Table of Contents

As filed with the Securities and Exchange Commission on April 28, 2017

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Form 20-F

 

 

(Mark One)

 

REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

 

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2016

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

 

SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of event requiring this shell company report

For the transition period from            to            

Commission File Number: 001-13372

 

 

KOREA ELECTRIC POWER CORPORATION

(Exact name of registrant as specified in its charter)

 

N/A   The Republic of Korea
(Translation of registrant’s name into English)   (Jurisdiction of incorporation or organization)

 

 

55 Jeollyeok-ro, Naju-si, Jeollanam-do, 58217, Korea

(Address of principal executive offices)

 

 

Yoon Hye Cho, +82 61 345 4213, yoonhye.cho@kepco.co.kr, +82 61 345 4299

(Name, telephone, e-mail and/or facsimile number and address of company contact person)

 

 

Securities registered or to be registered pursuant to Section 12(b) of the Act:

 

Title of each class:

 

Name of each exchange on which registered:

Common stock, par value Won 5,000 per share   New York Stock Exchange*
American depositary shares, each representing
one-half of share of common stock
  New York Stock Exchange  

 

* Not for trading, but only in connection with the listing of American depositary shares on the New York Stock Exchange, pursuant to the requirements of the Securities and Exchange Commission.

 

 

Securities registered or to be registered pursuant to Section 12(g) of the Act:

None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

One Hundred Year 7.95% Zero-to-Full Debentures, due April 1, 2096

6% Debentures due December 1, 2026

7% Debentures due February 1, 2027

6  3 / 4 % Debentures due August 1, 2027

 

 

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the last full fiscal year

covered by the annual report:

641,964,077 shares of common stock, par value of Won 5,000 per share

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ☑    No  ☐

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.    Yes  ☐    No  ☑

Note—Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days:    Yes  ☑    No  ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files):    Yes  ☐    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ☑                    Accelerated filer ☐                    Non-accelerated filer ☐                    Emerging Growth Company  ☐

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act. ☐

† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

U.S. GAAP   ☐                International Financial Reporting Standards as issued by the International Accounting Standards Board  ☑            Other  ☐

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.    Item 17  ☐    Item 18  ☐

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☑

(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.    Yes  ☐    No  ☐

 

 

 


Table of Contents

TABLE OF CONTENTS

 

         Page  

PART I

     2  

        ITEM 1.

 

IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

     2  

        ITEM 2.

 

OFFER STATISTICS AND EXPECTED TIMETABLE

     2  

        ITEM 3.

 

KEY INFORMATION

     2  
  Item 3.A.    Selected Financial Data      2  
  Item 3.B.    Capitalization and Indebtedness      4  
  Item 3.C.    Reasons for the Offer and Use of Proceeds      4  
  Item 3.D.    Risk Factors      4  

        ITEM 4.

 

INFORMATION ON THE COMPANY

     26  
  Item 4.A.    History and Development of the Company      26  
  Item 4.B.    Business Overview      27  
  Item 4.C.    Organizational Structure      77  
  Item 4.D.    Property, Plant and Equipment      80  

        ITEM 4A.

 

UNRESOLVED STAFF COMMENTS

     81  

        ITEM 5.

 

OPERATING AND FINANCIAL REVIEW AND PROSPECTS

     81  
  Item 5.A.    Operating Results      81  
  Item 5.B.    Liquidity and Capital Resources      96  
  Item 5.C.    Research and Development, Patents and Licenses, etc.      100  
  Item 5.D.    Trend Information      102  
  Item 5.E.    Off-Balance Sheet Arrangements      102  
  Item 5.F.    Tabular Disclosure of Contractual Obligations      102  

        ITEM 6.

 

DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

     109  
  Item 6.A.    Directors and Senior Management      109  
  Item 6.B.    Compensation      112  
  Item 6.C.    Board Practices      112  
  Item 6.D.    Employees      113  
  Item 6.E.    Share Ownership      114  

        ITEM 7.

 

MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

     114  
  Item 7.A.    Major Shareholders      114  
  Item 7.B.    Related Party Transactions      114  
  Item 7.C.    Interests of Experts and Counsel      115  

        ITEM 8.

 

FINANCIAL INFORMATION

     115  
  Item 8.A.    Consolidated Statements and Other Financial Information      115  
  Item 8.B.    Significant Changes      117  

        ITEM 9.

 

THE OFFER AND LISTING

     117  
  Item 9.A.    Offer and Listing Details      117  
  Item 9.B.    Plan of Distribution      119  
  Item 9.C.    Markets      119  
  Item 9.D.    Selling Shareholders      122  
  Item 9.E.    Dilution      122  
  Item 9.F.    Expenses of the Issue      122  

        ITEM 10.

 

ADDITIONAL INFORMATION

     123  
  Item 10.A.    Share Capital      123  
  Item 10.B.    Memorandum and Articles of Incorporation      123  
  Item 10.C.    Material Contracts      130  
  Item 10.D.    Exchange Controls      130  
  Item 10.E.    Taxation      135  
  Item 10.F.    Dividends and Paying Agents      146  
  Item 10.G.    Statements by Experts      146  
  Item 10.H.    Documents on Display      147  
  Item 10.I.    Subsidiary Information      147  

 

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         Page  

        ITEM 11.

 

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     147  

        ITEM 12.

 

DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

     152  
  Item 12.A.    Debt Securities      152  
  Item 12.B.    Warrants and Rights      152  
  Item 12.C.    Other Securities      152  
  Item 12.D.    American Depositary Shares      153  

PART II

     155  

        ITEM 13.

 

DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

     155  

        ITEM 14.

 

MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

     155  

        ITEM 15.

 

CONTROLS AND PROCEDURES

     155  

        ITEM 16.

 

[RESERVED]

     156  

        ITEM 16A.

 

AUDIT COMMITTEE FINANCIAL EXPERT

     156  

        ITEM 16B.

 

CODE OF ETHICS

     156  

        ITEM 16C.

 

PRINCIPAL AUDITOR FEES AND SERVICES

     157  

        ITEM 16D.

 

EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEE

     157  

        ITEM 16E.

 

PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

     157  

        ITEM 16F.

 

CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT

     157  

        ITEM 16G.

 

CORPORATE GOVERNANCE

     158  

        ITEM 16H.

 

MINE SAFETY DISCLOSURE

     165  

PART III

     166  

        ITEM 17.

 

FINANCIAL STATEMENTS

     166  

        ITEM 18.

 

FINANCIAL STATEMENTS

     166  

        ITEM 19.

 

EXHIBITS

     166  

 

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CERTAIN DEFINED TERMS AND CONVENTIONS

All references to “Korea” or the “Republic” in this annual report on Form 20-F, or this annual report, are references to the Republic of Korea. All references to the “Government” in this annual report are references to the government of the Republic. All references to “we,” “us,” “our,” “ours,” the “Company” or “KEPCO” in this annual report are references to Korea Electric Power Corporation and, as the context may require, its subsidiaries, and the possessive thereof, as applicable. All references to “the Ministry of Trade, Industry and Energy” and “the Ministry of Strategy and Finance” include the respective predecessors thereof. All references to “tons” are to metric tons, equal to 1,000 kilograms, or 2,204.6 pounds. Any discrepancies in any table between totals and the sums of the amounts listed are due to rounding. All references to “IFRS” in this annual report are references to the International Financial Reporting Standards as issued by the International Accounting Standard Board. Unless otherwise stated, all of our financial information presented in this annual report has been prepared on a consolidated basis and in accordance with IFRS.

In addition, in this annual report, all references to:

 

   

“EWP” are to Korea East-West Power Co., Ltd.,

 

   

“KHNP” are to Korea Hydro & Nuclear Power Co., Ltd.,

 

   

“KOMIPO” are to Korea Midland Power Co., Ltd.,

 

   

“KOSEP” are to Korea South-East Power Co., Ltd.,

 

   

“KOSPO” are to Korea Southern Power Co., Ltd., and

 

   

“KOWEPO” are to Korea Western Power Co., Ltd.,

each of which is our wholly-owned generation subsidiary.

FORWARD-LOOKING STATEMENTS

This annual report includes “forward-looking statements” (as defined in Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934), including statements regarding our expectations and projections for future operating performance and business prospects. The words “believe,” “expect,” “anticipate,” “estimate,” “project” and similar words used in connection with any discussion of our future operation or financial performance identify forward-looking statements. In addition, all statements other than statements of historical facts included in this annual report are forward-looking statements. Although we believe that the expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such expectations will prove to be correct. We caution you not to place undue reliance on the forward-looking statements, which speak only as of the date of this annual report.

This annual report discloses, under the caption Item 3.D. “Risk Factors” and elsewhere, important factors that could cause actual results to differ materially from our expectations (“Cautionary Statements”). All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the Cautionary Statements.

 

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PART I

 

ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not applicable.

 

ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.

 

ITEM 3. KEY INFORMATION

Item 3.A. Selected Financial Data

The selected consolidated financial data set forth below as of and for the years ended December 31, 2012, 2013, 2014, 2015 and 2016 have been derived from our audited consolidated financial statements which have been prepared in accordance with IFRS.

You should read the following data with the more detailed information contained in Item 5. “Operating and Financial Review and Prospects” and our consolidated financial statements included in Item 18. “Financial Statements.” Historical results do not necessarily predict future results.

Consolidated Statement of Comprehensive Income (Loss) Data

 

     2012     2013     2014     2015     2016     2016  
     (in billions of Won and millions of US$, except per share data) (1)  

Sales

   49,121     53,713     57,123     58,582     59,763     $ 49,649  

Cost of sales

     48,460       50,596       49,763       45,458       45,550       37,842  

Gross profit

     661       3,117       7,360       13,124       14,213       11,807  

Selling and administrative expenses

     1,780       1,923       1,924       2,153       2,639       2,192  

Other income (expense)

     601       625       666       699       652       542  

Other gains (losses)

     (1,782     129       107       8,611       70       58  

Operating profit (loss)

     (2,300     1,948       6,209       20,281       12,296       10,215  

Finance income (expense), net

     (1,940     (2,302     (2,255     (1,832     (1,646     (1,367

Income (loss) before income taxes

     (4,063     (396     4,229       18,656       10,513       8,734  

Income tax (expense) benefit

     985       571       (1,430     (5,239     (3,365     (2,796

Profit (loss) for the period

     (3,078     174       2,799       13,416       7,148       5,938  

Other comprehensive income (loss)

     (322     186       (358     34       (2     (2

Total comprehensive income (loss)

     (3,400     360       2,441       13,450       7,146       5,936  

Profit (loss) attributable to:

        

Owners of the Company

     (3,167     60       2,687       13,289       7,048       5,855  

Non-controlling interests

     89       114       112       127       100       83  

Total comprehensive income (loss) attributable to:

        

Owners of the Company

     (3,448     245       2,336       13,308       7,042       5,850  

Non-controlling interests

     48       115       105       142       104       86  

Earnings (loss) per share

            

Basic (2)

     (5,083     96       4,290       20,701       10,980       9.12  

Earnings (loss) per ADS

            

Basic (2)

     (2,542     48       2,145       10,351       5,490       4.56  

Dividends per share

     —         90       500       3,100       1,980       1.64  

 

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Consolidated Statements of Financial Position Data

 

    As of December 31,  
    2012     2013     2014     2015     2016     2016  
    (in billions of Won and millions of US$, except share and per share data) (1)  

Net working capital deficit (3)

  (4,884   (4,945   (4,780   (686   (5,031   $ (4,180

Property, plant and equipment, net

    122,376       129,638       135,812       141,361       145,743       121,079  

Total assets

    146,153       155,527       163,708       175,257       177,837       147,742  

Total shareholders’ equity

    51,064       51,451       54,825       67,942       73,051       60,688  

Equity attributable to owners of the Company

    49,889       50,260       53,601       66,634       71,724       59,586  

Non-controlling interests

    1,175       1,191       1,224       1,308       1,327       1,102  

Share capital

    3,210       3,210       3,210       3,210       3,210       2,667  

Number of common shares as adjusted to reflect any changes in capital stock

    641,964,077       641,964,077       641,964,077       641,964,077       641,964,077       641,964,077  

Long-term debt (excluding current portion)

    45,525       52,801       55,720       50,907       44,700       37,135  

Other long term liabilities

    30,747       31,062       31,563       33,697       35,347       29,365  

 

Notes :

 

(1) The financial information denominated in Won as of and for the year ended December 31, 2016 has been translated into U.S. dollars at the exchange rate of Won 1,203.7 to US$1.00, which was the Noon Buying Rate as of December 30, 2016.
(2) Basic earnings (loss) per share are calculated by dividing net income available to holders of our common shares by the weighted average number of common shares issued and outstanding for the relevant period. Basic earnings (loss) per ADS have been computed as if all of our issued and outstanding common shares are represented by ADSs during each of the years presented. Each ADS represents two common shares. Dilutive earnings (loss) per share is not presented as such amount was anti-dilutive for the year ended December 31, 2012, and such amount was the same as basic earnings (loss) per share for the years ended December 31, 2013 through 2016 since there were no potential dilutive instruments.
(3) Net working capital is defined as current assets minus current liabilities. For the periods indicated, current liabilities exceeded current assets, which resulted in working capital deficit for such periods.

Currency Translations and Exchange Rates

In this annual report, unless otherwise indicated, all references to “Won,” “KRW” or “ W ” are to the currency of Korea, all references to “U.S. dollars,” “Dollars,” “$” or “US$” are to the currency of the United States of America; all references to “Euro” or “€” are references to the currency of the European Union; all references to “Yen” or “¥” are references to the currency of Japan; all references to “A$” are to the currency of Australia; and all references to “RMB” are to the currency of the People’s Republic of China. Unless otherwise indicated, all translations from Won to U.S. dollars were made at Won 1,203.7 to US$1.00, which was the noon buying rate of the Federal Reserve Board (the “Noon Buying Rate”) in effect as of December 30, 2016, which rates are available on the H.10 statistical release of the Federal Reserve Board. On April 14, 2017, the Noon Buying Rate was Won 1,136.7 to US$1.00. The exchange rate between the U.S. dollar and Korean Won may be highly volatile from time to time and the U.S. dollar amounts referred to in this annual report should not be relied upon as an accurate reflection of our results of operations. No representation is made that the Won or U.S. dollar amounts referred to in this annual report could have been or could be converted into U.S. dollars or Won, as the case may be, at any particular rate or at all.

 

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The following table sets forth, for the periods and dates indicated, certain information concerning the Noon Buying Rate in Won per US$1.00.

 

Year Ended December 31,

   At End
of
Period
     Average (1)      High      Low  
     (Won per US$1.00)  

2012

     1,063.2        1,119.6        1,185.0        1,063.2  

2013

     1,055.3        1,094.6        1,161.3        1,050.1  

2014

     1,090.9        1,054.0        1,117.7        1,008.9  

2015

     1,169.3        1,133.7        1,196.4        1,063.0  

2016

     1,203.7        1,160.5        1,242.6        1,090.0  

October

     1,145.4        1,128.6        1,146.5        1,104.8  

November

     1,175.9        1,162.7        1,181.6        1,131.4  

December

     1,203.7        1,183.1        1,212.2        1,161.7  

2017 (through April 14)

     1,136.7        1,147.6        1,207.2        1,108.3  

January

     1,151.5        1,179.1        1,207.0        1,151.5  

February

     1,129.2        1,140.5        1,154.5        1,129.2  

March

     1,117.5        1,133.9        1,158.1        1,108.3  

April (through April 14)

     1,136.7        1,133.0        1,147.8        1,117.7  

 

Source: Federal Reserve Board

Note:

 

(1) The average rates for annual and interim periods were calculated by taking the simple average of the Noon Buying Rates on the last day of each month during the relevant period. The average rates for the monthly periods (or a portion thereof) were calculated by taking the simple average of the daily Noon Buying Rates during the relevant month (or a portion thereof).

Item 3.B. Capitalization and Indebtedness

Not Applicable

Item 3.C. Reasons for the Offer and Use of Proceeds

Not Applicable

Item 3.D. Risk Factors

Our business and operations are subject to various risks, many of which are beyond our control. If any of the risks described below actually occurs, our business, financial condition or results of operations could be seriously harmed.

Risks Relating to KEPCO

Increases in fuel prices will adversely affect our results of operations and profitability as we may not be able to pass on the increased cost to customers at a sufficient level or on a timely basis.

In 2016, fuel costs constituted 30.9% of our cost of sales and the ratio of fuel costs to our sales was 23.4%. Our generation subsidiaries purchase substantially all of the fuel that they use (except for anthracite coal) from suppliers outside Korea at prices determined in part by prevailing market prices in currencies other than Won. For example, most of the bituminous coal requirements (which accounted for approximately 45.9% of our fuel requirements in 2016 in terms of electricity output) are imported principally from Indonesia, Australia, Russia

 

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and, to a lesser extent, South Africa and others, which accounted for approximately 40%, 37%, 15%, 2% and 6%, respectively, of the annual bituminous coal requirements of our generation subsidiaries in 2016. Approximately 82% of the bituminous coal requirements of our generation subsidiaries in 2016 were purchased under long-term contracts and the remaining 18% from the spot market. Pursuant to the terms of our long-term supply contracts, prices are adjusted periodically based on prevailing market conditions. In addition, our generation subsidiaries purchase a significant portion of their fuel requirements under contracts with limited duration. See Item 4.B. “Business Overview—Fuel.”

The prices of our main fuel types, namely, bituminous coal, oil and liquefied natural gas, or LNG, fluctuate, sometimes significantly, in tandem with their international market prices. For example, the average daily spot price of “free on board” Newcastle coal 6300 GAR published by Platts increased from US$58.0 per ton in 2015 to US$66.8 per ton in 2016 and to US$84.4 per ton as of April 13, 2017. The prices of oil and LNG are substantially dependent on the price of crude oil, and according to Bloomberg (Bloomberg Ticker: PGCRDUBA), the average daily spot price of Dubai crude oil declined from US$51.1 per barrel in 2015 to US$41.4 per barrel in 2016 but rebounded to US$54.2 per barrel as of April 14, 2017. We cannot assure you that fuel prices will remain stable or will not significantly increase in the remainder of 2017 or thereafter. If fuel prices increase substantially in the future within a short span of time, our generation subsidiaries may be unable to secure requisite fuel supplies at prices commercially acceptable to them. In addition, any significant interruption or delay in the supply of fuel, bituminous coal in particular, from any of their suppliers may cause our generation subsidiaries to purchase fuel on the spot market at prices higher than the prices available under existing supply contracts, which would result in an increase in fuel costs.

Because the Government regulates the rates we charge for the electricity we sell to our customers (see Item  4.B. “Business Overview—Sales and Customers—Electricity Rates”), our ability to pass on fuel and other cost increases to our customers is limited. If fuel prices increase rapidly and substantially 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 negatively affect 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 suffer.

The Government may also set or adjust electricity tariff rates to serve particular policy goals that may not be necessarily responsive to fuel price movements. For example, effective January 1, 2017, the Government made several adjustments to the existing rate structure in order to ease the burden of electricity tariff on residential consumers as well as promote the use of renewable energy. First, the progressive rate structure applicable to the residential sector, which applies a gradient of increasing tariff rates for heavier electricity usage, was changed from a six-tiered structure with the highest rate being no more than 11.7 times the lowest rate (which gradient system has been in place since 2005) into a three-tiered structure with the highest rate being no more than three times the lowest rate, in order to reflect the changes in the pattern of electricity consumption and reduce the electricity charges payable by consumers. Second, the new tariff structure encourages energy saving by offering rate discounts to residential consumers that voluntarily reduce electricity consumption while charging special high rates to residential consumers with heavy electricity consumption during peak usage periods in the summer and the winter. Third, a temporary rate discount will apply during 2017 to 2019 to investments in environmentally friendly facilities such as energy storage systems, renewable energy and electric cars. Such adjustments may lower our revenues from the sale of electricity and accordingly have a material adverse effect on our results of operation, financial condition and cash flows.

In addition, partly because the Government 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, and we cannot assure that any future tariff increase by the Government will be sufficient to fully offset the adverse impact on our results of operations from current or potential rises in fuel costs. On the other hand, if fuel prices decrease, the public may demand a corresponding decrease in electricity tariff rates, and as a result the

 

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Government may decrease electricity tariff rates; however, we cannot assure you that the resulting tariff rate reduction will not be excessive and thus have a detrimental effect on our profit margins, results of operations or cash flows or that, if the fuel prices were to rise again subsequent to the tariff reduction, the tariff rates would be further adjusted upwards in a timely manner, in sufficient amounts or at all so as to fully offset the adverse impact from the increase in fuel prices.

The Government may adopt policy measures to substantially restructure the Korean electric power industry or our operational structure, which may have a material adverse effect on our business, operations and profitability.

From time to time, the Government considers various policy initiatives to foster efficiency in the Korean electric power industry, and at times have adopted policy measures that have substantially modified our business and operations. For example, in January 1999, with the aim of introducing greater competition in the Korean electric power industry and thereby improving its efficiency, the Government announced a restructuring plan for the Korean electric power industry, or the Restructuring Plan. For a detailed description of the Restructuring Plan, see Item  4.B. “Business Overview—Restructuring of the Electric Power Industry in Korea.” As part of this initiative, in April 2001 the Government established the Korea Power Exchange to enable the sale and purchase of electricity through a competitive bidding process, established the Korea Electricity Commission to ensure fair competition in the Korean electric power industry, and, in order to promote competition in electricity generation, split off our electricity generation business to form one nuclear generation company and five non-nuclear generation companies, in each case, to be wholly owned by us. In 2002, the Government introduced a plan to privatize one of our five non-nuclear generation subsidiaries, but this plan was suspended indefinitely in 2003 due to prevailing market conditions and other policy considerations.

In August 2010, the Ministry of Trade, Industry and Energy announced the Proposal for the Improvement in the Structure of the Electric Power Industry, which was designed to promote responsible management by and improve operational efficiency of government-affiliated electricity companies by fostering competition among them. Pursuant to this proposal, while our six generation subsidiaries continued to be our wholly-owned subsidiaries, in January 2011 the six generation subsidiaries were officially designated as “market-oriented public enterprises” (same as us) under the Act on the Management of Public Institutions, whereupon the President of Korea appoints the president and the standing director who is to become a member of the audit committee of each such subsidiary; the selection of non-standing directors of each such subsidiary is subject to approval by the minister of the Ministry of Strategy and Finance; the president of each such subsidiary is required to enter into a management contract directly with the minister of the Ministry of Trade, Industry and Energy; and the Public Agencies Operating Committee (which is comprised largely of Government officials and those recommended by Government officials) conducts performance evaluation of such subsidiaries. Previously, our president appointed the president and the statutory auditor of each such subsidiary; the selection of non-standing directors of each such subsidiary was subject to approval by our president; the president of each such subsidiary entered into a management contract with our president; and our evaluation committee conducted performance evaluation of such subsidiaries. As a result of these changes, our six generation subsidiaries took on additional operational responsibilities and management autonomy with respect to construction and management of generation units and procurement of fuel, while we as the parent company continued to oversee and coordinate, among others, finances, corporate governance, overseas businesses, including nuclear export technology and overseas resource development, that jointly affect us and our generation subsidiaries. See also Item 16.G. “Corporate Governance—The Act on the Management of Public Institutions—Applications of the Act on Our Generation Subsidiaries,”

In June 2016, the Government announced the Proposal for Adjustment of Functions of Public Institutions (Energy Sector) for the purpose of streamlining the operations of government-affiliated energy companies by discouraging them from engaging in overlapping or similar businesses with each other, reducing non-core assets and activities and improving management and operational efficiency. The initiatives contemplated in this proposal that would affect us and our generation subsidiaries include the following: (i) the generation companies

 

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should take on greater responsibilities in overseas resource exploration and production projects as these involve procurement of fuels necessary for electricity generation while fostering cooperation among each other through closer coordination, (ii) KHNP should take a greater role in export of nuclear technology, and (iii) the current system of retail sale of electricity to end-users should be liberalized to encourage more competition. In accordance therewith, we transferred a substantial portion of our assets and liabilities in our overseas resource business to our generation subsidiaries as of December 31, 2016. In addition, pursuant to this Proposal, we are considering a sale in the public market of a minority of our shares in our five generation subsidiaries, KEPCO KDN and KHNP gradually and in that order, subject to prevailing market conditions and other policy considerations. Accordingly, we are currently taking steps in preparation of a potential sale of a minority of our shares in KOSEP and EWP through public offerings by the end of 2017, but whether and when such sale would occur will be subject to prevailing market conditions and considerations of public policy. In any event, we plan to maintain a controlling stake in each of these subsidiaries.

Other than as set forth above, we are not aware of any specific plans by the Government to resume the implementation of the Restructuring Plan or otherwise change the current structure of the electric power industry or the operations of us or our generation subsidiaries materially in the near future. However, for reasons relating to changes in policy considerations, socio-political, economic and market conditions and/or other factors, the Government may  resume the implementation of the Restructuring Plan or initiate other steps that may change the structure of the Korean electric power industry or the operations of us or our generation subsidiaries materially. Any such measures may have a negative effect on our business, results of operations and financial condition. In addition, the Government, which beneficially owns a majority of our shares and exercises significant control over our business and operations, may from time to time pursue policy initiatives that could directly or indirectly impact our business and operations, and such initiatives may vary from the interest and objectives of our other shareholders.

Our capacity expansion plans, which are principally based on projections on long-term supply and demand of electricity in Korea, may prove to be inadequate.

We and our generation subsidiaries make plans for expanding or upgrading our generation capacity and transmission infrastructure based on the Basic Plan Relating to the Long-Term Supply and Demand of Electricity, or the Basic Plan, which is generally revised and announced every two years by the Government. In July 2015, the Government announced the Seventh Basic Plan relating to the future supply and demand of electricity. The Seventh Basic Plan, which is effective for the period from 2015 to 2029, focuses on, among other things, (i) ensuring a stable supply of electricity, (ii) increasing the portion of low carbon electricity supply sources, (iii) active consumer demand management, (iv) permanent closing of operations of the Kori #1 nuclear power unit, and (v) diversifying electricity supply sources through greater utilization of renewable energy sources.

In January 2014, prior to the announcement of the Seventh Basic Plan, the Ministry of Trade, Industry and Energy adopted the Second Basic National Energy Plan following consultations with representatives from civic groups, the power industry and academia. The Second Basic National Energy Plan, which is a comprehensive plan that covers the entire spectrum of energy industries in Korea, covers the period from 2014 to 2035 and focuses on the following six key tasks: (i) shifting the focus of energy policy to demand management with a goal of reducing the growth of electricity demand by 15% by 2035 through efficiency enhancement programs compared to the projected growth in the absence of such efficiency enhancement programs, (ii) establishing a geographically decentralized electricity generation system so as to reduce transmission losses with a goal of supplying at least 15% of total electricity through such system by 2035, (iii) applying latest greenhouse gas emission reduction technologies to newly constructed generation units in order to further promote safety and security, (iv) strengthening resource exploration and fuel procurement capabilities to enhance Korea’s energy security, (v) ensuring stable supply of energy and increasing the portion of electricity supplied from renewable sources to 11% by 2035, (vi) reinforcing the system for stable supply of conventional energy, such as oil and gas, and (vii) introducing in 2015 an energy voucher system in lieu of a tariff discount system for the benefit of

 

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consumers in the low income group. In addition, the Second Basic National Energy Plan revised the target level of electricity generated by nuclear sources as a percentage of total electricity generated to 29%, compared to 41% under the First Basic National Energy Plan announced in 2008, which covered the period from 2008 to 2030.

We cannot assure that the Seventh Basic Plan, the Second Basic National Energy Plan, or their respective successor plans will successfully achieve their intended goals, the foremost of which is to ensure, through carefully calibrated capacity expansion and other means, balanced overall electricity supply and demand in Korea at affordable costs to end users while promoting efficiency and environmental friendliness in the consumption and production of electricity. If there is significant variance between the projected electricity supply and demand considered in planning our capacity expansions and the actual electricity supply and demand, or if these plans otherwise fail to meet their intended goals or have other unintended consequences, this may result in inefficient use of our capital, mispricing of electricity and undue financing costs on the part of us and our generation subsidiaries, among others, which may have a material adverse effect on our results of operations, financial condition and cash flows.

From time to time, we may experience temporary power shortages or circumstances bordering on power shortages due to factors beyond our control, such as extreme weather conditions. Such circumstances may lead to increased end-user complaints and greater public scrutiny, which may in turn require us to modify our capacity expansion plans, and if we were to substantially modify our capacity plans, this might result in additional capital expenditures and, as a result, have a material adverse effect on our results of operations, financial condition and cash flows.

Although the Government makes significant efforts to encourage conservation of electricity, including through public education campaigns, there is no assurance that such efforts will have the desired effect of substantially reducing the demand for electricity or improving efficient use thereof.

We are subject to various environmental regulations and related government initiatives, including in relation to climate change, which could cause significant compliance costs and operational liabilities.

We are subject to national, local and overseas environmental laws and regulations, including increasing pressure to reduce emission of carbon dioxide from our electricity generation activities as well as our natural resource development endeavors overseas. Our operations could expose us to the risk of substantial liability relating to environmental, health and safety issues, such as those resulting from the discharge of pollutants and carbon dioxide into the environment and the handling, storage and disposal of hazardous materials. We may be responsible for the investigation and remediation of environmental conditions at current or former operational sites. We may also be subject to related liabilities (including liabilities for environmental damage, third party property damage or personal injury) resulting from lawsuits brought by governments or private litigants. In the course of our operations, hazardous wastes may be generated, disposed of or treated at third party-owned or -operated sites. If those sites become contaminated, we could also be held responsible for the cost of investigation and remediation of such sites for any related liabilities, as well as for civil or criminal fines or penalties.

We intend to fully comply with our environmental obligations. However, our environmental measures, including the use of, or replacement with, environmentally friendly but more expensive parts and equipment and budgeting capital expenditures for the installation or modification of such facilities, may result in increased operating costs and liquidity requirement. The actual cost of installation, replacement, modification and/or operation of such equipment and related liquidity requirement may depend on a variety of factors that are beyond our control. There is no assurance that we will continue to be in material compliance with legal or regulatory requirements or satisfy social norms and expectations in the future in relation to the environment, including in respect of climate change.

In recent years, partly driven by growing public awareness and sensitivity toward climate change and other environmental issues as well as in an effort to capture the economic and social potential associated with

 

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renewable energy and “new energy”—related industries (such as smart grids, energy storage systems and electrical vehicles, among others), the Government has introduced and implemented a number of new measures designed to reduce carbon emission, minimize environmental damage and spur related business opportunities. Some key examples of such Government initiatives pertinent to our and our generation subsidiaries’ operations as follows:

 

   

Carbon Emission Trading System and Related Emission Reduction Targets . In accordance with the Act on Allocation and Trading of Greenhouse Gas Emission Allowances, enacted in March 2013, the Government is currently in the process of implementing a carbon emission trading system under which the Government will allocate the amount of permitted carbon emission to companies by industry and a company whose business emits more carbon than the permitted amount may purchase the right to emit more carbon through the carbon emission trading exchange. This system is expected to be implemented in three stages. During the first phase (2015 to 2017), the Government will set up and make a test run of the trading system to ensure its smooth operation; during this phase, the carbon emission rights will be allocated without charge. During the second phase (2018 to 2020), the system will be applied to a limited scope of industries and companies, where the carbon emission right will be allocated at a relatively low price, but not freely. During the third phase (2021 to 2025), the Government plans to run the system on an expanded scale with aggressive carbon emission reduction targets. As part of the implementation of this trading system, we are obligated to reduce, on a consolidated basis, approximately 200 million tons of carbon emissions, amounting to a 23.7% reduction, per year during the first phase of 2015 to 2017. The amount of required reduction for the second phase of 2018 to 2020 is expected to be determined in June 2017. Adhering to such emission reduction requirement is expected to result in our incurring significant compliance costs.

 

   

Regulation of Decrepit Coal-Fired Generation Units. According to a plan announced in July 2016 by the Ministry of Trade, Industry and Energy in relation to coal-fired electricity generation units, 10 of our coal generation units that are 30 years or older will be required to be shut down or convert to another fuel use, 43 of our such units that are less than 30 years old will be subject to retrofitting and overall replacement of environmental facilities, and 20 of our such units currently under construction will be subject to more rigorous emission standards. In addition, the Government indicated that it would not allow any new construction of additional coal-fired generation units after 2019, which means that LNG is likely to be used more in the future as the substitute for coal, and since LNG is a more expensive fuel source than fuel, this regulation is expected to drive up the average cost of generating electricity. Compliance with such measures is expected to result in our incurring significant costs.

 

   

Coal Consumption Tax . In January 2014, largely based on policy considerations of tax equity among different fuel types as well as environmental concerns, the Ministry of Strategy and Finance announced that, effective July 1, 2014, consumption tax will apply to bituminous coal, which previously was not subject to consumption tax unlike other fuel types such as LNG or bunker oil. Pursuant to the amended Individual Consumption Tax Act effective as of April 1, 2017, which involved an increase of the unit tax rate for coal by Won 6 across the board, the base tax rate (which is subject to certain adjustments) is Won 30 per kilogram for bituminous coal; however, due to concerns on the potential adverse effect on industrial activities, the applicable tax rate is applied differently based on the net heat generation amount. The currently applicable tax rate for bituminous coal is Won 27 per kilogram for net heat generation of less than 5,000 kilocalories, Won 30 per kilogram for net heat generation of 5,000 to 5,500 kilocalories and Won 33 per kilogram for net heat generation of 5,500 kilocalories or more. In contrast, the currently applicable tax rate for LNG is Won 60 per kilogram. Since bituminous coal currently represents the largest fuel type for our electricity generation, accounting for approximately 45.9% of our entire fuel requirements in 2016 in terms of electricity output, we expect the coal consumption tax thereon will result in an increase of our overall fuel costs.

 

   

Renewable Portfolio Standard . Under this program, each of our generation subsidiaries is required to generate a specified percentage of total electricity to be generated by such generation subsidiary in a given year in the form of renewable energy or, in case of a shortfall, purchase a corresponding amount

 

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of a Renewable Energy Certificate (a form of renewable energy credit) from other generation companies whose renewable energy generation surpass such percentage. The target percentage was 3.0% in 2015 and 3.5% in 2016 and will incrementally increase to 10.0% by 2023. Fines are to be levied on any subsidiary that fails to do so in the prescribed timeline. In 2015, all six of our generation subsidiaries met the target through renewable energy generation and/or the purchase of a Renewable Energy Certificate. Compliance by our generation subsidiaries of the 2016 target is currently under evaluation, and if any generation subsidiary is found to have failed to meet the target for 2016 or for subsequent years, such generation subsidiary may become subject to fines.

 

   

New Energy Industry Fund. In January 2016, the Ministry of Trade, Industry and Energy announced an initiative to promote the new energy industry by creating the New Energy Industry Fund, which is made up of funds sponsored by government-affiliated energy companies. The purpose of these funds is to invest in substantially all frontiers of the new energy industry, including renewable energy, energy storage systems, electric vehicles, small-sized self-sustaining electricity generation grids known as “micro-grids”, among others, as well as invest in start-up companies, ventures, small- to medium-sized enterprise and project businesses that engage in these businesses but have not previously attracted sufficient capital from the private sector. The total size of these funds was US$1 trillion as of December 31, 2016; these funds were funded from our budget for new energy industry projects, which totaled US$6.4 trillion in 2016 and were expended in research and development, efficiency improvements and educational solar power projects, among others. Our budget for new energy industry projects in 2017 amounts to US$5.6 trillion, of which US$1 trillion has been earmarked for potential additional commitments to the New Energy Industry Fund.

 

   

Environmental and safety considerations in electricity supply and demand planning . In March 2017, the Electricity Business Act was amended to the effect that starting in June 2017, future national planning for electricity supply and demand in Korea should consider the environmental and safety impacts of such planning. However, to-date, no specific guidelines have been provided by the Government as to how to implement this provision, and it is therefore difficult to assess in advance what impact such provision will have on our business, results of operations or financial condition.

Complying with these Government initiatives and operating programs in furtherance thereof has involved and will likely involve significant costs and resources on our part. We and our generation subsidiaries could also become subject to substantial fines and other forms of penalties for non-compliance. We expect that the additional costs associated with implementing and operating these programs and otherwise complying with these programs will be covered by a corresponding increase in electricity tariff. However, there is no assurance that, particularly given the wide-ranging policy priorities for the Government, it will in fact raise the electricity tariff to a level sufficient to fully cover such additional costs, do so on a timely basis or at all. If the Government does not do so or provide us and our generation subsidiaries with other forms of assistance to offset the costs involved, our results of operation, financial condition and cash flows may be materially and adversely affected.

See Item 4.B. “Business Overview—Environmental Programs.”

We may require a substantial amount of additional indebtedness to refinance existing debt and for future capital expenditures.

We anticipate that a substantial amount of additional indebtedness will be required in the coming years in order to refinance existing debt, make capital expenditures for construction of generation plants and other facilities and/or make acquisitions, invest in renewable energy and the “new energy industry” projects and fund our overseas businesses. In 2014, 2015 and 2016, our capital expenditures in relation to the foregoing amounted to Won 16,629 billion, Won 15,750 billion and Won 13,950 billion, respectively, and our budgeted capital expenditures for 2017, 2018 and 2019 amount to Won 14,889 billion, Won 15,860 billion and Won 16,071 billion, respectively.

 

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While we currently do not expect to face any material difficulties in procuring short-term borrowings to meet our liquidity and short-term capital requirements, there is no assurance that we will be able to do so. We expect that a portion of our long-term debt will need to be paid or refinanced through foreign currency-denominated borrowings and capital raising in international capital markets. Such financing may not be available on terms commercially acceptable to us or at all, especially if the global financial markets experience significant turbulence or a substantial reduction in liquidity or due to other factors beyond our control. If we are unable to obtain financing on commercially acceptable terms on a timely basis, or at all, we may be unable to meet our funding requirements for capital expenditures or debt repayment obligations, which could have a material adverse impact on our business, results of operations and financial condition.

In light of the general policy guideline of the Government for public institutions (including us and our generation subsidiaries) to reduce their respective overall debt levels, we and our generation subsidiaries have, in consultation with the Government and as approved by the Public Agencies Operating Committee, set target debt-to-equity levels and undertaken various programs to reduce debt and improve the overall financial health by the end of 2017. For further information, see Item 4.B. “Business Overview—Debt Reduction Program and Related Activities.” Despite our best efforts, however, for reasons beyond our control, including macroeconomic environments, government regulations and market forces (such as international market prices for our fuels), we cannot assure whether we or our generation subsidiaries will be able to successfully reduce debt burdens or otherwise improve our financial health to a level contemplated by the Government or to a level that would be optimal for our capital structure. If we or our generation subsidiaries fail to do so or the measures taken by us or our generation subsidiaries to reduce debt levels or improve financial health have unintended adverse consequences, such developments may have an adverse effect on our business, results of operations and financial condition.

The movement of Won against the U.S. dollar and other currencies may have a material adverse effect on us.

The Won has fluctuated significantly against major currencies from time to time. Even slight depreciation of Won against U.S. dollar and other foreign currencies may result in a material increase in the cost of fuel and equipment purchased by us from overseas since the prices for substantially all of the fuel materials and a significant portion of the equipment we purchase are denominated in currencies other than Won, generally in U.S. dollars. Changes in foreign exchange rates may also impact the cost of servicing our foreign currency-denominated debt. As of December 31, 2016, approximately 23.1% of our long-term debt (including the current portion but excluding issue discounts and premium) before accounting for swap transactions, was denominated in foreign currencies, principally U.S. dollars. In addition, even if we make payments in Won for certain fuel materials and equipment, some of these fuel materials may originate from other countries and their prices may be affected accordingly by the exchange rates between the Won and foreign currencies, especially the U.S. dollar. Since the substantial majority of our revenues are denominated in Won, we must generally obtain foreign currencies through foreign currency-denominated financings or from foreign currency exchange markets to make such purchases or service such debt. As a result, any significant depreciation of Won against the U.S. dollar or other major foreign currencies will have a material adverse effect on our profitability and results of operations.

We may not be successful in implementing new business strategies.

As part of our overall business strategy, we plan to (i) strengthen competitiveness in our core operations by enhancing efficiency of our generation, transmission and distribution networks and related facilities, (ii) expand and develop new businesses by diversifying our overseas business and actively addressing climate change, (iii) create a platform for future growth by developing an ecosystem focused on new energy technologies, and (iv) strengthen our management system for sustainable growth.

Due to their inherent uncertainties, such new and expanded strategic initiatives expose us to a number of risks and challenges, including the following:

 

   

new and expanded business activities may require unanticipated capital expenditures and involve additional compliance requirements;

 

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new and expanded business activities may result in less growth or profit than we currently anticipate, and there can be no assurance that such business activities will become profitable at the level we desire or at all;

 

   

certain of our new and expanded businesses, particularly in the areas of renewable energy, require substantial government subsidies to become profitable, and such subsidies may be substantially reduced or entirely discontinued;

 

   

we may fail to identify and enter into new business opportunities in a timely fashion, putting us at a disadvantage vis-à-vis competitors, particularly in overseas markets; and

 

   

we may need to hire or retrain personnel to supervise and conduct the relevant business activities.

As part of our business strategy, we may also seek, evaluate or engage in potential acquisitions, joint ventures, strategic alliances, restructurings, combinations, rationalizations, divestments or other similar opportunities. The prospects of these initiatives are uncertain, and there can be no assurance that we will be able to successfully implement or grow new ventures, and these ventures may prove more difficult or costly than what we originally anticipated. In addition, we regularly review the profitability and growth potential of our existing and new businesses. As a result of such review, we may decide to exit from or to reduce the resources that we allocate to new or existing ventures in the future. There is a risk that these ventures may not achieve profitability or operational efficiencies to the extent originally anticipated, and we may fail to recover investments or expenditures that we have already made. Any of the foregoing may have a material adverse effect on our reputation, business, results of operations, financial condition and cash flows.

We plan to pursue overseas expansion opportunities that may subject us to different or greater risks than those associated with our domestic operations.

While our operations have, to-date, been primarily based in Korea, we and our generation subsidiaries may expand, on a selective and opportunistic basis, overseas operations in the future. In particular, we and our generation subsidiaries may further diversify the geographic focus of our operations from Asia to the rest of the world, including the resource-rich Middle East, Australia and Africa, as well as expand our project portfolio to include the construction and operation of conventional thermal generation units, nuclear generation units and renewable energy power plants and (primarily through our generation subsidiaries) mining and development of fuel sources.

Overseas operations often involve risks that are different from those we face in our domestic operations, including the following:

 

   

challenges of complying with multiple foreign laws and regulatory requirements, including tax laws and laws regulating our operations and investments;

 

   

volatility of overseas economic conditions, including fluctuations in foreign currency exchange rates;

 

   

difficulties in enforcing creditors’ rights in foreign jurisdictions;

 

   

risk of expropriation and exercise of sovereign immunity where the counterparty is a foreign government;

 

   

difficulties in establishing, staffing and managing foreign operations;

 

   

differing labor regulations;

 

   

political and economic instability, natural calamities, war and terrorism;

 

   

lack of familiarity with local markets and competitive conditions;

 

   

changes in applicable laws and regulations in Korea that affect foreign operations; and

 

   

obstacles to the repatriation of earnings and cash.

 

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Any failure by us to recognize or respond to these differences may adversely affect the success of our operations in those markets, which in turn could materially and adversely affect our business and results of operations.

Furthermore, while we seek to enter into overseas business opportunities in a prudent manner, some of our new international business ventures, such as mining and resource exploration, carry inherent risks that are different from our traditional business of electricity power generation, transmission and distribution. While the overseas businesses in the aggregate currently do not comprise a material portion of our overall business, as we are relatively inexperienced in these new types of overseas businesses, the actual revenues and profitability from, and investments and expenditures into, such ventures may be substantially different from what we plan or anticipate and may have a material adverse impact on our overall business, results of operations, financial condition and cash flows.

An increase in electricity generated by and/or sourced from private power producers may erode our market position and hurt our business, growth prospects, revenues and profitability.

As of December 31, 2016, we and our generation subsidiaries owned approximately 74.7% of the total electricity generation capacity in Korea (excluding plants generating electricity for private or emergency use). New entrants to the electricity business will erode our market share and create significant competition, which could have a material adverse impact on our financial condition and results of operations.

In particular, we compete with independent power producers with respect to electricity generation. The independent power producers accounted for 19.3% of total power generation in 2016 and 25.3% of total generation capacity as of December 31, 2016. As of December 31, 2016, there were 17 independent power producers in Korea, excluding renewable energy producers. Private enterprises became permitted to own and operate coal-fired power plants in Korea only after the Ministry of Trade, Industry and Energy approved plans for independent power producers to construct coal-fired power plants under the Sixth Basic Plan announced in February 2013. Under the Seventh Basic Plan announced in July 2015 as subsequently amended, eight coal-fired units with aggregate generation capacity of 7,420 megawatts are scheduled to be completed between 2017 and 2022, currently with no further plans for construction of coal-fired power plants by independent power producers beyond 2022. While it remains to be seen whether construction of these generation units will be completed as scheduled, if these units were to be completed as scheduled and/or independent power producers are permitted to build additional generation capacity (whether coal-fired or not), our market share in Korea may decrease, which may have a material adverse effect on our results of operations and financial condition.

In addition, under the Community Energy System adopted by the Government in 2004, a minimal amount of electricity is supplied directly to consumers on a localized basis by independent power producers outside the cost-based pool system used by our generation subsidiaries and most independent power producers to distribute electricity nationwide. The purpose of this system is to geographically decentralize electricity supply and thereby reduce transmission losses and improve the efficiency of energy use. These entities do not supply electricity on a national level but are licensed to supply electricity on a limited basis to their respective districts under the Community Energy System. As of March 31, 2017, the aggregate generation capacity of suppliers participating in the Community Energy System amounted to less than 1% of that of our generation subsidiaries in the aggregate. We currently do not expect the Community Energy System to be widely adopted, especially in light of the significant level of capital expenditure required for such direct supply. However, if the Community Energy System is widely adopted, it may erode our currently dominant market position in the generation and distribution of electricity in Korea and may have a material adverse effect on our business, results of operations and financial condition.

Our market dominance in the electricity distribution in Korea also may face potential erosion in light of the recent Proposal for Adjustment of Functions of Public Institutions (Energy Sector) announced by the Government in June 2016. This proposal contemplates a gradual opening of the electricity trading market to the

 

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private sector although no detailed roadmap has been provided for such opening. It is currently premature to predict to what extent, or in what direction, the liberalization of the electricity trading market will happen. Nonetheless, any significant liberalization of the electricity trading market may result in substantial reduction of our market share in electricity distribution in Korea, which would have a material adverse effect on our business, results of operation and cash flows.

See also Item 4.B. “Business Overview—Competition.”

Labor unrest may adversely affect our operations.

We and each of our generation subsidiaries have separate labor unions. As of December 31, 2016, approximately 69.5% of our and our generation subsidiaries’ employees in the aggregate were members of these labor unions. Since a six-week labor strike in 2002 by union members of our generation subsidiaries in response to a proposed privatization of one of our generation subsidiaries, there has been no material labor dispute. However, we cannot assure you that there will not be a major labor strike or other material disruptions of operations by the labor unions of us and our generation subsidiaries if the Government resumes privatization or other restructuring initiatives or for other reasons. For example, the Government is currently contemplating a public offering of minority stakes in our six generation subsidiaries and KEPCO KDN, subject to prevailing market conditions and public policy considerations. In addition, in 2016, we and our generation subsidiaries expanded the scope of employees who will be subject to a performance pay system, under which a greater portion of their annual compensation will vary with performance level, rather than be fixed in advance. At some of our generation subsidiaries, these changes were made without union approval, and there is ongoing litigation to nullify these changes. If this issue is not resolved favorably to the employees affected by the recent changes to the compensation system, this could potentially result in some labor unrest. We cannot assure you that any incident of labor unrest will not lead to a major labor strike or other material disruptions of operations by the labor unions of us and our generation subsidiaries, which may adversely affect our business and results of operations.

Operation of nuclear power generation facilities inherently involves numerous hazards and risks, any of which could result in a material loss of revenues or increased expenses.

Through KHNP, we currently operate 25 nuclear-fuel generation units. Operation of nuclear power plants is subject to certain hazards, including environmental hazards such as leaks, ruptures and discharge of toxic and radioactive substances and materials. These hazards can cause personal injuries or loss of life, severe damage to or destruction of property and natural resources, pollution or other environmental damage, clean-up responsibilities, regulatory investigation and penalties and suspension of operations. Nuclear power has a stable and relatively inexpensive cost structure (which is least costly among the fuel types used by our generation subsidiaries) and is the second largest source of Korea’s electricity supply, accounting for 30.0% of electricity generated in Korea in 2016. Due to significantly lower unit fuel costs compared to those for thermal power plants, our nuclear power plants are generally operated at full capacity with only routine shutdowns for fuel replacement and maintenance, with limited exceptions.

From time to time, our nuclear generation units may experience unexpected shutdowns. For example, following an earthquake in the vicinity in September 2016, four nuclear generation units at the Wolsong site were shut down for approximately three months as part of a preventive and safety assurance program although these units were not directly affected by the earthquake. Any prolonged or substantial breakdown, failure or suspension of operation of a nuclear unit could result in a material loss of revenues, an increase in fuel costs related to the use of alternative power sources, additional repair and maintenance costs, greater risk of litigation and increased social and political hostility to the use of nuclear power, any of which could have a material adverse impact on our financial condition and results of operations.

In addition, heightened concerns regarding the safety of operating nuclear generation units could impede with our ability to operating them for an extended period of time or at all. For example, the nuclear power plant

 

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at Wolsong #1 unit began operations in 1982 and ended its operations in 2012 pursuant to its 30-year operating license. In February 2015, the Nuclear Safety and Security Commission (“NSSC”) evaluated the safety of operating Wolsong #1 unit and approved its extended operation until November 2022. However, a civic group filed a lawsuit to annul such decision, and in February 2017, the Seoul Administrative Court ruled against the NSSC. The NSSC appealed this decision, and the civic group has filed an injunction to suspend the operation of the Wolsong #1 unit. KHNP, which currently is operating the unit pursuant to the NSSC initial decision, has joined this lawsuit. We cannot assure you whether the courts will ultimately rule to grant the extension of life for Wolsong #1. There are seven other nuclear generation units whose life under their initial operating license will expire in the next ten years, or by 2027. Thus, if the courts were to ultimately rule against the extension of life for Wolsong #1, we may find it more difficult to have the life of other nuclear units extended as well. The failure to extend the life of these units would result in a loss of revenues from such units and the increase in our overall fuel costs (as nuclear fuel is the cheapest compared to coal, LNG or oil), which could adversely affect our results of operation and financial condition. Furthermore, in September 2016, Greenpeace and 559 Korean nationals brought a lawsuit against the NSSC to revoke the permit the NSSC granted to KHNP in relation to the construction of Shin-Kori #5 and #6 nuclear generation units. This case is currently pending at the Seoul Administrative Court. If the courts were to ultimately rule against the construction of these new nuclear units, we will similarly experience a loss of revenues and an increase in fuel costs), which could adversely affect our results of operation and financial condition.

In order to prevent damages to the nuclear facilities such as a result of the tsunami and earthquake in March 2011 in Japan, KHNP prepared a comprehensive safety improvement plan including, but are not limited to, installing additional automatic shut-down systems for earthquakes, extending coastal barriers for seismic waves, procuring mobile power generators and storage batteries, installing passive hydrogen removers at nuclear facilities and improving the radiology emergency medical system. All follow-up measures were finalized in December 2015. However, there is no assurance that a similar or worse natural disaster may require the adoption and implementation of additional safety measures, which may be costly and have a material adverse impact on our financial condition and results of operations.

The construction and operation of our generation, transmission and distribution facilities involve difficulties, such as opposition from civic groups, which may have an adverse effect on us.

From time to time, we encounter social and political opposition against construction and operation of our generation facilities (particularly nuclear units) and, to a lesser extent, our transmission and distribution facilities. For example, we recently faced intense opposition from local residents and civic groups to the construction of transmission lines in the Milyang area, which we resolved through various compensatory and other support programs. Such opposition delayed the schedule for completion of this project. Although we and the Government have undertaken various community programs to address concerns of residents in areas near our facilities, civic and community opposition could result in delayed construction or relocation of our planned facilities, which could have a material adverse impact on our business and results of operations.

Our risk management policies and procedures may not be fully effective at all times.

In the course of our operations, we must manage a number of risks, such as regulatory risks, market risks and operational risks. Although we devote significant resources to developing and improving our risk management policies and procedures and expect to continue to do so in the future, our risk management practices may not be fully effective at all times in eliminating or mitigating risk exposures in all market environments or against all types of risk, including risks that are unidentified or unanticipated, such as natural disasters or employee misconduct. For example, in May 2013, the Nuclear Safety and Security Commission (“NSSC”) of Korea discovered that certain parts used in several of our then-operating nuclear generation units had been supplied based on forged testing results. This discovery led to full internal investigation and investigation by the Prosecutor’s Office, which in turn led to prosecutions and convictions of several current and former employees of KHNP on related and separate bribery charges, as well as termination of the then-president of KHNP as part of

 

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a broad disciplinary action. The incident also led to suspended operation of the related nuclear generation units for several months pending safety inspection. A similar incident involving forged testing results and bribery occurred also in November 2012. We and KHNP have fully cooperated with the authorities in terms of investigations as well as remedial and preventive measures, including enhanced internal compliance policies and procedures. We also believe we and our subsidiaries are in compliance in all material respects with internal compliance policies and procedures and all other additional safety measures initiated internally or required by regulatory and governmental agencies. However, we cannot assure you that, despite all precautionary and reform measures undertaken by us, these measures will prove to be fully effective at all times against all the risks we face or that an incident that that could cause harm to our reputation and operation will not happen in the future, including due to factors beyond our control.

Our risk management procedures may not prevent losses in debt and foreign currency positions.

We manage interest rate exposure for our debt instruments by limiting our variable rate debt exposure as a percentage of our total debt and closely monitoring the movements in market interest rates. We also actively manage currency exchange rate exposure for our foreign currency-denominated liabilities by measuring the potential loss therefrom using risk analysis software and entering into derivative contracts to hedge such exposure when the possible loss reaches a certain risk limit. To the extent we have unhedged positions or our hedging and other risk management procedures do not work as planned, our results of operations and financial condition may be adversely affected.

The amount and scope of coverage of our insurance are limited.

Substantial liability may result from the operations of our nuclear generation units, the use and handling of nuclear fuel and possible radioactive emissions associated with such nuclear fuel. KHNP carries insurance for its generation units and nuclear fuel transportation, and we believe that the level of insurance is generally adequate and is in compliance with relevant laws and regulations. In addition, KHNP is the beneficiary of Government indemnity which covers a portion of liability in excess of the insurance. However, such insurance is limited in terms of amount and scope of coverage and does not cover all types or amounts of losses which could arise in connection with the ownership and operation of nuclear plants. Accordingly, material adverse financial consequences could result from a serious accident or a natural disaster to the extent it is neither insured nor covered by the government indemnity.

In addition, our non-nuclear generation subsidiaries carry insurance covering certain risks, including fire, in respect of their key assets, including buildings and equipment located at their respective power plants, construction-in-progress and imported fuel and procurement in transit. Such insurance and indemnity, however, cover only a portion of the assets that these generation subsidiaries own and operate and do not cover all types or amounts of loss that could arise in connection with the ownership and operation of these power plants. In addition, unlike us, our generation subsidiaries are not permitted to self-insure, and accordingly have not self-insured, against risks of their uninsured assets or business. Accordingly, material adverse financial consequences could result from a serious accident to the extent it is uninsured.

In addition, because neither we nor our non-nuclear generation subsidiaries carry any insurance against terrorist attacks, an act of terrorism would result in significant financial losses. See Item 4.B. “Business Overview—Insurance.”

We may not be able to raise equity capital in the future without the participation of the Government.

Under applicable laws, the Government is required to directly or indirectly own at least 51% of our issued capital stock. As of December 31, 2016, the last day on which our shareholders’ registry was closed, the Government, directly and through Korea Development Bank (a statutory banking institution wholly owned by the Government), owned 51.1% of our issued capital stock. Accordingly, without changes in the existing Korean

 

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law, it may be difficult or impossible for us to undertake, without the participation of the Government, any equity financing in the future.

We may be exposed to potential claims made by current or previous employees for unpaid wages for the past three years under the expanded scope of ordinary wages and become subject to additional labor costs arising from the broader interpretation of ordinary wages under such decision.

Under the Labor Standards Act, an employee is legally entitled to “ordinary wages.” Under the guidelines previously issued by the Ministry of Employment and Labor, ordinary wages include base salary and certain fixed monthly allowances for work performed overtime during night shifts and holidays. Prior to the Supreme Court decision described below, many companies in Korea had typically interpreted these guidelines as excluding from the scope of ordinary wages fixed bonuses that are paid other than on a monthly basis, namely on a bi-monthly, quarterly or semi-annual basis, although such interpretation had been a subject of controversy and had been overruled in a few court cases.

In December 2013, the Supreme Court of Korea ruled that regular bonuses fall under the category of ordinary wages on the condition that those bonuses are paid regularly and uniformly, and that any agreement which excludes such regular bonuses from ordinary wage is invalid. One of the key rulings provides that bonuses that are given to employees (i) on a regular and continuous basis and (ii) calculated according to the actual number of days worked (iii) that are not incentive-based must be included in the calculation of “ordinary wages.” The Supreme Court further ruled that in spite of invalidity of such agreements, employees shall not retroactively claim additional wages incurred due to such court decision, in case that such claims bring to employees unexpected benefits which substantially exceeds the wage level agreed by employers and employees and cause an unpredicted increase in expenditures for their company, which would lead the company to material managerial difficulty or would be a threat to the existence of the company. In that case, the claim is not acceptable since it is unjust and is in breach of the principle of good faith.

