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South Korea plans tax cuts to boost LNG-fired power generation

Seoul — South Korea is planning to cut taxes on LNG by 74% and raise taxes on coal for power generation by 27% next year in an effort to cut the country's heavy reliance on coal for power production and shift towards gas, government officials said Tuesday.

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In a revision to the tax code, the government plans to lower taxes on LNG, including consumption and import tax, to Won 23 ($0.02)/kg from Won 91.4/kg currently, according to the finance ministry.

Taxes on thermal coal will increase further to Won 46/kg from Won 36/kg currently. The tax was raised from Won 30/kg to Won 36/kg in April.

If the new tax code gets approval from the National Assembly, it will go into effect from April 1, 2019, the ministry said.

"The tax revisions on LNG and thermal coal are designed to reflect the environmental costs of using the fossil fuel for power production as part of efforts to reduce air pollution," a ministry official said, adding that the new tax rates would boost LNG's price competitiveness against coal in power production.

Coal-fired power plants account for 40% of the country's electricity supply, while LNG accounts for less than 20%. Nuclear reactors provide about 30%, with oil and renewable sources, such as hydropower, solar, wind and fuel cell, accounting for around 10%.

The revised tax code is in line with President Moon Jae-In's push for energy transition from nuclear and coal to renewables and LNG.

Moon, who took office in May last year, has pledged to shut down 10 aged coal-fired power plants with a capacity of 3.35 GW before his five-year term ends in May 2022.

The Moon government has also scrapped plans for nine new coal-fired power plants with a capacity of 8.4 GW, while pledging to ban any additional coal power plants.

Under the long-term Basic Blueprint for Power Supply released in December, the portion of coal in the country's power production will fall to 36.1% in 2030, from 45.3% in 2017; LNG would climb to 18.8% in 2030 from 16.9% in 2017; nuclear would decline to 23.9% from 30.3% in 2017; and the share of renewables will account for 20%, compared with 6.7% in 2017.

Under Moon's push, the country closed five aging coal-fired power plants during the off-peak spring season from March to June, which boosted LNG consumption for power generation.

LNG sales by state-run Korea Gas Corp. for power generation jumped 18.8% to 19.74 million mt in the first half of this year, from 16.62 million mt in the year-ago period, according to S&P Global Platts calculations.

--Charles Lee, newsdesk@spglobal.com

--Edited by Jonathan Fox, jonathan.fox@spglobal.com