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 a higher limit expires at the end of next year, reigniting discussions about the necessity of raising electricity rates.
According to KEPCO and the National Assembly Budget Office on October 24, the special exemption that allowed KEPCO's bond issuance limit to be increased to a maximum of five times its capital and reserves will end next year. Starting in 2028, the limit will revert to the previous cap of two times.
In response to soaring international energy prices due to the Russia-Ukraine war in 2022, the government expanded KEPCO's bond issuance limit to alleviate its financial difficulties. However, the prolonged freeze on residential and general electricity rates has caused KEPCO's bond issuance balance to balloon to 71.5 trillion won as of 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 led to rising liquefied natural gas (LNG) prices, further deteriorating profitability. According to estimates compiled by securities firms, KEPCO's operating profit for the third quarter is projected to decline by 52.29% year-on-year to 26.966 billion won, with a staggering 95.78% drop to 823 million won expected in the fourth quarter.
KEPCO is also facing challenges in securing funding. Recently, the company requested Samsung Electronics and SK Hynix to prepay 25 trillion won for five years of electricity fees, 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 Transformation Facility Plan, the required investment by 2038 is estimated at 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.
During a National Assembly audit on October 19, KEPCO President Kim Dong-cheol stated, "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.
Copyright ⓒ Aju Press All rights reserved.