Rapid Debt Increase Approaching 129 Trillion Won After Nuclear Phase-Out and Renewable Energy Policies
Debt Ratio Rises 31.5%p Over 2 Years... 2.3 Trillion Won Net Loss
Clear Financial Deterioration... Forcibly Borrowing to Push Projects
[Asia Economy Reporters Kim Bo-kyung and Moon Chae-seok] The debt-to-equity ratio of Korea Electric Power Corporation (KEPCO) and six power generation public enterprises has increased by 31.5 percentage points over the past two years, revealing a rapid deterioration in financial soundness. The total debt of these seven energy public enterprises approached 129 trillion won last year. This is the result of aggressively borrowing to carry out projects in line with the government's energy transition policy. These public enterprises are expanding investments in renewable energy this year as well, so their debt is expected to increase further.
Concerns have been raised that reckless investments need to be properly checked, as the insolvency of public enterprises ultimately becomes a burden on the public.
According to the Public Institution Management Information Disclosure System Alio and the National Assembly on the 13th, the debt-to-equity ratios of KEPCO and its six power generation subsidiaries have risen in tandem since 2018, when the Moon Jae-in administration officially began its nuclear phase-out and renewable energy policies. The average debt-to-equity ratio of the seven public enterprises soared from 129.6% in 2017 to 135.9% in 2018 and 161.1% in 2019.
By company, Korea Hydro & Nuclear Power's debt-to-equity ratio surged from 114.19% in 2017 to 120.76% in 2018 and 132.77% last year. Korea South-East Power's ratio skyrocketed from 99.95% to 102.86% and then to 126.63% during the same period. Last year, Korea Midland Power's debt-to-equity ratio reached a staggering 241%. The debt-to-equity ratio is the percentage obtained by dividing total liabilities (borrowed capital) by shareholders' equity, serving as an indicator of a company's financial stability.
Last year, the debt of the seven public enterprises recorded 128.7 trillion won, an increase of 14.55 trillion won compared to the previous year. The main reasons for the increase in debt include the issuance of corporate bonds and borrowings, which rose by 6.56 trillion won and 270 billion won respectively due to increased investments in renewable and other eco-friendly projects, and a 4.8 trillion won increase due to changes in lease accounting standards.
In particular, Korea Hydro & Nuclear Power's debt surged by 3.4 trillion won, of which 2.9 trillion won was incurred during nuclear power plant decommissioning, restoration, and spent nuclear fuel processing. Last year, Korea Western Power invested 158.1 billion won, Korea East-West Power 120.2 billion won, and Korea South-East Power 81.8 billion won in renewable energy facilities. As a result of aggressively expanding investments through borrowing, the seven public enterprises recorded net losses of 1.18 trillion won in 2018 and 2.26 trillion won last year.
As of last year, KEPCO, Korea Western Power, Korea Midland Power, and Korea Southern Power had interest coverage ratios below 1. The interest coverage ratio (operating income ÷ interest expenses) measures the ability to generate operating income necessary to pay interest expenses; a ratio below 1 means that operating income is insufficient to cover interest expenses. Korea South-East Power and Korea East-West Power also had interest coverage ratios close to 1, indicating that operating income is not sufficient to fully cover interest expenses.
The National Assembly Budget Office stated, "Due to the recent continuous net losses in KEPCO and its power generation subsidiaries, debt is increasing," and urged, "The Ministry of Economy and Finance and the Ministry of Trade, Industry and Energy need to manage the financial soundness of these institutions."
However, these public enterprises are pushing ahead with nuclear phase-out and renewable energy projects regardless. The 'Korea Offshore Wind Power' company, jointly established by KEPCO and six power generation companies, is conducting the Southwest Sea Offshore Wind Power project in three phases. The demonstration complex (phase 1) with a capacity of 60MW required a total project cost of 370 billion won, of which 43%, or 159 billion won, was borrowed from financial institutions including Woori Bank. Additionally, the government is promoting the construction of a pilot complex (400MW) and an expansion complex (2GW), which will require an additional 14 trillion won in project costs. An official from the Ministry of Trade, Industry and Energy said, "No matter what project you undertake, you cannot do it with 100% equity capital," adding, "The typical ratio of equity to financial investment is about 2:8 or 1:9."
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