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Korea District Heating Corporation Future Development Institute

[Asia Economy Sejong=Reporter Dongwoo Lee] Korea District Heating Corporation (HanNan), which has been designated as a financial risk institution by the government, is pushing forward with the sale of assets including the Future Development Institute, a complex education and research institution. The plan is to overcome the management crisis caused by deteriorating financial structure through high-intensity restructuring such as asset sales.

According to the power generation industry on the 25th, HanNan is reviewing the sale plan for the Future Development Institute located in Giheung-gu, Yongin-si, Gyeonggi-do. HanNan plans to submit a five-year financial soundness plan, including specific details on disposing of assets such as the Development Institute, to the Ministry of Economy and Finance by the end of this month.

The Future Development Institute owned by HanNan was launched in 2007 as the corporate-affiliated research institute 'District Heating Technology Research Institute' and was renamed the Future Development Institute in 2017, focusing on the development of district energy technology, and has been operating since then.

Through research and development (R&D) and industry-academia cooperation, the Development Institute has recently played the role of a think tank for heat energy carbon neutrality to overcome the global climate crisis. In 2019, it also opened the 'Heat Transport Pipe Performance Testing Center,' the first specialized testing laboratory in the heat transport field in Korea. The Development Institute is also equipped with classrooms and dormitories and is used as an educational facility for new employees.

The background for the corporation's sale of the Future Development Institute is that it recorded operating losses for four consecutive quarters following a return to deficit in the second quarter of last year due to rising raw material prices. In particular, in the first quarter of this year, despite sales rising 52.1% quarter-on-quarter to 1.3815 trillion won, operating losses soared 324.8% to 109.6 billion won during the same period. The debt ratio also increased from 223.9% to 290.78 in the first quarter of this year.

According to the New York Mercantile Exchange, as of the 22nd, the U.S. natural gas futures price was $8.30 per MMBtu (one million British thermal units), more than double compared to a year ago ($4.00). The securities industry expects that if the impact of rising raw material prices for natural gas and coal, which HanNan uses as the main raw materials for district heating, continues, the cumulative deficit by the end of this year will reach 201.3 billion won.

The Ministry of Economy and Finance designated HanNan as an institution with deteriorating business profitability last month and ordered a high-intensity crisis management plan due to concerns that the financial structure deterioration could continue. HanNan is currently devising special measures to improve its financial structure, including asset sales such as the Development Institute, postponement of investment plans, and workforce and organizational efficiency improvements.

However, some concerns have been raised that the sale of the Development Institute could disrupt R&D achievements for carbon neutrality, which is HanNan's future key business. It is judged that research outcomes could be affected due to personnel reallocation following the sale of the site.

A HanNan official said, "We are reviewing the sale of the Future Development Institute as part of measures to offset management deterioration caused by the rise in global raw material prices," adding, "We plan to finalize specific details to secure financial soundness and report to the government by the end of this month."

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