KEPCO raises $1.5 bn in Q3 profit on cost-cutting efforts

[Photo by Park Hyung-ki]

State utility Korea Electric Power Corp., which had been under debt pressure, reported nearly 2 trillion won ($1.5 billion) in operating profit in the third quarter, thanks to a series of electricity rate increases and lower energy prices.

According to KEPCO on Monday, sales reached 24.47 trillion won for the third quarter, up 23.8 percent from the same period a year ago. Operating profit came to 1.99 trillion won, escaping losses for the first time since the first quarter of 2021.

KEPCO’s turnaround to profit is largely attributed to the increase in electricity rates. Income from electricity sales, earned through rate hikes until September this year, amounted to 13.83 trillion won, a 28.8 percent increase year-on-year.

KEPCO increased electricity rates three times from October last year to May this year, resulting in the price per kilowatt-hour (kWh) for January to September standing at 151.1 won, a 29.8 percent increase from 116.4 won during the same period last year.

The reduction in energy prices due to a temporary decline also had an impact. According to KEPCO, a decrease in power demand and falling energy prices led to a fuel cost saving of 2.66 trillion won for its subsidiaries in the first nine months of this year. During the same period, the average price of flexible coal per ton was $184.5, down 48 percent from $354.9 during the same period last year.

However, the outlook remains gloomy as energy prices are unstable. The exchange rate between the Korean won and the U.S. dollar faces fluctuation, compounded by the Russia-Ukraine war and the Israel-Hamas war.

In addition, the latest electricity rate hike announced by KEPCO last week was limited to large corporates, accounting for about 50 percent of total revenue. It is estimated that this rate increase will generate 400 billion won by the end of this year and an additional 2.8 trillion won next year.

Given KEPCO can only pay their interests with the additional income following the latest rate hike, the market considers it only as a modest achievement.

According to the consensus compiled by local financial data tracker FnGuide, KEPCO is estimated to achieve sales of 21.9 trillion won and log operating losses of around 679.3 billion won in the fourth quarter of this year. KEPCO’s cumulative operating losses in the third quarter of this year stood at about 6.5 trillion won, reaching about 45 trillion won since 2021.

“Despite the uncertainties surrounding our profitability due to the unstable international oil prices and exchange rates caused by the Israel-Hamas war, among other factors, we will continue to implement restructuring efforts to normalize management,” said KEPCO.

On the same day, Korea Gas Corp. (KOGAS) also announced its third-quarter performance. KOGAS posted 7.89 trillion won in sales for the quarter and 230.4 billion won in operating profit. Compared to the same period last year, revenue decreased by 26.5 percent, but operating profits increased by 60.7 percent.

Outstanding receivables for city gas for households and general use amounted to 12.52 trillion won, a 117.9 percent increase from the same period last year. The gas company classifies outstanding receivables as uncollected assets when it incurs losses by selling gas at a lower cost than the purchase price, and later recovers it through rate increases.

The outlook for the fourth quarter is also uncertain for the gas company.

With the rapid increase in heating demand in the winter and the government’s decision to freeze gas rates, there is a significant risk of a substantial increase in outstanding receivables.

“A potential gas rate increase will be decided following reviews on the outstanding receivables and financial structure of the company,” said Vice Minister Kang Kyung-sung of the Ministry of Trade, Industry, and Energy.