[Exclusive] To Stop Jeokjabul, Money Is Being Poured into KEPCO

Review of Direct Subsidy Support Format Within This Year
Monitoring of Cumulative Corporate Bond Scale and More Executed

The government is confirmed to be reviewing financial support measures for Korea Electric Power Corporation (KEPCO), which recorded the largest deficit in history in the first quarter of this year. The support method is expected to take the form of direct subsidies rather than loans or contributions, with plans to inject subsidies before the total bond issuance exceeds the issuance limit to begin the process of normalizing management. Considering the issuance limit, the timing of financial input is expected not to exceed the end of this year. The controversy is expected to intensify as the electricity rates, suppressed by the previous administration citing inflation along with the nuclear phase-out policy, have ultimately returned as a burden to the public.

According to related ministries on the 20th, the Ministry of Trade, Industry and Energy is reviewing such a KEPCO management normalization plan. It is judged that in order for KEPCO to recover from management deficits, internal restructuring, electricity rate increases, as well as timely government financial input are inevitable. This is based on Article 3, Paragraph 1, Item 11 of the Enforcement Decree of the Special Account Act for Energy and Resource Projects, which covers "support projects for stabilizing energy prices such as electricity and gas rates." During the 2008 global financial crisis, the government supported KEPCO's deficit of 2.8 trillion won with 668 billion won under this decree. A method of directly providing subsidies, similar to the "Temporary Electricity Rate Support Project for Small Business Owners and Small Enterprises" implemented by KEPCO last year due to the COVID-19 impact, is likely.

The Ministry of Trade, Industry and Energy is monitoring the cumulative corporate bond issuance scale and outstanding issuance amount that KEPCO has issued so far to determine the timing of subsidy injection. According to Article 16 of the Korea Electric Power Corporation Act, "the limit on bond issuance shall not exceed twice the sum of the corporation's capital and reserves." As of the end of last year, KEPCO's combined capital and reserves amounted to 45.8928 trillion won, theoretically allowing the issuance of corporate bonds up to 91.7855 trillion won, which is twice that amount.

However, since KEPCO's net loss directly leads to a loss in reserves, if the deficit continues, the bond issuance limit will inevitably decrease steadily. KEPCO's cumulative corporate bond scale currently stands at 51.5 trillion won (on a separate basis). After deducting the first quarter net loss amount (5.9259 trillion won) from last year's reserves, the total capital and reserves are estimated at 39.9669 trillion won, and the bond issuance limit is estimated at 79.9338 trillion won. Simply put, the limit shrank by about 10 trillion won in just the first quarter. However, specific criteria such as the timing of applying the bond issuance limit and cumulative scale to set the subsidy injection deadline have not been disclosed.