Korea Electric Power Corporation (KEPCO) is projected to exceed its legal bond issuance limit by approximately 19.2 trillion won when a special exemption allowing it to issue bonds up to five times its capital and reserves expires at the end of next year. This situation has reignited discussions about the necessity of raising electricity rates.
According to KEPCO and the National Assembly Budget Office on October 24, the special exemption will end next year, reducing the bond issuance limit to twice the capital and reserves starting in 2028.
The government expanded KEPCO's bond issuance limit in response to soaring international energy prices due to the Russia-Ukraine war in 2022, aiming to alleviate its financial difficulties. However, the prolonged freeze on residential and general electricity rates has led to a ballooning bond issuance balance, which reached 71.5 trillion won in the first half of this year.
The National Assembly Budget Office estimates that KEPCO's total capital and reserves will amount to 28.4177 trillion won by the end of next year. Based on this, the legal bond issuance limit would be 56.8354 trillion won, while the bond issuance balance is expected to reach 76.0489 trillion won at that time, exceeding the legal limit by 19.2135 trillion won.
The outlook for KEPCO's performance is also bleak. The recent conflict in the Middle East has driven up liquefied natural gas (LNG) prices, further deteriorating profitability. According to securities firms, KEPCO's operating profit for the third quarter is estimated to drop by 52.29% year-on-year to 26.966 billion won, with a staggering 95.78% decline in the fourth quarter's operating profit to 823 million won.
KEPCO is also facing challenges in securing funding. Recently, it requested Samsung Electronics and SK Hynix to prepay 25 trillion won in electricity fees for five years, but the request was declined.
Compounding these issues is the surging demand for investment in the power grid. According to KEPCO's 11th Long-Term Transmission and Substation Facility Plan, the required investment by 2038 is projected to be 72.8 trillion won, an increase of 16.3 trillion won from two years ago. Considering the power demand from the semiconductor industry and artificial intelligence (AI) data centers, the investment burden is expected to grow even heavier.
On October 19, KEPCO President Kim Dong-cheol stated during a National Assembly audit, "The need for essential power grid investments is rapidly increasing, so I believe discussions about at least a minimal electricity rate hike should take place with the government."
However, given the government's focus on stabilizing prices, there are also calls to extend the special exemption on bond issuance limits instead of raising electricity rates.
* This article has been translated by AI.
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