As a result of such ruling by the Supreme Court of Korea, we and our subsidiaries became subject to a number of lawsuits filed by various industry-wide and company-specific labor unions based on claims that ordinary wage had been paid without including certain items that should have been included as ordinary wage. In July 2016, the court ruled against us, and in accordance with the court’s ruling, in August 2016 we paid Won 55.1 billion to the employees for three years of back pay plus interest. As of December 31, 2016, 30 lawsuits were pending against our subsidiaries for an aggregate claim amount of Won 198 billion, for which our subsidiaries set aside an aggregate amount of Won 179 billion to cover any potential future payments of additional ordinary wage in relation to the related lawsuits. We cannot presently assure you that the court will not rule against our subsidiaries in these lawsuits, or that the foregoing reserve amount will be sufficient to cover the amounts payable under the court rulings. In such cases, it would adversely affect our results of operations. See Item 8.A. Consolidated Statements and Other Financial Information—Legal Proceedings.

We are subject to cyber security risk.

Recently, our activities have been subject to an increasing risk of cyber-attacks, the nature of which is continually evolving. For example, in December 2014, KHNP became subject to a cyber terror incident. According to the findings of the Prosecutor’s Office announced in March 2015, hackers suspected to be affiliated with North Korean authorities stole and distributed a mock blueprint for a hypothetical nuclear unit that had been devised for educational purposes, hacked into the computer network of former KHNP employees and threatened to shut down certain of KHNP’s nuclear plants. The hacking incident did not jeopardize our nuclear operation in any material respect and none of the stolen information was material to our nuclear operation or the national nuclear policy. In response to such incident, we and our subsidiaries have further bolstered anti-hacking and other preventive and remedial measures in relation to potential cyber terror. However, there is no assurance that a similar or more serious hacking or other forms of cyber terror will not happen with respect to us and our generation subsidiaries, which could have a material adverse impact on our business, financial condition and results of operations.

 

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We engage in limited activities relating to Iran and may become subject to sanctions under relevant laws and regulations of the United States and other jurisdictions as a result of such activities, which may adversely affect our business and reputation.

The U.S. Department of the Treasury’s Office of Foreign Assets Control, or OFAC, administers and enforces certain laws and regulations (which we refer to as the OFAC sanctions) that impose restrictions upon activities or transactions within U.S. jurisdiction with certain countries, governments, entities and individuals that are the subject of OFAC sanctions, including Iran. Even though non-U.S. persons generally are not directly bound by the OFAC sanctions, in recent years the OFAC has asserted that such non-U.S. persons can be held liable on various legal theories if they engage in transactions completed in part in the United States or by U.S. persons (such as, for example, wiring an international payment that clears through a bank branch in New York). The European Union also enforces certain laws and regulations that impose restrictions upon nationals and entities of, and business conducted in, member states with respect to activities or transactions with certain countries, governments, entities and individuals that are the subject of such laws and regulations, including Iran. The United Nations Security Council and other governmental entities also impose similar sanctions.

In addition to the OFAC sanctions described above, the United States also maintains indirect sanctions under authority of, among others, the Iran Sanctions Act, the Comprehensive Iran Sanctions, Accountability and Divestment Act of 2010, or CISADA, the National Defense Authorization Act for Fiscal Year 2012, or the NDAA, the Iran Threat Reduction and Syria Human Rights Act of 2012, or ITRA, various Executive Orders, and the Iran Freedom and Counter-Proliferation Act of 2012, or IFCA. These indirect sanctions, which we refer to collectively as U.S. secondary sanctions, provide authority for the imposition of U.S. sanctions on foreign parties that provide services in support of certain Iranian activities in the energy, shipping and military sectors, among others.

On July 14, 2015, the so-called “P5+1” powers (consisting of the United States, the United Kingdom, Germany, France, Russia, and China) and the European Union, or the EU, entered into an agreement with Iran known as the Joint Comprehensive Plan of Action Regarding the Islamic Republic of Iran’s Nuclear Program, or the JCPOA. The JCPOA is intended to significantly restrict Iran’s ability to develop and produce nuclear weapons. Upon implementation of the JCPOA on January 16, 2016 the United States, the EU, and the UN suspended certain nuclear-related sanctions against Iran following an announcement by the International Atomic Energy Agency that Iran had fulfilled its initial obligations under the JCPOA.

The U.S. secondary sanctions that were suspended on January 16, 2016 have not been repealed. Rather, certain waivers of statutory provisions were put into place, certain Presidential Executive Orders were revoked, and certain persons were removed from the relevant U.S. denied parties lists. Under the JCPOA, sanctions may be re-imposed if the United States or any other member of the P5+1 or the EU invokes provisions of the JCPOA for the re-imposition of sanctions. Additionally, the United States, the EU, or the UN may impose new sanctions against Iran or against persons conducting business in Iran even while the JCPOA remains in force.

Violations of OFAC sanctions via transactions with a U.S. jurisdictional nexus can result in substantial civil or criminal penalties. A range of sanctions may be imposed on companies that engage in sanctionable activities within the scope of U.S. secondary sanctions, including, among other things, the blocking of any property subject to U.S. jurisdiction in which the sanctioned company has an interest, which could include a prohibition on transactions or dealings involving securities of the sanctioned company pursuant to CISADA.

In Iran, we are currently engaged in limited business activities, none of which has progressed beyond the early development stage. Our activities in Iran are managed by a representative office located in Tehran, Iran. None of our activities in Iran involve U.S. persons or our U.S. affiliates. Our counterparties in the projects described below are Iranian governmental entities or Iranian state-owned enterprises.

Since all of our activities in Iran are at the early development stage, we have not realized any revenue or profit from such activities. We also have not to-date made any investments in Iran, other than incur expenses to run our representative office in Tehran in the ordinary course of business.

 

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A summary of our current projects in Iran follows.

 

   

We have entered into a cooperation agreement with Tavanir, an Iranian state-owned electricity provider, under which we would carry out a pilot “advanced metering infrastructure (AMI)” project. AMI enables checking the electricity usage amount remotely. The project is being conducted in Pak Dasht City and Hormuz Island, Iran. This project involves installing over approximately 2,500 smart meters. The development and production of AMI equipment and materials are complete, and we have obtained permission from the Ministry of Trade, Energy and Industry of Korea to export the equipment. We currently plan to ship the AMI equipment and materials to Iran during April 2017, install them in May 2017, and complete the project by July 2017.

 

   

We are in the process of negotiating various agreements with Tavanir under which we would provide consulting services relating to (i) improvement of Iran’s electricity demand through load management, efficiency improvement and tariff system improvement, (ii) formation of a roadmap for intelligent electricity transmission system in Iran by improving transmission reliability and implementing automation, (iii) reduction of electricity loss during transmission in the electricity system of Iran, (iv) development of a clean development mechanism (CDM) for the recovery and recycling of the sulfur hexafluoride gas in Iran for purposes of carbon emission reduction, and (v) modeling the installation of energy storage systems in Iran. Funding for the last project will be provided by the Ministry of Trade, Industry and Energy of Korea under its Official Development Aid program.

 

   

We have participated in a feasibility study of the proposed adoption by Tavanir of a 765 kV electricity transmission network. Our task involved reviewing Tavanir’s feasibility report. A final report summarizing our review of the feasibility report and a technical review of the transmission network was submitted in February 2017.

 

   

We are in the process of negotiating a contract with Thermal Power Plant Holding Company of Iran under which we would build and operate combined cycle power plants at Zanjan and Neyzar, Iran.

 

   

We have submitted a draft proposal to the Iran Energy Efficiency Organization under which we would provide consulting services in relation to AMI security in Iran.

 

   

We are in the process of conducting a feasibility study for a solar power project in Iran.

 

   

Our wholly-owned subsidiary, Korea Western Power, is currently pursuing a “build, operate and transfer” project relating to a 500 megawatts combined cycle power plant in Sirjan, Kerman in Iran, through a consortium with Daewoo E&C, a Korean construction company, and Gohar Energy, an Iranian energy company. The consortium is currently conducting a feasibility study.

 

   

Korea Electric Power Research Institute, which is operated by us, has entered into cooperation agreements with Iran’s Niroo Research Institute regarding various joint research and development efforts relating to power plants and renewable energy.

We also discontinued the following projects in Iran after feasibility studies: (i) a pilot project to replace aged transformers (30 years or older) in Teheran in cooperation with Tavanir, and (ii) a pilot project for installation, in cooperation with Tavanir, of a remote control system for air conditioning in public institutions in Teheran. We also withdrew from a proposed project sponsored by Thermal Power Plant Holding Company for the rehabilitation, operation, maintenance, and management of the Bandar-Abbas power plant in Homorzgan, Dogerdan due to unavailability of financing.

We have internal policies and procedures, as well as a monitoring system, which are designed to prevent and detect violations of applicable laws, including applicable sanctions laws. We do not believe that our current activities relating to Iran violate OFAC sanctions or are sanctionable under U.S. secondary sanctions, and in any event, we believe we are in compliance with applicable sanctions laws. As noted above, for the pilot AMI project, we are in the process of exporting a limited amount of U.S.-origin goods to Iran. We believe we are not in violation of any laws concerning re-exports of U.S.-origin goods to Iran. Moreover, to the extent our activities

 

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were sanctionable under those U.S. secondary sanctions programs that were lifted pursuant to the JCPOA, U.S. authorities have indicated that sanctions will not be imposed pursuant to the suspended U.S. secondary sanctions.

Nevertheless, there can be no assurances that the relevant relief will continue to be available in the future, and even if it does, there is no guarantee that our activities relating to Iran will not be found to violate the OFAC sanctions or involve sanctionable activities under U.S. secondary sanctions, or that any other government will not determine that our activities violate applicable sanctions of other countries. Laws related to Iran sanctions are complex, dynamic, and subject to evolving interpretations by the regulatory authorities. The re-imposition or “snap-back” of U.S. sanctions pursuant to the JCPOA could also occur, and the scope of re-imposed sanctions would be determined at that time, although sanctions would not be retroactively applied to activities properly engaged in while sanctions relief was in effect.

Violations of sanctions can result in penalties or other consequences adverse to us. Certain of our counterparties may be subjected to sanctions. If we violate the sanctions we may ourselves be subjected to sanctions or penalties. Our business and results of operations may be adversely affected or we may suffer reputational damage. In addition, such sanctions may prevent us from consummating or continuing any of the projects we are currently pursuing in Iran, which could adversely affect our results of operations. Also, at any time, certain investors may divest their interests in our shares if we are found to have violated or are suspected of violating applicable sanctions law arising from our operation in a sanctioned country such as Iran.

Risks Relating to Korea and the Global Economy

Unfavorable financial and economic conditions in Korea and globally may have a material adverse impact on us.

We are incorporated in Korea, where most of our assets are located and most of our income is generated. As a result, we are subject to political, economic, legal and regulatory risks specific to Korea, and our business, results of operations and financial condition are substantially dependent on the Korean consumers’ demand for electricity, which are in turn largely dependent on developments relating to the Korean economy.

The Korean economy is closely integrated with, and is significantly affected by, developments in the global economy and financial markets. In recent years, adverse conditions and volatility in the worldwide financial markets, fluctuations in oil and commodity prices and the general weakness of the global economy have contributed to the uncertainty of global economic prospects in general and have adversely affected, and may continue to adversely affect, the Korean economy, which in turn could adversely affect our business, financial condition and results of operations. As the Korean economy is highly dependent on the health and direction of the global economy, the prices of our securities may be adversely affected by investors’ reactions to developments in other countries. In addition, due to the ongoing volatility in the global financial markets, the value of the Won relative to the U.S. dollar has also fluctuated significantly in recent years, which in turn also may adversely affect our financial condition and results of operations.

Factors that determine economic and business cycles in the Korean or global economy are for the most part beyond our control and inherently uncertain. In light of the high level of interdependence of the global economy, any of the foregoing developments could have a material adverse effect on the Korean economy and financial markets, and in turn on our business and profitability.

More specifically, factors that could have an adverse impact on Korea’s economy in the future include, among others:

 

   

increases in inflation levels, volatility in foreign currency reserve levels, commodity prices (including oil prices), exchange rates (particularly against the U.S. dollar), interest rates, stock market prices and inflows and outflows of foreign capital, either directly, into the stock markets, through derivatives or

 

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otherwise, including as a result of increased uncertainty in the wake of a referendum in the United Kingdom in June 2016 that voted in favor of exiting from the European Union, commonly known as “Brexit”;

 

   

difficulties in the financial sectors in Europe, China and elsewhere and increased sovereign default risks in select countries and the resulting adverse effects on the global financial markets;

 

   

adverse developments in the economies of countries and regions to which Korea exports goods and services (such as the United States, Europe, China and Japan), or in emerging market economies in Asia or elsewhere that could result in a loss of confidence in the Korean economy, including potentially as a result of the Brexit;

 

   

social and labor unrest or declining consumer confidence or spending resulting from lay-offs, increasing unemployment and lower levels of income;

 

   

uncertainty and volatility and further decreases in the market prices of Korean real estate;

 

   

a decrease in tax revenues and a substantial increase in the Government’s expenditures for unemployment compensation and other social programs that together could lead to an increased Government budget deficit;

 

   

political uncertainty, including as a result of increasing strife among or within political parties in Korea, and political gridlock within the government or in the legislature, which prevents or disrupts timely and effective policy making to the detriment of Korean economy, as well as the upcoming special presidential election in May 2017 following the impeachment and indictment of the most recent president following a series of scandals and social unrest, which also involved the investigation of several leading Korean conglomerates and arrest of their leaders on charges of bribery and other possible misconduct;

 

   

deterioration in economic or diplomatic relations between Korea and its trading partners or allies, including deterioration resulting from territorial or trade disputes or disagreements in foreign policy, including as a result of any potential renegotiation of free trade agreements, or the ongoing tension between Korean and China in relation to the decision to allow deployment by the United States of the Terminal High Altitude Defense system known as “THAAD” in Korea;

 

   

increases in social expenditures to support the aging population in Korea or decreases in economic productivity due to the declining population size in Korea;

 

   

any other development that has a material adverse effect in the global economy, such as an act of war, the spread of terrorism or a breakout of an epidemic such as SARS, avian flu, swine flu, Middle East Respiratory Syndrome, ebola or Zika virus, or natural disasters, earthquakes and tsunamis and the related disruptions in the relevant economies with global repercussions;

 

   

hostilities involving oil-producing countries in the Middle East and elsewhere and any material disruption in the supply of oil or a material increase in the price of oil resulting from such hostilities; and

 

   

an increase in the level of tensions or an outbreak of hostilities in the Korean peninsula or between North Korea and the United States.

Any future deterioration of the Korean economy could have an adverse effect on our business, financial condition and results of operations.

Political and societal unrest surrounding the impeachment of a former president and an upcoming special presidential election could adversely affect the Korean economy and our business.

In November 2016, the Korean prosecutor’s office indicted a confidant of President Park Geun-hye who had allegedly used her ties with the President to extort donations from Korean business groups for personal benefit,

 

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as well as a number of current and former presidential aides, on charges of, among others, abuse of power, coercion and leaking classified documents. On December 9, 2016, the National Assembly voted in favor of impeaching President Park for a number of alleged constitutional and criminal violations. President Park was suspended from power immediately, with the prime minister simultaneously taking over the role of acting President. On March 10, 2017, the Constitutional Court unanimously upheld the parliamentary vote to impeach President Park on grounds, among others, of abuse of power and failure to uphold the Constitution, which triggered her immediate dismissal. On March 31, 2017, the Seoul Central District Court issued an arrest warrant for former President Park in connection with such investigation. In connection with its investigation of former President Park, the special independent prosecutor also conducted related investigations of several large Korean business groups and members of their senior management for bribery, embezzlement and other possible misconduct, which the Korean prosecutor’s office has continued following the end of the special independent prosecutor’s term. These developments lead to mass rallies across Korea between those in support of former President Park and those against.

A special election to elect a new President is scheduled to be held on May 9, 2017. It is presently unclear who will be elected as the new president and what policies the new administration will pursue, including those that may affect the energy industry and our business.

Therefore, we cannot assure you that the events described above will not have a material adverse effect on the Korean economy and our business, financial condition and results of operations.

Tensions with North Korea could have an adverse effect on us and the market value of our shares.

Relations between Korea and North Korea have been tense throughout Korea’s modern history. The level of tension between the two Koreas has fluctuated and may increase abruptly as a result of current and future events. In particular, there continues to be uncertainty regarding the long-term stability of North Korea’s political leadership since the succession of Kim Jong-un to power following the death of his father in December 2011, which has raised concerns with respect to the political and economic future of the region.

In addition, there continues to be heightened security tension in the region stemming from North Korea’s hostile military and diplomatic actions, including in respect of its nuclear weapons and long-range missile programs. Some examples from recent years include the following:

 

   

In March 2017, North Korea launched four mid-range missiles, which landed off the east coast of the Korean peninsula.

 

   

On September 9, 2016, North Korea conducted its fifth nuclear test, which has been the largest in scale among North Korea’s nuclear tests thus far. According to North Korean announcements, the test was successful in detonating a nuclear missile. The test created a sizable earthquake in South Korea. In response, in February 2017 the U.N. Security Council adopted Resolution 2321 (2016) against North Korea, the purpose of which is to strengthen its sanctions regime against North Korea and to condemn North Korea’s September 9, 2016 nuclear test in the strongest terms.

 

   

On February 10, 2016, in retaliation of North Korea’s recent launch of a long-range rocket, South Korea announced that it would halt its operations of the Kaesong Industrial Complex to impede North Korea’s utilization of funds from the industrial complex to finance its nuclear and missile programs. In response, North Korea announced on February 11, 2016 that it would expel all South Korean employees from the industrial complex and freeze all South Korean assets there.

 

   

On February 7, 2016, North Korea launched a rocket, claimed by them to be carrying a satellite intended for scientific observation. The launch was widely suspected by the international community to be a cover for testing a long-range missile capable of carrying a nuclear warhead. On February 18, 2016, the President of the United States signed into law mandatory sanctions on North Korea to punish

 

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it for its recent nuclear and missile tests, human rights violations and cybercrimes. The bill, which marks the first measure by the United States to exclusively target North Korea, is intended to seize the assets of anyone engaging in business related to North Korea’s weapons program, and authorizes US$50 million over five years to transmit radio broadcasts into the country and support humanitarian assistance projects. On March 2, 2016, the United Nations Security Council voted unanimously to adopt a resolution to impose sanctions against North Korea, which include inspection of all cargo going to and from North Korea, a ban on all weapons trade and the expulsion of North Korean diplomats who engage in “illicit activities.” Also, on March 4, 2016, the European Union announced that it would expand its sanctions on North Korea, adding additional companies and individuals to its list of sanction targets. On April 1, 2016, North Korea fired a short-range surface-to-air missile in apparent protest of these sanctions adopted by the United States and the United Nations Security Council.

 

   

On January 6, 2016, North Korea announced that it had successfully conducted its first hydrogen bomb test, hours after international monitors detected a 5.1 magnitude earthquake near a known nuclear testing site in the country. The claims have not been verified independently. The alleged test followed a statement made in the previous month by Kim Jong-un, who claimed that North Korea had developed a hydrogen bomb.

 

   

In August 2015, two Korean soldiers were injured in a landmine explosion near the South Korean demilitarized zone. Claiming the landmines were set by North Koreans, the South Korean army re-initiated its propaganda program toward North Korea utilizing loudspeakers near the demilitarized zone. In retaliation, the North Korean army fired artillery rounds on the loudspeakers, resulting in the highest level of military readiness for both Koreas. High-ranking officials from North and South Korea subsequently met for discussions and entered into an agreement on August 25, 2015 intending to deflate military tensions.

 

   

From time to time, North Korea has fired short- to medium-range missiles from the coast of the Korean peninsula into the sea. In March 2015, North Korea fired seven surface-to-air missiles into waters off its east coast in apparent protest of annual joint military exercises being held by Korea and the United States.

 

   

North Korea renounced its obligations under the Nuclear Non-Proliferation Treaty in January 2003 and conducted three rounds of nuclear tests between October 2006 to February 2013, which increased tensions in the region and elicited strong objections worldwide. In response, the United Nations Security Council unanimously passed resolutions that condemned North Korea for the nuclear tests and expanded sanctions against North Korea.

North Korea’s economy also faces severe challenges, including severe inflation and food shortages, which may further aggravate social and political tensions within North Korea. In addition, reunification of Korea and North Korea could occur in the future, which would entail significant economic commitment and expenditure by Korea that may outweigh any resulting economic benefits of reunification.

There can be no assurance that the level of tension on the Korean peninsula will not escalate in the future or that the political regime in North Korea may not suddenly collapse. Any further increase in tension or uncertainty relating to the military, political or economic stability in the Korean peninsula, including a breakdown of diplomatic negotiations over the North Korean nuclear program, occurrence of military hostilities, heightened concerns about the stability of North Korea’s political leadership or its actual collapse, a leadership crisis, a breakdown of high-level contacts or accelerated reunification could have a material adverse effect on our business, financial condition and results of operations, as well as the price of our common shares and our American depositary shares.

We are generally subject to Korean corporate governance and disclosure standards, which differ in significant respects from those in other countries.

Companies in Korea, including us, are subject to corporate governance standards applicable to Korean public companies which differ in many respects from standards applicable in other countries, including the

 

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United States. As a reporting company registered with the Securities and Exchange Commission and listed on the New York Stock Exchange, we are, and will continue to be, subject to certain corporate governance standards as mandated by the Sarbanes-Oxley Act of 2002, as amended. However, foreign private issuers, including us, are exempt from certain corporate governance standards required under the Sarbanes-Oxley Act or the rules of the New York Stock Exchange. We and our generation subsidiaries are also subject to a number of special laws and regulations to Government-controlled entities, including the Act on the Management of Public Institutions. For a description of significant differences in corporate governance standards, see Item 16.G. “Corporate Governance.” There may also be less publicly available information about Korean companies, such as us, than is regularly made available by public or non-public companies in other countries. Such differences in corporate governance standards and less public information could result in less than satisfactory corporate governance practices or disclosure to investors in certain countries.

You may not be able to enforce a judgment of a foreign court against us.

We are a corporation with limited liability organized under the laws of Korea. Substantially all of our directors and officers and other persons named in this annual report reside in Korea, and all or a significant portion of the assets of our directors and officers and other persons named in this annual report and substantially all of our assets are located in Korea. As a result, it may not be possible for holders of the American depository shares to affect service of process within the United States, or to enforce against them or us in the United States judgments obtained in United States courts based on the civil liability provisions of the federal securities laws of the United States. There is doubt as to the enforceability in Korea, either in original actions or in actions for enforcement of judgments of United States courts, of civil liabilities predicated on the United States federal securities laws.

Risks Relating to Our American Depositary Shares

There are restrictions on withdrawal and deposit of common shares under the depositary facility.

Under the deposit agreement, holders of shares of our common stock may deposit those shares with the depositary bank’s custodian in Korea and obtain American depositary shares, and holders of American depositary shares may surrender American depositary shares to the depositary bank and receive shares of our common stock. However, under current Korean laws and regulations, the depositary bank is required to obtain our prior consent for the number of shares to be deposited in any given proposed deposit which exceeds the difference between (i) the aggregate number of shares deposited by us for the issuance of American depositary shares (including deposits in connection with the initial and all subsequent offerings of American depositary shares and stock dividends or other distributions related to these American depositary shares) and (ii) the number of shares on deposit with the depositary bank at the time of such proposed deposit. We have consented to the deposit of outstanding shares of common stock as long as the number of American depositary shares outstanding at any time does not exceed 80,153,810 shares. As a result, if you surrender American depositary shares and withdraw shares of common stock, you may not be able to deposit the shares again to obtain American depositary shares.

Ownership of our shares is restricted under Korean law.

Under the Financial Investment Services and Capital Markets Act, with certain exceptions, a foreign investor may acquire shares of a Korean company without being subject to any single or aggregate foreign investment ceiling. As one such exception, certain designated public corporations, such as us, are subject to a 40% ceiling on acquisitions of shares by foreigners in the aggregate. The Financial Services Commission may impose other restrictions as it deems necessary for the protection of investors and the stabilization of the Korean securities and derivatives market.

In addition to the aggregate foreign investment ceiling, the Financial Investment Services and Capital Markets Act and our Articles of Incorporation set a 3% ceiling on acquisition by a single investor (whether

 

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domestic or foreign) of the shares of our common stock. Any person (with certain exceptions) who holds our issued and outstanding shares in excess of such 3% ceiling cannot exercise voting rights with respect to our shares exceeding such limit.

The ceiling on aggregate investment by foreigners applicable to us may be exceeded in certain limited circumstances, including as a result of acquisition of:

 

   

shares by a depositary issuing depositary receipts representing such shares (whether newly issued shares or outstanding shares);

 

   

shares by exercise of warrant, conversion right under convertible bonds, exchange right under exchangeable bonds or withdrawal right under depositary receipts issued outside of Korea;

 

   

shares from the exercise of shareholders’ rights; or

 

   

shares by gift, inheritance or bequest.

A foreigner who has acquired our shares in excess of any ceiling described above may not exercise his voting rights with respect to our shares exceeding such limit and the Financial Services Commission may take necessary corrective action against him.

Holders of our ADSs will not have preemptive rights in certain circumstances.

The Korean Commercial Code and our Articles of Incorporation require us, with some exceptions, to offer shareholders the right to subscribe for new shares in proportion to their existing ownership percentage whenever new shares are issued. If we offer any rights to subscribe for additional shares of our common stock or any rights of any other nature, the depositary bank, after consultation with us, may make the rights available to you or use reasonable efforts to dispose of the rights on your behalf and make the net proceeds available to you. The depositary bank, however, is not required to make available to you any rights to purchase any additional shares unless it deems that doing so is lawful and feasible and:

 

   

a registration statement filed by us under the U.S. Securities Act of 1933, as amended, is in effect with respect to those shares; or

 

   

the offering and sale of those shares is exempt from or is not subject to the registration requirements of the U.S. Securities Act.

We are under no obligation to file any registration statement with the U.S. Securities and Exchange Commission in relation to the registration rights. If a registration statement is required for you to exercise preemptive rights but is not filed by us, you will not be able to exercise your preemptive rights for additional shares and you will suffer dilution of your equity interest in us.

The market value of your investment in our ADSs may fluctuate due to the volatility of the Korean securities market.

Our common stock is listed on the KRX KOSPI Division of the Korea Exchange, which has a smaller market capitalization and is more volatile than the securities markets in the United States and many European countries. The market value of ADSs may fluctuate in response to the fluctuation of the trading price of shares of our common stock on the Stock Market Division of the Korea Exchange. The Stock Market Division of the Korea Exchange has experienced substantial fluctuations in the prices and volumes of sales of listed securities and the Stock Market Division of the Korea Exchange has prescribed a fixed range in which share prices are permitted to move on a daily basis. Like other securities markets, including those in developed markets, the Korean securities market has experienced problems including market manipulation, insider trading and settlement failures. The recurrence of these or similar problems could have a material adverse effect on the market price and liquidity of the securities of Korean companies, including our common stock and ADSs, in both the domestic and the international markets.

 

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The Korean government has the ability to exert substantial influence over many aspects of the private sector business community, and in the past has exerted that influence from time to time. For example, the Korean government has promoted mergers to reduce what it considers excess capacity in a particular industry and has also encouraged private companies to publicly offer their securities. Similar actions in the future could have the effect of depressing or boosting the Korean securities market, whether or not intended to do so. Accordingly, actual or perceived actions or inactions by the Korean government may cause sudden movements in the market prices of the securities of Korean companies in the future, which may affect the market price and liquidity of our common stock and ADSs.

Your dividend payments and the amount you may realize in connection with a sale of your ADSs will be affected by fluctuations in the exchange rate between the U.S. dollar and the Won.

Investors who purchase the American depositary shares will be required to pay for them in U.S. dollars. Our outstanding shares are listed on the Korea Exchange and are quoted and traded in Won. Cash dividends, if any, in respect of the shares represented by the American depositary shares will be paid to the depositary bank in Won and then converted by the depositary bank into U.S. dollars, subject to certain conditions. Accordingly, fluctuations in the exchange rate between the Won and the U.S. dollar will affect, among other things, the amounts a registered holder or beneficial owner of the American depositary shares will receive from the depositary bank in respect of dividends, the U.S. dollar value of the proceeds which a holder or owner would receive upon sale in Korea of the shares obtained upon surrender of American depositary shares and the secondary market price of the American depositary shares.

If the Government deems that certain emergency circumstances are likely to occur, it may restrict the depositary bank from converting and remitting dividends in U.S. dollars.

If the Government deems that certain emergency circumstances are likely to occur, it may impose restrictions such as requiring foreign investors to obtain prior Government approval for the acquisition of Korean securities or for the repatriation of interest or dividends arising from Korean securities or sales proceeds from disposition of such securities. These emergency circumstances include any or all of the following:

 

   

sudden fluctuations in interest rates or exchange rates;

 

   

extreme difficulty in stabilizing the balance of payments; and

 

   

a substantial disturbance in the Korean financial and capital markets.

The depositary bank may not be able to secure such prior approval from the Government for the payment of dividends to foreign investors when the Government deems that there are emergency circumstances in the Korean financial markets.

 

ITEM 4. INFORMATION ON THE COMPANY

Item 4.A. History and Development of the Company

General Information

Our legal and corporate name is Korea Electric Power Corporation. We were established by the Government on December 31, 1981 as a statutory juridical corporation in Korea under the Korea Electric Power Corporation (“KEPCO”) Act as the successor to Korea Electric Company. Our registered office is located at 55 Jeollyeok-ro, Naju-si, Jeollanam-do, 58217, Korea, and our telephone number is 82-61-345-4213. Our website address is www.kepco.co.kr.

Our agent in the United States is Korea Electric Power Corporation, North America Office, located at 7th Floor, Parker Plaza, 400 Kelby Street, Fort Lee, NJ 07024.

 

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The Korean electric utility industry traces its origin to the establishment of the first electric utility company in Korea in 1898. On July 1, 1961, the industry was reorganized by the merger of Korea Electric Power Company, Seoul Electric Company and South Korea Electric Company, which resulted in the formation of Korea Electric Company. From 1976 to 1981, the Government acquired the private minority shareholdings in Korea Electric Company. After the Government acquired all the remaining shares of Korea Electric Company, Korea Electric Company was dissolved, and we were incorporated in 1981 and assumed the assets and liabilities of Korea Electric Company. We ceased to be wholly owned by the Government in 1989 when the Government sold 21% of our common stock. As of December 31, 2016, the last day on which our shareholders registry was closed, the Government maintained 51.1% ownership in aggregate of our common shares by direct holdings by the Government and indirect holdings through Korea Development Bank, a statutory banking institution wholly owned by the Government.

Under relevant laws of Korea, the Government is required to own, directly or indirectly, at least 51% of our capital. Direct or indirect ownership of more than 50% of our outstanding common stock enables the Government to control the approval of certain corporate matters relating to us that require a shareholders’ resolution, including approval of dividends. The rights of the Government and Korea Development Bank as holders of our common stock are exercised by the Ministry of Trade, Industry and Energy, based on the Government’s ownership of our common stock and a proxy received from Korea Development Bank, in consultation with the Ministry of Strategy and Finance.

We operate under the general supervision of the Ministry of Trade, Industry and Energy. The Ministry of Trade, Industry and Energy, in consultation with the Ministry of Strategy and Finance, is responsible for approving, subject to review by the Korea Electricity Commission, the electricity rates we charge our customers. See Item 4.B. “Business Overview—Sales and Customers—Electricity Rates.” We furnish reports to officials of the Ministry of Trade, Industry and Energy, the Ministry of Strategy and Finance and other Government agencies and regularly consult with such officials on matters relating to our business and affairs. See Item 4.B. “Business Overview—Regulation.” Our non-standing directors, who comprise a majority of our board of directors, must be appointed by the Ministry of Strategy and Finance following the review and resolution of the Public Agencies Operating Committee (which is established by law and chaired by the minister of the Ministry of Strategy and Finance and whose members consist of Government officials and others appointed by the President of the Republic based on recommendation by the minister of the Ministry of Strategy and Finance) from a pool of candidates recommended by the director nomination committee and an approval at the general meeting of shareholders. Our president and standing directors who concurrently serve as members of our audit committee must be appointed by the President of the Republic upon the motion of the minister of the Ministry of Trade, Industry and Energy (in the case of our president) and the minister of the Ministry of Strategy and Finance (in the case of our standing directors who concurrently serve as members of the audit committee) and following the nomination by our director nomination committee, the review and resolution of the Public Agencies Operating Committee and an approval at the general meeting of shareholders. See Item 6.A. “Directors and Senior Management—Board of Directors” and Item 16.G. “Corporate Governance—The Act on the Management of Public Institutions”)

Item 4.B. Business Overview

Introduction

We are an integrated electric utility company engaged in the transmission and distribution of substantially all of the electricity in Korea. Through our six wholly-owned generation subsidiaries, we also generate the substantial majority of electricity produced in Korea. As of December 31, 2016, we and our generation subsidiaries owned approximately 74.7% of the total electricity generation capacity in Korea (excluding plants generating electricity primarily for private or emergency use). In 2016, we sold to our customers approximately 497,039 gigawatt-hours of electricity. We purchase electricity principally from our generation subsidiaries and, to a lesser extent, from independent power producers. Of the 508,879 gigawatt-hours of electricity we purchased

 

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in 2016, 31.2% was generated by KHNP, our wholly-owned nuclear and hydroelectric power generation subsidiary, 50.3% was generated by our wholly-owned five non-nuclear generation subsidiaries and 18.5% was generated by independent power producers that trade electricity to us through the cost-based pool system of power trading (excluding independent power producers that supply electricity under power purchase agreements with us). Our five non-nuclear generation subsidiaries are KOSEP, KOMIPO, KOWEPO, KOSPO and EWP, each of which is wholly owned by us and is incorporated in Korea. We derive substantially all of our revenues and profit from Korea, and substantially all of our assets are located in Korea.

In 2016, we had sales of Won 59,763 billion and net profit of Won 7,148 billion, compared to sales of Won 58,582 billion and net profit of Won 13,416 billion in 2015 .

Our revenues are closely tied to demand for electricity in Korea. Demand for electricity in Korea increased at a compounded average growth rate of 1.6% per annum from 2012 to 2016, compared to the real gross domestic product, or GDP, which increased at a compounded average growth rate of 3.0% during the same period, according to the Bank of Korea. During 2016, the GDP growth rate was 2.8%, which was in tandem with the growth in demand for electricity in Korea during the same year, which also grew by 2.8%.

Strategy

As our overall strategy, we seek to become a leading global energy enterprise by enhancing our global competitiveness and strengthening our contribution to the global environmental campaigns through continued development of “green” and “smart” power-related technologies. We also aim to adapt to the growing uncertainties in the global economy by selectively pursuing new business opportunities and through development of innovative technologies. We evaluate and renew our mid- to long-term strategy every five years, and in 2015 established the “Vision 2025 Mid- to Long-Term Strategy.” Under this vision, we will aim for balanced growth among our domestic operations, overseas business and new energy industry initiatives.

 

   

Strengthen competitiveness in our core operations.  We plan to enhance efficiency of our electricity generation, transmission and distribution networks and operation of related facilities. We will strategically focus on ensuring stable supply of electricity, making our electricity networks “smarter” and more intelligent through the use of advanced technology utilizing big data and the “Internet of Things” technology and creating new energy services related to our core operations in order to address changes in the business environment.

 

   

Expand and develop new businesses . In connection with our overseas business, we plan to selectively explore opportunities to develop renewable energy, smart transmission and distribution facilities and nuclear energy projects to diversify our businesses and provide suitable solutions meeting the different needs of various countries. Additionally, we plan to actively address climate change through the development of new energy related technologies such as smart grids and energy storage systems.

 

   

Create a platform for future growth.  We plan to develop an ecosystem focused on new energy technologies. We have established Bitgaram Energy Valley in Naju with the goal of facilitating the growth of the new energy industry and creating a global energy hub. In addition, we have selected ten core electricity-related technologies (including energy storage systems and “smart grid”-related technologies), and we plan to focus on the development of high value-added technologies.

 

   

Strengthen our management system for sustainable growth.  We will continue to develop an innovative working culture and management system to promote efficiency. We will also focus on creating a low-carbon clean energy business environment, fostering a common set of shared values with local communities and developing a sustainable energy business model.

Recent Developments

Proposal for Adjustment of Functions of Public Institutions (Energy Sector)

In June 2016, the Government announced the Proposal for Adjustment of Functions of Public Institutions (Energy Sector) for the purpose of streamlining the operations of government-affiliated energy companies by

 

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discouraging them from engaging in overlapping or similar businesses with each other, reducing non-core assets and activities and improving management and operational efficiency. The initiatives contemplated in this proposal that would affect us and our generation subsidiaries include the following: (i) the generation companies should take on greater responsibilities in overseas resource exploration and production projects as these involve procurement of fuels necessary for electricity generation while fostering cooperation among each other through closer coordination; (ii) KHNP should take a greater role in export of nuclear technology; and (iii) the current system of retail sale of electricity to end-users should be liberalized to encourage more competition. In accordance therewith, we transferred a substantial portion of our assets and liabilities in our overseas resource business to our generation subsidiaries as of December 31, 2016. In addition, pursuant to this Proposal, we are considering a sale in the public market of a minority of our shares in our five non-nuclear generation subsidiaries, KEPCO KDN and KHNP gradually and in that order, subject to prevailing market conditions and other policy considerations. Accordingly, we are currently taking steps in preparation of a potential sale of a minority of our shares in KOSEP and EWP through public offerings by the end of 2017, but whether and when such sale would occur will be subject to prevailing market conditions and considerations of public policy. In any event, we plan to maintain a controlling stake in each of these subsidiaries.

Amendments to the Electricity Business Act

In March 2017, the Electricity Business Act was amended to the effect that starting in June 2017, future national planning for electricity supply and demand in Korea should consider the environmental and safety impacts of such planning. However, to-date, no specific guidelines have been provided by the Government as to how to implement this provision, and it is therefore difficult to assess in advance what impact such provision will have on our business, results of operations or financial condition.

Carbon Emission Trading System and Related Emission Reduction Targets

In accordance with the Act on Allocation and Trading of Greenhouse Gas Emission Allowances, enacted in March 2013, the Government is currently in the process of implementing a carbon emission trading system under which the Government will allocate the amount of permitted carbon emission to companies by industry and a company whose business emits more carbon than the permitted amount may purchase the right to emit more carbon through the carbon emission trading exchange. This system is expected to be implemented in three stages. During the first phase (2015 to 2017), the Government will set up and make a test run of the trading system to ensure its smooth operation; during this phase, the carbon emission rights will be allocated without charge. During the second phase (2018 to 2020), the system will be applied to a limited scope of industries and companies, where the carbon emission right will be allocated at a relatively low price, but not freely. During the third phase (2021 to 2025), the Government plans to run the system on an expanded scale with aggressive carbon emission reduction targets. As part of the implementation of this trading system, we are obligated to reduce, on a consolidated basis, approximately 200 million tons of carbon emissions, amounting to a 23.7% reduction, per year during the first phase of 2015 to 2017. The amount of required reduction for the second phase of 2018 to 2020 is expected to be determined in June 2017. Adhering to such emission reduction requirement is expected to result in our incurring significant compliance costs.

Regulations of Decrepit Coal-Fired Generation Units

According to a plan announced in July 2016 by the Ministry of Trade, Industry and Energy in relation to coal-fired electricity generation units, 10 of our coal generation units that are 30 years or older will be required to be shut down or convert to another fuel use, 43 of our such units that are less than 30 years old will be subject to retrofitting and overall replacement of environmental facilities, and 20 of our such units currently under construction will be subject to more rigorous emission standards. In addition, the Government indicated that it would not allow any new construction of additional coal-fired generation units after 2019, which means that LNG is likely to be used more in the future as the substitute for coal, and since LNG is a more expensive fuel source than fuel, this regulation is expected to drive up the average cost of generating electricity. Compliance with such measures is expected to result in our incurring significant costs.

 

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New Energy Industry Fund

In January 2016, the Ministry of Trade, Industry and Energy announced an initiative to promote the new energy industry by creating the New Energy Industry Fund, which is made up of funds sponsored by government-affiliated energy companies. The purpose of these funds is to invest in substantially all frontiers of the new energy industry, including renewable energy, energy storage systems, electric vehicles, small-sized self-sustaining electricity generation grids known as “micro-grids”, among others, as well as invest in start-up companies, ventures, small- to medium-sized enterprise and project businesses that engage in these businesses but have not previously attracted sufficient capital from the private sector. The total size of these funds was US$1 trillion as of December 31, 2016; these funds were funded from our budget for new energy industry projects, which totaled US$6.4 trillion in 2016 and were expended in research and development, efficiency improvements and educational solar power projects, among others. Our budget for new energy industry projects in 2017 amounts to US$5.6 trillion, of which US$1 trillion has been earmarked for potential additional commitments to the New Energy Industry Fund.

Suspension of the Vesting Contract System

In June 2016, the Government announced that, due to changes in the electricity business environment (including an increase in generation capacity relative to peak usage, reduced fuel costs following a decline in oil prices and greater environmental concerns related to coal-fired electricity generation), any further rollout of the vesting contract system beyond the relatively minor market of by-product gas-based electricity would be suspended indefinitely and the electricity pricing adjustment mechanism will revert to the adjusted coefficient-based system. The vesting contract system had previously been introduced in May 2014 to provide an alternative mechanism for determining the price and quantity of electricity to be sold and purchased between the purchaser of electricity (namely, us) and the sellers of electricity (namely, our generation subsidiaries and independent power producers). Under the vesting contract system, electricity generators using base load fuels (such as nuclear, coal, hydro and by-product gas) at a particular generation unit were to be required to enter into a contract with the purchaser of electricity (namely, us), which specifies, among other things, the quantity of electricity to be generated and sold at a particular generation unit and the price at which such electricity is sold, subject to certain adjustments. As a result of this suspension, we expect that the existing electricity pricing adjustment mechanism by way of adjusted coefficients will stay for the foreseeable future. See Item 4.B. “Business—Purchase of Electricity—Vesting Contract System.”

Changes to the Computation of Capacity Price

In October 2016, the Cost Evaluation Committee slightly modified the way capacity price (which is paid to generation units primarily to cover their fixed construction and maintenance costs) is determined, including by varying the reference capacity price based on the start year of commercial operation for each generation unit and by introducing the concept of transmission loss and carbon emission amounts in determining the capacity price. For more details, see “—Purchase of Electricity—Cost-based Pool System—Capacity Price.”

Overseas Business

On April 4, 2016, we were selected as the preferred bidder and entered into a purchase and sale agreement with Cogentrix Solar Holdings, LLC on August 26, 2016 to acquire the entire interest in a photovoltaic power plant with an aggregate capacity of 30 megawatts located in Alamosa County, Colorado, through a consortium with the COPA fund, a corporate partnership fund established by local institutional investors including the National Pension Service. The transaction closed on April 12, 2017. we hold a 50.1% equity interest in the consortium. We plan to operate the power plant for 26 years from 2016 to 2042.

On October 10, 2016, a consortium comprised of us, Marubeni Corporation and four local entities, with equity interest in the consortium of 24.5%, 24.5% and 51.0%, respectively, was notified that it has been selected

 

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by the Republic of South Africa Department of Energy as the preferred bidder for the construction and operation project of a coal-fired power plant in the Republic of South Africa. Once negotiations and financing arrangements are completed, the construction of the coal-fired power plant is expected to commence. The plant is expected to have an aggregate capacity of 630 megawatts, and construction is expected to take 52 months beginning in September 2017. The consortium plans to participate in the operation of the plant for a period of 30 years ending 2052. The total cost of the project is estimated to be around US$2.14 billion, of which our total capital investment is expected to be approximately US$133 million. In connection with the project, we plan to establish a holding company and a project company in the Republic of South Africa.

On October 20, 2016, we entered into an investment agreement with Emirates Nuclear Energy Corporation (“ENEC”) to jointly establish Barakah One PJSC, a special purpose company which will oversee the operation and management of the nuclear power plant currently being constructed in Barakah, United Arab Emirates. Barakah One PJSC will be capitalized with loans in the amount of US$19.6 billion and equity of US$4.7 billion. We have a 18% equity interest in Barakah One PJSC, which will oversee the project. We also have an 18% equity interest in Nawah Energy, a subsidiary of ENEC, which will also be responsible for the operation and maintenance of the Barakah nuclear power plant.

Government Ownership and Our Interactions with the Government

The KEPCO Act requires that the Government own at least 51% of our capital stock. Direct or indirect ownership of more than 50% of our outstanding common stock enables the Government to control the approval of certain corporate matters which require a shareholders’ resolution, including approval of dividends. The rights of the Government and Korea Development Bank as holders of our common stock are exercised by the Ministry of Trade, Industry and Energy in consultation with the Ministry of Strategy and Finance. We are currently not aware of any plans of the Government to cease to own, directly or indirectly, at least 51% of our outstanding common stock.

We play an important role in the implementation of the Government’s national energy policy, which is established in consultation with us, among other parties. As an entity formed to serve public policy goals of the Government, we seek to maintain a fair level of profitability and strengthen our capital base in order to support the growth of our business in the long term.

The Government, through its various policy initiatives for the Korean energy industry as well as direct and indirect supervision of us and our industry, plays an important role in our business and operations. Most importantly, the electricity tariff rates we charge to our customers are regulated by the Government taking into account, among others, our needs to recover the costs of operations, make capital investments and recoup a fair return on capital invested by us, as well as the Government’s overall policy considerations, such as inflation. See Item 4.B. “Business Overview—Sales and Customers—Electricity Rates.”

In addition, pursuant to the Basic Plan determined by the Government, we and our generation subsidiaries have made, and plan to make, substantial expenditures for the construction of generation plants and other facilities to meet demand for electric power. See Item 5.B. “Liquidity and Capital Resources—Capital Requirements.”

Restructuring of the Electric Power Industry in Korea

On January 21, 1999, the Ministry of Trade, Industry and Energy published the Restructuring Plan. The overall objectives of the Restructuring Plan consisted of: (i) introducing competition and thereby increasing efficiency in the Korean electric power industry, (ii) ensuring a long-term, inexpensive and stable electricity supply, and (iii) promoting consumer convenience through the expansion of consumer choice.

 

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The following provides further details relating to the Restructuring Plan.

Phase I

During Phase I, which served as a preparatory stage for Phase II and lasted from the announcement of the Restructuring Plan in January 1999 until April 2001, we undertook steps to split our generation business units off into one wholly-owned nuclear generation subsidiary (namely, KHNP) and five wholly-owned non-nuclear generation subsidiaries (namely, KOSEP, KOMIPO, KOWEPO, KOSPO and EWP), each with its own management structure, assets and liabilities. These steps were completed upon approval at our shareholders’ meeting in April 2001.

The Government’s principal objectives in the split-off of the generation units into separate subsidiaries were to: (i) introduce competition and thereby increase efficiency in the electricity generation industry in Korea, and (ii) ensure a stable supply of electricity in Korea.

Following the implementation of Phase I, we have substantial monopoly with respect to the transmission and distribution of electricity in Korea.

While our ownership percentage of our generation subsidiaries will depend on further adjustments to the Restructuring Plan to be adopted by the Government, we plan to retain 100% ownership of our transmission and distribution business.

Phase II

At the outset of Phase II in April 2001, the Government introduced a cost-based competitive bidding pool system under which we purchase power from our generation subsidiaries and other independent power producers for transmission and distribution to customers. For a further description of this system, see “—Purchase of Electricity—Cost-based Pool System” below.

Pursuant to the Electricity Business Act amended in December 2000, the Government established the Korea Power Exchange in April 2001. The primary function of the Korea Power Exchange is to deal with the sale of electricity and implement regulations governing the electricity market to allow for electricity distribution through a competitive bidding process. The Government also established the Korea Electricity Commission in April 2001 to regulate the Korean electric power industry and ensure fair competition among industry participants. To facilitate this goal, the Korea Power Exchange established the Electricity Market Rules relating to the operation of the bidding pool system. To amend the Electricity Market Rules, the Korea Power Exchange must have the proposed amendment reviewed by the Korea Electricity Commission and then obtain the approval of the Ministry of Trade, Industry and Energy.

The Korea Electricity Commission’s main functions include implementation of standards and measures necessary for electricity market operation and review of matters relating to licensing participants in the Korean electric power industry. The Korea Electricity Commission also acts as an arbitrator in tariff-related disputes among participants in the Korean electric power industry and investigates illegal or deceptive activities of the industry participants.

Privatization of Generation Subsidiaries

In April 2002, the Ministry of Trade, Industry and Energy released the basic privatization plan for five of our generation subsidiaries other than KHNP. Pursuant to this plan, we commenced the process of selling our equity interest in KOSEP in 2002. According to the original plan, this process was, in principle, to take the form of a sale of management control, potentially supplemented by an initial public offering as a way of broadening the investor base. In November 2003, KOSEP submitted its application to the Korea Exchange for a preliminary screening review, which was approved in December 2003. However, in June 2004, KOSEP made a request to the Korea Exchange to delay its stock listing due to unfavorable stock market conditions at that time.

 

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In accordance with the Proposal for Adjustment of Functions of Public Institutions (Energy Sector) announced by the Government in June 2016, we are considering a sale in the public market of a minority of our shares in our five non-nuclear generation subsidiaries, KEPCO KDN and KHNP gradually and in that order, subject to prevailing market conditions and other policy considerations. Accordingly, we are currently taking steps in preparation of a potential sale of a minority of our shares in KOSEP and EWP through public offerings by the end of 2017, but whether and when such sale would occur will be subject to prevailing market conditions and considerations of public policy. In any event, we plan to maintain a controlling stake in each of these subsidiaries.

Suspension of the Plan to Form and Privatize Distribution Subsidiaries

In 2003, the Government established a Tripartite Commission consisting of representatives of the Government, leading businesses and labor unions in Korea to deliberate on ways to introduce competition in electricity distribution, such as by forming and privatizing new distribution subsidiaries. In 2004, the Tripartite Commission recommended not pursuing such privatization initiatives but instead creating independent business divisions within us to improve operational efficiency through internal competition. Following the adoption of such recommendation by the Government in 2004 and further studies by Korea Development Institute, in 2006 we created nine “strategic business units” (which, together with our other business units, were subsequently restructured into 14 such units in February 2012) that have a greater degree of autonomy with respect to management, financial accounting and performance evaluation while having a common focus on increasing profitability.

Initiatives to Improve the Structure of Electricity Generation

In August 2010, the Ministry of Trade, Industry and Energy announced the Proposal for Improvement in the Structure of the Electric Power Industry in order to resolve uncertainty related to restructuring plans for the electric power industry and maintain competitiveness of the electric power industry. Key initiatives of the proposal included the following: (i) maintain the current structure of having six generation subsidiaries and designate the six generation subsidiaries as market-oriented public enterprises under the Act on the Management of Public Institutions in order to foster competition among the generation subsidiaries and promote efficiency in their operations, (ii) clarify the scope of the business of us and the six generation subsidiaries (namely, that we shall manage the financial structure and governance of the six generation subsidiaries and nuclear power plant and overseas resources development projects, while the six generation subsidiaries will have greater autonomy with respect to construction and management of generation units and procurement of fuel), (iii) create a nuclear power export business unit to systematically enhance our capabilities to win projects involving the construction and operation of nuclear power plants overseas, (iv) further rationalize the electricity tariff by adopting a fuel-cost based tariff system in 2011 and a voltage-based tariff system in a subsequent year, and (v) create separate accounting systems for electricity generation, transmission, distribution and sales with the aim of introducing competition in electricity sales in the intermediate future.

In January 2011, the Ministry of Strategy and Finance created a “joint cooperation unit” consisting of officers and employees selected from the five thermal power generation subsidiaries in order to reduce inefficiencies in areas such as fuel transportation, inventories, materials and equipment and construction, etc. and allow the thermal power generation subsidiaries to continue utilizing the benefits of economy of scale after split off of our generation business units into separate subsidiaries. The purpose of the joint cooperation unit was to give greater autonomy to the generation subsidiaries with regard to power plant construction and management and fuel procurements, and thereby enhance efficiency in operating power plants. The main functions of the joint cooperation unit are as follows: (i) maintain inventories of bituminous coal through volume exchanges and joint purchases, (ii) reduce shipping and demurrage expenses through joint operation and distribution of dedicated vessels, (iii) reduce costs by sharing information on generation material inventories and (iv) sharing human resources among the five thermal power generation subsidiaries for construction projects, among other things.

Furthermore, in January 2011 the six generation subsidiaries were officially designated as “market-oriented public enterprises,” whereupon the President of Korea appoints the president and the statutory auditor of each

 

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such subsidiary; the selection of non-standing directors of each such subsidiary is subject to approval by the minister of the Ministry of Strategy and Finance; the president of each such subsidiary is required to enter into a management contract directly with the minister of the Ministry of Trade, Industry and Energy; and the Public Enterprise Management Evaluation Team (which is established by the Public Agencies Operating Committee) conducts performance evaluation of such subsidiaries. Previously, our president appointed the president and the statutory auditor of each such subsidiary; the selection of non-standing directors of each such subsidiary was subject to approval by our president; the president of each such subsidiary entered into a management contract with our president; and our evaluation committee conducted performance evaluation of such subsidiaries. For further details of the impact of the designation of our generation subsidiaries as “market-oriented public enterprises,” see Item 16.G.—Corporate Governance—The Act on the Management of Public Institutions.

Proposal for Adjustment of Functions of Public Institutions (Energy Sector)

In June 2016, the Government announced the Proposal for Adjustment of Functions of Public Institutions (Energy Sector) for the purpose of streamlining the operations of government-affiliated energy companies by discouraging them from engaging in overlapping or similar businesses with each other, reducing non-core assets and activities and improving management and operational efficiency. The initiatives contemplated in this proposal that would affect us and our generation subsidiaries include the following: (i) the generation companies should take on greater responsibilities in overseas resource exploration and production projects as these involve procurement of fuels necessary for electricity generation while fostering cooperation among each other through closer coordination, (ii) KHNP should take a greater role in export of nuclear technology, and (iii) the current system of retail sale of electricity to end-users should be liberalized to encourage more competition. In accordance therewith, we transferred a substantial portion of our assets and liabilities in our overseas resource business to our generation subsidiaries as of December 31, 2016. In addition, this Proposal contemplates selling a minority stake in our generation subsidiaries and KEPCO KDN as discussed above in “—Privatization of Generation Subsidiaries”.

Purchase of Electricity

Cost-based Pool System

Since April 2001, the purchase and sale of electricity in Korea is required to be made through the Korea Power Exchange, which is a statutory not-for-profit organization established under the Electricity Business Act with responsibilities for setting the price of electricity, handling the trading and collecting relevant data for the electricity market in Korea. The suppliers of electricity in Korea consist of our six generation subsidiaries, which were split-off from us in April 2001, and independent power producers, which numbered 17 (excluding renewable energy producers)  as of December 31, 2016. We distribute electricity purchased through the Korea Power Exchange to end users.

Our Relationship with the Korea Power Exchange

The key features of our relationships with the Korea Power Exchange include the following: (i) we and our six generation subsidiaries are member corporations of the Korea Power Exchange and collectively own 100% of its share capital, (ii) three of the 11 members of the board of directors of the Korea Power Exchange are currently our or our subsidiaries’ employees, and (iii) one of our employees is currently a member in three of the key committees of the Korea Power Exchange that are responsible for evaluating the costs of producing electricity, making rules for the Korea Power Exchange and gathering and disclosing information relating to the Korean electricity market.

Notwithstanding the foregoing relationships, however, we do not have control over the Korea Power Exchange or its policies since, among others, (i) the Korea Power Exchange, its personnel, policies, operations and finances are closely supervised and controlled by the Government, namely through the Ministry of Trade,

 

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Industry and Energy, and are subject to a host of laws and regulations, including, among others, the Electricity Business Act and the Act on the Management of Public Institutions, as well as the Articles of Incorporation of the Korea Power Exchange, (ii) we are entitled to elect no more than one-third of the Korea Power Exchange directors and our representatives represent only a minority of its board of directors and committees (with the other members being comprised of representatives of the Ministry of Trade, Industry and Energy, employees of the Korea Power Exchange, businesspersons and/or scholars), and (iii) the role of our representatives in the policy making process for the Korea Power Exchange is primarily advisory based on their technical expertise derived from their employment at us or our generation subsidiaries. Consistent with this view, the Finance Supervisory Service issued a ruling in 2005 that stated that we are not deemed to have significant influence or control over the decision-making process of the Korea Power Exchange relating to its business or financial affairs.

Pricing Factors

The price of electricity in the Korean electricity market is determined principally based on the cost of generating electricity using a system known as the “cost-based pool” system. Under the cost-based pool system, the price of electricity has two principal components, namely the marginal price (representing in principle the variable cost of generating electricity) and the capacity price (representing in principle the fixed cost of generating electricity).

Under the merit order system, the electricity purchase allocation, the system marginal price (as described below) and the final allocation adjustment are automatically determined based on an objective formula. The variable cost (including the adjusted coefficient as described below) and the capacity price are determined in advance of trading by the Cost Evaluation Committee, which is comprised of representatives from the Ministry of Trade, Industry and Energy, the Korea Power Exchange, us, generation companies, scholars and researchers. Accordingly, a supplier of electricity cannot exercise control over the merit order system or its operations to such supplier’s strategic advantage.

Marginal Price

The primary purpose of the marginal price is to compensate the generation companies for fuel costs, which represents the principal component of the variable costs of generating electricity. We currently refer such marginal price as the “system marginal price.”

