South Korea should step up efforts to inject greater competition into its power generation and distribution industry in order to promote industry-wide growth, a report said Friday.
The report by the state-run Korea Development Institute (KDI) said a 2001 decision by Korea Electric Power Corp. (KEPCO) to spin off its power generation arm has led to some shortfalls, but the move has helped cut costs and improve services.
KEPCO created five separate fossil fuel power generation companies and set up the Korea Hydro & Nuclear Power Co. (KHNP) to manage the country's nuclear reactors and its hydroelectric power stations.
Seoul originally wanted to sell some power suppliers to the private sector and foreign investors, although this plan was suspended in 2004. Since then, there have been calls to re-merge the power companies with KEPCO.
The report, commissioned by the Ministry of Knowledge Economy late last year, showed that by having separate power generation companies, the country as a whole spent less money to import crude oil and natural gas.
"Studies showed that the average purchasing price for energy resources by South Korean power companies stood at 85.1 percent levels of Japanese rivals," a KDI researcher said. This is an improvement from the 90.6 percent levels maintained before they were spun off.
The research institute also said competition helped reduce building costs for power generation plants and enhanced operational rates of power generating facilities that lead to better services for consumers.
This outweighed shortfalls encountered in inventory control, transportation costs and research and development sectors, it said.
The KDI said that while independent power companies should be maintained, there may be a need to reduce numbers from five to three, while plans to merge KEPCO with KHNP could be considered to help South Korea's efforts to become an exporter of nuclear reactors.
KEPCO currently leads reactor export efforts but the technology and know-how is provided by KHNP.
The institute said the government should keep the power generation companies as state-run corporations instead of selling them off.
The ministry, meanwhile, said it will use the latest report as a reference and will take steps to encourage greater competition among power generation companies. It added that while competition will be encouraged, power producers will be required to become more accountable for their business decisions.