Korea Midland Power Co. Ltd.

While the government has raised the "adjustment coefficient" (an additional price adjustment) for coal to the maximum level of 1.0 since June 2020, we believe this would not be sufficient to offset the negative impact of the decline in SMP. Also, we estimate the power generation volume of coal-based plants to remain subdued due to lowered electricity demand owing to COVID-19 and extended operational restrictions by the government. We forecast KEPCO will consider ways that could narrow the increasing performance gap between KEPCO and gencos, given the profit-sharing nature between KEPCO and gencos. Such support from KEPCO to gencos, if materialized, could possibly help improve gencos' earnings over the upcoming 12-24 months. The stable outlook on KOMIPO reflects the outlook

...The ratings on Korea Midland Power Co. Ltd. (KOMIPO) are equalized with that on its parent. We expect KOMIPO to remain a core subsidiary of Korea Electric Power Corp. (KEPCO; ##/Stable/A-1+). This is given the integral nature of power generation in KEPCO's role of providing a stable supply of electricity to Korea. KOMIPO accounts for about 8% of the nation's total power generation volume. We equalize the ratings on KEPCO with that on the government of South Korea (##/Stable/A-1+) due to the company's special public status of implementing the government's electricity policy. KOMIPO's operating performance is likely to be weak due to lower wholesale electricity selling prices. The weak performance for power generation subsidiaries (gencos) in Korea, including KOMIPO, is mainly due to a lower System Marginal Price (SMP) driven by the fall in coal, liquefied natural gas (LNG), and oil prices in 2020. Decreased utilization rates owing to economic disruptions relating to the COVID-19 pandemic...

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