[Click eStock] Korea Electric Power Corporation, Deficit 'Snowball' Rolls On

On the 23rd, amid the ongoing sweltering heat, a monitor displaying the current power supply status is installed in the lobby of the annex building of the Korea Electric Power Corporation Seoul Headquarters in Jung-gu, Seoul. Photo by Moon Honam munonam@

[Asia Economy Reporter Junho Hwang] Korea Electric Power Corporation (KEPCO) has posted record-breaking operating losses for two consecutive quarters through the first quarter of this year. Concerns have been raised that unless a substantial electricity rate hike is implemented from the third quarter onward, the scale of the deficit could become unimaginable.

Jonghyung Lee, a researcher at Kiwoom Securities, stated, "KEPCO currently operates under a structure where the more electricity it sells, the larger the deficit becomes," adding, "There is a very high likelihood that losses in the trillions of won will continue beyond the second quarter of this year."

KEPCO recorded an operating loss of -7.8 trillion won on a consolidated basis in the first quarter of this year. Following a -4.73 trillion won loss in the fourth quarter of last year, this marks the largest deficit for two consecutive quarters. This figure also falls short of market expectations.

The cost of raw materials used to generate electricity has risen, but these increases have not been passed on to electricity rates, causing the deficit to grow. Electricity rates were reduced by 3 won per kWh in the first quarter of last year but were raised by 3 won in the fourth quarter. This adjustment was intended to cope with the sharp rise in fuel and purchased power costs due to the continuous increase in coal and LNG prices, but in terms of price, it can be seen as virtually frozen.

Meanwhile, the government announced plans to raise electricity rates twice this year, in April and October, by 4.9 won per kWh each time to reflect the accumulated fuel cost increases. Separately, the climate environment charge was set to increase by 2.0 won starting in April. However, aside from the scheduled rate hikes, an additional 33.8 won/kWh increase in electricity rates has already occurred in the second quarter due to fuel cost rises in the first quarter.

Lee said, "If there is no significant additional electricity rate hike after the third quarter of this year, the company is expected to face an unprecedented level of massive operating losses and a rapid deterioration of its financial structure," adding, "Since the newly established government is already aware of this situation, it is necessary to pay close attention to future changes in the electricity rate system."

However, Lee maintained KEPCO's target stock price at 24,000 won.