Korea Electric Expects First Loss in 26-Year History

By Shinhye Kang

Oct. 23 (Bloomberg) -- Korea Electric Power Corp., supplier of almost all of the country's power, forecast its first loss in its 26-year history because of record oil and coal costs and the falling won.

The state-run utility's shares plunged 11 percent to close at 23,600 won, the lowest since Nov. 9, 2004, after it said it expects a loss of 1.25 trillion won ($885 million) this year. The loss is likely to increase in 2009, the Seoul-based company said in a report to parliament today.

Government caps on fuel tariffs to limit inflation have prevented the company from passing on raw material costs. Benchmark oil and coal prices reached records in July, while the won has fallen 34 percent against the dollar this year, making it the worst-performing major currency in Asia. The weak won inflated imported fuel costs and foreign-currency debt.

``It is a bleak forecast but possible if the government doesn't allow the tariff increase,'' said Song Jae Kyoung, an analyst at Eugene Investment & Securities Co.

South Korea, which imports nearly all its fuel needs, has delayed a plan to raise utility prices because of concerns about slowing economic growth and inflation, which rose 5.9 percent in July, the biggest gain since November 1998.

The loss in earnings may rise to 5.71 trillion won in 2009 if global oil prices climb to $100 a barrel, coal reaches $150 a metric ton and the won is at 1,200 against the dollar, Korea Electric said in the report.

Power Tariffs

If oil prices average $80 a barrel next year, thermal coal trades at $130 a ton, and the won rises to 1,100, the loss would be 2.18 trillion won, it said.

``Korea Electric's earnings are hit by higher fuel prices and the falling won,'' Chief Executive Kim Ssang-Su told parliament today.

The company needs a 15 percent increase in power tariffs this year and a further 15 percent gain next year to cover rising fuel costs, according to today's report. Korea Electric reported a profit of 1.56 trillion won last year.

The won's 13 percent slump against the dollar added a 606 billion won foreign-exchange loss in the third quarter, Korea Investment & Securities Co. said in an Oct. 7 report.

Asia's fourth-biggest economy is battling slowing growth as a looming global recession and the credit crisis cut demand for its exports, mainly fuel products, semiconductors and cars. The stock index has tumbled to the lowest since 2005 and the nation's $970 billion economy grew 4.8 percent in the second quarter from a year earlier, the slowest pace in more than a year.

Record Coal, Oil

Benchmark crude oil prices rose to a record $147.27 a barrel in New York on July 11. Prices have since fallen about 55 percent because of concerns a global recession will cut demand. It was at $67.21 a barrel at 2:49 p.m. local time.

Contract prices of coal may rise to between $130 and $150 a metric ton next year from $80 this year, according to the utility. Coal fuels about 41 percent of Korea Electric's output.

The weekly globalCOAL index rose to a record $194.79 in the week ended July 4.

Korea Electric shares fell 8.6 percent to 24,350 won at 2:52 p.m. after falling as much as 11 percent. The benchmark Kospi index was down 7 percent.

To contact the reporter on this story: Shinhye Kang in Seoul at skang24@bloomberg.net.