Transcript Base Load Market Non

Korea Western Power Co., Ltd.
Investor Presentation
April 2006
Disclaimer
This presentation material has been prepared by Korea Western Power Co., Ltd. (“KOWEPO” or the “Company”)
solely for information use during its presentation. The information contained in these materials has not been
independently verified. No representation or warranty, expressed or implied, is made as to, and no reliance should
be placed on, the fairness, accuracy, completeness or correctness of the information or opinions contained herein.
It is not the intention to provide, and you may not rely on these materials as providing, a complete or
comprehensive analysis of the Company’s financial or trading position or prospects. The information and opinions
in these materials are provided as at the date of this presentation and are subject to change without notice. None of
the Company nor any of its respective affiliates, advisors or representatives shall have any liability whatsoever (in
negligence or otherwise) for any loss howsoever arising from any use of these materials.
Financial data in this presentation is given on a non-consolidated basis and financial statement data (where
applicable) is prepared under Korean generally accepted accounting principles.
This presentation contains certain forward-looking statements with respect to the financial condition, results of
operations and business of the Company and certain of the plans and objectives of the management of the
Company. Such forward-looking statements involve known and unknown risks, uncertainties and other factors
which may cause the actual results or performance of the Company to be materially different from any future results
or performance expressed or implied by such forward-looking statements. Such forward-looking statements were
based on numerous assumptions regarding the Company’s present and future business strategies and the political
and economic environment in which the Company will operate in the future. We caution you not to place undue
reliance on the forward-looking statements, which speak as of the date of this presentation. We are not under any
obligation to update these forward-looking statements
2
Investment Highlights
Prospering
Economy & Solid
Sovereign
Credit
 Strong and sustainable
economic growth
 Strong external liquidity
position, dynamic &
diverse export sector
Favorable
Industry
Conditions &
Regulatory
Environment
 High correlation between
electricity demand
growth and Korean GDP
growth
 Cost Based Pool System
 Sound financial markets &
 Eased political tension
with North Korea through
diplomatic means
 Positive credit rating
 Additional capacity as
required by the Basic
Plan supports credit
profile
Solid
Financials &
Robust Capital
Structure
 Stable revenue and
cash flows
 Strong debt servicing
ability
expected to continue
improving financial sector
Strong
Operations &
Experienced
Management
 Diversified and secured
sources of key raw
materials
 Pricing structure allows
Gencos to fully pass fuel
cost to KEPCO
 Solid capital structure
to support capital
expenditure
 Highly sophisticated and
experienced management
 Maintaining sound
credit worthiness
 Six Gencos account for
over 90% of Korean
power consumption
momentum
KEPCO : Korea Electric Power Corp.
GENCO : Generation Company
3
Strong Mitigating Factors to Credit Concerns
Business risk
under the
deregulation plan
Capex
requirement to
fund capacity
expansion
Exposure to high
raw material costs
Exposure to
potential
generation unit
breakdown

Delay of the privatization plan of Gencos

KOWEPO is one of the best performers among Korean thermal Gencos

Performance expected to be further enhanced once the new generating units at Taean
and Cheongsong become operational

Strong debt servicing ability due to stable, recurring revenue and cash flows

Strong balance sheet to support business expansion

Increasing revenue led by stable growth of electricity demand

Favorable terms of financing from the Government-funded loans

Ability to fully pass fuel cost to KEPCO under the current cost based pool system

Good operating track record of power plants with low historical incidents and diligent
plant maintenance