The system marginal price represents, in effect, the marginal price of electricity at a given hour at which the projected demand for electricity and the projected supply of electricity for such hour intersect, as determined by the merit order system, which is a system used by the Korea Power Exchange to allocate which generation units will supply electricity for which hour and at what price. To elaborate, the projected demand for electricity for a given hour is determined by the Korea Power Exchange based on a forecast made one day prior to trading, and such forecast takes into account, among others, historical statistics relating to demand for electricity nationwide by day and by hour, seasonality and on-peak-hour versus off-peak hour demand analysis. The projected supply of electricity at a given hour is determined as the aggregate of the available capacity of all generation units that have submitted bids to supply electricity for such hour. These bids are submitted to the Korea Power Exchange one day prior to trading.

Under the merit order system, the generation unit with the lowest variable cost of producing electricity among all the generation units that have submitted a bid for a given hour is first awarded a purchase order for electricity up to the available capacity of such unit as indicated in its bid. The generation unit with the next lowest variable cost is then awarded a purchase order up to its available capacity in its bid, and so forth, until the projected demand for electricity for such hour is met. We refer to the variable cost of the generation unit that is the last to receive the purchase order for such hour as the system marginal price, which also represents the highest price at which electricity can be supplied at a given hour based on the demand and supply for such hour.

 

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Generation units whose variable costs exceed the system marginal price for a given hour do not receive purchase orders to supply electricity for such hour. The variable cost of each generation unit is determined by the Cost Evaluation Committee on a monthly basis and reflected in the following month based on the fuel costs two months prior to such determination. The purpose of the merit order system is to encourage generation units to reduce its electricity generation costs by making its generation process more efficient, sourcing fuels from most cost-effective sources or adopting other cost savings programs.

The final allocation of electricity supply is further adjusted on the basis of other factors, including the proximity of a generation unit to the geographical area to which power is being supplied, network and fuel constraints and the amount of power loss. This adjustment mechanism is designed to adjust for transmission losses in order to improve overall cost-efficiency in the transmission of electricity to end-users.

The price of electricity at which our generation subsidiaries sell electricity to us is determined using the following formula:

Variable cost + [System marginal price – Variable cost] * Adjusted coefficient

An adjusted coefficient applies in principle to all generation units operated by our generation subsidiaries and the coal-fired generation units operated by independent power producers. The adjusted coefficient applicable to the generation units operated by our generation subsidiaries is determined based on considerations of, among others, electricity tariff rates, the differential generation costs for different fuel types and the relative fair returns on investment in respect of us compared to our generation subsidiaries. The purpose of the adjusted coefficient here is to prevent electricity trading from resulting in undue imbalances as to the relative financial results among generation subsidiaries as well as between us (as the purchaser of electricity) and our generation subsidiaries (as sellers of electricity). Such imbalances may arise from excessive profit taking by base load generators (on account of their inherently cheaper fuel cost structure compared to non-base load generators) as well as from fluctuations in fuel prices (it being the case that during times of rapid and substantial rises in fuel costs which are not offset by corresponding rises in electricity tariff rates charged by us to end-users, on a non-consolidated basis our profitability will decline compared to that our generation subsidiaries since our generation subsidiaries are entitled to sell electricity to us at cost plus a guaranteed margin). In comparison, the adjusted coefficient applicable to the coal-fired generation units operated by independent power producers is determined to enable such independent power producers to recover the total costs of building and operating such units.

The adjusted coefficient applicable to our generation subsidiaries is currently set at the highest level for the marginal price of electricity generated using nuclear fuel, followed by coal and (depending the prevailing relative market prices) oil and/or LNG. The differentiated adjusted coefficients reflect the Government’s prevailing energy policy objectives and have the effect of setting priorities in the fuel types to be used in electricity generation.

The adjusted coefficient is determined by the Cost Evaluation Committee in principle on an annual basis, although in exceptional cases driven by external or structural factors such as rapid and substantial changes in fuel costs, adjustments to electricity tariff rates or changes in the electricity pricing structure, the adjusted coefficient may be adjusted on a quarterly basis.

Previously, it was contemplated that the vesting contract system would gradually replace the application of the adjusted coefficient. However, since the implementation of the vesting contract system has been suspended indefinitely, it is unlikely to impact the application of the adjusted coefficient in the foreseeable future.

Capacity Price

In addition to payment in respect of the variable cost of generating electricity, generation units receive payment in the form of capacity price, the purpose of which is to compensate them for the fixed costs of constructing generation facilities, provide incentives for construction of new generation units and maintain reliability of the nationwide electricity transmission network.

 

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The capacity price is determined by the Cost Evaluation Committee as a function of the following factors: (i) reference capacity price, (ii) reserve capacity factor, (iii) time-of-the-day capacity coefficient and (iv) since October 2016, fuel switching factor. The reference capacity price and the time-of-the-day capacity coefficient are determined annually before the end of December for the subsequent 12-months period. The reserve capacity factor and the fuel switching factor are determined annually before the end of June for the subsequent 12-months period.

The reference capacity price refers to the Won amount per kilowatt-hour payable annually for annualized available capacity indicated in the bids submitted the day before trading (provided that such capacity is actually available on the relevant day of trading), and is determined based on the construction costs and maintenance costs of a standard generation unit and related transmission access facilities, and a base rate for loading electricity. Prior to October 2016, the same reference capacity price applied uniformly to all generation units. Since October 2016, the reference capacity price applies differentially to each generation unit depending on the start year of its commercial operation. Accordingly, the reference capacity price currently ranges from Won 9.15 to 10.07 per kilowatt hour.

The reserve capacity factor relates to the requirement to maintain a standard capacity reserve margin in the range of 15% in order to prevent excessive capacity build-up as well as induce optimal capacity investment at the regional level. The capacity reserve margin is the ratio of peak demand to the total available capacity. Under this system, generation units in a region where available capacity is insufficient to meet demand for electricity as evidenced by failing to meet the standard capacity reserve margin receive increased capacity price. Conversely, generation units in a region where available capacity exceeds demand for electricity as evidenced by exceeding the standard capacity reserve margin receive reduced capacity price. Since October 2016, the reserve capacity factor also factors in the transmission loss per generation unit in order to favor transmission of electricity from a nearby generation unit.

The time-of-the-day capacity coefficient allows hourly and seasonal adjustments in order to incentivize our generation subsidiaries to operate their generation facilities at full capacity during periods of highest demand. For example, the capacity price paid differs depending on whether the relevant hour is an “on-peak” hour, a “mid-peak” hour or an “off-peak” hour (the capacity price being highest for the on-peak hours and lowest for the off-peak hours) and the capacity price paid is highest during the months of January, July and August when electricity usage is highest due to weather conditions.

The fuel switching factor, which was introduced in October 2016 to promote environmental sensitivities to climate change, seeks to encourage reduced carbon emission by penalizing generation units (mostly coal-fired units) for excessive carbon emission.

Other than subject to the aforementioned variations, the same capacity pricing mechanism applies to all generation units regardless of fuel types used.

Vesting Contract System

In May 2014, the Electricity Business Act was amended to introduce a “vesting contract” system in determining the price and quantity of electricity to be sold and purchased between the purchaser of electricity (namely, us) and the sellers of electricity (namely, our generation subsidiaries and independent power producers). Under the vesting contract system, electricity generators using base load fuels (such as nuclear, coal, hydro and by-product gas) at a particular generation unit were to be required to enter into a contract with the purchaser of electricity (namely, us), which specifies, among other things, the quantity of electricity to be generated and sold at a particular generation unit and the price at which such electricity is sold, subject to certain adjustments.

The vesting contract system was introduced principally to prevent excessive profit-taking by low-cost producers of electricity using base load fuels (such as nuclear, coal, hydro and by-product gas) by replacing the

 

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adjusted coefficient as the basis for determining the guaranteed return to generation companies, as well as to enhance the stability of electricity supply by requiring long-term contractual arrangements for the purchase and sale of electricity and promote cost savings, productivity enhancements and operational efficiency by providing incentives and penalties depending on the degree to which the generation companies could supply electricity at costs below the contracted electricity prices.

In order to minimize undue shock to the electricity trading market in Korea, the vesting contract system was to be implemented in phases starting with by-product gas-based electricity in 2015, which accounted for 1.8% of electricity purchased by us during such year. The rollout of the vesting contract system was further studied by a task force consisting of representatives from the Government, the Korea Power Exchange and generation companies.

Following such study, the Government announced in June 2016 that, due to changes in the electricity business environment (including an increase in generation capacity relative to peak usage, reduced fuel costs following a decline in oil prices and greater environmental concerns related to coal-fired electricity generation), it will indefinitely suspend any further rollout of the vesting contract system beyond by-product gas-based electricity, and revert to the adjusted coefficient-based electricity pricing adjustment mechanism.

Power Trading Results

The results of power trading, as effected through the Korea Power Exchange, for our generation subsidiaries and independent power producers in 2016 are as follows:

 

    

Items

   Volume
(Gigawatt
hours)
     Percentage
of Total
Volume
(%)
     Sales to
KEPCO (in
billions of
Won)
     Percentage
of Total
Sales (%)
     Unit Price
(Won/kWh)
 

Generation Companies

   KHNP      158,668        31.2        10,949        27.0        69.00  
  

KOSEP

     67,721        13.3        4,847        12.0        71.58  
  

KOMIPO

     42,896        8.4        3,621        8.9        84.42  
  

KOWEPO

     48,380        9.5        4,141        10.2        85.60  
  

KOSPO

     47,969        9.4        4,155        10.3        86.63  
  

EWP

     49,260        9.7        4,169        10.3        84.62  
  

Others (1)

     93,985        18.5        8,632        21.3        91.84  
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
  

Total

     508,879        100.0        40,514        100.0        79.61  
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Energy Sources

   Nuclear      154,175        30.3        10,489        25.9        68.03  
  

Bituminous coal

     199,505        39.2        14,732        36.4        73.84  
  

Anthracite coal

     7,071        1.4        626        1.5        88.57  
  

Oil

     13,262        2.6        1,462        3.6        110.27  
  

LNG

     989        0.2        113        0.3        114.54  
  

Combined-cycle

     110,721        21.8        10,989        27.0        99.25  
  

Hydro

     2,140        0.4        186        0.5        87.01  
  

Pumped-storage

     3,617        0.7        385        1.0        106.35  
  

Others

     17,399        3.4        1,532        3.8        88.05  
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
  

Total

     508,879        100.0        40,514        100.0        79.61  
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Load

   Base load      352,313        69.2        25,213        62.2        71.56  
  

Non-base load

     156,566        30.8        15,301        37.8        97.72  
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
  

Total

     508,897        100.0        40,514        100.0        79.61  
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

Note:

 

(1) Others represent independent power producers that trade electricity through the cost-based pool system of power trading (excluding independent power producers that supply electricity under power purchase agreements with us).

 

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Power Purchased from Independent Power Producers Under Power Purchase Agreements

In 2016, we purchased an aggregate of 9,719 gigawatt hours of electricity generated by independent power producers under existing power purchase agreements. These independent power producers had an aggregate generation capacity of 5,481 megawatts as of December 31, 2016.

Power Generation

As of December 31, 2016, we and our generation subsidiaries had a total of 655 generation units, including nuclear, thermal, hydroelectric and internal combustion units, representing total installed generation capacity of 79,217 megawatts. Our thermal units produce electricity using steam turbine generators fired by coal, oil and LNG. Our internal combustion units use oil or diesel-fired gas turbines and our combined-cycle units are primarily LNG-fired. We also purchase power from several generation plants not owned by our generation subsidiaries.

The table below sets forth as of and for the year ended December 31, 2016 the number of units, installed capacity and the average capacity factor for each type of generating facilities owned by our generation subsidiaries.

 

     Number of
Units
     Installed
Capacity (1)
     Average  Capacity
Factor (2)
 
            (Megawatts)      (Percent)  

Nuclear

     25        23,116        79.7  

Thermal:

        

Coal (3)

     58        30,546        86.5  

Oil

     11        2,950        50.4  

LNG

     1        250        16.7  
  

 

 

    

 

 

    

 

 

 

Total thermal

     70        33,746        82.5  
  

 

 

    

 

 

    

 

 

 

Internal combustion

     207        329        19.8  

Combined-cycle (4)

     93        16,018        33.0  

Integrated gasification combined cycle (5)

     2        346        11.9  

Hydro

     76        5,350        10.3  

Wind

     48        138        15.4  

Solar

     88        90        12.9  

Fuel cell

     16        39        67.5  

Biogas

     2        35        58.4  

Others (6)

     28        10        44.0  
  

 

 

    

 

 

    

 

 

 

Total

     655        79,217        65.5  
  

 

 

    

 

 

    

 

 

 

 

Notes:

 

(1) Installed capacity represents the level of output that may be sustained continuously without significant risk of damage to plant and equipment.
(2) Average capacity factor represents the total number of kilowatt hours of electricity generated in the indicated period divided by the total number of kilowatt hours that would have been generated if the generation units were continuously operated at installed capacity, expressed as a percentage.
(3) As for coal generation units for which construction was completed in the second half of 2016, the average capacity factors for these units reflect the period during which such units were in operation following the completion of construction. Such units (together with their respective installed capacities and construction completion dates are as follows: Dangjin #9 (1,020 megawatts, completed in July 2016), Dangjin # 10 (1,020 megawatts, completed in September 2016), Taean #9 (1,050 megawatts, completed in October 2016), Yeosu #1 (350 megawatts, completed in August 2016) and Samcheok Green #1 (1,022 megawatts, completed in December 2016).

 

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(4) Involves generation through coal and oil.
(5) Involves generation through coal and gasified coal.
(6) Includes waste-to-energy.

The expected useful life of a unit, assuming no substantial renovation, is approximately as follows: nuclear, over 40 years; thermal, over 30 years; internal combustion, over 25 years; and hydroelectric, over 55 years. Substantial renovation can extend the useful life of thermal units by up to 20 years.

We seek to achieve efficient use of fuels and diversification of generation capacity by fuel type. In the past, we relied principally upon oil-fired thermal generation units for electricity generation. Since the oil shock in 1974, however, Korea’s power development plans have emphasized the construction of nuclear generation units. While nuclear units are more expensive to construct than thermal generation units of comparable capacity, nuclear fuel is less expensive than fossil fuels in terms of electricity output per unit cost. However, efficient operation of nuclear units requires that such plants be run continuously at relatively constant energy output levels. As it is impractical to store large quantities of electrical energy, we seek to maintain nuclear power production capacity at approximately the level at which demand for electricity is continuously stable. During those times when actual demand exceeds the usual level of electricity supply from nuclear power, we rely on units fired by fossil fuels and hydroelectric units, which can be started and shut down more quickly and efficiently than nuclear units, to meet the excess demand. Bituminous coal is currently the least expensive thermal fuel per kilowatt-hour of electricity produced, and therefore we seek to maximize the use of bituminous coal for generation needs in excess of the stable demand level, except for meeting short-term surges in demand which require rapid start-up and shutdown. Thermal units fired by LNG, hydroelectric units and internal combustion units are the most efficient types of units for rapid start-ups and shutdowns, and therefore we use such units principally to meet short-term surges in demand. Anthracite coal is a less efficient fuel source than bituminous coal in terms of electricity output per unit cost.

Our generation subsidiaries have constructed and operated thermal and internal combustion units in order to help meet power demand. Subject to market conditions, our generation subsidiaries plan to continue to add additional thermal and internal combustion units. These units generally take less time to complete construction than nuclear units.

The high average age of our oil-fired thermal units is attributable to our reliance on oil-fired thermal units as the primary means of electricity generation until mid-1970s. Since then, we have diversified our fuel sources and constructed relatively few oil-fired thermal units compared to units of other fuel types.

 

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The table below sets forth, for the periods indicated, the amount of electricity generated by facilities linked to our grid system and the amount of power used or lost in connection with transmission and distribution.

 

     2012      2013      2014      2015      2016      % of 2016
Gross
Generation (1)
 
     (in gigawatt hours, except percentages)  

Electricity generated by us and our generation subsidiaries:

                 

Nuclear

     150,327        138,784        156,407        164,762        161,995        30.0  

Coal

     199,330        201,119        203,765        207,533        207,912        38.4  

Oil

     13,553        13,941        6,838        8,822        13,055        2.4  

LNG

     3,453        3,526        568        222        369        0.1  

Internal combustion

     752        741        656        633        573        0.1  

Combined-cycle

     75,751        84,561        68,134        45,923        46,477        8.6  

Hydro

     5,140        5,679        5,976        4,424        4,835        0.9  

Wind

     127        155        148        181        186        0.1  

Solar and fuel cells

     83        251        422        420        908        0.1  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total generation by us and our generation subsidiaries

     448,516        448,757        442,914        432,920        436,310        80.7  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Electricity generated by IPPs:

                 

Thermal

     48,043        55,923        63,088        72,316        83,789        15.5  

Hydro and other renewable

     13,015        12,468        15,968        17,106        20,342        3.8  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total generation by IPPs

     61,058        68,391        79,056        89,422        104,131        19.3  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Gross generation

     509,574        517,148        521,970        522,343        540,441        100.0  

Auxiliary use (2)

     20,154        20,463        20,610        21,293        21,605        4.0  

Pumped-storage (3)

     4,789        5,408        6,644        4,824        4,716        0.9  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total net generation (4)

     484,631        491,277        494,716        496,226        514,120        95.1  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Transmission and distribution losses (5)

     17,292        18,019        18,270        18,063        18,475        3.6  

 

IPPs = Independent power producers

Notes:

 

(1) Unless otherwise indicated, percentages are based on gross generation.
(2) Auxiliary use represents electricity consumed by generation units in the course of generation.
(3) Pumped storage represents electricity consumed during low demand periods in order to store water which is utilized to generate hydroelectric power during peak demand periods.
(4) Total net generation represents gross generation minus auxiliary and pumped-storage use.
(5) Transmission and distribution losses represents total transmission and distribution losses divided by total net generation.

The table below sets forth our total capacity at the end of, and peak and average loads during, the indicated periods.

 

     2012      2013      2014      2015      2016  
     (Megawatts)  

Total capacity

     81,806        82,296        93,216        94,102        100,180  

Peak load

     75,987        76,522        80,154        78,790        85,183  

Average load

     58,012        59,035        59,586        60,284        61,694  

 

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Table of Contents

Korea Hydro & Nuclear Power Co., Ltd.

We commenced nuclear power generation activities in 1978 when our first nuclear generation unit, Kori #1, began commercial operation. On April 2, 2001, all of our nuclear and hydroelectric power generation assets and liabilities were transferred to KHNP.

KHNP owns and operates 25 nuclear generation units at four power plant complexes in Korea, located in Kori, Wolsong, Yonggwang (Hanbit) and Ulchin (Hanul), 51 hydroelectric generation units including 16 pumped storage hydro generation units as well as five solar generation units and one wind generation unit as of December 31, 2016.

The table below sets forth the number of units and installed capacity as of December 31, 2016 and the average capacity factor by types of generation units in 2016.

 

     Number of Units      Installed  Capacity (1)      Average  Capacity
Factor (2)
 
            (Megawatts)      (Percent)  

Nuclear

     25        23,116        79.7  

Hydroelectric

     51        5,306        9.58  

Solar

     5        16        13.5  

Wind

     1        1        6.7  
  

 

 

    

 

 

    

Total

     82        28,439     
  

 

 

    

 

 

    

 

Notes:

 

(1) Installed capacity represents the level of output that may be sustained continuously without significant risk of damage to plant and equipment.
(2) Average capacity factor represents the total number of kilowatt hours of electricity generated in the indicated period divided by the total number of kilowatt hours that would have been generated if the generation units were continuously operated at installed capacity, expressed as a percentage.

KHNP commenced commercial operation of Shin-Kori #3, with a 1,400 megawatt capacity, in December 2016. KHNP is currently building five additional nuclear generation units, three at the Shin-Kori and two at Shin-Hanul sites, each with a 1,400 megawatt capacity. KHNP expects to complete these units between 2017 and 2022. In addition, KHNP plans to build four additional nuclear units between 2017 and 2027, two at the Shin-Hanul sites, each with a 1,400 megawatt capacity, and two at the Chunji site, each with a 1,500 megawatt capacity. Under the Seventh Basic Plan, KHNP plans to build two additional nuclear units between 2028 and 2029, each with a 1,500 megawatt capacity, at sites which have yet to be determined. We plan to begin the decommissioning process of Kori #1 in June 2017.

 

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Table of Contents

Nuclear

The table below sets forth certain information with respect to the nuclear generation units of KHNP as of December 31, 2016.

 

Unit

   Reactor
Type (1)
    

Reactor Design (2)

  

Turbine and
Generation (3)

   Commencement
of Operations
     Installed
Capacity
 
     (Megawatts)                          

Kori-1

     PWR      W    GEC, Hitachi, D      1978        587  

Kori-2

     PWR      W    GEC      1983        650  

Kori-3

     PWR      W    GEC, Hitachi      1985        950  

Kori-4

     PWR      W    GEC, Hitachi      1986        950  

Shin-Kori-1

     PWR      D, KEPCO E&C, W    D, GE      2011        1,000  

Shin-Kori-2

     PWR      D, KEPCO E&C, W    D, GE      2012        1,000  

Shin-Kori-3

     PWR      D, KEPCO E&C, W    D, GE      2016        1,400  

Wolsong-1

     PHWR      AECL    P      1983        679  

Wolsong-2

     PHWR      AECL, H, K    H, GE      1997        700  

Wolsong-3

     PHWR      AECL, H    H, GE      1998        700  

Wolsong-4

     PHWR      AECL, H    H, GE      1999        700  

Shin-Wolsong-1

     PWR      D, KEPCO E&C, W    D, GE      2012        1,000  

Shin-Wolsong-2

     PWR      D, KEPCO E&C, W    D, GE      2015        1,000  

Hanbit-1

     PWR      W    W, D      1986        950  

Hanbit-2

     PWR      W    W, D      1987        950  

Hanbit-3

     PWR      H, CE, K    H, GE      1995        1,000  

Hanbit-4

     PWR      H, CE, K    H, GE      1996        1,000  

Hanbit-5

     PWR      D, CE, W, KEPCO E&C    D, GE      2002        1,000  

Hanbit-6

     PWR      D, CE, W, KEPCO E&C    D, GE      2002        1,000  

Hanul-1

     PWR      F    A      1988        950  

Hanul-2

     PWR      F    A      1989        950  

Hanul-3

     PWR      H, CE, K    H, GE      1998        1,000  

Hanul-4

     PWR      H, CE, K    H, GE      1999        1,000  

Hanul-5

     PWR      D, KEPCO E&C, W    D, GE      2004        1,000  

Hanul-6

     PWR      D, KEPCO E&C, W    D, GE      2005        1,000  
              

 

 

 

Total nuclear

                 23,116  
              

 

 

 

 

Notes:

 

(1) “PWR” means pressurized light water reactor; “PHWR” means pressurized heavy water reactor.
(2) “W” means Westinghouse Electric Company (U.S.A.); “AECL” means Atomic Energy Canada Limited (Canada); “F” means Framatome (France); “H” means Hanjung; “CE” means Combustion Engineering (U.S.A.); “D” means Doosan Heavy Industries; “K” means Korea Atomic Energy Research Institute; “KEPCO E&C” means KEPCO Engineering & Construction.
(3) “GEC” means General Electric Company (U.K.); “P” means Parsons (Canada and U.K.); “W” means Westinghouse Electric Company (U.S.A.); “A” means Alstom (France); “H” means Hanjung; “GE” means General Electric (U.S.A.); “D” means Doosan Heavy Industries; “Hitachi” means Hitachi Ltd. (Japan).

 

43


Table of Contents

The table below sets forth the average capacity factor and average fuel cost per kilowatt for 2016 with respect to each nuclear generation unit of KHNP.

 

Unit

   Average Capacity
Factor
     Average Fuel Cost
Per  kWh
 
     (Percent)      (Won)  

Kori-1

     89.5        8.5  

Kori-2

     66.9        8.9  

Kori-3

     100.2        7.0  

Kori-4

     87.8        7.5  

Shin-Kori-1

     99.6        5.8  

Shin-Kori-2

     75.9        5.8  

Shin-Kori-3

     102.4        6.2  

Wolsong-1

     53.3        10.8  

Wolsong-2

     74.4        9.8  

Wolsong-3

     70.9        10.9  

Wolsong-4

     75.8        9.8  

Shin-Wolsong-1

     84.7        5.7  

Shin-Wolsong-2

     82.9        6.7  

Hanbit-1

     73.4        8.3  

Hanbit -2

     34.1        6.7  

Hanbit -3

     79.8        7.3  

Hanbit -4

     99.6        6.9  

Hanbit -5

     99.2        6.0  

Hanbit -6

     86.8        6.6  

Hanul-1

     81.2        6.9  

Hanul-2

     86.6        6.9  

Hanul-3

     52.7        7.8  

Hanul-4

     60.7        5.8  

Hanul-5

     78.4        6.7  

Hanul-6

     100.2        6.4  
  

 

 

    

 

 

 

Total nuclear

     79.7        7.2  
  

 

 

    

 

 

 

Under extended-cycle operations, nuclear units can be run continuously for periods longer than the conventional 12-month period between scheduled shutdowns for refueling and maintenance. Since 1987, we have adopted the mode of extended-cycle operations for all of our pressurized light water reactor units and plan to use it for our newly constructed units. The duration of shutdown for fuel replacement and maintenance was 75.9 days per unit in 2016. In addition, KHNP’s nuclear units experienced an average of 0.2 unplanned shutdowns per unit in 2016. In the ordinary course of operations, KHNP’s nuclear units routinely experience damage and wear and tear, which are repaired during routine shutdown periods or during unplanned temporary suspensions of operations. No significant damage has occurred in any of KHNP’s nuclear reactors, and no significant nuclear exposure or release incidents have occurred at any of KHNP’s nuclear facilities since the first nuclear plant commenced operation in 1978.

 

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Table of Contents

Hydroelectric

The table below sets forth certain information relating to KHNP’s pumped-storage and hydroelectric business units, including the installed capacity as of December 31, 2016 and the average capacity factor in 2016.

 

Location of Unit

   Number of Units     

Classification

   Year Built      Installed Capacity      Average Capacity
Factor
 
                        (Megawatts)      (%)  

Hwacheon

     4      Dam waterway      1944        108.0        13.7  

Chuncheon

     2      Dam      1965        62.3        15.8  

Euiam

     2      Dam      1967        48.0        23.5  

Cheongpyung

     4      Dam      1943        140.1        16.1  

Paldang

     4      Dam      1973        120.0        25.0  

Seomjingang

     3      Basin deviation      1945        34.8        17.7  

Boseonggang

     2      Basin deviation      1937        4.5        60.8  

Kwoesan

     2      Dam      1957        2.6        31.7  

Anheung

     3      Dam waterway      1978        0.4        28.2  

Kangreung

     2      Basin deviation      1991        82.0        0  

Topyeong

     1      Dam      2011        0.04        22.2  

Muju

     1      Dam      2003        0.4        28.0  

Sancheong

     2      Dam      2001        1.0        40.5  

Yangyang

     2      Dam      2005        1.4        16.7  

Yecheon

     1      Dam      2011        0.9        11.8  

Cheongpeoung

     2      Pumped Storage      1980        400.0        4.3  

Samrangjin

     2      Pumped Storage      1985        600.0        7.6  

Muju

     2      Pumped Storage      1995        600.0        7.3  

Sancheong

     2      Pumped Storage      2001        700.0        11.1  

Yangyang

     4      Pumped Storage      2006        1,000.0        7.6  

Cheongsong

     2      Pumped Storage      2006        600.0        11.4  

Yecheon

     2      Pumped Storage      2011        800.0        10.3  
  

 

 

          

 

 

    

 

 

 

Total

     51              5,306        9.6  
  

 

 

          

 

 

    

 

 

 

Solar/Wind

The table below sets forth certain information, including the installed capacity as of December 31, 2016 and the average capacity factor in 2016, of the solar and wind power units of KHNP.

 

Location of Unit

       

Classification

   Year Built      Installed Capacity      Average  Capacity
Factor
 
                      (Megawatts)      (Percent)  

Yonggwang

      Solar      2008        13.9        13.3  

Yecheon

      Solar      2012        2.0        15.0  

Kori

      Wind      2008        0.8        6.7  
           

 

 

    

Total

              16.7     
           

 

 

    

Korea Water Resources Corporation, which is a Government-owned entity, assumes full control of multi-purpose dams, while KHNP maintains the dams used for power generation. Existing hydroelectric power units have exploited most of the water resources in Korea available for commercially viable hydroelectric power generation. Consequently, we expect that no new major hydroelectric power plants will be built in the foreseeable future. Due to the ease of its start-up and shut-down mechanism, hydroelectric power generation is reserved for peak demand periods.

 

45


Table of Contents

Korea South-East Power Co., Ltd.

The table below sets forth, by fuel type, the weighted average age and installed capacity as of December 31, 2016 and the average capacity factor and average fuel cost per kilowatt in 2016 based upon the net amount of electricity generated, of KOSEP.

 

     Weighted
Average Age  of

Units
     Installed
Capacity
     Average
Capacity
Factor
     Average Fuel
Cost per kWh
 
     (Years)      (Megawatts)      (Percent)      (Won)  

Bituminous:

           

Samchunpo #1, 2, 3, 4, 5, 6

     25.7        3,240        87.4        39.3  

Yong Hung #1, 2, 3, 4, 5, 6

     8.2        5,080        86.5        36.2  

Yosu # 2

     3.5        668        82.8        46.9  

Anthracite:

           

Yongdong #1, 2

     23.4        325        73.6        50.8  

Combined cycle and internal Combustion:

           

Bundang gas turbine #1,2,3,4,5,6,7,8; steam turbine #1, 2

     23.4        922        27.0        115.9  

Hydro, Solar and other renewable energy

     —          95        —          —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     15.2        10,331        80.3        40.7  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

46


Table of Contents

Korea Midland Power Co., Ltd.

The table below sets forth, by fuel type, the weighted average age and installed capacity as of December 31, 2016 and the average capacity factor and average fuel cost per kilowatt in 2016 based upon the net amount of electricity generated, of KOMIPO.

 

     Weighted
Average Age
of Units
     Installed Capacity      Average
Capacity
Factor
     Average Fuel
Cost per  kWh
 
     (Years)      (Megawatts)      (Percent)      (Won)  

Bituminous:

           

Boryeong #1, 2, 3, 4, 5, 6, 7, 8

     21.9        4,000        87.6        36.5  

Anthracite:

           

Seocheon #1, 2

     33.5        400        77.8        54.9  

Oil-fired:

           

Jeju #2, 3

     16.4        150        59.9        149.5  

LNG-fired:

           

Seoul #4, 5

     47.8        250        16.7        154.0  

Combined-cycle and internal combustion:

           

Boryeong gas turbine #1, 2, 3, 4, 5, 6 ; steam turbine #1, 2, 3,

     17.8        1,350        8.1        90.5  

Incheon gas turbine #1, 2, 3, 4,5,6 ; steam turbine #1, 2,3

     11.8        1,462.7        44.2        85.0  

Sejong gas turbine #1,2 ; steam turbine #1

     3.1        530.4        59.9        79.9  

Jeju Gas Turbine #3

     39.1        55        0.2        595.6  

Jeju Internal Combustion

Engine #1,2

     9.6        80        45.9        82.0  

Wind:

           

Yangyang #1, 2

     10.6        3.0        18.4        -12.5  

Sejong Maebongsan Wind

        6.8           —    

Jeju Sangmyung Wind

        21           —    

Combined heat and power:

           

Wonju#1

     1.7        10        45.1        106.1  

Hydroelectric:

           

Boryeong

     7.9        12.5        29.2        —    

Photovoltaic (“PV”) power and fuel cell generation:

           

Boryeong (PV) site

     8.7        3.5        14.0        —    

Seocheon (PV) site

     8.1        1.2        14.2        —    

Jeju (PV) site

     5.5        2.3        12.2        —    

Seoul (PV) site

     5.4        1.3        15.1        —    

Yeosu (PV) site

     4.9        2.2        14.7        —    

Incheon (PV) site

     5.1        0.3        14.1        —    

Boryeong (fuel cell) site

     8.4        0.3        69.5        170.3  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     18.2        8,343.0        60.9        51.0  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

47


Table of Contents

Korea Western Power Co., Ltd.

The table below sets forth, by fuel type, the weighted average age and installed capacity as of December 31, 2016 and the average capacity factor and average fuel cost per kilowatt in 2016 based upon the net amount of electricity generated, of KOWEPO.

 

     Weighted
Average Age of
Units
     Installed
Capacity
     Average
Capacity
Factor
     Average Fuel
Cost per kWh
 
     (Years)      (Megawatts)      (Percent)      (Won)  

Bituminous:

           

Taean #1, 2, 3, 4, 5, 6, 7, 8, 9

     13.0        5,050        86.5        39.3  

Oil-fired:

           

Pyeongtaek #1, 2, 3, 4

     35.1        1,400        42.2        74.9  

Combined cycle:

           

Pyeongtaek #1, 2

     10.2        1,348.5        42.9        76.4  

Gunsan

     6.6        718.4        42.8        86.4  

West Incheon

     24.5        1,800        25.3        83.4  

Hydroelectric:

           

Taean

     9.3        2.2        18.6        —    

Solar:

           

Taean

     11.4        0.1        11.9        —    

Taean 2

     4.9        0.6        20.7        —    

Taean 3

     0.5        1.8        12.9        —    

Gunsan

     6.5        0.3        13.7        —    

Samryangjin

     9.1        3.0        13.0        —    

Sejong City

     4.5        5.0        14.4        —    

Gyeonggi-do

     3.7        2.5        14.3        —    

Yeongam

     3.8        13.3        15.0        —    

Pyeongtaek

     2.1        0.4        12.1        —    

Fuel Cell:

           

West Incheon 1

     2.3        11.2        77.4        —    

West Incheon 2

     0.6        5        74.3        116.5 (1)  

Wind Power:

           

Hwasun

     1.1        16        18.0        —    

Integrated gasification combined cycle:

           

Taean

     0.4        346.3        22.2        48.3  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     16.6        10,724.6        58.2        53.3  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

Note:

 

(1) Represents average fuel cost per kWh for West Incheon 1 and West Incheon 2 on an aggregated basis.

 

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Table of Contents

Korea Southern Power Co., Ltd.

The table below sets forth, by fuel type, the weighted average age and installed capacity as of December 31, 2016 and the average capacity factor and average fuel cost per kilowatt in 2016 based upon the net amount of electricity generated, of KOSPO.

 

     Weighted
Average Age of
Units
     Installed
Capacity
     Average
Capacity
Factor
     Average Fuel
Cost per kWh
 
     (Years)      (Megawatts)      (Percent)      (Won)  

Bituminous:

           

Hadong #1, 2, 3, 4, 5, 6, 7, 8

     15.3        4,000        102.2        39.8  

Samcheok#1

     0.04        1,022        90.2        44.0  

Oil-fired:

           

Nam Jeju #3, 4

     10.0        200        83.4        140.8  

Combined cycle:

           

Shin Incheon #1, 2, 3, 4

     20.2        1,800        34.5        85.0  

Busan #1, 2, 3, 4

     13.2        1,800        49.3        81.2  

Yeongwol #1

     6.2        848        11.4        86.3  

Hallim

     20.5        105        6.9        162.3  

Andong#1

     2.8        362        79.7        76.5  

Wind power:

           

Hankyung

     10.2        21        25.7        —    

Seongsan

     7.2        20        26.6        —    

Solar

     6.2        6        12.6        —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     12.9        10,184        66.7        55.8  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

49


Table of Contents

Korea East-West Power Co., Ltd.

The table below sets forth, by fuel type, the weighted average age and installed capacity as of December 31, 2016 and the average capacity factor and average fuel cost per kilowatt in 2016 based upon the net amount of electricity generated, of EWP.

 

    Weighted
Average Age of
Units
    Installed
Capacity
    Average
Capacity
Factor
    Average Fuel
Cost per  kWh
 
    (Years)     (Megawatts)     (Percent)     (Won)  

Bituminous:

       

Dangjin #1, 2, 3, 4, 5, 6, 7, 8, 9, 10

    9.3       5,860       72.2       59.1  

Honam #1, 2

    43.7       500       75.4       76.3  

Anthracite:

       

Donghae #1, 2

    17.8       400       83.2       95.0  

Oil-fired:

       

Ulsan #4, 5, 6

    36.5       1,200       54.4       131.8  

Combined cycle:

       

Ulsan gas turbine #1, 2, 3, 4, 5, 6; steam turbine #1, 2, 3

    13.1       2,072       33.5       140.4  

Ilsan gas turbine #1, 2, 3, 4, 5, 6; steam turbine #1, 2

    22.9       900       15.3       247.5  

Mini hydro:

       

Dangjin

    5.3       8.1       34.2       183.8  

Photovoltaic:

Dangjin

    5.6       1.0       14.0       —    

Ulsan

    5.1       0.6       12.5       —    

Kwangyang

    4.3       2.3       10.9       —    

Dangjin Storage Facility

    3.3       14.8       14.4       —    

Dangjin Waste Treatment Facility

    4.3       1.3       11.7       —    

Dangjin Intake Channel Facility

    3.5       0.9       13.2       —    

Donghae

    10.4       1.0       11.5       —    

Soowon Environment Center Facility

    2.9       1.5       15.9    

Kwangyang Port Warehouse Facility

    2.6       1.1       14.8    

Fuel cell:

       

Ilsan # 1

    7.3       2.4       79.9       —    

Ilsan # 2

    5.8       2.8       83.0       —    

Ilsan # 3

    3.8       2.8       81.9    

Ulsan

    3.3       2.8       68.2    

Wind Power:

       

YeongGwang Jisan

    4.3       3.0       12.7       —    

Biomass:

       

Donghae

    3.5       30.0       68.1       —    
 

 

 

   

 

 

   

 

 

   

 

 

 

Capital Landfill Cogeneration Facility

    2.8       5.0       —      
 

 

 

   

 

 

   

 

 

   

 

 

 

Total

    15.9       10,999       57.1       82.0  
 

 

 

   

 

 

   

 

 

   

 

 

 

 

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Power Plant Remodeling and Recommissioning

Our generation subsidiaries supplement power generation capacity through remodeling or recommissioning of thermal units. Recommissioning includes installation of anti-pollution devices, modification of control systems and overall rehabilitation of existing equipment. The following table shows recent remodeling and recommissioning initiatives by our generation subsidiaries.

 

Power Plant

  

Capacity

  

Completed (Year)

   Extension    Company

Taean#1-9

  

5,050 MW

(500 MW×8,

1,050 MW×1)

  

EP (1)  upgrade (#2, 2016)

EP (1)  upgrade (#1,3, 2017)

SCR (2)   upgrade (#2,4,7, 2016)

SCR (2)  upgrade (#1,3,4,8,9, 2017)

FGD upgrade, (#1,2017)

   Anti-pollution    KOWEPO

Pyeongtaek#1-4

  

1,400 MW

(350 MW×4)

   Steam turbine upgrade (#2, 3, 2014)    10-year
performance-
improvement
   KOWEPO

Boryeong#1-8

  

4,000 MW

(500 MW×8)

   FGD upgrade (#1,2, 2014)    Performance-
improvement
   KOMIPO

Seocheon#1-2

  

400 MW

(200 MW×2)

   SCR (2) : 2012    Anti-pollution    KOMIPO

Yosu #1, 2

  

668.6MW

(#1:340, #2:328.6MW)

  

Boiler Type Change

(CFBC (3) :#1:2016, #2:2011)

   30 years    KOSEP

Samcheonpo#1-2

  

1,120 MW

(560 MW ×2)

   Boiler, EP, Draft System Upgrade (#1,2: 2012)    10 years

Refurbishing-
modernization

   KOSEP

 

Notes:

 

(1) “EP” means an electrostatic precipitation system.
(2) “SCR” means a selective catalytic reduction system.
(3) “CFBC” means a circulating fluidized bed combustion system.

Transmission and Distribution

We currently transmit and distribute substantially all of the electricity in Korea.

As of December 31, 2016, our transmission system consisted of 33,630 circuit kilometers of lines of 765 kilovolts and others including high-voltage direct current lines, and we had 830 substations with aggregate installed transformer capacity of 305,418 megavolt-amperes.

As of December 31, 2016, our distribution system consisted of 112,751 megavolt-amperes of transformer capacity and 9,122,344 units of support with a total line length of 474,099 circuit kilometers.

We make substantial investments in our transmission and distribution systems to minimize power interruptions and improve efficiency. Our current projects principally focus on increasing capabilities of the existing power networks and reducing our transmission and distribution loss, which was 3.59% of our gross generation in 2016.  To cope with increasing damages to large-scale transmission and distribution facilities, we plan to reinforce stability of our transmission and distribution facilities through stricter design and material specifications. In addition, we also plan to expand underground transmission and distribution facilities to meet customer demand for more environment-friendly facilities. In order to reduce the interruption time in power distribution, which is an indicator of the quality of electricity transmission, we are also continuing to invest in automation of electricity transmission and development of new transmission technologies, among others.

 

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Some of the facilities we own and use in our distribution system use rights of way and other concessions granted by municipal and local authorities in areas where our facilities are located. These concessions are generally renewed upon expiration.

New Energy Industry Projects

Certain of our new energy industry projects are described below.

Advanced Metering Infrastructure

In July 2012, the Government implemented a master plan to build out a smart grid, which includes the Advanced Metering Infrastructure (“AMI”) roadmap. In accordance with such plan, we are in the process of installing “smart meters” and related communication networks and operating systems for 22 million households for target completion by 2020 as part of the “smart grid” initiative in an effort to enhance efficiency in the power electricity industry and alleviate growing energy shortage concerns.  Smart meters refer to digital meters that record, on a real-time basis, electricity consumption within a household so that consumers will have a price-based incentive to enhance efficiency in their electricity usage. As of December 31, 2016, we have installed 3.3 million smart meter units, and plan to install an additional 4.5 million units in 2017. The AMI project is expected to cost Won 1.7 trillion through 2020.

Smart Grids

Smart grids refer to next-generation networks for electricity distribution that integrate information technology into existing power grids with the aim of enabling two-way real time exchange of information between electricity suppliers and consumers for optimal efficiency in electricity use. As part of our overall business strategy, we are currently developing and implementing smart grids based on advanced information technology, in order to promote more efficient allocation and use of electricity by consumers. We expect that such technology will improve efficiency and reduce electricity loss over the course of electricity transmission and distribution. We also expect that the smart grid initiative will significantly increase efficient energy consumption by providing real-time data to customers, which would in turn help to reduce greenhouse gas emission and decrease Korea’s reliance on foreign energy sources.

Leveraging our experience gained through high-tech intelligent power transmission and distribution network, or “smart grid” test beds in Jeju Island from 2009 to 2013, we plan to expand our smart grid project. In 2014, we successfully implemented smart grid technology at our Guri-Namyangju branch. In recognition of our achievement, we were awarded an honorable mention from the International Smart Grid Action Network and a special prize from the Global Smart Grid Federation in 2015. By the end of 2015, we implemented smart grid technology in most of our branches, and we plan to continue implementing smart grid technology to our existing plants and buildings as well as to new branches in the future. The smart grid project is scheduled to be completed in 2030.

Energy Storage Systems

In October 2013, as part of an endeavor to create new markets for energy demand management applications using information and communication technology, we established a business plan to roll out energy storage systems for frequency regulation nationwide. These systems involve the establishment and operation of batteries and transformers with large-sized charge and discharge capabilities adjacent to substations to transmit electricity stably with regulated frequencies and optimize the efficiency of the substation operation. This system allows full conversion of reserve capacity for frequency regulation at existing low-cost generators into electricity storage and, if operated in sizable scale, offers opportunities for substantial cost savings in purchase of electricity.

In December 2014, we conducted a pilot project for this initiative by installing a 52 megawatts energy storage system at the Seo-Anseong substation and the Shin-Yongin substation. In July 2015, these substations

 

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began to commercially operate energy storage systems, and we expanded the energy storage capacity nationwide by an additional 184 megawatts in 2015 and an additional 140 megawatts in 2016, with a view to expanding the capacity to 500 megawatts by the end of 2017. In addition, we are currently constructing one of the world’s largest indoor energy storage system for frequency regulation in Gimje substation with a 48 megawatts capacity, which is due for completion by the end of 2017.

Electric Vehicle Charging Infrastructure

In order to promote the use of environment friendly electric vehicles, we installed 447 high-speed electric vehicle charging stations in 2016. We had 1,386 electric vehicle charging stations as of December 31, 2016, and we plan to expand our electric vehicle charging infrastructure to approximately 3,000 charging stations by 2020 .

Other “New Energy” Initiatives

In addition to the above, we are currently taking various initiatives in the “new energy” field, including conducting feasibility studies for diagnostic and/or preventive systems for our transmission networks using unmanned drone applications and smart sensors based on the “Internet of Things (IoT)” technology.

In January 2016, the Ministry of Trade, Industry and Energy announced an initiative to promote the new energy industry by creating the New Energy Industry Fund. For further details, see “—Recent Developments—New Energy Industry Fund.”

Nuclear

Uranium, the principal fuel source for nuclear power, accounted for 35.3%, 38.1% and 37.1% of our fuel requirements for electricity generation in 2014, 2015 and 2016, respectively.

All uranium ore concentrates used by KHNP are imported from, and conversion and enrichment of such concentrates are provided by, sources outside Korea and are paid for with currencies other than Won, primarily U.S. dollars.

In order to ensure stable supply, KHNP enters into long-term and medium-term contracts with various suppliers and supplements such supplies with purchases in spot markets. In 2016, KHNP purchased 100%, or approximately 4,200 tons, of its uranium concentrate requirement under both long-term and spot supply contracts with suppliers in the United Kingdom, Kazakhstan, France, Germany, and the United States. Under the long-term supply contracts, the purchase prices of uranium concentrates are adjusted annually based on base prices and spot market prices prevailing at the time of actual delivery. The conversion and enrichment services of uranium concentrates are provided by suppliers in Canada, France, Germany, Japan, China, Russia, the United Kingdom and the United States . A Korean supplier typically provides fabrication of fuel assemblies. Except for certain fixed contract prices, contract prices for processing of uranium are adjusted annually in accordance with the general rate of inflation. KHNP intends to obtain its uranium requirements in the future, in part, through purchases under medium- to long-term contracts and, in part, through spot market purchases.

Coal

Bituminous coal accounted for 44.1%, 46.2% and 45.9% of our fuel requirements for electricity generation in 2014, 2015 and 2016, respectively, and anthracite coal accounted for 1.9%, 1.7% and 1.8% of our fuel requirements for electricity generation in 2014, 2015 and 2016, respectively.

In 2016, our generation subsidiaries purchased approximately 75 million tons of bituminous coal, of which approximately 40%, 37%, 15%, 2% and 6% were imported from Indonesia, Australia, Russia, South Africa and others, respectively. Approximately 82% of the bituminous coal requirements of our generation subsidiaries in

 

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2016 were purchased under long-term contracts with the remaining 18% purchased in the spot market. Some of our long-term contracts relate to specific generating plants and extend through the end of the projected useful lives of such plants, subject in some cases to periodic renewal. Pursuant to the terms of our long-term supply contracts, prices are adjusted periodically based on market conditions. The average cost of bituminous coal per ton purchased under such contracts amounted to Won 92,206, Won 90,902 and Won 89,118 in 2014, 2015 and 2016, respectively.

In 2016, our generation subsidiaries purchased approximately 2.19 million tons of anthracite coal. The prices for anthracite coal under such contracts are set by the Government. The average cost of anthracite coal per ton purchased under such contracts was Won 108,118, Won 108,346 and Won 96,121 in 2014, 2015 and 2016, respectively.

Oil

Oil accounted for 1.7%, 2.2% and 3.0% of our fuel requirements for electricity generation in 2014, 2015 and 2016, respectively.

In 2016, our generation subsidiaries purchased approximately 18.4 million barrels of fuel oil, substantially all of which was purchased from domestic refiners through competitive open bidding. Purchase prices are based on the spot market price in Singapore. The average cost per barrel was Won 117,692, Won 67,517 and Won 53,842 in 2014, 2015 and 2016, respectively.

LNG

LNG accounted for 10.7%, 19.7% and 10.7% of our fuel requirements for electricity generation in 2014, 2015 and 2016, respectively. In 2016, for use in electricity generation we purchased approximately 6.6 million tons of LNG from Korea Gas Corporation, a Government-controlled entity in which we currently own a 21.57 equity interest (excluding treasury shares). In 2016, we purchased a substantial portion of our LNG requirements for use in power generation from Korea Gas Corporation. Under the terms of the LNG contract with Korea Gas Corporation, all of our five non-nuclear generation subsidiaries jointly and severally agreed to purchase a total of 6.6 million tons of LNG in 2016, subject to an automatic price adjustment annually based on a pre-determined formula if the actual purchased amount exceeds or falls short of the contracted amount. We believe the quantities of LNG provided under such contract will be adequate to meet the needs of our generation subsidiaries for LNG for the next several years. The LNG supply contracts between our generation subsidiaries and Korea Gas Corporation generally have a term of 20 years and provide for minimum purchase requirements for our generation subsidiaries, the specific terms of which are subject to negotiation between Korea Gas Corporation and our generation subsidiaries and approval by the Government. The average cost per ton of LNG under our contract with Korea Gas Corporation was Won 1,059,640, Won 775,663 and Won 594,662, in 2014, 2015 and 2016, respectively.

Hydroelectric

Hydroelectric power generation accounted for 1.3%, 1.0% and 1.1%, of our fuel requirements for electricity generation in 2014, 2015 and 2016, respectively. The availability of water for hydroelectric power depends on rainfall and competing uses for available water supplies, including residential, commercial, industrial and agricultural consumption. Pumped storage enables us to increase the available supply of water for use during periods of peak electricity demand.

Sales and Customers

Our sales depend principally on the level of demand for electricity in Korea and the rates we charge for the electricity we sell to the end-users.

 

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Demand for electricity in Korea grew at a compounded average rate of 1.6 % per annum for the five years ended December 31, 2016. According to the Bank of Korea, the compounded growth rate for GDP was approximately 3.0 % for the same period. The GDP growth rate was approximately 3.3%, 2.8% and 2.8 % during 2014, 2015 and 2016, respectively.

The table below sets forth, for the periods indicated, the annual rate of growth in Korea’s GDP and the annual rate of growth in electricity demand (measured by total annual electricity consumption) on a year-on-year basis.

 

     2012     2013     2014     2015     2016  

Growth in GDP

     2.3     2.9     3.3     2.8     2.8

Growth in electricity consumption

     2.5     1.8     0.6     1.3     2.8

Electricity demand in Korea varies within each year for a variety of reasons other than the general growth in GDP demand. Electricity demand tends to be higher during daylight hours due to heightened commercial and industrial activities and electronic appliance use. Due to the use of air conditioning during the summer and heating during the winter, electricity demand is higher during these two seasons than the spring or the fall. Variation in weather conditions may also cause significant variation in electricity demand.

We do not use any marketing channels, including any special sales methods, to sell electricity to our customers, other than to install electricity meters on-site and take monthly readings of such meters, based upon which invoices are sent to our customers.

Demand by the Type of Usage

The table below sets forth consumption of electric power, and growth of such consumption on a year-on-year basis, by the type of usage (in gigawatt hours) for the periods indicated.

 

    2012
(GWh)
    YoY
growth
(%)
    2013
(GWh)
    YoY
growth
(%)
    2014
(GWh)
    YoY
growth
(%)
    2015
(GWh)
    YoY
growth
(%)
    2016
(GWh)
    YoY
growth
(%)
    % of
Total
2016
 

Residential

    65,484       3.1       65,815       0.5       64,457       (2.1     65,619       1.8       68,057       3.7       13.7  

Commercial

    101,593       2.1       102,196       0.6       100,761       (1.4     103,679       2.9       108,617       4.8       21.9  

Educational

    7,860       3.9       7,947       1.1       7,438       (6.4     7,691       3.4       8,079       5.1       1.6  

Industrial

    258,102       2.6       265,373       2.8       272,552       2.7       273,548       0.4       278,828       1.9       56.1  

Agricultural

    12,776       13.8       13,866       8.5       14,505       4.6       15,702       8.3       16,580       5.6       3.3  

Street lighting

    3,158       0.4       3,156       (0.1     3,221       2.1       3,341       3.7       3,462       3.6       0.7  

Overnight Power

    17,620       (5.3     16,496       (6.4     14,658       (11.1     14,075       (4.0     13,416       (4.7     2.7  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

    466,593       2.5       474,849       1.8       477,592       0.6       483,655       1.3       497,039       2.8       100.0  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The industrial sector represents the largest segment of electricity consumption in Korea. Demand for electricity from the industrial sector was 278,828 gigawatt hours in 2016, representing a 1.9% increase from 2015, largely due to the turnaround in industries such as semiconductors, chemicals and petrochemicals that are heavy users of electricity. Demand for electricity from the commercial sector depends largely on the level and scope of commercial activities in Korea, which in recent years have resulted in increased office building construction, office automation and use of air conditioners. Demand for electricity from the commercial sector increased to 108,617 gigawatt hours in 2016, representing a 4.8% increase from 2015 largely due to a rebound in the domestic economy and increased air conditioning use in commercial buildings during the summer. Demand for electricity from the residential sector is largely dependent on population growth and use of heaters, air conditioners and other electronic appliances. In 2016, we distributed electricity to approximately 22 million households, which represent substantially all of the households in Korea. Demand for electricity from the

 

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residential sector increased to 68,057 gigawatt hours in 2016, representing a 3.7% increase compared to 2015, largely due to the opening of new urban clusters with large-scale residential complexes as well as increased air conditioning use in residential buildings during the summer.

Demand Management

Our ability to provide adequate supply of electricity is principally measured by the facility reserve margin and the supply reserve margin. The facility reserve margin represents the difference between the peak usage during a year and the installed capacity at the time of such peak usage, expressed as a percentage of such installed capacity. The supply reserve margin represents the difference between the peak usage in a year and the average available capacity at the time of such peak usage, expressed as a percentage of such peak usage. The following table sets forth our facility reserve margin and supply reserve margin for the periods indicated.

 

     2012     2013     2014     2015     2016  

Facility reserve margin

     7.7     7.5     16.3     19.4     17.6

Supply reserve margin

     5.2     5.5     11.5     11.6     8.5

While we seek to meet the growing demand for electricity in Korea primarily by continuing to expand our generation capacity, we have also implemented several measures to curtail electricity consumption, especially during peak periods. We apply time-of-use and seasonality tariff, which are structured so that higher tariffs are charged at the time and months of peak demand to select types of customers, and we also apply a progressive rate structure for the residential use of electricity. We have several demand management programs to control demand and induce power conservation during peak hours and peak seasons such as providing incentives for reducing power consumption during peak hours.

Electricity Rates

The Electricity Business Act and the Price Stabilization Act of 1975, each as amended from time to time, prescribe the procedures for the approval and establishment of rates charged for the electricity we sell. We submit our proposals for revisions of rates or changes in the rate structure to the Ministry of Trade, Industry and Energy. The Ministry of Trade, Industry and Energy then reviews these proposals and, following consultation with the Ministry of Strategy and Finance and review by the Korea Electricity Commission, makes the final decision.

Under the Electricity Business Act and the Price Stabilization Act, electricity rates are established at levels that would enable us to recover our operating costs attributable to our basic electricity generation, transmission and distribution operations as well as receive a fair investment return on capital used in those operations.

In May 2014, in order to make conforming changes to the standards for determining the public utility rates and to further bolster the reasonableness of cost determination, the Ministry of Trade, Industry and Energy amended the standards for determining the electricity tariff rates. The main amendments include (i) recording as our cost of electricity (which forms part of our operating costs) the pretax income of our six generation subsidiaries (which was previously deducted from our operating costs), (ii) excluding from our rate base our equity interests in our six generation subsidiaries (which were previously included in the rate base discussed below), and (iii) when determining working capital, considering the actual time of our cost recovery (namely, the accounts receivable collection period and the accounts payable payment period).

For the purposes of rate approval, operating costs are defined as the sum of our operating expenses (which principally consists of cost of sales and selling and administrative expenses) and our adjusted income taxes.

Fair investment return represents an amount equal to the rate base multiplied by the rate of return.

 

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Following the amendments to its computation methods in May 2014 as described above, the rate base is currently equal to the sum of:

 

   

net utility plant in service (which is equal to utility plant minus accumulated depreciation minus revaluation reserve);

 

   

the portion of working capital which is equal to the appropriate level of operating costs minus depreciation and other non-cash charges while taking into account the actual time of cost recovery; and

 

   

the portion of construction-in-progress which is charged from our retained earnings.

The amounts used for the variables in the rates are those projected by us for the periods to be covered by the rate approval.

For the purpose of determining the fair rate of return, the rate base is divided into two components in proportion to our total shareholders’ equity and our total debt. The rate of return permitted in relation to the debt component of the rate base is set at a level designed to approximate the weighted average interest cost on all types of borrowing for the periods covered by the rate approval. The rate of return permitted in relation to the equity component of the rate base is set by applying the capital asset pricing model which takes account of the risk-free rate, the return on the Korea Stock Price Index, KOSPI, a Korean equity market index, and the correlation of the stock price of our company with KOSPI. In 2015, the approved rate of return on the debt component of the rate base was 1.12 % while the approved rate of return on the equity component of the rate base was 2.88 %. As a result of such approved rates of returns, the fair rate of return in 2015 was determined to be 4.00 %. The fair rates of return for 2016 and 2017 have not yet been determined.

The Electricity Business Act and the Price Stabilization Act do not specify a basis for determining the reasonableness of our operating expenses or any other items (other than the level of the fair investment return) for the purposes of the rate calculation. However, the Government exercises substantial control over our budgeting and other financial and operating decisions.

In addition to the calculations described above, a variety of other factors are considered in setting overall tariff levels. These other factors include consumer welfare, our projected capital requirements, the effect of electricity tariff on inflation in Korea and the effect of tariff on demand for electricity.

