SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934
For the Month of December, 2004
KOREA ELECTRIC POWER CORPORATION
(Translation of registrant’s name into English)
167, Samseong-dong, Gangnam-gu, Seoul 135-791, Korea
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will
file annual reports under cover of Form 20-F or Form 40-F.
Form 20-F X Form 40-F
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):
Indicate by check mark whether the registrant by furnishing the
information contained in this form is also thereby furnishing the
information to the Commission pursuant to Rule 12g3-2(b) under the
Securities Exchange Act of 1934.
Yes No X
If “Yes” is marked, indicate below the file number assigned to the
registrant in connection with Rule 12g3-2(b): 82- .
This Report of Foreign Private Issuer on Form 6-K is deemed filed for all purposes under the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended, including by reference in the Registration Statement on Form F-3 (Registration No. 33-99550) and the Registration Statement on Form F-3 (Registration No. 333-9180).
In an effort to privatize Korea South-East Power Co., Ltd., one of its non-nuclear generation subsidiaries, on December 10, 2004, Korea Electric Power Corporation (“KEPCO”) will meet with a couple of potential strategic investor candidates and utility analysts from three financial institutions based in Hong Kong. Topics to be discussed include the plan of selling KEPCO’s generation subsidiaries and the current operation with respect to power pooling.
In addition, KEPCO has entered into an agreement with the authorities of the People’s Democratic Republic of Korea (“North Korea”) to provide and distribute 15 mega-watt of electricity to 15 South Korean companies that are expected to commence operations in the Gaeseong industrial zone in North Korea.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| KOREA ELECTRIC POWER CORPORATION | ||
| By: | /s/ Lee, Hi-Taek | |
| Name: | Lee, Hi-Taek | |
| Title: | Chief Financial Officer | |
Date : December 9, 2004
| Developments in Korea’s Power Industry |
December 9th, 2004
Table of Contents
I. Overview of Korea’s Power Industry
II. Overview of the Restructuring Plan
III. Overview of the Electricity Market System
IV. Privatization of Gencos
V. Conclusion
I. Overview of Korea’s Power Industry
Generation Sector
Nuclear and coal are very important sources of fuel in Korea
Market Shares (3Q.2004)
Fuel Mix (3Q.2004)
1.3
100%
5.3
5.4
KOWEPCO
KOSPO
11.4%
14.9%
15.3
11
80%
21.6
KEWESPO
KOMIPO
29.2
10.7%
60%
10.9%
28.9
IPPs
40%
2%
20%
KOSEP
38.5
10.9%
30.4
0%
Installed Capacity
Gross Power Generation
KHNP
Others
Hydro
Oil
Gas
Nuclear
Coal
39.7%
Coal and nuclear comprise 57% of installed capacity and 78% of generation
6 Gencos, 100% owned by KEPCO supply about 98% of the total trading electricity
4
Transmission Sector
The nationwide multi-loop transmission network in place is now in the 2nd stage of the 765kV project
Transmission Network
Transmission Lines
30,000
25,000
20,000
15,000
(c-km)
10,000
5,000
0
2002
2001
2000
2003
345kV
154kV
66kV
HVDC
765kV
Boryeong
C/C
New
Incheon
T/P
Incheon
T/P
Pyongtaek
T/P
Dangjin
T/P
Taean
T/P
Yangju
Uijeonbbu
Migum
East Seoul
Youngseo
New
sungnam
New
Gapyong
New
Taebaek
New
Ansung
New
Seosan
Donghae
New
Jecheon
New
Yeongju
Sunsna
Chungwon
New
Okcheon
West
Daegu
New
Gyeongsan
New
Ulsan
New
Namwon
New
Kimhae
New
Masan
Kwangyang
New
Yangsan
Haenam
C/S
Jeju
Chungyang
Gunsan
New
Kimje
New
Kwangju
New
Gangjin
Wolsong
N/P
Boryeong
T/P
Yeongkwang
N/P
Yeosu
T/P
Samchonpo
T/P
Muju
P/P
Ulsan
T/P
Gori
3-4 N/P
Gori
1-2 N/P
Uljin
N/P
New
Pohang
C/S
Hadong
T/P
North
Pusan
New
Yongin
Jungbu
New
Dangjin
345kV Overhead Transmission
345kV Underground Transmission
DC
180kV
Cable Link
345kV Substation
Power plant
765kV Substation
Notes
765kV Transmission
Sungdong
New
Incheon
New
Shiheung
West Seoul
Hwaseong
South
Pusan
Uiryeong
New
Gosung
Ulju
West
Incheon
Goryeong
New
Onsan
765kV Transmission
( 345kV Pressurization)
Sancheong
P/P
New
Hwason
New
Yangjae
New
Gyeryong
Asan
New
5
Distribution and Retail Sector
Industrial customers account for more than 50% of overall consumption
Distribution facilities have been added to meet demand growth
Distribution Facilities
Consumption by Type of Customers
90,000
390,000
350,000
76,356
293,599
71,977
80,000
380,000
65,035
300,000
278,451
376,454
257,731
70,000
240,075
57,178
250,000
370,000
366,983
60,000
200,000
(c-km)
50,000
358,328
360,000
(GWh)
(MVA)
40,000
150,000
351,264
30,000
350,000
100,000
20,000
50,000
340,000
10,000
330,000
0
0
2003
2002
2001
2000
2002
2001
2000
2003
Transformers
Line Length
Industrial
Commercial
Residential
6
Power monopoly in the Korean market
KEPCO is the dominant player in Korea’s power industry
KEPCO’s market share
