Interface News Reporter | Dai Jingjing
The largest power company in South Korea turned losses in the third quarter, but still carries huge debts.
On November 13th, South Korean Electric Power Company (KEPCO) released a performance report stating that it achieved an operating profit of 1.997 trillion won (approximately 11 billion yuan) in the third quarter of this year, marking the first time in ten quarters that it had achieved a positive operating profit; Net profit also increased from a loss of 1904 trillion won (approximately 10.472 billion yuan) in the second quarter to a profit of 833.3 billion won (approximately 4.583 billion yuan), exceeding market expectations.
Han Dian is a state-owned power company in South Korea and also the largest power company in South Korea. It is responsible for generating, transmitting, distributing, and developing power projects, supplying at least 70% of South Korea's electricity.
Due to the impact of the epidemic and other factors, Korean Power has been in a loss since the second quarter of 2021. In 2022, the Russia-Ukraine conflict pushed up the global fuel price. The South Korean government's efforts to curb high inflation limited the rise in electricity prices, leading to increased losses in South Korea Power.
According to data from Korea Electric Power, the electricity prices set by the government in 2022 only increased by 11%, far below the 64.5% increase in natural gas, crude oil, and coal prices reported by the General Federation of Korean Enterprises.
As of the end of 2022, Korea Electric's debt has climbed to 192.8 trillion won (approximately 1 trillion yuan), with an asset liability ratio of approximately 459%.
Under pressure, Cheung Seung-il, the CEO of South Korean Power, announced his resignation on May 12 this year, taking responsibility for the company's losses.
As of June this year, South Korea Electric Power has suffered a total loss of 47 trillion won (approximately 259 billion yuan) for nine consecutive quarters, with total liabilities reaching 201.4 trillion won (approximately 1.1 trillion yuan), surpassing 200 trillion won for the first time in history. Korea Electric has not yet released its debt situation as of the end of September.
The decrease in fuel prices in the third quarter of this year, coupled with an increase in electricity bills, has prompted South Korea Electric to turn around its losses.
Since April 2022, South Korea Electric Power has raised its electricity bills five times, with a cumulative increase of 39.6%. In the first quarter of this year, the company raised its electricity price by 13.1 won/kWh (approximately 0.07 yuan/kWh), followed by an increase of 8 won/kWh (approximately 0.04 yuan/kWh) in the second quarter.
Since the beginning of this year, electricity bills have increased by 29.8%, "Han Dian said in its quarterly report.
According to a report from Daiwa Capital, the electricity sales volume of Korea Electric Power in the third quarter decreased by 1% year-on-year, but the electricity bill increased by 26% year-on-year, driving the company's electricity sales revenue to increase by 25.3% year-on-year.
At the same time, in the third quarter, the fuel cost and electricity purchase cost of Korea Electric Power decreased by 30.9% and 16.5% respectively, and the utilization rate of nuclear power and coal-fired power also increased.
Faced with huge debts, the business prospects of Korea Electric still worry the market.
Due to the fluctuation of oil and gas prices caused by the conflict between Palestine and Israel, the recent quarterly profits will not continue, "said Han Dian.
Previously, the South Korean Ministry of Industry predicted in a statement submitted to Congress that in order to help South Korea Electric Power stop losses and restore the health of its balance sheet before 2026, electricity bills this year should increase by 51.6 won/kWh (approximately 0.28 yuan/kWh), which is nearly 43% higher than the average electricity bill in 2022.
On November 8th, South Korea Electric announced that it would increase its industrial electricity bills by 10.6 won/kWh (approximately 0.06 yuan/kWh). Due to the fact that this price adjustment did not involve residential and commercial electricity. Industrial electricity consumption accounts for nearly half of South Korea's total electricity consumption. Therefore, the average electricity bill for this increase should be 5 Korean won/kWh, lower than the increase in the previous two quarters.
Based on this calculation, the cumulative increase in electricity bills by South Korea Electric Power this year is 26 won/kWh, only half of the amount it has applied to Congress.
According to analysts quoted by Reuters, the increase in electricity bills is not enough to bring South Korea's electricity debt to a sustainable level, possibly due to political considerations before South Korea's general election in April next year.
Kim Dong cheol, the new CEO of Korea Electric, stated in September that the company's total debt currently accounts for about 30% of the annual budget of the South Korean government, and even if the company spends all of its revenue over three years, it cannot repay all of its debts.
Han Dian is responding to losses and liabilities through overseas business restructuring, sales of real estate and subsidiary equity, and other cost reduction measures.
On November 8th, South Korea Electric announced that it would sell 20% of its shares in KDN Corporation and 38% of its shares in the Karatagan solar project in the Philippines, as well as its 640000 square meters of land located in northern Seoul, including education and training facilities.
Other cost reduction measures of the company include optimizing the organizational structure by merging similar departments and reducing 700 employees by 2026.
In May of this year, South Korea Electric Power announced a fiscal improvement plan, which aims to save 25 trillion won (approximately 137.5 billion yuan) over the next three years by selling assets and freezing wages.
According to a Bloomberg report in September, Park Woo Gun, head of finance and accounting at Han Dian, stated that the company's net bond issuance will be "very small" for the rest of this year, and the company is considering other borrowing methods, such as commercial paper and bank loans.