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KEPCO Korea company will Profit 11.5 Billion in Ilihan Cebu, Philippines Power Plant

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President Benigno Aquino (left) of the Philippines shakes hands with Korea Electric Power Corp. CEO Kim Ssang-su at the ceremony marking the completion of a power plant in Cebu on June 27. (Yonhap News)

Power plants, resource development complement KEPCO’s business model

Korea Electric Power Corp.’s rapidly expanding overseas portfolio is fueling the company’s growth and its drive to become one of the top five players in the world’s power industry.

Earlier this year, the company announced a set of long-term plans under which it aims to raise its annual sales to 85 trillion won ($80.5 billion) by 2020 to become one of the industry’s five largest players.

Of the 85 trillion won target set for 2020, the company has allocated 26 trillion won or about 30.6 percent to overseas operations.

While the company has a way to go to reach the target, recent developments have shown KEPCO’s potential in the global energy and engineering market.

Aided by winning the nuclear power plant contract from the United Arab Emirates, KEPCO saw its overseas-generated sales more than double last year.

In 2009, KEPCO’s overseas-generated revenues came in at 564 billion won, which jumped to more than 1.56 trillion won last year.

Even excluding the 601.4 billion won generated from the UAE deal, KEPCO’s overseas revenues for 2010 came in nearly 400 billion won higher than that of 2009.

While the UAE deal, the first case of Korea’s nuclear power technology being exported, was the biggest overseas deal for KEPCO, the company has been operating outside of Korea for some time.

Faced with a limited domestic market, KEPCO has been looking to overseas markets to offset the diminishing growth potential of the country’s electricity market since the early 1990s. According to KEPCO’s projections, Korea’s electricity demand will grow much more slowly than the rest of the world. KEPCO estimates that Korea’s electricity demand will grow at between 3 and 4 percent in the coming years.

KEPCO’s first break outside of Korea came in 1995, when it beat back rivals from Japan and Hong Kong to win a project updating and operating a power plant in the Philippines. The company then went on to build a gas-fueled power station in the Southeast Asian country.

Through such projects, KEPCO was able to expand and consolidate its presence in the Philippines and the combined capacity of plants the company operates currently stands at 2,050 megawatts. The figure, which is equivalent to 15 percent of that country’s total output capacity, makes KEPCO the fourth-largest independent power producer in the Southeast Asian nation.

The company’s operations in the Philippines have also proved to be highly profitable, with the power plant in Ilihan, Cebu, expected to bringing in net profits of more than 286 billion won by the end of the project. The company is contracted to run the facility, which cost 104.9 billion won to create, until June 2022.

However, operations in the Philippines are only a part of a larger portfolio.

The company is currently operating or building 12 power plants in six countries with a combined capacity of 4,800 megawatts.

One of the latest overseas projects KEPCO won is the contract for building and operating a combined cycle power plant in Mexico.

The $420 million project was awarded to KEPCO, in consortium with Samsung C&T, and Techint of Mexico, last year.

“By winning the contract in the Mexican market, which has traditionally been divided among Japanese and Spanish concerns, proved that KEPCO has competitiveness on the international market,” a KEPCO official said. The project will see the consortium build and operate the facility until May 2038.

“The project is also meaningful in that it is our first business in Latin America, and laying the foundations for entering a new market.”

China is another large overseas base for KEPCO, which operates one of the largest wind power businesses in that country.

According to the company, its wind power operations in China offer profitability as well as carbon credits. As of Dec., 13 of KEPCO’s related projects in China had been given U.N. recognition as clean development mechanisms, and including carbon credits that will be generated from wind power plants under construction, it will secure about 1.2 million tons of carbon credits every year through its China projects.

While KEPCO’s main business is power generation, the company has not limited to itself to building and operating power plants and related facilities in expanding overseas.

Along with such areas, KEPCO has been focusing on developing natural resources.

“Through overseas resource development business, the company is not only able to secure stable supply of fuel, but also generate profits and hedge against fluctuations in fuel prices, which in turn contributes to keeping electricity prices down,” a KEPCO official said. So far, the company has invested in 10 resource projects in four nations including Australia and Indonesia.

“In particular, the stakes in the Indonesian coal producer Bayan Resources acquired for 615.8 billion won last year, is now valued at 1.9 trillion won, bringing significant profits for the company.”

In addition to fueling its growth, the company says that its overseas expansion drive is also bringing benefits for other local firms.

“In the case of the Mexico contract, the project involves other companies such as Samsung C&T contributing to job creation in the private sector,” the company said.

“The construction of the recently completed power plant in Cebu, Philippines, was undertaken by Doosan Heavy Industries resulting in exporting of construction services worth $150 million.”

http://www.koreaherald.com/business/Detail.jsp?newsMLId=20110720000717

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