S.Korea to tax coal for power from July 1; lower LNG, fuel oil tax

Wed Jan 22, 2014 10:00pm EST

Related Topics

* Tax revision designed to curb power demand -finance min

* Consumers expected to use other fuels for cooking, heating

* Changes to take effect from July 1, 2014

By Meeyoung Cho

SEOUL, Jan 23 (Reuters) - South Korea plans to impose a tax on coal used for power generation and lower taxes on fuels used for cooking and heating from July 1, to reduce consumption of electricity to avoid blackouts during peak demand periods.

Asia's fourth-largest economy has struggled over the last 1-1/2 years to avoid outages during periods of high power demand due to a nuclear safety scandal and related reactor closures.

Officials expect the tax revision to curb power use because of higher coal prices, and boost consumption of liquefied natural gas (LNG), fuel oil and propane gas.

Rural households could use propane and kerosene instead of electricity for cooking and heating, while industries could use natural gas or other fuels for manufacturing processes.

"The government aims to lower power demand and boost demand for other fuels by hiking electricity fares or the taxes on coal for power generation," a finance ministry source said, referring to the policy revealed in a ministry statement on Thursday.

The government first unveiled the idea for the tax policy revision last November when it announced an increase in electricity tariffs in a bid to curb winter power demand.

The ministry of finance said in Thursday's statement it plans on July 1 to impose a tax of 17 won ($0.02) per kilogram on coal with a net calorific value below 5,000 kilocalories per kilogram, and 19 won per kg on coal above 5,000 kcal/kg.

Coal used for purposes beside power generation will be exempted from the tax, the ministry said.

The government also plans on the same day to lower a consumption tax for LNG to 42 won per kg from 60 won, fuel oil to 63 won per litre from 90 won, and propane gas for households and industrial sectors to 14 won per kg from 20 won.

The tax policy could be revised further as it goes through the legislature or in a late-February cabinet meeting.

"Our simulation showed this tax measure will be effective to correct distorted electricity demand," said Sonn Yang-hoon, President & CEO of state-run Korea Energy Economics Institute.

"The policy direction is clear but we have to see by how much the tax should be revised as severe changes in energy pricing may result in unexpected damages on some consumers," he said.

South Korea's power tariffs, which are below generating costs at about half those of other developed nations, have been kept in check in recent years to support manufacturers and ease inflationary pressures on households.

Last year it hiked electricity tariffs twice to avert power blackouts and cut losses that have mounted to billions of dollars for state-run power company Korea Electric Power Corp (KEPCO). The low power tariffs have pushed up demand and steered KEPCO into a financial rut.

South Korea annually imports about 80 million tonnes of coal for power generation by five utilities owned by KEPCO, according to government data.

The world's second-largest LNG buyer after Japan imported 39.9 million tonnes of LNG last year, according to customs data.

($1 = 1,065 Korean won) (Editing by Tom Hogue)

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