What's Changing — From Raw Materials to Energy Costs
Since Korea's supply price indexation system took effect in October 2023, it has applied only to key raw materials that make up at least 10% of the supply price. When electricity and gas bills went up, subcontractors had to absorb the cost on their own.
One thing to check first: for subcontracting transactions under the Subcontracting Act, energy cost indexation has already applied since August 11, 2026, to contracts signed or renewed on or after that date. The December 3 date applies to consignment transactions under the Collaborative Cooperation Act. An amendment to the Act on the Promotion of Collaborative Cooperation between Large Enterprises and Small-Medium Enterprises, passed by the National Assembly on November 13, 2025, closes that gap when it takes effect on December 3, 2026.
Newly Prohibited Practices — Forced Opt-Outs and Retaliation
The amendment also goes after practices that had quietly undermined the system.
Why Energy-Intensive Industries Should Check First
Root industries such as casting, forging, heat treatment and plating are hit hardest, along with metals, chemicals and food processing, where energy takes up a large share of production costs. Start by working out the energy share of each product.
Say a plated part sells for KRW 1,000 and KRW 120 of energy cost is allocated to it. Energy then accounts for 12% of the price, so every 10% rate increase takes KRW 12 of margin out of each unit.
Designing the Contract and the Formula
Based on the Energy Cost Indexation Guidebook published jointly by the Ministry of SMEs and Startups and the Fair Trade Commission on June 30, 2026, a sound agreement should cover the following.
If you already have a raw material indexation agreement, adding an energy cost clause to it usually makes for an easier negotiation than drafting a new contract. A formula is only persuasive if you can back it up, so use smart meters or a factory energy management system (FEMS) to record usage line by line.
The Buyer's Side — Managing Supply Chain Risk
Indexation isn't only a cost for buyers. Companies that join as Indexation Excellence or Partnership companies can earn government awards and preferential treatment in various evaluations, and they lower the risk of a supplier going under or halting deliveries. Setting up multi-tier indexation, where first-tier suppliers pass adjustments down to their second-tier suppliers, spreads cost shocks more evenly across the supply chain.
Pre-December Checklist and KITIM Support
KITIM supports you from start to finish: product-level energy cost analysis, contract and formula design, and matching you with win-win cooperation support programs. If you want to know whether your company is ready to negotiate before the December 3 start date, reach out through KITIM's contact page to speak with one of our consultants.