Headquarters of Korea Electric Power Corp. in Naju, South Jeolla Province / Yonhap
Public energy companies face growing concerns over a liquidity crunch in the bond market, as their bond yields may rise sharply amid disruptions in the global energy supply, industry officials said Tuesday.
These energy sources include crude oil, liquefied natural gas (LNG) and coal, which are purchased by Korea Electric Power Corp. (KEPCO), Korea Gas Corp. and other domestic state-run energy firms.
Global energy supply is tightening due to the escalating U.S.-Israeli war on Iran, driving energy prices higher.
However, state-run energy firms cannot immediately pass these higher costs on to consumers because of government-regulated pricing, meaning they must bear the burden of the resulting losses themselves.
The companies are tempted to issue more corporate bonds to make up for these losses. However, this measure can instead push bond yields higher, which in turn leads to falling bond prices, reduced profitability and a worsening liquidity risk.
“The current situation, if mismanaged, could revive a crisis previously faced by KEPCO,” an industry official said.
The crisis happened in 2022, when the Russia-Ukraine war erupted and international fuel costs rose sharply.
Due to regulated electricity prices, KEPCO’s electricity purchase cost was 155.5 won ($0.11) per kilowatt-hour (kWh), while the selling price was only 120.51 won per kWh.
This loss-making structure, in which the more electricity KEPCO sold the greater the losses, persisted into early 2024, resulting in accumulated operating losses of 47.8 trillion won.
Source: Korea Times News