Transmission
Generation
Distribution
100%
95%
100%
* Based on gross generation (2003)
KEPCO’s financial performance
%
3Q 2003
3Q 2004
(in billion Won)
1,017
6.0%
Revenue
16,826
17,843
2,229
500
28.9%
Operating Income
1,729
2,698
409
17.8%
Net Income
2,289
58,255
1,785
3.2%
Total Asset
56,470
18,604
-223
-1.2%
Total Liabilities
18,827
39,651
2,008
5.3%
Total SH’s Equity
37,643
7
II. Overview of the Restructuring Plan
The Original Restructuring Plan
Restructuring objectives and implementation methodology
Increase efficiency levels
Restructuring and Disaggregation
Korean
Electricity
Industry
Ensure security of supply and competitiveness
Competition and Deregulation
Improve customer choice and service
Privatisation
9
The Original Restructuring Plan
Phased introduction of competition in the electricity industry via segregation, deregulation and privatization
Generation Competition
Phase I ( ~ 2002)
Separate generation sector from KEPCO
Gradually privatize Gencos
Gencos to trade electricity by bidding through KPX
Introduce contestability for large consumers
Wholesale Competition
Phase II (2003 ~ 2008)
Separate distribution/retail sector from KEPCO
Disco unbundling cancelled by MOCIE
Privatize Discos
Open transmission network access to all participants
Retail Competition
Phase III (2009 ~ )
Introduce contestability for all consumer classes
10
Establishment of Gencos
KEPCO’s generation business was divided into 6 separate Gencos
Before April 2, 2001
After April 2, 2001
Transmission
K
E
P
C
O
Distribution/retail
Korea Power Exchange (KPX)
Generation
Transmission
KOSEPCO (7,165MW)
K
E
P
C
O
KOMIPO (7,993MW)
6 Gencos
Spin-off
KOWECO (7,946MW)
Distribution/retail
(100% owned
by KEPCO)
KOSPO (7,875MW)
KEWESPO (7,500MW)
KHNP (18,251MW)
11
Changes to Distribution Sector Policy
Study on Distribution Unbundling
(2000. 5 ~ 2001. 8)
Background of the cancellation of separation of KEPCO’s distribution and retail segments
KEEI reviewed options available for KEPCO’s distribution /retail sector
Adjustment of timing and implementation of shadow operations
Adoption as Agenda of the Korea
Tripartite Commission
(2003. 8)
Discuss the separation of distribution/retail sectors from KEPCO
Decision to organize a Joint Research Team to study the feasibility of distribution/retail sector separation and related issues
Activities of the Joint
Research Team
(2003. 9 ~ 2004. 5)
16 conferences & public hearings
On-site survey of 32 foreign institutions in 9 countries
Submittal of final report by the Joint Research Team
Final Conclusion
(2004. 6)
Korea Tripartite Commission decided to stop the separation of KEPCO’s distribution/retail sector and introduces independent business units within KEPCO to promote internal competition
12
Changes to Distribution Sector Policy
The cancellation of the establishment of Discos was largely due to uncertain risk-reward profiles
Very low price elasticity of demand
Difficulty controlling short-run supply
Risk of price hikes and price manipulation
Characteristics
of Electricity
Negative side-effects observed in other countries
Price shocks, large-scale blackouts, investment shortfalls
Financial distress, increased government burden
Lessons from
other Countries
Korea’s grid is not connected to other nations
Current market (CBP) offers stable prices
No price difference by region
Characteristics of
the Korean Market
Current system has been relatively successful in supplying stable and affordable electricity
Evaluation of
the Current System
13
Introduction of Independent SBU’s
Proposed schedule
Preparation of
detailed plans for
independent SBUs
(05.11 - 05.12)
Selection of
consultants
( - 04.12)
Conduct
study on
independent SBU
(05.1 - 05.10)
Implementation
of
independent SBUs
( 06.1 - )
* SBU = Strategic Business Unit
Key agenda
Ensure independence
Each SBU is responsible for its operational performance and results
Operations
Separate accounting for each SBU to measure performance
SBUs to be operated as financially self-sufficient profit centers
Auditing
Internal Trade
Conduct internal trade based on pre-set prices for business units
Utilize metering system to determine the costs of each SBU
Evaluation
Develop key indices for performance evaluation (KPIs, BSCs)
Introduce incentive system with responsibilities
* KPI - Key Performance Indicators * BSC - Balanced Score Cards
14
Future Structure of the Electricity Industry
Create a competitive market environment by encouraging private players to enter the market, promoting the CES system, and privatizing the Gencos
IPPs
Private Gencos
CES*
Public Gencos
Power Pool (KPX)
KEPCO
Transmission
Distribution/Retail
Direct Purchase
Retailer
Contestable Customers
(large customers)
Franchise Customers
(small customers)
Collective Customers
(apartment complexes, etc.)
