The government on Wednesday approved Korea Electric Power Corp. (KEPCO)'s request to raise electricity rates by an average 4 percent starting next week, a move partly aimed at offsetting the state-run power company's chronic deficits.

The price of electricity used by ordinary households will be increased by 2 percent starting from Monday, which will add an additional 930 won (US$0.88) per month to the electricity bill of each house, the Ministry of Knowledge Economy said in a press release.

Rates for high-voltage industrial electricity will be hiked by 4.4 percent, adding about 270,000 won to the monthly bill of each company. Rates for electricity used by educational purposes and farming will be increased by 3.5 percent and 3 percent, respectively.

The rate hike follows a recent request from KEPCO to increase electricity prices by an average 9.4 percent.

A ministry official earlier said the government will not agree to any price hike exceeding 5 percent. The latest rate hike is the fourth of its kind in just 17 months.

The government fears a large increase in electricity rates could lead to a rise in overall consumer prices while weakening price competitiveness of companies, especially energy-intensive manufacturing businesses.

The ministry said the latest rate hike will have an effect of adding 0.04 percent to consumer prices and 0.105 percent to producer prices.

However, the ministry claimed the rate increase will also help lower the country's overall consumption of electricity.

"The ministry expects the latest price hike, along with its other measures, to improve the country's power supply system and help reduce up to 750,000 kilowatts of electricity in consumption," it said.

The figure is less than 1 percent of the country's peak supply of around 80 million kilowatts, but still represents a significant amount when considering that the safe level of electricity reserve is only 4 million kilowatts.

"To minimize any price increase in the future, the government has also decided to continuously demand KEPCO to undertake far-fetching reform measures," the press release said. (Yonhap News)