The Electricity Industry Reform in Korea: Lessons for Further Liberalization

Abstract

In April 2001, the generation unit of Korea Electric Power Corporation (KEPCO) was split into six subsidiary companies with further plans for privatization. But, the process of privatization has ceased due to changes in political environment. This study analyzes the performance of the restructuring of generation units using financial and physical indices. The results from the analysis also show that the restructuring has had positive effect on their performance. The financial indices of the generation companies also show that the prices of fuels, intervention of government, and capability of management affect the performance of the companies. Although the results do not show that restructuring favorably affected the prices of electricity, the indices of liability and profitability show some promising signs arising from the electricity sector reform. To maintain these changes, further liberalization needs to be followed, although there are some issues that need to be dealt with prior to restructuring and privatization plans. The problems of proper reserve margin, the negative effect of regional electricity company, and the conflict between cost saving and preserving environment are some of those need to be dealt with. Those problems can be solved by institutional reform and further liberalization.

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