Continuing investment on maintenance to improve reliability of generation facilities
4
1. Company Overview
2. Prospering Economy and Solid Sovereign Credit
3. Power Industry and Regulatory Environment
4. Operations
5. Financial Management
6. Concluding Remarks
5
Introduction to KOWEPO
Inception
Credit Ratings
Ownership
Generation Capacity
April 2, 2001 (Spun off from KEPCO)
A2 (stable) / A- (stable) vs. Korea sovereign A3 / A
100% owned by KEPCO (54% owned by Korean Gov’t)
8,880 MW (Operation: 7,280 MW, Construction: 1,600 MW)
Total Assets
2005: KRW 3,262 bn (USD 3.22 bn)
2004: KRW 2,976 bn (USD 2.85 bn)
Total Revenue
2005: KRW 2,227 bn (USD 2.20 bn)
2004: KRW 2,058 bn (USD 1.97 bn)
Net Income
2005: KRW 180.6 bn (USD 178.3 mln)
2004: KRW 161.0 bn (USD 154.2 mln)
(KRW/USD FX rate : 1013.00 as of 30th Dec. 2005, 1043.80 as of 31st Dec. 2004)
6
Power Generation Portfolio
Location of Power Plants
Seoincheon
LNG
Cheongsong
(Under construction)
Pyeongtaek
BC Oil / LNG
Taean
Coal
Taean Plant
Pyeongtaek Plant
Seoincheon
Samrangjin
Cheongsong Plant
Samrangjin
Pumped Storage
Metropolitan area
Major industrial / chemical complex
Generation Portfolio
Classification
Generation Units
Fuel type
Capacity (MW)
Taean
Pyeongtaek T/P
Pyeongtaek C/C
Seoincheon
Samrangjin
(Cheongsong)
6 (2)
4
5
16
2
(2)
Bituminous
BC Oil
LNG
LNG
Pumped Storage
(Pumped Storage)
3,000 (1,000)
1,400
480
1,800
600
(600)
Total Capacity (MW)
7,280 (1,600)
With our nationwide footprint, KOWEPO has unique strategic importance to Korea
( ) under construction
7
Management Philosophy
The Leader of Generation Companies in 21st century
Vision
Well respected company preferred by the young generation
2007 Goals
Employees
Great Work Place
Management
Policy (3C)
7 Key
Strategies
Business
Growth
Brand No. 1
Clean Genco
Revenue:
2.5 trillion
Corp. Image
Top 5 Most
Preferred Company
CLEAN
COMPETITIVE
COMPANION
Realization of ethical
management
Reinforcement of core
competencies
Implementation of harmonious
management
• Aim for Value-oriented management
• Satisfy employees’ needs
• Maximize core competencies
• Establish clean brand image
• Create future growth engine
• Enhance social contribution
• Enhance organization dynamics
8
1. Company Overview
2. Prospering Economy and Solid Sovereign Credit
3. Power Industry and Regulatory Environment
4. Operations
5. Financial Management
6. Investment Summary
9
Strong External Liquidity Position
Increasing Foreign Reserves
Continuing Current Account Surplus
USD billion
USD billion
250
199.1
200
150
210.4
25
155.4
96.2
102.8
28.2
30
20
121.4
15
100
16.6
12.3
8.0
10
50
12.0
5.4
5
0
0
2000
2001
2002
2003
2004
2000
2005
2001
2002
2003
2004
2005
Source : MOFE
Falling External Debt
(as a % of GDP)
FX Reserves / Short-Term Debt
Times
(%)
4.0
40
3.5
3.5
31
3.2
3.1
27
30
25
26
2002
2003
3.0
2.6
2.5
2.0
23
23
2004
2005
20
2.5
1.9
10
1.5
0
2000
2001
2002
2003
2004
2005
2000
2001
Source : GEIC
10
Dynamic & Diverse Export Sector
Increasing Exports & Imports
USD billion
350
Export
Import
289
300
258
250
200
256
220
176
197
159
151
150
163
138
175
149
100
50
0
2000
2001
2002
2003
2004
2005
Source: MOFE
Export Breakdown by Country 2005
Export Breakdown by Commodity 2005
Fo o d and Live A nimals
2%
USA & Canada
12%
Chemicals and Related
P ro ducts
7%
China
17%
Taiwan
