, 2009, and follow
decisions by India and Malaysia to cut subsidies on fuel prices
amid elevated energy costs stoked by the Asia-led global
recovery. Both Korea Electric Power Corp. and Korea Gas Corp.
reported wider-than-expected losses this month due to a weaker
won, energy costs and government-controlled tariffs.
The increase should push inflation higher, which may reach
3 percent later this year, Park Sang Hyun, chief economist at
HI Investment & Securities Co. in Seoul, said before the
announcement. The central bank may have to raise interest
rates again as early as August.
Shares in Korea Electric Power fell 1 percent to 33,250 won
as of 1:23 p.m. in Seoul trading ahead of todays announcement,
while the benchmark Kospi index declined 0.8 percent. Korea Gas
declined 1 percent to 44,300 won.
The won was little changed at 1,183.1 per dollar as of 1:23
p.m. in Seoul, according to data compiled by Bloomberg. The
currency has weakened 6.3 percent in the past three months,
Asias worst performance.
Price Pressure
The increase in power and gas prices will add about 0.1
percentage point to inflation, Finance Ministry Director General
Yoon Jong Won said today. South Koreas consumer prices rose 2.6
percent in June from a year earlier, and Yoon said inflation
would accelerate to more than 3 percent in the fourth quarter.
South Koreas $929 billion economy approached its
potential output level and may face inflation pressure,
Central Bank Governor Kim Choong Soo said on July 9 after
raising the benchmark rate to 2.25 percent from a record-low 2
percent, the first increase since the global financial crisis.
The economy grew a faster-than-expected 1.5 percent in the
second quarter, while industrial output beat estimates by
gaining 16.9 percent in June from a year earlier. Companies from
Samsung Electronics Co. to Hyundai Motor Co. reported record
earnings for the three months to June, helped by a weakening won
that boosted export competitiveness.
The central bank forecast this month that consumer prices
will rise 2.8 percent this year, compared with the previous
estimate of 2.6 percent, and 3.4 percent in 2011. The bank is
targeting inflation of between 2 percent and 4 percent on
average through 2012.
The Finance Ministry forecasts 2.9 percent inflation for
2010, and Yoon said the prediction already reflected the
increase in power and gas prices.
Power Rates
Power prices for households will increase by 2 percent,
while those for industrial users will rise by 5.8 percent, the
ministry said. Electricity for overnight delivery will climb 8
percent.
Coal at Australias Newcastle port, an Asian benchmark, has
climbed 11 percent to $96.10 a metric ton this year while
liquefied natural gas import costs jumped 37 percent from a year
earlier.
Elevated energy costs contributed to losses at state-run
Korea Electric Power that exceeded analysts estimates. The
utility lost 814.8 billion won ($675 million) in the second
quarter, compared with a profit of 239.8 billion won a year
earlier. Korea Gas had a wider-than-expected loss of 81.7
billion won over the same period.
The electricity price increase may boost Korea Electric
Powers annual operating profit by 700 billion to 800 billion
won, Yoon said.
Electricity prices were raised by an average 3.9 percent
and gas prices by an average 7.9 percent on June 27 last year.
The government has been keeping a tight lid on utility
costs in a bid to support small firms and low-income earners, HI
Investment & Securitiess Park said.
To contact the reporter on this story:
Shinhye Kang in Seoul at
skang24@bloomberg.net;
Eunkyung Seo in Seoul at
eseo3@bloomberg.net