South Korea will raise electricity prices from Saturday, only seven months since a price adjustment in November 2008, but the increase will be insufficient to lift the burden on utilities of heavy fuel costs, analysts said on Friday.

Seoul's energy ministry said it would lift electricity costs by a modest 3.9 percent and city gas prices by 7.9 percent on average.

The increase was only about half of what the state-run energy companies -- Korea Electric Power Corp (015760.KS) and Korea Gas Corp (KOGAS) (036460.KS) -- needed to recover from posting losses, according to analysts.

"KEPCO needs at least a 7 percent increase in electricity prices to recover from a loss, but it's hard to expect another increase within the year," said Lee Ji-hoon, an analyst at SK Securities.

In November, South Korea raised electricity prices for the first time in nearly two years by 4.5 percent and city gas costs by 7.3 percent. The increase had been delayed for several months as the government tried to curb inflation by capping fuel costs. [ID:nSEO152041]

The power cost rise is expected to increase consumer inflation by 0.08 percentage points, the ministry said. Annual consumer inflation was at 2.7 percent for May. [nSEO335372]

Earlier in the year, KEPCO said it needed an at least 20 percent increase in electricity prices in 2009 to cover its fuel costs and recover from a loss.

Raw materials prices have nearly halved since their July 2008 peaks, but are about 54 percent higher than in January, making imports expensive for KEPCO.

CUTTING LOSS

After the power cost increase, KEPCO is expected to cut its yearly loss to 478.1 billion won ($373.2 million) from an initial forecast of 1.14 trillion won.

It posted a net loss of 888.2 billion won in the three months to March this year, lagging far behind Reuters' forecast of a 25 billion won net profit. [ID:nSEO244687]

South Korea will also introduce a new electricity pricing system that moves in line with global energy feedstock prices to ease the burden of high fuel costs on state-run companies from the beginning of 2010, the ministry said.

Shares in KEPCO were up 1.0 percent as of 0300 GMT, outpeforming the wider market's 0.2 percent drop.