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JPS co-owner reports US$3b loss

Published:Friday | May 11, 2012 | 12:00 AM

Korea Electric Power Corporation (KEPCO), a co-owner of Jamaica Public Service Company, made a US$3.1-billion annual net loss due to its inability to pass on fuel price hikes to its Korean customers, unlike its Jamaican asset.

It's the largest net loss in years at the group, which ultimately owns 40 per cent of JPS via its subsidiary Korea East West Power (EWP).

The loss nullified the US$17-million dividend received from JPS, which represented the largest single dividend of any of KEPCO's 50-plus subsidiaries, according to its December 2011 yearend financials released last week.

Essentially, the Korean government avoided granting KEPCO a tariff hike for fear of its inflationary effect.

Comparatively, in Jamaica, JPS passes on fuel hikes to its customers as a condition of its licence.

KEPCO cautioned investors that unless allowed to raise rates, its financial position would worsen.

"If fuel prices remain at the current level or continue to increase and the government, out of concern for inflation or for other reasons, maintains the current level of electricity tariff or does not increase it to a level to sufficiently offset the impact of high fuel prices, the fuel price increases will significantly lower our profit margins or even cause us to suffer operating and/or net losses and our business, financial condition, results of operations and cash flows would seriously suffer," said the company.

The effect of absorbing the fuel increases resulted in the company's US$37.5 billion in electricity sales nearly matching its purchases of fuel at US$37.1 billion. In other words, KEPCO's sales net of fuel costs was US$400 million.

The flattened sales margin affected its ability to pay its daily bills. Its working capital deficit grew four times over to US$3.1 billion when compared with 2010.

"In addition, partly because the government (Korea) may have to undergo a lengthy deliberative process to approve an increase in electricity tariff, which represents a key component of the consumer price index, the electricity tariff may not be adjusted to a level sufficient to ensure a fair rate of return to us in a timely manner or at all," KEPCO said.

Comparatively, JPS passed on most of the 30 per cent rise in fuel costs to customers at some US$766 million in 2011 which allowed it to post a US$13-million audited profit. Without the pass through, the company would have likely made a loss.

In 2011, KEPCO sold roughly 455 billion kilowatt-hours of electricity. One-third of its power was generated by its wholly-owned nuclear and hydroelectric power generation subsidiary, 56.9 per cent from its wholly-owned non-nuclear generation subsidiaries, and 11 per cent was sourced from independent power producers. KEPCO says it derives most of its revenues and profit from inside Korea.

The group, whose shareholder equity stood at a healthy US$46 billion, remains bullish about its overseas investments. Its debt-to-equity ratio stood at 83 per cent in December 2011, compared with 63 per cent in 2010.

The group, through EWP, paid US$275 million for its 40 per cent of JPS last year and plans to take a stake in the US$614-million liquefied natural gas plant to be developed by JPS.

Marubeni Corporation also owns 40 per cent of JPS and the Government of Jamaica, 19.9 per cent.