KEPCO's 'Unstable' Profit in Q1 After 3 Years... Operating Income of 430.6 Billion KRW

Surplus Turned Due to Fuel Cost Decline... Concerns Over No Improvement in Financial Structure

Photo by Korea Electric Power Corporation

[Asia Economy Reporter Moon Chaeseok] Korea Electric Power Corporation (KEPCO) succeeded in turning a profit for the first quarter in three years. However, since this was due to external factors such as a temporary drop in fuel costs, it is difficult to say that the financial structure has fundamentally improved. The proportion of low-cost nuclear and coal power generation is gradually decreasing, while the use of expensive liquefied natural gas (LNG) power generation is expanding. Experts express concerns that unless a definite growth engine such as electricity rate hikes is secured, it will be difficult for KEPCO to improve its financial soundness in the long term.

On the 15th, KEPCO announced that it recorded an operating profit of 430.6 billion won on a consolidated basis for the first quarter. KEPCO explained, "The main reason for the change in operating profit is a decrease of 1.6005 trillion won in fuel and purchase costs due to the decline in international fuel prices."

Data provided by Korea Electric Power Corporation

This is the best first-quarter performance since the Moon Jae-in administration announced its nuclear phase-out policy. KEPCO's first-quarter results have plummeted from 3.6053 trillion won in 2016 (a 61% increase compared to the same period the previous year), 1.4632 trillion won in 2017 (-59.4%), -127.6 billion won in 2018 (turning to a deficit), to -629.9 billion won last year (a 393.6% increase in deficit).

Experts generally agree that turning a profit in the first quarter does not necessarily mean KEPCO is managing well. If there is no clear growth driver (such as electricity rate hikes), costs (generation unit costs) should at least be reduced, but KEPCO's management is not operating that way. The nuclear power utilization rate, which was 75.8% in the first quarter of last year, fell by 2 percentage points to 73.8% in the first quarter of this year.

Not only the utilization rate but also the amount of power generated is decreasing. According to KEPCO's power statistics bulletin in March, nuclear power generation last year was 37,324 GWh (25.73% of total) in the first quarter, 42,503 GWh (32.18%) in the second quarter, 34,196 GWh (23.46%) in the third quarter, and 31,887 GWh (22.88%) in the fourth quarter, showing a downward trend. Conversely, the higher-cost LNG power generation increased, with 38,747 GWh (26.71%) in the first quarter, 31,540 GWh (23.88%) in the second quarter, 34,659 GWh (23.78%) in the third quarter, and 38,858 GWh (27.88%) in the fourth quarter. According to the Korea Power Exchange's power statistics information system, as of February, the settlement price for nuclear power was 60.7 won per kWh, while LNG was 114.6 won per kWh.

Data provided by Korea Electric Power Corporation

Professor Lee Deok-hwan, Emeritus Professor of Chemistry and Science Communication at Sogang University, said, "KEPCO cites the reduction in fuel costs for power plants due to the drop in international oil prices as a factor for increased performance, but the increase in nuclear power utilization rate from the 50% range in 2018 to the 70% range is also an important reason for the performance increase." He added, "In other words, there is a correlation between nuclear power generation volume and financial soundness, but since the government plans to reduce the proportion of nuclear power generation according to the 9th Basic Plan for Electricity Supply and Demand, KEPCO's financial soundness will inevitably deteriorate in the long term."

KEPCO sells electricity, which accounts for 94% of its sales, below cost. There is speculation that the sharp increase in operating profit in the first quarter may weaken the justification for raising electricity rates. Despite the ruling party's landslide victory in the general election, there has been no news of electricity rate hikes. Rather, since last month, under President Moon Jae-in's directive, payment deferrals for electricity bills have been granted to small business owners and vulnerable groups affected by COVID-19, and even after the announcement of the draft of the 9th plan on the 8th, the government has not clearly communicated messages related to electricity rate hikes, causing discussions about rate increases to disappear.

Data provided by Korea Electric Power Corporation

Increasing expenditures are also a concern. On the 3rd of last month, the Ministry of Education finally approved the establishment of the Korea Electric Power University (KEPCO University) school corporation, which is expected to cost over 1 trillion won, adding another area of spending.

KEPCO stated that it is making efforts to improve management efficiency by ▲utilizing new power technologies to enhance facility management efficiency and ▲holding a 'Group Company Financial Improvement Task Force (TF)' chaired by KEPCO on a bimonthly basis since the beginning of the year. A KEPCO official said, "KEPCO and its power group companies will continuously monitor the management environment, continue to pursue financial improvement, and strive to establish a sustainable electricity rate system."

This content was produced with the assistance of AI translation services.