Korea Electric Power Corp. recorded an operating loss of 6.2 trillion won ($4.6 billion) in the first quarter of this year.
Its quarterly sales increased 31 percent year-on-year thanks to four rate hikes last year, and its operating loss decreased 20 percent. And yet the amount of the loss remains gigantic.
Kepco remains in the red since it turned into a deficit in the second quarter of 2021. It posted operating losses of 5.8 trillion won and 32.6 trillion won in 2021 and 2022, respectively. The losses, which has accumulated for two years and three months to the end of the first quarter of this year, amount to 44.6 trillion won.
On Friday, it unveiled a plan to improve its financial condition by 25.7 trillion won through austerity measures.
Early this year, it had announced a self-rescue plan of 20.1 trillion won, but increased the amount at the urging of the government that viewed it as insufficient.
Additional plans include selling several real estate, negotiating a labor deal that will see employees return pay raises and delaying facility investment. President and Chief Executive Cheong Seung-il offered to resign.
However, it is questionable if Kepco’s financial condition will improve as planned. Property sales are fluid, and predictably the labor union strongly opposes returning salary.
Kepco’s snowballing loss and debt are basically a problem stemming from the policy of the previous Moon Jae-in administration.
The Moon administration stubbornly pushed a nuclear phase-out policy, increasing electricity generated by liquefied natural gas, an expensive energy, instead. To make matters worse, it made no efforts to ease the worsening financial conditions of Kepco. It delayed raising electric fees apparently not to cause dissatisfaction among voters in elections. Inevitably losses piled up and borrowing mounted.
Without tackling the root cause of the problem, only belt-tightening measures have limitations. Rather it is feared that severe austerity may hurt investment in the electric power grid at a time when electricity consumption is expected to surge.
The fundamental solution is hiking rates. The current administration had to raise them sufficiently, but it did not do so.
Charges for the second quarter should have been determined in March, but the decision has been postponed. On Monday, the government and the ruling party are scheduled to decide on how much to raise them for the second quarter.
Political consideration is understandable, but Kepco's finances are in dire straits.
Its accumulated debt totaled 192.8 trillion won as of late last year, up 47 trillion won from a year earlier. Its debt ratio is close to 500 percent. It will be difficult to borrow money through issuing additional corporate bonds. Kepco bond issuance is a factor that can destabilize the financial market because its amount is huge.
A quick fix such as slight hikes will only delay Kepco’s financial difficulty. The government must not sidestep the problem. It needs to let people know the seriousness of Kepco’s problems correctly and ask them to join pain-sharing efforts to normalize its management.
Meanwhile, the government is said to be reviewing ways to reduce Kepco’s contribution to the Korea Institute of Energy Technology, or Kentech.
Kepco donated 71.1 billion won to the newly established educational institution last year, even as it posted a loss of 32 trillion won. This year it is supposed to contribute 158.8 billion won. It is absurd for a public enterprise on the brink of bankruptcy to fund a university whose reason for being is questionable.
Former President Moon pledged to establish the provincial university to win over voters in the North and South Jeolla provinces, and the majority Democratic Party of Korea pushed through a special law to require Kepco to fund the institute.
Now many provincial universities face the risk of being closed due to the rapidly decreasing student population. Kentech is not only redundant, but also strains Kepco’s finances. It is better to merge it with an existing similar educational institute as soon as possible.