Board of Audit and Inspection: "Korea Hydro & Nuclear Power Ignored Undervaluation of Wolseong Nuclear Power Plant Profits... Ministry of Trade, Industry and Energy Gave Instructions"

On the 20th, when the Board of Audit and Inspection disclosed the audit results on the 'appropriateness of the early shutdown decision of Wolseong Unit 1,' tension filled the Board of Audit and Inspection in Jongno-gu, Seoul. Photo by Moon Honam munonam@

[Asia Economy Reporter Moon Chae-seok] On the 20th, the Board of Audit and Inspection concluded that Korea Hydro & Nuclear Power (KHNP) failed to properly inform the accounting firm about variables that could lower electricity sales revenue due to changes in utilization rates during the early shutdown process of Wolseong Nuclear Power Plant Unit 1. It was judged that the Ministry of Trade, Industry and Energy (MOTIE) directed such decision-making.

"KHNP and MOTIE tolerated 'underestimation' of electricity sales revenue"

'Audit Report on the Validity Review of the Early Shutdown Decision of Wolsong Unit 1.' (Source: Board of Audit and Inspection)

The Board of Audit and Inspection concluded that the final economic feasibility evaluation report submitted by Samduck Accounting Firm to KHNP on June 11, 2018, unreasonably undervalued the economic feasibility of continuing operation of Wolseong Unit 1 compared to immediate shutdown.

It explained that there were indications that KHNP intervened to prevent the accounting firm from properly adjusting data such as nuclear power plant utilization rates and electricity sales unit prices during the process of reaching this conclusion.

According to the Board of Audit and Inspection, in three economic evaluations conducted on May 3, May 7, and June 11, 2018, the nuclear power plant utilization rates were applied differently as '85%', '70%', and '40% (pessimistic) · 60% (neutral) · 80% (optimistic)', respectively.

Accordingly, the nuclear power plant sales unit price dropped to an average of 63.11 KRW, 60.76 KRW, and 51.52 KRW per 1 kWh. Naturally, the expected electricity sales revenue was also adjusted downward from 1.3106 trillion KRW → 1.0369 trillion KRW → 751.1 billion KRW.

The Board of Audit and Inspection judged that "the 'average utilization rate of 60%' applied in the final evaluation itself is not unreasonably outside the appropriate estimation range."

However, it clearly stated that KHNP and MOTIE bear responsibility for not properly explaining this to the accounting firm during the process of lowering the expected sales unit price. It revealed that MOTIE was also involved in the process of relatively lowering KHNP's unit price forecast.

On May 4, 2018, KHNP and MOTIE instructed the accounting firm to change the nuclear power plant sales unit price for the next 4.4 years from the previous year's (2017) sales unit price to KHNP's forecasted unit price. KHNP's forecasted unit price of 55.08 KRW per 1 kWh in 2017 was 9.3% lower than the actual unit price of 60.76 KRW.

The Board of Audit and Inspection explained, "According to KHNP's forecasted unit price, if the actual nuclear power plant utilization rate is lower than the expected utilization rate used in Korea Electric Power Corporation's mid- to long-term financial management plan, the estimated unit price will be lower than the actual sales unit price."

It added, "Moreover, KHNP, while estimating the utilization rate of Wolseong Unit 1, did not reflect factors that reduce utilization rates such as strengthened regulations, and applied the high utilization rate (84%) of all nuclear power plants as is. Knowing that this would result in an estimate lower than the actual sales unit price, KHNP did not correct this with the accounting firm and allowed its use, leading to an underestimated electricity sales revenue when continuing operation."

"Former MOTIE Minister Baek Woon-kyu induced KHNP's early shutdown decision"

'Audit Report on the Validity Review of the Early Shutdown Decision of Wolsong Unit 1.' (Source: Board of Audit and Inspection)

The Board of Audit and Inspection revealed that former MOTIE Minister Baek Woon-kyu decided on April 4, 2018, to immediately stop operation simultaneously with KHNP's board decision on the early shutdown of Wolseong Unit 1. This policy was decided before the results of external economic feasibility evaluations were released.

The Board explained, "MOTIE officials, in executing this policy, prevented KHNP from considering options other than immediate shutdown, and intervened in the evaluation process so that the economic feasibility evaluation results would favor the immediate shutdown decision by KHNP's board."

It added, "(MOTIE) undermined the reliability of the economic feasibility evaluation work, and former Minister Baek either knew or could have reasonably known this but neglected to act."