From time to time, our actual rate of return on invested capital may differ significantly from the fair rate of return on invested capital assumed for the purposes of electricity tariff approvals, for reasons, among others, related to movements in fuel prices, exchange rates and demand for electricity that differ from what is assumed for determining our fair rate of return. For example, between 1987 and 1990, the actual rate of return was above the fair rate of return due to declining fuel costs and rising demand for electricity at a rate not anticipated for purposes of determining our fair rate of return. Similarly, depreciation of the Won against the U.S. dollar accounted for our actual rates of return being lower than the fair rate of return for the period from 1996 to 2000. For the period between 2006 and 2013, our actual rates of return were lower than the fair rate of return largely due to a general increase in fuel costs and additional facility investment costs incurred, the effects of which were not offset by timely increases in our tariff rates. Since 2014, however, largely due to a decrease in fuel costs reflective of the drop in oil prices, our actual rate of return has surpassed the fair rate of return; however, substantially all of the resulting excess has been used to fund capital expenditure and repair and maintenance, as well as to offer tariff discounts to economically or otherwise disadvantaged households, and make investments in renewable energy and other environmental programs.

Partly in response to the variance between our actual rates of return and the fair rates of return, the Government from time to time increases the electricity tariff rates, but there typically is a significant time lag for the tariff increases as such increases requires a series of deliberative processes and administrative procedures and the Government also has to consider other policy considerations, such as the inflationary effect of overall tariff increases and the efficiency of energy use from sector-specific tariff increases.

 

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Prior to November 2013, the Government from time to time effected tariff increases that typically covered all sectors, namely, residential, commercial and industrial, mainly in response to sustained increases in fuel prices. No cross-sector tariff increase has been implemented since November 2013 largely due to a general decline in fuel prices and relatively stable exchange rates. However, effective January 1, 2017, the Government made several adjustments to the existing rate structure in order to ease the burden of electricity tariff on residential consumers as well as promote the use of renewable energy. First, the progressive rate structure applicable to the residential sector, which applies a gradient of increasing tariff rates for heavier electricity usage, was changed from a six-tiered structure with the highest rate being no more than 11.7 times the lowest rate (which gradient system has been in place since 2005) into a three-tiered structure with the highest rate being no more than three times the lowest rate in order to reflect the changes in the pattern of electricity consumption and reduce the electricity charges payable by consumers. Second, the new tariff structure encourages energy saving by offering rate discounts to residential consumers that voluntarily reduce electricity consumption while charging special high rates to residential consumers with heavy electricity consumption during peak usage periods during the summer and the winter. Third, a temporary rate discount will apply during 2017 to 2019 to investments in environmentally friendly facilities such as energy storage systems, renewable energy and electric cars. Such adjustments may lower our revenues from the sale of electricity and accordingly have a material adverse effect on our results of operation and cash flows.

The tariff rates we charge for electricity vary among the different classes of consumers, which principally consist of industrial, commercial, residential, educational and agricultural consumers. The tariff also varies depending upon the voltage used, the season, the time of usage, the rate option selected by the user and, in the residential sector, the amount of electricity used per household, as well as other factors. For example, we adjust for seasonal tariff variations by applying higher rates when demand tends to rise such as during the months of June, July and August (when the demand tends to rise due to increased use of air conditioning) and November, December, January and February (when demand tends to rise due to increased use of heating), which reflects the policy of the Korean government to cope with the rise in electricity demand during peak seasons by encouraging a more efficient use of electricity by customers. In addition, we provide discounts on tariff rates to certain users such as low income households.

Our current tariff schedule, which became effective as of January 1, 2017 reflecting the adjustments outlined above, is summarized below by the type of usage:

 

   

Industrial . The monthly basic charge varies from Won 5,550 per kilowatt to Won 9,810 per kilowatt depending on the type of contract, the voltage used and the rate option. The energy usage charge varies from Won 53.7 per kilowatt-hour to Won 196.6 per kilowatt-hour depending on the type of contract, the voltage used, the season, the time of day and the rate option.

 

   

Commercial . The monthly basic charge varies from Won 6,160 per kilowatt to Won 9,810 per kilowatt depending on the type of contract, the voltage used and the rate option. The energy usage charge varies from Won 53.7 per kilowatt-hour to Won 196.6 per kilowatt-hour depending on the type of contract, the voltage used, the season, the time of day and the rate option.

 

   

Residential . The monthly basic charge varies from Won 910 for electricity usage of less than 200 kilowatt hours to Won 7,300 for electricity usage in excess of 400 kilowatt hours. Residential tariff also includes an energy usage charge ranging from Won 93.3 to Won 280.6 per kilowatt-hour for electricity usage depending on the amount of usage and voltage. During the peak usage periods during the summer and the winter, namely the months of July and August and December to February, a higher energy usage charge of Won 709.5 per kilowatt-hour applies to residential consumers whose monthly electricity consumption exceeds 1,000 kilowatts hour.

 

   

Educational . The monthly basic charge varies from Won 5,230 per kilowatt to Won 6,980 per kilowatt depending on the voltage used and the rate option. The energy usage charge varies from Won 43.8 per kilowatt-hour to Won 160.4 per kilowatt-hour depending on the voltage used, the season and the rate option.

 

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Agricultural . The monthly basic charge varies from Won 360 per kilowatt to Won 1,210 per kilowatt depending on the type of usage. The energy usage charge varies from Won 21.6 per kilowatt-hour to Won 41.9 per kilowatt-hour depending on the type of contract, the voltage used and the season.

 

   

Street-lighting . The monthly basic charge is Won 6,290 per kilowatt and the energy usage charge is Won 85.9 per kilowatt-hour. For electricity capacity of less than 1 kilowatt or for places where the installation of the electricity meter is difficult, a fixed rate of Won 37.5 per watt applies, with the minimum monthly charge of Won 1,220.

In 2001, as part of implementing the Restructuring Plan, the Ministry of Trade, Industry and Energy established the Electric Power Industry Basis Fund to enable the Government to take over certain public services previously performed by us. In 2016, 3.7% of the tariff we collected from our customers was transferred to this fund prior to recognizing our sales revenue.

Power Development Strategy

We and our generation subsidiaries make plans for expanding or upgrading our generation capacity based on the Basic Plan, which is generally revised and announced every two years by the Government. In July 2015, the Government announced the Seventh Basic Plan relating to the future supply and demand of electricity. The Seventh Basic Plan, which is effective for the period from 2015 to 2029, focuses on, among other things, (i) ensuring a stable supply of electricity, (ii) increasing the portion of low carbon electricity supply sources, (iii) active consumer demand management, (iv) permanent closing of operations of the Kori #1 nuclear power unit, and (v) diversifying electricity supply sources through greater utilization of renewable energy sources.

In January 2014, prior to the announcement of the Seventh Basic Plan, the Ministry of Trade, Industry and Energy adopted the Second Basic National Energy Plan following consultations with representatives from civic groups, the power industry and academia. The Second Basic National Energy Plan, which is a comprehensive plan that covers the entire spectrum of energy industries in Korea, covers the period from 2014 to 2035 and focuses on the following six key tasks: (i) shifting the focus of energy policy to demand management with a goal of reducing the growth of electricity demand by 15% by 2035 through efficiency enhancement programs compared to the projected growth in the absence of such efficiency enhancement programs, (ii) establishing a geographically decentralized electricity generation system so as to reduce transmission losses with a goal of supplying at least 15% of total electricity through such system by 2035, (iii) applying latest greenhouse gas emission reduction technologies to newly constructed generation units in order to further promote safety and environmental friendliness, (iv) strengthening resource exploration and fuel procurement capabilities to enhance Korea’s energy security, (v) ensuring stable supply of energy and increasing the portion of electricity supplied from renewable sources to 11% by 2035, (vi) reinforcing the system for stable supply of conventional energy, such as oil and gas, and (vii) introducing in 2015 an energy voucher system in lieu of a tariff discount system for the benefit of low-income consumers. In addition, the Second Basic National Energy Plan has revised the target level of electricity generated by nuclear sources as a percentage of total electricity generated to 29%, compared to 41% under the First Basic National Energy Plan announced in 2008, which covered the period from 2008 to 2030.

We cannot assure that the Seventh Basic Plan, the Second Basic National Energy Plan or the respective plans to be subsequently adopted will successfully achieve their intended goals, the foremost of which is to ensure, through carefully calibrated capacity expansion and other means, balanced overall electricity supply and demand in Korea at affordable costs to end users while promoting efficiency and environmental friendliness in the consumption and production of electricity. If there is significant variance between the projected electricity supply and demand considered in planning our capacity expansions and the actual electricity supply and demand or if these plans otherwise fail to meet their intended goals or have other unintended consequences, this may result in inefficient use of our capital, mispricing of electricity and undue financing costs on the part of us and our generation subsidiaries, among others, which may have a material adverse effect on our results of operations, financial condition and cash flows.

 

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Capital Investment Program

The table below sets forth, for each of the years ended December 31, 2014, 2015 and 2016, the amounts of capital expenditures for the construction of generation, transmission and distribution facilities.

 

2014

  2015     2016  
(In billions of Won)  
₩16,629   15,750     13,950  

The table below sets forth the currently estimated installed capacity for new or expanded generation units to be completed by our generation subsidiaries in each year from 2017 to 2021 based on the Seventh Basic Plan, as amended.

 

Year

   Number of Units   

Type of Units

   Total Installed Capacity  
               (Megawatts)  

2017

   2    Nuclear power      2,800  
   1    Coal-fired      1,000  
   3    LNG-combined      1,270  

2018

   1    Nuclear power      1,400  
   1    LNG-combined      200  

2019

   1    Coal-fired      1,000  

2020

   None      

2021

   1    Nuclear power      1,400  

For the period from 2022 to 2029, our generation subsidiaries currently plan to complete seven additional nuclear units with an aggregate installed capacity of 10,200 megawatts.

As part of our capital investment program, we also intend to add new transmission lines and substations, continue to replace overhead lines with underground cables and improve the existing transmission and distribution systems.

The actual number and capacity of generation units and transmission and distribution facilities we construct and the timing of such construction are subject to change depending upon a variety of factors, including, among others, changes in the Basic Plan, demand growth projections, availability and cost of financing, changes in fuel prices and availability of fuel, ability to acquire necessary plant sites, environmental considerations and community opposition.

 

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The table below sets forth, for the period from 2017 to 2019, the budgeted amounts of capital expenditures pursuant to our capital investment program, which primarily consist of budgets for the construction of generation, transmission and distribution facilities and, to a lesser extent, renewable energy generation and new energy industry projects. The budgeted amounts may vary from the actual amounts of capital expenditures for a variety of reasons, including, among others, the implementation of the Seventh Basic Plan, changes in the number of units to be constructed, the actual timing of such construction, changes in rates of exchange between the Won and foreign currencies and changes in interest rates.

 

     2017      2018      2019      Total  
     (in billions of Won)  

Generation (1) :

           

Nuclear

   3,954      5,103      5,194      14,251  

Thermal

     3,166        3,007        2,635        8,808  
  

 

 

    

 

 

    

 

 

    

 

 

 

Sub-total

     7,120        8,110        7,829        23,059  
  

 

 

    

 

 

    

 

 

    

 

 

 

Transmission and Distribution:

           

Transmission

     2,772        3,142        3,185        9,009  

Distribution

     3,009        2,156        2,297        7,462  
  

 

 

    

 

 

    

 

 

    

 

 

 

Sub-total

     5,781        5,298        5,482        16,561  
  

 

 

    

 

 

    

 

 

    

 

 

 

Others (2)

     1,988        2,452        2,760        7,200  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   14,889      15,860      16,071      46,820  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

Notes:

 

(1) The budgeted amounts for our generation facilities are based on the Seventh Basic Plan.
(2) Principally consists of investments in renewable energy generation and new energy industry projects, among others.

In January 2016, the Ministry of Trade, Industry and Energy announced an initiative to promote the new energy industry by creating funds sponsored by government-affiliated energy companies. The purpose of these funds is to invest in substantially all frontiers of the new energy industry, including renewable energy, energy storage systems, electric vehicles, small-sized self-sustaining electricity generation grids known as “micro-grids”, among others, as well as invest in start-up companies, ventures, small- to medium-sized enterprise and project businesses that engage in these businesses but have not previously attracted sufficient capital from the private sector. The total size of these funds was US$1 trillion in 2016, which was funded from our budget for new energy industry projects, which totaled US$6.4 trillion in 2016 and was expended in research and development, efficiency improvements and educational solar power projects, among others. Our budget for new energy industry projects in 2017 amounts to US$5.6 trillion, of which US$1 trillion has been earmarked for potential additional commitments to the New Energy Industry Fund.

Furthermore, according to a plan announced in July 2016 by the Ministry of Trade, Industry and Energy in relation to coal-fired electricity generation units, 10 of our coal generation units that are 30 years or older will be required to be shut down or convert to another fuel use, 43 of our such units that are less than 30 years old will be subject to retrofitting and overall replacement of environmental facilities, and 20 of our such units currently under construction will be subject to more rigorous emission standards. In addition, the Government indicated that it would not allow any new construction of additional coal-fired generation units after 2019, which means that LNG is likely to be used more in the future as the substitute for coal, and since LNG is a more expensive fuel source than fuel, this regulation is expected to drive up the average cost of generating electricity. Compliance with such measures is expected to result in our incurring significant costs.

We have financed, and plan to finance in the future, our capital investment programs primarily through net cash provided by our operating activities and financing in the form of debt securities and loans from domestic

 

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financial institutions, and to a lesser extent, borrowings from overseas financial institutions. In addition, in order to prepare for potential liquidity shortage, we and our generation subsidiaries maintain several credit facilities with domestic financial institutions in the aggregate amounts of Won 3,747 billion and US$696 million, the full amount of which was available as of December 31, 2016. we, KHNP, KOSEP and KOWEPO also maintain global medium-term note programs in the aggregate amount of US$11.4 billion, of which approximately US$4.8 billion remains currently available for future drawdown. KOSEP also maintains an A$2 billion Australian dollar medium-term note program, of which approximately A$1.7 billion remains current available for future drawdown. See also Item 5.B. “Liquidity and Capital Resources—Capital Resources.”

Environmental Programs

The Environmental Policy Basic Act, the Air Quality Preservation Act, the Water Quality Preservation Act, the Marine Pollution Prevention Act and the Waste Management Act, collectively referred in this annual report as the Environmental Acts, are the major laws of Korea that regulate atmospheric emissions, waste water, noise and other emissions from our facilities, including power generators and transmission and distribution units. Our existing facilities are currently in material compliance with the requirements of these environmental laws and international agreements, such as the United Nations Framework Convention on Climate Change, the Montreal Protocol on Substances that Deplete the Ozone Layer, the Stockholm Convention on Persistent Organic Pollutants and the Basel Convention on the Control of Transboundary Movements of Hazardous Wastes and Their Disposal. In order to foster coordination among us and our generation subsidiaries in respect of climate change, we and 11 of our electricity-related subsidiaries formed the CEO Coordination Committee in June 2016.

We continuously endeavor to contribute to sustainable growth (whether as an economy, a society or an ecosystem) by actively taking actions that befit our social responsibility as a corporate citizen in the energy industry. For example, in 2005, we became the first public company in Korea to join the United Nations Global Compact, an international voluntary initiative designed to hold a forum for corporations, United Nations agencies, labor and civic groups to promote reforms in economic, environmental and social policies. As part of our involvement with such initiative, we issue an annual report named the “Sustainability Report” to disclose our activities from the perspectives of economy, environment and society, in accordance with the reporting guidelines of the Global Reporting Initiative, the official collaborating center of the United Nations Environment Program that works in cooperation with United Nations Secretary General. In recognition of our efforts and achievements to reduce carbon emissions in response to global climate change, in May 2013, we obtained the Carbon Trust Standard certification issued by Carbon Trust, a British nonprofit organization with the goal of establishing a sustainable, low carbon economy. In 2015, we obtained recertification from Carbon Trust by satisfying even more rigorous evaluation criteria. We are also a participant of the Carbon Disclosure Project, an international organization that promotes transparency in informational disclosure of carbon management process, and in 2016 we were recognized by the Carbon Disclosure Project for scoring the highest in the energy and utility sector in relation to climate change response. In 2014, 2015 and 2016 we were selected as the best company in the global electricity utility sector in the Dow Jones Sustainability Indices, which measures management performance in terms of contribution to sustainability. We aim to become a global leader in carbon management and reduction.

The table below sets forth the number of emission control equipment installed at thermal power plants by our generation subsidiaries as of December 31, 2016.

 

     KOSEP      KOMIPO      KOWEPO      KOSPO      EWP  

Flue Gas Desulphurization System

     14        14        14        11        15  

Selective Non-catalytic Reduction System

     —          2        —          —          3  

Selective Catalytic Reduction System

     12        19        15        12        18  

Electrostatic Precipitation System

     16        16        14        12        18  

Low NO2 Combustion System

     18        32        30        30        30  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     60        83        73        65        84  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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The table below sets forth the amount of annual emission from all generating facilities of our generation subsidiaries for the periods indicated. The amount of CO2 emissions may increase in the near future due to the construction of additional coal thermal power plants but is expected to decrease in the long-term, principally due to an increased use of nuclear power and renewable energy and the implementation of the carbon emission trading system.

 

Year

   Sox
(g/MWh)
     NOx
(g/MWh)
     Dust
(g/MWh)
     CO2
(kg/MWh)
 

2014

     170        291        8        471  

2015

     164        266        8        455  

2016

     246        395        11        747  

In order to comply with the current and expected environmental standards and address related legal and social concerns, we intend to continue to install additional equipment, make related capital expenditures and undertake several environment-friendly measures to foster community goodwill. For example, under the Persistent Organic Pollutants Management Act enacted in 2007, we are required to remove polychlorinated biphenyl, or PCB, a toxin, from the insulating oil of our transformers by 2025. In addition, when constructing certain large new transmission and distribution facilities, we assess and disclose their environmental impact at the planning stage of such construction, as well as consult with local residents, environmental groups and technical experts to generate community support for such projects. We exercise additional caution in cases where such facilities are constructed near ecologically sensitive areas such as wetlands or preservation areas. We also make reasonable efforts to minimize any negative environmental impact, for example, by using more environment-friendly technology and hardware. In addition, we also undertake measures to minimize losses during the transmission and distribution process by making our power distribution network more energy-efficient in terms of loss of power, as well as to lower consumption of energy, water and other natural resources. In addition, we and our subsidiaries acquired the ISO 14000 certification, an environmental management system widely adopted internationally, in 2013 and have made it a high priority to make our electricity generation and distribution more environmentally friendly. In addition to the ISO 14000 certification, we further reinforced our environmental management system by acquiring the ISO 14001 certification as well as a domestic “GMS (Green Management System), KS I 7001/7002” certification, which relates to the management of resources, energy, green house effects and social responsibilities, in 2013. In 2014, we were awarded the presidential award for environmental contributions as a corporate citizen, after scoring the highest among 102 corporations that competed for the award. In order to encourage the implementation of environment-friendly measures by other corporations and enhance environmental awareness at a social level, we have been disclosing our environment-related activities and achievements to the public through the Environment Information System managed by the Ministry of Environment since 2012.

Our environmental measures, including the use of environment-friendly but more expensive parts and equipment and allocation of capital expenditures for the installation of such facilities, may result in increased operating costs and liquidity requirement. The actual cost of installation and operation of such equipment and related liquidity requirement will depend on a variety of factors which may be beyond our control. There is no assurance that we will continue to be in material compliance with legal or social standards or requirements in the future in relation to the environment.

As part of our long-term strategic initiatives, we plan to take other measures designed to promote the generation and use of environmentally friendly, or green, energy. See Item 4.B. “Business Overview—Strategy.”

Some of our generation facilities are powered by renewable energy sources, such as solar energy, wind power and hydraulic power. While such facilities are currently insignificant as a proportion of our total generation capacity or generation volume of our generation subsidiaries, we expect that the portion will increase in the future, especially since we are required to comply with the Renewable Portfolio Standard program as described below.

 

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The following table sets forth the generation capacity and generation volume in 2016 of our generation facilities that are powered by renewable energy sources.

 

     Generation Capacity
(megawatts)
    Generation Volume
(gigawatt-hours)
 

Hydraulic Power

     5,350       4,835  

Wind Power

     138       186  

Solar Energy, Fuel Cells and Biogas

     174       908  
  

 

 

   

 

 

 

Subtotal

     5,662       5,929  

As percentage of total (1)

     7.2     1.4

 

Note:

 

(1) As a percentage of the total generation capacity or total generation volume, as applicable, of us and our generation subsidiaries.

In order to deal with shortage of fuel and other resources and also to comply with various environmental standards, in 2012 the Government adopted the Renewable Portfolio Standard program, which replaced the Renewable Portfolio Agreement which had been in effect from 2006 to 2011. Under this program, each of our generation subsidiaries is required to generate a specified percentage of total electricity to be generated by such generation subsidiary in a given year in the form of renewable energy or, in case of a shortfall, purchase a corresponding amount of a Renewable Energy Certificate (a form of renewable energy credit) from other generation companies whose renewable energy generation surpass such percentage. The target percentage was 3.0% in 2015 and 3.5% in 2016 and will incrementally increase to 10.0% by 2023. Fines are to be levied on any subsidiary that fails to do so in the prescribed timeline. In 2015, all six of our generation subsidiaries met the target through renewable energy generation and/or the purchase of a Renewable Energy Certificate. Compliance by our generation subsidiaries of the 2016 target is currently under evaluation, and if any generation subsidiary is found to have failed to meet the target for 2016 or for subsequent years, such generation subsidiary may become subject to fines. We expect that any additional costs required for implementation of the Renewable Portfolio Standard program will be covered by a corresponding increase in electricity tariff. However, there is no assurance that the Government will in fact raise the electricity tariff to a level sufficient to fully cover such additional costs or at all.

As to how we plan to finance our capital expenditures related to our environmental programs, see “—Capital Investment Program.”

In March 2017, the Electricity Business Act was amended to the effect that starting in June 2017, future national planning for electricity supply and demand in Korea should consider the environmental and safety impacts of such planning. However, to-date, no specific guidelines have been provided by the Government as to how to implement this provision, and it is therefore difficult to assess in advance what impact such provision will have on our business, results of operations or financial condition. However, the amendment will likely lead to the expansion of our environmental programs.

Furthermore, under the new electricity rate structure effected by the Government effective January 1, 2017, a temporary rate discount will apply in the case of investments in environmentally friendly facilities such as energy storage systems, renewable energy and electric cars during 2017 to 2019.

Community Programs

Building goodwill with local communities is important to us in light of concerns among the local residents and civic groups in Korea regarding construction and operation of generation units, particularly nuclear generation units. The Act for Supporting the Communities Surrounding Power Plants and the Act on the Compensation and Support for Areas Adjacent to Transmission and Substation Facilities require that the

 

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generation companies and the affected local governments carry out various activities up to a certain amount annually to address neighboring community concerns. Pursuant to these Acts, we and our generation subsidiaries, in conjunction with the affected local and municipal governments, undertake various programs, including scholarships and financial assistance to low-income residents.

Under the Act for Supporting the Communities Surrounding Power Plants, activities required to be undertaken under the Act are funded partly by the Electric Power Industry Basis Fund (see “—Sales and Customers—Electricity Rates”) and partly by KHNP as part of its budget. KHNP is required to make annual contributions to the affected local communities in an amount equal to Won 0.25 per kilowatt-hour of electricity generated by its nuclear generation units during the one-year period before the immediately preceding fiscal year, Won 5 million per thousand kilowatts of hydroelectric generation capacity and Won 0.5 million per thousand kilowatts of pumped-storage generation capacity. In addition, under Korean tax law, KHNP is required to pay local tax levied on its nuclear generation units in an amount equal to Won 1 (effective January 1, 2015, which reflects an increase from Won 0.5 previously per kilowatt-hour of their generation volume in the affected areas) and Won 2 per 10 cubic meters of water used for hydroelectric generation.

The Act on the Compensation and Support for Areas Adjacent to Transmission and Substation Facilities, enacted in January 2014 with effect from July 2014, prescribes measures to be taken by power generation or transmission companies with respect to the communities adjacent to transmission and substation facilities. Under this Act, those who own land or houses in the vicinity of transmission lines and substation may claim compensation for damages or compel purchase of such properties by the power generation or transmission companies which are legally obligated in principle to pay for such damages or purchase such properties. In addition, under this Act, residents of communities adjacent to transmission and substation facilities are entitled to subsidies on electricity tariff as well as support for a variety of welfare projects and collective business ventures.

Prior to the construction of a generation unit, our generation subsidiaries perform an environmental impact assessment which is designed to evaluate public hazards, damage to the environment and concerns of local residents. A report reflecting this evaluation and proposing measures to address the problems identified must be submitted to and approved by the Ministry of Trade, Industry and Energy following agreement with related administrative bodies, including the Ministry of Environment prior to the construction of the unit. Our generation subsidiaries are then required to implement the measures reflected in the approved report. Despite these activities, civic community groups may still oppose the construction and operation of generation units (including nuclear units), and such opposition could adversely impact our construction plans for generation units (including nuclear units) and have a material adverse effect on our business, results of operations and cash flow.

Upon relocation of our corporate headquarters in November 2014, we developed and established Bitgaram Energy Valley as a smart energy hub city in Naju, to attract and facilitate the growth of start-ups and research institutions related to new energy industries while contributing to the local economy, balanced regional development and job creation. To achieve this goal, we provide funding, business networks and research and development assistance to qualified start-ups and research institutions in the new energy industries. As of March 31, 2017, we had signed agreements with 200 companies relating to investments in the Bitgaram Energy Valley, and we currently aim to increase the total number of companies investing in the Bitgaram Energy Valley to 250 companies by the end of 2017 and 500 companies by the end of 2020.

Nuclear Safety

KHNP takes nuclear safety as its top priority and continues to focus on ensuring the safe and reliable operation of nuclear power plants. KHNP also focuses on enhancing corporate ethics and transparency in the operation of its plants.

KHNP has a corporate code of ethics and is firmly committed to enhancing nuclear safety, developing new technologies and improving transparency. KHNP has also established the “Statement of Safety Policy for

 

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Nuclear Power Plants” to ensure the highest level of nuclear safety. Furthermore, KHNP invests approximately 5% of its total annual sales into research and development for the enhancement of nuclear safety and operational performance.

KHNP implements comprehensive programs to monitor, ensure and improve safety of nuclear power plants. In order to enhance nuclear safety through risk-informed assessment, KHNP conducts probabilistic safety assessments, including for low power-shutdown states, for all its nuclear power plants. In order to systematically verify nuclear safety and identify the potential areas for safety improvements, KHNP performs periodic safety reviews on a 10-year frequency basis for all its operating units. These reviews have been completed for Kori #1, 2, 3 and 4, Hanbit #1, 2, 3, 4, 5 and 6, Hanul #1, 2, 3 and 4 and Wolsong #1, 2, 3 and 4. Reviews for Hanul #5 and 6 are in progress. In order to enhance nuclear safety and plant performance, KHNP has established a maintenance effectiveness monitoring program based on the maintenance rules issued by the United States Nuclear Regulatory Commission, which covers all of KHNP’s nuclear power plants in commercial operation.

KHNP has developed the Risk Monitoring System for operating nuclear power plants, which it implements in all of its nuclear power plants. The Risk Monitoring System is intended to help ensure nuclear plant safety. In addition, KHNP has developed and implemented the Severe Accident Management Guidelines and is developing the Severe Accident Management Guidelines for Low Power-Shutdown States in order to manage severe accidents for all of its nuclear power plants.

KHNP conducts various activities to enhance nuclear safety such as quality assurance audits and reviews by the KHNP Nuclear Review. KHNP maintains a close relationship with international nuclear organizations in order to enhance nuclear safety. In particular, KHNP invites international safety review teams such as the World Association of Nuclear Operators (“WANO”) Peer Review Team and the Expert Mission Team to its nuclear plants for purposes of meeting international standards for independent review of its facilities. KHNP actively exchanges relevant operational information and technical expertise with its peers in other countries. For example, KHNP conducted five WANO Peer Reviews Hanul #5, and #6 and WANO Pre Start-up Review for Shin-Kori#4 in 2016. KHNP also invited WANO Follow-up Peer Review Team at Wolsong #1, #2, #3 and #4, Hanul #1, #2, #3 and #4, Shin-Kori #1, and #2 in 2016. The recommendations and findings from this event were shared with KHNP’s other nuclear plants to implement improvements at such plants.

The average level of radiation dose per unit amounted to a relatively low level of 0.44 man-Sv in 2016, which was substantially lower than the global average of 0.72 man-Sv/year in 2015 as reported in the WANO performance indicator report.

In response to the damage to the nuclear facilities in Japan as a result of the tsunami and earthquake in March 2011, the Government conducted additional safety inspections on nuclear power plants by a group of experts from governmental authorities, civic groups and academia. As a result of such inspections, the Government required KHNP to perform 50 comprehensive safety improvement measures. The Government also established the Nuclear Safety & Security Commission in October 2011 for neutral and independent safety appraisals. KHNP developed ten additional measures through benchmarking of overseas cases and internal analysis of current operations. As of December 31, 2016, KHNP has completed implementation of all such measures.

From time to time, our nuclear generation units may experience unexpected shutdowns. For example, on September 12, 2016, multiple earthquakes including a magnitude 5.8 earthquake hit the city of Gyeongju, a home to KHNP’s headquarters and Wolsong Nuclear Power Plant. Although there was no material safety issues, KHNP had manually stopped the operations of Wolsong Nuclear Power Plant units #1, 2, 3, and 4 according to the safety guidelines. All units have resumed their operations on December 5, 2016, with the approval by the Nuclear Power Safety Commission. KHNP continues to implement measures to improve the safety by reinforcing seismic capability of its core facilities and performing stress tests across all its nuclear power plants.

 

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Low and intermediate level waste, or LILW, and spent fuels are stored in temporary storage facilities at each nuclear site of KHNP. The temporary LILW storage facilities at the nuclear sites had been sufficient to accommodate all LILWs produced up to 2015. Korea Radioactive Waste Agency (“KORAD”) completed the construction of a LILW disposal facility in the city of Gyeongju, and government approval for its operations was obtained in December 2014.

In order to increase the storage capacity of temporary storage facilities for spent fuels, KHNP has been pursuing various projects, such as installing high-density racks in spent fuel pools and building dry storage facilities. Through these activities, we expect that the storage capacity for spent fuels in all nuclear sites will be sufficient to accommodate all the spent fuels produced by 2017. The policy for spent fuel management options is currently under development.

In 2009, the Radioactive Waste Management Act (“RWMA”) was enacted in order to centralize management of the disposal of spent fuel and LILW and enhance the security and efficiency of related management processes. The RWMA designates KORAD to manage the disposal of spent fuels and LILW. Pursuant to the RWMA, the Government has established the Radioactive Waste Management Fund. The management expense for LILW is paid when LILW is transferred to KORAD, and the charge for spent fuel is paid based on the quantity generated every quarter. LILW-related management costs and charges for spent fuel are reviewed by the Ministry of Trade, Industry and Energy every two years. In December 2014, such costs and charges were increased by a committee composed of Government officials, KHNP, Korea Radioactive Waste Management Corporation and experts in finance and accounting. The committee is currently assessing the costs and charges for the two-year period starting from the second quarter of 2017. If such costs and charges are determined to be higher than previous years, this may result in an increase in future expenses that KHNP may incur in relation to radioactive waste.

All of KHNP’s nuclear plants are currently in compliance with Korean law and regulations and the safety standards of the IAEA in all material respects. For a description of certain past incidents relating to quality assurance in respect of KHNP, see Item 3.D. “Risk Factors— Our risk management policies and procedures may not be fully effective at all times.”

Decommissioning

Decommissioning of a nuclear power unit is the process whereby the unit is shut down at the end of its life, the fuel is removed and the unit is eventually dismantled. KHNP implements a dismantling policy under which dismantling would take place five to ten years after the unit’s closure. KHNP renewed the operating license of Kori #1, the first nuclear power plant constructed in Korea, which commenced operation in 1978, for an additional ten years in 2007. At the recommendation of the Ministry of Trade, Industry and Energy, KHNP has decided not to renew the operating license of Kori #1. Therefore decommissioning of Kori #1 will begin upon expiration of the operating license in June 2017. In February 2015, KHNP also renewed the operation license of Wolsong #1 (which originally expired in November 2012) for an additional ten years until 2022. In June 2015, reactivation of Wolsong #1 was approved by the NSSC after periodic inspection. However, a civic group has since then brought a lawsuit to reverse such approval, and in February 2017, a lower court ruled to annul the NSSC’s approval, which ruling has since been appealed. At present, the outcome of this litigation remains uncertain. The initial phase of decommissioning (namely, safety inspection and removal of spent fuels) of KHNP’s nuclear power generation units is expected to commence after June 2017. KHNP retains full financial and operational responsibility for decommissioning its units.

KHNP has accumulated decommissioning costs as a liability since 1983. The decommissioning costs of nuclear facilities are defined by the Radioactive-Waste Management Act, which requires KHNP to credit annual appropriations separately. These costs are estimated based on studies conducted by the relevant committees, and are reviewed by the Ministry of Trade, Industry and Energy every two years. In 2016, due to decreased discount rates and the commencement of operation of Shin-Kori #3, the total amount of allowances increased as of

 

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December 31, 2016, and, as a result, KHNP was required to accrue Won 12,946 billion for the costs of dismantling and decontaminating existing nuclear power plants as of December 31, 2016, which consisted of dismantling costs of nuclear plants of Won 10,196 billion and dismantling costs of spent fuel and radioactive waste of Won 2,750 billion. For accounting treatment of decommissioning costs, see Item 5.A. “Operating Results—Critical Accounting Policies—Decommissioning Costs.”

Overseas Activities

We are engaged in a number of overseas activities. We believe that such activities help us diversify our revenue streams by leveraging the operational experience of us and our subsidiaries gathered from providing a full range of services, such as power plant construction and specialized engineering and maintenance services in Korea, as well as establishing strategic relationships with countries that are or may become providers of fuels.

Throughout the years, we have sought to diversify the geographic focus of our operations from Asia to the rest of the world, including the resource-rich Middle East, Australia and Africa, as well as expand our project portfolio to include the construction and operation of conventional thermal generation units, nuclear generation units and renewable energy power plants and mining and development of fuel sources. While strategically important, we believe that our overseas activities, as currently being conducted, are not in the aggregate significant in terms of scope or amount compared to our domestic activities. In addition, a number of the overseas contracts currently being pursued are based on non-binding memoranda of understanding and the details of such projects may significantly change during the course of negotiating the definitive agreements.

Below is a description of our major overseas projects.

Generation projects

Nuclear Generation Project

In December 2009, following an international open bidding process, we entered into a prime contract with the Emirates Nuclear Energy Corporation (the “ENEC”), a state-owned nuclear energy provider of the United Arab Emirates (“UAE”), to design and construct four civil nuclear power generation units to be located in Barakah, a region approximately 270 kilometers from Abu Dhabi, for the UAE’s peaceful nuclear energy program. Under the contract, we and our subcontractors, some of which are our subsidiaries, are to perform various duties including, among others, designing and constructing four nuclear power generation units each with a capacity of 1,400 megawatts, supplying nuclear fuel for three fuel cycles including initial loading, with each cycle currently projected to last for approximately 18 months, and providing technical support, training and education related to plant operation. The contract amount for the project is US$18.6 billion, with the term of the contract to last from December 27, 2009 to May 1, 2020. The original target completion dates for the four units are May 2017, May 2018, May 2019 and May 2020. ENEC and we are currently negotiating to adjust the target completion dates, taking into account the preparation for operation of Unit #1 and UAE’s power supply and demand conditions.

On October 20, 2016, in order to foster a long-term strategic partnership and stable management of the units post-construction we entered into an investment agreement with ENEC to jointly establish Barakah One PJSC, a special purpose company which will oversee the operation and management of the nuclear power plant currently being constructed in Barakah, United Arab Emirates. Barakah One PJSC will be capitalized with loans in the amount of US$19.6 billion and equity of US$4.7 billion. We have a 18% equity interest in Barakah One PJSC, which will oversee the project. We also have a 18% equity interest in Nawah Energy, a subsidiary of ENEC, which will also be responsible for the operation and maintenance of the Barakah nuclear power plant.

Non-nuclear Generation Projects

We are currently engaged in three major power projects in the Philippines: (i) a “build, operate and transfer” of a 1,200-megawatt combined-cycle power plant project in Ilijan, construction of which began in November

 

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1997 and was completed in June 2002 and which is being operated by us until 2022 (the project cost of the Ilijan project was US$721 million, for which project finance on a limited recourse basis was provided), (ii) ownership of a 39.6% equity interest in SPC Power Corporation, an independent power producer which owns a 107.8-megawatt diesel power plant and a 39.6% equity interest in two distribution companies in the Philippines, and (iii) a “build, operate and own” of a 200-megawatt CFBC coal power plant in Cebu for which construction began in February 2008 and was completed in May 2011, followed by operation thereof until 2036. The project cost of the Cebu project was US$451 million, for which project financing on a limited recourse basis was provided.

In April 2007, we formed a limited partnership with Shanxi International Electricity Group and Deutsche Bank in China to develop and operate power projects and coal mines in Shanxi province, China, which was approved by the Chinese government. The total capital investment in these projects amounted to US$1.33 billion, of which our capital investment was US$450 million. We are expected to participate in the operation of the project for a period of 50 years ending 2056. The total installed capacity of these projects is 6,532 megawatts and capacity under construction was 2,288 megawatts, and our equity interest in the partnership was 34%.

In October 2007, we invested US$9.1 million in KEPCO Energy Resource Nigeria Ltd. (“KERNL”), a joint venture with Energy Resource Ltd., a Nigerian company. We currently own 30.0% of KERNL’s equity capital. In May 2007, KERNL entered into a share purchase agreement with the Nigerian government for the purchase of 70% of the equity capital of Egbin Power Plc in Nigeria, which owns and operates the Egbin power plant, a 1,320-megawatt gas-fired power plant in Lagos, Nigeria for a consideration of approximately US$407 million. The acquisition was completed in October 2013, and in June 2013, we entered into a contract with Egbin Power Plc for the operation and maintenance of the Egbin power plant. The contract price was US$315 million. In November 2013, we commenced operation and maintenance services for a term of five years, which will expire in October 2018.

In July 2008, a consortium consisting of us and Xenel of Saudi Arabia won the bid to “build, own and operate” a gas-fired power plant with installed capacity of 373 megawatts in Al Qatrana, near Amman, and we entered into definitive agreements in October 2009. Construction of this project was completed in December 2011, and the plant is currently in operation and will be operation until 2035. The total project cost was US$461 million, of which the consortium made an equity contribution of US$143 million and the remainder was funded with debt financing. We and Xenel own 80:20 equity interests in the project, respectively.

In December 2008, we formed a consortium with ACWA Power International of Saudi Arabia and submitted a bid for the 1,204 megawatt oil-fired power project in Rabigh, Saudi Arabia. In March 2009, we were selected as the preferred bidder, and in July 2009, we entered into a power purchase agreement with Saudi Electricity Company. Construction of the project was completed in April 2013, and we will participate in the operation of the plant for 20 years. This project has an estimated project cost of US$2.5 billion. We currently hold a 40.0% equity interest in the joint venture entity, Rabigh Electricity Company, which will oversee the project.

In August 2010, a consortium led by us was selected as the preferred bidder in an international auction for the construction and operation of the Norte II gas-fueled combined-cycle electricity generation facility in Chihuahua, Mexico, as ordered by the Commission Federal de Electricidad (“CFE”) of Mexico. The consortium established a special purpose vehicle, KST Electric Power Company (“KST”), to act as the operating entity, and in September 2010, KST entered into a power purchase agreement with CFE in relation to the construction and operation of a 433-megawatt combined-cycle power plant at Chihuahua in Mexico. In October 2010, KST was licensed by the Mexican government as an independent power producer, which allows it to produce and sell electricity to CFE during the specified contract period. The project will be undertaken on a “build, own and operate” basis. The total cost of the project is approximately US$430 million. We hold a 56% equity interest in the consortium, with the remaining equity interests held by Samsung C&T (with a 34% equity interest) and Techint, a Mexico company (with a 10% equity interest). Approximately 22.5% of the total project costs is being

 

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financed through equity investments by the consortium and the remaining 77.5% through project financing. Commercial operation commenced in December 2013, and the operation period will run for 25 years until 2038. Our wholly-owned subsidiary, KEPCO Energy Service Company, currently manages the operation of the project.

In October 2010, a consortium including us was selected by Abu Dhabi Water & Electricity Authority (“ADWEA”), a state-run utilities provider in the UAE, as the preferred bidder in an international bidding for the construction and operation of the combined-cycle natural gas-fired electricity generation facilities in Shuweihat, UAE with aggregate capacity of 1,600 megawatts. Construction was completed in July 2014 and we will participate in the operation of the plant until 2039. The total project cost is estimated to be US$1.5 billion, of which approximately 20% will be financed through equity investments by the consortium members and the remaining 80% through project financing. Equity interests in the consortium are owned by ADWEA (60.0%), Sumitomo (20.4%) and us (19.6%). The total amount of our equity investment in the project is approximately US$56 million.

In January 2012, a consortium consisting of us, Mitsubishi Corporation and Wartsila Development & Financial Services of Finland was selected by National Electric Power Corporation, a state-run electricity provider in Jordan, to construct and operate a diesel engine power project in Almanakher with an expected total generation capacity of 573 megawatts. Construction of this project was completed in October 2014 and the plant is currently in operation and will be operation until 2039. The total project cost was approximately US$760 million, of which the consortium made an equity contribution of approximately US$190 million and the remainder was funded with debt financing. We, Mitsubishi Corporation and Wartsila Development & Financial Services own 60:35:5 equity interests in the project, respectively. Our equity investment in this project is US$104 million.

In March 2013, a consortium consisting of us and Marubeni, a Japanese corporation, was selected by the Ministry of Industry and Trade of Vietnam for the construction and operation of a 1,200 megawatt coal-fired power plant in Thanh Hoa province, Vietnam. We will commence construction in December 2017 with target completion by December 2021, followed by operation for 25 years. The total project cost is expected to be US$2.34 billion, of which 25% will be funded by equity contribution and the remaining 75% by debt financing. The share capital of the special purpose entity in charge of this project is US$574 million, and we and Marubeni each hold 50% equity interest in such entity.

Exploration and Production Projects

In order to secure a more reliable supply of fuel for power generation and hedge against fluctuations in fuel price, from 2007 to 2016 we pursued overseas exploration and production projects, including five bituminous coal projects and five uranium projects involving investments of approximately Won 1.6 trillion. However, pursuant to the Government’s Proposal for Adjustment of Functions of Public Institutions (Energy Sector) announced in June 2016, as of December 31, 2016, except for the Bylong project described below, we transferred all our assets and liabilities for our overseas resource business to our six generation subsidiaries, which are the end-consumers of fuels and are therefore expected to more responsively manage these projects. The amount of net assets that we transferred to our generation subsidiaries as of December 31, 2016 was Won 622 billion.

Some of the assets transferred include our equity interest in PT Adaro Energy TBK, which is one of the largest coal producers in Indonesia as well as our 20% equity interest in PT. Bayan Resources Tbk pursuant to which we were entitled to an off-take of 7 million tons per year beginning in 2015.

One exception to the transfers on such date was our 90% equity interest in KEPCO Bylong Pty Ltd., for which we are currently processing a development permit from the New South Wales government and commercial production is scheduled to commence in 2019. We transferred 10% of our equity interest in the Bylong project to our five non-nuclear generation subsidiaries as of December 31, 2016, and we plan to gradually transfer the remainder of our interest in the Bylong project to them subject to the progress of the regulatory approval process and resource development phase of the project.

 

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Our nuclear generation subsidiary, KHNP, is also pursuing development projects for procurements of uranium in countries including Canada, the United States and Niger.

Renewable Energy Projects

Our overseas renewable energy projects include the generation of electricity through renewable energy sources.

Since 2005, joint ventures between us and China Datang Corporation of the People’s Republic of China have built and operated a number of wind farms in Inner Mongolia, Liaoning and Gansu provinces. We own 40% of these joint ventures, whose equity in the aggregate amount is approximately US$600 million. The projects are funded one-third by equity contributions and two-thirds by debt financing. As of December 31, 2016, the joint venture operated 22 wind farms with a total capacity of 1,017 megawatts.

In December 2015, we entered into an agreement with the Ministry of Energy and Mineral Resources of Jordan to build, own and operate a wind farm with installed capacity of 89.1 megawatts in Fujeij, Ma’an, Jordan. Construction is currently underway with commercial operations expected to commence in October 2018. Total project cost is approximately US$184 million, of which 40% will be financed through equity investments by us and the remaining 60% through debt financing. We believe that this project will help us to further diversify our business portfolio in the Middle East from the existing focus on nuclear and thermal power plants to expand to renewable energy facilities.

In June 2015, we entered into a memorandum of understanding with Energy Product, a Japanese local developer, to build, own and operate photovoltaic power station with a capacity of 28 megawatts, together with a 13.7 megawatts-hour energy storage system, in Chitose, Hokkaido prefecture in Japan. The parties subsequently signed the joint development agreement and other definitive agreements. The power station is due for substantial completion by July 2017. Total project cost is approximately JPY 11.3 billion, of which 20% was financed through 80:20 equity investments by us and EP. The remaining 80% is funded through debt financing.

Although renewable energy projects are currently insignificant as a proportion of our total overseas activities and our generation activities, we expect the portion of renewable energy projects to increase in the future as we seek to penetrate the overseas renewable energy market, diversify our businesses and actively address climate change. We expect to further diversify our business in the renewable energy sector to also include smart transmission and distribution facilities, smart grids and utilization of new energy related technologies.

North Korea

Kaesong Complex

Since 2005, we have provided electricity to the industrial complex located in Kaesong, North Korea, which was established pursuant to an agreement made during the summit meeting of the two Koreas in June 2000. The Kaesong complex is the largest economic project between the two Koreas and is designed to combine the Republic’s capital and entrepreneurial expertise with the availability of land and labor of North Korea. In March 2005, we built a 22.9 kilovolt distribution line from Munsan substation in Paju, Gyeonggi Province to the Kaesong complex and became the first to supply electricity to pilot zones such as ShinWon Ebenezer. In April 2006, we started to construct a 154 kilovolt, 16 kilometer transmission line connecting Munsan substation to the Kaesong complex as well as Pyunghwa substation in the complex and began operations in May 2007.

At the end of 2015, we supplied electricity to 254 units, including administrative agencies, support facilities and resident corporations, using a tariff structure identical to that of South Korea. However, we suspended power transmission to the Kaesong Industrial Complex since February 11, 2016 following the Government’s decision to

 

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halt operations of the industrial complex to impede North Korea’s utilization of funds from the industrial complex to finance its nuclear and missile programs. No assurance can be given that we will not experience any material losses as a result of the suspension of this project or failure of the project as a result of a breakdown or escalation of hostilities in the relationship between the Republic and North Korea. See Item 3.D. “Risk Factors—Risks Relating to Korea and the Global Economy—Tensions with North Korea could have an adverse effect on us and the market value of our shares.”

Insurance

We and our generation subsidiaries carry insurance covering against certain risks, including fire, in respect of key assets, including buildings, equipment, machinery, construction-in-progress and procurement in transit, as well as, in the case of us, directors’ and officers’ liability insurance. We and our generation subsidiaries maintain casualty and liability insurance against risks related to our business to the extent we consider appropriate. Other than KHNP, neither we nor our generation subsidiaries separately insure against terrorist attacks. These insurance and indemnity policies, however, cover only a portion of the assets that we own and operate and do not cover all types or amounts of loss that could arise in connection with the ownership and operation of these assets.

Substantial liability may result from the operations of our nuclear generation units, the use and handling of nuclear fuel and possible radioactive emissions associated with such nuclear fuel. KHNP maintains property and liability insurance against risks of its business to the extent required by the related law and regulations or considered as appropriate and otherwise self-insures against such risks. KHNP carries insurance for its generation units against certain risks, including property damage, nuclear fuel transportation and liability insurance for personal injury and property damage. KHNP carries property damage insurance covering up to US$1 billion per accident for all properties within its plant complexes, which includes property insurance coverage for acts of terrorism up to US$300 million and for breakdown of machinery up to US$300 million. In addition to the insurance on operating nuclear power generation units, KHNP has construction insurance for Shin-Kori #4, #5 and #6 and Shin-Hanul #1 and #2. KHNP maintains nuclear liability insurance for personal injury and third-party property damage for coverage of up to 300 million Special Drawing Rights, or SDRs, which amounts to approximately US$418 million, at the rate of 1 SDR = US$1.393380 as posted on the Internet homepage of the International Monetary Fund on July 29, 2016 per plant complex, for a total coverage of 1.5 billion SDRs. KHNP is also the beneficiary of a Government indemnity with respect to such risks for damage claims of up to Won 300 million SDRs per nuclear plant complex, for a total coverage of 1.5 billion SDRs. Under the Nuclear Damage Compensation Act of 1969, as amended, KHNP is liable only up to 300 million SDRs, per single accident per plant complex; provided that such limitation will not apply where KHNP intentionally causes harm or knowingly fails to prevent the harm from occurring. KHNP will receive the Government’s support, subject to the approval of the National Assembly, if (i) the damages exceed the insurance coverage amount of 300 million SDRs and (ii) the Government deems such support to be necessary for the purposes of protecting damaged persons and supporting the development of nuclear energy business. KHNP carries insurance for its generation units and nuclear fuel transportation, and we believe that the level of insurance is generally adequate and is in compliance with relevant laws and regulations. In addition, KHNP is the beneficiary of Government indemnity which covers a portion of liability in excess of the insurance. However, such insurance is limited in terms of amount and scope of coverage and does not cover all types or amounts of losses which could arise in connection with the ownership and operation of nuclear plants. Accordingly, material adverse financial consequences could result from a serious accident or a natural disaster to the extent it is neither insured nor covered by the government indemnity. See Item 3.D. “Risk Factors—Risks Relating to KEPCO—The amount and scope of coverage of our insurance are limited.”

Competition

As of December 31, 2016, we and our generation subsidiaries owned approximately 74.7% of the total electricity generation capacity in Korea (excluding plants generating electricity for private or emergency use). New entrants to the electricity business will erode our market share and create significant competition, which could have a material adverse impact on our financial condition and results of operations.

 

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In particular, we compete with independent power producers with respect to electricity generation. The independent power producers accounted for 19.3% of total power generation in 2016 and 25.3% of total generation capacity as of December 31, 2016. As of December 31, 2016, there were 17 independent power producers in Korea, excluding renewable energy producers. Private enterprises became permitted to own and operate coal-fired power plants in Korea only after the Ministry of Trade, Industry and Energy approved plans for independent power producers to construct coal-fired power plants under the Sixth Basic Plan announced in February 2013. Under the Seventh Basic Plan announced in July 2015 as subsequently amended, eight coal-fired units with aggregate generation capacity of 7,420 megawatts are scheduled to be completed between 2017 and 2022, currently with no further plans for construction of coal-fired power plants by independent power producers beyond 2022. While it remains to be seen whether construction of these generation units will be completed as scheduled, if these units were to be completed as scheduled and/or independent power producers are permitted to build additional generation capacity (whether coal-fired or not), our market share in Korea may decrease, which may have a material adverse effect on our results of operations and financial condition.

In addition, under the Community Energy System adopted by the Government in 2004, a minimal amount of electricity is supplied directly to consumers on a localized basis by independent power producers outside the cost-based pool system used by our generation subsidiaries and most independent power producers to distribute electricity nationwide. The purpose of this system is to geographically decentralize electricity supply and thereby reduce transmission losses and improve the efficiency of energy use. These entities do not supply electricity on a national level but are licensed to supply electricity on a limited basis to their respective districts under the Community Energy System. As of March 31, 2017, the aggregate generation capacity of suppliers participating in the Community Energy System amounted to less than 1% of that of our generation subsidiaries in the aggregate. We currently do not expect the Community Energy System to be widely adopted, especially in light of the significant level of capital expenditure required for such direct supply. However, if the Community Energy System is widely adopted, it may erode our currently dominant market position in the generation and distribution of electricity in Korea and may have a material adverse effect on our business, results of operations and financial condition.

Our market dominance in the electricity distribution in Korea also may face potential erosion in light of the recent Proposal for Adjustment of Functions of Public Institutions (Energy Sector) announced by the Government in June 2016. This proposal contemplates a gradual opening of the electricity trading market to the private sector although no detailed roadmap has been provided for such opening. It is currently premature to predict to what extent, or in what direction, the liberalization of the electricity trading market will happen. Nonetheless, any significant liberalization of the electricity trading market may result in substantial reduction of our market share in electricity distribution in Korea, which would have a material adverse effect on our business, results of operation and cash flows.

The electric power industry, which began its liberalization process with the establishment of our power generation subsidiaries in April 2001, may become further liberalized in accordance with the Restructuring Plan. See Item 4.B. “Business Overview—Restructuring of the Electric Power Industry in Korea.”

In the residential sector, consumers may use natural gas, oil and coal for space and water heating and cooking. However, currently there is no practical substitute for electricity for lighting and other household appliances, which is available on commercially affordable terms.

In the commercial sector, electricity is the dominant energy source for lighting, office equipment and air conditioning. For its other uses, such as space and water heating, natural gas and, to a lesser extent, oil, provide competitive alternatives to electricity.

In the industrial sector, electricity is the dominant energy source for a number of industrial applications, including lighting and power for many types of industrial machinery and processes that are available on commercially affordable terms. For other uses, such as heating, electricity competes with oil and natural gas and potentially with gas-fired combined heating and power plants.

 

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Regulation

We are a statutory juridical corporation established under the KEPCO Act for the purpose of ensuring a stable supply of electric power and further contributing toward the sound development of the national economy through facilitating development of electric power resources and carrying out proper and effective operation of the electricity business. The KEPCO Act (including the amendment thereto) prescribes that we engage in the following activities:

 

  1. development of electric power resources;

 

  2. generation, transmission, transformation and distribution of electricity and other related business activities;

 

  3. research and development of technology related to the businesses mentioned in items 1 and 2;

 

  4. overseas businesses related to the businesses mentioned in items 1 through 3;

 

  5. investments or contributions related to the businesses mentioned in items 1 through 4;

 

  6. businesses incidental to items 1 through 5;

 

  7. Development and operation of certain real estate held by us to the extent that:

 

  a. it is necessary to develop certain real estate held by us due to external factors, such as relocation, consolidation, conversion to indoor or underground facilities or deterioration of our substation or office; or

 

  b. it is necessary to develop certain real estate held by us to accommodate development of relevant real estate due to such real estate being incorporated into or being adjacent to an area under planned urban development; and

 

  8. other activities entrusted by the Government.

The KEPCO Act currently requires that our profits be applied in the following order of priority:

 

   

first, to make up any accumulated deficit;

 

   

second, to set aside 20.0% or more of profits as a legal reserve until the accumulated reserve reaches one-half of our capital;

 

   

third, to pay dividends to shareholders;

 

   

fourth, to set aside a reserve for expansion of our business;

 

   

fifth, to set aside a voluntary reserve for the equalization of dividends; and

 

   

sixth, to carry forward surplus profit.

As of December 31, 2016, the legal reserve was Won 1,605 billion and the voluntary reserve was Won 31,847 billion, which consisted of reserve for business expansion of Won 26,030 billion, reserve for investment in social overhead capital of Won 5,277 billion, reserve for research and human development of Won 330 billion and reserve for equalizing dividends of Won 210 billion.

We are under the supervision of the Ministry of Trade, Industry and Energy, which has principal supervisory responsibility (in consultation with other Government agencies, such as the Ministry of Strategy and Finance, as applicable) over us with respect to the appointments of our directors and our other senior management as well as approval of electricity tariff rate adjustments, among others.

Because the Government owns part of our capital stock, the Government’s Board of Audit and Inspection may audit our books.

 

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The Electricity Business Act requires that licenses be obtained in relation to generation, transmission, distribution and sales of electricity, with limited exceptions. We hold the license to generate, transmit, distribute and sell electricity. Each of our six generation subsidiaries holds an electricity generation license. The Electricity Business Act governs the formulation and approval of electricity rates in Korea. See “—Sales and Customers—Electricity Rates” above.

Our operations are subject to various laws and regulations relating to environmental protection and safety.

Debt Reduction Program and Related Activities

In 2014, in light of the general policy guideline of the Government for public institutions (including us and our generation subsidiaries) to reduce their respective overall debt levels, we and our generation subsidiaries have, in consultation with the Ministry of Trade, Industry and Energy and as approved by the Public Agencies Operating Committee  in June 2014, set target debt-to-equity levels to be met by the end of 2017 and undertaken various programs to reduce debt and improve the overall financial health, including through rationalizing and applying stricter review to (from a profitability and efficiency perspective) various aspects of our operations (both domestic and overseas), inviting private sector investments, disposing of non-core assets (such as non-core or loss-generating overseas operations and real property unrelated to operations), reducing costs, exploring alternative ways to generate additional revenue and developing contingency plans for further cost savings.

The following table summarizes the debt-to-equity ratio targets to be met by the end of 2017 and some of the actions that we and our generation subsidiaries have undertaken or plan to undertake as part of such debt reduction program.