New systems
*CES = Community Energy Supply system
Existing systems
15
III. Overview of the Electricity Market System
Cost-Based Pool (CBP)
CBP was introduced to encourage competition in the generation sector
Generation Competition
Generators only participate in the pool
Dispatch schedule is determined by costs:
Generation Cost Evaluation Committee determines variable costs of each generator monthly
Generators offer available capacity for each generator corresponding to each trading period daily
Energy price is based on system marginal price by merit order of actual variable cost of generators
GENCOs (6)
Others* (41)
Bid (sell)
Bid (sell)
Bid (sell)
Power Pool (KPX)
Transmission & Distribution (KEPCO)
PPA
IPPs (5)
Customers
Large Customers
Physical
Electricity Sales
*Others : small hydro, self-generator, wind etc.
17
Market Clearing Price Mechanism
Components of the Market Clearing Price (49.01KRW/kWh, 3Q 2004)
Marginal Price (Variable Cost) : Fuel, start-up costs, etc.
BLMP (Base Load Marginal Price) : nuclear, coal
SMP (System Marginal Price) : oil, gas
Marginal Price
(47%, 23.18KRW/kWh)
+
Capacity Payment
(41%, 19.92KRW/kWh)
Capacity Payment (Fixed Cost) : Compensation for
construction & maintenance costs
Base load generators = 20.49 KRW/kWh
Non-base load generators = 7.17 KRW/kWh
+
Uplift : Constraint costs, ancillary services, etc.
Uplift
(12%, 5.92KRW/kWh)
Achieve stability of supply, price levels and revenue predictability
for the Gencos
18
Performance of Market Operations
Although the LNG, most expensive fuel, sets the SMP, the market clearing price has stabilized through a dual pricing system (SMP&BLMP)
Daily Setting Price Fuel
Market Price
100
LNG
80.19
77.38
80.53
Heavy oil
74.2
80
60
Coal
49.01
48.98
48.17
(KRW/kWh)
47.51
(KRW/kWh)
41.36
41.39
41.23
40.79
40
Nuclear
20
24hrs
0hrs
12hrs
0
O
O
L
L
C
3Q2004
2003
2002
2001
O
SMP setting plant
Average
SMP
BLMP
SMP setting ratio by fuel type: LNG (61.3%), heavy oil (14.7%), coal (23.8%), nuclear (0.2%)
Market prices have been stable since pool market started on April 2, 2001
19
Evolution of the Pool Market System
KPX launched a study to improve the current CBP system
Pool Market Type
Future Pool
Current Pool
TWBP
CBP
Original
(99.1)
Improved CBP
CBP
Change
Study for Improvements to the Current CBP System
Performance
Evaluation
(04.12 - 05.1)
Selection of
Consultants (KDI)
( - 04.11)
Implement
in the market
(05.12 )
Recommend
Improvement
Methods
(05.2 - 05.11)
Work scope
Review the pricing mechanism in the generation sector
Improve market operation processes
Enhance competitiveness
20
IV. Privatization of Gencos
Outline of Privatization Plan
Government’s basic plan for the privatization of Gencos (2002.4)
All five Gencos, nuclear-hydro Genco not included
Target
Step 1 : Sequential sale of 2 Gencos
Step 2 : Sale of 3rd Genco after Step 1
Sale Process
Sale Method
Combination of Trade sale and IPO for Step 1
Governance
One Genco per buyer
Foreign ownership will be limited to 30% of total Genco capacity (ie maximum of 2 thermal Gencos)
Special Support
