Utility hike may hurt firms’ ratings

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Utility hike may hurt firms’ ratings

Korea’s recent power rate hike is likely to have a negative impact on local manufacturers and weigh on their future earnings, a global credit appraiser said yesterday.

The government last week allowed state-run power supplier Korea Electric Power Corporation (Kepco) to raise its rates for industrial users by an average of 6 percent in an effort to tackle its chronic deficits.

“It will have a negative effect on the profitability of Korean manufacturers, especially heavy users such as those in the steel, chemicals and semiconductor industries,” Chris Park, senior credit officer at Moody’s Investors Service, said in a report.

Park said Hyundai Steel, which uses electric arc furnaces, will likely be hit hardest by the tariff raise, projecting the move will “decrease [its yearly] operating income by 3 percent.”
Moody’s rates Hyundai Steel, Korea’s second-largest steelmaker, as Baa3-.

No. 1 player Posco, rated A3 and under review for a possible downgrade, is less likely to be affected as most of its operations are based on blast furnaces, which consume less power than electric arc furnaces, along with the company’s energy-efficient plants, he said.

Moody’s noted local firms are likely to face further tariff hikes in the next few years, as Kepco will continue to seek ways to raise the costs for industrial players due to chronic losses.

The power provider posted a net loss of 513 billion won ($454.7 million) in the first quarter from a year earlier, with a total of 3.2 trillion won in net losses for 2011.

The call for a rate hike on power usage by companies has been a constant issue for local policy makers, as experts have voiced concern that the price charged on firms is too low compared to the rate for households.
Kepco had initially pushed for a double-digit increase, but that was rejected by the government.

Moody’s said that such policies could change in the future as the country’s power supply is getting tight with its electricity reserve at an alarmingly low level and Kepco losing money. The government will likely make exporters pay higher power bills, it added. Yonhap

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