Government seeks to boost energy competitiveness by merging overlapping public agencies

South Korea is preparing a sweeping overhaul of public institutions, starting with energy and port companies whose overlapping functions the government says weaken national competitiveness.

Under the plan announced on Sept. 3, the five power generators, Korea South-East Power, Korea Midland Power, Korea Western Power, Korea Southern Power and Korea East-West Power, will be combined into a single corporation tentatively called Korea Power. The move would reverse the power-sector restructuring that began in 2001. The government says a unified company can prevent duplicated renewable-energy investment and mobilize the large sums needed for the global shift toward renewable energy.

The Korea National Oil Corporation and Korea Gas Corporation will also be merged into a proposed Energy Resources Corporation. Oil and natural gas often occur in the same fields, and officials say the two companies have made overlapping investments in overseas field development and exploration technology. Combining them would create one center for resource development and strengthen negotiations with oil-producing countries and energy companies. An official from the Ministry of Trade, Industry and Energy said a system that keeps oil and gas state companies separate is unusual among advanced economies.

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A separate public-company system for oil and gas is an unusual case among advanced countries.

The four port authorities in Busan, Incheon, Ulsan and Yeosu-Gwangyang would become a proposed Korea Port Authority with regional offices. The government says the change would improve links between regional ports, respond to shifts in global supply chains and support joint overseas hubs.

Implementation could prove difficult. The power-company merger has gone through a public discussion process, but the oil and gas decision came suddenly, raising the prospect of internal resistance and objections from shareholders. Korea National Oil Corporation had more than 25 trillion won in debt last year and liabilities exceeding assets by more than 2.5 trillion won. Korea Gas Corporation’s debt also remained above 42 trillion won despite falling from the previous year. The government is considering a separate subsidiary to manage the debt issue, but shareholders may resist any transfer of liabilities to the listed gas company. Overseas project ownership structures, staffing and organizational changes could also face union opposition.

The plan would consolidate overlapping functions at 11 other institutions and merge 83 subsidiaries and small agencies. Korea Land and Housing Corporation would split its development and housing-welfare functions between two institutions. The government said employees at institutions targeted for mergers would keep their jobs and would not receive lower compensation after restructuring.

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We are considering establishing a separate subsidiary to manage the debt problem.