The Board of Audit and Inspection also reported that MOTIE officials instructed or actually deleted documents related to Wolseong Unit 1, obstructing the audit.

It explained, "In 2018, the director of the Nuclear Industry Policy Division and subordinate staff instructed the deletion of documents related to Wolseong Unit 1 in preparation for the Board of Audit and Inspection's audit, and actually deleted them in December last year, thereby obstructing the audit."

Accordingly, KHNP only considered the options of immediate shutdown or continued operation during the accounting firm's economic feasibility evaluation process. Other alternatives, such as operating until permanent shutdown operation change approval, were not reviewed. President Jeong also did not instruct to review various alternatives regarding the shutdown timing.

The Board stated, "KHNP's board was unable to review or deliberate on alternatives other than immediate shutdown regarding the early shutdown timing of Wolseong Unit 1. On May 10, 2018, at an emergency executive meeting chaired by President Jeong, the rationality of the vice president's claim that 'input variables such as sales unit price should be revised' was not properly reviewed, and it was decided to reflect the accounting firm's economic feasibility evaluation as per the approved proposal."

It continued, "On May 11 of the same year, KHNP employees suggested inappropriate opinions to the accounting firm, such as using KHNP's forecasted unit price which was lower than the actual sales unit price, undermining the reliability of the economic feasibility evaluation. President Jeong did not exercise sufficient caution in managing and supervising this."

Board of Audit and Inspection: "KHNP directors' actions are not breach of trust"… MOTIE officials face disciplinary demands

Jaehoon Jung, President of Korea Hydro & Nuclear Power, appeared deep in thought on the morning of the 15th at the National Assembly in Yeouido, Seoul, during the National Assembly inspection of Korea Electric Power Corporation, Korea Hydro & Nuclear Power, Korea South-East Power, and others held by the Industry, Trade, Energy, Small and Medium Enterprises Committee. (Photo by Yonhap News)

The Board of Audit and Inspection stated that the economic feasibility evaluation process by KHNP directors "is difficult to consider as an act of breach of trust."

Upon review, it was found that KHNP directors' resolution for early shutdown did not involve ▲ the directors themselves or third parties gaining benefits, nor was there ▲ intent to cause property damage to KHNP by enabling themselves or third parties to gain property benefits.

The Board said, "It is difficult to see that KHNP executives had the intent for breach of trust in the course of their duties. Therefore, it is judged that KHNP directors' resolution for early shutdown of Wolseong Unit 1 does not constitute breach of trust."

Regarding former Minister Baek's misconduct, the Board stated, "It is a violation of the National Public Service Act and requires strict personnel measures," but since Baek retired in September 2018, it only took the measure of 'personnel data notification' to use the validity evaluation solely as personnel data for reemployment or awards.

President Jeong was given a 'strict warning.' The Board said, "(President Jeong) did not instruct to review various alternatives during the economic feasibility evaluation for continued operation of Wolseong Unit 1, nor did he properly manage and supervise when KHNP employees presented inappropriate opinions during the external institution's economic feasibility evaluation process, undermining its reliability."

The Board of Audit and Inspection requested disciplinary action against the director of the Nuclear Industry Policy Division at MOTIE and subordinate staff under Article 82 of the National Public Service Act for instructing or actually deleting Wolseong Unit 1 related documents without authorization, thereby obstructing the audit.

Government's nuclear phase-out policy likely to continue… Strong opposition expected from opposition parties

Wolseong Nuclear Power Plant. (Photo by Korea Hydro & Nuclear Power)

Since the Board of Audit and Inspection did not take legal action against MOTIE and KHNP regarding the validity evaluation, strong political offensives from opposition parties are expected during the comprehensive National Assembly audit of MOTIE on the 22nd.

This is because the measures taken are far from criminal penalties such as 'imprisonment up to 5 years, disqualification up to 10 years, or fines up to 10 million KRW' for abuse of authority under the Criminal Act.

The nuclear phase-out policy pursued by MOTIE is expected to continue. The energy industry anticipates that the '9th Basic Plan for Electricity Supply and Demand,' scheduled to be announced by MOTIE this year, is unlikely to significantly increase the share of nuclear power generation.

The restart of Wolseong Unit 1 and the life extension of Kori Units 2-4 and Hanbit Unit 1 remain uncertain.

MOTIE declined to comment on the audit results over the phone and is reportedly considering whether to release an official statement.

A KHNP official said, "KHNP is currently reviewing the audit report and will decide whether to issue an official statement and announce it within the day."

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