[Exclusive] KEPCO Engineering & Construction Listed on National Pension Service 'Blacklist'

National Pension Service and KEPCO Engineering & Construction Selected as 'Non-Public Focus Management Companies'
Procedures Following 'Non-Public Dialogue' in Shareholder Rights Exercise Stage
Bribery Allegations Raised at Ghana Branch as Trigger

The headquarters of Korea Electric Power Technology located in Gimcheon, Gyeongbuk.
[Photo by Korea Electric Power Technology]

[Asia Economy Sejong=Reporter Lee Jun-hyung] Korea Electric Power Technology (KEPCO E&C) has been confirmed to be designated as a key management target by the National Pension Service (NPS). This is due to concerns that disputes arising during the promotion of its African projects could damage corporate and shareholder value.

According to comprehensive reporting on the 30th, the NPS notified KEPCO E&C last month that it had been selected as a "non-public key management company." A non-public key management company is a portfolio company that the NPS judges could harm the fund’s profitability. The NPS is the second-largest shareholder of KEPCO E&C, holding a 7.57% stake.

The NPS conducted "non-public dialogues" with KEPCO E&C over the past year but determined that key management issues had not improved. When an invested company falls under key management issues such as under-dividend or legal violations, the NPS proceeds with shareholder rights exercise procedures. Selection as a non-public key management company is a step following the first stage of shareholder rights exercise, which is non-public dialogue. It is rare for companies to be selected as non-public key management companies; only two companies were designated in 2020.

The background for KEPCO E&C becoming a non-public key management company lies in its Ghana project. Previously, KEPCO E&C won a contract in 2012 to expand a power plant in Ghana, but the process was marred by repeated issues. A notable example is the legal dispute with POSCO Engineering & Construction, which was responsible for the plant’s construction, starting in 2014. At that time, poor construction of the power plant was revealed, resulting in approximately 100 billion KRW in additional construction costs. After two years of dispute, KEPCO E&C received only about 35 billion KRW from POSCO, which was about one-third of the total claimed amount.

The National Pension Service Fund Management Headquarters located in Jeonju, Jeollabuk-do.
[Photo by Asia Economy DB]

An internal whistleblower report that a KEPCO E&C employee bribed Ghanaian authorities was a critical blow. It is alleged that a temporary employee at KEPCO E&C’s Ghana branch gave bribes to local authorities. The NPS reportedly initiated non-public dialogues focusing on KEPCO E&C’s internal audit system following this allegation. The bribery suspicion could fall under the NPS’s key management issues category of "cases where corporate value is damaged and shareholder value is infringed due to concerns over legal violations."

The fact that KEPCO E&C is a candidate for the NPS’s "responsible investment" consideration also appears to have influenced this decision. The NPS’s responsible investment is an investment approach that reflects non-financial indicators such as ESG (Environmental, Social, and Governance). As of the end of last year, 417 domestic companies, including KEPCO E&C, were selected as candidates for responsible investment by the NPS.

The NPS stated that it cannot comment on matters related to non-public key management companies because they are "non-public." KEPCO E&C’s position was similar. A KEPCO E&C official said, "It is true that we have been selected as a non-public key management company," but added, "However, it is difficult to answer specific background details."

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