Korea Electric Power Corp Q1 2021 Earnings Call (English, Korean) Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Ji-Yoon Shin - KTB Investment Securities - Analyst : (interpreted) It seems that there has been some complication with the system and [hopeful that it resolves). And meanwhile, since I am able to ask questions, my first question would be on the unit price of your LNG and coal; and I'm sure that was what Pierre was also trying to ask through this conference call. And when you look at the price of coal minus tax in dollar, the Q4 coal price was at around $60; whereas in Q1, it's over -- well over $70. And when you look at the spot price of the future price, it's currently $100 or above. So I would like to know the Company's guidance on the future price or the coal price projection. Unidentified Company Representative (interpreted) So to give you our unit fuel cost predictions for the whole 2021 on an annual basis based on different fuel source, for coal we are anticipating KRW131,300 per ton; and for LNG we are anticipating KRW597,000 per ton. So when you compare these numbers to the power predictions at the end of the year, the price for coal has gone up and we're especially monitoring the price trend of coal at the moment. So if there are changes to these unit price projections, we will be actively communicating to the market.

Question: Kyung-Won Moon - Meritz Securities Co., Ltd - Analyst : (interpreted) My question is regarding the baseload for the coal and nuclear power plant. What is your outlook for the overall capacity as baseload? Especially, you are going to be also using Shin-Hanul 1 generation, so what would be the utilization for it for nuclear power plant and also coal? If you can share your guidance on the utilization, it would be great. Unidentified Company Representative (interpreted) To answer your question on the capacity for Shin-Hanul 1, it is projected to be up and running at end of July 2021. And also for Shin-Seocheon 1, it will be up and running at the end of May 2022 and the capacity will be 1.4 gigawatt. For coal, the Shin-Seocheon 1 will be up and running in end of this year with a capacity of 0.1 gigawatt; and if there is any changes to the capacity or the operations scheduled for Shin-Hanul 1, we will be communicating that to the market. And for Shin-Seocheon 1, the correction is that it will be up and running at the end of -- during end of July -- June of this year. And regarding the shutdown of coal-fired power plant for (inaudible), we are closing down a total of 2.6 gigawatt of capacity. And for the utilization for the coal power plant for this year, last year it was at 75.3% for nuclear power plant; and our anticipation for this year would, of course, depend on our planned and unplanned maintenance timeline, but we anticipate that it will be somewhere around early to mid-70% for the nuclear power plant utilization. And as for the coal power plant, although we are seeing demand increase for our power, what we are seeing end of Q1 actuals as well as the situation around particulate matter and greenhouse gas emission, we believe the utilization rate will be somewhere around or below 60%. I hope that answered your question, and if so, we will be moving on to the next question.

Question: Jae Hong You - Mirae Asset Securities - Analyst : (interpreted) My first question would be on the standalone financial statements especially on your standalone revenue, including the operating profit. When you look at your standalone performance compared to a consolidated financial statement, the direction seems to be somewhat decoupled at the moment. There could be various reasons for that, and I would like to understand what causes this decoupling of directions for the financial result. Is it because of the settlement coefficient or adjustment coefficient that is being applied? And once the adjustment coefficient is applied to settle the different unit prices, will the direction then be synced again? What is your outlook on that? And more importantly, we haven't seen the increase of electric tariff at the moment, but when you look at the coal price, it is the right time to have a tariff increase. And if you look at it on a quarterly basis, it's already well over KRW30,000 to KRW40,000; and the fuel cost is going up, so we believe that there have been some pressure on the fuel cost as well. So what is your outlook for the tariff in the second half of the year? And if possible, what is your investment coverage ratio that you anticipate going forward? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 14, 2021 / 1:30AM, 015760.KS - Q1 2021 Korea Electric Power Corp Earnings Call (English, Korean) Unidentified Company Representative (interpreted) So on a standalone basis, we have had some slow progress made in our UAE business; and compared to last year, the revenue was negative KRW70.6 billion on our balance sheet. And also, for the purchased power cost, we have seen increased power cost purchase for RPS at around KRW175 billion, and that would give us the total purchased cost increase of power by KRW371.8 billion. And to add to that, when you look at the different performance for Q1 on a standalone basis, it was also improved by the changed adjustment coefficient that we used to settle the unit cost.

Question: Jae Hong You - Mirae Asset Securities - Analyst : (interpreted) I fully understand why there could be difficulties in trying to project the fuel cost adjustment especially for tariff changes, but we are implementing a cost pass-through system and if we -- and the management has spoken about the investment compensation rate and the market expectation is to see this cost pass through the tariff system. But to have that outlook somewhat unclear at the moment and to have lack of visibility into how these prices will move in the future would, kind of, kill the purpose of actually implementing the cost pass-through system. Would like to understand the management perspective on how this will unfold. Unidentified Company Representative (interpreted) Regarding the fuel cost, we have seen -- we have had the cost pass-through system implemented to have a right signal for the market as well as to encourage efficient and effective use of electricity and power by our consumers. But when you look at what is happening in the market, in Q2, we have seen volatility increase when it comes to the prices of different fuels. And due to COVID-19, we also have to consider how the Korean people are dealing with the economic and social difficulties at the moment. So there are many different things to consider and it has been decided that we will delay applying different price increase measures in the government. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 14, 2021 / 1:30AM, 015760.KS - Q1 2021 Korea Electric Power Corp Earnings Call (English, Korean) So, although we are closely monitoring the oil prices as well as following the trade prices of different fuels, it will be still difficult for us to anticipate how these fuel costs will move in Q3 for our tariff determination.

