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Korea Electric Power sees greater loss than expected

Korea Electric Power Corp, supplier of almost all of South Korea’s power, posted higher losses for the second quarter than analysts had expected as fuel costs rose and the government capped electricity tariffs to fight inflation.

The loss amounted to 763.6 billion won (US$736 million) in the quarter ended June 30, compared with a profit of 266 billion won a year earlier, the power producer said in a statement yesterday.

Seven analysts surveyed by Bloomberg News estimated a loss of 474 billion won on average.

Record crude oil prices helped drive up the cost of importing coal and natural gas while the government kept electricity tariffs unchanged after raising them on Jan. 15 last year. Korea Electric’s fuel costs climbed 21.8 percent in the second quarter from a year earlier, Hana Daetoo Securities Co said in a report on July 8.

“Korea Electric cannot avoid weak earnings in the second half and even next year without a sharp increase in electricity tariffs,” said Joo Ick Chan, an analyst at Hana Daetoo.

The state-run utility reported a 908.2 billion won operating loss, its second consecutive quarterly loss. Sales rose 4.9 percent to 6.84 trillion won.

Asia’s fourth-biggest economy is battling with inflation that has reached a 10-year high.

Record energy and food costs pushed up annual consumer prices by 5.9 percent in July, the biggest gain since November 1998.

The cost of coal, from which 41 percent of Korea Electric’s power is generated, rose 71 percent in the second quarter from a year earlier, Hana Daetoo said.

Nuclear energy accounts for 37 percent of the utility’s generation, liquefied natural gas 16 percent, and oil 4 percent.

Thermal-coal prices at Australia’s Newcastle port, a benchmark for Asia, advanced to a record US$194.79 per tonne in the week ended July 4, before retreating to US$156.16 last week, the globalCOAL Newcastle index indicated.

Korea Electric’s fuel costs should increase 37 percent this year and climb 27 percent next year, Citigroup Global Markets said in a report last week.

In May, the utility said fuel costs would rise by 2 trillion won this year. Fuel costs increased 15 percent to 11 trillion won last year, it said on Feb. 1.

The recent drop in commodity and energy prices may limit Korea Electric’s losses, said Yun Hee Do, an analyst at Korea Investment & Securities Co.

Crude oil has gone down 22 percent since touching a record US$147.27 a barrel in New York last month as unprecedented fuel costs threatened demand in the US, the world’s largest energy consumer.

“Everybody agrees that Korea Electric will suffer an operating loss until next year, but falling crude oil prices will at least boost investor sentiment,” Yun said.


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