Despite '4 Consecutive Quarters of Profit,' KEPCO Can't Smile... Profit Scale Shrinks and Turns 'Deficit' Excluding Subsidiaries (Comprehensive)

KEPCO Reports Operating Profit of 1.2 Trillion KRW in Q2, 2.5 Trillion KRW Surplus in H1
Operating Profit Down 800 Billion KRW from 2 Trillion KRW in Q3 Last Year

Separate Basis Excluding Subsidiaries Shows Q2 Operating Loss
"Steeper Decline in Electricity Sales Revenue Impacting Results"

Korea Electric Power Corporation (KEPCO) recorded an operating profit of 1.2 trillion won in the second quarter of this year, continuing its streak of four consecutive quarters of profitability. However, operating profit decreased by 800 billion won from 2 trillion won in the third quarter of last year, and on a separate basis excluding subsidiaries, it turned to a loss. Additionally, with the ongoing Middle East conflict and rising energy prices due to high exchange rates, concerns are growing for KEPCO, which faces the challenge of resolving massive debt and accumulated deficits.

On the 8th, KEPCO announced that its consolidated financial results for the first half of the year showed sales of 43.7664 trillion won, operating expenses of 41.2168 trillion won, and an operating profit of 2.5496 trillion won.

A KEPCO official stated, "Operating profit increased by 10.9996 trillion won compared to the same period last year," adding, "Sales increased by 2.5499 trillion won due to tariff adjustments, while operating expenses decreased by 8.4497 trillion won due to reductions in fuel costs and power purchase costs."

Based on consolidated financial statements including subsidiaries such as power generation companies, KEPCO recorded operating profits for four consecutive quarters in 2023 due to three tariff hikes and fuel price stabilization. However, the quarterly operating profit decreased from 2 trillion won in the third quarter of last year to 1.09 trillion won in the fourth quarter, 1.3 trillion won in the first quarter, and 1.2 trillion won in the second quarter of this year.

In particular, on a separate financial statement basis excluding subsidiaries, KEPCO recorded an operating loss of 100 billion won in the second quarter of this year, turning to a loss for the first time in three quarters. A KEPCO official explained, "The second quarter (April to June) is an off-season when electricity sales revenue decreases, dropping from 22.4 trillion won in the first quarter to 19.8 trillion won, a decrease of 2.6 trillion won. However, the reduction in power purchase costs from power generation subsidiaries was only 1.4 trillion won, resulting in a loss on a separate basis."

KEPCO's debt increased by 93.3736 trillion won from 108.8833 trillion won in 2014 to 202.4502 trillion won last year. This was influenced by debt snowballing by 13.3217 trillion won and 47.0077 trillion won in 2021 and 2022, respectively. The debt growth rates were 10.1% in 2021 and 32.2% in 2022, with the debt incurred over these two years accounting for 29.8% of the total debt.

An electric meter is installed in a commercial building in Seoul. Photo by Jinhyung Kang aymsdream@

The increase in debt is due to the inability to raise electricity prices in line with rising fuel costs necessary for electricity production. In fact, the electricity tariff cost recovery rate (sales divided by cost) was 101.3% in 2020 but dropped to 85.9% in 2021 and 64.2% in 2022.

The Yoon Seok-yeol administration judged that electricity rates needed to be raised by 51.6 won per kilowatt-hour (kWh) in 2023 to normalize KEPCO's management, but in reality, rates were only increased by 13.1 won and 8 won per kWh in January and May, respectively, totaling 21.1 won. In the fourth quarter, considering the burden of rising household prices, only industrial electricity rates were raised by 10.6 won per kWh. Since then, electricity rates have remained frozen.

KEPCO is concerned that the business environment will remain challenging due to expected increases in fuel and power purchase costs amid the ongoing Middle East conflict and high exchange rates leading to rising energy prices. A KEPCO official said, "KEPCO is reducing power purchase costs through the introduction of customer participation load shedding programs and extension of fuel tax reduction periods, and is steadily implementing financial soundness plans including austerity management. We will thoroughly and swiftly carry out the self-help efforts promised to the public and will consult with the government on various measures to reduce accumulated deficits through cost reductions such as lowering power purchase costs."