There is speculation that Korea Electric Power Corporation will sharply increase bond issuance to raise funds to improve its financial structure and expand investment in infrastructure such as transmission networks. The reasoning is that, ahead of the 2028 general election, the government and political circles, mindful of public opinion, will find it hard to readily decide on raising electricity rates.
◇ Talks for 25 trillion won in prepayments from Samsung Electronics and SK hynix… even if received, insufficient for 100 trillion won transmission network investment
According to the industry on the 6th, KEPCO recently proposed electricity bill prepayments totaling 25 trillion won—20 trillion won from Samsung Electronics and 5 trillion won from SK hynix—and is currently holding working-level talks. KEPCO is said to have suggested paying in monthly installments of 2 trillion won through the end of next year.
The prepayment amount was calculated based on last year's electricity bill payments by Samsung Electronics and SK hynix. KEPCO proposed to draw 25 trillion won in advance from the two corporations and compensate by discounting future electricity bills to be calculated over the next five years by the treasury bond yield plus 15 basis points (0.15 percentage point).
The discussion began to find alternative funding methods instead of issuing KEPCO bonds, with the expiration approaching of the measure to expand the issuance limit for KEPCO bonds, which is scheduled for the end of next year.
In the past, KEPCO bonds could be issued up to twice the combined amount of capital and reserves. However, as KEPCO's financial condition deteriorated due to the Russia-Ukraine war in 2022, the National Assembly passed an amendment to the KEPCO Act that temporarily increased the bond issuance limit to five to six times through the end of next year. The move was intended to support KEPCO, which struggled because international fuel prices surged due to the war while domestic rates could not be raised in time.
The government's first large-scale fiscal support is also expected to ease KEPCO's burden. According to the budget plan for next year released by the Ministry of Climate, Energy and Environment, the government will provide KEPCO with a total of 850 billion won, including a 500 billion won cash investment and 350 billion won in subsidies for electricity bill welfare discounts. If the 500 billion won investment is reflected in the capital account, the issuance limit for KEPCO bonds next year will increase by about 2.5 trillion won.
In addition to government support, KEPCO believes that if it secures 25 trillion won in prepayments from Samsung Electronics and SK hynix by the end of next year, it will be able to secure the operating funds needed even if the existing issuance limit for KEPCO bonds reverts to twice. A KEPCO official said, "We are not considering extending the measure to expand the KEPCO bond issuance limit to five to six times, which ends next year, and we are weighing various options to manage funds within the existing limit of twice."
◇ Outlook that, ahead of the 2028 general election, KEPCO will increase KEPCO bond issuance instead of raising electricity rates
However, the market remains concerned that KEPCO will increase bond issuance.
KEPCO not only has a weak financial structure, but also urgently needs funding because massive investment is required to expand transmission network infrastructure as additional semiconductor industrial complexes are established. As of the end of June, KEPCO's total debt stood at 210.7 trillion won, with daily interest alone reaching 11.5 billion won.
With the United States-Iran war driving up international oil prices, fuel costs are also rising. Fuel costs are directly linked to KEPCO's profit. In addition, if a regional differential pricing system is introduced in the future, annual revenue is expected to fall by 2.8 trillion–3 trillion won, which could further worsen KEPCO's financial soundness.
As much as 100 trillion won in investment has been allocated just for existing transmission and distribution network expansion plans, and even more expense is needed to build additional power infrastructure to support the three mega projects. Hana Securities' research center estimated that, considering the 12th Basic Plan for Long-term Electricity Supply and Demand, transmission and substation investment could rise to as much as 124.3 trillion won.
Another reason cited is the low likelihood of electricity rate hikes ahead of the 2028 general election, effectively leaving additional KEPCO bond issuance as the only funding option.
Kim Jin-su, a professor in the Department of Resources and Environmental Engineering at Hanyang University, said, "Normalizing electricity rates to improve the financial structure and create investment capacity is the fundamental solution, but I think it will be difficult," and added, "There is a high possibility that, ahead of the 2028 general election, the measure to expand the KEPCO bond issuance limit, which ends next year, will be extended."
Jung Yeon-je, a professor in the Department of Energy Policy at Seoul National University of Science and Technology, also said, "It appears that next year the KEPCO Act will be revised through bipartisan agreement to adjust the issuance limit for KEPCO bonds," and added, "It is also necessary to consider injecting capital into KEPCO using additional tax revenue from the semiconductor boom."
Meanwhile, according to the Korea Securities Depository, KEPCO bond issuance totaled 12.21 trillion won as of the end of last month. KEPCO bonds are top-tier bonds with an AAA credit rating guaranteed by the government. When KEPCO bonds flood the market, funds flow into KEPCO bonds, causing other corporations' corporate bond yields to rise and constraining their fundraising.