3%
M iscellaneo us
M anufactured A rticles
14%
Euro pe
23%
So uth East A sia
26%
Others
5%
M iddle East
3%
Co mmo dities and
Transactio ns
1%
Japan
7%
Ho ng Ko ng
4%
M achinery and Transpo rt
Equipment
55%
M anufactured Go o ds
21%
Source: CEIC
11
Solid Economy with Positive Rating Momentum
Korea Ratings History by Major Rating Agencies
AA+
Aa1
AA-
Aa3
A
A2
BBB+
Baa1
BBB-
Baa3
Ba2
B+
B1
B-
B3
Ja
n96
Ju
l-9
Ja 6
n9
Ju 7
l-9
Ja 7
n98
Ju
l-9
Ja 8
n99
Ju
l-9
Ja 9
n00
Ju
l-0
Ja 0
n01
Ju
l-0
Ja 1
n0
Ju 2
l-0
Ja 2
n03
Ju
l-0
Ja 3
n0
Ju 4
l-0
Ja 4
n05
Ju
l-0
Ja 5
n06
BB
S&P (LHS)
Potential for Further Upgrades
Moody's (RHS)
Fitch (LHS)
Recent Rating Agency Actions
•Strong external liquidity position
Moody’s
S&P
Fitch
•Dynamic export sector, resilient growth,
Effective
Mar ’02
Jul ’05
Oct ’05
strong medium-term growth prospects
Rating
A3
A
A+
Outlook
Stable
Stable
Stable
12
1. Company Overview
2. Prospering Economy and Solid Sovereign Credit
3. Power Industry and Regulatory Environment
4. Operations
5. Financial Management
6. Concluding Remarks
13
Constant Growth in Power Consumption
Historical Domestic Power Consumption vs. GDP/Power Consumption Growth Rate
350,000
250,000
15.0%
14.72%
11.82%
10.72%
11.42% 11.76%
10.04%
10.80%
10.0%
7.60%8.04%
200,000
8.50%
9.20%
6.10%
7.00%
9.50%
8.50%
6.30% 6.50%
7.00%
4.70%
150,000
5.44%
3.80%
5.0%
3.10%
4.70%4.00%
Growth rate
Power consumption (GWh)
300,000
20.0%
0.0%
100,000
-3.64%
-5.0%
50,000
-6.90%
0
-10.0%
1993
1994
1995
1996
1997
Pow er consumption
1998
1999
2000
2001
2002
Pow er Consumption Grow th Rate (Gross)
2003
2004
2005
GDP grow th rate
Source: “Statistics of Electric Power in Korea”, KEPCO / Bank of Korea
Power consumption has continued to rise on the back of strong economic growth
14
Reserve Margin Analysis
Adequate Reserve Margins are Required to Sustain Economic Growth in the Future
MW
70,000
17.1%
16.4%
18%
16%
14.9%
60,000
13.9%
12.4%
50,000
14%
12.9%
12.2%
11.3%
10.4%
40,000
12%
10%
7.3%
7.0%
30,000
8%
6.2%
6%
20,000
4%
2.8%
10,000
2%
0
0%
1993
1994
1995
1996
1997
Total Supply
1998
1999
2000
Peak demand
2001
2002
2003
2004
2005
Reserve margin
Source: Statistics of Electric Power in Korea, KEPCO, 2005
15
Power Industry Restructuring Process
The power industry restructuring plan has faced some obstacles,
and the implementation of future plans has been suspended
• IPO of KOSEP is
delayed
•
MOCIE
announces
restructuring
plan for power
industry
•
1999
2001
•
2000
•
Incorporation of
generation
companies
• Implementation of
TWBP(Two Way
Bidding Pool) is
suspended
•
Expiration of vesting
contracts
•
Retail competition
Cost based pool
bidding mechanism
2002
Initiation of KOSEP
privatization
2003
2004
2005
• Plan to separate KEPCO’s
distribution sector is halted
• Determined that discos will
operate as independent
divisions within KEPCO
2006
2007
2008
2009
•
Introduction of vesting contracts
for gencos
•
Spin off distribution sector from
KEPCO
•
Wholesale competition
MOCIE is reconsidering its planned industry restructuring and has decided to
halt the distribution sector’s separation plan
MOCIE : Ministry of Commerce, Industry and Energy
KOSEP : Korea South East Power Company
16
Power Price Determination System
CBP system secures KOWEPO’s profits from rises in raw material and generation costs

