After 13 Years, K-Nuclear Power Hits '3 Trillion Jackpot'... KEPCO and KHNP Face Mixed Fortunes

KHNP Wins Egypt Nuclear Power Project...3 Trillion KRW Scale
K-Nuclear Power Triumph After 13 Years...Over 100 Domestic Companies Benefit
KEPCO Still in 'Negative Margin'...14.3 Trillion KRW Loss in First Half
Debt Increases by 30 Trillion KRW in One Year...46 Trillion KRW More Than Samsung Electronics

Korea Electric Power Corporation Seoul Headquarters located in Jung-gu, Seoul.
[Photo by Yonhap News]

[Asia Economy Sejong=Reporter Lee Jun-hyung] Korea Hydro & Nuclear Power (KHNP) has secured an overseas nuclear power plant project worth trillions of won for the first time in 13 years, but its parent company, Korea Electric Power Corporation (KEPCO), is not smiling. This is because there is no sign of escaping the 'deficit swamp,' with its debt increasing by nearly 30 trillion won in the past year.

According to related ministries on the 27th, KHNP signed a contract on the 25th in Cairo, Egypt, with Russia's ASE JSC for the second phase of the El Dabaa nuclear power plant construction project. ASE JSC is a subsidiary of Russia's state-owned nuclear power company Rosatom and the main operator of the El Dabaa nuclear power plant. KHNP will construct about 80 buildings and structures for the four units of the El Dabaa nuclear power plant and supply equipment.

‘40 Trillion Won’ Large-scale Project... KHNP’s Share is ‘3 Trillion Won’

The El Dabaa nuclear power plant project is a large-scale project to build four 1200MW-class nuclear reactors in the El Dabaa area, a coastal city in Egypt. Previously, KHNP was selected as the sole negotiation candidate for the second phase of the El Dabaa nuclear power plant construction project, including the turbine building, at the end of last year. The total project scale is 30 billion USD (about 40 trillion won). KHNP’s share is about 3 trillion won.

Through the El Dabaa nuclear power plant, KHNP will achieve exports worth trillions of won for the first time in about 13 years. KHNP’s overseas nuclear power projects had been dormant since winning the Barakah nuclear power plant project in the United Arab Emirates (UAE) in 2009.

The government expects the El Dabaa project to revitalize the domestic nuclear power ecosystem, which has been hit hard by the 'nuclear phase-out' policy over the past five years. A government official said, "About 100 domestic nuclear power equipment companies are expected to benefit from the El Dabaa nuclear power plant," adding, "It will serve as a bridge to create work before the construction and ordering of domestic nuclear power plants such as Shin Hanul Units 3 and 4 begin in earnest."

KEPCO in ‘Deficit Swamp’... More Debt than Samsung and Hyundai Motor

However, KEPCO, KHNP’s parent company, is hardly smiling despite this good news. It has not escaped the 'reverse margin structure' of selling electricity at a loss, causing its deficit to balloon like a snowball. KEPCO posted a deficit of 14.3033 trillion won in the first half of this year alone. Considering that KEPCO had a deficit of 187.3 billion won in the first half of last year, its operating loss has increased more than 76 times in just one year.

Its debt has also increased by about 30 trillion won in the past year. According to financial information provider FnGuide, KEPCO’s consolidated debt in the second quarter reached about 165.8 trillion won, setting a record high. This is an increase of 28.5 trillion won compared to the same period last year (about 137.3 trillion won). Compared to the first quarter of this year (about 156.5 trillion won), it increased by 9.3 trillion won in just one quarter.

KEPCO’s debt is the eighth largest among all listed companies in South Korea. However, the top seven include financial holding companies such as KB Financial Group and financial companies like Hanwha. Financial companies record deposits and insurance premiums as liabilities. Excluding financial companies, KEPCO’s debt is effectively the largest among domestic companies. In fact, KEPCO’s debt exceeds that of major domestic conglomerates such as Hyundai Motor (162.5 trillion won), Samsung Electronics (120.1 trillion won), and SK Group (115.7 trillion won).

Electricity Rate Hike is Key... Deficit May Exceed ‘35 Trillion Won’ This Year

The problem is that there is little room for KEPCO’s financial structure to improve in the second half of this year. To reduce KEPCO’s deficit, the government revised existing regulations and raised the fuel cost adjustment rate by 5 won per kWh in the third quarter. The fuel cost adjustment rate is a component of electricity rates adjusted quarterly according to fluctuations in fuel costs such as international oil prices. However, the initially calculated increase in the third quarter fuel cost adjustment rate by KEPCO was 33.6 won per kWh. This means KEPCO has to sell electricity at a loss of 28.6 won per kWh during the third quarter.

The possibility of a significant electricity rate hike in the fourth quarter is also low. This is because the Bank of Korea forecasts a consumer price inflation rate of 5.2% this year, indicating continued high inflation. If the consumer price inflation rate reaches the 5% range as forecasted by the Bank of Korea, it will be the highest since 1998 (7.5%). From the government’s perspective, significantly raising electricity rates, which are directly linked to inflation, is burdensome.

Given this situation, analyses that KEPCO’s deficit will exceed 30 trillion won this year are gaining traction. As of the 27th, KEPCO’s operating profit consensus for this year is a deficit of 28.4895 trillion won. After KEPCO announced its 'earnings shock' level first-half results on the 12th of this month, forecasts emerged that the deficit could exceed 35 trillion won this year.

In response, the government is considering increasing the limit on KEPCO’s corporate bond issuance. According to the Korea Electric Power Corporation Act, KEPCO’s corporate bond issuance amount cannot exceed twice its capital and reserves. Minister Lee Chang-yang of the Ministry of Trade, Industry and Energy recently stated at the National Assembly’s Industry, Trade, Energy, Small and Medium Enterprises Committee plenary session, "We are discussing legislation to raise KEPCO’s corporate bond issuance limit from the current twice to a higher level."

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