Kepco reports big loss in first quarter of 2019

Korea Electric Power (Kepco), the state-controlled utility, reported its worst-ever first-quarter operating loss as the cost of fuel rose and the government pushed the company away from traditional energy sources.

Kepco said Tuesday that its consolidated operating loss for the first quarter was 629.9 billion won ($530.2 million), compared to the previous year’s first-quarter loss of 127.6 billion won. This is the worst consolidated operating loss in the January to March period since a new accounting method was introduced in 2011.

The result was far worse than analysts’ expectations of a 41.9 billion won operating loss, according to data compiled by FnGuide.

The company explained that the loss was due to a decrease in demand for electricity due to a warmer winter this year, leading to a 300 billion won fall in electricity sales, and higher liquefied natural gas (LNG) prices, which cost the company 700 billion won.

LNG prices in the January to March period this year increased by 13.4 percent from the same period the previous year, according to the electric utility company.

Kepco’s fortunes have dimmed in recent years since the current administration vowed to shift from traditional sources of energy, such as coal and nuclear power. The administration has shut down aging coal power plants and is reconsidering plans to build new nuclear power plants. The Trade Ministry last month announced that it will aim to increase renewable output to 30 to 35 percent of the total by 2040.

Amid the government’s new initiative, Kepco’s annual operating profit declined from 12 trillion won in 2016 to 4.9 trillion won in 2017. Last year, Kepco reported an annual operating loss of 208 billion won.

The company however rejected claims that the government’s push away from nuclear power was to blame for losses in the first quarter.

According to Kepco data, the usage rate for nuclear power plants rose to 75.8 percent in the first quarter this year compared to the previous year, when it was at 54.9 percent. Coal plant output, however, decreased 10.9 percent in the first quarter from a year earlier.

Analysts have suggested raising electricity rates to combat disappointing earnings.

“In order for a definitive turnaround, a hike in electricity bills is needed,” said Shon Ji-woo, an analyst at SK Securities, in a report last month.

The Trade Ministry, in comments made Tuesday, maintains that it is not considering an increase to electricity prices, echoing comments made by Prime Minister Lee Nak-yon earlier this year that there won’t be a hike until 2022. Kepco added that earnings could improve later in the year, while remaining cautious about global uncertainties.

“The fall in global oil prices after the fourth quarter last year is expected to have a positive impact on earnings after the second quarter this year. However, [we] are cautious about the increase in overseas uncertainties, such as the recent rise in oil prices, and exchange rates,” said Kepco in a statement on Tuesday.

Kepco shares fell 1.1 percent on Tuesday compared to a 0.14 percent rise in the Kospi.

BY CHAE YUN-HWAN [chae.yunhwan@joongang.co.kr]