Korea generation market is adopting CBP(Cost Based Pool) system

Electric power market is divided into two different segments : Base load market and
Non-base load market

Base Load Market
Non-Base Load Market
Nuclear and Coal Power Plant
LNG, Oil and Hydro Power Plant
Price determination process for each market is different :
Base load market : CP(Capacity Payment) + BLMP(Base Load Marginal Price)
Non-base load market : CP + SMP(System Marginal Price)
17
Cost Based Pool System
Base Load Price : CP + BLMP
Capacity Payment
• CP includes construction cost
and operation cost of standard
coal-fired power plants
• CP is reimbursed to Gencos by
KEPCO regardless of the
operation
BLMP
• In case fuel price/kWh is at or
above KRW 18.95
- Fuel costs incurred by each
generators are fully compensated
• In case fuel price/kWh is below
KRW 18.95
Non-Base
Load
- Fuel cost is set at the highest
fuel cost among generators which
is to be dispatched
Non-Base Load Price : CP + SMP
Capacity Payment
• CP includes construction cost
and operation cost of peak-load
power plants
• CP is reimbursed to Gencos by
KEPCO regardless of the
operation
SMP
• Fuel cost is set at the highest
fuel cost among generators
which is to be dispatched
Capacity
Price
Oil / LNG
Coal
Base Load
Nuclear
Power Demand
18
1. Company Overview
2. Prospering Economy and Solid Sovereign Credit
3. Power Industry and Regulatory Environment
4. Operations
5. Financial Management
6. Concluding Remarks
19
Operation Overview

Base load, intermediate load and peak load account for 41%, 19% and 40%
respectively in terms of generation capacity

90% of capacity is located in or near the Seoul and Gyeonggi metropolitan areas
 Seoul and Gyunggi metropolitan areas comprises approx. 40% of total national demand
Generation Capacity by Type of Plant (2005)
Location of Plant Complex
4,500
Coal
LNG
BC Oil
Pumped Storage
4,000MW
4,000
3,500
3,480MW
Taean T/P
(1,000 MW)
3,000
Cheongsong
P/S (600 MW)
2,500
Samrangjin
P/S (600 MW)
2,000
1,500
Taean T/P
(3,000 MW)
1,400MW
Seoincheon
C/C
(1,800 MW)
Pyeongtaek
T/P
(1,400 MW)
1,000
500
Base Load
Intermediate Load
In Operation
Pyeongtaek
Taean
Cheongsong
(Under Construction)
Gunsan
Pyeongtaek
C/C (480 MW)
0
Seoincheon
Seoul & Gyunggi Metropolitan Areas
Samrangjin
Peak Load
Under Construction
Note: T/P denotes “Thermal Power Plant”, C/C denotes “Combined Cycle”, P/S denotes “Pumped Storage”
20
Market Share (FY 2005)
Generation Capacity
KOSPO 12.2%
Electricity Sales
EWP 12.8%
KHNP 29.3%
EWP 9.9%
KOSPO 12.8%
KOMIPO
12.0%
KHNP 40.6%
KOMIPO 10.4%
KOSEP 11.6%
Others 10.4%
KOWEPO
11.7%
Total Generation Capacity
62,257 MW
KOSEP 11.7%
Others 4.2%
KOWEPO 10.4%
Total Electricity Sales
349,276 GWh
21
Strong Operational Efficiency (FY 2005)
Thermal Efficiency
43
Utilization Rate
%
%
65
40.8
41
40.2
40.8
59.0
60
59.7
59.1
59.2
2003
2004
2005
40.2
55
39
50
37
45
40
35
2002
2003
2004
2002
2005
Thermal Efficiency
45
Utilization Rate
%
75
%
70.1
43.1
68.3
70
43
65
41
40.8
40.8
60
39.4
38.9
59.4
59.2
53.3
55
39
50
45
37
40
35
KOWEPO
KOSEP
KOMIPO
KOSPO
EWP
35
KOWEPO
KOSEP
KOMIPO
KOSPO
EWP
22
Long-Term Supply Contracts