Resolution of joint & several liabilities
22
Transaction Plan for KOSEPCO
Step 1
Trade Sale
(34-51%)
KOSEPCO will be privatized via a trade sale and an IPO
Sell a 34%~51% stake in KOSEPCO to a strategic investor
Step 2
IPO
(16~25%)
Sell down KEPCO’s stake in KOSEPCO via a domestic IPO
Flexibility on the size of the stake to be listed
Step 3
Disposal of
Remaining Shares
(24~50%)
Disposal of remaining interest in KOSEPCO over a period of time
Disposal timing depends on the next Genco privatization
23
Privatization of KOSEPCO
Trade Sale
Domestic IPO
Selection of lead managers (‘03. 5)
LG/Daewoo/Hyundai Securities consortium
Receipt of Letter of Intents (‘02.10)
14 investors (domestic 6, foreign 8)
Amendment of the Statute (‘03. 9)
Issue of the RFP (‘02.11)
Due Diligence (‘03.10)
Receipt of Indicative Bids (‘02.11)
SK, POSCO, KIECO/Powertek, J-Power
Due Diligence / Issue of the Request
for Final Proposal (‘03.2-3)
Receipt of Approval from the KSE
for IPO (‘03.12)
Postponement of Trade Sale (‘03.3)
Due to internal problems of the bidders and
internal problems and unclear prospects
on the economy
Postponement of IPO(‘04.3)
Due to unfavorable market conditions
Resume the domestic IPO and Trade Sale once market conditions improve
24
Power Plants of KOSEPCO
KOSEPCO has an optimal fuel mix and recently completed construction of a large scale base load plant (Yonghung) near the metropolitan Seoul area
Location of Power Plants
In operation 7,194 MW
Samchonpo (Base) 3,240 MW
Yonghung #1,2 (Base) 800 MW
Yongdong (Intermediate) 325 MW
Yosu (Intermediate) 529 MW
Bundang (Peak) 900 MW
Muju (Peak) 600 MW
Under Construction 2,400 MW
Yonghung (Base) 1,600 MW
Yechon (Peak) 800 MW
Yongdong
- Anthracite
Bundang - LNG
Yechon - Pumped
Storage
Yonghung
- Bituminous
Muju - Pumped
Storage
Samchonpo - Bituminous
Yosu - Oil
Metropolitan area
Major industrial / chemical complex
25
Profitability of KOSEPCO
KOSEPCO has the most stable source of profit among the thermal Gencos, with the highest margins and strongest returns
EBITDA Profitability
Net Income Margin
3Q2004
2003
3Q2004
2003
3Q2004
2003
22.7%
50%
800
25%
42.2%
38.4%
18.9%
700
40%
20%
33.9%
600
32.4%
32.4%
31.0%
500
13.7%
15%
26.0%
25.0%
30%
23.0%
11.8%
Net income as a % of sales
22.8%
EBITDA (KRW bn)
EBITDA margin
400
9.2%
9.8%
8.6%
20%
300
10%
4.7%
200
10%
5%
3.2%
3.8%
100
0
0%
0%
KOSPO
KOWEPCO
KOMIPO
KOSEPCO
KEWESPO
KOSPO
KOWEPCO
KOMIPO
KOSEPCO
KEWESPO
KOSEPCO - The most profitable Genco in Korea
26
Note: As of Dec 31, 2002
Operating Cost (per kWh)
Load Capacity Breakdown (2004.9)
Operational Performance of KOSEPCO
KOSEPCO’s base load capacity and operating costs rank number one among the Gencos
32.9
39.8
44.9
44.2
50.6
35.9
50.5
52.2
61.5
56.1
10
20
30
40
50
60
70
KOSEPCO
KOMIPO
KOWEPCO
KOSPO
KEWESPO
KRW/kWh
2003
3Q2004
10,000
9,000
1,400
2,000
8,000
1,600
2,490
3,200
7,000
1,855
6,000
2,880
2,800
4,105
1,500
529
5,000
4,000
1,698
1,400
1,800
3,000
466
2,000
4,365
3,000
2,900
3,000
3,400
1,000
0
KOSPO
KOWEPCO
KOMIPO
KOSEPCO
KEWESPO
Peak
Under construction
Base
Intermediate
(MW)
27