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The failure to pass the supplementary budget bill on the 12th leaves the government unable to make up approximately W1.0 trillion (US$909 million) of the deficits of the Korea Electric Power Corp. (KEPCO) and the Korea Gas Safety Corp. (KGS), which have grown by a price freeze on electricity and gas. The government had intended to secure a budget with the bill.
Since the end of 2007, when oil prices began skyrocketing, the cost of electricity and gas has risen significantly. The government has made a commitment to sharing 50 percent of this increased cost as long as prices are kept at their current levels. KEPCO has claimed that the increased cost resulting from the higher oil prices amounts to W4.6 trillion (US$4.2 billion), and KGS W3.3 trillion (US$3.0 billion). While the prices have stayed fixed, if the government is not taking measures to make up the deficits, the companies will be on their way to bankruptcy. The government must make good on its commitment.
At the same time, however, the government has to be very clear before pouring taxpayer money into KEPCO and KGS: It must acknowledge the fact that forcing public corporations to maintain fixed prices and then covering the resulting deficits with government aid is neither politically correct nor economically efficient.
It should be market forces that determine electricity and gas prices. In Korea, gas and electricity prices are currently 60 percent of that in Japan and 70 percent of those in England and France. This is not due to superior management by KEPCO and KGS but the result of the government¡¯s anti-market policy of arbitrary price control. In addition to gas and electricity prices, the government has attempted to manipulate the prices of other things like Chinese noodles and saunas. This practice is outdated and will have serious, negative effects on the overall economy. The government should never attempt to arbitrarily control prices with the use of taxpayer money. Even with the achievement of set inflation targets, there will be no benefit for the economy. The market must be left to determine prices, and the government may provide aid to low-income households and small businesses.
Furthermore, the deficits reported by KEPCO and KGS are not solely due to high oil prices. The Board of Audit and Inspection of Korea has revealed that KEPCO spent millions of dollars on treating customers and paying for employees¡¯ pensions. Aiding inefficient and undisciplined management with government money should not become conventional practice.
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