KOWEPO enters into long-term
supply contracts to:
 Control the costs of bituminous
coal, oil and LNG amid the rising
prices
 Assure an adequate supply of the
raw materials for a smooth
operation
Bituminous
Country
Contract Amount
(1,000 ton/year)
Terms
Australia
500
‘ 95.1 - ‘ 07.12
Australia
Australia
500
1,100
‘ 04.6 - ‘ 07.6
‘ 01.4 - ‘ 06.3
RIO Tinto – Blair Athol
Australia
500
‘ 02.9 - ‘ 06.3
Ensham
Peabody
Australia
Australia
500
240
‘ 04.1 - ‘ 08.12
‘ 05.1 - ‘ 07.12
‘ 99.4 - ‘ 06.3
’ 96.1 - ‘ 06.3
‘ 01.7 - ‘ 07.6
Supplier
BHP-Billiton Bayswater
Centennial
Xstrata-NCA
Australia - Sub-total
SCIEGC
China
3,340 (48%)
1,000
CCIEC
SHENHUA
China
China
500
960
China - Sub-total
Bituminous Coal Contracts
Short-term,
2 0 %
Indominco
Indonesia
500
‘ 03.10 - ‘ 06.12
Kideco
Indonesia
300
‘ 04.1 - ‘ 05.12
ABK
Tanito Harum
Indonesia
Indonesia
200
200
‘ 04.10 - ‘ 07.12
‘ 05.1 - ‘ 07.12
Indonesia - Sub-total
Fuel Oil
Type
Long-term,
2,460 (35%)
B.C oil (Sulfa 2.5%)
Kerosene for boiler
1,200 (17%)
7,000 (100%)
Supplier
Contract amount
Terms
GS Caltex
GS Caltex
187,000㎘
2,837㎘
‘ 06. 1 – 6
‘ 06. 1 – 6
LNG
8 0 %
LNG
Note: Long-Term Supply Contracts as of YE2005
Supplier
Contract amount
(1,000 ton/year)
Terms
KOGAS
1,267
‘ 86 ～ ‘ 06 (20year)
23
1. Company Overview
2. Prospering Economy and Solid Sovereign Credit
3. Power Industry and Regulatory Environment
4. Operations
5. Financial Management
6. Concluding Remarks
24
Capital Structure (FY 2005)
Capital Structure
Assets
 KRW 3,262 billion
– Fixed Assets/Total Assets Ratio : 88.6%
KRW billion
3,500
3,262
3,182
Liabilities
 KRW 1,064 billion
– Liability-to-Equity Ratio : 48.4%
3,038
2,976
3,000
2,500
2,198
Shareholders’ Equity
 KRW 2,198 billion
– Stake is Wholly Owned by KEPCO
1,988
2,060
2,000
1,730
1,452
1,500
1,064
1,050
Revenue
916
1,000
 KRW 2,227 billion
500
Profitability
 EBIT : KRW 256 billion
- Net Income : KRW 181 billion
0
2002
Total assets
2003
2004
Total shareholders' equity
2005
Total liabilities
25
Financial Performance (FY 2005)
Revenue
Net Income
KRW billion
KRW billion
2,500
2,134.4
2,012.6
300
2,227.0
252.9
2,057.7
230.7
2,000
180.6
200
1,500
161.0
1,000
100
500
0
0
2002
2003
2004
2005
2002
2003
2005
Coverage
Leverage
KRW billion
90
2004
Times
83.9
20
16.4
14.6
15
60
52.8
11.6
48.4
11.1
44.5
39.5
9.6
7.4
28.2
30
9.2
10
24.2
25.2
5.8
5
0
0
2002
2003
Liability/equity
2004
Debt/capital
2005
2002
2003
2004
2005
EBITDA/interest
Funds from operation / interest
26
Strong Competitive Position (FY 2005)
Revenue
Net Income
EBIT
KRW billion
KRW billion
3,000
KRW billion
350
2,847.1
250
291.7
300
2,500
2,227.0
2,244.6
2,175.3
2,095.4
216.8
255.7
200
250
180.6
221.3
2,000
185.9
200
150
1,500
138.5
150
107.2
105.8
102.4
100