Question: Dong-jin Kang - Hyundai Motor Securities - Analyst : (interpreted) I have one question, short question. When you look at last year's standalone net profit, it seems that your profit was higher than the fair rate of return. Did I understand that correctly? And if so, if you have created some profit off of it, would that also trigger tariff decrease going forward or are you going to have to share profit with your subsidiary to the adjustment coefficient? Unidentified Company Representative (interpreted) When you look at the total cost that was submitted to the 2020 budget statement, fair rate of return will be higher than what was actually anticipated. As for the adjustment coefficient calculation, we will be reflecting the total cost that went into all of our GENCOs as well as KEPCO and predict our profit or loss from that -- based off of that. So it will be reflecting the total profit or loss at the end of the day. But currently, we don't have full visibility in to how much cost could be applied to our GENCOs, so we cannot predict whether the coefficient will go up or go down.

Question: Yoon Cho - UBS Securities - Analyst : (interpreted) I have a question on the overall carbon related cost. So for carbon emission trading and RPS, how much cost was there for the quarter and how much cost do you anticipate throughout the year? And in the second half of this year, you will be reducing discount for the essential usage of power as well as increasing discount for the underprivileged household. Will these plans be implemented as scheduled? If so, what will be the impact on your top-line revenue? Unidentified Company Representative (interpreted) As for our RPS purchase cost, the cost has been increased by KRW211.7 billion in total; and as for the greenhouse gas emission trading cost and for the power, it was KRW112.6 billion. And also, we incurred a negative KRW29.2 billion; and on net, the cost would be minus KRW141.8 billion. As for your question regarding the two plants that KEPCO is scheduled to roll out in the second half, they both will be rolled out within July of this year, and the impact on our revenue would be plus KRW70 billion to KRW80 billion.

Question: Ji-Yoon Shin - KTB Investment Securities - Analyst : (interpreted) So I would like to understand further on how the accounting process is done for the fuel cost pass-through system. And for the case in CO gas, after implementing a cost pass-through system, if the cost increase has not been reflected in that month, what they do is that they state that as an account receivable on their (inaudible); and I believe, that you have done the same since 2012 and processing it as an account receivable. I'm sure Q1 will not be applicable, but starting in April, it seems that you need to, kind of, apply the increased tariff rate that needs to be reflected. So you may also try to process it as a lump sum cost in a short period of time. So how do you plan to process this on an accounting term? I don't believe that you will be processing it as an account receivable, then how will it be processed? And also, regarding your borrowing or loans. When we are getting negative cash flow, and you will probably need to borrow to offset the negative cash flow, what is your plan for that? And another question is regarding your generation consolidation. We are hearing some of the media cover the potential consolidation of generators. How is that going to happen? Unidentified Company Representative (interpreted) On a standalone basis, our accounting process for the addition of tariffs that needs to be processed would be the volume. In Q1, we have a negative KRW3 that needs to be reflected, which is then processed on our accounting book as revenue and account receivable; and that is something that we also continue to do, as we have done to date, to put on our accounting book and when we file for our invoices as well. So we would continue on with processing it as revenue and accounts receivable according to our code for electric business. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 14, 2021 / 1:30AM, 015760.KS - Q1 2021 Korea Electric Power Corp Earnings Call (English, Korean) Unidentified Company Representative So I need to make some clarification on the answer that was just provided. The minus KRW3 -- it was processed and was already reflected on our revenue and account receivable and that is something that we have done to date. But going forward, we need to also reflect the additional tariff that needs to be reflected as an increase coming from our cost pass-through system. How we are going to do that is something that is under discussion at the moment, but it is likely that at the timing of our invoicing, we will be reflecting that as account receivable. That is something that needs to be further reviewed; and once it is determined and finalized, we will be communicating that to the market.

Question: Jae Hong You - Mirae Asset Securities - Analyst : (interpreted) As far as I know -- this is a follow-up question for your accounts receivable statement. But as far as I know, there has been some accounting rule that [unabled] us to process it as an account receivable. Has KEPCO changed how you are processing this going forward to allow this to be accounted as an account receivable? I would like to understand whether the accounting rule has changed or whether you are changing the accounting process to enable this? Unidentified Company Representative (interpreted) So currently, what I can say is that our accounting procedure is being under review and we have not decided on whether this -- and we have to look into whether this will be processed as account receivable or not. But we did not change any accounting procedures or standard before related to it; and whether the accounts receivable will be received or not in the future is a sphere of judgment that we cannot make judgment into at this point. So when you look at the accounting processing for this account receivable, what I can say is that it's still under review. And we are also trying to determine whether this AR will be recognized at the time of invoicing or not, which has not been determined yet.