131119 S.Korea hikes power prices to avoid blackouts, cut KEPCO losses
UPDATE 2-S.Korea hikes power prices to avoid blackouts, cut KEPCO losses
* Power tariffs to rise 5.4 pct on average from Thursday
* Top energy official says more rises needed
* Cuts on consumption tax on LNG, propane, kerosene from 2014
* Plan to tax coal imports for power generation (Updates with data, comments from industrial association, recasts with focus on tariff hikes)
By Se Young Lee
SEOUL, Nov 19 (Reuters) - South Korea said on Tuesday it will hike electricity tariffs in its latest bid to avert power blackouts and cut losses that have mounted to billions of dollars for the state-run power company.
South Korea's power tariffs, which are below generating costs and about half those of other developed nations, have been kept in check in recent years to support manufacturers and ease inflationary pressures on households.
The low prices have pushed up demand and steered Korea Electric Power Corp. (KEPCO) into a financial rut.
The government hopes higher electricity prices will curb power use, and policymakers want tariffs that more closely reflect generation costs.
South Korea is struggling to prevent blackouts during peak summer and winter demand periods, with some of its 23 nuclear reactors shut after the discovery of fake safety certificates for parts used in the plants. A third of the country's power comes from nuclear reactors.
"Given the limits on increasing capacity to meet the growing demand (for electricity), managing the power supply situation through stronger management of demand is inevitable," said Han Jin-hyun, vice energy minister, said at a press briefing.
The energy and finance ministries said in a joint statement that state-run Korea Electric Power Corp. (KEPCO) will raise electricity prices by an average 5.4 percent on Thursday, with industrial users facing the biggest hike. This marks the second electricity tariff hike this year.
South Korea also raised electricity prices by an average 4 percent in January.
KEPCO's shares extended gains following news of the second hike and ended 6.9 percent higher on Tuesday.
"I believe further adjustments (to electricity prices) are necessary," vice energy minister Han told reporters, adding that the government would consider the impact on the population before making any further price increases.
The Federation of Korean Industries, a lobby group for big business, issued a statement following the government's announcement that said the power tariff hike would hurt local manufacturers.
"This will likely be a major burden for key industries like steel and petrochemicals that are highly dependent on electricity, and we are concerned about the likely material effect on other related industries like automakers and shipbuilders," the group said.
STILL COMPARATIVELY CHEAP
Electricity prices for South Korean industrial users stood at $57.8 dollars per megawatt hour in 2009, according to the latest data available from the International Energy Agency (IEA), just over half the Organisation for Economic Co-operation and Development (OECD) average of $106.7.
South Korean households paid $93.1 dollars per megawatt hour in 2012, according to the IEA, also just above half the OECD household average of $170.1.
Higher electricity tariffs may help alleviate financial pressures for KEPCO, which said last month it is considering raising electricity charges for industrial users, after running up massive losses as part of a government initiative to curb inflation.
The company accumulated 12.8 trillion won ($12.1 billion) of losses between 2008 and the first half of 2013, it said.
In 2012, industrial users - which account for 56 percent of power consumption - were paying nearly 20 percent below KEPCO's generating costs for their electricity, according to data from the state utility.
COAL IMPORTS, OTHER MEASURES
The two ministries also said on Tuesday they would submit legislation to parliament seeking to impose a new consumption tax on coal imports for power stations starting next year.
This would ultimately push up electricity costs and further encourage consumers and industry to curb their power use.
To encourage both industry and household to use alternate fuel sources the government will also lower taxes on liquefied natural gas, propane and kerosene consumption starting in 2014.
Rural households could use propane and kerosene for such daily needs as cooking and heating, while industrial users could use natural gas or other fuels to power manufacturing processes.
That would further ease pressure on power generation capacity after a spate of nuclear plant shutdowns.
The country's nuclear regulator cleared the way on Monday for one of six closed nuclear reactors to restart after checks on welding. It also said it had approved replacement cables for three more shut in a safety scandal, but it was unclear when those would restart.
($1 = 1058 Korean won) (Additional reporting by Jungmin Jang; Editing by Tom Hogue and Simon Webb)
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