1,000
100
50
500
50
0
0
0
KOWEPO
KOSEP
KOMIPO
KOSPO
EWP
KOWEPO
EBIT Margin
15
KOSEP
KOMIPO
KOSPO
KOWEPO
EWP
KOSEP
EWP
%
90
20
13.0
KOSPO
Leverage
EBITDA Int. Coverage
Times
%
KOMIPO
78.7
73.5
11.5
16.4
15.9
10.6
61.2
15
10
60
48.4
10.5
6.5
6.4
9.6
10
39.0
40.8
7.8
30
5
25.2
19.0
5
0
0
KOWEPO
KOSEP
KOMIPO
KOSPO
EWP
37.4
29.9
0
KOWEPO
KOSEP
KOMIPO
KOSPO
EWP
KOWEPO
KOSEP
KOM IPO
Liability/equity
KOSPO
EWP
Debt/capital
27
CAPEX Requirements
Capital Expenditure Schedule
KRW billion
700
574
600
500
503
106
400
293
388
300
407
222
86
200
101
102
100
59
105
27
105
94
7
0
2006E
3
2007E
2008E
Cheongsong Pumped Storage #1,2
Taean Thermal Power #7,8
Taean CCT #1
Gunsan Combined Cycle (Planned)
2009E
Facility Improvement
28
Debt Profile and Strategy (FY 2005)
Currency Distribution
Type of Instrument
Long Term
Borrowing
7%
Corporate
Bond
57%
USD
25%
Eurobond
25%
KDB
Private
Placement
Bond
11%
KRW
75%
Total LT Debt : KRW 711.1 billion
Floating vs Fixed
Debt Repayment Schedule
FRN
18%
KRW billion
250
185.0
200
199.9
150
117.2
100
50
1.3
Fixed
82%
0
2006(E)
2007(E)
2008(E)
2009(E)
29
Financial Management
 Credit lines
• Overdraft Commitment from NACF total KRW 50 billion
Adequate
Committed
Credit Lines
• KRW credit lines provided : KRW 100 billion from Citibank, KRW 100 billion from KEB, KRW 50
billion from Woori bank
• USD credit lines provided : US$ 40 million from BNP Paribas, US$ 20 million from SC First Bank
 Guarantees for letter of credit payment totaling USD 326 million from various banks
 Guarantee for a credit payment related to customs duties totaling KRW 4 billion from KEB
Low Interest
Loans from the
Government
 Loans for the construction and capacity expansion of electricity facilities of KRW 13 billion at
an interest rate of 4% (as of FY 2005)
 Loans to support the purchase of overseas mineral resources of KRW 37 billion at an interest
rate of 2.25% (as of FY 2005)
 KOWEPO operates two committees dedicated to risk management: Risk Management
Committee and FX Risk Management Committee
Risk
Management
• Risk Management Committee oversees four areas : finance, fuel, electricity bidding and
generation facilities
• FX Risk Management Committee manages FX risk exposure and determines internal FX
guidelines
 The committees meet on a quarterly basis to make key decisions on the issues discussed
30
1. Company Overview
2. Prospering Economy and Solid Sovereign Credit
3. Power Industry and Regulatory Environment
4. Operations
5. Financial Management
6. Concluding Remarks
31
Concluding Remarks
Prospering
Economy & Solid
Sovereign
Credit
Solid Financials
& Robust
Capital
Structure
Favorable
Industry
Conditions &
Regulatory
Environment
Strong
Operations &
Experienced
Management
32