A government-commissioned study concluded that it would be efficient to merge the five state-run power generation companies that produce and supply electricity (Namdong, Nambu, Dongsuh, Seobu, and Jungbu Power) into a single entity.
The Ministry of Climate, Energy and Environment on the 18th released its analysis of a report prepared by Samil PricewaterhouseCoopers at an interim briefing on the "study on new roles for state power companies in the energy transition," held at the KEPCO Art Center in Seocho-gu, Seoul. The ministry said it will collect feedback from experts and stakeholders and draw up a plan for restructuring and reorganization of the power generation companies by next month.
Samil PricewaterhouseCoopers has studied several restructuring options for the power generation companies: ◇ a fully integrated corporation ◇ region-led independent competition ◇ establishment of an integrated holding company ◇ spin-offs by power source ◇ establishment of power source–specific specialist companies under a management holding company. It said it concluded that merging the five companies into a fully integrated corporation would be the most efficient.
The push to restructure the five generators has moved quickly since President Lee Jae-myung noted during a ministry briefing last year that the current system is inefficient. In the power market, many have said that even though the companies operate thermal assets of the same nature, each of the five has maintained its own independent corporation and headquarters, leading to unnecessary and massive expenses and lax operations.
For example, each generator has four standing executives, but each executive oversees only about 700 employees. That is far fewer than other state power companies such as KEPCO (3,300) or Korea Hydro & Nuclear Power Co. (KHNP) (2,134). There were also complaints that research and development (R&D) has been carried out in a "black box" manner, making it hard to tell whether the budget is being executed properly.
At the briefing, Samil PricewaterhouseCoopers assessed that a fully integrated corporation would secure the capacity for large-scale transition investments and maximize structural efficiency. It said that while each of the five could not shoulder large renewable projects such as offshore wind, which require capital in the trillions of won, as a single integrated corporation it could execute strategic investments based on overwhelming capital mobilization.
It also cited as an advantage of launching a fully integrated corporation the ability to optimize by integrating facility operations and maintenance schedules, and to improve long-term business profitability by jointly purchasing thermal coal for power generation and materials.
In addition, while separate corporations hinder personnel exchanges among companies, full integration would allow flexible job changes and personnel reallocations within a single corporation, minimizing regional employment shocks.
However, Samil PricewaterhouseCoopers said that if a single giant state enterprise is launched, side effects from organizational bloat could appear, requiring institutional checks and balances. It said there should be separate management and oversight bodies to guard against lax management and weakened internal controls. In the case of Korea Hydro & Nuclear Power, after the 2013 nuclear power corruption scandal, it created the Nuclear Power Management and Supervision Division with independent management and oversight functions.
Some have voiced concerns that an integrated corporation would hold a monopoly in the power generation market. But Samil PricewaterhouseCoopers analyzed that, with many private generators and renewable energy operators now in the market, a "mixed competition system between the public and private sectors" would function properly.
It viewed that running the newly launched integrated generator with separate thermal and transition divisions would effectively prevent conflicts of interest. It proposed elevating and placing the "energy transition" and "quality and safety" divisions as top-level strategy departments to drive future businesses.
Samil PricewaterhouseCoopers also said it would be efficient to make maximum use of the existing headquarters infrastructure of the five generators located in Taean, Boryeong, Ulsan, Busan, and Jinju. It said it would be better to maintain multiple hubs where possible to ensure regional balance, employment stability, and organizational continuity.
It projected that even if the five generators are merged, power plants, buildings, and land would remain in their current locations, limiting the impact on local tax revenues. It estimated that the reduction in tax revenue from moving a single headquarters would be up to about 2.5 billion won. However, indirect effects such as employment, consumption, partner companies, and symbolism were excluded from the estimates.