KEPCO Reports Record 7.8 Trillion KRW Loss in Q1... Enters Emergency Management System (Comprehensive)

Largest Deficit in Company History
Real Estate Sales and Overseas Business Restructuring
Financial Structure Limits...Urgent Need for Rate Normalization

As the intense summer heat begins, concerns over power supply arise. On the 13th, an air conditioner outdoor unit is installed on the exterior wall of a building in Seoul. Photo by Jinhyung Kang aymsdream@

[Asia Economy Sejong=Reporter Dongwoo Lee] Korea Electric Power Corporation (KEPCO) recorded a record-breaking operating loss close to 8 trillion won in the first quarter of this year. The increase in raw material prices such as liquefied natural gas (LNG) and coal led to higher power purchase costs, but the delay in normalizing electricity rates was the main cause.

KEPCO, together with its power group companies, has entered an emergency management system to overcome the financial crisis caused by the global surge in fuel prices and plans to implement high-intensity countermeasures. However, the securities industry warned that if the rate normalization is not achieved, the loss for the entire year could reach up to 30 trillion won, as the first quarter deficit far exceeded expectations.

Operating Loss of 7.8 Trillion Won... Largest Deficit Since Establishment

KEPCO announced on the 13th that its operating profit in the first quarter of this year recorded a loss of 7.7869 trillion won, a decrease of 8.3525 trillion won compared to the same period last year. The operating loss is the largest ever recorded on a quarterly basis, nearly 2 trillion won more than last year's total loss of 5.8601 trillion won.

During the same period, sales increased by 9.1% year-on-year to 16.4641 trillion won, but fuel costs (7.6484 trillion won) and power purchase costs (10.5827 trillion won) surged by 92.8% and 111.7%, respectively, increasing the deficit. KEPCO has been in deficit for four consecutive quarters since turning to a loss in the second quarter of last year.

The sharp increase in the deficit was largely due to the significant rise in fuel prices such as LNG and coal. In the first quarter of this year, the price of LNG per ton was 1,327,000 won, up 142% compared to the same period last year, and thermal coal rose by 191%.

Although KEPCO's power purchase costs from power plants increased, the company minimized electricity rate hikes considering the public burden, which deepened the deficit structure. Despite the sharp rise in fuel prices such as LNG and coal, KEPCO's power sales revenue increased by only 7.6% to 15.3784 trillion won.

In fact, the power wholesale price (SMP) that KEPCO pays to power producers surpassed 200 won per kWh (kilowatt-hour) for the first time last month, reaching 202.11 won. This is a 164.7% increase compared to the same month last year (76.35 won). In the first quarter of this year, it was 180.5 won, up 136% from the same period last year.

A KEPCO official explained, "Looking at past cases, when international energy prices surge, KEPCO's deficit is inevitable," adding, "Currently, the more electricity we sell, the larger the deficit becomes."

[Image source=Yonhap News]

KEPCO Enters Emergency Management System Due to Earnings Shock... Real Estate Sales and Overseas Business Restructuring

KEPCO and its power group companies have entered an emergency management system to overcome the financial crisis following an earnings shock that exceeded expectations in the first quarter. They plan to expand the 'Emergency Countermeasures Committee' to include all power group companies and push for high-intensity countermeasures.

First, they will proceed with the sale of equity stakes held, except for the minimum shares necessary to maintain public interest. All sellable real estate holdings will be disposed of, and the sale targets will be identified on a 'zero-base' principle.

They will also restructure and reorganize overseas businesses, including establishing principles for selling all overseas coal power plants under operation or construction. Power subsidiaries will strengthen efforts to reduce power production costs, including fuel costs.

Management innovation will also be pursued. Bold innovations to improve efficiency across management will be implemented, with the goal of ensuring that the results lead to easing the electricity rate burden and enhancing public benefits.

Reflecting digitalization and non-face-to-face trends, they plan to promote workforce redeployment, flexible organizational implementation, expansion of customer choices, and digital-based service innovation to improve public benefits. Additionally, they will closely consult with the government on ways to reasonably reflect cost fluctuations such as fuel costs in electricity rates.

A KEPCO official stated, "We will adjust the timing of investment projects and implement strong cost reductions within the scope that does not affect power supply and safety management."

Borrowing Scale of 75 Trillion Won Reaches Limit... Fundamental Solution is Rate Normalization

Experts emphasize that the fundamental solution for KEPCO's management normalization is the urgent normalization of electricity rates.

The government, concerned that public utility rate hikes would lead to inflation, has effectively left KEPCO's operating losses to be compensated later through large-scale tax injections, but KEPCO's total borrowings last year already reached 75 trillion won, reaching a limit. The amount of borrowings KEPCO must repay within this year alone is about 9.3 trillion won, and if such operating losses continue, experts predict that the borrowing scale will reach 21.7 trillion won in six years, making operation practically impossible.

According to the Ministry of Trade, Industry and Energy, the Korea Power Exchange, KEPCO, and six power generation public enterprises have passed a revision to the 'Regulations on the Payment Date of Electricity Trading Payments' through the Rules Revision Committee. This allows KEPCO to defer payment once if it cannot pay the electricity trading payments to the six power generation public enterprises, enabling a one-time payment later. This is a desperate measure due to worsening debt and difficulty in resolving operating losses in the short term.

KEPCO also analyzed that the recent difficult situation is occurring not only domestically but also among overseas power companies. Power sellers in financial distress due to soaring fuel costs have gone bankrupt in the UK (30 companies), Japan (14 companies), Germany (39 companies), and Spain (25 companies).

Accordingly, this year alone, France raised electricity rates by 24.3%, the UK by 54%, and Italy by 55%, reflecting fuel cost increases. These governments are simultaneously implementing consumer protection measures such as energy-related tax reductions, voucher payments for direct consumer support, and support for power companies along with rate hikes.

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