 

Entity

  

Target Debt-to-
Equity Level (1)

  

Actual Debt-to-Equity Level (1)

  

Other Related Activities

KEPCO

   92% by 2017    99.9% as of December 31, 2015; 89.9% as of December 31, 2016   

-   Proposed sale of shares in KPS

 

-   Sale of its overseas resource development assets to its generation subsidiaries

KHNP

   110% by 2017    117% as of December 31, 2015; 108% as of December 31, 2016   

-   Stricter review of new business projects

 

-   Rationalization of the procurement process and other budget reduction efforts

EWP

   107% by 2017    121% as of December 31, 2015; 101% as of December 31, 2016   

-   Proposed sale of shares in GS Donghae Electric Power Co., Ltd. and six other domestic and overseas companies

KOMIPO

   170% by 2017    149% as of December 31, 2015; 152% as of December 31, 2016   

-   Construction project coordination

 

-   Cost savings and other efficiency improvement efforts

KOSEP

   129% by 2017    111% as of December 31, 2015;101% as of December 31, 2016   

-   Cost savings and budget reduction efforts

 

-   Discovering new business profit models

KOSPO

   143% by 2017    150% as of December 31, 2015; 139% as of December 31, 2016   

-   Proposed sale of real properties that yield no revenues

KOWEPO

   153% by 2017    164% as of December 31, 2015; 150% as of December 31, 2016   

-   Proposed sale of equity interests in Dongducheon Dream Power

 

-   Obtaining private sector investment in Pyeongtaek combined cycle #3

 

-   Accelerated construction of generation units

 

Note:

 

(1) Computed on a separate basis for KEPCO, EWP, and KOSPO.

 

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Despite our best efforts, however, for reasons beyond our control, including macroeconomic environments, government regulations and market forces (such as international market prices for our fuels), we cannot assure whether we or our generation subsidiaries will be able to successfully reduce debt burdens or otherwise improve our financial health to a level contemplated by the Government or to a level that would be optimal for our capital structure. If we or our generation subsidiaries fail to do so or the measures taken by us or our generation subsidiaries to reduce debt levels or improve financial health have unintended adverse consequences, such developments may have an adverse effect on our business, results of operations and financial condition.

Proposed Sale of Certain Power Plants and Equity Interests

The following table summarizes our current plans for sale of certain of our assets. These sales will be made pursuant to the Government’s plans to reduce debt levels and improve management efficiency of public enterprises. The consummation of these plans, however, is subject to, among others, related Government policies and market conditions.

 

Equity Holdings

 

Primary Business

  Fair  Value (1)
as of December 31,
2016
    Ownership
Percentage as of
December 31, 2016
    Ownership
Percentage

to  be Sold
 
        (in billions of Won)              

KEPCO Plant Service & Engineering Co., Ltd

  Utility plant maintenance     1,244       51.0     —    

KEPCO Engineering & Construction Co., Inc.

  Architectural engineering for utility plants     595       65.77     14.77

Korea Electric Power Industrial Development Co., Ltd.

  Electricity metering     45       29.00     29.00

 

Note:

 

(1) Fair value has been computed as the product of the closing share price on December 31, 2016 multiplied by the number of outstanding shares.

KEPCO Plant Service & Engineering Co., Ltd.

In December 2007, we completed the initial public offering of KEPCO KPS, formerly our wholly-owned subsidiary, by listing approximately 20.0% of its equity interest on the Korea Stock Exchange. Pursuant to the Public Institution Reform Plan, we sold through block sales to third party investors an aggregate of 29% shares in KEPCO KPS on various occasions during the period from December 2012 to November 2016. Following such sale, we hold a 51.0% equity interest in KEPCO KPS. We currently do not have plans to further reduce our equity interest in KEPCO KPS.

KEPCO Engineering & Construction Co., Inc.

Pursuant to the Third Phase of the Public Institution Reform Plan announced by the Government in August 2008, we conducted the initial public offering of Korea Engineering and Construction Co., Inc., or KEPCO E&C formerly known as Korea Power Engineering Co., Ltd., in December 2009 for gross proceeds to us of Won 165 billion, following which we owned 77.9% of KEPCO E&C’s shares. In furtherance of the Public Institution Reform Plan and to improve our financial profile, we sold our equity interests representing 3.1%, 4.0%, 4.5% and 0.54% of KEPCO E&C shares in November 2011, December 2013, December 2014 and December 2016, respectively, in each case to third party investors. We currently hold a 65.77% equity interest in KEPCO E&C.

Korea Electric Power Industrial Development Co., Ltd.

In 2003, we privatized Korea Electric Power Industrial Development, or KEPID, formerly our wholly-owned subsidiary, by selling 51.0% of its equity interest to Korea Freedom Federation. Pursuant to the Fifth

 

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Phase of the Public Institution Reform Plan announced by the Government in 2009, we sold 20% of the KEPID shares through additional listing. We currently plan to sell the remaining 29.0% of KEPID’s equity interest based on, among others, considerations of economic and market conditions.

Item 4.C. Organizational Structure

As of December 31, 2016, we had 87 subsidiaries, 57 associates and 41 joint ventures (not including any special purpose entities).

Subsidiaries

Our wholly-owned six generation subsidiaries are KHNP, KOSEP, KOMIPO, KOWEPO, KOSPO and EWP. Our non-generation subsidiaries include KEPCO E&C, KEPCO KPS, KEPCO NF, and KEPCO KDN. For a full list of our subsidiaries, including foreign subsidiaries, and their respective jurisdiction of incorporation, please see Exhibit 8.1 attached to this annual report.

Associates and Joint Ventures

An associate is an entity over which we have significant influence and that is neither a subsidiary nor a joint venture. Significant influence is the power to participate in the financial and operating policy decisions of the investee but does not have control or joint control over those policies. A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement (i.e. joint ventures) have rights to the net assets of the arrangement.

The table below sets forth each of our associates and joint ventures as of December 31, 2016 by name, the percentage of our shareholdings and their principal activities.

 

    Ownership
(Percent)
    

Principal Activities

Associates:

    

Korea Gas Corporation (1)

    20      Importing and wholesaling LNG

Korea Electric Power Industrial Development Co., Ltd.

    29      Electricity metering

YTN Co., Ltd.

    21      Broadcasting

Cheongna Energy Co., Ltd.

    44      Generating and distributing vapor and hot/cold water

Gangwon Wind Power Co., Ltd. (2)

    15      Power generation

Hyundai Green Power Co., Ltd.

    29      Power generation

AMEC Partners Korea Ltd. (3)

    19      Resources development

KNOC Nigerian East Oil Co., Ltd. (4)

    15      Resources development

KNOC Nigerian West Oil Co., Ltd. (4)

    15      Resources development

Korea Power Exchange (6)

    100      Management of power market

Pioneer Gas Power Limited (8)

    40      Power generation

Hyundai Energy Co., Ltd. (9)

    31      Power generation

Ecollite Co., Ltd.

    36      Artificial light-weight aggregate

Taebaek Wind Power Co., Ltd.

    25      Power generation

Taeback Guinemi Wind Power Co., Ltd. (formerly, Muju Wind Power Co., Ltd.)

    25      Power generation

Pyeongchang Wind Power Co., Ltd.

    25      Power generation

Daeryun Power Co., Ltd. (3)(10)

    13      Power generation

Changjuk Wind Power Co., Ltd.

    30      Power generation

KNH Solar Co., Ltd.

    27      Power generation

 

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    Ownership
(Percent)
    

Principal Activities

SPC Power Corporation

    38      Power generation

Gemeng International Energy Co., Ltd.

    34      Power generation

PT. Cirebon Electric Power

    28      Power generation

PT Wampu Electric Power

    46      Power generation

PT. Bayan Resources TBK

    20      Resources development

S-Power Co., Ltd.

    49      Power generation

Eurasia Energy Holdings

    40      Power generation and resources development

Xe-Pian Xe-Namnoy Power Co., Ltd.

    25      Power generation

Samcheok Eco Materials Co., Ltd. (3) (11)

    2      Recycling fly ashes

Green Biomass Co., Ltd. (12)

    14      Power generation

Korea Electric Power Corporation Fund (13)

    98      Developing electric enterprises

Nepal Water & Energy Development Company Private Limited (14)

    53      Construction and operation of utility plant

Hadong Mineral Fiber Co., Ltd. (17)

    8      Recycling fly ashes

PT. Mutiara Jawa

    29      Manufacturing and operating floating coal terminal

Noeul Green Energy Co., Ltd.

    29      Power generation

Naepo Green Energy Co., Ltd.

    25      Power generation

Goseong Green Energy Co., Ltd. (2)

    1      Power generation

Gangneung Eco Power Co., Ltd. (2)

    2      Power generation

Shin Pyeongtaek Power Co., Ltd.

    40      Power generation

Heang Bok Do Si Photovoltaic Power Co., Ltd.

    28      Power generation

DS POWER Co., Ltd. (2)

    14      Power generation

Dongducheon Dream Power Co., Ltd.

    34      Power generation

KS Solar Co., Ltd. (3)

    19      Power generation

Yeongwol Energy Station Co., Ltd. (2)

    10      Power generation

Jinbhuvish Power Generation Pvt. Ltd. (2)

    5      Power generation

SE Green Energy Co., Ltd.

    48      Power generation support

Daegu Photovoltaic Co., Ltd.

    29      Power generation

Jeongam Wind Power Co., Ltd.

    40      Power generation

Korea Power Engineering Service Co., Ltd.

    29      Construction and service

Busan Green Energy Co., Ltd.

    29      Power generation

Jungbu Bio Energy Co., Ltd. (2)

    19      Power generation

Korea Electric Vehicle Charging Service

    28      Electric vehicle charge service

Ulleungdo Natural Energy Co., Ltd.

    30      Renewable power generation

Korea Nuclear Partners Co., Ltd.

    29      Electric material agency

Tamra Offshore Wind Power Co., Ltd.

    27      Power generation

Energy Infra Asset Management Co., Ltd. (3)

    10      Asset management

Daegu clean Energy Co., Ltd.

    28      Renewable power generation

YaksuESS Co., Ltd

    29      Installing ESS related equipment

Joint Ventures:

    

Canada Korea Uranium Limited Partnership (5)

    13      Resources development

KEPCO-Uhde Inc. (7)

    53      Power generation

Eco Biomass Energy Sdn. Bhd. (7)

    62      Power generation

Datang Chaoyang Renewable Power Co., Ltd.

    40      Power generation

Shuweihat Asia Power Investment B.V.

    49      Holding company

Shuweihat Asia Operation & Maintenance Company (7)

    55      Maintenance of utility plant

Waterbury Lake Uranium L.P.

    37      Resources development

 

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    Ownership
(Percent)
    

Principal Activities

ASM-BG Investicii AD

    50      Power generation

RES Technology AD

    50      Power generation

KV Holdings, Inc.

    40      Power generation

KEPCO SPC Power Corporation (7)

    75      Construction and operation of utility plant

Gansu Datang Yumen Wind Power Co., Ltd.

    40      Power generation

Datang Chifeng Renewable Power Co., Ltd.

    40      Power generation

Datang KEPCO Chaoyang Renewable Power Co., Ltd.

    40      Power generation

Rabigh Electricity Company

    40      Power generation

Rabigh Operation & Maintenance Company

    40      Maintenance of utility plant

Jamaica Public Service Company Limited

    40      Power generation

KW Nuclear Components Co., Ltd.

    45      Manufacturing

Busan Shinho Solar Power Co., Ltd.

    25      Power generation

GS Donghae Electric Power Co., Ltd.

    34      Power generation

Global Trade Of Power System Co., Ltd.

    29      Exporting products and technology of small or medium business by proxy

Expressway Solar-light Power Generation Co., Ltd.

    29      Power generation

KODE NOVUS I LLC

    50      Power generation

KODE NOVUS II LLC

    50      Power generation

Daejung Offshore Wind Power Co., Ltd.

    50      Power generation

Amman Asia Electric Power Company (7)

    60      Power generation
KAPES, Inc. (formerly, KEPCO-ALSTOM Power Electronics Systems, Inc.) (7)     51      R&D

Dangjin Eco Power Co., Ltd.

    34      Power generation

Honam Wind Power Co., Ltd.

    29      Power generation

Chun-cheon Energy Co., Ltd.

    30      Power generation

Yeonggwangbaeksu Wind Power Co., Ltd. (3)

    15      Power generation

Nghi Son 2 Power Ltd.

    50      Power generation

Kelar S.A (7)

    65      Power generation

PT. Tanjung Power Indonesia

    35      Power generation

Incheon New Power Co., Ltd.

    29      Power generation

Seokmun Energy Co., Ltd.

    29      Power generation

Daehan Wind Power PSC

    50      Power generation

Daegu Green Power Co., Ltd. (15)

    29      Power generation

Barakah One Company (16)

    18      Power generation

Nawah Energy Company (16)

    18      Operation of utility plant

Momentum

    33      International thermonuclear experimental reactor construction management

 

Notes:

 

(1) The effective percentage of ownership (excluding the treasury stocks) is 21.57%.
(2) We can exercise significant influence by virtue of our contractual right to appoint directors to the board of directors of this entity, and by strict decision criteria of our financial and operating policy of the board of directors.
(3) We can exercise significant influence by virtue of our contractual right to appoint a director to the board of directors of this entity.
(4) We can exercise significant influence by virtue of our contractual right to appoint one out of four members of the steering committee of this entity. Moreover, we have significant financial transactions with this entity to the effect that we can exercise significant influence on this entity.
(5) We have joint control on the associates by virtue of our contractual right to appoint directors to the board of directors of this entity, and by strict decision criteria of our financial and operating policy of the board of directors.

 

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(6) The Government regulates our ability to make operating and financial decisions over the entity, as the Government requires maintaining arms-length transactions between the Korea Power Exchange and our other subsidiaries. We can exercise significant influence by our right to nominate directors to the board of directors of this entity.
(7) According to the shareholder agreement, all critical financial and operating decisions must be agreed to by all ownership parties. For these reasons, these entities are classified as joint ventures.
(8) The reporting period of all associates and joint ventures ends in December 31, except for Pioneer Gas Power Limited whose reporting period ends on March 31.
(9) As of December 31, 2016, 15.64% of ownership of Hyundai Energy Co., Ltd. was held by NH Power II Co., Ltd. and NH Bank. According to the shareholders’ agreement reached on March 2011, not only do we have a call option to acquire the investment in Hyundai Energy Co., Ltd. from NH Power II Co., Ltd. and NH Bank upon a certain rate of return, NH Power II Co., Ltd. and NH Bank also have put options to dispose of their investment to us. In connection with this agreement, we applied the equity method on our 46.30% equity investment in Hyundai Energy Co., Ltd.
(10) Following the merger of Daeryun Energy Co., Ltd. into Daeryun Power Co., Ltd., its parent, our effective percentage of ownership decreased to 19.45% after accounting for stock purchase options.
(11) Our effective percentage of ownership (excluding the redeemable convertible preferred shares) is 25.54%.
(12) Our effective percentage of ownership is less than 20%, but we can exercise significant influence by virtue of our contractual right to appoint a director to the board of directors of this entity and the fact that a dominant portion of the investee’s sales transactions is generated from us.
(13) Our effective percentage of ownership is more than 50% but we do not hold control over relevant business while we exercise significant influence by participating in the Investment Decision Committee. For this reason, this entity is classified as an associate.
(14) Our effective percentage of ownership is more than 50%, but we do not control this entity according to the shareholders’ agreement. For this reason, this entity is classified as an associate.
(15) This entity is reclassified from associates to joint ventures since the terms of the shareholders’ agreement had been amended.
(16) Our effective percentage of ownership is less than 20%, but we have joint control over this entity as decisions on the major activities require the unanimous consent of the parties that collectively control the entity.
(17) Although our percentage of ownership temporarily decreased to 8.33% from the difference in timing of capital payment by shareholders, we can exercise significant influence by virtue of our right to appoint a director to the board of directors of this entity based on the shareholders’ agreement. Our percentage of ownership is 25.00% at the time of completion of capital payment.

Item 4.D. Property, Plant and Equipment

Our property consists mainly of power generation, transmission and distribution equipment and facilities in Korea. See Item 4.B. “Business Overview—Power Generation,” “—Transmission and Distribution” and “—Capital Investment Program.” In addition, we own our corporate headquarters building complex at 55 Jeollyeok-ro, Naju-si, Jeollanam-do, 58217, Korea. As of December 31, 2016, the net book value of our property, plant and equipment was Won 145,743 billion. As of December 31, 2016, investment property, which is accounted for separately from our property, plant and equipment, amounted to Won 354 billion. No significant amount of our properties is leased. There are no material encumbrances on our properties, including power generation, transmission and distribution equipment and facilities.

Pursuant to a Government plan announced in 2005, which mandated relocation of the headquarters of select government-invested enterprises from the Seoul metropolitan area to other provinces in Korea as part of an initiative to foster balanced economic growth in the provinces, we, our generation subsidiaries and our certain subsidiaries relocated our respective headquarters to the designated locations during 2014 and 2015. Our headquarters are currently located in Naju in Jeollanam-do Province while the headquarters of our six generation subsidiaries and other subsidiaries are various cities outside of Seoul across Korea.

 

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In connection with the relocation of our headquarters, in September 2014 we entered into an agreement to sell the property housing our prior headquarters to a consortium consisting of members of the Hyundai Motor group for Won 10,550 billion through an open bidding. The sale was completed in September 2015.

During 2016, we completed the sales of 117 properties (including residential properties, storage spaces, and substation lots that are located in Korea) which are not directly related to our operations for an aggregate sale price of approximately Won 36 billion. The book value of such properties amounted to Won 18 billion, representing 0.2% of our total assets as of December 31, 2016. The foregoing sales reflect our ongoing efforts to improve our financial soundness through debt reduction and enhance our management efficiency, selling noncore properties that have no direct relations to electricity facilities.

 

ITEM 4A. UNRESOLVED STAFF COMMENTS

We do not have any unresolved comments from the SEC staff regarding our periodic reports under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

 

ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

You should read the following discussion on our operating and financial review and prospects together with our consolidated financial statements and the related notes which appear elsewhere in this annual report. Our results of operations, financial condition and cash flows may materially change from time to time, for reasons including various policy initiatives (including changes to the Restructuring Plan) by the Government in relation to the Korean electric power industry, and accordingly our historical performance may not be indicative of our future performance. See Item 4.B. “Business Overview—Restructuring of the Electric Power Industry in Korea” and Item 3D. “Risk Factors—The Government may adopt policy measures to substantially restructure the Korean electric power industry or our operational structure, which may have a material adverse effect on our business, operations and profitability.”

Item 5.A. Operating Results

Overview

We are a predominant market participant in the Korean electric power industry, and our business is heavily regulated by the Government, including with respect to the rates we charge to customers for the electricity we sell. In addition, our business requires a high level of capital expenditures for the construction of electricity generation, transmission and distribution facilities and is subject to a number of variable factors, including demand for electricity in Korea and fluctuations in fuel costs, which are in turn impacted by the movements in the exchange rates between the Won and other currencies.

Under the Electricity Business Act and the Price Stabilization Act, the Government generally establishes electricity rates at levels that are expected to permit us to recover our operating costs attributable to our basic electricity generation, transmission and distribution operations in addition to receiving a fair investment return on capital used in those operations. For a detailed description of the fair investment return, see Item 4.B. “Business Overview—Sales and Customers—Electricity Rates.” From 2014 to 2015, largely due to the general decline of fuel prices, relatively stable exchange rates,, the sale of the properties in our previous headquarters and the greater use of coal relative to LNG (the former being a cheaper source of fuel) as a proportion of the fuels used to produce electricity, our gross profit, operating profit and net profit increased significantly.

If fuel prices were to rise substantially and rapidly in the future, such rise may have a material adverse effect on our results of operations and profitability. In part to address these concerns, the Government from time to time increases the electricity tariff rates. However, such increases may be insufficient to fully offset the adverse impact from the rise in fuel costs, and since such increases typically require lengthy public deliberations in order

 

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to be implemented, the tariff increases often occur with a significant time lag and as a result our results of operations and cash flows may suffer. On the other hand, if fuel prices decrease, substantial political pressure may lead the Government to lower the level of electricity tariff in a relatively shorter period of time due to the lack of public opposition, which could negatively affect our profit margins and in turn our financial condition and results of operations.

The results of our operations are largely affected by the following factors:

 

   

demand for electricity;

 

   

electricity rates we charge to our customers;

 

   

fuel costs; and

 

   

the exchange rates of Won against other foreign currencies, in particular the U.S. dollar.

Demand for Electricity

Our sales are largely dependent on the level of demand for electricity in Korea and the rates we charge for the electricity we sell.

Demand for electricity in Korea grew at a compounded average rate of 1.6% per annum for the five years ended December 31, 2016. According to the Bank of Korea, the compounded growth rate for GDP was approximately 3.0% for the same period. The GDP growth rate was approximately 3.3%, 2.8% and 2.8% during 2014, 2015 and 2016, respectively.

The table below sets forth, for the periods indicated, the annual rate of growth in Korea’s GDP and the annual rate of growth in electricity demand (measured by total annual electricity consumption) on a year-on-year basis.

 

         2012             2013             2014             2015             2016      

Growth in GDP

     2.3     2.9     3.3     2.8     2.8

Growth in electricity consumption

     2.5     1.8     0.6     1.3     2.8

Demand for electricity may be categorized either by the type of its usage or by the type of customers. The following describes the demand for electricity by the type of its usage, namely, industrial, commercial and residential:

 

   

The industrial sector represents the largest segment of electricity consumption in Korea. Demand for electricity from the industrial sector was 278,828 gigawatt hours in 2016, representing a 1.9% increase from 2015, largely due to the turnaround in industries such as semiconductors, chemicals and petrochemicals that are heavy users of electricity.

 

   

Demand for electricity from the commercial sector depends largely on the level and scope of commercial activities in Korea, which in recent years have resulted in increased office building construction, office automation and use of air conditioners. Demand for electricity from the commercial sector increased to 108,617 gigawatt hours in 2016, representing a 4.8% increase from 2015 largely due to a rebound in the domestic economy and increased air conditioning use in commercial buildings during the summer.

 

   

Demand for electricity from the residential sector is largely dependent on population growth and use of heaters, air conditioners and other electronic appliances. In 2016, we distributed electricity to approximately 22 million households, which represent substantially all of the households in Korea. Demand for electricity from the residential sector increased to 68,057 gigawatt hours in 2016, representing a 3.7% increase compared to 2015, largely due to the opening of new urban clusters with large-scale residential complexes as well as increased air conditioning use in residential buildings during the summer.

 

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For a discussion on demand by the type of customers, see Item 4.B.. “Business Overview—Sales and Customers—Demand by the Type of Usage.”

Since our inception, we have had the predominant market share in terms of electricity generated in Korea. As for electricity we purchase from the market for transmission and distribution to our end-users, our generation subsidiaries accounted for 86.2%, 83.3% and 81.5% in 2014, 2015 and 2016, respectively, while the remainder was accounted for by independent power producers. As for transmission and distribution of electricity, we have historically handled, expect to continue to handle, substantially all of such activities in Korea.

We expect that we will continue to have a dominant market share in the generation, transmission and distribution of electricity in Korea for the foreseeable future, absent any substantial changes to the Restructuring Plan or other policy initiatives by the Government in relation to the Korean electric power industry, or an unexpected level of market penetration by independent power producers or localized electricity suppliers under the Community Energy System. However, our market dominance in the electricity distribution in Korea may face potential erosion in light of the recent Proposal for Adjustment of Functions of Public Institutions (Energy Sector) announced by the Government in June 2016. This proposal contemplates a gradual opening of the electricity trading market to the private sector although no detailed roadmap has been provided for such opening. It is currently premature to predict to what extent, or in what direction, the liberalization of the electricity trading market will happen. Nonetheless, any significant liberalization of the electricity trading market may result in substantial reduction of our market share in electricity distribution in Korea, which would have a material adverse effect on our business, results of operation and cash flows. See Item 4.B. “Business Overview—Competition.”

Electricity Rates

Under the Electricity Business Act and the Price Stabilization Act, electricity rates are established at levels that will permit us to recover our operating costs attributable to our basic electricity generation, transmission and distribution operations in addition to receiving a fair investment return on capital used in those operations. For further discussion of fair investment return, see Item 4.B. “Business Overview—Sales and Customers—Electricity Rates.”

From time to time, our actual rate of return on invested capital may differ significantly from the fair rate of return on invested capital assumed for the purposes of electricity tariff approvals, for reasons, among others, related to movements in fuel prices, exchange rates and demand for electricity that differs from what is assumed for determining our fair rate of return. For example, between 1987 and 1990, the actual rate of return was above the fair rate of return due to declining fuel costs and rising demand for electricity. In contrast, depreciation of the Won against the U.S. dollar accounted for our actual rates of return being lower than the fair rate of return for the period from 1996 to 2000. Partly in response to the variance between our actual rates of return and the fair rate of return, the Government from time to time increases the electricity tariff rates, but there typically is a significant time lag for the tariff increase as such increase requires a series of deliberative processes and administrative procedures and the Government also has to consider other policy considerations, such as the inflationary effect of overall tariff increases and the efficiency of energy use through sector-specific tariff increases. For the period between 2006 and 2013, our actual rates of return were lower than the fair rate of return largely due to a general increase in fuel costs and additional facility investment costs incurred, the effects of which were not offset by timely increases in our tariff rates. Since 2014, however, largely due to the decrease in fuel costs reflective of the drop in oil prices, our actual rate of return has surpassed the fair rate of return; however, substantially all of the resulting excess has been used to fund capital expenditure and repair and maintenance, as well as to offer tariff discounts to economically or otherwise disadvantaged households, and investments in renewable energy and other environmental programs.

Partly in response to the variance between our actual rates of return and the fair rates of return, the Government from time to time increases the electricity tariff rates, but there typically is a significant time lag for

 

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the tariff increases as such increases requires a series of deliberative processes and administrative procedures and the Government also has to consider other policy considerations, such as the inflationary effect of overall tariff increases and the efficiency of energy use from sector-specific tariff increases.

In the past, the Government effected tariff increases that typically covered all sectors, namely, residential, commercial and industrial. No cross-sector tariff increase has been implemented since November 2013, largely due to the downward trend in fuel costs. However, effective January 1, 2017, the Government made several adjustments to the existing rate structure in order to ease the burden of electricity tariff on residential consumers as well as promote the use of renewable energy. First, the progressive rate structure applicable to the residential sector, which applies a gradient of increasing tariff rates for heavier electricity usage, was changed from a six-tiered structure with the highest rate being no more than 11.7 times the lowest rate (which gradient system has been in place since 2005) into a three-tiered structure with the highest rate being no more than three times the lowest rate in order to reflect the changes in the pattern of electricity consumption and reduce the electricity charges payable by consumers. Second, the new tariff structure encourages energy saving by offering rate discounts to residential consumers that voluntarily reduce electricity consumption while charging special high rates to residential consumers with heavy electricity consumption during peak usage periods during the summer and the winter. Third, a temporary rate discount will apply during 2017 to 2019 to investments in environmentally friendly facilities such as energy storage systems, renewable energy and electric cars. Such adjustments may lower our revenues from the sale of electricity and accordingly have a material adverse effect on our results of operation, financial condition and cash flows.

Fuel Costs

Our results of operations are also significantly affected by the cost of producing electricity, which is subject to a variety of factors, including, in particular, the cost of fuel.

Cost of fuel in any given year is a function of the volume of fuels consumed and the unit fuel cost for the various types of fuel used for generation of electricity which affects the cost structure for both our generation subsidiaries and independent power producers from whom we purchase electric power. A significant change in the unit fuel costs materially impacts the costs of electricity generated by our generation subsidiaries, which mainly comprise our fuel costs under the cost of sales, as well as, to our knowledge, the costs of electricity generated by the independent power producers that sell their electricity to us (see Item 4.A. “Purchase of Electricity—Cost-based Pool System”), which mainly comprise our purchased power costs under the cost of sales. We are however unable to provide a comparative analysis since the unit fuel cost information for independent power producers and their cost structures are proprietary information.

Fuel costs constituted 41.4%, 33.3% and 30.9% of our cost of sales, and the ratio of fuel costs to our sales was 36.1%, 25.9% and 23.4% in 2014, 2015 and 2016, respectively. Substantially all of the fuel (except for anthracite coal) used by our generation subsidiaries is imported from outside of Korea at prices determined in part by prevailing market prices in currencies other than Won. In addition, our generation subsidiaries purchase a significant portion of their fuel requirements under contracts with limited quantity and duration. Pursuant to the terms of our long-term supply contracts, prices are adjusted from time to time subject to prevailing market conditions. See Item 4.B. “Business Overview—Fuel.”

Uranium accounted for 35.3%, 38.1% and 37.1% of our fuel requirements in 2014, 2015 and 2016, respectively. Coal accounted for 46.0%, 47.9% and 47.7% of our fuel requirements in 2014, 2015 and 2016, respectively. LNG accounted for 15.5%, 10.7% and 10.8% of our fuel requirements in 2014, 2015 and 2016, respectively. Oil accounted for 1.7%, 2.2% and 3.0% of our fuel requirements in 2014, 2015 and 2016, respectively. In each case, the fuel requirements are measured by the amount of electricity generated by us and our generation subsidiaries and do not include electricity purchased from independent power producers. In order to ensure stable supplies of fuel materials, our generation subsidiaries enter into long-term and medium-term contracts with various suppliers and supplement such supplies with fuel materials purchased on spot markets.

 

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The price of bituminous coal, which represents our largest fuel requirement, fluctuates significantly from time to time. In 2016, approximately 82% of the bituminous coal requirements of our generation subsidiaries were purchased under long-term contracts and the remaining 18% purchased on the spot market. The average daily spot price of “free on board” Newcastle coal 6300 GAR published by Platts increased from US$58.0 per ton in 2015 to US$66.8 per ton in 2016 and to US$84.4 per ton as of April 13, 2017. If the price of bituminous coal were to sharply rise, our generation subsidiaries may not be able to secure their respective bituminous coal supplies at prices commercially acceptable to them. In addition, any significant interruption or delay in the supply of fuel, bituminous coal in particular, from any of their suppliers could cause our generation subsidiaries to purchase fuel on the spot market at prices higher than contracted, resulting in an increase in fuel cost.

From 2014 to 2016, the prices of oil and LNG fell significantly. The prices of oil and LNG are substantially dependent on the price of crude oil, and according to Bloomberg (Bloomberg Ticker: PGCRDUBA), the average daily spot price of Dubai crude oil declined from US$51.1 per barrel in 2015 to US$41.4 per barrel in 2016 but rebounded to US$54.2 per barrel as of April 14, 2017.

Nuclear power has a stable and relatively low-cost structure and forms a significant portion of electricity supplied in Korea. Due to significantly lower unit fuel costs compared to those for thermal power plants, our nuclear power plants are generally operated at full capacity with only routine shutdowns for fuel replacement and maintenance, with limited exceptions. In case of shortage in electricity generation resulting from stoppages of the nuclear power plants, we seek to make up for such shortage with power generated by our thermal power plants.

Because the Government heavily regulates the rates we charge for the electricity we sell (see Item 4.B. “Business Overview—Sales and Customers—Electricity Rates”), our ability to pass on such cost increases to our customers is limited. For example, from 2008 to 2012 we had consecutive net losses and, from time to time, operating losses, largely due to sustained rises in fuel costs that were neither timely nor sufficiently offset by a corresponding rise in electricity tariff rates. If fuel prices substantially increase and the Government, out of concern for inflation or for other reasons, maintains the current level of electricity tariff and does not increase it to a level to sufficiently offset the impact of rising fuel prices, the price increases will negatively affect our profit margins or even cause us to suffer net losses and our business, financial condition, results of operations and cash flows would suffer.

Movements of the Won against the U.S. Dollar and Other Foreign Currencies

Korean Won has fluctuated significantly against major currencies from time to time. For fluctuations in exchange rates, see Item 3.A. “Selected Financial Data—Currency Translations and Exchange Rates.” In particular, Korean Won underwent substantial fluctuations during the recent global financial crisis, and remains subject to significant volatility. The Noon Buying Rate per one U.S. dollar increased from Won 1,090.9 on December 31, 2014 to Won 1,169.3 on December 31, 2015 and to Won 1,203.7 on December 31, 2016 and fell down to Won 1,136.7 on April 14, 2017. In 2015 and 2016, the Won generally depreciated against U.S. dollar and other foreign currencies, and such depreciation may result in a significant increase in the cost of fuel materials and equipment purchased from overseas as well as the cost of servicing our foreign currency debt. As of December 31, 2016, approximately 23.1% of our long-term debt (including the current portion but excluding issue discounts and premium) before accounting for swap transactions was denominated in foreign currencies, principally U.S. dollars. The prices for substantially all of the fuel materials and a significant portion of the equipment we purchase are stated in currencies other than Won, generally in U.S. dollars. Since a substantial portion of our revenues is denominated in Won, we must generally obtain foreign currencies through foreign currency-denominated financings or from foreign currency exchange markets to make such purchases or service such debt, fulfill our obligations under existing overseas investments and make new overseas investments. As a result, any significant depreciation of Won against U.S. dollar or other foreign currencies will have a material adverse effect on our profitability and results of operations. See Item 3.D. “Risk Factors—Risks Relating to KEPCO—The movement of Won against the U.S. dollar and other currencies may have a material adverse effect on us.”

 

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Recent Accounting Changes

New Amendments Adopted

New amendments to IFRS and other accounting standards are set forth below. These amendments had no impact on our consolidated financial statements included in this annual report.

 

   

Amendments to IAS 16—Property, Plant and Equipment

 

   

Amendments to IAS 38—Intangible Assets

 

   

Amendments to IFRS 11—Joint Arrangements

See Note 2 of the notes to our consolidated financial statements included in this annual report for further related information.

New Standards and Amendments Not Yet Adopted

The following new standards and amendments to existing IFRS and other standards are effective for annual periods beginning after January 1, 2016; however, we have not adopted such amendments yet and are currently in the process of evaluating the impact on our consolidated financial statements upon the adoption of these amendments.

 

   

IFRS 9—Financial Instruments. Under the existing guidance in IAS 39, the impairment loss is recognized only if there is an objective evidence using ‘incurred loss’ model. Since IFRS 9 replaces the ‘incurred loss’ model in the existing standard with a forward-looking ‘expected credit loss’ (ECL) model, the loss allowances may increase upon the adoption of this new standard.

 

   

IFRS 15—Revenue from contract with customers. Upon the adoption of this new standard, the timing of revenue recognition may be changed depending on whether the performance obligations in the contract are identified and the duration of such obligations under certain contracts such as operation and maintenance contracts.

 

   

IFRS 16—Leases. Upon the adoption of this new standard, a right-of-use asset will be recognized as a ‘right-of-use’ model is applied to all leases, and the related lease liability may increase.

 

   

Amendments to IAS 12—Income Taxes

 

   

Amendments to IFRS 2—Share-based Payment

 

   

Amendments to IAS 7—Statement of Cash Flows

 

   

IFRIC 22—Foreign Currency Transactions and Advance Consideration

 

   

Amendments to IAS 40—Investment Property

See Note 2 of the notes to our consolidated financial statements included in this annual report for further related information.

Critical Accounting Policies

The following discussion and analysis are based on our consolidated financial statements included in this annual report. The fundamental objective of financial reporting is to provide useful information that allows a reader to comprehend our business activities. To aid in that understanding, our management has identified “critical accounting policies.”

We make a number of estimates and judgments in preparing our consolidated financial statements. These estimates may differ from actual results and have a significant impact on our recorded assets, liabilities, revenues

 

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and expenses and related disclosure of contingent assets and liabilities. We consider an estimate to be a critical accounting estimate if it requires a high level of subjectivity or judgment, and a significant change in the estimate would have a material impact on our financial condition or results of operations. Further discussion of these critical accounting estimates and policies is included in the notes to our consolidated financial statements included in this annual report.

The accounting policies set out below have been applied consistently by us and our subsidiaries to all periods presented in the consolidated annual financial statements, unless otherwise indicated.

Sale and Purchase of Electricity

The Government approves the rates we charge to customers. Our utility rates are designed to recover our reasonable costs plus a fair investment return. We purchase electricity principally from our generation subsidiaries based on a competitive bidding process though the Korea Power Exchange.

We recognize electricity sales revenue based on power sold (transferred to the customer) up to the reporting date. To determine the amount of power sold, we make reasonable estimates on daily power volumes for residential, commercial, industrial and other uses. The differences between the current month’s estimated amounts and actual (meter-read) amounts are adjusted (trued-up) during the next month period.

Construction Contracts

When the outcome of a construction contract can be estimated reliably, revenue and costs are recognized based on the stage of completion of the contract activity at the end of the reporting period, measured based on the proportion of contract costs incurred for work performed to date relative to the estimated total contract costs except where this would not be representative of the stage of completion, utilizing the cost-based input method. In applying the cost-based input method, it is necessary to use estimates and assumptions related to the total estimated costs expected to be incurred in the future, costs incurred which are not related to construction progress, changes in costs due to change of contract or design, etc. Total contract revenue is measured based on an agreed contract price; however, it may fluctuate due to the variation of construction work. The measurement of contract revenue is affected by various uncertainties resulting from unexpected future events. Variations in contract work, claims and incentive payments are included to the extent that the amount can be measured reliably and its receipt is considered probable.

When the outcome of a construction contract cannot be estimated reliably, contract revenue is recognized to the extent of contract costs incurred when it is probable the revenue will be realized. Contract costs are recognized as expenses in the period in which they are incurred. When it is probable that total contract costs will exceed total contract revenue, the expected loss is recognized as an expense immediately.

Derivative Instruments

We recognize rights and obligations arising from derivative instruments as assets and liabilities, which are stated at fair value. The gains and losses that result from the change in the fair value of derivative instruments are reported in current earnings. However, for derivative instruments designated as hedging the exposure of variable cash flows, the effective portions of the gains or losses on the hedging instruments are recorded as accumulated other comprehensive income (loss) and credited or charged to operations at the time the hedged transactions affect earnings, and the ineffective portions of the gains or losses are credited or charged immediately to operations.

Significant management judgment is involved in determining the fair value of estimated derivative instruments. The estimates and assumptions used by our management to determine fair value can be impacted by many factors, such as the estimated discount factor derived from observable market data, credit risk of the counterparty and the estimated cash flow based on settlement period, interest convention, and other contract information of the derivative instruments.

 

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As of December 31, 2014, we had Won 618 billion of net amounts as assets, and as of December 31, 2015, we had Won 451 billion of net amounts as liabilities. As of December 31, 2016, we had Won 643 billion of net amounts as assets. Changes in the estimated discount factor or cash flow, or changes in the assumptions and judgments by management underlying these estimates, may cause material revisions to the estimated total gain or loss effect of derivative instruments, which could have a material effect on the recorded asset or liability.

Decommissioning Costs

We recognize the fair value of estimated decommissioning costs as a liability in the period in which we incur a legal obligation associated with retirement of long-lived assets that result from acquisition, construction, development and/or normal use of the assets. We also recognize a corresponding asset that is depreciated over the life of the asset. Accretion expense consists of period-to-period changes in the liability for decommissioning costs resulting from the passage of time and revisions to either the timing or the amount of the original estimate of undiscounted cash flows. Depreciation and accretion expenses are included in the cost of electric power in the accompanying consolidated statements of comprehensive income.

Significant management judgment is involved in determining the fair value of estimated decommissioning costs. The estimates and assumptions used by our management to determine fair value can be impacted by many factors, such as the estimated decommissioning costs based on engineering studies commissioned and approved by the Korean government, and changes in assumed dates of decommissioning, inflation rate, discount rate, decommissioning technology, regulation and the general economy.

As of December 31, 2014, 2015 and 2016, we had a liability for decommissioning costs in the amounts of Won 13,234 billion, Won 12,562 billion and Won 13,050 billion, respectively. Changes in the estimated costs or timing of decommissioning, or changes in the assumptions and judgments by management underlying these estimates, may cause material revisions to the estimated total cost to decommission these facilities, which could have a material effect on the recorded liability. We used discount rates of 4.49%, 3.55% and 3.55% and inflation rates of 2.93%, 1.40% and 1.40% when calculating the decommissioning cost liability of nuclear plants recorded as of December 31, 2014, 2015 and 2016, respectively, and discount rate of 4.49% and inflation rate of 2.93% when calculating the decommissioning cost liability of spent fuel recorded as of December 31, 2014, 2015 and 2016. In addition, the following is a sensitivity analysis of the potential impact on decommissioning costs from a 0.10% increase or decrease in each of the inflation rate and the discount rate, assuming that all other aforementioned assumptions remain constant:

 

     Sensitivity to inflation rate      Sensitivity to discount rate  
       +0.10%              -0.10%              +0.10%              -0.10%      
     (in billions of Won)  

Increase (decrease) of liability for decommissioning costs

   295        ₩(287)        ₩(262)      270  

See Notes 26 and 45 of the notes to our consolidated financial statements included in this annual report for further related information.

Provision for Decontamination of Transformer

Under the Persistent Organic Pollutants Management Act which was enacted in 2007, we are required to remove PCB from our transformers’ insulating oil by 2025. We are also required to inspect the PCB levels in our transformers and dispose of any PCBs in excess of established safety standards.

As of December 31, 2014, 2015 and 2016, we had liabilities of Won 200 billion, Won 182 billion and Won 192 billion, respectively, for inspection and disposal costs related to the decontamination of existing transformers.

 

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The estimates and assumptions used by our management to determine fair value can be affected by many factors, such as the estimated costs of inspection and disposal, inflation rate, discount rate, regulations and the general economy.

Changes in the estimated costs or changes in the assumptions and judgments underlying these estimates may cause material revisions to the estimated total costs, which could have a material effect on our recorded liability. When calculating the provision for the decontamination of our transformers, we used a discount rate of 3.78% and an inflation rate of 2.79% as of December 31, 2014, a discount rate of 3.21% and an inflation rate of 2.65% as of December 31, 2015 and a discount rate of 2.77% and an inflation rate of 1.29% as of December 31, 2016.

Deferred Tax Assets

In assessing the realizability of the deferred tax assets, our management considers whether it is probable that a portion or all of the deferred tax assets will not be realized. The ultimate realization of our deferred tax assets is dependent on whether we are able to generate future taxable income in specific tax jurisdictions during the periods in which temporary differences become deductible. Our management has scheduled the expected future reversals of the temporary differences and projected future taxable income in making this assessment. Based on these factors, our management believes that it is probable that we will realize the benefits of these temporary differences as of December 31, 2016. However, the amount of deferred tax assets that is realized may be different if we do not realize estimated future taxable income during the carry forward periods as originally expected.

In relation to the deferred tax assets recognized for tax loss, future taxable income is estimated considering the followings: (i) five-year mid-to long-term financial forecasts of earnings before tax approved by management and submitted to the Ministry of Strategy and Finance, and (ii) average amount of tax adjustments for the recent three years.

For tax credits carried forward, similar to deferred tax assets recognized for tax loss, our management estimates the probability timing of future taxable profits in determining the probability of utilization of tax credits carried forward. In addition, our management considers the possible carry forward period and available tax credit or deductible temporary differences within the tax laws of each country in which the tax credits originated.

Similarly, our management also estimates the probability of utilization of temporary differences considering the probability of generating future taxable profits in the periods that the deductible temporary differences reverse. We do not recognize deferred tax assets for certain temporary differences associated with investments in subsidiaries, associates, and interests in joint ventures considering future dividends or disposals.

We recognize deferred tax assets and liabilities based on the differences between the financial statement carrying amounts and the tax bases of assets and liabilities at each separate taxpaying entity. Under IFRS, a deferred tax asset is recognized for temporary difference that will result in deductible amounts in future years and for carry forwards. If, based on the weight of available evidence, it is more likely that some or the entire portion of the deferred tax asset will not be realized, that portion is deducted directly from the deferred tax asset.

We believe that the accounting estimate related to the realizability of deferred tax asset is a “critical accounting estimate” because: (i) it requires management to make assessments about the timing of future events, including the probability of expected future taxable income and available tax planning opportunities, and (ii) the difference between these assessments and the actual performance could have a material impact on the realization of tax benefits as reported in our results of operations. Management’s assumptions require significant judgment because actual performance has fluctuated in the past and may continue to do so.

Useful Lives of Property, Plant and Equipment

Property, plant and equipment are initially measured at cost and after initial recognition, are carried at cost less accumulated depreciation and accumulated impairment losses. The cost of property, plant and equipment

 

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includes expenditures arising directly from the construction or acquisition of the asset, any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management and the initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located.

Economic useful life is the duration of time the asset is expected to be productively employed by us, which may be less than its physical life. Management’s assumptions on the following factors, among others, affect the determination of estimated economic useful life: wear and tear, obsolescence, technical standards, changes in market demand and technological changes.

The estimated useful lives of our property, plant and equipment are as follows:

 

     Useful lives (years)

Buildings

   8 ~ 40

Structures

   8 ~ 50

Machinery

   2 ~ 32

Vehicles

   3 ~ 8

Loaded heavy water

   30

Asset retirement costs

   18, 30, 40, 60

Finance lease assets

   6 ~ 32

Ships

   9

Others

   4 ~ 15

A component that is significant compared to the total cost of property, plant and equipment is depreciated over its separate useful life.

Depreciation methods, residual values and useful lives of property, plant and equipment are reviewed at the end of each reporting period and if change is deemed appropriate, it is treated as a change in accounting estimate. As a result of such annual review, useful lives of certain machinery were changed during 2016 and as a result, depreciation expenses increased by Won 160,985 million for the year ended December 31, 2016. Depreciation expenses are expected to increase by Won 130,514 million and Won 91,197 million for the years ending December 31, 2017 and 2018, respectively, and to decrease by Won 382,696 million for the years after December 31, 2018.

Impairment of Long-lived Assets

At the end of each reporting period, we review the carrying amounts of tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, we estimate the recoverable amount of the cash-generating unit to which the asset belongs. Where a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash-generating units, or otherwise they are allocated to the smallest group of cash-generating units for which a reasonable and consistent allocation basis can be identified.

Intangible assets with indefinite useful lives and intangible assets not yet available for use are tested for impairment at least annually, and whenever there is an indication that the asset may be impaired. Recoverable amount is the higher of fair value less costs to sell or value in use. In assessing value in use, the estimated future cash flows are discounted to their present values using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.

 

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If the recoverable amount of an asset (or a cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or the cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognized immediately in income or loss, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease.

In the event that an impairment loss subsequently reverses, the carrying amount of the asset (or a cash-generating unit) is increased to the revised estimate of its recoverable amount, ensuring that such carrying amount increase does not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset (or the cash-generating unit) in prior years. A reversal of an impairment loss is recognized immediately in income or loss, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase.

The assessment of impairment is a critical accounting estimate, because significant management judgment is required to determine: (i) whether an indicator of impairment has occurred, (ii) how assets should be grouped, and (iii) the recoverable amount of the asset or asset group in the case of impairment. If management’s assumptions about these assets change as a result of events or circumstances, and management believes the assets may have declined in value, we may record impairment charges, resulting in lower profits. Our management uses its best estimate in making these evaluations and considers various factors, including the future prices of energy, fuel costs and other operating costs. However, actual market prices and operating costs could vary from those used in the impairment evaluations, and the impact of such variations could be material. We performed impairment tests on individual assets of KOSEP and EWP, both of which are wholly owned subsidiaries, for the year ended December 31, 2015 due to potential indictors of impairment. For the year ended December 31, 2016, there were no potential indicators of impairment, and we therefore did not perform an impairment test for such year. Accordingly, we recognized the amount by which the carrying amount exceeds its recoverable amount as impairment loss on our consolidated statements of comprehensive income. See Note 18 of the notes to our consolidated financial statements included in this annual report for further information.

Accrual for Loss Contingencies for Legal Claims

We are involved in legal proceedings regarding matters arising in the ordinary course of business. In relation to these matters, as of December 31, 2016, we and our subsidiaries were engaged in 675 lawsuits as a defendant and 193 lawsuits as a plaintiff. The total amount claimed against us and our subsidiaries was Won 636 billion and the total amount claimed by us was Won 490 billion as of December 31, 2016. As of December 31, 2016, our provisions for these legal claims amounted to Won 198 billion. These provisions are adjusted when events or circumstances cause these judgments or estimates to change.

Actual amounts of our liabilities as determined upon settlement of legal claims or by final decisions of the courts in relation thereto may be substantially different from the amounts of provisions recognized or contingent liabilities disclosed. If the actual amounts are higher than the amounts of related provisions, the resulting additional liabilities would adversely impact our results of operations, financial condition and cash flows.

Consolidated Results of Operations

2016 Compared to 2015

In 2016, our consolidated sales, which is principally derived from the sale of electric power, increased by 2.0% to Won 59,763 billion from Won 58,582 billion in 2015, reflecting primarily a 2.8% increase in the volume of electricity sold from 483,655 gigawatt hours in 2015 to 497,039 gigawatt hours in 2016. The overall increase in the volume of electricity sold was primarily attributable to a 1.9% increase in the volume of electricity sold to the industrial sector, which represents the largest segment of electricity consumption in Korea, from 273,548 gigawatt hours in 2015 to 278,828 gigawatt hours in 2016, a 4.8% increase in the volume of electricity sold to the commercial sector, which represents the second largest segment of electricity consumption in Korea, from

 

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103,679 gigawatt hours in 2015 to 108,617 gigawatt hours in 2016, and a 3.7% increase in the volume of electricity sold to the residential sector from 65,619 gigawatt hours in 2015 to 68,057 gigawatt hours in 2016. The increase in the volume of electricity sold to the industrial sector was primarily due to the general increase in demand for electricity as a result of the turnaround in industries such as semiconductors, chemicals and petrochemicals, which involved increased industrial output and greater capacity utilization of industrial plants. The increase in the volume of electricity sold to the commercial sector was primarily due to a rebound in the domestic economy and increased air conditioning use in commercial buildings during the summer. The increase in the volume of electricity sold to the residential sector was primarily due to the opening of new urban clusters with large-scale residential complexes as well as increased air conditioning use in residential buildings during the summer. Sales of construction services increased by 7.1% to Won 4,027 billion in 2016 from Won 3,761 billion in 2015 primarily due to an increase in sales recorded from the construction-in-progress of our nuclear complex construction projects in the United Arab Emirates.

Our consolidated cost of sales, which is principally derived from the costs related to the purchase of fuels for generation of electricity and to a lesser extent, from the purchase of power from independent power producers, depreciation and salaries, remained substantially flat, or increased by 0.2%, to Won 45,550 billion in 2016 from Won 45,458 billion in 2015, primarily due to a 15.6% increase in salaries, a 7.3% increase in depreciation and a 9.9% increase in other cost of sales, which were substantially offset by a 7.2% decrease in fuel costs and a 5.9% decrease in power purchase.

Fuel costs, which accounted for 30.9% and 33.3% of our consolidated cost of sales in 2016 and 2015, respectively, decreased by 7.2% to Won 14,067 billion in 2016 from Won 15,159 billion in 2015, largely due to a 24.3% decrease in unit fuel cost mainly resulting from the general decline in international market prices for our main fuel types, as well as an increased use of less expensive fuel sources such as coal and nuclear power, including due to the commencement of operation of one nuclear unit in 2016. Power purchase, which accounted for 23.6% and 25.1% of our cost of sales in 2016 and 2015, respectively, decreased by 5.9% to Won 10,756 billion in 2016 from Won 11,428 billion in 2015, primarily due to a 20.4% decrease in the unit cost of power purchased from Won 119.6 per kilowatt-hour in 2015 to Won 95.2 per kilowatt-hour in 2016, largely resulting from a general decline in international market prices for the main fuel types, which led to a decrease in the price of electricity generated by independent power producers. Depreciation expense, excluding amortization of nuclear fuel charged to fuel costs in the amounts of Won 1,085 billion and Won 1,057 billion in 2016 and in 2015, respectively, increased by 7.3% to Won 7,620 billion in 2016 from Won 7,102 billion in 2015 primarily due to an increase of additional property, plant and equipment acquired in relation to the construction of new generation facilities pursuant to our capital investment program.

Salaries recorded as cost of sales increased by 15.6% to Won 3,426 billion in 2016 from Won 2,962 billion in 2015 primarily due to an increase in base salary in tandem with the inflation rate and an increase in provision expenses related to the ordinary wage litigation for our generation subsidiaries as described in Item 8.A. “Consolidated Statements and Other Financial Information—Legal Proceedings.” Other cost of sales increased by 9.9% to Won 4,488 billion in 2016 from Won 4,083 billion in 2015 primarily due to an increase in costs recorded from the construction-in-progress of our nuclear complex construction projects in the United Arab Emirates.

As a cumulative result of the foregoing factors, our consolidated gross profit increased by 8.3% to Won 14,213 billion in 2016 from Won 13,124 billion in 2015, and our consolidated gross profit margin increased to 23.8% in 2016 from 22.4%% in 2015. The increases in our consolidated gross profit and consolidated gross profit margin were largely attributable to the 2.0% increase in our consolidated sales (which was primarily due to the 2.8% increase in the volume of electricity sold, as well as the 7.1% increase in the sales of construction services), which substantially outpaced the 0.2% increase in our consolidated cost of sales (which was mainly due to the 15.6% increase in salaries, the 7.3% increase in depreciation and the 9.9% increase in other cost of sales, which were substantially offset by the 7.2% decrease in fuel costs and the 5.9% decrease in power purchase).

 

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Our consolidated selling and administrative expenses increased by 22.6% to Won 2,639 billion in 2016 from Won 2,153 billion in 2015, largely due to a 151.4% increase in other expenses, which mainly resulted from the commencement of a campaign to subsidize households for the use of electronic appliances with high energy efficiency and, to a lesser extent, an increase in salaries recorded as selling and administrative expenses.

Our consolidated other income, net of expenses, decreased by 6.7% to Won 652 billion in 2016 from Won 699 billion in 2015, mainly as a result of a decrease in compensation and reparations revenue, which relate to penalties collected from sub-contractors as a result of contractual breaches.

Our consolidated net other gains decreased significantly to Won 70 billion in 2016 from Won 8,611 billion in 2015, primarily as a result of a decrease in gains on disposal of property, plant and equipment. The decrease in gains on disposal of property, plant and equipment decreased largely due to the absence in 2016 of a disposal of property in magnitude comparable to the sale of our previous headquarters in 2015.

As a cumulative result of the foregoing factors, our consolidated operating profit decreased by 39.4% to Won 12,296 billion in 2016 from Won 20,281 billion in 2015, and our consolidated operating income margin decreased to 20.6% in 2016 from 34.6% in 2015. These decreases were mainly due to a significant decrease in our consolidated net other gains primarily as a result of a decrease in gains on disposal of property, plant and equipment due to the absence in 2016 of a disposal of property in magnitude comparable to the sale of our previous headquarters in 2015.

Our consolidated finance expenses, net, decreased by 10.2% to Won 1,646 billion in 2016 from Won 1,832 billion in 2015, primarily as a result of a decrease in interest expense and a decrease in net losses on foreign currency translation, which were partially offset by a decrease in net gains on valuation of derivatives.

We recorded consolidated loss of associates or joint ventures using equity method of Won 137 billion in 2016 compared to such gain of Won 207 billion in 2015, primarily as a result of a decrease in profit of Korea Gas Corporation.

As a cumulative result of the foregoing factors, our consolidated income before income taxes decreased by 43.6% to Won 10,513 billion in 2016 from Won 18,656 billion in 2015.

Our income tax expense decreased by 35.8% to Won 3,365 billion in 2016 from Won 5,239 billion in 2015, largely as a result of the decrease in our profit before income taxes. Our effective tax expense (benefit) rate, which represents tax expense (benefit) as a percentage of profit (loss) before income taxes, increased from 28.1% in 2015 to 32.0% in 2016 primarily due to an increase of adjustment in respect of prior years due to change in estimate. In 2016, the effective tax rate was higher than the statutory rate of 24.2%, primarily due to the recognition of deferred tax liabilities regarding our investments in subsidiaries, associates and joint ventures primarily in connection with taxable temporary differences related to undistributed earnings. See Note 41 to our financial statements included in this annual report.

As a cumulative result of the above factors, our consolidated profit decreased by 46.7% to Won 7,148 billion in 2016 from Won 13,416 billion in 2015. Our consolidated net profit margin also decreased to 12.0% in 2016 from 22.9% in 2015. Our profit attributable to the owners of the company was Won 7,048 billion in 2016 compared to Won 13,289 billion attributable to the owners of the company in 2015.

We reported consolidated other comprehensive loss of Won 2 billion in 2016 compared to consolidated other comprehensive income of Won 34 billion in 2015, largely due to decrease in net change in other comprehensive income from equity method investments primarily in relation to Gemeng International Energy Co., Ltd, which was partially offset by an increase in net change in the realized fair value of available-for-sale securities primarily in relation to PT Adaro Energy Tbk.

 

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As a cumulative result of the above factors, our consolidated total comprehensive income decreased by 46.9% to Won 7,146 billion in 2016 from Won 13,450 billion in 2015.

2015 Compared to 2014

In 2015, our consolidated sales, which is principally derived from the sale of electric power, increased by 2.6% to Won 58,582 billion from Won 57,123 billion in 2014, reflecting primarily a 0.3% increase in our average electricity tariff rates in 2015 compared to 2014 and a 1.3% increase in the volume of electricity sold from 477,592 gigawatt hours in 2014 to 483,655 gigawatt hours in 2015. The overall increase in the volume of electricity sold was primarily attributable to a 0.4% increase in the volume of electricity sold to the industrial sector, which represents the largest segment of electricity consumption in Korea, from 272,552 gigawatt hours in 2014 to 273,548 gigawatt hours in 2015, a 2.9% increase in the volume of electricity sold to the commercial sector, which represents the second largest segment of electricity consumption in Korea, from 100,761 gigawatt hours in 2014 to 103,679 gigawatt hours in 2015, and a 1.8% increase in the volume of electricity sold to the residential sector from 64,457 gigawatt hours in 2014 to 65,619 gigawatt hours in 2015. The increase in the volume of electricity sold to the industrial sector was primarily due to the general increase in demand for electricity as a result of continued export-led growth of the Korean economy, which involved increased industrial output and greater capacity utilization of industrial plants. The increase in the volume of electricity sold to the commercial sector was primarily due to the recovery of market demand as a result of various government policies to boost the economy. The increase in the volume of electricity sold to the residential sector was primarily due to an increase in household electricity usage for air conditioning and heating. Sales of construction services increased by 26.8% to Won 3,761 billion in 2015 from Won 2,965 billion primarily due to an increase in sales recorded from the construction-in-progress of our nuclear complex construction projects in the United Arab Emirates.

