Korea Electric Power Corporation is seeking to sell assets this year while carrying a cumulative liability of 205 trillion won. Previously, KEPCO and the group companies set a financial improvement plan of 20 trillion won, including asset sales, adjusting business timings, and cutting expenses, but the liabilities continue to persist. Experts believe that raising electricity rates is necessary for fundamental financial structural improvements. KEPCO is expected to disclose the 'fuel cost adjustment unit price' on the 21st of this month, which will help determine whether an increase in electricity rates will occur in the second quarter of this year.
According to related departments on the 20th, KEPCO has sold assets and equity worth 844.8 billion won from 2022 to the present, in accordance with its financial restructuring plan. This is approximately 53% of the asset and equity sale target amount of 1.5742 trillion won, leaving about 729.4 billion won to reach the goal.
KEPCO is intensifying its asset sales efforts this year as well. In January, KEPCO announced the sale of its former northern metropolitan headquarters annex. However, no bidders came forward, and the sale fell through. Originally, this building was an asset that KEPCO aimed to sell in 2023, but it has not yet been sold. Last year, the minimum bid price was adjusted down from 9.3 billion won to 8.9 billion won, but repeated failures in bidding have led to a total of 11 unsuccessful attempts.
On the 10th, KEPCO put a site the size of 1,173.6 square meters for sale at 23.7 billion won. This site has been unsold three times in 2023 and four times in 2024. While KEPCO is struggling to sell, the bid price has actually risen from 22.9 billion won to 23.7 billion won. KEPCO plans to sell additional assets, including ▲Gyeongnam headquarters housing ▲Gimpo branch office ▲Mokpo substation, by 2026.
The problem is that KEPCO's asset sales are unlikely to be easy this year. A slump in the commercial real estate market is emerging, and properties in old downtown areas and urban outskirts are seeing even lower popularity.
It is also a hurdle that it is difficult for public institutions to significantly lower asset prices. Private real estate must lower prices if they remain unsold at public bids, but public institutions tend to keep prices unchanged as the seller decides the pricing. Both the government and KEPCO are reluctant to lower prices to avoid a controversy over selling at a bargain.
Professor Ko Jun-seok, head of the Business Administration Department at Yonsei University, noted, 'While apartment prices are expected to rise this year, it will be difficult for commercial real estate prices to do the same. In particular, public institutions' real estate may face more difficulties in sales due to geographical constraints and floor area ratio limitations.'
◇ KEPCO returns to profitability for the first time in four years, but liabilities continue to increase
KEPCO is pushing hard for asset sales to reduce its liabilities. In 2022, KEPCO introduced a 'comprehensive financial restructuring plan,' and in May 2023, it presented a 'second financial restructuring plan (self-help measure),' followed by a 'special self-help measure' in November 2023. The plan aims to save over 20 trillion won by 2026, including the sale of valuable real estate, such as the southern headquarters in Yeouido, Seoul, and equity in the subsidiary KDN, which yields over 100 billion won in dividends annually. KEPCO has broadened and revised its financial restructuring goals to about 2 trillion won last year.
While asset sales have sluggishly progressed, the financial structure has actually worsened. Recently, gas prices have surged as a result of the Russia-Ukraine war, and the rate increases have lagged. KEPCO's liabilities grew from 132 trillion won in 2020 to 205 trillion won last year. Both inside and outside KEPCO see that job cuts and asset sales will not be nearly enough to reduce the liabilities.
The fact that there are only two years left until the sunset clause for the bond issuance limit expansion regulation adds to the burden. At the end of 2022, KEPCO changed the bond issuance limit criterion from double to five times the previous limit and could expand it to six times in emergencies. Although KEPCO recorded a return to profitability for the first time in four years last year, it still falls short of fulfilling the bond issuance limit criteria. The securities industry speculates that KEPCO will seek bypass measures, including extending the sunset period.
◇ 'KEPCO needs to raise rates'... Government to announce whether to increase electricity rates in the second quarter soon
Consequently, the necessity for KEPCO to raise rates continues to surface. Although KEPCO raised industrial electricity rates last October, the rates for dwellings and general use remain frozen. An analyst, speaking on condition of anonymity, stated, 'The asset soundness plan is based on KEPCO's assumptions about oil prices and exchange rates, and there is no guarantee that it will unfold according to that scenario. An increase in rates is necessary for KEPCO to improve its financial structure.'
Furthermore, considering the growing investment demand, an increase in rates is inevitable. Jeong Dong-wook, a professor in the Energy Department at Chung-Ang University, stated, 'KEPCO must invest 60 trillion won in building transmission networks over the next 15 years, and with the expansion of renewable energy, liabilities will continue to rise. To achieve the carbon neutrality goal by 2050, an increase in electricity rates is essential.'
Both the government and KEPCO agree that raising rates is essential. Minister of Trade, Industry and Energy Ahn Deok-geun emphasized in January, 'Last fall, we raised industrial rates as a last resort due to hardships on the public. Once the situation stabilizes, we need to normalize electricity and gas rates.' KEPCO President Kim Dong-cheol also emphasized in his New Year statement, 'We will work to normalize electricity rates reflecting costs.'
However, it is uncertain whether the government can raise electricity rates immediately. International oil prices have dropped this year, stabilizing the wholesale electricity price (SMP), while the public's situation has not improved.
The Ministry of Economy and Finance and the Ministry of Trade, Industry and Energy will unveil the 'fuel cost adjustment unit price' that KEPCO will apply in the second quarter on the morning of the 21st. If the fuel cost adjustment unit price remains unchanged at '+5 won per kWh' and other charges (basic charge, electricity quantity charge, climate and environmental charge) are not increased, the electricity rates for the second quarter will remain frozen.
A Ministry of Trade and Industry official stated, 'We are currently reviewing the actual fuel costs and standard fuel cost data received from KEPCO' and added, 'We will unveil the final fuel cost adjustment unit price for the second quarter soon.'