The International Energy Agency Friday urged South Korea to loosen state-run companies' grip on the country's electricity and natural gas markets, and received cautious backing from the government.
The International Energy Agency Friday urged
South
Korea
to loosen state-run
companies' grip on the country's electricity and natural gas markets, and
received cautious backing from the government.
The IEA's recommendation comes as
South
Korea
is mulling solutions to
power problems, which caused rolling blackouts in
Asia
's
fourth-largest economy last year and could threaten electricity supply this
winter. Given doubts about the safety of nuclear power plants and
South
Korea
's heavy reliance on
imported natural gas for electricity,
Korea
needs to re-evaluate its natural gas industry as well.
A liberalized and competitive electricity market will help
South
Korea
maintain steady power
supply, and the country's gas market needs similar reforms, IEA Executive
Director Maria J.A. van der Hoeven told a news briefing in
Seoul
,
after the Paris-based organization issued its report on
South
Korea
's energy policies.
State-run Korea Electric Power Corp. (015760.SE) and its affiliates produce 85%
of the country's electricity supply, while Korea Gas Corp. (036460.SE) is the
country's only wholesale natural gas supplier.
"Strong and committed government intervention is required if reform is to
succeed," while a well-thought out reform program can support economic
growth and deliver a steady supply of electricity to all users, Ms. Hoeven
said.
The IEA's recommendation comes as
South
Korea
braces for more power
shortages. Demand for heating in winter usually causes electricity consumption
to rise, and two of Kepco's nuclear reactors are offline because of safety
concerns, increasing the need for natural gas for power generation.
Reform programs should include the development of a mechanism that allows large
users of electricity to buy power directly from the Korea Power Exchange, while
large buyers of natural gas should have the option to purchase gas from a
supplier other than Korea Gas at appropriate market rates, the IEA report said.
The government agrees with the IEA's recommendations as well as the need for a
sustained, strong determination for reforms, said Cho Seok, vice minister for
the Knowledge of Economy Ministry, which oversees the country's energy
policies. He said the country's electricity and gas markets have been
monopolized by the public sector for a long time, but Kepco has been selling
electricity below cost to local industries, which consume 60% of the country's
power demand.
"By how much competition should be increased and what the time frame
should be has to be thought over," as related parties may have different
views, Mr. Cho said.
The IEA stressed that greater competition is needed in local energy markets and
that regulators must be independent to ensure successful reforms.
In September last year,
South Korea
was forced to implement unscheduled rolling blackouts for one day to contain
power demand on an unusually hot day when several power plants were offline.
Earlier this year, Kepco's nuclear power unit, which has 23 nuclear reactors
that account for around 30% of the country's power supply, discovered that five
reactors used parts from suppliers that forged quality certificates. Of the
five, two were taken offline for a complete replacement of affected parts and
have yet to resume operations, exacerbating the country's struggle to meet
rising demand for electricity as temperatures plunge.
Korea
's
increased reliance on natural gas for electricity generation coincides with a
surge in demand for the clean fuel from neighboring
Japan
,
which has been facing electricity supply concerns after the Fukushima Daiichi
nuclear accident in March 2011 forced it to shut most of its nuclear reactors
and rely on natural gas and oil.
The IEA also said all local gas companies should be encouraged to trade gas
among themselves and buyers of gas should be free to sell them to all end
users.
Kogas is the only company that can import liquefied natural gas for trading
purposes, and companies in
Korea
have questioned its position as the country's only wholesale gas supplier.
While the government has allowed companies to import LNG for their own
consumption since 2001, only a few deals have materialized since then.
Earlier this year, a Kepco unit said it signed a $3.4 billion deal with
Switzerland
's
Vitol to buy liquefied natural gas under a long-term contract, bypassing Kogas
for the first time.
Korea Gas, the largest corporate buyer of liquefied natural gas in the world,
plans to import 36.456 million metric tons of LNG this year, up 7.3% from about
33.97 million tons last year.
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