Our consolidated cost of sales, which is principally derived from the costs related to the purchase of fuels for generation of electricity and to a lesser extent, from the purchase of power from independent power producers, depreciation and salaries, decreased by 8.7% to Won 45,458 billion in 2015 from Won 49,763 billion in 2014, primarily due to a 26.4% decrease in fuel costs and a 9.3% decrease in purchased power, which was partially offset by a 5.7% increase in depreciation, a 12.5% increase in salaries and a 22.8% increase in other cost of sales.

Fuel costs, which accounted for 33.3% and 41.4% of our consolidated cost of sales in 2015 and 2014, respectively, decreased by 26.4% to Won 15,159 billion in 2015 from Won 20,595 billion in 2014 largely due to a 28.7% decrease in unit fuel cost mainly resulting from the general decline in international market prices for our main fuel types, as well as an increased use of less expensive fuel sources such as coal and nuclear power due to the operational commencement of one nuclear generation unit and two coal generation units and the resumption of one nuclear generation unit in 2015. Purchased power, which accounted for 25.1% and 25.3% of our cost of sales in 2015 and 2014, respectively, decreased by 9.3% to Won 11,428 billion in 2015 from Won 12,602 billion in 2014, primarily due to a 22.7% decrease in the cost of power purchased from Won 154.70 per kilowatt-hour in 2014 to Won 119.60 per kilowatt-hour in 2015, primarily due to a general decline in international market prices for our main fuel types. Depreciation expense, excluding amortization of nuclear fuel charged to fuel costs in the amounts of Won 1,057 billion and Won 957 billion in 2015 and in 2014, respectively, increased by 5.0% to Won 7,102 billion in 2015 from Won 6,763 billion in 2014 primarily due to an increase of additional property, plant and equipment related to the construction of new generation facilities pursuant to our capital investment program.

Salaries recorded as cost of sales increased by 12.5% to Won 2,962 billion in 2015 from Won 2,634 billion in 2014 primarily due to an increase in base salary in tandem with the inflation rate and an increase in provision expenses related to the ordinary wage litigation as described in Item 8.A. “Consolidated Statements and Other Financial Information—Legal Proceedings.” Other cost of sales increased by 22.8% to Won 8,805 billion in 2015 from Won 7,169 billion in 2014 primarily due to an increase in costs related to our nuclear complex construction projects in the United Arab Emirates.

 

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As a cumulative result of the foregoing factors, our consolidated gross profit increased by 78.3% to Won 13,124 billion in 2015 from Won 7,360 billion in 2014, and our consolidated gross profit margin increased to 22.4% in 2015 from 12.9% in 2014. The increases in our consolidated gross profit and consolidated gross profit margin were largely attributable to the 2.6% increase in our consolidated sales (which was primarily due to the 0.3% increase in our average electricity tariff rates and the 1.3% increase in the volume of electricity sold, as well as the 26.8% overall increase in the sales of construction services) and the 8.7% decrease in our consolidated cost of sales (which was mainly due to the 26.4% decrease in fuel costs partially offset by the 22.8% increase in other cost of sales).

Our consolidated selling and administrative expenses increased by 11.9% to Won 2,153 billion in 2015 from Won 1,924 billion in 2014, largely due to an increase in salaries recorded as selling and administrative expenses, which was partially offset by a decrease in bad debt expense.

Our consolidated other income, net of expenses, increased by 5.0% to Won 699 billion in 2015 from Won 666 billion in 2014, mainly as a result of an increase in revenue related to the transfer of assets from customers, which were substantially offset by a decrease in gains from the electricity infrastructure development fund.

Our consolidated net other gains increased significantly to Won 8,611 billion in 2015 from Won 107 billion in 2014, primarily as a result of an increase in gains on disposal of property, plant and equipment. The gains on disposal of property, plant and equipment increased largely due to the sale of the properties in our previous headquarters in 2015.

As a cumulative result of the foregoing factors, our consolidated operating profit increased more than threefold to Won 20,281 billion in 2015 from Won 6,209 billion in 2014, and our consolidated operating income margin increased to 34.6% in 2015 from 10.9% in 2014. These increases were mainly due to the 2.6% increase in our consolidated sales and the 8.7% decrease in our consolidated cost of sales as well as a significant increase in our consolidated net other gains primarily as a result of an increase in gains on disposal of property, plant and equipment due to the sale of the properties in our previous headquarters.

Our consolidated finance expenses, net, decreased by 18.8% to Won 1,832 billion in 2015 from Won 2,255 billion in 2014, primarily as a result of a decrease in interest expense and an increase in net gains on valuation derivatives, which was partially offset by an increase in net losses on foreign currency translation.

Our consolidated profit of associates or joint ventures using equity method decreased by 24.7% to Won 207 billion in 2015 from Won 275 billion in 2014, primarily as a result of a decrease in profit of Korea Gas Corporation.

As a cumulative result of the foregoing factors, our consolidated income before income taxes increased to Won 18,656 billion in 2015 from Won 4,229 billion in 2014.

Our income tax expense increased to Won 5,239 billion in 2015 from Won 1,430 billion in 2014, largely as a result of an increase in our profit before income taxes. Our effective tax expense (benefit) rate, which represents tax expense (benefit) as a percentage of profit (loss) before income taxes, decreased from 33.8% in 2014 to 28.1% in 2015 primarily due to an increase in profit which is not subject to deferred income tax. In 2015, the effective tax rate was higher than the statutory rate of 24.2%, primarily due to the recognition of deferred tax liabilities regarding our investments in subsidiaries, associates and joint ventures primarily in connection with taxable temporary differences related to undistributed earnings. See Note 41 to our financial statements included in this annual report.

As a cumulative result of the above factors, our consolidated profit increased to Won 13,416 billion in 2015 from Won 2,799 billion in 2014. Our consolidated net profit margin also increased to 22.9% in 2015 from 4.9% in 2014. Our profit attributable to the owners of the company was Won 13,289 billion in 2015 compared to Won 2,687 billion attributable to the owners of the company in 2014.

 

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We had consolidated other comprehensive income of Won 34 billion in 2015 compared to consolidated other comprehensive loss of Won 358 billion in 2014, largely as a result of increased actuarial gains on retirement benefit obligations, net of tax (related to changes in future salary increases), valuation gains on available-for-sale securities (primarily Korea District Heating Corp. and Set Holding) and gains on valuation of derivatives using cash flow hedge accounting, share in other comprehensive income of associates and joint ventures, net of tax.

As a cumulative result of the above factors, our consolidated total comprehensive income increased to Won 13,450 billion in 2015 from Won 2,441 billion in 2014.

Inflation

The effects of inflation in Korea on our financial condition and results of operations are reflected primarily in construction costs as well as in labor expenses. Inflation in Korea has not had a significant impact on our results of operations in recent years. It is possible that inflation in the future may have an adverse effect on our financial condition or results of operations.

Segment Results

We operate the following business segments: transmission and distribution, nuclear power generation and thermal power generation and all others. The transmission and distribution segment, which is operated by us, the parent company, consists of operations related to the transmission, distribution and sale to end-users of electricity purchased from our generation subsidiaries as well as from independent power producers. The power generation segment, which is operated by our one nuclear generation subsidiary and five non-nuclear generation subsidiaries, consists of operations related to the generation of electricity sold to us through the Korea Power Exchange. The transmission and distribution segment and the power generation segment together represent our electricity business. The remainder of our operation is categorized as “all others.” The all other segment consists primarily of operations related to the plant maintenance and engineering service, information services, and sales of nuclear fuel, communication line leasing, overseas businesses and others. In 2014, 2015 and 2016, the unaffiliated revenues of the power generation segment (representing the six generation subsidiaries) and all our other revenues in the aggregate amounted to only 2.8%, 2.8% and 3.0% of our consolidated revenues, respectively, and the results of operations for our business segments substantially mirror our consolidated results of operations. For further information, see Note 4 of the notes to our consolidated financial statements included in this annual report.

Item 5.B. Liquidity and Capital Resources

We expect that our capital requirements, capital resources and liquidity position may change in the course of implementing the Restructuring Plan. See Item 4.B. “—Business Overview—Restructuring of the Electric Power Industry in Korea” and Item 3D. “Risk Factors—Risks Relating to KEPCO—The Government may adopt policy measures to substantially restructure the Korean electric power industry or our operational structure, which may have a material adverse effect on our business, operations and profitability.”

Capital Requirements

We anticipate that the following represent the major sources of our capital requirements in the short-term to intermediate future:

 

   

capital expenditures pursuant to our capital investment program;

 

   

working capital requirements, the largest component of which is fuel purchases;

 

   

payment of principal and interest on our existing debt; and

 

   

overseas investments.

 

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In addition, if there were to occur unanticipated material changes to the Restructuring Plan, the Basic Plan or other major policy initiatives of the Government relating to the electric power industry, or natural disasters, such developments may require a significant amount of additional capital requirements.

Capital Expenditures

We anticipate that capital expenditures will be the most significant use of our funds for the next several years. Our capital expenditures relate primarily to the construction of new generation units, maintenance of existing generation units and expansion of our transmission and distribution systems. Our capital expenditures generally follow budgets established under the Basic Plan, which contains projections relating to the supply and demand of electricity of Korea based on which we plan the construction of additional generation units and transmission systems.

Our total capital expenditures for the construction of generation, transmission and distribution facilities were Won 16,629 billion, Won 15,750 billion and Won 13,950 billion in 2014, 2015 and 2016, respectively, and under our current budgets, are estimated to be approximately Won 14,307 billion, Won 13,842 billion and Won 16,071 billion in 2017, 2018 and 2019, respectively. We plan to finance our capital expenditures primarily through issuance of securities in the capital markets, borrowings from financial institutions and construction grants.

In January 2016, the Ministry of Trade, Industry and Energy announced an initiative to promote the new energy industry by creating the New Energy Industry Fund, which is made up of funds sponsored by government-affiliated energy companies. The purpose of these funds is to invest in substantially all frontiers of the new energy industry, including renewable energy, energy storage systems, electric vehicles, small-sized self-sustaining electricity generation grids known as “micro-grids”, among others, as well as invest in start-up companies, ventures, small- to medium-sized enterprise and project businesses that engage in these businesses but have not previously attracted sufficient capital from the private sector. The total size of these funds was US$1 trillion as of December 31, 2016; these funds were funded from our budget for new energy industry projects, which totaled US$6.4 trillion in 2016 and were expended in research and development, efficiency improvements and educational solar power projects, among others. Our budget for new energy industry projects in 2017 amounts to US$5.6 trillion, of which US$1 trillion has been earmarked for potential additional commitments to the New Energy Industry Fund.

Furthermore, according to a plan announced in July 2016 by the Ministry of Trade, Industry and Energy in relation to coal-fired electricity generation units, 10 of our coal generation units that are 30 years or older will be required to be shut down or convert to another fuel use, 43 of our such units that are less than 30 years old will be subject to retrofitting and overall replacement of environmental facilities, and 20 of our such units currently under construction will be subject to more rigorous emission standards. Compliance with such measures is expected to result in our incurring significant costs.

Fuel Purchases

We require significant funds to finance our operations, principally in relation to the purchase of fuels by our generation subsidiaries for generation of electricity. In 2014, 2015 and 2016, fuel costs constituted 41.4%, 33.3% and 30.9% of our cost of sales and the ratio of fuel costs to our sales was 36.1%, 25.9% and 23.4%, respectively. We plan to fund our fuel purchases primarily with net operating cash, although in cases of rapid increases in fuel prices as is the case from time to time, we may also rely on borrowings from financial institutions and issuance of debt securities in the capital markets.

Repayment of Existing Debt

Payments of principal and interest on indebtedness will require considerable resources. The table below sets forth the scheduled maturities of the outstanding interest-paying debt (excluding issue discounts and premium)

 

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before accounting for swap transactions of us and our six wholly-owned generation subsidiaries as of December 31, 2016 for each year from 2017 to 2021 and thereafter. As of December 31, 2016, such debt represented 96.0% of our outstanding debt on a consolidated basis.

 

Year ended December 31

   Local Currency
Borrowings
     Foreign Currency
Borrowings
     Domestic
Debentures
     Foreign
Debentures
     Total  
     (in billions of Won)  

2017

     598        40        5,650        2,175        8,463  

2018

     33        —          5,200        3,108        8,341  

2019

     9        —          4,200        1,560        5,769  

2020

     9        —          4,820        888        5,717  

2021

     9        9        3,720        967        4,705  

Thereafter

     40        2        16,130        2,418        18,590  

Total

     698        51        39,720        11,116        51,585  

We and our six wholly-owned generation subsidiaries incurred interest charges (including capitalized interest) in relation to our interest-paying debt of Won 3,121 billion, Won 2,846 billion and Won 2,490 billion in 2014, 2015 and 2016, respectively. We anticipate that interest charges will increase in future years because of, among other factors, anticipated increases in our long-term debt. See “—Capital Resources” below. The weighted average rates of interest on our and our six wholly-owned generation subsidiaries’ debt were 3.93%, 3.87% and 3.69% in 2014, 2015 and 2016, respectively.

Overseas Investments

As part of our revenue diversification and fuel procurement strategy, we plan to continue to make overseas investments on a selective basis, which will be funded primarily through foreign currency-denominated borrowings and debt securities issuances as well as net operating cash from such projects.

Capital Resources

We have traditionally met our working capital and other capital requirements primarily from net cash provided by operating activities, issuance of debt securities and borrowings from financial institutions. Net cash provided by operating activities is primarily a function of electricity sales and fuel purchases and is also affected by increases and decreases in trade receivables, trade payables and inventory related to electricity sales and fuel purchases. Net cash provided by operating activities was Won 12,046 billion, Won 16,943 billion and Won 16,521 billion in 2014, 2015 and 2016, respectively.

As of December 31, 2014, 2015 and 2016, our long-term debt (excluding the current portion but including issue discounts and premium), before accounting for swap transactions, amounted to Won 55,720 billion, Won 50,907 billion and Won 44,700 billion, respectively, representing 101.6%, 74.9% and 61.2% of shareholders’ equity, respectively, as of such dates. As of December 31, 2014, 2015 and 2016, the current portions of our long-term debt were Won 6,446 billion, Won 7,243 billion and Won 8,134 billion, respectively. As of December 31, 2014, 2015 and 2016, our short-term borrowings amounted to Won 659 billion, Won 604 billion and Won 806 billion, respectively. See Note 23 of the notes to our consolidated financial statements included in this annual report. Total long-term debt (including the current portion but excluding issue discounts and premium), before accounting for swap transactions, as of December 31, 2016 was Won 52,949 billion, of which Won 40,730 billion was denominated in Won and an equivalent of Won 12,219 billion was denominated in foreign currencies, primarily U.S. dollars. In addition, we, KHNP and KOWEPO also maintain U.S. dollar-denominated global medium-term note programs in the aggregate amount of US$10 billion, of which approximately US$6.6 billion remains currently available for future drawdown. KOSEP also maintains an A$2 billion Australian dollar medium-term note program, of which approximately A$1.7 billion remains current available for future drawdown.

 

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Subject to the implementation of our capital expenditure plan and the sale of our interests in our generation subsidiaries and other subsidiaries, our long-term debt may increase or decrease in future years. Until recently, a significant portion of our long-term debt was raised through foreign currency-denominated borrowings. Our foreign currency-denominated long-term debt (including the current portion but excluding issue discounts and premium), before accounting for swap transactions, amounted to Won 12,366 billion and Won 12,219 billion as of December 31, 2015 and 2016, respectively.

Our ability to incur long-term debt in the future is subject to a variety of factors, many of which are beyond our control, including, the implementation of the Restructuring Plan and the amount of capital that other Korean entities may seek to raise in capital markets. Economic, political and other conditions in Korea may also affect investor demand for our securities and those of other Korean entities. In addition, our ability to incur debt will also be affected by the Government’s policies relating to foreign currency borrowings, the liquidity of the Korean capital markets and our operating results and financial condition. In case of adverse developments in Korea, the price at which such financing may be available may not be acceptable to us.

We incur our short-term borrowings primarily through commercial papers sold to domestic financial institutions. We have not had, and we do not expect to have, any material difficulties in obtaining short-term borrowings. In addition, in order to prepare for potential liquidity shortage, we maintain several credit facilities with financial institutions, with Won-denominated facilities amounting to Won 3,747 billion in aggregate and foreign currency-denominated facilities amounting to US$1,954 million in aggregate. The full amount of these facilities was available as of December 31, 2016.

We may raise capital from time to time through the issuance of equity securities. However, there are certain restrictions on our ability to issue equity, including limitations on shareholdings by foreigners. In addition, without changes in the existing KEPCO Act which requires that the Government, directly or pursuant to the Korea Development Bank Act, through Korea Development Bank, own at least 51% of our capital stock, it may be difficult or impossible for us to undertake any equity financing other than sales of treasury stock without the participation of the Government. Even if we are able to conduct equity financing with the participation of the Government, prevailing market conditions may be such that we may not be able conduct equity financing on terms that are commercially acceptable to us. See Item 3D. “Risk Factors—Risks Relating to Korea and the Global Economy.”

Our total shareholders’ equity increased by 7.5% from Won 67,942 billion as of December 31, 2015 to Won 73,051 billion as of December 31, 2016, mainly as a result of an increase in total comprehensive income.

Liquidity

Our liquidity is substantially affected by our acquisition of property, plant and equipment, fuel purchases and schedule of repayment of debt. Our property, plant and equipment increased by 3.1% from Won 141,361 billion as of December 31, 2015 to Won 145,743 billion as of December 31, 2016. Although fuel costs decreased by 7.2% from Won 15,159 billion in 2015 to Won 14,067 billion in 2016, our current trade and other payables which is closely related to fuel costs increased by 17.9% from Won 4,736 billion as of December 31, 2015 to Won 5,585 billion as of December 31, 2016. Our current financial liabilities increased by 13.8% from Won 7,857 billion as of December 31, 2015 to Won 8,942 billion as of December 31, 2016 according to our debt repayment schedule.

Our cash flows are also impacted by other factors. Our net cash provided by operating activities decreased by 2.5% from Won 16,943 billion in 2015 to Won 16,521 billion in 2016. The decrease in net cash provided by operating activities in 2016 compared to 2015 was mainly due to an increase in income taxes paid. Our cash flows from investing activities are affected by acquisitions of property, plant and equipment. Our net cash used in investing activities decreased by 1.3% from Won 9,774 billion in 2015 to Won 9,646 billion in 2016. Our cash

 

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flows from financing activities are mainly affected by borrowings and issuance of debt securities and repayment thereof, as well as dividends paid. Our net cash used in financing activities increased by 46.7% from Won 5,207 billion in 2015 to Won 7,637 billion in 2016, largely due to an increase in dividends paid.

Due to the capital-intensive nature of our business as well as significant volatility in fuel prices, from time to time we operate with working capital deficits, and we may have substantial working capital deficits in the future. As of December 31, 2014, 2015 and 2016, we had a working capital deficit of Won 4,780 billion, Won 686 billion and Won 5,031 billion, respectively. We have traditionally met our working capital and other capital requirements primarily with net cash provided by operating activities, issuance of debt securities, borrowings from financial institutions and construction grants. We also incur short-term borrowings primarily through commercial papers sold to domestic financial institutions. We have not had, and we do not expect to have, any material difficulties in obtaining short-term borrowings. See “—Capital Resources.”

We may face liquidity concerns in the case of sudden and sharp depreciation of the Won against major foreign currencies or depreciation over a sustained period of time. While substantially all of our revenues are denominated in Won, we pay for substantially all of our fuel purchases in foreign currencies and a substantial portion of our long-term debt is denominated in foreign currencies, and payment of principal and interest thereon is made in foreign currencies. In the past, we have incurred foreign currency debt principally due to the limited availability and the high cost of Won-denominated financing in Korea. However, in light of the increasing sophistication of the Korean capital markets and the recent increase in Won liquidity in the Korean financial markets, we plan to reduce the portion of our debt which is denominated in foreign currencies although we intend to continue to raise certain amounts of capital through long-term foreign currency debt for purposes of maintaining diversity in our funding sources as well as paying for overseas investments and fuel procurements in foreign currencies. As of December 31, 2016, approximately 23.1% of our long-term debt (including the current portion but excluding issue discounts and premium) before accounting for swap transactions was denominated in currencies other than Won.

We enter into currency swaps and other hedging arrangements with respect to our debt denominated in foreign currencies only to a limited extent due primarily to the limited size of the Korean market for such derivative arrangements. Such instruments include combined currency and interest rate swap agreements, interest rate swaps and foreign exchange agreements. We do not enter into derivative financial instruments in order to hedge market risk resulting from fluctuations in fuel costs. Our policy is to hold or issue derivative financial instruments for hedging purposes only. Our derivative financial instruments are entered into with major financial institutions, thereby minimizing the risk of credit loss. See Note 11 of the notes to our consolidated financial statements.

We paid dividends of Won 500 per share in respect of fiscal year 2014 and Won 3,100 per share in respect of fiscal year 2015. On April 20, 2017, we paid dividends of Won 1,980 per share in respect of fiscal year 2016.

Other

Our operations are materially affected by the policies and actions of the Government. See Item 4.B. “Business Overview—Regulation.”

Item 5.C. Research and Development, Patents and Licenses, etc.

Research and Development

Our research and development program is focused on developing advanced electric power, renewable energy, smart grid and customer-friendly electricity service technologies that will enable us to become a global leader in the energy industry. In order to achieve our corporate vision of becoming a “Smart Energy Creator” in 2014, we adopted the KEPCO Technology Strategy, which emphasizes enhanced technological convergence and customer service. As part of such strategy, we seek to develop (i) clean and smart energy technology, including

 

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in relation to low carbon emission in power generation, (ii) an efficient and intelligent power transmission and distribution grid system, (iii) technology that will enhance efficiency and responsiveness to consumer’s electricity consumption patterns, and (iv) improvements in information, communication and technology, or ICT, for enhanced customer service.

In 2017, consistent with the Government guidelines, we plan to invest approximately 7.3 % of our annual revenue in the research and development of “creative smart” technologies, particularly with a focus on the following ten areas: carbon-related technology known as “carbon capture, utilization and storage “, offshore wind power, new power transmission technology, super conductor, smart grid, micro grid, new materials in electric power fields, ICT convergence, ICT integration and energy storage systems.

Our high-priority “creative smart energy” projects currently include the following:

 

   

acquiring integrated gasified process technology;

 

   

establishing high-tech smart grid and micro grid test beds in Jeju Island;

 

   

developing highly efficient absorbents for carbon capture;

 

   

commercializing offshore wind power plants;

 

   

obtaining high-voltage direct currents technology suitable for domestic operation; and

 

   

experimental testing of large-scale energy storage systems with capacities ranging from four to eight megawatts.

Our research and development activities also focus on the following:

 

   

in the thermal power generation sector, reducing the greenhouse effect, enhancing efficiency and reducing cost in power plant construction and operation as well as in our plant maintenance, including through improvements in damage analysis and environment-friendly inspections;

 

   

in the renewable energy sector, enhancing efficiency, lowering costs of power generation, identifying new energy sources and exploring new business opportunities;

 

   

in the electric power system sector, enhancing the stability and reliability in the operation of our electric power grid as well as enhancing efficiency in electricity distribution, including through build-out of large-sized electricity storage facilities and superconducting transmission cable grids, introducing preventive maintenance measures for substations and developing technologies related to system automation, power utilization and power line communication;

 

   

in the customer service sector, developing technologies enabling a greater range of business opportunities and heightened customer service in anticipation of the upcoming rollout of the smart grid system; and

 

   

in the technological convergence sector, identifying new business opportunities through convergence among technologies and businesses and maximizing synergy from such convergence in tandem with the promotion of creative economy in Korea as well as globally.

In addition, we cooperate closely with several other electric utility companies and research institutes, both foreign and domestic, on various projects to diversify the scope and scale of our research and development activities.

We and our six generation subsidiaries invested Won 638 billion, Won 660 billion and Won 530 billion in 2014, 2015 and 2016, respectively, and currently plan to invest Won 639 billion in 2017, on research and development. Our current focus in research and development is primarily in the area of ICT-based smart energy technological development. We had 1,056 employees engaged in research and development activities as of December 31, 2016. As a result of our research, we had 2,469 registered patents and 2,363 patent applications outstanding in Korea and abroad as of December 31, 2016.

 

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Item 5.D. Trend Information

Trends, uncertainties and events which could have a material impact on our sales, liquidity and capital resources are discussed above in Item 5.A. “Operating Results” and Item 5.B. “Liquidity and Capital Resources.”

Item 5.E. Off-Balance Sheet Arrangements

We had no significant off-balance sheet arrangements as of December 31, 2016.

Item 5.F. Tabular Disclosure of Contractual Obligations

The following summarizes certain of the contractual obligations of us and our six wholly-owned generation subsidiaries as of December 31, 2016 and the effect such obligations are expected to have on liquidity and cash flow in future periods.

 

     Payments Due by Period  

Contractual Obligations (1)

   Total      Less than
1 year
     1–3 years      3–5 years      After 5 years  
     (in billions of Won)  

Long-term debt (2)

     51,157        8,036        14,110        10,421        18,590  

Short-term borrowings

     428        428        —          —          —    

Interest payments (3)

     10,094        1,623        2,578        1,743        4,150  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

    61,679      10,087       16,688       12,164       22,740  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

Notes:

 

(1) Other than as set forth in this table, we have several other contractual obligations, including finance lease agreements and fuel purchase agreements. We believe the remaining annual payments under capital and operating lease agreements as of December 31, 2016 were immaterial. Contractual obligations related to payment of debt of us and our six wholly-owned generation subsidiaries represented 96.1% of our outstanding debt as of December 31, 2016 on a consolidated basis. As for fuel purchase agreements, our generation subsidiaries have entered into several contracts under which they are committed to purchasing minimum quantities of fuel, including approximately 80 million tons of bituminous coal annually, approximately 34,719 tons of U3O8, a uranium ore concentrate, by 2030, and a quantity of LNG to be annually negotiated with Korea Gas Corporation, among others. The fuel purchase price is typically negotiated near or at the time of purchase subject to prevailing market conditions. In 2016, we purchased fuel in the amount of Won 12.6 trillion.
(2) Includes the current portion.
(3) A portion of our debt carried a variable rate of interest. We used the interest rate in effect as of December 31, 2016 for the variable rate of interest in calculating the interest payments on debt for the periods indicated.

For a description of our commercial commitments and contingent liabilities, see Note 50 of the notes to our consolidated financial statements included in this annual report.

We entered into a power purchase agreement with GS EPS Co., Ltd. and three other non-renewable energy independent power producers that are not part of the Community Energy System, under which we are required to purchase all electricity generated by these companies to the extent such electricity is traded through the Korea Power Exchange. The purchase prices for such electricity are predetermined under the power purchase agreements, subject to annual adjustments. We purchased power from these companies in the amounts of Won 1,980 billion, Won 1,049 billion and Won 896 billion in 2014, 2015 and 2016, respectively.

We meet our coal requirements primarily through purchases of bituminous coal and anthracite coal under long-term supply contracts with domestic and foreign suppliers to purchase. Under these long-term supply contracts, purchase prices are adjusted periodically based on prevailing market conditions. We also purchase a substantial portion of our LNG requirements from Korea Gas Corporation, a related party. We have also entered into long-term transportation contracts with Pan Ocean Co., Ltd. and others.

 

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We import all uranium ore concentrates from sources outside Korea (including the United Kingdom, Kazakhstan, France, Germany, Niger, Canada and Japan) through medium- to long-term contracts and pay for such concentrates with currencies other than Won, primarily U.S. dollars. Contract prices for processing of uranium are generally based on market prices. See Note 49 of the notes to our consolidated financial statements for further details of these contracts.

Under the Long-term Transmission and Substation Plan approved by the Ministry of Trade, Industry and Energy, we are liable for the construction of all of our power transmission facilities and the maintenance and repair expenses for such facilities.

Payment guarantee and short-term credit facilities from financial institutions as of December 31, 2016 were as follows:

Payment guarantee

 

Description

  

Financial Institutions

   Credit Lines  
         

(In millions of Won or

thousands of USD,
JPY, INR, GBP,
SAR, NPR, AED and
EUR)

 

Payment of import letter of credits

   Shinhan Bank (1)      KRW        19,721  
   Woori Bank and others      USD        881,380  

Inclusive credits

   Shinhan Bank      INR        47,489  
   KEB Hana Bank      KRW        258,000  
   HSBC and others      USD        332,510  

Performance guarantees on guarantees

   Kookmin Bank and others      EUR        21,291  
   KEB Hana Bank      INR        236,443  
   Seoul Guarantee Insurance and others      KRW        93,781  
   Bank of Kathmandu      NPR        32,633  
   KEB Hana Bank and others      USD        634,223  

Guarantees for bid

   SMBC and others      USD        18,660  

Warranty bond and others

   Bank of Kathmandu      NPR        7,176  
   KEB Hana Bank      SAR        95,756  
   HSBC and others      USD        3,615,443  

Trade finance

   BNP Paribas and others      USD        750,000  

Other guarantees

   Export-Import Bank of Korea      EUR        1,400  
   KEB Hana Bank      INR        157,830  
   KEB Hana Bank      JPY        756,669  
   Nonghyup Bank and others      KRW        277,336  
   KEB Hana Bank      SAR        2,240  
   KEB Hana Bank and others      USD        1,111,636  

 

Note:

 

(1) We were provided with a guarantee of ₩198 million from Daewoo Engineering & Construction Co. Ltd. for some of these commitments.

 

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Overdraft and Others

 

Description

  

Financial Institutions

   Credit Lines  
         

(In millions of Won
or thousands of USD)

 

Overdraft

   Nonghyup Bank and others      KRW        1,915,000  

Commercial paper

   Shinhan Bank and others      KRW        700,000  

Limit amount available for card

   KEB Hana Bank and others      KRW        46,323  
   Banco de Oro      PHP        5,000  

Loan limit

   Kookmin Bank and others      KRW        1,132,282  
   BNP Paribas and others      USD        1,954,150  

We provide a performance guarantee related to a construction contract to Kookmin Bank. Such guarantee is not recognized as a provision for financial guarantee because such performance guarantee does not meet the definition of a financial guarantee contract under IFRS.

In order to secure our status as a shareholder of Navanacom Electric Co., Ltd., we have signed a fund supplement contract. According to the contract, in case Navanacom Electric Co., Ltd. does not have sufficient funds for its operation or repayment of borrowings, we bear a payment obligation in proportion to our ownership.

We have outstanding borrowings with a limit of US$275.6 million from creditors such as International Finance Corporation. Regarding the borrowing contract, we have guaranteed capital contribution of US$69.8 million and additional contribution up to US$19 million for contingencies, if any. For one of the electricity purchasers, Central Power Purchasing Agency Guarantee Ltd., we have provided payment guarantee up to US$2,110 thousand, in case of a construction delay or insufficient contract volume after commencement of the construction.

We have provided PT. Perusahaan Listrik Negara performance guarantee up to USD 917 thousand in proportion to our ownership in the electricity purchase contract with PT. Cirebon Energi Prasarana in relation to the second electric power generation business in Cirebon, Indonesia. Also, in relation to the business, we have provided Limited Notice To Proceed 2 (“LNTP 2”) Offshore performance payment guarantee amounting to USD 2,784 thousand to Hyundai Engineering Co. Ltd., Toshiba Corporation and MHPS, and LNTP 2 Onshore performance payment guarantee amounting to USD 380 thousand to Hyundai E&C and Toshiba Asia Pacific Indonesia (TAPI) based on the interest owned by us to progress the construction.

We have provided the Export-Import Bank of Korea and SMBC guarantee of mutual investment of USD 401 thousand, which is equivalent to the ownership interest of PT Mega Power Mandiri, in order to guarantee the expenses related to hydroelectric power business of PT Wampu Electric Power, our associate.

We have provided the Export-Import Bank of Korea, BNP Paribas and ING Bank guarantee of mutual investment of USD 2,684 thousand, which is equivalent to the ownership interest of PT BS Energy and PT Nusantara Hydro Alam, in order to guarantee the expenses related to hydroelectric power business of Tanggamus, Indonesia.

 

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Existing guarantees provided by us to our associates and joint ventures as of December 31, 2016 are as follows.

 

Primary Guarantor

(Providing Company)

  

Secondary Guarantor
(Provided Company)

  

Type of

Guarantees

  

Currency

   Credit Limit     

Guarantee (Final
Provided Company)

KEPCO

   KEPCO SPC Power Corporation    Debt guarantees    USD      71,192      SMBC, Export-Import Bank of Korea and ADB

KEPCO

   Shuweihat Asia O&M Co., Ltd.    Performance guarantees    USD      11,000      SAPCO

KEPCO

   KNOC Nigerian East Oil Co., Ltd. and KNOC Nigerian West Oil Co., Ltd.    Performance guarantees    USD      34,650      Korea National Oil Corporation (Nigerian government)

KEPCO

  

Rabigh Operation & Maintenance

Company

   Performance guarantees and others    USD      1,387      RABEC

KEPCO

   Nghi Son 2 Power Ltd.    Bidding guarantees    USD      10,000      SMBC Ho Chi Minh

KEPCO

   Barakah One Company    Debt guarantees    USD      90,000      Export-Import Bank of Korea
      Performance guarantees and others    USD      3,404,275     

KOWEPO

   Cheongna Energy Co., Ltd.    Collateralized money invested    KRW      27,211      KEB Hana Bank and others
      Guarantees for supplemental funding (1)         —       

KOWEPO

   Xe-Pian Xe-Namnoy Power Co., Ltd.    Payment guarantees for business reserve    USD      2,500      Krung Thai Bank
      Collateralized money invested    USD      43,276     
      Impounding bonus guarantees    USD      5,000      SK E&C

KOWEPO

   Rabigh O&M Co., Ltd.    Performance guarantees and others    SAR      5,600      Saudi Arabia British Bank

KOWEPO

   Deagu Photovoltaic Co., Ltd.    Collateralized money invested    KRW      1,230      IBK

KOWEPO

   Dongducheon Dream Power Co., Ltd.    Collateralized money invested    KRW      111,134      Kookmin Bank and others

KOWEPO

   PT. Mutiara Jawa    Collateralized money invested    USD      2,610      Woori Bank

KOWEPO

   Heangbok Do Si Photovoltaic Power Co., Ltd.    Collateralized money invested    KRW      194      Nonghyup Bank

KOWEPO

   Shin Pyeongtaek Power Co., Ltd.    Collateralized money invested    KRW      40      Kookmin Bank

EWP

   Busan Shinho Solar Power Co., Ltd.    Collateralized money invested    KRW      2,100      Heungkuk Life Insurance Co., Ltd. and others

 

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Primary Guarantor

(Providing Company)

  

Secondary Guarantor
(Provided Company)

  

Type of

Guarantees

  

Currency

   Credit Limit     

Guarantee (Final
Provided Company)

EWP

   Seokmun Energy Co., Ltd.    Collateralized money invested    KRW      580      KEB Hana Bank and others
      Guarantees for supplemental funding (1)    KRW      15,370     

EWP

   Chun-cheon Energy Co., Ltd.    Collateralized money invested    KRW      52,700      Kookmin Bank and others
      Guarantees for supplemental funding (1)    KRW      60,270     

EWP

   Honam Wind Power Co., Ltd.    Collateralized money invested    KRW      3,480      Shinhan Bank

EWP

   GS-Donghae Electric Power Co., Ltd.    Collateralized money invested    KRW      204,000      Korea Development Bank and others

EWP

   Yeonggwangbaeksu Wind Power Co., Ltd.    Collateralized money invested    KRW      3,000      Hyundai Marine & Fire Insurance Co., Ltd. and others

EWP

   PT. Tanjung Power Indonesia    Debt guarantees    USD      49,221      The Bank of Tokyo-Mitsubishi

KOSPO

   KNH Solar Co., Ltd.    Collateralized money invested    KRW      1,296      Shinhan Bank and Kyobo Life Insurance Co., Ltd.
      Performance guarantees and guarantees for supplemental funding and others (1)         —       

KOSPO

   Daeryun Power Co., Ltd.    Collateralized money invested    KRW      25,477      Korea Development Bank and others
      Guarantees for supplemental funding and others (1)         —       

KOSPO

   Changjuk Wind Power Co., Ltd.    Collateralized money invested    KRW      3,801      Shinhan Bank and Woori Bank
      Guarantees for supplemental funding (1)         —       

KOSPO

   Daegu Green Power Co., Ltd.    Collateralized money invested    KRW      46,226      Shinhan Bank

KOSPO

   KS Solar Corp. Ltd.    Collateralized money invested    KRW      637      Shinhan Capital Co., Ltd.

 

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Primary Guarantor

(Providing Company)

  

Secondary Guarantor
(Provided Company)

  

Type of

Guarantees

  

Currency

   Credit Limit     

Guarantee (Final
Provided Company)

KOSPO

   Kelar S.A.    Performance guarantees (1)    USD      50,700      KEB Hana Bank, SMBC, Mizuho Bank, BTMU, Natixis
      Debt guarantees    USD      132,600      BANCO SANTANDER-CHILE, SMBC, Mizuho Bank

KOSPO

   DS Power Co., Ltd.    Collateralized money invested    KRW      2,900      Korea Development Bank and others
      Guarantees for supplemental funding and others (1)         —       

KOSPO

   Pyoungchang Wind Power Co., Ltd.    Collateralized money invested    KRW      3,875      Woori Bank and Shinhan Bank
      Performance guarantees and guarantees for supplemental funding and others (1)         —       

KOSPO

   Taebaek Wind Power Co., Ltd.    Guarantees for supplemental funding and others (1)         —        Shinhan Bank

KEPCO E&C

   DS Power Co., Ltd.    Collateralized money invested    KRW      15,000      Korea Development Bank and others

KOMIPO

   Hyundai Green Power Co., Ltd.    Collateralized money invested    KRW      87,003      Korea Development Bank and others
      Guarantees for supplemental funding and others (1)         —       

KOMIPO

   PT. Cirebon Electric Power    Debt guarantees    USD      9,653      Mizuho Bank

KOMIPO

   PT. Wampu Electric Power    Debt guarantees         5,367      SMBC

KOMIPO

   Gangwon Wind Power Co., Ltd.    Collateralized money invested    KRW      7,409      IBK and others

KOSEP

   Hyundai Energy Co., Ltd.    Collateralized money invested    KRW      47,067      Korea Development Bank and others
      Performance guarantees and guarantees for supplemental funding and others (1)    KRW      78,600     

 

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Primary Guarantor

(Providing Company)

  

Secondary Guarantor
(Provided Company)

  

Type of

Guarantees

  

Currency

   Credit Limit     

Guarantee (Final
Provided Company)

KOSEP

   RES Technology AD    Collateralized money invested    KRW      15,595      Korea Development Bank and others
      Debt guarantees    EUR      4,271     
KOSEP    ASM-BG Investicii AD    Collateralized money invested    KRW      16,101      Korea Development Bank and others
      Debt guarantees    EUR      4,175     
KOSEP    Express Solar-light Power Generation Co., Ltd.    Guarantees for supplemental funding and others (1)(2)    KRW      2,500      Woori Bank
KOSEP    S-Power Co., Ltd.    Collateralized money invested    KRW      132,300      Korea Development Bank and others

KOSEP USA, INC.

   KODE NOVUS II LLC    Guarantees for supplemental funding and others (1)         3,750      Korea Development Bank

KOSEP USA, INC.

   KODE NOVUS I LLC    Guarantees for supplemental funding and others (1)         —        The Export-Import Bank of Korea and others
KHNP    Yeongwol Energy Station Co., Ltd.    Collateralized money invested    KRW      1,400      Meritz Fire & Marine Insurance Co., Ltd.
KHNP    Noeul Green Energy Co., Ltd.    Collateralized money invested    KRW      1,740      KEB Hana Bank and others
KHNP    Busan Green Energy Co., Ltd.    Collateralized money invested    KRW      14,564      Shinhan Bank and others
KEPCO KPS    Incheon New Power Co., Ltd.    Collateralized money invested    KRW      6,800      Shinhan Bank
      Guarantees for supplemental funding and others (1)         

 

Note:

 

(1) We guarantee to provide supplemental funding for businesses with respect to excessive business expenses or insufficient repayment of borrowings.
(2) We have granted the right to Hana Financial Investment Co., Ltd., as an agent for the creditors to Express Solar-light Power Generation Co., Ltd. (“ESPG”), to the effect that in the event of acceleration of ESPG’s payment obligations under certain borrowings to such creditors, Hana Financial may demand us to dispose of shares in ESPG held by us and apply the resulting proceeds to repayment of ESPG’s obligations.

Other than as described in this annual report and also in Notes 47 and 50 of the notes to our consolidated financial statements included in this annual report, we did not have any other material credit lines and guarantee commitments provided to any third parties as of December 31, 2016.

We are subject to legal proceedings. For a description of our legal proceedings, see Item 8.A. “Consolidated Statements and Other Financial Information—Legal Proceedings.”

 

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ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

Item 6.A. Directors and Senior Management

Board of Directors

Under the KEPCO Act, the Act on the Management of Public Institutions and our Articles of Incorporation, our board of directors, which is required to consist of not more than 15 directors, including the president, is vested with the authority over our management.

Pursuant to our Articles of Incorporation and the Act on the Management of Public Institutions, we have two types of directors: standing directors ( sangim-isa in Korean) and non-standing directors ( bisangim-isa in Korean). The standing directors refer to our directors who serve their directorship positions in full-time capacity. Many of our standing directors concurrently hold executive positions with us or our subsidiaries. The non-standing directors refer to our directors who do not serve their directorship positions in full-time capacity. The non-standing directors currently do not hold any executive positions with us or our subsidiaries.

Under our Articles of Incorporation, there may not be more than seven standing directors, including our president, and more than eight non-standing directors. The number of non-standing directors must exceed the number of standing directors, including our president. A senior non-standing director appointed by the Ministry of Strategy and Finance becomes our chairman of the board following the review and resolution of the Public Agencies Operating Committee.

Our president serves as our chief executive officer and represents us and administers our day-to-day business in all matters and bears the responsibility for the management’s performance. Our president is appointed by the President of the Republic upon the motion of the Ministry of Trade, Industry and Energy following the nomination by our director nomination committee, the review and resolution of the Public Agencies Operating Committee pursuant to the Act on the Management of Public Institutions and an approval at the general meeting of our shareholders.

Our standing director who concurrently serve as members of the audit committee are appointed through the same appointment process applicable to our president, except that the motion for appointment is made by the Ministry of Strategy and Finance instead of the Ministry of Trade, Industry and Energy. Standing directors other than our president or those who concurrently serve as members of the audit committee are appointed by our president with the approval at the general meeting of our shareholders.

Our non-standing directors must be appointed by the minister of the Ministry of Strategy and Finance following the review and resolution of the Public Agencies Operating Committee from a pool of candidates recommended by the director nomination committee and must have ample knowledge and experience in business management, and subject to approval at the general meeting of our shareholders. Government officials that are not part of the teaching staff in national and public schools are ineligible to become our non-standing directors.

The term of our president is three years, while that of our directors (standing or non-standing, but not the president) is two years. According to the Act on the Management of Public Institutions, our president’s term cannot be terminated unless done so by the President of the Republic pursuant to the Act on the Management of Public Institutions or upon an event as specified in our Articles of Incorporation.

Attendance by a majority of the board members constitutes a voting quorum for our board meetings, and resolutions can be passed by a majority of the board members. In the event the president acts in violation of law or the Articles of Incorporation, is negligent in his duties, or otherwise is deemed to be significantly impeded in performing his official duties as president, the board of directors may by resolution request the minister of the Ministry of Trade, Industry and Energy to dismiss or recommend the dismissal of the president.

Our non-standing directors may request any information necessary to fulfill their duties from our president, and except in special circumstances, our president must comply with such request.

 

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The names, titles and outside occupations, if any, of the directors as of April 15, 2017 and the respective years in which they took office are set forth below.

 

Name

  Age  

Title

 

Outside Occupation

 

Position Held Since

Cho, Hwan-Eik

  (67)   President, Chief Executive Officer and Standing Director   None   December 17, 2012

Lee, Sung-Han

  (60)   Standing Director and Member of the Audit Committee   Chaired Professor of College of Social Sciences, Dongguk University   May 2, 2016

Kim, Si-Ho

  (59)   Standing Director and Executive Vice President of Domestic Operations   None   August 27, 2015

Lyu, Hyang-Reol

  (59)   Standing Director and Executive Vice President of Overseas Operations   None   December 10, 2015

Hyun, Sang-Kwon

  (59)   Standing Director and Executive Vice President, Chief Financial Officer and Strategy Officer   None   August 27, 2015

Park, Sung-Chul

  (57)   Standing Director and Executive Vice President & Chief Sales Officer   None   July 26, 2016

Moon, Bong-Soo

  (59)   Standing Director and Executive Vice President & Chief Power System Officer   None   January 10, 2017

Cho, Jeon-Hyeok

  (56)   Non-Standing Director and Member of the Audit Committee   Chairman of Incheon City Committee of Barun Political Party   February 14, 2014

Lee, Kang-Hee

  (74)   Non-Standing Director   Director of the Republic of Korea Parliamentarian Society   February 14, 2014

Koo, Ja-Yoon

  (65)   Non-Standing Director   Chairman of Conseil International des Grands Reseaux Electriques Korea National Committee   September 2, 2014

Ahn, Choong-Yong

  (76)   Non-Standing Director   Chairman of Korea Commission for Corporate Partnership   December 3, 2014

Sung, Tae-Hyun

  (58)   Non-Standing Director and Member of the Audit Committee   Professor of Electrical Engineering, Hanyang University   August 12, 2014

Choi, Ki-Ryun

  (70)   Non-Standing Director   Professor of Energy Systems Research, Ajou University   August 12, 2014

Kim, Ji-Hong

  (61)   Non-Standing Director   None   May 16, 2016

Kim, Ju-Suen

  (56)   Non-Standing Director and Member of the Audit Committee   Representative of Kim, Ju-Suen Law Office   August 6, 2015

Cho, Hwan - Eik has been our President, Chief Executive Officer and Standing Director since December 17, 2012. Prior to his current position, he served as Chair-professor at Hanyang University, President of the Korea Trade-Investment Promotion Agency, CEO of Korea Export Insurance Corporation and Vice Minister of the Ministry of Commerce. Mr. Cho received a Ph.D. in business administration from Hanyang University.

 

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Lee, Sung-Han has been our Standing Director since May 2, 2016. Mr. Lee also currently serves as the Chaired Professor of College of Social Sciences at Dongguk University. Mr. Lee previously served as the Commissioner General of the Korean National Police Agency, Director General of the Korean National Policy Agency’s Office of Audit and Inspection, and Consular at the Embassy of the Republic of Korea in the United States. Mr. Lee received a Ph.D in police administration from Dongguk University.

Kim, Si-Ho  has been our Standing Director since August 27, 2015. Mr. Kim also currently serves as our Executive Vice President of Domestic Operations and previously served as Executive Vice President and Chief Operating Officer. Mr. Kim received a B.A. in law from Yeungnam University.

Lyu, Hyang-Reol  has been our Standing Director since December 10, 2015. Mr. Lyu also currently serves as our Executive Vice President of Overseas Operations and previously served as our President of KEPCO Ilijan Corporation, Philippines. Mr. Lyu received master’s degrees in business administration from Yonsei University and Helsinki School of Economics.

Hyun, Sang-Kwon  has been our Standing Director since August 27, 2015. Mr. Hyun also currently serves as our Executive Vice President, Chief Financial Officer and Chief Strategy Officer, and previously served as our Vice President of Project Strategy & Planning. Mr. Hyun received an M.A. in public administration from Yonsei University Graduate School.

Park, Sung-Chul  has been our Standing Director since August 27, 2015. Mr. Park also currently serves as our Executive Vice President and Chief Sales Officer and previously served as Vice President of Seongnam District Division. Mr. Park received an M.A. in electrical engineering from Yonsei University Graduate School.

Moon, Bong-Soo has been our Standing Director since January 10, 2017. Mr. Moon also currently serves as our Executive Vice President and Chief Power System Officer and previously served as our Director General of Project Strategy & Planning Office. Mr. Moon received a B.A. in electrical engineering from Seoul National University.

Cho, Jeon-Hyeok  has been our Non-Standing Director since February 14, 2014. Mr. Cho is currently the Chairman of Incheon City Committee of Barun Political Party. Mr. Cho previously served as a Professor of the Department of Economics, National University of Incheon and Chief Executive Officer of Naeil Venture Capital. Mr. Cho received a Ph.D. in economic theory and financial economics from University of Wisconsin at Madison.

Lee, Kang-Hee has been our Non-Standing Director since February 14, 2014. Mr. Lee is currently the director of the Republic of Korea Parliamentarian Society. Mr. Lee previously served as a member of the National Assembly for two terms and a member of the Advisory Board on Democratic Peaceful Unification.

Koo, Ja-Yoon  has been our Non-Standing Director since September 2, 2014. Mr. Koo is currently Chairman of Conseil International des Grands Reseaux Electriques Korea National Committee and previously served as Professor of Electronics & System Engineering at Hanyang University. Mr. Koo received a B.S. in Electrical Engineering from Seoul National University and a Ph.D. in Electrical Engineering from ENSIEG.

Ahn, Choong-Yong  has been our Non-Standing Director since December 3, 2014. Mr. Ahn is currently Chairman of Korea Commission for Corporate Partnership and Chaired Professor of Graduate School of International Studies at Chungang University and previously served as the foreign investment ombudsman for Korea Trade-Investment Promotion Agency (KOTRA). Mr. Ahn received a B.A. in Economics from Kyoungpook National University and a Ph.D. in Economics from Ohio State University.

 

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Sung, Tae-Hyun has been our Non-Standing Director since August 12, 2014. Mr. Sung is currently Professor of Electrical Engineering at Hanyang University and previously served as senior researcher at KEPCO Research Institute. Mr. Sung received a B.S. in Material Engineering from Hanyang University and a Ph.D in Material Science and Engineering from Tokyo Institute of Technology.

Choi, Ki-Ryun has been our Non-Standing Director since August 12, 2014. Mr. Choi is currently Professor of Energy Systems Research at Ajou University and previously served as head of New & Renewable Energy Center of Korea Energy Management Corporation. Mr. Choi received a B.S. in Mining and Minerals Engineering from Seoul National University and a Ph.D in Energy Economics from University of Grenoble.

Kim, Ji-Hong has been our Non-Standing Director since May 16, 2016. Mr. Choi previously served as a member of the Banking Subcommittee of the Financial Development Council, Professor at Korea Development Institute and a non-standing director at KB Kookmin Bank.

Kim, Ju-Suen  has been our Non-Standing Director since August 6, 2015. Mr. Kim is currently an attorney-at-law at Kim, Ju-Suen Law Firm. Mr. Kim previously served as Chief Public Prosecutor at the Daejeon Prosecutor’s Office Cheonan branch. Mr. Kim received a B.A. and M.A. in law from Dankook University.

The business address of our directors is 55 Jeollyeok-ro, Naju-si, Jeollanam-do, 58217, Korea.

Audit Committee

Under the Act on the Management of Public Institutions, which took effect as of April 1, 2007, we are designated as a “market-oriented public enterprise” and, as such, are required to establish an audit committee in lieu of the pre-existing board of auditors upon expiration of the term of the last remaining member of the board of auditors. In September 2007, we amended our Articles of Incorporation to establish, in lieu of the pre-existing board of auditors, an audit committee meeting the requirements under the Sarbanes-Oxley Act. Under the Act on the Management of Public Institutions, the Korean Commercial Code and the amended Articles of Incorporation, we are required to maintain an audit committee consisting of three members, of which not less than two members are required to be non-standing directors. The roles and responsibilities of our audit committee members are to perform the functions of an audit committee meeting the requirements under the Sarbanes-Oxley Act. Our audit committee was established on December 8, 2008.

Our audit committee currently consists of Lee, Sung-Han, a standing director, and Cho, Jeon-Hyeok and Kim, Ju-Seun, both non-standing directors. All such members of the audit committee are independent within the meaning of the Korea Stock Exchange listing standards, the regulations promulgated under the Korean Commercial Code and the New York Stock Exchange listing standards.

Item 6.B. Compensation

The aggregate amount of remuneration paid to our standing and non-standing directors in the aggregate consist of (i) salaries and wages paid to standing and non-standing directors, which amounted to Won 1,696 million in aggregate in 2016, and (ii) accrued retirement and severance benefits for standing directors, which amounted to Won 15 million in 2016. Under the Act on the Management of Public Institution, our executive officers consist of the president and the standing and non-standing directors. Standing directors take executive positions with our company while non-standing directors do not. We do not have any other officer who is in charge of a principal business unit, division or function, any other officer who performs a policy making function or any other person who performs similar policy making functions for us.

Item 6.C. Board Practices

Under the Act on the Management of Public Institutions and our Articles of Incorporation, for appoints made after April 1, 2007, the term of office for our president is three years and the term of our office for our

 

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directors (whether standing or non-standing but not the president) is two years. Our president and directors may be reappointed for one or more additional terms of one year. In order to be reappointed, the president must be evaluated on the basis of his management performance; a standing director, on the basis of the performance of the duties for which he was elected to perform, or if the standing director has executed an incentive bonus contract, on the basis of his performance under the contract; and a non-standing director, on the basis of his performance of the duties for which he was elected to perform.

Our board currently does not maintain a compensation committee. See Item 16.G. “Corporate Governance.” However, we currently maintain an audit committee meeting the requirements of the Sarbanes-Oxley Act to perform the roles and responsibilities of the compensation committee. Prior to the establishment of the audit committee on December 8, 2008 pursuant to the Act on the Management of Public Institutions, we maintained a board of auditors, which performed the roles and responsibilities required of an audit committee under the Sarbanes-Oxley Act, including the supervision of the financial and accounting audit by the independent registered public accountants.

Our president’s management contract includes benefits upon termination of his employment. The amount for termination benefits payable equals the average value of compensation for one month times the number of years the president is employed by us, provided that the president is only eligible for termination benefits after more than one year of continuous service.

The termination benefits for our standing directors are determined in accordance with our internal regulations for executive compensation. Standing directors are eligible for benefits only upon termination of employment or death following one year of continuous service.

See also Item 16.G. “Corporate Governance” for a further description of our board practices.

Item 6.D. Employees

As of December 31, 2016, we and our generation subsidiaries had a total of 43,688 regular employees, almost all of whom are employed within Korea. Approximately 9.9% of our regular employees (including employees of our generation subsidiaries) are located at our head office.

The following table sets forth the number of and other information relating to our regular employees, not including directors or senior management, as of December 31, 2016.

 

     KEPCO      KHNP      KOSEP      KOMIPO      KOWEPO      KOSPO      EWP      Total  

Regular Employees

                       

Administrative

     4,791        1,047        276        307        261        255        262        7,199  

Engineers

     10,440        9,141        1,788        2,002        1,744        1,716        1,942        28,773  

Others

     5,726        1,174        201        143        173        166        133        7,716  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     20,957        11,362        2,265        2,452        2,178        2,137        2,337        43,688  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Head Office Employees

     1,652        1,196        295        303        265        277        316        4,304  

% of total

     7.9        10.5        13.0        12.4        12.2        13.0        13.5        9.9  

Members of Labor Union

     15,596        7,415        1,445        1,439        1,475        1,361        1,642        30,373  

% of total

     74.4        65.3        63.8        58.7        67.7        63.7        70.3        69.5  

We and each of our generation subsidiaries have separate labor unions. Approximately 69.5% of our and our generation subsidiaries’ employees in the aggregate are members of these labor unions, each of which negotiates a collective bargaining agreement for its members each year. Under applicable Korean law, an employee-employer cooperation committee comprised of an equal number of representatives of management and labor (which shall be no less than three and no more than ten representatives from each of management and labor) is

 

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required to be established. Accordingly, an employee-employer cooperation committee composed of eight representatives of management and eight representatives of labor has been established at us and at each of our generation subsidiaries. The committee meets periodically to discuss various labor issues.

Since our formation in 1981, our businesses had not been interrupted by any work stoppages or strikes except in early 2002, when employees belonging to our five non-nuclear generation subsidiaries went on strike for six weeks to protest the Government’s decision to privatize such non-nuclear generation subsidiaries according to the Restructuring Plan, which privatization plan has since been suspended indefinitely. See Item 3.D. “Risk Factors—Risks Relating to KEPCO—The Government may adopt policy measures to substantially restructure the Korean electric power industry or our operational structure, which may have a material adverse effect on our business, operations and profitability.”

We believe our relations with our employees are generally good.

Item 6.E. Share Ownership

None of our directors and members of our administrative, supervisory or management bodies own more than 0.1% of our common stock.

 

ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

Item 7.A. Major Shareholders

The following table sets forth certain information relating to certain owners of our capital stock as of December 31, 2016, the date we last closed our shareholders’ registry:

 

Title of Class

  

Identity of Person or Group

   Shares Owned      Percentage of
Class (1)  (%)
 

Common stock

   Government      116,841,794        18.2  
   Korea Development Bank (2)      211,235,264        32.9  
     

 

 

    

 

 

 
   Subtotal      328,077,058        51.1  
   National Pension Corporation      41,705,930        6.5  
   Employee Stock Ownership Association      —          —    
   Directors and executive officers as a group      —          —    
   Public (non-Koreans)      197,308,414        30.7  
  

Common shares

     161,040,488        25.1  
  

American depositary shares

     36,267,926        5.6  
   Public (Koreans)      74,872,675        11.7  
     

 

 

    

 

 

 
   Total      641,964,077        100.0  
     

 

 

    

 

 

 

 

Notes:

 

(1) Percentages are based on issued shares of common stock.
(2) Korea Development Bank is a Government-controlled entity.

