Electric meters are seen at a residential district in Seoul, Wednesday. (Yonhap)

The state-run Korea Electric Power Corporation decided Wednesday to raise industrial electricity rates by an average of 9.7 percent from Thursday, prompting immediate complaints among local businesses already reeling from rising costs and unfavorable foreign exchange rates.

"The government and Kepco had no choice but to comprehensively consider the ongoing difficulties faced by the public and small business owners, as well as an economic situation in which consumer sentiment has not yet recovered,” Kepco CEO Kim Dong-cheol said in a briefing held at Government Complex Sejong earlier in the day.

Large businesses will face a 10.2 percent rise in electricity rates, while small and medium-sized firms will see an increase of 5.2 percent.

Kepco said the decision will affect 1.7 percent of all electricity users, who account for 53.2 percent of electricity demand.

In the meantime, rates for households and small business owners will remain unchanged.

With the higher electricity rates, Kepco said it would see an additional 4.7 trillion won ($3.4 billion) in revenue annually.

“Kepco still holds a total debt of 203 trillion won with daily interest costs of 12 billion won. Therefore, if it does not charge more, it would be difficult not only to resolve the accumulated debt but also to comply with the bond issuance limit stipulated in the Kepco Act,” said Second Vice Industry Minister Choe Nam-ho.

“Electricity rates in our country still fall short of covering costs and remain among the lowest in the Organization for Economic Cooperation and Development,” Kim said.

Following the announcement, major business groups voiced concerns, citing a challenging business environment and economic uncertainties around the world.

“While we understand the inevitability of an electricity rate hike, considering the urgent need for Kepco’s financial normalization, the rise in electricity demand from advanced industries like artificial intelligence and semiconductors, and the need to secure timely resources for an expansion of essential power infrastructure, we remain worried about the consequences,” the Korea Chamber of Commerce and Industry, the country's largest business lobby, said in a statement.

“However, continuously raising industrial electricity rates, which directly affect production costs, places a heavy burden on corporate activities that drive growth, and this could potentially damage industrial competitiveness. It is essential to consider ways in which not only the industrial sector but also electricity consumers across society can share the cost burden while actively participating in energy efficiency efforts,” the statement further read.

KCCI also urged the establishment of a long-term comprehensive plan for electricity costs so that companies can establish more strategic future plans. The group also suggested several follow-up measures, including more tax credits for energy-saving investments and research work.

Lee Sang-ho, vice president of the Federation of Korean Industries' Economic and Industrial Research, also expressed deep concerns over a significant burden on the business industry.

"The domestic industrial sector is already facing limits due to high inflation, unfavorable exchange rates and high interest rates," he said in a statement. "The differentiated increase in electricity rates may further shrink business activities."

While the differentiated rate increase is inevitable due to the need to reduce Kepco's debt burden and ease the difficulties of the general public's economy, Lee suggested the government consider providing incentives for saving electricity instead of merely raising electric bills.

On the same day, the government also decided to extend the fuel tax cut by two months with some adjustments.

Under the decision, the fuel tax reduction for gasoline will be reduced from 20 percent to 15 percent, and for diesel and liquefied petroleum gas, from 30 percent to 23 percent, according to the Ministry of Economy and Finance.

The updated measure will be implemented on Nov. 1 and will run through the end of this year.

Since July 2022, the government has expanded the fuel tax cut for gasoline and diesel to 37 percent to stabilize prices, but it reduced the gasoline cut to 25 percent last year while extending the expiration date.

From July of this year, the cuts were reduced to 20 percent for gasoline and 30 percent for diesel, with an extension until the end of this month.

“The latest decision was made considering recent trends in oil prices, inflation and the impact on public finances, aiming to prevent a significant increase in the fuel burden,” the ministry said.