‘Snowball Deficit’ KEPCO... Eventually Starting Next Month, Electricity Purchases Also on Credit

KEPCO to Allow Delayed Payments to Power Producers Starting Next Month
Current Rules Suspend Power Trading if Payment Deadlines Are Missed
'Management Difficulties' KEPCO Issues 12 Trillion Won in Corporate Bonds This Year

[Image source=Yonhap News]

[Asia Economy Sejong=Reporter Lee Jun-hyung] Starting next month, Korea Electric Power Corporation (KEPCO) will be allowed to delay payment of electricity trading fees when purchasing electricity from power generation public enterprises. The government has initiated amendments to related regulations to prevent disruptions in electricity trading caused by KEPCO’s inability to make timely payments due to financial difficulties. KEPCO, which posted a record-high deficit last year, is already struggling financially, having issued corporate bonds worth 12 trillion won this year.

According to relevant ministries on the 16th, the Korea Power Exchange held a practical consultation meeting on rule amendments on the 11th together with the Ministry of Trade, Industry and Energy and power generation public enterprises, deciding to revise the “Regulations on the Payment Date of Electricity Trading Fees.” The main point is to allow KEPCO to postpone the payment schedule to the next cycle if it cannot pay the electricity trading fees to power generation public enterprises on time. The Power Exchange plans to hold a rule amendment committee meeting on the 18th to review and approve the amendment. After the Minister of Trade, Industry and Energy approves the amendment, it will be applied from the 1st of next month.

Originally, KEPCO pays power generation companies four times a month for electricity fees. Under current regulations, if KEPCO fails to meet the payment deadline, it is considered a default, and electricity trading is suspended from the next day. Since KEPCO is virtually the sole electricity purchaser in the country, suspension of its electricity trading would inevitably cause damage to power generation companies as well as disruptions in electricity supply.

‘Financial Difficulties’ KEPCO Proposes Rule Amendment to Government

This is why KEPCO recently proposed an amendment to the payment date rules to the Power Exchange. The amendment is being pursued as the Ministry of Trade, Industry and Energy, the competent authority, accepted KEPCO’s proposal. Since the practical consultation meeting has concluded discussions and the ministry shares a consensus on the necessity of the amendment, it is expected to be applied from the 1st of next month. An industry insider explained, “The purpose of the amendment is to prevent KEPCO’s electricity trading from being suspended in advance. Since practical consultations have ended, the possibility of changes to the amendment during the remaining administrative procedures is low.”

The government’s move to amend the payment date rules is due to KEPCO’s worsening financial difficulties. KEPCO posted an operating loss of 5.8601 trillion won last year, the largest ever. Securities firms estimate that KEPCO incurred a loss of 5.3 trillion won in the first quarter alone, nearly matching last year’s total deficit. Due to geopolitical conflicts such as the Ukraine crisis causing fuel costs to surge, there are forecasts that this year’s deficit could exceed 20 trillion won.

Corporate bonds are also ballooning. As of the 12th of this month, KEPCO has issued new corporate bonds worth 11.94 trillion won for financing this year. The amount of bonds issued in just about four months has already surpassed the total corporate bonds issued last year, which amounted to 10.43 trillion won.

Fuel Cost Linkage System ‘Ineffective in Practice’

Given this situation, there are calls for fundamental measures rather than just allowing delayed payment of electricity trading fees. This is because electricity rate hikes have lagged behind the rising trend in fuel costs such as international oil prices. In fact, the System Marginal Price (SMP), a key indicator determining KEPCO’s profitability, was 192.75 won per kilowatt-hour (kWh) last month, more than double the 84.22 won recorded in the same month last year. If electricity rates remain the same, an increase in SMP worsens KEPCO’s profitability.

There are also urgent calls to normalize the fuel cost linkage system. The fuel cost linkage system adjusts electricity rates quarterly based on fuel import prices such as oil and natural gas and has been in effect since January last year. However, electricity rates were raised in line with the system’s intent only once, in the fourth quarter of last year. The problem is that this was merely a restoration of the fuel cost adjustment unit price to its original level after the government lowered it by 3 won per kWh in the first quarter of last year under the pretext of ‘stabilizing citizens’ livelihoods.’ Although the fuel cost linkage system was introduced to reduce KEPCO’s burden, the adjustment unit price has remained stagnant for over a year since its introduction, rendering the system effectively ineffective.

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