Will KEPCO turn around in 2nd half?

Korea Electric Power Corp. headquarters in Naju, South Jeolla Province / Yonhap

By Lee Kyung-min

Debt-ridden Korea Electric Power Corp. (KEPCO), a state-run energy firm, will be able to improve its financial condition in the third quarter of this year, buoyed by stabilizing global energy prices and electricity fee hikes over the past year, market analysts said Monday.

Propelling the optimism is short-term sales increase expected in the summer months of July through September, certain to offset years of losses extended by pricing structures whereby energy production cost far overwhelmed retail sales prices.

Data from FnGuide, a financial service provider, showed that KEPCO's operating profit in the July-September months as estimated by local brokerages averaged 1.68 trillion won ($1.28 billion). This is lower than the most upbeat projection of 1.81 trillion won made by Shinhan Investment & Securities in mid-June. Shinhan said the figure for the fourth quarter will be about 1.5 trillion won.

A third-quarter surplus would be the first surplus in 10 quarters since the January-March period of 2021.

Behind the rosy assessment is KEPCO nearly closing the production-sales margin gap last month, down from a loss of 7.8 won per kilowatt-hour (kWh) in April, a figure down significantly from 42 won a year earlier.

This year's electricity fee was raised by 13.1 won in the first quarter and 8 won in the second. This combined with three hikes last year has led to a 39 percent higher electricity fee.

Still, brokerages say an operating loss of 1 trillion won will be inevitable through June, since its operating loss from the second quarter of 2021 through March this year came to 44.6 trillion won.

Shinhan Investment & Securities analyst Park Gwang-rae said the operating profit of 1.81 trillion won is explained by electricity unit price sales jumping 26.8 percent from the year before in the April-June period, as lifted further by fuel and purchase costs dropping 3.9 percent and 17.9 percent, respectively.

“Global oil prices have shown signs of moderating since the beginning of the year, a factor that can further lower the system marginal price (SMP), or sales price, from the second-quarter average of 151.2 kWh,” Park said. “The electricity rates inching up over the past year will bolster profit margins.”

The industry ministry left the electricity rates unchanged for the third quarter, due mostly to public frustration over the soaring cost of living.

Most at play was the higher energy demand in the summer pushing up utility fees, a major election campaign consideration ahead of next year's general election.