KEPCO Seeks $18.1 Billion in Prepaid Power Bills From Samsung, SK Hynix for Grid Expansion

$14.5 billion from Samsung, $3.6 billion from SK Hynix

Interest may be paid through electricity-bill deductions

Korea Electric Power Corp. has proposed that Samsung Electronics Co. and SK Hynix Inc. prepay a combined $18.1 billion in electricity charges. The utility plans to use the money to build a large-scale power grid for semiconductor clusters in Yongin and the Honam region.

Industry officials said on Sept. 3 that KEPCO asked Samsung to prepay $14.5 billion and SK Hynix $3.6 billion in power bills. Based on what the two companies paid last year, the proposal amounts to about five years of electricity charges. Samsung paid about $3 billion, while SK Hynix paid about $652 million.

The sides are discussing an interest rate on the prepaid amounts that would be higher than the yield on two-year South Korean Treasury bonds but lower than that on two-year KEPCO bonds. This year's average rate on two-year Treasury bonds was 3.4%, compared with 3.7% for two-year KEPCO bonds. KEPCO wants a rate 0.15 percentage point above the Treasury yield, while Samsung and SK Hynix are seeking a rate closer to KEPCO bond yields, people familiar with the matter said. One option under discussion is to pay the interest not in cash, but by deducting it from electricity bills every six months.

The talks accelerated in early July after senior officials from South Korea's Ministry of Economy and Finance met with executives from KEPCO, Samsung Electronics and SK Hynix. In late July, Kim Yong-kwan, president and head of management strategy for Samsung Electronics' Device Solutions division, met KEPCO Chief Executive Officer Kim Dong-cheol to discuss the prepayment plan and grid construction for semiconductor industrial complexes. A related report was also submitted to the presidential office around the same time.

Earlier, Rep. Park Jeong of the Democratic Party proposed an amendment to the Korea Electric Power Corporation Act that would restrict KEPCO's use of advance payments to power-grid expansion and other projects specified by presidential decree.

KEPCO made the proposal as its finances came under severe strain. The utility's debt stood at $152.4 billion as of the first half of this year. It spends about $8.3 million a day on interest alone. The company is also struggling to roll over debt through bond issuance. A government measure that raised KEPCO's bond issuance limit to five times the sum of its capital and reserves is due to expire at the end of next year.

Samsung Electronics and SK Hynix are negotiating with KEPCO over the size of the prepayments and the interest rate while weighing whether to proceed. An official at the Ministry of Climate, Energy and Environment said KEPCO could reduce debt and improve its financial structure, while the companies could help fund grid construction by paying in advance to secure stable power supply on time. Finding a balance on details such as the interest rate will be key for both sides to benefit, the official added.

Park Jong-kwan and Kim Ri-an, Hankyung reporters, pjk@hankyung.com