All of our shareholders have equal voting rights. See Item 10.B. “Memorandum and Articles of Incorporation—Description of Capital Stock—Voting Rights.”

Item 7.B. Related Party Transactions

We are engaged in a variety of transactions with our affiliates. We have related party transactions with Government-controlled entities such as Korea Gas Corporation, our consolidated subsidiaries and our equity investees. In addition, we engage in related party transactions with Korea Development Bank, one of our major shareholders. See Note 47 of the Notes to our consolidated financial statements included in this annual report for a description of transaction and balances with our related parties.

 

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In the past three years, our related party transactions principally consisted of purchases of LNG from Korea Gas Corporation, sales of electricity to Korea District Heating Co., Ltd., and long-term borrowings from Korea Development Bank. In 2014, 2015 and 2016, we and our generation subsidiaries purchased LNG from Korea Gas Corporation in the aggregate amount of Won 10,135 billion, Won 4,599 billion and Won 3,633 billion, respectively. As of December 31, 2016, we had long-term borrowings from Korea Development Bank in the aggregate amount of Won 204 billion.

We also engage in extensive transactions with our consolidated generation subsidiaries, including the purchase of electricity from them through Korea Power Exchange, sales of electricity to them, payment and receipt of commissions for services and receivables and payables transactions. These are eliminated in the consolidation process. We also provide guarantees for certain of our affiliates. See Item 5.F. “Tabular Disclosure of Contractual Obligations—Overdraft and Others.” We also have certain relationships with the Korea Power Exchange. See Item 4.B. “Business Overview—Purchase of Electricity—Cost-based Pool System.”

For a further description of our transactions with our affiliates, see Note 47 of the Notes to our consolidated financial statements included in this annual report.

Item 7.C. Interests of Experts and Counsel

Not Applicable

 

ITEM 8. FINANCIAL INFORMATION

Item 8.A. Consolidated Statements and Other Financial Information

We prepare our consolidated financial statements in compliance with requirements under Item 18. “Financial Statements.”

Legal Proceedings

As of December 31, 2016, we and our subsidiaries were engaged in 675 lawsuits as a defendant and 193 lawsuits as a plaintiff. As of the same date, the total amount of damages claimed against us and our subsidiaries was Won 636 billion, for which we have made a provision of Won 198 billion as of December 31, 2016, and the total amount claimed by us and our subsidiaries was Won 490 billion as of December 31, 2016. While the outcome of any of these lawsuits cannot presently be determined with certainty, our management currently believes that the final results from these lawsuits will not have a material adverse effect on our liquidity, financial position or results of operations.

The following are potentially significant claims pertaining to us and our subsidiaries.

In September 2013, Hyundai Engineering & Construction Co., Ltd., SK Engineering & Construction Co., Ltd. and GS Engineering & Construction Co., Ltd. filed a lawsuit against KHNP seeking from KHNP extra contractual payments in the total amount of Won 204 billion on grounds of design change under the construction contract relating to New Hanwool #1 and #2 units. In November 2016, the court ruled against KHNP, and KHNP has paid Won 217 billion of the claimed amounts in full and has subsequently appealed the ruling. The lawsuit is currently pending.

In December 2013, the Supreme Court of Korea ruled that regular bonuses fall under the category of ordinary wages on the condition that those bonuses are paid regularly and uniformly, and that any agreement which excludes such regular bonuses from ordinary wage is invalid. One of the key rulings provides that bonuses that are given to employees (i) on a regular and continuous basis and (ii) calculated according to the actual number of days worked (iii) that are not incentive-based must be included in the calculation of “ordinary wages.”

 

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The Supreme Court further ruled that in spite of invalidity of such agreements, employees shall not retroactively claim additional wages incurred due to such court decision, in case that such claims bring to employees unexpected benefits which substantially exceeds the wage level agreed by employers and employees and cause an unpredicted increase in expenditures for their company, which would lead the company to material managerial difficulty or would be a threat to the existence of the company. In that case, the claim is not acceptable since it is unjust and is in breach of the principle of good faith. As a result of such ruling by the Supreme Court of Korea, we and our subsidiaries became subject to a number of lawsuits filed by various industry-wide and company-specific labor unions based on claims that ordinary wage had been paid without including certain items that should have been included as ordinary wage. In July 2016, the court ruled against us, and in accordance with the court’s ruling, in August 2016 we paid Won 55.1 billion to the employees for three years of back pay plus interest. As of December 31, 2016, however, 30 lawsuits were pending against our subsidiaries for an aggregate claim amount of Won 198 billion, for which our subsidiaries set aside an aggregate amount of Won 179 billion to cover any potential future payments of additional ordinary wage in relation to the related lawsuits. With respect to two of such lawsuits, in February 2017, the Seoul District Court ruled partially against one of our generation subsidiaries. Other cases are currently pending. We cannot presently assure you that the courts will not ultimately rule against our subsidiaries in these lawsuits, or that the amount of our reserves against these lawsuits will be sufficient to cover the amounts actually payable under court rulings. Any of these developments would adversely affect our results of operations.

During the period from 2014 to 2016, certain residential customers filed class action lawsuits against us based on the claim that electricity tariffs, determined under the progressive rate structure, were excessive. As of December 31, 2016, we were subject to 12 such lawsuits brought by 9,237 plaintiffs with an aggregate claim amount of Won 5.1 billion. No similar lawsuit has been filed since the progressive rate structure was amended effective January 1, 2017 to ease the tariff burden on residential customers.

In addition, our generation subsidiaries, currently and from time to time, are involved in lawsuits incidental to the conduct of their business. A significant number of such lawsuits are based on the claim that the construction and operation of the electricity generation units owned by our generation subsidiaries have impaired neighboring fish farms. Our generation subsidiaries normally pay compensation to the members of fishery associations near our power plant complex for expected losses and damages arising from the construction and operation of their power plants in advance. Despite such compensation paid by us, a claim may still be filed against our generation subsidiaries challenging the compensation paid by us.

The nuclear power plant at Wolsong #1 unit began operations in 1982 and ended its operations in 2012 pursuant to its 30-year operating license. In February 2015, the Nuclear Safety and Security Commission (“NSSC”) evaluated the safety of operating Wolsong #1 unit and approved its extended operation until November 2022. However, a civic group filed a lawsuit to annul such decision by the NSSC’s decision, and in February 2017, the Seoul Administrative Court ruled against the NSSC. The NSSC appealed this decision, and the civic group has filed an injunction to suspend the operation of the Wolsong #1 unit. KHNP, which currently is operating the unit pursuant to the NSSC’s initial decision, has joined this lawsuit. We cannot assure you whether the courts will ultimately rule to grant the extension of life for Wolsong #1. There are seven other nuclear generation units whose life under their initial operating license will expire in the next ten years, or by 2027. Thus, if the courts were to ultimately rule against the extension of life for Wolsong #1, we may find it more difficult to have the life of other nuclear units extended as well. The failure to extend the life of these units would result in loss of revenue from such units and the increase in our overall fuel costs (as nuclear fuel is the cheapest compared to coal, LNG or oil), which could adversely affect our results of operation and financial condition.

We and our subsidiaries are also involved in the following arbitrations, among others.

 

   

SAP Korea Ltd brought a breach of contract claim against us and KEPCO KDN Co., Ltd., one of our subsidiaries, in relation to the enterprise resource planning software serviced by SAP Korea. In that connection, arbitration was filed in the International Chamber of Commerce International Court of Arbitration.

 

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Hyundai Samsung Joint Venture, one of our subcontractors, filed arbitration against us at the London Court of International Arbitration in 2016 in relation to certain disagreements involving the United Arab Emirates nuclear power plant construction project, but we have not recognized any losses because the probability of economic benefit outflow is remote and the related amount cannot be reasonably determined.

 

   

Hyundai E&C, GS Engineering & Construction Corp., and Hansol SeenTec Co., Ltd. filed arbitration against us with the Korea Commercial Arbitration Board to request payment of additional construction costs.

 

   

Halla Corporation filed arbitration against us with the Korea Commercial Arbitration Board to request payment of additional construction costs.

We do not believe such claims or proceedings, individually or in the aggregate, have had or will have a material adverse effect on us and our generation subsidiaries. However, we cannot assure you that this will be the case in the future, given the possibility that we may become subject to more legal and arbitral proceedings arising from changes in the environmental laws and regulations as they become applicable to us and our generation subsidiaries, and the related growth in demand for more compensation by actual and potential affected parties.

Dividend Policy

For our dividend policy, see Item 10.B. “Memorandum and Articles of Incorporation—Description of Capital Stock—Dividend Rights.” For a description of the tax consequences of dividends paid to our shareholders, see Item 10.E. “Taxation—Korean Taxes—Shares or ADSs—Dividends on the Shares of Common Stock or ADSs” and Item 10.E. “Taxation—U.S. Federal Income and Estate Tax Consideration for U.S. Persons—Tax Consequences with Respect to Common Stock and ADSs—Distributions on Common Stock or ADSs.”

Item 8.B. Significant Changes

Not Applicable

 

ITEM 9. THE OFFER AND LISTING

Item 9.A. Offer and Listing Details

Notes

We have issued the following registered notes and debentures, which are traded principally in the over-the-counter market:

 

   

7.95% Zero-To-Full Debentures, due April 1, 2096 (the “7.95% Debentures”);

 

   

6% Debentures due December 1, 2026, (the “6% Debentures”);

 

   

7% Debentures due February 1, 2027 (the “7% Debentures”); and

 

   

6-3/4% Debentures due August 1, 2027 (the “6-3/4% Debentures,” and together with the 7.40% Debentures, the 7.95% Debentures, the 6% Debentures and the 7% Debentures, the “Registered Debt Securities”).

Sales prices for the Registered Debt Securities are not regularly reported on any United States securities exchange or other United States securities quotation service.

Share Capital

The principal trading market for our common stock is the Korea Exchange. Our common stock is also listed on the New York Stock Exchange in the form of ADSs. The ADSs have been issued by Citibank, N.A. as

 

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depositary and are listed on the New York Stock Exchange under the symbol “KEP.” One ADS represents one-half of one share of our common stock. As of December 31, 2016, the date we last closed our shareholders’ registry, 72,535,852 ADSs representing 5.65% shares of our common stock were outstanding.

Common Stock

Shares of our common stock are listed on the KRX KOSPI Market of the Korea Exchange. The table below shows the high and low closing prices on the KRX KOSPI Market of the Korea Exchange for our common stock since 2012.

 

     Price  

Period

       High              Low      
     (In Won)  

2012

     

First Quarter

     27,900        22,250  

Second Quarter

     25,850        21,450  

Third Quarter

     27,900        23,750  

Fourth Quarter

     30,450        26,200  

2013

     

First Quarter

     34,850        29,000  

Second Quarter

     32,600        24,850  

Third Quarter

     30,700        26,350  

Fourth Quarter

     34,750        27,250  

2014

     

First Quarter

     37,800        33,400  

Second Quarter

     41,900        37,050  

Third Quarter

     48,200        36,800  

Fourth Quarter

     49,450        40,350  

2015

     

First Quarter

     46,000        39,150  

Second Quarter

     48,500        42,450  

Third Quarter

     52,200        46,300  

Fourth Quarter

     53,300        47,500  

2016

     

First Quarter

     46,000        39,150  

Second Quarter

     63,000        57,400  

Third Quarter

     62,900        54,000  

Fourth Quarter

     54,500        43,200  

October

     54,500        49,250  

November

     49,400        45,750  

December

     47,000        43,200  

2017

     

First Quarter

     48,750        40,350  

January

     44,000        42,250  

February

     44,100        40,350  

March

     48,750        41,500  

April (through April 14)

     46,700        44,550  

 

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ADSs

The table below shows the high and low closing prices on the New York Stock Exchange for the outstanding ADSs since 2012. Each ADS represents one-half of one share of our common stock.

 

     Closing Price per ADS  

Period

       High              Low      
     (In US$)  

2012

     

First Quarter

     12.45        9.73  

Second Quarter

     11.18        9.36  

Third Quarter

     12.42        10.37  

Fourth Quarter

     13.97        11.65  

2013

     

First Quarter

     16.35        13.04  

Second Quarter

     14.70        10.70  

Third Quarter

     14.59        11.45  

Fourth Quarter

     16.61        12.77  

2014

     

First Quarter

     17.75        15.51  

Second Quarter

     20.56        17.66  

Third Quarter

     22.44        18.17  

Fourth Quarter

     22.87        18.90  

2015

     

First Quarter

     21.01        18.26  

Second Quarter

     22.53        19.29  

Third Quarter

     22.13        19.45  

Fourth Quarter

     23.31        20.28  

2016

     

First Quarter

     21.01        18.26  

Second Quarter

     26.90        24.67  

Third Quarter

     28.31        24.38  

Fourth Quarter

     24.34        18.48  

October

     24.34        21.80  

November

     21.54        19.69  

December

     19.72        18.48  

2017

     

First Quarter

     21.35        17.53  

January

     18.80        17.81  

February

     19.20        17.53  

March

     21.35        17.80  

April (through April 13)

     20.85        19.23  

Item 9.B. Plan of Distribution

Not Applicable

Item 9.C. Markets

The Korea Exchange

The Korea Exchange began its operations in 1956, originally under the name of the Korea Stock Exchange. On January 27, 2005, pursuant to the Korea Securities and Futures Exchange Act, the Korea Exchange was

 

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officially created through the consolidation of the Korea Stock Exchange, the Korea Futures Exchange, the KOSDAQ Stock Market, Inc., or KOSDAQ, and the KOSDAQ Committee within the Korea Securities Dealers Association, which was in charge of the management of the KOSDAQ. The KRX KOSPI Market of the Korea Exchange, formerly the Korea Stock Exchange, has a single trading floor located in Seoul. The Korea Exchange is a limited liability company, the shares of which are held by (i) securities companies and futures companies that were the members of the Korea Stock Exchange or the Korea Futures Exchange and (ii) the shareholders of the KOSDAQ.

As of March 31, 2017 the aggregate market value of equity securities listed on the KOSPI of the Korea Exchange was approximately Won 1,400,962 billion. The average daily trading volume of equity securities for the first quarter of 2017 was approximately 393 million shares with an average transaction value of Won 4,556 billion.

The Korea Exchange has the power in some circumstances to suspend trading of shares of a given company or to de-list a security. The Korea Exchange also restricts share price movements. All listed companies are required to file accounting reports annually, semi-annually and quarterly and to release immediately all information that may affect trading in a security.

The Government has in the past exerted, and continues to exert, substantial influence over many aspects of the private sector business community which can have the intention or effect of depressing or boosting the market. In the past, the Government has informally both encouraged and restricted the declaration and payment of dividends, induced mergers to reduce what it considers excess capacity in a particular industry and induced private companies to publicly offer their securities.

The Korea Exchange publishes the Korea Composite Stock Price Index, or KOSPI, every ten seconds, which is an index of all equity securities listed on the KRX KOSPI Market of the Korea Exchange. On January 1, 1983, the method of computing KOSPI was changed from the Dow Jones method to the aggregate value method. In the new method, the market capitalizations of all listed companies are aggregated, subject to certain adjustments, and this aggregate is expressed as a percentage of the aggregate market capitalization of all listed companies as of the base date, January 4, 1980.

Movements in KOSPI in the past five years are set out in the following table:

 

     Opening      High      Low      Closing  

2012

     1,826.4        2,049.3        1,769.3        1,982.3  

2013

     2,031.1        2,059.6        1,780.6        2,011.3  

2014

     1,967.2        2,082.6        1,886.9        1,915.6  

2015

     1,926.4        2,173.4        1,829.8        1,961.3  

2016

     1,918.8        2,068.7        1,835.3        2,026.5  

2017 (through April 14)

     2,026.2        2,178.4        2,026.2        2,134.9  

 

Source: The Korea Exchange

Shares are quoted “ex-dividend” on the first trading day of the relevant company’s accounting period; since the calendar year is the accounting period for the majority of listed companies, this may account for the drop in KOSPI between its closing level at the end of one calendar year and its opening level at the beginning of the following calendar year.

 

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With certain exceptions, principally to take account of a share being quoted “ex-dividend” and “ex-rights,” upward and downward movements in share prices of any category of shares on any day are limited under the rules of the Korea Exchange to 30% of the previous day’s closing price of the shares, rounded down as set out below:

 

Previous Day’s Closing Price (Won)

   Rounded Down to (Won)  

less than 5,000

   5  

5,000 to less than 10,000

     10  

10,000 to less than 50,000

     50  

50,000 to less than 100,000

     100  

100,000 to less than 500,000

     500  

500,000 or more

     1,000  

As a consequence, if a particular closing price is the same as the price set by the fluctuation limit, the closing price may not reflect the price at which persons would have been prepared, or would be prepared to continue, if so permitted, to buy and sell shares. Orders are executed on an auction system with priority rules to deal with competing bids and offers.

Due to deregulation of restrictions on brokerage commission rates, the brokerage commission rate on equity securities transactions may be determined by the parties, subject to commission schedules being filed with the Korea Exchange by the securities companies. In addition, a securities transaction tax will generally be imposed on the transfer of shares or certain securities representing rights to subscribe for shares. A special agricultural and fishery tax of 0.15% of the sales prices will also be imposed on transfer of these shares and securities on the Korea Exchange. See Item 10.E. “Taxation—Korean Taxes.”

The number of companies listed on the KRX KOSPI Market of the Korea Exchange since 2012, the corresponding total market capitalization at the end of the periods indicated and the average daily trading volume for those periods are set forth in the following table:

 

Year

  Number
of  Listed
Companies
    Total Market Capitalization on the Last
Day for Each  Period
    Average Daily Trading
Volume, Value
 
    (Millions of Won)     (Thousands of U.S.
dollars) (1)
    (Thousands
of Shares)
    (Millions of
Won)
    Thousands of
U.S. dollars) (1)
 

2012

    784       1,154,294,166       1,077,671,708       486,480       4,823,643       4,503,448  

2013

    777       1,185,973,724       1,123,826,138       328,325       3,993,422       3,784,158  

2014

    773       1,192,252,867       1,084,655,082       319,661       3,891,322       3,540,140  

2015

    770       1,242,832,089       1,060,436,936       455,256       5,351,734       4,566,326  

2016

    779       1,308,440,373       1,581,250,191       343,486       4,269,948       5,160,232  

2017 (through April 14)

    773       1,385,279,447       1,223,853,209       402,868       4,538,953       4,010,030  

 

Source: The Korea Exchange

Note:

 

(1) Converted at the market average exchange rate as announced by Seoul Money Brokerage Services, Ltd. in Seoul at the end of the periods indicated.

The Korean securities markets are principally regulated by the Financial Services Commission and the Financial Investment Services and Capital Markets Act. The law imposes restrictions on insider trading and price manipulation, requires specified information to be made available by listed companies to investors and establishes rules regarding margin trading, proxy solicitation, takeover bids, acquisition of treasury shares and reporting requirements for shareholders holding substantial interests.

 

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Protection of Customer’s Interest in Case of Insolvency of Financial Investment Companies with a Brokerage License

Under Korean law, the relationship between a customer and a financial investment company with a brokerage license in connection with a securities sell or buy order is deemed to be consignment, and the securities acquired by a consignment agent (i.e., the financial investment company with a brokerage license) through such sell or buy order are regarded as belonging to the customer insofar as the customer and the consignment agent’s creditors are concerned. Therefore, in the event of bankruptcy or reorganization procedures involving a financial investment company with a brokerage license, the customer of such financial investment company is entitled to the proceeds of the securities sold by such financial investment company.

When a customer places a sell order with a financial investment company with a brokerage license which is not a member of the Korea Exchange and this financial investment company places a sell order with another financial investment company with a brokerage license which is a member of the Korea Exchange, the customer is still entitled to the proceeds of the securities sold received by the non-member company from the member company regardless of the bankruptcy or reorganization of the non-member company.

Likewise, when a customer places a buy order with a non-member company and the non-member company places a buy order with a member company, the customer has the legal right to the securities received by the non-member company from the member company because the purchased securities are regarded as belonging to the customer insofar as the customer and the non-member company’s creditors are concerned.

Under the Financial Investment Services and Capital Markets Act, the Korea Exchange is obliged to indemnify any loss or damage incurred by a counterparty as a result of a breach by its members. If a financial investment company with a brokerage license which is a member of the Korea Exchange breaches its obligation in connection with a buy order, the Korea Exchange is obliged to pay the purchase price on behalf of the breaching member.

As the cash deposited with a financial investment company with a brokerage license is regarded as belonging to such financial investment company, which is liable to return the same at the request of its customer, the customer cannot take back deposited cash from the financial investment company with a brokerage license if a bankruptcy or reorganization procedure is instituted against such financial investment company and, therefore, can suffer from loss or damage as a result. However, the Depositor Protection Act provides that Korean Deposit Insurance Corporation will, upon the request of the investors, pay investors up to Won 50 million per depositor per financial institution in case of the such financial investment company’s bankruptcy, liquidation, cancelation of securities business license or other insolvency events (collectively, the “Insolvency Events”). Pursuant to the Financial Investment Services and Capital Markets Act, subject to certain exceptions, financial investment companies with a brokerage license are required to deposit the cash received from their customers with the Korea Securities Finance Corporation, a special entity established pursuant to the Financial Investment Services and Capital Markets Act. Set-off or attachment of cash deposits by financial investment companies with a brokerage license is prohibited. The premiums related to this insurance under the Depositor Protection Act are paid by financial investment companies with a brokerage license.

Item 9.D. Selling Shareholders

Not Applicable

Item 9.E. Dilution

Not Applicable

Item 9.F. Expenses of the Issue

Not Applicable

 

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ITEM 10. ADDITIONAL INFORMATION

Item 10.A. Share Capital

Not Applicable

Item 10.B. Memorandum and Articles of Incorporation

Set forth below is information relating to our capital stock, including brief summaries of material provisions of our Articles of Incorporation, the KEPCO Act, the Financial Investment Services and Capital Markets Act, the Korean Commercial Code and certain related laws of Korea, all currently in effect. The following summaries are qualified in their entirety by reference to our Articles of Incorporation and the applicable provisions of the KEPCO Act, Financial Investment Services and Capital Markets Act, the Korean Commercial Code, the Act on the Management of Public Institutions and certain related laws of Korea. On November 11, 2016, we amended our Articles of Incorporation to strike references to executive directors (while keeping references to Standing Directors), as executive directors have not been appointed since 2003 and the system of executive directors was deemed obsolete.

Objects and Purposes

We are a statutory juridical corporation established under the KEPCO Act for the purpose of ensuring “stabilization of the supply and demand of electric power, and further contributing toward the sound development of the national economy through expediting development of electric power resources and carrying out proper and effective operation of the electricity business.” The KEPCO Act and our Articles of Incorporation contemplate that we engage in the following activities:

 

  1. development of electric power resources;

 

  2. generation, transmission, transformation and distribution of electricity and other related business activities;

 

  3. research and development of technology related to the businesses mentioned in items 1 and 2;

 

  4. overseas businesses related to the businesses mentioned in items 1 through 3;

 

  5. investments or contributions related to the businesses mentioned in items 1 through 4;

 

  6. businesses incidental to items 1 through 5;

 

  7. Development and operation of certain real estate held by us to the extent that:

 

  a. it is necessary to develop certain real estate held by us due to external factors, such as relocation, consolidation, conversion to indoor or underground facilities or deterioration of our substation or office; or

 

  b. it is necessary to develop certain real estate held by us to accommodate development of relevant real estate due to such real estate being incorporated into or being adjacent to an area under planned urban development; and

 

  8. other activities entrusted by the Government.

Our registered name is “Hankook Chollryuk Kongsa” in Korean and “Korea Electric Power Corporation” in English. Our registration number in the commercial registry office is 114671-0001456.

Directors

Under the KEPCO Act and our Articles of Incorporation, our board of directors consists of our president, standing directors and non-standing directors. A majority of the board members constitutes a voting quorum, and resolutions will be passed by a majority of the board members. Directors who have an interest in certain agenda proposed to the board may not vote on such issues.

 

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The standards of remuneration for our officers, including directors, shall be determined by a resolution of the board of directors, provided that the maximum amount of remuneration to be paid to our officers shall be determined by shareholder resolution and provided that the remuneration standards for the president and standing directors shall be determined by board resolution in accordance with the guideline thereon established by the minister of the Ministry of Strategy and Finance through review and resolution of our management committee. Directors who have an interest may not participate in the meeting of the board of directors for determining the remuneration for officers.

Neither the KEPCO Act nor our Articles of Incorporation have provisions relating to (i) borrowing powers exercisable by the directors and how such borrowing powers can be varied, (ii) retirement or non-retirement of directors under an age limit requirement, or (iii) the number of shares required for a director’s qualification.

Share Capital

Currently, our authorized share capital is 1,200,000,000 shares, which consists of shares of common stock and shares of non-voting preferred stock, par value Won 5,000 per share. Under our Articles of Incorporation, we are authorized to issue up to 150,000,000 non-voting preferred shares. As of December 31, 2016, the last day on which our shareholders’ registry was closed for purposes of identifying shareholders of record, 641,964,077 common shares were issued and no non-voting preferred shares have been issued. All of the issued and outstanding common shares are fully-paid and non-assessable and are in registered form. Share certificates are issued in denominations of 1, 5, 10, 50, 100, 500, 1,000 and 10,000 shares.

Description of Capital Stock

Dividend Rights

Under the KEPCO Act, we are authorized to pay preferential dividends on our shares held by public shareholders as opposed to those held by the Government. Dividends to public shareholders are distributed in proportion to the number of shares of the relevant class of capital stock owned by each public shareholder following approval by the shareholders at a general meeting of shareholders. Korea Development Bank may receive dividends in proportion to the numbers of our shares held by them. Under the Korean Commercial Code and our Articles of Incorporation, we will pay full annual dividends on newly issued shares.

Under our Articles of Incorporation, holders of non-voting preferred shares (of which there are currently none) are entitled to receive an amount not less than 8% of their par value as determined by a resolution of the board of directors at the time of their issuance. However, if the dividends on our common shares exceed the dividends on our non-voting preferred shares, the holders of non-voting preferred shares will be entitled to participate in the distribution of such excess amount with the holders of the common shares at an equal rate.

We declare our dividend annually at the annual general meeting of shareholders which is held within three months after the end of the fiscal year. The annual dividend is paid to the shareholders on record as of the end of the fiscal year preceding the annual shareholders’ meeting. Annual dividends may be distributed either in cash or in our shares. However, stock dividends shall be paid based on par value and may not exceed the amount equivalent to a half of the total amount of profit available for dividend payment.

Under the Korean Commercial Code and our Articles of Incorporation, we do not have an obligation to pay any annual dividend unclaimed for five years from the payment date.

The KEPCO Act provides that we shall not pay an annual dividend unless we have made up any accumulated deficit and set aside as a legal reserve an amount equal to 20.0% or more of our net profit until our accumulated reserve reaches one-half of our stated capital.

 

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Distribution of Free Shares

In addition to dividends in the form of shares to be paid out of retained or current earnings, the Korean Commercial Code permits us to distribute to our shareholders an amount transferred from our capital surplus or legal reserve to stated capital in the form of free shares.

Voting Rights

Holders of our common shares are entitled to one vote for each common share, except that voting rights with respect to any common shares held by us or by a corporate shareholder, more than one-tenth of whose outstanding capital stock is directly or indirectly owned by us, may not be exercised. Any person (with certain exceptions) who holds more than 3% of our issued and outstanding shares cannot exercise voting rights with respect to the shares in excess of this 3% limit. See “—Limitation on Shareholdings.” Pursuant to the Korean Commercial Code, cumulative voting is permissible in relation to the appointment of directors. Under the Korean Commercial Code, a cumulative vote can be requested by the shareholders of a corporation representing at least 1% of the total voting shares of such corporation if the relevant shareholders’ meeting is intended to elect more than two seats of the board of directors and the request for cumulative voting is made to the management of the corporation in writing at least six weeks in advance of the shareholders’ meeting. Under this new voting method, each shareholder will have multiple voting rights corresponding to the number of directors to be appointed in such voting and may exercise all such voting rights to elect one director. Shareholders are entitled to vote cumulatively unless the Articles of Incorporation expressly prohibit cumulative voting. Our current Articles of Incorporation do not prohibit cumulative voting. Except as otherwise provided by law or our Articles of Incorporation, a resolution can be adopted at a general meeting of shareholders by affirmative majority vote of the voting shares of the shareholders present or represented at a meeting, which must also represent at least one-fourth of the voting shares then issued and outstanding. The holders of our non-voting preferred shares (other than enfranchised preferred shares (as described below)) are not entitled to vote on any resolution or to receive notice of any general meeting of shareholders unless the agenda of the meeting includes consideration of a resolution on which such holders are entitled to vote. If we are unable to pay any dividend to holders of non-voting preferred shares as provided in our Articles of Incorporation, the holders of non-voting preferred shares will become enfranchised and will be entitled to exercise voting rights until such dividends are paid. The holders of these “enfranchised preferred shares” have the same rights as holders of our common shares to request, receive notice of, attend and vote at a general meeting of shareholders. Pursuant to the KEPCO Act and our Articles of Incorporation, the appointment of standing directors, the president and standing statutory auditor are subject to shareholder approval.

Under the Korean Commercial Code, for the purpose of electing our statutory auditor, a shareholder (together with certain related persons) holding more than 3% of the total shares having voting rights may not exercise voting rights with respect to shares in excess of such 3% limit.

The Korean Commercial Code provides that the approval by holders of at least two-thirds of those shares having voting rights present or represented at a meeting, where such shares also represent at least one-third of the total issued and outstanding shares having voting rights, is required in order to, among other things:

 

   

amend our Articles of Incorporation;

 

   

remove a director or statutory auditor;

 

   

effect any dissolution, merger, consolidation or spin-off of us;

 

   

transfer the whole or any significant part of our business;

 

   

effect the acquisition by us of all of the business of any other company;

 

   

effect the acquisition by us of the business of another company that may have a material effect on our business;

 

   

reduce capital; or

 

   

issue any new shares at a price lower than their par value.

 

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Under our Articles of Incorporation, an approval by the Ministry of Trade, Industry and Energy is required in order to amend the Articles of Incorporation. Any change to our authorized share capital requires an amendment to our Articles of Incorporation.

In addition, in the case of amendments to our Articles of Incorporation or any merger or consolidation of us or in certain other cases which affect the rights or interests of the non-voting preferred shares a resolution must be adopted by a meeting of the holders of non-voting preferred shares approving such event. This resolution may be adopted if approval is obtained from holders of at least two-thirds of those non-voting preferred shares present or represented at such meeting and such non-voting preferred shares also represent at least one-third of our total issued and outstanding non-voting preferred shares.

A shareholder may exercise his voting rights by proxy. The proxy shall present the power of attorney prior to the start of the general meeting of shareholders. Under the Financial Investment Services and Capital Markets Act and our Articles of Incorporation, no one other than us may solicit a proxy from shareholders.

Subject to the provisions of the deposit agreement, holders of our American Depositary Shares (“ADSs”) are entitled to instruct the depositary, whose agent is the record holder of the underlying common shares, how to exercise voting rights relating to those underlying common shares.

Preemptive Rights and Issuance of Additional Shares

Authorized but unissued shares may be issued at such times and, unless otherwise provided in the Korean Commercial Code, upon such terms as our board of directors may determine. The new shares must be offered on uniform terms to all our shareholders who have preemptive rights and who are listed on the shareholders’ register as of the record date. Subject to the limitations described under “—Limitation on Shareholdings” below and with certain other exceptions, all our shareholders are entitled to subscribe for any newly issued shares in proportion to their existing shareholdings. Under the Korean Commercial Code, we may vary, without shareholder approval, the terms of such preemptive rights for different classes of shares. Public notice of the preemptive rights to new shares and their transferability must be given not less than two weeks (excluding the period during which the shareholders’ register is closed) prior to the record date. Our board of directors may determine how to distribute shares for which preemptive rights have not been exercised or where fractions of shares occur.

Our Articles of Incorporation provide that new shares that are (1) publicly offered pursuant to the Financial Investment Services and Capital Markets Act, (2) issued to members of our employee stock ownership association, (3) represented by depositary receipts, (4) issued through offering to public investors, or (5) issued to investors in kind under the State Property Act may be issued pursuant to a resolution of the board of directors to persons other than existing shareholders, who in such circumstances will not have preemptive rights.

Under our Articles of Incorporation, we may issue convertible bonds or bonds with warrants each up to an aggregate principal amount of Won 2,000 billion and Won 1,000 billion, respectively, to persons other than existing shareholders. However, the aggregate principal amount of convertible bonds and bonds with warrants so issued to persons other than existing shareholders may not exceed Won 2,000 billion.

Under the Financial Investment Services and Capital Markets Act and our Articles of Incorporation, members of our employee stock ownership association, whether or not they are our shareholders, have a preemptive right, subject to certain exceptions, to subscribe for up to 20.0% of any shares publicly offered pursuant to the Financial Investment Services and Capital Markets Act. This right is exercisable only to the extent that the total number of shares so acquired and held by members of our employee stock ownership association does not exceed 20.0% of the total number of shares then outstanding.

 

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Liquidation Rights

In the event of our liquidation, the assets remaining after payment of all debts, liquidation expenses and taxes will be distributed among shareholders in proportion to the number of shares held. Holders of our non-voting preferred shares have no preference in liquidation.

Rights of Dissenting Shareholders

In certain limited circumstances (including, without limitation, the transfer of the whole or any significant part of our business or the merger, or consolidation upon a split-off of us with another company), dissenting holders of shares have the right to require us to purchase their shares. To exercise such right, shareholders must submit a written notice of their intention to dissent to us prior to the general meeting of shareholders or the class meeting of holders of non-voting preferred shares, as the case may be. Within 20 days after the date on which the relevant resolution is passed at such meeting, such dissenting shareholders must request us in writing to purchase their shares. We are obligated to purchase the shares of dissenting shareholders within one month after the expiration of such 20-day period. The purchase price for such shares must be determined through negotiation between the dissenting shareholders and us. Under the Financial Investment Services and Capital Markets Act, if we cannot agree on a price through negotiation, the purchase price will be the average of (1) the weighted average of the daily share price on the Korea Exchange for a two-month period before the date of adoption of the relevant board resolution, (2) the weighted average of the daily share price on the Korea Exchange for the one month period before such date and (3) the weighted average of the daily share price on the Korea Exchange for the one week period before such date. However, if we or dissenting shareholders who requested us to purchase their shares oppose such purchase price, the determination of a purchase price may be filed with a court. Holders of ADSs will not be able to exercise dissenter’s rights unless they have withdrawn the underlying Common Stock and become our direct shareholders.

Transfer of Shares

Under the Korean Commercial Code, the transfer of shares is effected by delivery of share certificates, but in order to assert shareholders’ rights against us, the transferee must have his name and address registered on our register of shareholders. For this purpose, shareholders are required to file one’s name, address and seal with our transfer agent. Under our Articles of Incorporation, non-resident shareholders must appoint an agent authorized to receive notices on their behalf in Korea and file a mailing address in Korea. These requirements do not apply to the holders of ADSs. Under current Korean regulations, the Korea Securities Depository, foreign exchange banks (including domestic branches of foreign banks), financial investment companies with a dealing, brokerage or collective investment license and internationally recognized foreign custodians are authorized to act as agents and provide related services for foreign shareholders. Our transfer agent is Kookmin Bank, located at 9-1, Namdaemun-ro, 2-ga, Chung-ku, Seoul, Korea. Certain foreign exchange controls and securities regulations apply to the transfer of our shares by non-residents of Korea or non-Koreans. See Item 9. “The Offer and Listing.”

Acquisition of Our Own Shares

Under the Korean Commercial Code, we may acquire our own shares through (1) purchases on a stock exchange or (2) purchase of the shares in proportion to the number of shares held by each shareholder on equal terms and conditions, by a resolution at a Shareholders’ meeting. The aggregate amount of the acquisition price shall not exceed the excess of our net assets, on a non-consolidated basis, over the sum of (1) our stated capital, (2) the total amount of our capital surplus reserve and earned surplus reserve which have accumulated up to the end of the previous fiscal year, (3) our earned surplus required to be accumulated for the then current fiscal year and (4) our net assets stated in the balance sheet as being increased as a result of the evaluation of the assets and liabilities in accordance with our accounting principles without being set off against any unrealized losses. In addition, under the Korean Commercial Code, we may not acquire our own shares if our net assets may fall short

 

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of the aggregate amount of the item (1) to (4) above, on a non-consolidated basis, as of the conclusion of the relevant business year of us. In general, our subsidiaries 50% or more of whose shares are owned by us may not acquire our shares.

General Meeting of Shareholders

The ordinary general meeting of our shareholders is held within three months after the end of each fiscal year, and subject to board resolution or court approval, an extraordinary general meeting of our shareholders may be held as necessary or at the request of shareholders holding an aggregate of 1.5% or more of our outstanding common shares for at least six consecutive months. Under the Korean Commercial Code, an extraordinary general meeting of shareholders may be convened at the request of our audit committee, subject to a board resolution or court approval. Holders of non-voting preferred shares may only request a general meeting of shareholders once the non-voting preferred shares have become enfranchised as described under “—Description of Capital Stock—Voting Rights” above. Written notices setting forth the date, place and agenda of the meeting must be given to shareholders at least two weeks prior to the date of the general meeting of shareholders. However, pursuant to the Korean Commercial Code and our Articles of Incorporation, with respect to holders of less than 1% of the total number of our issued and outstanding shares which are entitled to vote, notice may be given by placing at least two public notices at least two weeks in advance of the meeting in at least two daily newspapers published in Seoul or by placing a public notice in the electrical disclosure system of the Financial Supervisory Service or the Korea Exchange, at least two weeks in advance of the meeting. Currently, for giving such notice, we use an electronic disclosure system available for access at a website maintained by the Financial Supervisory Service (known as the Data Analysis, Retrieval and Transfer System, or DART). Shareholders not on the shareholders’ register as of the record date are not entitled to receive notice of the general meeting of shareholders or attend or vote at such meeting. Holders of the enfranchised preferred shares on the shareholders’ register as of the record date are entitled to receive notice of, and to attend and vote at, the general meetings. Otherwise, holders of non-voting preferred shares are not entitled to receive notice of general meetings of shareholders or vote at such meetings but may attend such meetings.

The general meeting of shareholders is held in Naju, Jeollanam-do.

Register of Shareholders and Record Dates

Our transfer agent, Kookmin Bank, maintains the register of our shareholders at its office in Seoul, Korea. It registers transfers of our shares on the register of shareholders upon presentation of the share certificates.

The record date for annual dividends is December 31. For the purpose of determining the holders of shares entitled to annual dividends, the register of shareholders may be closed from January 1 to January 31 of each year. Further, the Korean Commercial Code and our Articles of Incorporation permit us at least two weeks’ public notice to set a record date and/or close the register of shareholders for not more than three months for the purpose of determining the shareholders entitled to certain rights pertaining to our shares. The trading of our shares and the delivery of certificates in respect of them may continue while the register of shareholders is closed.

Annual Report

At least one week prior to the annual general meeting of shareholders, our annual report and audited consolidated financial statements must be made available for inspection at our principal office and at all branch offices. Copies of annual reports, the audited non-consolidated financial statements and any resolutions adopted at the general meeting of shareholders will be available to our shareholders.

Under the Financial Investment Services and Capital Markets Act, we must file with the Financial Services Commission and the Korea Exchange an annual report within 90 days after the end of our fiscal year, a half-year

 

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report within 45 days after the end of the first six months of our fiscal year and quarterly reports within 45 days after the end of the first three months and nine months of our fiscal year. Following our adoption of IFRS starting in January 1, 2011 pursuant to regulatory requirements for listed companies in Korea, we are required to file half-year and quarterly reports containing interim financial statements and notes thereto on a consolidated basis as well as on a separate basis.

Limitation on Shareholdings

No person other than the Government, our employee stock ownership association and persons who obtain an approval from the Financial Services Commission may hold for its account more than 3% of our total issued and outstanding shares. In calculating shareholdings for this purpose, shares held by your spouse and your certain relatives or by your certain affiliates (such spouses, relatives and affiliates are together referred to as “Affiliated Holders”) are deemed to be held by you. If you hold our shares in violation of this 3% limit, you are not entitled to exercise the voting rights or preemptive rights of our shares in excess of such 3% limit and the Financial Services Commission may order you to take necessary corrective action. In addition, the KEPCO Act currently requires that the Government, directly or through Korea Development Bank, own not less than 51% of our capital. For other restrictions on shareholdings, see Item 9. “The Offer and Listing.”

Change of Control

The KEPCO Act requires that the Government, directly or pursuant to the Korea Development Bank Act, through Korea Development Bank, own not less than 51% of our capital.

Disclosure of Share Ownership

Under the Financial Investment Services and Capital Markets Act, any person whose direct or beneficial ownership of a listed company’s shares with voting rights, equity-related debt securities including convertible bonds, bonds with warrants, exchangeable bonds, certificates representing the rights to subscribe for common shares, derivatives-linked securities and depository receipts of the aforementioned securities (collectively referred to as “Equity Securities”), together with the Equity Securities directly or beneficially owned by certain related persons or by any person acting in concert with the person, accounts for 5% or more of our total outstanding Equity Securities is required to report the status and purpose (in terms of whether the purpose of shareholding is to participate in the management of the issuer) of the holdings and the material contents of the agreements relating to the Equity Securities and other matters prescribed by the Presidential Decree under the Financial Investment Services and Capital Markets Act to the Financial Services Commission of Korea and the Korea Exchange within five business days after reaching the 5% ownership interest threshold.

In addition, any change (i) in the purpose of the shareholding or in the ownership, (ii) the major terms and conditions of agreements relating to Equity Securities owned (such as trust agreements and collateral agreements) to the extent the number of relevant Equity Securities is 1% or more of the total outstanding Equity Securities, or (iii) the type of ownership (direct ownership or holding) to the extent the number of relevant Equity Securities is 1% or more of the total outstanding Equity Securities, must be reported to the Financial Services Commission of Korea and the Korea Exchange within five business days from the date of such change (or by the tenth day of the month following the month in which the change occurs, in the case of a person with no intent to seek management control). Notwithstanding the foregoing, certain professional investors designated by the Financial Services Commission may report such matters to the Financial Services Commission and the Korea Exchange by the tenth day of the month immediately following the end of the quarter in which such 5.0% ownership interest is reached or the change occurs.

When filing a report to the Financial Services Commission and the Korea Exchange in accordance with the reporting requirements described above, a copy of such report must be sent to the relevant listed company. Violation of these reporting requirements may subject a person to sanctions such as prohibition on the exercise of

 

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voting rights with respect to the Equity Securities for which the reporting requirement was violated or fines or imprisonment. Furthermore, the Financial Services Commission may order the disposal of the Equity Securities for which the reporting requirement was violated or may impose administrative fine.

A person reporting to the Financial Services Commission and the Korea Exchange that his purpose of holding the Equity Securities is to participate in the management of the listed company is prohibited from acquiring additional Equity Securities of the listed company and exercising voting rights during the period commencing from the date on which the event triggering the reporting requirements occurs to the fifth day from the date on which the report is made.

Item 10.C. Material Contracts

None.

Item 10.D. Exchange Controls

General

The Foreign Exchange Transaction Act and the Presidential Decree and regulations under that Act and Decree, or collectively the Foreign Exchange Transaction Laws, regulate investment in Korean securities by non-residents and issuance of securities outside Korea by Korean companies. Non-residents may invest in Korean securities pursuant to the Foreign Exchange Transaction Laws. The Financial Services Commission has also adopted, pursuant to its authority under the Financial Investment Services and Capital Markets Act, regulations that regulate investment by foreigners in Korean securities and issuance of securities outside Korea by Korean companies.

Subject to certain limitations, the Ministry of Strategy and Finance has the authority to take the following actions under the Foreign Exchange Transaction Laws: (i) if the Government deems it necessary on account of war, armed conflict, natural disaster or grave, sudden and significant changes in domestic or foreign economic circumstances or similar events or circumstances, the Ministry of Strategy and Finance may temporarily suspend performance under any or all foreign exchange transactions, in whole or in part, to which the Foreign Exchange Transaction Laws apply (including suspension of payment and receipt of foreign exchange) or impose an obligation to deposit, safe-keep or sell any instruments of payment to the Bank of Korea or certain other governmental agencies or financial institutions, or effective from July 18, 2017, impose an obligation on resident creditors to collect and recover debts owed by non-resident debtors,, and (ii) if the Government concludes that the international balance of payments and international financial markets are experiencing or are likely to experience significant disruption or that the movement of capital between Korea and other countries are likely to adversely affect the Korean Won, exchange rates or other macroeconomic policies, the Ministry of Strategy and Finance may take action to require any person who intends to effect or effects a capital transaction to deposit all or a portion of the instruments of payment acquired in such transactions with the Bank of Korea or certain other governmental agencies or financial institutions.

Government Review of Issuances of Debt Securities and ADSs and Report for Payments

In order for us to issue debt securities of any series outside of the Republic, we are required to file a report with our designated foreign exchange bank or the Ministry of Strategy and Finance on the issuance of such debt securities, depending on the issuance amount. The Ministry of Strategy and Finance may at its discretion direct us to take measures as necessary to avoid undue exchange rate fluctuations before it accepts such report. Furthermore, in order for us to make payments of principal of or interest on the debt securities of any series and other amounts as provided in an indenture and such debt securities, we are required to present relevant documents to the designated foreign exchange bank at the time of each actual payment. The purpose of such presentation is to ensure that the actual remittance is consistent with the terms of the transaction reported to our designated foreign exchange bank or the Ministry of Strategy and Finance.

 

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In order for us to offer for purchase shares of our common stock held in treasury in the form of ADSs or issue shares of our common stock represented by the ADSs, we are required to file a prior report of such offer or issuance with our designated foreign exchange bank or the Ministry of Strategy and Finance, depending on the offering amount. The Ministry of Strategy and Finance may at its discretion direct us to take measures as necessary to avoid undue exchange rate fluctuations before it accepts such report. No further Governmental approval is necessary for the initial offering and issuance of the ADSs.

In order for a depositary to acquire any existing shares of our common stock from holders of these shares of common stock (other than from us) for the purpose of issuance of depositary receipts representing these shares of common stock, the depositary would be required to obtain our consent for the number of shares to be deposited in any given proposed deposit which exceeds the difference between (1) the aggregate number of shares deposited by us or with our consent for the issuance of ADSs (including deposits in connection with the initial and all subsequent offerings of ADSs and stock dividends or other distributions related to these ADSs) and (2) the number of shares on deposit with the depositary at the time of such proposed deposit. We may not grant this consent for the deposit of shares of our common stock in the future, if our consent is required. Therefore, a holder of ADSs who surrenders ADSs and withdraws shares of our common stock may not be permitted subsequently to deposit such shares and obtain ADSs.

In addition, we are also required to notify the Ministry of Strategy and Finance upon receipt of the full proceeds from the offering of ADSs. No additional Governmental approval is necessary for the offering and issuance of ADSs.

Reporting Requirements for Holders of Substantial Interests

Under the Financial Investment Services and Capital Markets Act, any person whose direct beneficial ownership of a listed company’s Equity Securities, together with the Equity Securities beneficially owned by certain related persons or by any person acting in concert with such person, accounts for 5% or more of our total outstanding Equity Securities is required to report the status and purpose (namely, whether the purposes of the share ownership is to participate in the management of the issuer) of the holdings and the material contents of the agreements relating to the Equity Securities and other matters prescribed by the Presidential Decree under the Financial Investment Services and Capital Markets Act to the Financial Services Commission and the Korea Exchange within five business days after reaching the 5% ownership interest and any change in ownership interest subsequent to the report which equals or exceeds 1.0% of the total outstanding Equity Securities is required to be reported to the Financial Services Commission and the Korea Exchange within five business days from the date of the change.

In addition, any change (i) in the purpose of the shareholding or in the ownership, (ii) the major terms and conditions of agreements relating to Equity Securities owned (such as trust agreements and collateral agreements) to the extent the number of relevant Equity Securities is 1% or more of the total outstanding Equity Securities, or (iii) the type of ownership (direct ownership or holding) to the extent the number of relevant Equity Securities is 1% or more of the total outstanding Equity Securities, must be reported to the Financial Services Commission of Korea and the Korea Exchange within five business days from the date of such change (or by the tenth day of the month following the month in which the change occurs, in the case of a person with no intent to seek management control). Notwithstanding the foregoing, certain professional investors designated by the Financial Services Commission may report such matters to the Financial Services Commission and the Korea Exchange by the tenth day of the month immediately following the end of the quarter in which such 5.0% ownership interest is reached or the change occurs.

When filing a report to the Financial Services Commission and the Korea Exchange in accordance with the reporting requirements described above, a copy of such report must be sent to the relevant listed company. Violation of these reporting requirements may subject a person to sanctions such as prohibition on the exercise of voting rights with respect to the Equity Securities for which the reporting requirement was violated or fines or

 

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imprisonment. Furthermore, the Financial Services Commission may order the disposal of the Equity Securities for which the reporting requirement was violated or may impose administrative fine.

A person reporting to the Financial Services Commission and the Korea Exchange that his purpose of holding the Equity Securities is to participate in the management of the listed company is prohibited from acquiring additional Equity Securities of the listed company and exercising voting rights during the period commencing from the date on which the event triggering the reporting requirements occurs to the fifth day from the date on which the report is made.

In addition to the reporting requirements described above, any person whose direct or beneficial ownership of our voting stock and/or depository receipts for our voting stock accounts for 10.0% or more of the total issued and outstanding voting stock, whom we refer to as a major shareholder, must file a report to the Securities and Futures Commission and to the Korea Exchange within five business days after the date on which the person reached such shareholding limit. In addition, such person must file a report to the Securities and Futures Commission and to the Korea Exchange regarding any subsequent change in his/her shareholding. Such report on subsequent change in shareholding must be filed within five business days of the occurrence of any such change. Violation of these reporting requirements may subject a person to criminal sanctions such as fines and imprisonment.

Restrictions Applicable to ADSs

No Governmental approval is necessary for the sale and purchase of ADSs in the secondary market outside Korea or for the withdrawal of shares of our common stock underlying ADSs and the delivery inside Korea of the withdrawn shares. However, a foreigner who intends to acquire shares must obtain an Investment Registration Card from the Financial Supervisory Service as described below. The acquisition of shares by a foreigner must be reported by the foreigner or his standing proxy in Korea immediately to the Governor of the Financial Supervisory Service.

Special Reporting Requirement for Companies Whose Securities Are Listed on Foreign Exchanges

Under the regulations of the Financial Services Commission and the Korea Exchange, (i) if a company listed on the Korea Exchange has submitted a public disclosure of material matters to a foreign financial investment supervisory authority pursuant to the laws of the foreign jurisdiction, then it must submit a copy of the public disclosure and a Korean translation thereof to the Financial Services Commission of Korea and the Korea Exchange, and (ii) if a company listed on the Korea Exchange is approved for listing on a foreign stock market or determined to be de-listed from the foreign stock market or actually listed on, or de-listed from, a foreign stock market, then it must submit a copy of any document, which it submitted to or received from the relevant foreign government, foreign financial investment supervisory authority or the foreign stock market, and a Korean translation thereof to the Financial Services Commission of Korea and the Korea Exchange.

Persons who have acquired shares of our common stock as a result of the withdrawal of shares of common stock underlying ADSs may exercise their preemptive rights for new shares, participate in free distributions and receive dividends on shares of our common stock without any further governmental approval.

Restrictions Applicable to Common Stock

Under the Foreign Exchange Transaction Laws and the Regulations on Financial Investment Business (together, the “Investment Rules”), foreigners are permitted to invest, subject to certain exceptions and procedural requirements, in all shares of Korean companies unless prohibited by specific laws. Foreign investors may trade shares listed on the Korea Exchange only through the Korea Exchange except for certain limited circumstances. These circumstances include, among others, (1) odd-lot trading of shares, (2) acquisition of shares by a foreign company as a result of a merger, (3) acquisition or disposal of shares in connection with a tender

 

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offer, (4) acquisition of shares by exercise of warrant, conversion right under convertible bonds, exchange right under exchangeable bonds or withdrawal right under depositary receipts issued outside of Korea by a Korean company, such shares being “Converted Shares,” (5) acquisition of shares through exercise of rights under securities issued outside of Korea, (6) acquisition of shares as a result of inheritance, donation, bequest or exercise of shareholders’ rights (including preemptive rights or rights to participate in free distributions and receive dividends), (7) over-the-counter transactions between foreigners of a class of shares for which a ceiling on aggregate acquisition by foreigners (as explained below) exists and has been reached or exceeded, (8) acquisition of shares by direct investment under the Foreign Investment Promotion Law, (9) acquisition and disposal of shares on an overseas stock exchange market, if such shares are simultaneously listed on the KRX KOSPI Market or the KRX KOSDAQ Market of the Korea Exchange and such overseas stock exchange, and (10) arm’s length transactions between foreigners in the event all such foreigners belong to an investment group managed by the same person. For over-the-counter transactions of shares listed on the Korea Exchange outside the Korea Exchange between foreigners of a class of shares for which a ceiling on aggregate acquisition by foreigners exists and has been reached or exceeded, a financial investment company with a brokerage license in Korea must act as an intermediary. Odd-lot trading of shares listed on the Korea Exchange outside the Korea Exchange must involve a financial investment company with a dealing license in Korea as the other party. Foreign investors are prohibited from engaging in margin transactions with respect to shares subject to a ceiling on acquisition by foreigners.

The Investment Rules require a foreign investor who wishes to invest in or dispose of shares on the Korea Exchange (including Converted Shares) to register his/her identity with the Financial Supervisory Service prior to making any such investment or disposal unless he/she had previously registered. However, such registration requirement does not apply to foreign investors who acquire Converted Shares with the intention of selling them within three months from the date they were acquired. Upon registration, the Financial Supervisory Service will issue to the foreign investor an Investment Registration Card which must be presented each time the foreign investor opens a brokerage account with a financial investment company or financial institution in Korea. Foreigners eligible to obtain an Investment Registration Card include any foreign nationals who are individuals (with residence abroad for six months or more), foreign governments, foreign municipal authorities, foreign public institutions, international financial institutions or similar international organizations, corporations incorporated under foreign laws and any person in any additional category designated by the Decree of the Financial Services and Capital Markets Act. All Korean branches of a foreign corporation as a group are treated as a separate foreigner from the head office of the foreign corporation. However, a foreign branch of a Korean securities company, a foreign corporation or a depositary issuing depositary receipts may obtain one or more Investment Registration Cards in its name in certain circumstances as described in the relevant regulations.

Upon a foreign investor’s purchase of shares through the Korea Exchange, no separate report by the investor is required because the Investment Registration Card system is designed to control and oversee foreign investment through a computer system. However, a foreign investor’s acquisition or sale of shares outside the Korea Exchange (as discussed above) must be reported by the foreign investor or his standing proxy to the Governor of the Financial Supervisory Service at the time of each acquisition or sale. However, a foreign investor must ensure that any acquisition or sale by it of shares outside the Korea Exchange in the case of trades in connection with a tender offer, odd-lot trading of shares or trades of a class of shares for which the aggregate foreign ownership limit has been reached or exceeded, is reported to the Governor of the Financial Supervisory Service by the Korea Securities Depository, financial investment companies with a dealing or brokerage license or securities finance companies engaged to facilitate such transactions. In the event a foreign investor desires to acquire or sell shares outside the Korea Exchange and the circumstances in connection with such sale or acquisition do not fall within the exceptions made for certain limited circumstances described above, then the foreign investor must obtain the prior approval of the Governor. In addition, in the event a foreign investor acquires or sells shares outside the Korea Exchange, a prior report to the Governor of the Financial Supervisory Service may also be required in certain circumstances. A foreign investor may appoint one or more standing proxies from among the Korea Securities Depository, foreign exchange banks (including domestic branches of foreign banks), financial investment companies with a dealing, brokerage or collective investment license and

 

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certain eligible foreign custodians which will exercise shareholders’ rights or perform any matters related to the foregoing activities if the foreign investor does not perform these activities himself. However, a foreign investor may be exempted from complying with these standing proxy rules with the approval of the Governor of the Financial Supervisory Service in cases deemed inevitable by reason of conflict between the laws of Korea and those of the home country of the foreign investor.

Certificates evidencing shares of Korean companies must be kept in custody with an eligible custodian in Korea, the Korea Securities Depository, foreign exchange banks (including domestic branches of foreign banks), financial investment companies with a dealing, brokerage or collective investment license and certain eligible foreign custodians are eligible to be a custodian of shares for a non-resident or foreign investor. A foreign investor must ensure that his custodian deposits his shares with the Korea Securities Depository. Generally, a foreign investor may not permit any person, other than his/her standing proxy, to exercise rights relating to his shares or perform any tasks related thereto on his behalf. However, a foreign investor may be exempted from complying with this deposit requirement with the approval of the Governor of the Financial Supervisory Service in circumstances where compliance is made impracticable, including cases where such compliance would contravene the laws of the home country of the foreign investor.

Under the Investment Rules, with certain exceptions, a foreign investor may acquire shares of a Korean company without being subject to any single or aggregate foreign investment ceiling. However, certain designated public corporations are subject to a 40.0% ceiling on acquisitions of shares by foreigners in the aggregate and a ceiling on acquisitions of shares by a single foreign investor provided in the Articles of Incorporation of such corporations. Of the Korean companies listed on the Korea Exchange, we are so designated. The Financial Services Commission may impose other restrictions as it deems necessary for the protection of investors and the stabilization of the Korean securities and derivatives market. Generally, the ownership of Converted Shares constitutes foreign ownership for purposes of such aggregate foreign ownership limit. However, the acquisition of Converted Shares is one of the exceptions under which foreign investors may acquire shares of designated corporations in excess of the 40.0% ceiling.

