Electricity Reform at a Crossroads: Problems in South Korea’s Power Liberalization Strategy

Electricity sector reform has become commonplace around the world, but few nations can match the extent of transformation attempted in South Korea. On December 8, 2000, two legislative initiatives provided the basis for dividing the national electricity monopoly into several companies, with the aim of privatizing them. Further, the legislation established the Korea Power Exchange and the Korea Electricity Commission to oversee the new competitive policy.1 With their enactment, liberalization of the South Korean power sector began, aiming to achieve in nine years what the US had sought over nearly three decades.2 The reform had been deftly crafted to satisfy International Monetary Fund (IMF) demands for the country to open its markets, and to simultaneously assuage fears among South Korean citizens and businesses that the changes could cause a California-style crisis. Most important, though, the nation’s leaders had to convince a suspicious public that harmonization with the global rules of market-based development would actually benefit South Korea. On June 17, 2004, the national government announced that it would halt electricity sector liberalization, no longer convinced that the country’s interests would be well served.3 Below, we analyze the factors that led South Korea to embrace power sector reform and then to, at least partially, abandon