Korea Electric Power Corp.'s outstanding bonds will exceed the legal issuance ceiling by about 19 trillion won ($13 billion) once a special exemption on its bond limit expires at the end of next year. With fuel costs leaving little room for financial improvement and demand for power grid investment rising, calls are growing for an electricity rate increase and an extension of the exemption.
KEPCO's outstanding bond balance will exceed the statutory limit by more than 19 trillion won when the exemption lapses, according to the utility and the National Assembly Budget Office on the 24th. After energy costs soared following Russia's war in Ukraine in 2022, the government amended the Korea Electric Power Corporation Act to temporarily raise the bond issuance ceiling to five times the combined total of the company's paid-in capital and reserves, from the original two times. The exemption is set to expire at the end of next year, returning the ceiling to twice capital and reserves under the original law. KEPCO's outstanding bonds stood at 71.5 trillion won as of the first half of this year, against an issuance ceiling of 56.8354 trillion won under the original law.
To clear the excess, KEPCO would have to redeem bonds or build up capital through retained earnings. But profitability is effectively out of reach after the U.S.-Iran war this year sent international oil prices surging and lifted liquefied natural gas prices. Market consensus estimates put KEPCO's third-quarter operating profit at 2.6966 trillion won, down 52.29% from a year earlier. Fourth-quarter operating profit is projected to fall 95.78% to 82.3 billion won, with a net loss of 493 billion won.
Attempts to secure additional funds to repair its balance sheet have also fallen short. Bracing for the smaller bond ceiling, KEPCO recently asked Samsung Electronics and SK hynix to prepay 25 trillion won, equivalent to five years of electricity bills, but was turned down. A government plan to introduce region-based differential pricing for industrial power could steepen the decline in profitability if adopted, since lower industrial rates in some areas outside the greater Seoul region would inevitably cut KEPCO's electricity sales revenue.
While profitability remains elusive, the need for grid investment is growing. Under KEPCO's 11th long-term transmission and substation facility plan, investment through 2038 is set at 72.8 trillion won, up 16.3 trillion won from the plan drawn up two years earlier. Factoring in demand from semiconductor clusters and artificial intelligence data centers planned across the country, the figure could rise substantially further.
KEPCO argues that it is time to discuss raising electricity rates, which have been frozen for an extended period. Extending the bond issuance exemption is also cited as a way to defer the financial crunch. Residential and general-use rates, excluding industrial tariffs, have been held unchanged for years on concerns about inflation. "Because the power grid investment we fundamentally need keeps rising sharply, I believe we must discuss at least a minimal electricity rate increase with the government," KEPCO President Kim Dong-cheol said at a parliamentary audit on the 19th.