Korea Electric Power Corporation (KEPCO) and Korea Gas Corporation continue to report operating profits, but they face significant challenges in achieving financial stability. The rising fuel prices from the Middle East are expected to have a substantial impact on their second-half performance, coupled with increased demand for investments in power infrastructure.
Concerns are growing that delays in financial recovery could lead to reduced investments in essential infrastructure, resulting in a sharp increase in rates in the future. Experts suggest that while costs should be gradually and predictably reflected in rates, support for vulnerable populations should be primarily designed around government finances.
◆ Despite First-Half Profits, KEPCO and Gas Corporation Struggle with Debt and Unpaid Bills
According to KEPCO, its consolidated revenue for the first half of this year reached 46.3173 trillion won, with an operating profit of 4.9127 trillion won. This represents a decrease of 976.8 billion won (16.6%) compared to the same period last year. The net profit also fell by 21.0% to 2.7965 trillion won.
Considering that the consolidated operating profit for the first quarter was 3.7842 trillion won, the second quarter's operating profit dropped to 1.1285 trillion won. Although the selling price remained similar at 167.6 won per kWh compared to last year, electricity sales volume decreased by 0.6%, and the price of international coal rose by 24.3%, leading to increased fuel costs. The total fuel cost for the first half was 10.1429 trillion won, an increase of 817.7 billion won (8.8%) from the previous year.
Despite reporting profits, KEPCO's debt has increased. As of the end of the first half, KEPCO's consolidated debt stood at 210.7 trillion won, up by 5.1 trillion won from the end of last year. Borrowings also rose from 129.8 trillion won to 133.3 trillion won during the same period, with average daily interest costs reaching 11.5 billion won. The accumulated losses from the previous Russia-Ukraine conflict continue to pose challenges, making it difficult to reduce debt solely through profits.
Korea Gas Corporation faces similar issues. Its consolidated operating profit for the first half of this year was 1.5853 trillion won, a 28.0% increase from the same period last year, but its revenue decreased by 5.2% to 19.3102 trillion won. By the end of the first half, total unpaid bills reached 14.1782 trillion won, an increase of 434 billion won (0.3%) from the end of last year. While unpaid bills for residential use decreased compared to last year, they increased from the previous quarter.
Concerns are rising that financial burdens may increase in the second half. Following the Middle East conflict, international oil prices surged from an average of $64.9 per barrel to $104.5, a 61.0% increase, while the won-dollar exchange rate rose by 3.1%. With electricity prices frozen for the third quarter and limited cost reflection for residential gas prices, the financial burden on energy public enterprises may grow as the increases in fuel prices and exchange rates are reflected over time.
Additionally, there is a significant demand for large-scale investments. To timely establish transmission and transformation networks necessary for AI data centers, semiconductor clusters, and the expansion of renewable energy, substantial funding is required. KEPCO has managed to save 600 billion won through investment efficiency adjustments in the first half, but the essential investment demand for expanding the national power grid is expected to continue to rise.
◆ Transition to Cost-Based Pricing... Targeted Support for Vulnerable Groups
There are calls to reflect network costs in rates to reduce debt while securing funding for power grid investments.
The National Assembly's Future Research Institute previously analyzed that the lack of proper reflection of costs and supply-demand conditions in electricity pricing has led to a loss of price signals, contributing to KEPCO's accumulated debt and investment delays. They proposed a pricing system that incorporates costs, climate and environmental expenses, and network costs, along with the establishment of an independent regulatory commission. The International Energy Agency (IEA) also recommended the establishment of an independent regulatory body and a transparent market-based pricing system in its evaluation of South Korea's energy policy last year.
Currently, support for vulnerable groups is provided through energy vouchers funded by the government and welfare discounts directly applied by energy suppliers. Experts emphasize the need for targeted support for vulnerable populations based on government finances, rather than gradually reflecting costs in rates.
Chohong Jong, a professor of economics at Dankook University, stated, "The current system does not reflect costs at all. We need to switch to a cost-based pricing system where retail rates adjust according to cost fluctuations. This will create incentives to develop cheaper power sources. Vulnerable groups can be supported through voucher issuance."
Kim Dae-jong, a professor at Sejong University, suggested, "Electricity prices should be adjusted gradually and predictably based on fuel costs, international energy prices, and KEPCO's financial situation, rather than being determined by political needs. Sudden increases could burden ordinary citizens, so adjustments should be made gradually, with support for vulnerable groups through fiscal policy being preferable."
* This article has been translated by AI.
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