[Exclusive] KEPCO's Coal Power Plant in Shanxi, China... Billions in Losses and Sale Setbacks

Operating Loss of 460 Billion KRW Last Year
Holding 34% Stake... Annual Production of 60 Million Tons
Loss-Making Power Generation Structure Hinders Progress
Coal Price Up 106%, Sales Price Up Only 37%
Shift to Considering Sale After Listing in Chinese Market

[Image source=Yonhap News]

Korea Electric Power Corporation (KEPCO) has temporarily put on hold its plan to sell its stake in a coal-fired power plant in Shanxi Province, China. This is due to a sharp decline in market value caused by operating losses amounting to hundreds of billions of won last year alone. KEPCO is currently considering enhancing the value of its stake through the listing of the power plant, but concerns over prolonged performance deterioration due to the global rise in coal prices suggest that even this will not be easy.

According to the office of Kim Seong-hwan, a member of the Democratic Party of Korea, KEPCO's overseas subsidiary, the Shanxi coal-fired power plant in China, recorded an operating loss of 458.6 billion won last year. This is the largest deficit since the project began in 2007.

Accordingly, KEPCO recently halted the sale of its stake in the power plant, which had been under review since the first half of this year as part of overseas asset restructuring. The value of the Shanxi coal-fired power plant plummeted due to performance deterioration caused by the global surge in coal prices.

The Shanxi coal-fired power plant is located in the largest coal-producing area in China, which holds one-third of the country's coal reserves. It has an installed capacity of 8,350 MW (megawatts) and can produce 60 million tons of coal annually. KEPCO is the second-largest shareholder with a 34% stake, following China Gemeng International Energy Co., Ltd.

China's unique electricity sales policy has also contributed to the decline in corporate value. Unlike South Korea, where increases in raw material costs for power generation are reflected in the System Marginal Price (SMP), the Chinese government restricts the SMP. In other words, while KEPCO sells electricity at a loss domestically, the power plant in China is producing electricity at a loss.

In fact, the coal price for the Shanxi project rose by 106.2% from 99,600 won per ton (excluding tax) in January last year to 205,400 won in December. Meanwhile, the electricity sales price increased by only 37.3%, from 53,800 won per MWh to 73,900 won during the same period. This explains the large operating losses despite sales reaching 2 trillion won.

KEPCO plans to resume the sale of its stake through a listing in the Chinese market after the Shanxi coal-fired power plant returns to profitability. The company believes that restoring business viability is urgent to maximize the sale effect by raising the stake's value as much as possible. Earlier, KEPCO began financial soundness efforts to resolve a record operating loss exceeding 14 trillion won in the first half of this year by selling overseas assets such as the Cebu coal-fired power plant in the Philippines.

A KEPCO official said, "Last year, losses occurred because the surge in coal prices in China was not linked to electricity rates. Fortunately, with the implementation of a coal price cap in February this year and an increase in electricity sales prices, we expect to overcome the deficit by the end of this year."

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