South Korean small and mid-sized companies are expressing concerns about a surge in gas and electricity prices that have nearly tripled over the past two years as it weighs on their competitiveness against Japanese and Chinese rivals.

“Gas rates have risen almost three-fold in the last two years,” said a chief executive officer of a small and mid-size enterprise (SME) in Busan. “We are unable to win orders because of our low competitiveness against Chinese and Japanese companies.”

The CEO’s company manufactures wind power generation facilities that mainly handles forged steel using city gas instead of electricity.

“I often hear reports about an increase in gas rates but they are all related to households,” he said. “The real problem, however, lies with the skyrocketing gas prices for industrial use.”

He noted that people talk about triple whammies as interest rates and raw material prices are also rising, but that is not the issue.

“We are unable to get orders from overseas markets as our cost competitiveness has dropped with rising gas prices,” he said.

The company paid 1.5 billion won ($1.13 million) in gas rates in 2020. Last year, however, gas payment soared to 4.5 billion won. The company managed to swing to a profit of 7.1 billion won in 2021 despite the pandemic but its profit fell to 500 million won last year.

The decline is largely attributable to the increase in gas prices in addition to rising raw material prices.

The price of industrial city gas has soared more than 188 percent at the end of last year from two years ago.

Household gas rates, on the other hand, which drove up heating costs significantly last winter, rose 38.4 percent during the same period. This means the increase in industrial gas rates is nearly five times higher than that of household gas rates.

The rise is also extremely high when compared with the 36 percent increase in industrial electricity rates during the same period.

Prices of international liquefied natural gas (LNG) fell this year, which led to slightly lower industrial gas rates. But they are still more than 120 percent higher when compared with December 2020.



Gas prices for industrial use are more than twice as high as that for household use.

Industry gas rate stands at about 30 won per megajoule (MJ), which is double the price for households that remains at 15 won per MJ.

In contrast, industrial gas rates in the U.K. were 48 percent of household rates in 2021, according to the International Energy Agency (IEA).

The number was 43 percent in France and 32 percent in Germany, which shows that companies in major developed countries use gas at half the price of households.

The exceptional gap between gas prices for companies and households in Korea comes as they are linked to raw material costs. Domestic gas rates are set according to international LNG prices, but this linkage was deferred for household prices from March 2021 while industrial prices remained connected.

The government’s decision was made on concerns about the livelihood of the people, high inflation, and serious cumulative losses at Korea Gas Corp. (KOGAS).

The outbreak of war in Ukraine in February last year added to the woes as it led to a surge in international LNG prices.

The CEO of the wind power facility manufacturer in Busan condemns that politics is behind the sharp increase in gas rates.

“The government is gradually raising the rates for households as they are voters but it is raising industrial rates more sharply,” he said.

“We’re trying to get back on track after the pandemic but we have to send out employees as we can’t bring business. We can’t revive the economy if this is the case.”

The situation is even worse at another Korean company engaged in casting and heat treatment in Jincheon County, North Chungcheong Province.

“Our annual sales are about 20 billion won, but gas rates alone amounted to 2.5 billion won last year,” said an official from the company. “We have practically lost the competitiveness to win orders as the share of electricity and gas bills have risen to near 50 percent.”

A layoff may be an option amid worsening business, but that is not the case for this company.

“Since we are an SME in a rural area, the labor shortage is severe and we can’t just lose the hard-earned employees,” the official said.

An unnamed official from the Korea Federation of SMEs noted that a survey showed that 94 percent of the SMEs are burdened by the surge in gas and electricity rates.

“The individual consumption tax on industrial LNG use should be exempted through law revision or lowered to 12 won per kilogram of LNG for power generation from 42~60 won per kilogram,” the official said.

By Ko Jae-man and Choi Jieun

[ⓒ Pulse by Maeil Business Newspaper & mk.co.kr, All rights reserved]