South Korea's 5 state power firms to merge into single entity by October next year

South Korea's five state-owned power generation companies, including Korea South-East Power, will merge into a single entity by October next year.

The consolidated company's headquarters will be built from scratch rather than housed in any of the existing five firms' buildings, a decision expected to intensify competition among local governments vying to host it.

The government also plans to seek an exemption from the Korea Fair Trade Commission's merger review for the consolidation.

The Ministry of Climate, Energy and Environment disclosed additional details of the integration plan Friday at a forum held at Korea Electric Power's South Seoul headquarters in Yeongdeungpo-gu, Seoul.

The government announced Thursday that it would merge the five power generation companies — all subsidiaries of Korea Electric Power — into a single entity tentatively named "Korea Power Generation" as part of a broader public institution reform initiative.

The ministry said a study commissioned from Samil PwC also found that full consolidation into a single entity was the most suitable option, particularly in terms of strengthening the capacity to carry out the energy transition and a just transition, as well as improving management efficiency.

The five companies together operate 53 GW of generation capacity. A merged entity would rank 14th in the world, or 8th excluding Chinese companies.

The ministry outlined a timeline under which the merged company would complete its corporate registration and appoint executives in September next year, with an official launch set for Oct. 1.

The proposed structure calls for a headquarters with four divisions — renewable energy, just transition, safety technology, and planning and management — along with three to four regional renewable energy divisions and a thermal power division operating separately.

Currently, each of the five companies has its own president and auditor, with a combined total of 10 standing directors. Under the government's plan, the merged entity would have one president, one auditor, and four standing directors serving as headquarters division heads.

The merged headquarters is expected to employ about 1,800 staff, down roughly 600 from the current combined total of about 2,400 across the five companies. The government plans to redeploy those 600 employees to the regional renewable energy divisions.

Regional thermal power divisions will be maintained as they are, with an eye toward stable plant operations and safety. As coal-fired generation is phased out, staff will be reassigned and the divisions converted into renewable energy divisions where necessary.

On the question of where to locate the new headquarters — one of the top concerns for local governments — the ministry said the existing buildings of the five companies cannot be used, as each can accommodate only about 500 people, too small for the merged entity.

A new headquarters building will be constructed instead, with the location to be determined after weighing factors including the current positions of state power companies, the impact on a just transition, and living and working conditions. The decision will also be linked to the government's second round of public institution relocation policy.

The five companies are currently headquartered in Boryeong and Taean in South Chungcheong Province, Jinju in South Gyeongsang Province, Busan, and Ulsan.

The merged company will remain a wholly owned subsidiary of Korea Electric Power, as the existing five firms are now. Korea Electric Power's listing on a US stock exchange and the need to preserve the public nature of electricity as core national infrastructure were cited as reasons for keeping full ownership with Korea Electric Power.

The government expects the merger to cut costs by consolidating fuel procurement and capital investment, which each company currently handles separately.

It also anticipates that large-scale integrated development of renewable energy facilities and ESS will generate economies of scale, helping to reduce upward pressure on electricity rates from the energy transition.

The government is pursuing an exemption from the Fair Trade Commission's merger review for the consolidation.

Current fair trade law contains no merger review standards or exceptions tailored to state-owned enterprises.

When Korea Railroad (Korail) and SR merged, they were still required to undergo a merger review. While mergers between public enterprises are typically subject to a simplified review, the high-speed rail case was subjected to an in-depth review on the grounds that it is critical infrastructure with a significant impact on the national economy.

Electricity similarly has a major impact on the economy, and the plan to exempt the merger from review is likely to draw controversy given widespread concern that combining five generation companies into one could create a dominant market player and undermine competition in the power generation market.

President Lee Jae Myung has previously said that state-owned enterprises in the public sector are "fundamentally monopolies by nature," calling for merger review standards that take into account the public character of such entities.

The government plans to enact a special law — covering the exemption from merger review and other provisions — during this year's regular session of the National Assembly.

The legislation is expected to include provisions establishing the legal basis for the merged company, streamlining licensing and permit procedures for power generation, transferring the rights, obligations and employment contracts of the existing companies, simplifying the merger process, and easing the tax burden.

The ministry plans to form a preparatory committee for the power generation company integration this month, to be chaired by the second vice minister. Once the special law is enacted and a formal integration promotion committee is established, it will take over the preparatory committee's work.