President’s ‘speed control’ order… 2nd quarter increase interest
‘Brake’ to resolve accumulated deficit… for next year’s general election
[투데이에너지 이정헌 기자] Although the government presented a policy direction to resolve KEPCO’s cumulative deficit by 2026, it is expected to put a brake on solving the deficit, showing a lukewarm attitude toward the electricity rate hike, which is an immediate task.
■President 發 Controls public utility rate speed… An increase in electricity rates?
On the 15th, President Seok-yeol Yoon mentioned at the emergency economic and public welfare meeting that he would adjust the speed and scope of public utility bill increases, including energy bills, to minimize the burden on the common people.
In response, the presidential office announced that it would freeze public rates managed by the central government in the first half of the year, and Seoul City and Incheon City responded to the government’s policy stance and decided to postpone the decision to raise public transportation rates until the second half of the year.
Minister of Trade, Industry and Energy Lee Chang-yang also said, “I fully agree to be flexible while adjusting the speed that President Yoon Seok-yeol mentioned,” regarding the gas and electricity rate hike.
Minister Lee went on to say, “For energy rate hikes, international energy price trends and KEPCO and Korea Gas Corporation’s deficits and receivables must be taken into account comprehensively.” In order for the industrial structure and people’s lifestyle to change with high energy efficiency and low consumption, a price (increase) signal is needed,” he emphasized.
On the other hand, when asked regarding the possibility of freezing, Minister Lee said, “Accounts receivable from KOGAS were 9 trillion won at the end of last year, and this year there is a concern that it will reach 10 trillion won or 12 trillion won.” “I think (freezing) is not desirable when we see the situation facing greater difficulties by pressing the past raise factors,” he said.
Minister Lee said, “As announced in this year’s economic management plan, by 2026, KEPCO’s deficit and KOGAS’ receivables will be operated flexibly and flexibly (resolving) in consideration of the public burden.” I will,” he said.
■ KEPCO’s deficit is inevitable… Will it fall short of the first-quarter hike?
Electricity rate hikes, a representative energy rate, will inevitably be delayed due to KEPCO’s massive cumulative deficit. It was already estimated that KEPCO’s deficit would exceed 30 trillion won as of the end of last year.
In addition, the first three quarters of last year recorded an operating loss of 21,834.2 billion won, recording the worst performance. The debt ratio reached 352.60% as of the end of September last year. As a result, the issuance of KEPCO bonds, which can be issued up to twice the amount of capital and reserves, is also expected to be restricted.
Previously, KEPCO raised electricity rates by 13.1 won per kWh (kilowatt hour) in the first quarter of this year. It was the largest quarterly increase ever. It is regarding a quarter of the appropriate amount (51.6 won) for this year’s annual electricity rate hike that KEPCO submitted to the National Assembly last year with the goal of solving the cumulative deficit by 2026. Accordingly, it is expected that the same level of increase will be carried out in the second quarter as in the first quarter.
However, it is expected that the plan to increase electricity rates will be disrupted as President Yoon ordered to adjust the speed of public rate hikes.
Furthermore, some predict that the government will not be able to actively raise energy rates in the second half of the year ahead of the National Assembly elections in April next year.
Previously, the stock market predicted that KEPCO’s operating loss would decrease to 4.95 trillion won in 2023. A rate hike of KRW 1/kWh will improve operating profit by approximately KRW550bn, and the 1Q08 rate hike is expected to improve operating profit by KRW7trn.
At the time of the first quarter hike, the prevailing view in the market was that electricity rates would be raised in the second quarter as well. Above all, there were great concerns that KEPCO’s deficit might fall into capital erosion if it was left unattended. As of the end of last year, KEPCO’s combined capital and reserves stood at 45 trillion won. If KEPCO records an operating loss of 30 trillion won last year, as the government expects, only 15 trillion won in capital and reserves will remain. If this year’s operating loss exceeds 15 trillion won, it will fall into capital impairment.
The problem is that KEPCO’s operating loss this year is expected to exceed 15 trillion won. At the end of last year, KEPCO was known to have estimated its own operating loss of 25 trillion won this year. Even deducting the 7 trillion won in financial improvement from electricity rate hikes in the first quarter of this year, the company’s operating loss would reach 18 trillion won.
External funding was also flagged. With the revision of the KEPCO Act last year, the limit on issuance of KEPCO bonds was increased up to six times. If last year’s operating loss was 30 trillion won, KEPCO’s bond issuance limit is 80 trillion won. However, the balance of KEPCO’s bond issuance to date has reached regarding 74 trillion won.
This means that the additional funds that can be raised are only 6 trillion won. Considering the fact that KEPCO issued new bonds worth regarding 30 trillion won last year alone, this is an extremely insufficient level.
Electricity rate hikes are a real issue, regardless of political parties. In other words, additional electricity rate hikes are inevitable to avoid capital erosion.
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