KEPCO Vietnam investment 'feasible' despite expected losses

The Korea Electric Power Corp. (KEPCO) head office in Naju, South Jeolla Province. / Courtesy of KEPCO

By Nam Hyun-woo

Korea Electric Power Corp.'s (KEPCO) investment in a Vietnamese coal fire power plant was approved in a pre-feasibility study despite expected losses stemming from the project, according to officials, Thursday.

According to Korea Development Institute (KDI) data revealed by Rep. Kim Sung-whan of the Democratic Party of Korea and Solutions for Our Climate, the net present value of the project, Vung Ang 2, was estimated at minus $158 million in the study.

This means outgoing cash is expected be greater than incoming cash during the project period of 2020 to 2048.

KEPCO's part in the Vung Ang 2 project would see the South Korean state-run firm build two 600-megawatt coal-fired power plants in Ha Tinh Province, Vietnam. The total cost is $2.24 billion and KEPCO is apparently aiming to join the project by acquiring a 40 percent stake in it from China Light & Power (CLP) for 220 billion won ($18.4 million).

Given KEPCO's interest in the project, the value of its planned investment will stand at minus $80 million, the KDI anticipated. In South Korea, a project worth more than 50 billion won by a public institution is required to pass a KDI feasibility study.

Despite the bleak profitability outlook, the KDI approved the project in March, according to KEPCO.

"The KDI feasibility study reviewed both quantitative and qualitative factors simultaneously," a KEPCO official told The Korea Times, adding the qualitative factors in this case would be the Korean company's advance into the Vietnamese market.

"Also, the KDI standard for measuring a project's value is excessively conservative, so it usually approves projects whose profitability indices are below 1."

The profitability index is calculated by dividing the present value of total income by the present value of total expense. A reading below 1 means expenses are greater than income. The profitability index of the overall project was 0.96 and that of KEPCO's investment 0.95.

Thanks to the KDI's approval, KEPCO is expected to gain board approval for the investment.

Global investors have already raised questions about the Vung Ang 2 project. CLP was seeking to sell its stake to KEPCO to focus on eco-friendly businesses, and top investment banks including Standard Chartered of the U.K., OCBC and DBS of Singapore have already exited the project.

"With the Vung Ang 2 project found unprofitable, KEPCO should not pursue its investment plan," Rep. Kim said. "Given the global downtrend of renewable energy prices, the project's actual yield in the future will be much aggravated from the current anticipation."

KEPCO has been investing in several coal-fired power station projects. Earlier this week, the KDI approved KEPCO's investment in an Indonesian coal-fired power plant project, despite doubts from global investors. In February, Blackrock sent a letter asking KEPCO to reveal its "strategic reasons" for pursuing the Indonesian and Vietnamese projects.

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