Time to determine the fate of Kepco

JANG WON-SEOK
The author is a securities team reporter at the JoongAng Ilbo.

Not 300 billion won ($227 million), not 3 trillion won, but 30 trillion won. This is the expected operating loss of the Korea Electric Power Corporation (Kepco) this year, equivalent to Gyeonggi’s annual budget.

The reason for the massive deficit is simple. The electricity produced is bought at a high price and sold at a low price. The fuel cost linkage to reflect the price of fuel in determining the price of electricity was useless. Kepco always “requested” to raise utility bills, but the government always “rejected.”

Although the deficit is hard to withstand, some are helping the public company monopolizing electricity supply. The government has decided to put a cap on the system market price (SMP) so that Kepco can buy electricity from power generation companies at cheaper prices. A revision to the Kepco Act also has been passed to allow the corporation to issue bonds up to five times the sum of its capital and reserve from two times the amount. Banks also plan to lend 2 to 3 trillion won by the end of the year to relieve Kepco’s cash crunch.

They are not good solutions, because the SMP cap only trades Kepco’s deficit with power generation companies’ deficits. The Kepco bonds are already disturbing the market. When blue chip bonds like Kepco’s increase, market funds inevitably flow there. Concerns about a financial crunch in the struggling real estate project financing (PF) are already running deep. It’s not normal that commercial banks are forced to get involved.

First, it is urgent to normalize our low electricity prices. The government plans to raise it next year. Considering the size of the Kepco deficit, the government must raise the price by a big margin. But inflation runs high and elections are approaching. The government will likely elevate the electricity price slightly. That is just a stopgap measure once again.

If oil prices fall, the Kepco deficit decreases, and Kepco somehow gets a surplus, then all these worries will subside. But certainly, this situation will be repeated. Kepco is criticized if it rakes in a handsome profit  — and is considered incompetent if it shows losses. In the past 10 years, this cycle has been repeated over and over. Kepco is a listed company with 40 percent of its shares owned by general investors, but it is still a public company under tight government control.

If the government leaves this ambiguity unattended, any countermeasures are temporary. The electricity price will fluctuate depending on the government. It is about time to decide whether the government takes full control of the public entity or leaves it to the market.