Kepco Faces Funding Shortage... Corporate Bond Issuance Deadline in March Next Year

On the 19th, when the announcement on the electricity rate hike was imminent, an electric meter installed in a residential area in Seoul was seen. As prices of essential goods and energy soar across the board, and public utility charges such as electricity, water, and gas increase, these factors are becoming major causes of rapid inflation, deepening concerns among inflation authorities. If the government accepts Korea Electric Power Corporation's request for an electricity rate hike, there are concerns that the consumer price inflation rate, which has already recorded mid-5%, could exceed 6%. Photo by Kim Hyun-min kimhyun81@

[Asia Economy Sejong=Reporter Dongwoo Lee] As the bill to raise the corporate bond issuance limit of Korea Electric Power Corporation (KEPCO) was rejected, the Ministry of Trade, Industry and Energy plans to reintroduce the bill before KEPCO's shareholders' meeting in March next year. If the amendment to the KEPCO Act is not passed before next year's shareholders' meeting, it will become impossible to pay electricity transaction fees immediately due to exceeding the corporate bond issuance limit.

According to the National Assembly on the 9th, the amendment to the KEPCO Act, which would expand the KEPCO bond issuance limit from 2 times to 5 times, was rejected at the plenary session yesterday. KEPCO, which has been paying power generation fees through corporate bonds, will be blocked from issuing corporate bonds from mid-April next year, the settlement date, if the KEPCO Act amendment is not enacted.

According to Article 16 of the current Korea Electric Power Corporation Act, KEPCO's bond issuance limit is restricted not to exceed twice the sum of the corporation's capital and reserves. KEPCO's cumulative corporate bond issuance amount by the end of this year is about 72 trillion won, and considering this year's deficit, the estimated KEPCO bond issuance limit for next year is about 29 trillion won. Without the passage of the KEPCO Act amendment, additional corporate bond issuance has become difficult.

If KEPCO cannot issue corporate bonds from next year, it will face an emergency in securing operating funds amounting to 2 trillion won per month immediately. Although financing through bank loans and overseas bonds is possible, bank loans have higher interest rates than corporate bonds, and overseas bonds require complicated procedures and preparation at least three months in advance. Moreover, the more overseas bond issuance balance accumulates, the more the external credit rating may decline. KEPCO issued a total of 1.6 billion dollars in overseas bonds in two rounds of 800 million dollars each in June and October this year.

Some in the energy industry point out that the rejection of the KEPCO Act amendment has increased the justification for raising electricity rates. They explain that a fundamental solution to resolve the temporary 'debt management' is inevitable through rate hikes. KEPCO estimates that raising the electricity rate by 1 won per kWh (kilowatt-hour) could reduce costs by 500 billion won. It is calculated that raising electricity rates by about 52 won annually could eliminate KEPCO's deficit of 30 trillion won.

The Ministry of Trade, Industry and Energy and the Ministry of Economy and Finance share a consensus on the rate hike but are considering the extent of the increase in light of price stability. Electricity rates consist of four major components: basic charge, electricity consumption charge (standard fuel cost), climate environment charge, and fuel cost adjustment charge. The government plans to announce the increase plan for next year's standard fuel cost and basic charge by the end of this month.

However, considering that a large-scale electricity rate hike is not possible in a short period, it is urgent for KEPCO to pass the KEPCO Act amendment next year. An energy industry official said, "If the corporate bond issuance limit is not increased, KEPCO will inevitably face difficulties in securing operating funds from next year," adding, "For management normalization, both rate hikes and corporate bond issuance are essential."

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