The consolidation and merger of five Korea Electric Power Corporation generation subsidiaries (Western, Southern, Southeast, Central, and East-West Power) being pushed by the government is gathering pace. Combining the generators has several advantages, including expense savings and ending unnecessary cutthroat competition, but opposition from local governments is cited as an issue to resolve.
According to the power generation industry on the 20th, the Ministry of Climate, Energy and Environment has been conducting an expert study related to the merger of generation companies since February. The ministry plans to hold a forum next month to announce interim results of the study commissioned to Samil PwC and collect opinions from various sectors.
Debate over consolidating the five generation companies gained momentum in August last year when President Lee Jae-myung noted at the "national fiscal savings roundtable" that splitting generators into five had resulted in five state-run CEOs. Since then, the ministry launched a research project titled "new roles for public power companies in the energy transition era" to find merger options.
If the five generation companies are integrated, there is an expectation that overlapping expenses can be reduced and resources can be allocated efficiently. Since the 2001 restructuring of the power industry, when the five generators became independent from Korea Electric Power Corporation, there has been steady criticism that they duplicate similar tasks such as generation resource development, overseas business, and research and development (R&D).
Integrating the generators is seen as offering the biggest benefit of cutting fuel purchase expenses. Until now, the five generators each bought generation fuels such as liquefied natural gas (LNG) and coal, but if merged into one, they are expected to gain price bargaining power through bulk purchases. In the past, when Korea Electric Power Corporation acted as a single buyer, energy sellers worldwide engaged in price competition.
The practice of waging "self-defeating" competition in overseas projects could also improve. So far, domestic generators have frequently lowered margins to compete for overseas contracts. Some projects even incurred losses due to mutually undercutting price wars. That was because, to score well in state-run enterprise evaluations, it was important to quickly rack up contract wins.
How to adjust the organization and workforce after integration is viewed as a task. As of the end of last year, the five generators had a total workforce of about 14,000. While on-site roles at each plant have little overlap, most headquarters functions—such as human resources, general affairs, and planning—are duplicated.
In the industry, there is an opinion that, during integration, the government is more likely to redeploy surplus staff from the coal phaseout into renewable energy businesses rather than carry out restructuring. Minister Kim Sung-hwan of the Ministry of Climate, Energy and Environment also said, "There will be no artificial restructuring for lower-ranking positions."
Backlash from local communities is also expected. Local governments worry that if a generator's headquarters is transferred, the regional economy will contract and both tax revenue and jobs will shrink. Currently, the headquarters of the five generators are dispersed under the national balanced development policy: ▲ Jinju, South Gyeongsang (Korea South-East Power) ▲ Boryeong, South Chungcheong (Korea Midland Power) ▲ Taean, South Chungcheong (Korea Western Power) ▲ Busan (Korea Southern Power) ▲ Ulsan (Korea East-West Power).