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Manipulated timing for residential gas rate increase

Posted July. 10, 2024 07:47,   

Updated July. 10, 2024 07:47


Breaking with custom, city gas rates for home use will rise starting next month. If you live in Seoul, the increase will be 6.8%, increasing the burden by about 3,770 won per month for a four-person household. Residential city gas has been supplied at a lower price than the cost, so from Korea Gas Corporation's perspective, the more it is sold, the more it loses. KOGAS' losses accumulated through the reverse margin structure amount to 13.5 trillion won, which is more than 30 years of labor costs.

It was also predicted that the increase would occur in the summer. This is because there is no need for heating, so the rate increase is not immediately felt. The ‘heating bill bomb’ sent to each household in the early winter of last year had such a big impact that it even lowered President Yoon Suk Yeol’s approval rating. There will be less political burden if gas rates are raised before cold winds blow and the burden of heating costs increases.

However, some said that it was surprising that the increase occurred in August. The ‘Guidelines for Implementing the City Gas Rate and Raw Material Cost Index System’ state that residential city gas rates are adjusted in odd-numbered months. So far, rates have traditionally been raised or lowered in odd-numbered months. The most recent month gas rates were raised was May last year. In addition, the government announced on the 1st of this month, “It has become difficult to increase city gas rates during this month.” It was not easy to picture them saying, “We will raise rates starting next month,” just four days later.

City gas rates can be raised whenever the government wants. Odd-month adjustment is only an implementation guideline, and the timing of rate adjustment is not clearly set by law. If Korea Gas Corporation reports whether or not to adjust rates, the Ministry of Trade, Industry, and Energy can decide in consultation with the Ministry of Strategy and Finance. The Korea Gas Corporation, which is in charge of practical work, says it does not know why the rate increase has to happen in July but not in August. Everyone can only guess from what the government said this month when it froze gas rates and said, “We are discussing considering the impact on prices.”

There is also an interpretation that the gas rate increase was delayed by a month to keep the inflation rate in the 2% range. The inflation rate, which fell to 2.4% last month, will likely rise again this month. Not only has the extent of the fuel tax cut been reduced, but the price of agricultural products may also increase further due to the heat wave and the rainy season. Usually, the inflation rate is compared to a year ago, but the inflation rate in July last year was the lowest. The government must explain that this is not a trivial 'statistical massage' to manage the numbers at hand.

The government has continued to temporarily suspend the indexation system on the vague grounds of ‘emergency’ and has not raised rates enough to cover raw material costs. The raw material cost indexation system, which reflects international energy price changes every two months in rates, has been implemented since 1998. The purpose was to increase stability and secure objectivity in rates through the linking system. However, the gas fee, a ‘political fee’ under the previous government, is also being set by political logic, not economic logic, under the current government. In the end, what remains is the loss of public institutions that must be compensated through taxes. Now, we need to establish an independent organization to determine gas rates transparently.