[Reporter’s Notebook] Electric Power Public Corporations’ 'Construction Cost Inflation'... Ignoring National Audit Criticism

[Sejong=Asia Economy Reporter Kwon Haeyoung] It has been revealed that power public enterprises, which need to save every penny to reduce their massive debts, are wasting taxes during construction processes such as power plants and power grids. Korea Electric Power Corporation (KEPCO), Korea Hydro & Nuclear Power, and five power generation companies have been inflating construction costs by 4.3 trillion won over the past 11 years by frequently changing designs after signing contracts through low-price bidding and starting construction. From 2010 to 2021, in 361 construction projects worth over 3 billion won each, a total of 1,939 design changes were made, resulting in a final construction cost of 15.1612 trillion won, significantly higher than the initial contract amount of 10.8532 trillion won.

It is possible for construction costs to increase due to defects occurring during construction or maintenance, the need for additional work, or changes in regulatory environments. However, it is difficult to accept cases where designs were changed an average of 5.2 times per project, resulting in a 40% increase in construction costs. This is hardly feasible in private companies. Moreover, even designs for office buildings, company housing, and employee golf course constructions were frequently changed, increasing costs by tens to hundreds of billions of won. Despite explanations from power public enterprises, it is hard to avoid criticism that they are wasting taxpayers' money by exploiting the fact that design changes after construction commencement do not require board reporting or approval procedures or are easily done.

KEPCO and power generation companies’ debts are expected to rise from 132 trillion won last year to 165 trillion won by 2025. KEPCO is a public enterprise with a government shareholding of over 50% (Korea Development Bank 32.9%, Ministry of Economy and Finance 18.2%). Ultimately, electricity rates will have to be raised multiple times in the future, and deficits will have to be covered by injecting taxes.

The problem is that such criticisms have not just arisen recently in the National Assembly. Although these issues were pointed out during last year’s audit, design changes were made in 96 construction projects just this year. This indicates that the audit’s criticisms have had little effect. Thorough prior design is a priority, but these issues have become entrenched as a practice because they have not been corrected. It must be remembered that the 132 trillion won debt will ultimately have to be paid from the pockets of the people.

This content was produced with the assistance of AI translation services.