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Possible Industrial Electric Charge Raise Worries Foreign Businesses in Korea
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Possible Industrial Electric Charge Raise Worries Foreign Businesses in Korea
  • By Michael Herh
  • July 21, 2017, 09:15
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A hike in industrial electricity charges due to the Korean government’s de-nuclear power policy is bad news, in particular, for Korea’s eight free economic zones including Saemangeum.
A hike in industrial electricity charges due to the Korean government’s de-nuclear power policy is bad news, in particular, for Korea’s eight free economic zones including Saemangeum.

 

Not a few foreign companies advanced into Korea for low electricity charges. Many of them are Japanese companies. Even though Japanese companies had many production bases in Korea, but after the Great East Japan Earthquake and the subsequent Fukushima nuclear disaster, many Japanese companies left Japan for Korea. A sharp rise in electric charges has led Japanese companies to choose Korea as their production base as they could enjoy the stable supply of power at low prices in Korea.

Japanese chemical maker Asahi Kasei Chemical said it hopes to increase its international competitiveness in material production through low electricity and logistics costs by expanding its Ulsan plant in 2011. At that time, Asahi Kasei Chemical invested 20 billion yen in Korea. Automobile parts maker Tsubakimoto Automotive also built a factory in the Busan and Jinhae Free Economic Zone Authority with an investment of US$22 million.

As of 2015, Japan's industrial electricity charges were US$162 per MWh, 70% higher than Korea's (US$94.9). Worldwide information technology (IT) companies such as Microsoft and Softbank are building data centers in Korea while taking advantage of its cheap electric power.

The following year after the nuclear accident occurred, Japan's direct investment in Korea reached US$ 3.843 billion. It is one third of the total foreign direct investment in Korea in that year. Two companies, Asahi Kasei Chemical and Toray Advanced Materials, are investing heavily in Korea and have 2000 employees, contribute to creating jobs in Korea. It is unlikely that these companies, which have invested a lot of money, will leave Korea immediately due to a rise in electric charges. However, but an electric charge raise may put a brake on additional or new investment in Korea.

Compared to the major nations’ fierce competition to attract foreign investment, Korea runs counter to the world trend. In the United States, industrial electricity, water and gas are cheap and this fact is well known worldwide. However, the US cuts electricity charges 3% in 2015. Since the inauguration of President Donald Trump, Florida and North Carolina have started to attract companies with lower electricity rates, corporate taxes and land rents. Taiwan also pruned industrial electricity prices by 16.8% three times between 2015 and 2016. Some Japanese power companies, such as Kansai Electric Power Co., are also lowering their corporate electric charges 4% to 5%. A hike in industrial electricity charges due to de-nuclear power policy by the Korean government is bad news for Korea’s eight free economic zones including Saemangeum struggling to attract foreign investment.

There is a counterargument, too. Korean electricity charges are low and a hike in electricity rates may not be large even after nuclear power plants are decommissioned in Korea. "The government should draw up a general plan so that there will be no negative impact on attracting foreign investment," said Cho Yong-tak, a professor of economics at Hanbat University. “In addition, ways should be developed to attract foreign investment by increasing other supports such as tax breaks, support for employment and R&D."