KEPCO’s CEO steps down, pledges restructuring after reporting Q1 loss

Chief Executive Officer Cheong Seung-il [Photo by Yonhap]

Korea Electric Power Corp. (KEPCO) said its chief executive officer stepped down and announced a restructuring plan after the state utility company announced worse-than-expected loss in the first quarter on the mounting pressure from snowballing losses and inevitable rate hikes to ease the losses. The government on Monday raised power rates by 8 won per kilowatt hour.

The ruling party and government officials on Monday decided to raise electricity rates and gas prices by 13.1 won per megajoule (MJ) for the second quarter, after more than a month of the stalled discussion.

With the rate hike, the electricity bill for a household of four persons will rise by 3,000 won ($2.24) per month.

KEPCO said on Friday that its operating loss in the first quarter reached 6.17 trillion won, narrowing from a 7.78 trillion won loss a year ago but was still well below the market estimate of 5.29 trillion won.

Chief Executive Officer Cheong Seung-il offered to resign, saying, “I ask the public for understanding that a hike in the power price has now become an inevitable choice.”

Industry insiders said that his resignation came as the ruling party continued to demand Cheong to step down to take responsibility for the utility‘s debt mismanagement and financial crunches. However, some market watchers also said that Cheong’s resignation was an attempt by the government to shift the blame onto government officials in charge of energy policy, including Cheong, for delayed utility rate increases citing the public concerns. The government replaced a second vice minister of Trade, Industry and Energy on Thursday.

In addition to Cheong’s resignation, KEPCO announced a restructuring plan worth 5.6 trillion won. The plan, aimed at improving its finances, includes asset sales, such as its building in Seoul, and business restructuring and cost reductions. In a separate announcement on the same day, the Korea Gas Corp. said it will adopt cost-cutting measures worth 1.4 trillion won.

KEPCO’s cumulative losses now amount to 44.6 trillion won. The state-run utility, which logged a record 32.6 trillion won in operating loss last year, will face growing pressure to raise electricity rates.