South Korea will raise electricity prices by 4.9 percent starting next month as part of its efforts to reflect rising power production costs, the commerce ministry said Tuesday.

   Electricity bills for household consumption will grow 2 percent from August, while those for commercial and industrial use will increase 4.1 percent and 6.1 percent, respectively, according to the Ministry of Knowledge Economy. For farmers, electricity charges will remain unchanged.

   The ministry said that the price hike is an "inevitable" decision to reflect rising energy production costs due to high raw material prices. But the move comes amid concerns that price hikes for public services could drive up the nation's already high inflation.

   "The rate increase is inevitable at a time when only 86.1 percent of production costs are reflected in power prices," a ministry official said. "The government still tried hard to ease its impact on ordinary people."

   Demand for electricity price hikes has been growing as rising crude oil costs are weighing on energy producers here, causing their losses to balloon, but the government has delayed price hikes as it struggles with stubbornly high consumer prices.

   The ministry said that it tried hard to restrict price hikes for household consumption to the minimum in a bid to ease the financial burden on low and mid-income people. Instead, it raised the charges relatively high for industrial and commercial use.

   The price increase is still expected to exert upward pressure on consumer prices. The ministry projected that the electricity rate hike will raise consumer prices by 0.038 percentage points annually and production prices by 0.122 percentage points.

   That would be unwelcome news for South Korean policymakers struggling to bring inflation under control.

   South Korea's consumer prices jumped 4.4 percent in June from a year earlier, exceeding the government's annual target of 4 percent for the sixth straight month. Producer prices also rose for the 19th straight month in June.

   However, the electricity rate adjustment will help reduce the overall consumption of electricity.

   The ministry forecast that the price hike will help reduce electricity consumption by 5.1 billion kilowatt-hours annually or 1.1 percent of the total electricity use in Korea.

   In a bid to encourage energy conservation, the ministry said that it will toughen the nation's energy efficiency standards on main home appliances such as refrigerators and washing machines.

   It also plans to introduce a rate system in which consumers pay more for electricity use when its demand peaks. Such a "differentiated" rate system will be introduced starting next year, the ministry said.

Source: Yonhap News (July 26, 2011)