In addition to the aggregate foreign investment ceiling set by the Financial Services Commission under authority of the Financial Investment Services and Capital Markets Act, our Articles of Incorporation set a 3% ceiling on acquisition by a single investor (whether domestic or foreign) of the shares of our common stock. Any person (with certain exceptions) who holds more than 3% of our issued and outstanding shares cannot exercise voting rights with respect to our shares in excess of this 3% limit.

The ceiling on aggregate investment by foreigners applicable to us may be exceeded in certain limited circumstances, including as a result of acquisition of:

 

   

shares by a depositary issuing depositary receipts representing such shares (whether newly issued shares or outstanding shares);

 

   

Converted Shares;

 

   

shares from the exercise of shareholders’ rights; or

 

   

shares by gift, inheritance or bequest.

A foreigner who has acquired shares in excess of any ceiling described above may not exercise his voting rights with respect to the shares exceeding such limit and the Financial Services Commission may take necessary corrective action against him.

Under the Foreign Exchange Transaction Laws, a foreign investor who intends to acquire shares must designate a foreign exchange bank at which he must open a foreign currency account and a Won account exclusively for stock investments. No approval is required for remittance into Korea and deposit of foreign currency funds in the foreign currency account. Foreign currency funds may be transferred from the foreign

 

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currency account at the time required to place a deposit for, or settle the purchase price of, a stock purchase transaction to a Won account opened at a securities company. Funds in the foreign currency account may be remitted abroad without any governmental approval.

Dividends on shares of our common stock are paid in Won. No governmental approval is required for foreign investors to receive dividends on, or the Won proceeds of the sale of, any shares to be paid, received and retained in Korea. Dividends paid on, and the Won proceeds of the sale of, any shares held by a non-resident of Korea must be deposited either in a Won account with the investor’s securities company or the investor’s Won account. Funds in the investor’s Won account may be transferred to his foreign currency account or withdrawn for local living expenses, provided that any withdrawal of local living expenses in excess of a certain amount should be reported to the Governor of the Financial Supervisory Service. Funds in the investor’s Won account may also be used for future investment in shares or for payment of the subscription price of new shares obtained through the exercise of preemptive rights.

Financial investment companies with a securities dealing, brokerage or collective investment license are allowed to open foreign currency accounts with foreign exchange banks exclusively for accommodating foreign investors’ stock investments in Korea. Through these accounts, these securities companies and asset management companies may enter into foreign exchange transactions on a limited basis, such as conversion of foreign currency funds and Won funds, either as a counterparty to or on behalf of foreign investors without the foreign investors having to open their own accounts with foreign exchange banks.

 

Item 10.E. Taxation

Korean Taxes

The following summary describes the material Korean tax consequences of ownership of the Registered Debt Securities and ADSs. Persons considering the purchase of the Registered Debt Securities or ADSs should consult their own tax advisors with regard to the application of the Korean income tax laws to their particular situations as well as any tax consequences arising under the laws of any other taxing jurisdiction. Reference is also made to a tax treaty between the Republic and the United States entitled “Convention Between the Government of the Republic of Korea and the Government of the United States of America for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and the Encouragement of International Trade and Investment,” signed on June 4, 1976 and entered into force on October 20, 1979.

The following summary of Korean tax considerations applies to you so long as you are not:

 

   

a resident of Korea;

 

   

a corporation having its head office, principal place of business or place of effective management in Korea; or

 

   

engaged in a trade or business in Korea through a permanent establishment or a fixed base to which the relevant income is attributable or with which the relevant income is effectively connected.

Registered Debt Securities

Taxation of Interest

Pursuant to the Special Tax Treatment Control Law (“STTCL”), when we make payments of interest to you on the Registered Debt Securities, no amount will be withheld from such payments for, or on account of, any income taxes of any kind imposed, levied, withheld or assessed by Korea or any political subdivision or taxing authority thereof or therein, provided that Registered Debt Securities are deemed to be foreign currency-denominated bonds issued outside of Korea for the purpose of the STTCL.

 

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If the tax exemption under the STTCL referred to above were to cease to be in effect, the rate of income tax or corporation tax applicable to the interest on the Registered Debt Securities would be 14% of income for a non-resident without a permanent establishment in Korea. In addition, local income tax would be imposed at the rate of 10.0% of the income tax or corporation tax (which would increase the total tax rate to 15.4%), unless reduction is available under an applicable income tax treaty. If you are a qualified resident in a country that has entered into a tax treaty with Korea, you may qualify for an exemption or a reduced rate of Korean withholding tax. See the discussion under “—Shares or ADSs—Tax Treaties” below for an additional explanation on treaty benefits.

In order to obtain the benefits of an exemption or a reduced withholding tax rate under a tax treaty, you must submit to us, prior to the interest payment date, such evidence of tax residence as may be required by the Korean tax authorities in order to establish your entitlement to the benefits of the applicable tax treaty.

Furthermore, Korean tax laws require the beneficial owner to submit an application for entitlement to a preferential tax rate together with evidence of tax residence (including a certificate of tax residence of the beneficial owner issued by a competent authority of the country of tax residence of the beneficial owner) to a withholding obligor paying Korean source income in order to benefit from the available reduced tax rate pursuant to the relevant tax treaty. Under Korean tax laws and subject to certain exceptions, an overseas investment vehicle (which is defined as an organization established in a foreign jurisdiction that manages funds collected through investment solicitation by acquiring, disposing or otherwise investing in proprietary targets and then distributes the proceeds thereof to investors) (the “Overseas Investment Vehicle”) must obtain an application for a preferential tax rate from the beneficial owner and forward it to the withholding obligor along with an overseas investment vehicle report (prepared by the Overseas Investment Vehicle) which includes a detailed statement on the beneficial owner.

Taxation of Capital Gains

Korean tax laws currently exclude from Korean taxation gains made by a non-resident without permanent establishment in Korea from the sale of a Registered Debt Security to another non-resident (except where a non-resident sells Registered Debt Securities to another non-resident who has permanent establishments in Korea, if any). In addition, capital gains realized from the transfer of Registered Debt Securities outside Korea by non-residents with or without permanent establishments in Korea are currently exempt from taxation by virtue of the STTCL, provided that the issuance of such Registered Debt Securities is deemed to be an overseas issuance of foreign currency-denominated bonds under the STTCL. If you sell or otherwise dispose of a Registered Debt Security through other ways than those mentioned above, any gain realized on the transaction will be taxable at ordinary Korean withholding tax rates (which is the lesser of 22.0% (including local income tax) of the net gain or 11.0% (including local income tax) of the gross sale proceeds, subject to the production of satisfactory evidence of the acquisition cost of such Registered Debt Securities and certain direct transaction costs attributable to the disposal of such Registered Debt Securities), unless an exemption is available under an applicable income tax treaty. See the discussion under “—Shares or ADSs—Tax Treaties” below for an additional explanation on treaty benefits.

Inheritance Tax and Gift Tax

If you die while you are the holder of Registered Debt Securities, the subsequent transfer of the Registered Debt Securities by way of succession will be subject to Korean inheritance tax. Similarly, if you transfer Registered Debt Securities as a gift, the donee will be subject to Korean gift tax and you may be required to pay the gift tax if the donee fails to do so.

At present, Korea has not entered into any tax treaty relating to inheritance or gift taxes.

 

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Shares or ADSs

Dividends on the Shares of Common Stock or ADSs

We will deduct Korean withholding tax from dividends (whether in cash or in shares) paid to you at a rate of 22% (inclusive of local income tax). If you are a qualified resident in a country that has entered into a tax treaty with Korea, you may qualify for a reduced rate of Korean withholding tax. See the discussion under “—Tax Treaties” below for an additional explanation on treaty benefits.

In order to obtain the benefits of a reduced withholding tax rate under a tax treaty, you must submit to us, prior to the dividend payment date, such evidence of tax residence as may be required by the Korean tax authorities in order to establish your entitlement to the benefits of the applicable tax treaty. Evidence of tax residence may be submitted to us through the ADS depositary. If we distribute to you free shares representing a transfer of certain capital reserves or asset revaluation reserves into paid-in capital, such distribution may be subject to Korean withholding tax.

Furthermore, Korean tax laws require the beneficial owner to submit an application for entitlement to a preferential tax rate together with evidence of tax residence (including a certificate of tax residence of the beneficial owner issued by a competent authority of the country of tax residence of the beneficial owner) to a withholding obligor paying Korean source income in order to benefit from the available reduced tax rate pursuant to the relevant tax treaty. Under Korean tax laws and subject to certain exceptions, the Overseas Investment Vehicle must obtain an application for entitlement to a preferential tax rate from the beneficial owner and forward it to the withholding obligor along with an overseas investment vehicle report (prepared by the Overseas Investment Vehicle) which includes a detailed statement on the beneficial owner.

If you hold common shares or ADSs and receive the dividend through an account at the Korea Securities Depository held by a foreign depositary settlement institute, you are not required to submit the application for entitlement to a preferential tax rate. However, evidence of tax residence may need to be submitted to us through such foreign depositary settlement institute.

Taxation of Capital Gains

As a general rule, capital gains earned by non-residents upon the transfer of the common shares or ADSs would be subject to Korean income tax at a rate equal to the lesser of (i) 11.0% (including local income tax) of the gross proceeds realized or (ii) 22.0% (including local income tax) of the net realized gain (subject to the production of satisfactory evidence of the acquisition costs and certain direct transaction costs arising out of the transfer of such common shares or ADSs), unless such non-resident is exempt from Korean income taxation under an applicable Korean tax treaty into which Korea has entered with the non-resident’s country of tax residence. Please see the discussion under “—Tax Treaties” below for an additional explanation on treaty benefits. Even if you do not qualify for any exemption under a tax treaty, you will not be subject to the foregoing income tax on capital gains if you qualify for the relevant Korean domestic tax law exemptions discussed in the following paragraphs.

You will not be subject to Korean income taxation on capital gains realized upon the transfer of our common stocks or ADSs through the Korea Exchange if you (i) have no permanent establishment in Korea and (ii) did not own or have not owned (together with any shares owned by any entity which you have a certain special relationship with and possibly including the shares represented by the ADSs) 25.0% or more of our total issued and outstanding shares at any time during the calendar year in which the sale occurs and during the five calendar years prior to the calendar year in which the sale occurs.

It should be noted that (i) capital gains earned by you (regardless of whether you have a permanent establishment in Korea) from the transfer of ADSs outside Korea will be exempted from Korean income taxation provided that ADSs are deemed to have been issued overseas under the STTCL, but (ii) if and when an owner of the underlying shares of stock transfers ADSs after conversion of the underlying shares into ADSs, the exemption described in (i) is not applicable.

 

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If you are subject to tax on capital gains with respect to the sale of ADSs, or of shares of common stock which you acquired as a result of a withdrawal, the purchaser or, in the case of the sale of shares of common stock on the Korea Exchange or through an investment dealer or investment broker under the Financial Investment Services and Capital Markets Act, an investment dealer or investment broker is required to withhold Korean tax from the sales price in an amount equal to 11.0% (including local income tax) of the gross realization proceeds and to make payment of these amounts to the Korean tax authority, unless you establish your entitlement to an exemption under an applicable tax treaty or domestic tax law or produce satisfactory evidence of your acquisition cost and transaction costs for the shares of common stock or the ADSs.

However, if you transfer the ADSs following an exchange of the underlying shares of stock owned by you for ADSs to a purchaser who is a non-residents or a foreign company without permanent establishment in Korea, you are obligated to file an income tax return and pay tax on gain realized from such transfer unless exempt under an applicable tax treaty or domestic law. Further, if you transfer the shares of common stock outside of Korea (excluding a transfer on a foreign exchange) to non-residents or foreign companies without having permanent establishments in Korea, you are obligated to file an income tax return and pay income tax on capital gain realized from such transfer unless exempt under an applicable tax treaty or domestic law. If a purchaser or an investment dealer or investment broker, as the case may be, withholds and remits the tax on capital gains derived from transfer of shares of common stock or ADSs, your obligation to file an income tax return and pay income tax will be exempt.

In order to obtain the benefit of an exemption from tax pursuant to a tax treaty, you must submit to the purchaser or the investment dealer or the investment broker, or through the ADS depositary, as the case may be, prior to or at the time of payment, such evidence of your tax residence as the Korean tax authorities may require in support of your claim for treaty benefits. Please see the discussion under “—Tax Treaties” below for an additional explanation on claiming treaty benefits. Furthermore, Korean tax laws require the beneficial owner to submit an application for tax exemption together with evidence of tax residence (including a certificate of tax residence of the beneficial owner issued by a competent authority of the country of tax residence of the beneficial owner) to a withholding obligor paying Korean source income in order to benefit from the available exemption pursuant to the relevant tax treaty. Under Korean tax laws and subject to certain exceptions, the Overseas Investment Vehicle must obtain an application for tax exemption from the beneficial owner and forward it to the withholding obligor along with an overseas investment vehicle report (prepared by the Overseas Investment Vehicle) which includes a detailed statement on the beneficial owner.

Tax Treaties

Korea has entered into a number of income tax treaties with other countries (including the United States), which would reduce or exempt Korean withholding tax on dividends on, and capital gains on transfer of, shares of our common stock or ADSs. For example, under the Korea-United States income tax treaty, reduced rates of Korean withholding tax of 16.5% or 11.0% (respectively, including local income tax, depending on your shareholding ratio) on dividends and an exemption from Korean withholding tax on capital gains are available to residents of the United States that are beneficial owners of the relevant dividend income or capital gains. However, under Article 17 (Investment of Holding Companies) of the Korea-United States income tax treaty, such reduced rates and exemption do not apply if (i) you are a United States corporation, (ii) by reason of any special measures, the tax imposed on you by the United States with respect to such dividends or capital gains is substantially less than the tax generally imposed by the United States on corporate profits, and (iii) 25.0% or more of your capital is held of record or is otherwise determined, after consultation between competent authorities of the United States and Korea, to be owned directly or indirectly by one or more persons who are not individual residents of the United States. Also, under Article 16 (Capital Gains) of the Korea-United States income tax treaty, the exemption on capital gains does not apply if you are an individual, and (a) you maintain a fixed base in Korea for a period or periods aggregating 183 days or more during the taxable year and your ADSs or shares of common stock giving rise to capital gains are effectively connected with such fixed base or (b) you are present in Korea for a period or periods of 183 days or more during the taxable year.

 

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You should inquire for yourself whether you are entitled to the benefit of an income tax treaty with Korea. It is the responsibility of the party claiming the benefits of an income tax treaty in respect of dividend payments or capital gains to submit to us, the purchaser or the investment dealer or the investment broker, as applicable, a certificate as to his tax residence. In the absence of sufficient proof, we, the purchaser or the investment dealer or the investment broker, as applicable, must withhold tax at the normal rates. Further, in order for you to obtain the benefit of a tax exemption on certain Korean source income (e.g., interest, dividends and capital gains) under an applicable tax treaty, Korean tax laws require you (or your agent) to submit an application for tax exemption (if there is no change in the content of such application, it is not required to submit such application again within a period of three years thereafter) along with a certificate of your tax residence issued by a competent authority of your country of tax residence. Under Korean tax laws and subject to certain exceptions, the Overseas Investment Vehicle must obtain an application for tax exemption from the beneficial owner and forward it to the withholding obligor along with an overseas investment vehicle report (prepared by the Overseas Investment Vehicle) which includes a detailed statement on the beneficial owner. The withholding obligor must submit the application and the report to the relevant tax office by the ninth day of the month following the date of the first payment of such income.

Furthermore, the Korean tax laws require the beneficial owner to submit an application for entitlement to a preferential tax rate (if there is no change in the content of such application, it is not required to submit such application again within a period of three years thereafter) together with evidence of tax residence (including a certificate of tax residence of the beneficial owner issued by a competent authority of the country of tax residence of the beneficial owner) to a withholding obligor paying Korean source income in order to benefit from the available reduced tax rate pursuant to the relevant tax treaty. If you hold the shares of common stock or ADSs and receive the dividend through an account at the Korea Securities Depository held by a foreign depositary settlement institute, you are not required to submit the application for entitlement to a preferential tax rate. However, evidence of tax residence may need to be submitted to us through such foreign depositary settlement institute.

Under Korean tax laws and subject to certain exceptions, the Overseas Investment Vehicle must obtain an application for a preferential tax rate from the beneficial owner and forward it to the withholding obligor along with an overseas investment vehicle report (prepared by the Overseas Investment Vehicle) which includes a detailed statement on the beneficial owner.

Inheritance Tax and Gift Tax

If you die while holding an ADS or donate an ADS, it is unclear whether, for Korean inheritance and gift tax purposes, you will be treated as the owner of the shares of common stock underlying the ADSs. If the tax authority interprets depositary receipts as the underlying share certificates, you may be treated as the owner of the shares of common stock and your heir or the donee (or in certain circumstances, you as the donor) will be subject to Korean inheritance or gift tax presently at the rate of 10.0% to 50.0%, depending on the value of the ADSs or shares of common stock.

If you die while holding a share of common stock or donate a share of common stock, your heir or donee (or in certain circumstances, you as the donor) will be subject to Korean inheritance or gift tax at the same rate as indicated above.

At present, Korea has not entered into any tax treaty relating to inheritance or gift taxes.

Securities Transaction Tax

If you transfer shares of common stock on the Stock Market of the Korea Exchange, you will be subject to securities transaction tax at the rate of 0.15% and an agriculture and fishery special surtax at the rate of 0.15% of

 

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the sale price of the shares of common stock. If your transfer of the shares of common stock is not made on the Stock Market of the Korea Exchange, subject to certain exceptions you will be subject to securities transaction tax at the rate of 0.5% and will not be subject to an agriculture and fishery special surtax.

Under the Securities Transaction Tax Law, depositary receipts (such as ADSs) constitute share certificates subject to the securities transaction tax. However, a transfer of depositary receipts listed on the New York Stock Exchange, NASDAQ National Market or other qualified foreign exchanges will be exempt from the securities transaction tax although depositary receipts, including ADSs, constitute share certificates subject to the securities transaction tax.

In principle, the securities transaction tax, if applicable, must be paid by the transferor of the shares or rights. When the transfer is effected through the Korea Securities Depository, the Korea Securities Depository is generally required to withhold and pay the tax to the tax authorities. When such transfer is made through an investment dealer or investment broker under the Financial Investment Services and Capital Markets Act only, such investment dealer or investment broker is required to withhold and pay the tax. Where the transfer is effected by a non-resident without a permanent establishment in Korea, other than through the Korea Securities Depository or an investment dealer or investment broker, the transferee is required to withhold the securities transaction tax for payment to the Korean tax authority.

U.S. Federal Income and Estate Tax Considerations for U.S. Persons

The following is a summary of certain U.S. Federal income and estate tax consequences for beneficial owners of the Registered Debt Securities, common stock and ADSs that are “U.S. Persons (as defined below).” For purposes of this summary, you are a “U.S. Person” if you are any of the following for U.S. Federal income tax purposes:

 

   

an individual citizen or resident of the United States;

 

   

a corporation, or other entity treated as a corporation for U.S. Federal income tax purposes, created or organized in or under the laws of the United States, any state thereof or the District of Columbia;

 

   

an estate the income of which is subject to U.S. Federal income taxation regardless of its source; or

 

   

a trust if (1) it is subject to the primary supervision of a court within the United States and one or more United States persons have the authority to control all substantial decisions of the trust or (2) it has a valid election in effect under applicable United States Treasury regulations to be treated as a United States person.

This summary is based on current law, which is subject to change (perhaps retroactively), is for general purposes only and should not be considered tax advice. This summary does not represent a detailed description of the U.S. Federal income and estate tax consequences and does not address the effects of the Medicare contribution tax on net investment income or foreign, state, local or other tax considerations that may be relevant to you in light of your particular circumstances. The discussion set forth below is applicable to you if (i) you are a resident of the United States for purposes of the current income tax treaty between the United States and Korea (the “Treaty”), (ii) your Registered Debt Securities, common stock or ADSs are not, for purposes of the Treaty, effectively connected with a permanent establishment in Korea and (iii) you otherwise qualify for the full benefits of the Treaty. Except where noted, this summary deals only with Registered Debt Securities, common stock or ADSs held as capital assets, and it does not represent a detailed description of the U.S. Federal income and estate tax consequences applicable to you if you are subject to special treatment under the U.S. Federal income tax laws (including if you are a dealer in securities or currencies, a financial institution, a regulated investment company, a real estate investment trust, an insurance company, a tax-exempt organization, a person holding the Registered Debt Securities, common stock or ADSs as part of a hedging, integrated or conversion transaction, constructive sale or straddle, a person owning 10.0% or more of our voting stock, a trader in securities that elects to use a mark-to-market method of accounting for your securities holdings, a person liable

 

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for the alternative minimum tax, an investor in a pass-through entity, or a U.S. Person whose “functional currency” is not the U.S. dollar). We cannot assure you that a change in law will not alter significantly the tax considerations that we describe in this summary.

If a partnership holds the Registered Debt Securities, common stock or ADSs, the tax treatment of a partner will generally depend upon the status of the partner and the activities of the partnership. If you are a partner of a partnership holding our Registered Debt Securities, common stock, or ADSs, you should consult your tax advisor.

Because of the 100-year maturity of the One Hundred Year 7.95% Zero-to-Full Debentures, due April 1, 2096 (the “ZTF Debentures”), it is not certain whether the ZTF Debentures will be treated as debt for U.S. Federal income tax purposes. The discussion below assumes that the ZTF Debentures (as well as the other Registered Debt Securities) will be treated as debt, except that a summary of the consequences to you if the ZTF Debentures were not treated as debt is provided under “Tax Consequences with Respect to Registered Debt Securities Generally—ZTF Debentures Treated as Equity” below.

The discussion of the tax consequences of ownership of common stock and ADSs below, is based, in part, upon representations made by the Depositary to us and assumes that the deposit agreement, and all other related agreements, will be performed in accordance with their terms.

You should consult your own tax advisor concerning the particular U.S. Federal income and estate tax consequences to you of the ownership of the Registered Debt Securities, common stock and ADSs, as well as the consequences to you arising under the laws of any other taxing jurisdiction.

Tax Consequences with Respect to Registered Debt Securities Generally

Payments

Except as provided below with regard to original issue discount (as defined below) on the ZTF Debentures, interest on a Registered Debt Security will generally be taxable to you as ordinary income at the time it is paid or accrued in accordance with your method of accounting for tax purposes. Principal payments on an amortizing Registered Debt Security generally will constitute a tax-free return of capital to you.

Although interest payments to you are currently exempt from Korean taxation provided that Registered Debt Securities are deemed to be foreign currency-denominated bonds issued outside of Korea for the purpose of the STTCL (see—“Korean Taxes—Registered Debt Securities—Taxation of Interest,” above), if the Korean law providing for the exemption is repealed, then, in addition to interest payments on the Registered Debt Securities and original issue discount on the ZTF Debentures, you will be required to include in income any additional amounts paid and any Korean tax withheld from interest payments notwithstanding that you in fact did not receive such withheld tax. You may be entitled to deduct or credit such Korean tax (up to the Treaty rate), subject to applicable limitations in the Internal Revenue Code of 1986, as amended (the “Code”). Your election to deduct or credit foreign taxes will apply to all of your foreign taxes for a particular taxable year. Interest income on a Registered Debt Security (including additional amounts and any Korean taxes withheld in respect thereof) and original issue discount on a ZTF Debenture generally will constitute foreign source income and generally will be considered passive category income for purposes of computing the foreign tax credit. You will generally be denied a foreign tax credit for Korean taxes imposed with respect to the Registered Debt Securities where you do not meet a minimum holding period requirement during which you are not protected from risk of loss. The rules governing the foreign tax credit are complex. Investors are urged to consult their tax advisors regarding the availability of the foreign tax credit under their particular circumstances.

Original Issue Discount

The ZTF Debentures were issued with original issue discount (“OID”) for U.S. Federal income tax purposes equal to the difference between (i) the sum of all scheduled amounts payable on the ZTF Debentures (including

 

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the interest payable on such ZTF Debentures) and (ii) the “issue price” of the ZTF Debentures. The “issue price” of each ZTF Debenture is the first price at which a substantial amount of the ZTF Debentures was sold to the public (other than to an underwriter, broker, placement agent or wholesaler). If you hold ZTF Debentures, then (subject to the discussion in “—Bond Premium” below) you generally must include OID in gross income in advance of the receipt of cash attributable to that income, regardless of your method of accounting. However, you generally will not be required to include separately in income cash payments received on the ZTF Debentures, even if denominated as interest.

The amount of OID includible in income by the holder of a ZTF Debenture is the sum of the “daily portions” of OID with respect to the ZTF Debenture for each day during the taxable year or portion of the taxable year in which such holder held such ZTF Debenture, or accrued OID (for a discussion relevant to subsequent purchasers, see “—Market Discount” and “—Bond Premium,” below). The daily portion is determined by allocating to each day in any “accrual period” a pro rata portion of the OID allocable to that accrual period. The “accrual period” for a ZTF Debenture may be of any length and may vary in length over the term of the ZTF Debenture, provided that each accrual period is no longer than one year and each scheduled payment of principal or interest occurs on the first day or the final day of an accrual period. The amount of OID allocable to any accrual period other than the final accrual period is an amount equal to the product of the ZTF Debenture’s adjusted issue price at the beginning of such accrual period and its yield to maturity (determined on the basis of compounding at the close of each accrual period and properly adjusted for the length of the accrual period). OID allocable to a final accrual period is the difference between the amount payable at maturity and the adjusted issue price at the beginning of the final accrual period. The “adjusted issue price” of a ZTF Debenture at the beginning of any accrual period is equal to its issue price increased by the accrued OID for each prior accrual period (for subsequent purchasers, determined without regard to the amortization of any acquisition or bond premium, as described below) and reduced by any payments previously made on such ZTF Debenture. Under these rules, you will have to include in income increasingly greater amounts of OID in successive accrual periods. We are required to provide information returns stating the amount of OID accrued on ZTF Debentures held of record by persons other than corporations and other exempt holders.

As discussed above, although interest payments to you are currently exempt from Korean taxation provided that Registered Debt Securities are deemed to be foreign currency-denominated bonds issued outside of Korea for the purpose of the STTCL (see—“Korean Taxes—Registered Debt Securities—Taxation of Interest,” above), if the Korean law providing for the exemption is repealed, then Korean withholding tax may be imposed at times that differ from the times at which you are required to include interest or OID in income for U.S. Federal income tax purposes and this disparity may limit the amount of foreign tax credit available.

Market Discount

If you purchased a Registered Debt Security other than a ZTF Debenture for an amount that is less than its stated redemption price at maturity, or, in the case of a ZTF Debenture, its adjusted issue price, the amount of the difference will be treated as “market discount” for U.S. Federal income tax purposes, unless that difference is less than a specified de minimis amount. Under the market discount rules, you will be required to treat any payment, other than qualified stated interest (as defined in the Code), on, or any gain on the sale, exchange, retirement or other disposition of, a Registered Debt Security as ordinary income to the extent of the market discount that you have not previously included in income and are treated as having accrued on the Registered Debt Security at the time of its payment or disposition. In addition, you may be required to defer, until the maturity of the Registered Debt Security or its earlier disposition in a taxable transaction, the deduction of all or a portion of the interest expense on any indebtedness attributable to the Registered Debt Security.

Any market discount will be considered to accrue ratably during the period from the date of acquisition to the maturity date of the Registered Debt Security, unless you elect to accrue on a constant interest method. Your election to accrue market discount on a constant interest method is to be made for the taxable year in which you acquired the Registered Debt Security, applies only to that Registered Debt Security and cannot be revoked. You

 

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may elect to include market discount in income currently as it accrues, on either a ratable or constant interest method, in which case the rule described above regarding deferral of interest deductions will not apply. Your election to include market discount in income currently, once made, applies to all market discount obligations acquired by you on or after the first taxable year to which your election applies and may not be revoked without the consent of the Internal Revenue Service (the “IRS”). You should consult your own tax advisor before making this election.

Bond Premium

If you purchased a ZTF Debenture for an amount that is greater than its adjusted issue price but equal to or less than the sum of all amounts payable on the ZTF Debenture after the purchase date, you will be considered to have purchased that ZTF Debenture at an “acquisition premium.” Under the acquisition premium rules, the amount of OID that you must include in gross income with respect to a ZTF Debenture for any taxable year will be reduced by the portion of the acquisition premium properly allocable to that year.

If you purchased a Registered Debt Security for an amount in excess of the sum of all amounts payable on the Registered Debt Security after the purchase date other than qualified stated interest, you will be considered to have purchased the Registered Debt Security at a “premium” and, if such Registered Debt Security is a ZTF Debenture, you will not be required to include any OID in income. You generally may elect to amortize the premium over the remaining term of the Registered Debt Security on a constant yield method as an offset to interest when includible in income under your regular accounting method. In the case of instruments that provide for alternative payment schedules, bond premium is calculated by assuming that (a) you will exercise or not exercise options in a manner that maximizes your yield, and (b) we will exercise or not exercise options in a manner that minimizes your yield (except that we will be assumed to exercise call options in a manner that maximizes your yield). If you do not elect to amortize bond premium, that premium will decrease the gain or increase the loss you would otherwise recognize on disposition of a Registered Debt Security. Your election to amortize premium on a constant yield method will also apply to all debt obligations held or subsequently acquired by you on or after the first day of the first taxable year to which the election applies. You may not revoke the election without the consent of the IRS. You should consult your own tax advisor before making this election.

Sale, Exchange and Retirement of Registered Debt Securities

When you sell, exchange or retire a Registered Debt Security, you will recognize gain or loss equal to the difference between the amount you receive (not including an amount equal to any accrued qualified stated interest, which will be taxable as ordinary income to the extent not previously included in income) and your adjusted tax basis in the Registered Debt Security. Your tax basis in a Registered Debt Security other than a ZTF Debenture will generally be your cost of obtaining the Registered Debt Security increased by any market discount included in income and reduced by payments of principal you receive and any bond premium that you elect to amortize. Your adjusted tax basis in a ZTF Debenture will, in general, be your cost therefor, increased by any market discount and OID previously included in income and reduced by any cash payments on the ZTF Debentures and any bond premium that you elect to amortize. Your gain or loss realized on selling, exchanging or retiring a Registered Debt Security will generally be treated as United States source income. Consequently, you may not be able to use the foreign tax credit arising from any Korean tax imposed on the disposition of Registered Debt Securities unless such credit can be applied (subject to applicable limitations) against tax due on other income treated as derived from foreign sources. Except as described above with respect to market discount, your gain or loss will be capital gain or loss and will generally be long-term capital gain or loss if, at the time of the sale, exchange or retirement of a Registered Debt Security, you have held the Registered Debt Security for more than one year. If you are an individual and the Registered Debt Security being sold, exchanged or retired is a capital asset that you held for more than one year, you may be eligible for reduced rates of taxation on any capital gain recognized. Your ability to deduct capital losses is subject to limitations.

 

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ZTF Debentures Treated as Equity

If the ZTF Debentures were treated as equity for U.S. Federal income tax purposes, amounts actually or deemed paid with respect to the ZTF Debentures would be deemed dividends for U.S. Federal income tax purposes to the extent paid out of our current or accumulated earnings and profits (as determined for U.S. Federal income tax purposes).

You would include the amounts actually or deemed paid by us on the ZTF Debentures (before reduction for Korean withholding tax, if any) as dividend income when actually or constructively paid by us. Section 305 of the Code, which would apply to the ZTF Debentures if they were treated as equity for U.S. Federal income tax purposes, requires current accrual of dividends under principles similar to the accrual of OID. Amounts treated as dividends will not be eligible for the dividends received deduction generally allowed to U.S. corporations.

Tax Consequences with Respect to Common Stock and ADSs

In general, for U.S. Federal income tax purposes, holders of ADSs will be treated as the owners of the underlying common stock that is represented by such ADSs. Accordingly, deposits or withdrawals of common stock by holders of ADSs will not be subject to U.S. Federal income tax.

Distributions on Common Stock or ADSs

The gross amount of distributions (other than certain distributions of common stock or rights to subscribe for common stock) to holders of common stock or ADSs (including amounts withheld in respect of Korean withholding taxes) will be taxable dividends to such holders, to the extent paid out of our current or accumulated earnings and profits, as determined under U.S. Federal income tax principles. Such income (including withheld taxes) will be includable in the gross income of a holder as ordinary income on the day actually or constructively received by the holder, in the case of common stock, or by the Depositary, in the case of ADSs. Such dividends will not be eligible for the dividends received deduction allowed to corporations under the Code.

With respect to non-corporate U.S. Persons, certain dividends paid by a qualified foreign corporation and received by such holders may be subject to reduced rates of taxation. A qualified foreign corporation includes a foreign corporation that is eligible for the benefits of an income tax treaty with the United States, if such treaty contains an exchange of information provision and the United States Treasury Department had determined that the treaty is satisfactory for purposes of the legislation. The United States Treasury Department has determined that the Treaty, which contains an exchange of information provision, is (in the absence of additional guidance) satisfactory for these purposes. In addition, we believe we are eligible for the benefits of the Treaty. However, a foreign corporation is also treated as a qualified foreign corporation with respect to dividends paid by that corporation on shares (or ADSs backed by such shares) that are readily tradable on an established securities market in the United States. Shares of our common stock will generally not be considered readily tradable for these purposes. However, United States Treasury Department guidance indicates that our ADSs, which are listed on the New York Stock Exchange, are readily tradable on an established securities market in the United States. There can be no assurance that our ADSs will be considered readily tradable on an established securities market in later years. Non-corporate U.S. Persons that do not meet a minimum holding period requirement during which they are not protected from a risk of loss or that elect to treat the dividend income as “investment income” pursuant to Section 163(d)(4) of the Code will not be eligible for the reduced rates of taxation regardless of our status as a qualified foreign corporation. In addition, the rate reduction will not apply to dividends if the recipient of a dividend is obligated to make related payments with respect to positions in substantially similar or related property. This disallowance applies even if the minimum holding period has been met. Holders should consult their own tax advisors regarding the application of the foregoing rules to their particular circumstances.

The amount of any dividend paid in Won will equal the United States dollar value of the Won received calculated by reference to the exchange rate in effect on the date the dividend is received by the holder, in the

 

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case of common stock, or by the Depositary, in the case of ADSs, regardless of whether the Won are converted into U.S. dollars. If the Won received as a dividend are not converted into U.S. dollars on the date of receipt, a holder will have a basis in the Won equal to their U.S. dollar value on the date of receipt. Any gain or loss realized on a subsequent conversion or other disposition of the Won will be treated as United States source ordinary income or loss. The amount of any distribution of property other than cash will be the fair market value of such property on the date of distribution.

The maximum rate of withholding tax on dividends paid to you pursuant to the Treaty is 16.5%. You will be required to properly demonstrate to us and the Korean tax authorities your entitlement to the reduced rate of withholding under the Treaty. Subject to certain conditions and limitations, Korean withholding taxes (up to the Treaty rate) will be treated as foreign taxes eligible for credit against your U.S. Federal income tax liability. For purposes of calculating the foreign tax credit, dividends paid on the common stock or ADSs will be treated as foreign source income and will generally constitute passive category income. Further, in certain circumstances, if you have held common stock or ADSs for less than a specified minimum period during which you are not protected from risk of loss, or are obligated to make payments related to the dividends, you will not be allowed a foreign tax credit for foreign taxes imposed on dividends paid on common stock or ADSs. The rules governing the foreign tax credit are complex. Investors are urged to consult their tax advisors regarding the availability of the foreign tax credit under their particular circumstances including the possible adverse impact on creditability to the extent you are entitled to a refund of any Korean tax withheld or a reduced rate of withholding.

To the extent that the amount of any distribution exceeds our current and accumulated earnings and profits for a taxable year, as determined under U.S. Federal income tax principles, the distribution will first be treated as a tax- free return of capital, causing a reduction in the adjusted basis of the common stock or ADSs (thereby increasing the amount of gain, or decreasing the amount of loss, to be recognized by the investor on a subsequent disposition of the common stock or ADSs), and the balance in excess of adjusted basis will be taxed as capital gain recognized on a sale or exchange of property. Consequently, such distributions in excess of our current and accumulated earnings and profits would not give rise to foreign source income and you generally would not be able to use the foreign tax credit arising from any Korean withholding tax imposed on such distributions unless such credit can be applied (subject to applicable limitations) against U.S. tax due on other foreign source income in the appropriate category for foreign tax credit purposes. However, we do not expect to keep earnings and profits in accordance with U.S. Federal income tax principles. Therefore, you should expect that a distribution will generally be treated as a dividend (as discussed above).

Distributions of common stock or rights to subscribe for common stock that are received as part of a pro rata distribution to all of our shareholders generally will not be subject to U.S. Federal income tax. Consequently such distributions will not give rise to foreign source income and you generally will not be able to use the foreign tax credit arising from any Korean withholding tax unless such credit can be applied (subject to applicable limitations) against U.S. tax due on other income derived from foreign sources. The basis of the new common stock or rights so received will be determined by allocating your basis in the old common stock between the old common stock and the new common stock or rights received, based on their relative fair market value on the date of distribution. However, the basis of the rights will be zero if (i) the fair market value of the rights is less than 15% of the fair market value of the old common stock at the time of distribution, unless the taxpayer timely elects to determine the basis of the old common stock and of the rights by allocating between the old common stock and the rights the adjusted basis of the old common stock or (ii) the rights are not exercised and thus expire.

Sale, Exchange or Other Disposition of ADSs or Common Stock

Upon the sale, exchange or other disposition of ADSs or common stock, you generally will recognize capital gain or loss equal to the difference between the amount realized upon the sale, exchange or other disposition and your adjusted tax basis in the ADSs or common stock. The capital gain or loss will be long-term capital gain or loss if at the time of sale, exchange or other disposition, the ADSs or common stock have been held by you for more than one year. Under current law, long-term capital gains of individuals are, under certain

 

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circumstances, taxed at lower rates than items of ordinary income. The deductibility of capital losses is subject to limitations. Any gain or loss recognized by you will generally be treated as U.S. source gain or loss. Consequently, you may not be able to use the foreign tax credit arising from any Korean tax imposed on the disposition of ADSs or common stock unless such credit can be applied (subject to applicable limitations) against tax due on other income treated as derived from foreign sources.

You should note that any Korean securities transaction tax will not be treated as a creditable foreign tax for U.S. Federal income tax purposes, although you may be entitled to deduct such taxes, subject to applicable limitations under the Code.

Passive Foreign Investment Company Rules

Based upon the past and projected composition of our income and valuation of our assets, we do not believe that we were a PFIC for 2016, and we do not expect to be a PFIC in 2017 or to become one in the foreseeable future, although there can be no assurance in this regard. If, however, we become a PFIC, such characterization could result in adverse U.S. tax consequences to you if you are a U.S. investor. For example, if we become a PFIC, our U.S. investors will become subject to increased tax liabilities under U.S. tax laws and regulations and will become subject to burdensome reporting requirements. Our PFIC status is determined on an annual basis and depends on the composition of our income and assets. Specifically, we will be classified as a PFIC for U.S. tax purposes if either: (i) 75% or more of our gross income in a taxable year is passive income, or (ii) the average percentage of our assets by value in a taxable year which produce or are held for the production of passive income (which generally includes cash) is at least 50%. We cannot assure you that we will not be a PFIC for 2017 or any future taxable year.

Estate and Gift Taxation

As discussed above in “—Korean Taxes—Registered Debt Securities—Inheritance Tax and Gift Tax” and “—Korean Taxes—Shares or ADSs—Inheritance Tax and Gift Tax,” Korea may impose an inheritance tax on your heir who receives ADSs and will impose an inheritance tax on an heir who receives common stock or Registered Debt Securities. The amount of any inheritance tax paid to Korea may be eligible for credit against the amount of U.S. Federal estate tax imposed on your estate. Prospective purchasers should consult their personal tax advisors to determine whether and to what extent they may be entitled to such credit. Korea also imposes a gift tax on the donation of any property located within Korea. The Korean gift tax generally will not be treated as a creditable foreign tax for United States tax purposes.

Information Reporting and Backup Withholding

In general, information reporting requirements will apply to principal, interest, OID and premium payments on Registered Debt Securities and dividend payments in respect of the common stock or ADSs or the proceeds received on the sale, exchange or redemption of the Registered Debt Securities, common stock or ADSs paid within the United States (and in certain cases, outside of the United States) to holders other than certain exempt recipients, and a backup withholding tax may apply to such amounts if you fail to provide an accurate taxpayer identification number or to report interest and dividends required to be shown on your U.S. Federal income tax returns. The amount of any backup withholding from a payment to you will be allowed as a refund or a credit against your U.S. Federal income tax liability, provided the required information is timely furnished to the IRS.

Item 10.F. Dividends and Paying Agents

Not Applicable

Item 10.G. Statements by Experts

Not Applicable

 

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Item 10.H. Documents on Display

We are subject to the information requirements of the Exchange Act, and, in accordance therewith, are required to file reports, including annual reports on Form 20-F, and other information with the U.S. Securities and Exchange Commission. You may inspect and copy these materials, including this annual report and the exhibits thereto, at SEC’s Public Reference Room 100 Fifth Street, N.E., Washington, D.C. 20549. Please call the Commission at 1-800-SEC-0330 for further information on the public reference rooms. As a foreign private issuer, we are also required to make filings with the Commission by electronic means. Any filings we make electronically will be available to the public over the Internet at the Commission’s web site at http://www.sec.gov.

Item 10.I. Subsidiary Information

Not Applicable

 

ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our primary market risk exposures are to fluctuations in exchange rates, interest rates and fuel prices. We are exposed to foreign exchange risk related to foreign currency-denominated liabilities. As of December 31, 2016, approximately 23.1% of our long-term debt (including the current portion but excluding issue discounts and premium), before accounting for swap transactions, was denominated in foreign currencies, principally U.S. dollars. However, a substantial portion of our revenues is denominated in Won. As a result, changes in exchange rates, particularly between the Won and the U.S. dollar, significantly affect us due to our significant amounts of foreign currency-denominated debt and the effect of such changes on the amount of funds required by us to make interest and principal payments on such debt. In order to reduce the impact of foreign exchange rate fluctuations on our results of operations, we have recently been reducing and plan to continue to reduce the proportion of our debt which is denominated in foreign currencies.

We are also exposed to foreign exchange risk related to our purchases of fuel since we obtain substantially all of our fuel materials (other than anthracite coal) directly or indirectly from sources outside Korea. Prices for such fuel materials are quoted based on prices stated in, and in many cases are paid for in, currencies other than Won. In 2016, fuel costs represented 23.4% of our sales.

We are exposed to interest rate risk due to significant amounts of debt. Upward fluctuations in interest rates increase the cost of additional debt and the interest cost of outstanding floating rate borrowings. We are also exposed to fluctuations in prices of fuel materials. In 2016, for electricity generation, uranium accounted for 37.1% of our fuel requirements, coal accounted for 47.7%, LNG accounted for 10.8%, oil accounted for 3.0%, and others accounted for 1.3%, measured in each case by the amount of electricity we generated. In 2015, for electricity generation, uranium accounted for 38.1% of our fuel requirements, coal accounted for 47.9%, LNG accounted for 10.7%, oil accounted for 2.3% and others accounted for 1.0%, measured in each case by the amount of electricity we generated.

For additional discussions of our market risks, see Item 3.D. “Risk Factors” and Item 5.B. “Liquidity and Capital Resources—Liquidity.”

 

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We have entered into various swap contracts to hedge exchange rate risks arising from foreign currency-denominated debts. Details of currency swap contracts outstanding as of December 31, 2016 are as follows:

 

   

Counterparty

  Contract
Year
    Settlement
Year
    Contract amounts     Contract interest rate   Contract
Exchange
Rate
 

Type

        Pay     Receive     Pay   Receive  
                    (KRW in millions, USD in thousands)                

Trading

  Deutsche Bank     2013       2018       KRW 110,412       JPY 10,000,000     6.21%   4.19%     11.04  
  IBK     2013       2018       KRW 111,800       USD 100,000     3.16%   2.79%     1,118.00  
  Bank of America     2013       2018       KRW 103,580       JPY 10,000,000     7.05%   4.19%     10.36  
  Credit Suisse     2014       2019       KRW 118,632       CHF 100,000     2.98%   1.50%     1,186.32  
  Standard Chartered     2014       2019       KRW 114,903       CHF 100,000     4.00%   1.50%     1,149.03  
  Standard Chartered     2014       2029       KRW 102,470       USD 100,000     3.14%   3.57%     1,024.70  
  Standard Chartered     2014       2017       KRW 51,215       USD 50,000     2.24%   3M Libor +
0.55%
    1,024.30  
  Mizuho Bank     2014       2017       KRW 153,645       USD 150,000     2.35%   3M Libor +
0.65%
    1,024.30  
  Societe Generale     2014       2024       KRW 105,017       USD 100,000     4.92%   5.13%     1,050.17  
  KEB Hana Bank     2015       2024       KRW 107,970       USD 100,000     4.75%   5.13%     1,079.70  
  Credit Agricole     2015       2024       KRW 94,219       USD 86,920     4.85%   5.13%     1,083.97  
  Citibank     2012       2022       KRW 112,930       USD 100,000     2.79%   3.00%     1,129.30  
  JP Morgan     2012       2022       KRW 112,930       USD 100,000     2.79%   3.00%     1,129.30  
  Bank of America     2012       2022       KRW 112,930       USD 100,000     2.79%   3.00%     1,129.30  
  Shinhan Bank     2016       2022       KRW 112,930       USD 100,000     2.79%   3.00%     1,129.30  
  HSBC     2012       2022       KRW 111,770       USD 100,000     2.89%   3.00%     1,117.70  
  KEB Hana Bank     2012       2022       KRW 111,770       USD 100,000     2.87%   3.00%     1,117.70  
  Standard Chartered     2012       2022       KRW 111,770       USD 100,000     2.89%   3.00%     1,117.70  
  Deutsche Bank     2012       2022       KRW 55,885       USD 50,000     2.79%   3.00%     1,117.70  
  DBS     2013       2018       KRW 108,140       USD 100,000     2.63%   3M Libor +

0.84%

    1,081.40  
  DBS     2013       2018       KRW 108,140       USD 100,000     2.57%   3M Libor +

0.84%

    1,081.40  
  DBS     2013       2018       KRW 108,140       USD 100,000     2.57%   3M Libor +

0.84%

    1,081.40  
  HSBC     2013       2018       KRW 107,450       USD 100,000     3.41%   2.88%     1,074.50  
  Standard Chartered     2013       2018       KRW 107,450       USD 100,000     3.44%   2.88%     1,074.50  
  JP Morgan     2013       2018       KRW 107,450       USD 100,000     3.48%   2.88%     1,074.50  
  Bank of America     2014       2018       KRW 107,450       USD 100,000     3.09%   2.88%     1,074.50  
  Citibank     2014       2018       KRW 107,450       USD 100,000     3.09%   2.88%     1,074.50  
  JP Morgan     2014       2017       KRW 102,670       USD 100,000     2.89%   3M Libor +

0.78%

    1,026.70  
  Deutsche Bank     2014       2017       KRW 102,670       USD 100,000     2.89%   3M Libor +

0.78%

    1,026.70  
  HSBC     2014       2019       KRW 105,260       USD 100,000     2.48%   2.38%     1,052.60  
  Standard Chartered     2014       2019       KRW 105,260       USD 100,000     2.48%   2.38%     1,052.60  
  Korea Development Bank     2016       2019       KRW 105,260       USD 100,000     2.48%   2.38%     1,052.60  
  Nomura     2015       2025       KRW 111,190       USD 100,000     2.60%   3.25%     1,111.90  
  Korea Development Bank     2015       2025       KRW 111,190       USD 100,000     2.62%   3.25%     1,111.90  
  Woori Bank     2015       2025       KRW 55,595       USD 50,000     2.62%   3.25%     1,111.90  
  KEB Hana Bank     2015       2025       KRW 55,595       USD 50,000     2.62%   3.25%     1,111.90  

Cash flow hedge

  Standard Chartered     2011       2017       KRW 105,260       USD 100,000     3.99%   3.63%     1,052.60  
  Barclays Bank PLC     2011       2017       KRW 105,260       USD 100,000     3.99%   3.63%     1,052.60  
  Citibank     2011       2017       KRW 105,260       USD 100,000     3.99%   3.63%     1,052.60  
  Citibank     2013       2018       KRW 54,570       USD 50,000     2.90%   3M Libor +

1.01%

    1,091.40  

 

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Counterparty

  Contract
Year
    Settlement
Year
    Contract amounts     Contract interest rate   Contract
Exchange
Rate
 

Type

        Pay     Receive     Pay   Receive  
                    (KRW in millions, USD in thousands)                
  Standard Chartered     2013       2018       KRW 54,570       USD 50,000     2.90%   3M Libor +

1.01%

    1,091.40  
  Credit Suisse     2013       2018       KRW 111,410       USD 100,000     3.22%   3M Libor +

1.50%

    1,114.10  
  HSBC     2014       2020       KRW 99,901       AUD 100,000     3.52%   5.75%     999.01  
  HSBC     2014       2020       KRW 100,482       AUD 100,000     3.48%   5.75%     1,004.82  
  Standard Chartered     2013       2020       USD 117,250       AUD 125,000     3M Libor +

1.25%

  5.75%     0.94  
  Standard Chartered     2014       2020       KRW 126,032       USD 117,250     3.55%   3M Libor +
1.25%
    1,074.90  
 

JP Morgan

    2014       2019       KRW 107,190       USD 100,000     3M
Libor+3.25%
  2.75%     1,071.90  
 

Morgan Stanley

    2014       2019       KRW 107,190       USD 100,000     3M
Libor+3.25%
  2.75%     1,071.90  
 

Deutsche Bank

    2014       2019       KRW 107,190       USD 100,000     3M
Libor+3.25%
  2.75%     1,071.90  
 

Korea Development Bank

    2016       2021       KRW 121,000       USD 100,000     2.15%   2.50%     1,210.00  
 

Morgan Stanley

    2016       2021       KRW 121,000       USD 100,000     3M
Libor+2.10%
  2.50%     1,210.00  
 

BNP Paribas

    2016       2021       KRW 121,000       USD 100,000     3M
Libor+2.10%
  2.50%     1,210.00  
 

Morgan Stanley

    2012       2017       KRW 285,000       USD 250,000     3.76%   3.13%     1,140.00  
 

Credit Agricole

    2012       2017       KRW 142,500       USD 125,000     3.83%   3.13%     1,140.00  
 

JP Morgan

    2012       2017       KRW 142,500       USD 125,000     3.83%   3.13%     1,140.00  
 

Credit Agricole

    2013       2019       KRW 118,343       CHF 100,000     3.47%   1.63%     1,183.43  
 

Morgan Stanley

    2013       2019       KRW 59,172       CHF 50,000     3.40%   1.63%     1,183.43  
 

Nomura

    2013       2019       KRW 59,172       CHF 50,000     3.47%   1.63%     1,183.43  
 

Morgan Stanley

    2013       2018       KRW 107,360       USD 100,000     3.27%   2.88%     1,073.60  
 

Credit Agricole

    2013       2018       KRW 107,360       USD 100,000     3.34%   2.88%     1,073.60  
 

JP Morgan

    2013       2018       KRW 161,040       USD 150,000     3.34%   2.88%     1,073.60  
 

Standard Chartered

    2013       2018       KRW 161,040       USD 150,000     3.34%   2.88%     1,073.60  
 

Standard Chartered

    2014       2019       KRW 104,490       USD 100,000     2.77%   2.63%     1,044.90  
 

Credit Agricole

    2014       2019       KRW 104,490       USD 100,000     2.77%   2.63%     1,044.90  
 

Morgan Stanley

    2014       2019       KRW 104,490       USD 100,000     2.70%   2.63%     1,044.90  
 

Barclays Bank PLC

    2013       2018       KRW 81,188       USD 75,000     2.65%   1.88%     1,082.50  
 

Credit Agricole

    2013       2018       KRW 81,188       USD 75,000     2.65%   1.88%     1,082.50  
 

Deutsche Bank

    2013       2018       KRW 81,188       USD 75,000     2.65%   1.88%     1,082.50  
 

Citibank

    2013       2018       KRW 81,188       USD 75,000     2.65%   1.88%     1,082.50  
 

Standard Chartered

    2014       2017       KRW 54,205       USD 50,000     2.93%   3M Libor +

1.05%

    1,084.10  
 

Credit Agricole

    2014       2017       KRW 54,205       USD 50,000     2.93%   3M Libor +

1.05%

    1,084.10  
 

HSBC

    2012       2017       KRW 115,140       USD 100,000     3.38%   2.50%     1,151.40  
 

BNP Paribas

    2012       2017       KRW 115,140       USD 100,000     3.38%   2.50%     1,151.40  
 

KEB Hana Bank

    2012       2017       KRW 115,140       USD 100,000     3.38%   2.50%     1,151.40  
 

Barclays Bank PLC

    2012       2017       KRW 57,570       USD 50,000     3.38%   2.50%     1,151.40  
 

Standard Chartered

    2012       2017       KRW 57,570       USD 50,000     3.38%   2.50%     1,151.40  
 

Nomura

    2012       2017       KRW 57,570       USD 50,000     3.38%   2.50%     1,151.40  
 

Credit Agricole

    2012       2017       KRW 57,570       USD 50,000     3.38%   2.50%     1,151.40  
 

Societe Generale

    2013       2018       KRW 106,190       USD 100,000     3.48%   2.63%     1,061.90  
 

BNP Paribas

    2013       2018       KRW 53,095       USD 50,000     3.48%   2.63%     1,061.90  
 

KEB Hana Bank

    2013       2018       KRW 53,095       USD 50,000     3.48%   2.63%     1,061.90  
 

Standard Chartered

    2013       2018       KRW 106,030       USD 100,000     3.48%   2.63%     1,060.30  

 

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Counterparty

  Contract
Year
    Settlement
Year
    Contract amounts     Contract interest rate   Contract
Exchange
Rate
 

Type

        Pay     Receive     Pay   Receive  
                    (KRW in millions, USD in thousands)                
 

Barclays Bank PLC

    2013       2018       KRW 53,015       USD 50,000     3.48%   2.63%     1,060.30  
 

KEB Hana Bank

    2013       2018       KRW 31,809       USD 30,000     3.48%   2.63%     1,060.30  
 

Societe Generale

    2013       2018       KRW 21,206       USD 20,000     3.48%   2.63%     1,060.30  
 

HSBC

    2013       2018       KRW 53,015       USD 50,000     3.47%   2.63%     1,060.30  
 

Nomura

    2013       2018       KRW 53,015       USD 50,000     3.47%   2.63%     1,060.30  
 

Credit Agricole

    2014       2020       KRW 110,680       USD 100,000     2.29%   2.50%     1,106.80  
 

Societe Generale

    2014       2020       KRW 55,340       USD 50,000     2.16%   2.50%     1,106.80  
 

KEB Hana Bank

    2014       2020       KRW 55,340       USD 50,000     2.16%   2.50%     1,106.80  
 

KEB Hana Bank

    2014       2020       KRW 55,340       USD 50,000     2.21%   2.50%     1,106.80  
 

Standard Chartered

    2014       2020       KRW 55,340       USD 50,000     2.21%   2.50%     1,106.80  
 

HSBC

    2014       2020       KRW 55,340       USD 50,000     2.21%   2.50%     1,106.80  
 

Nomura

    2014       2020       KRW 55,340       USD 50,000     2.21%   2.50%     1,106.80  
 

Barclays Bank PLC

    2014       2020       KRW 55,340       USD 50,000     2.21%   2.50%     1,106.80  
 

HSBC

    2014       2020       KRW 55,340       USD 50,000     2.21%   2.50%     1,106.80  

Under these currency swap contracts, we recognized net valuation gain of Won 253,035 million in 2016.

Details of interest rate contracts outstanding as of December 31, 2016 are as follows:

 

Type

 

Counterparty

  Contract
Year
    Settlement
Year
          Contract Interest Rate Per Annum
        Notional Amount     Pay   Receive
                   

(KRW in millions,

USD in thousands)

         

Trading

  Standard Chartered     2012       2017       KRW 160,000     3.57%   3M CD + 0.32%
  JP Morgan     2013       2018       KRW 150,000     3.58%   3M CD + 0.31%
  Credit Suisse     2014       2018       KRW 200,000     2.98%   1Y CMT + 0.31%
 

Korea Development
Bank
( 1 )

    2014       2029       KRW 40,000     3M CD – 0.03%   4.65%
 

Export-Import Bank of Korea

    2015       2031       USD 15,893     2.67%   6M USD Libor
  ING Bank     2015       2031       USD 7,861     2.67%   6M USD Libor
  BNP Paribas     2015       2031       USD 7,861     2.67%   6M USD Libor

Cash flow hedge

  BNP Paribas     2009       2027       USD 94,790     4.16%   6M USD Libor
  KFW     2009       2027       USD 94,790     4.16%   6M USD Libor
  Credit Agricole     2016       2033       USD 99,694     3.98% ~ 4.10%   6M USD Libor
  SMBC     2016       2033       USD 130,369     4.05% ~ 4.18%   6M USD Libor

 

Note:

 

(1) This contract is an interest rate swap hedging on Electricity Bonds 885, and the bank would notify us of the early termination every year on the early termination nonfiction date (every year on April 28 from 2017 until 2028). The contract will be terminated if the early termination is notified.

Under these interest rate swap contracts, we recognized net valuation gain of Won 8,517 million in 2016.

 

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We engage in transactions denominated in foreign currencies and consequently become exposed to fluctuations in exchange rates. The carrying amounts of our foreign currency-denominated monetary assets and monetary liabilities as of December 31, 2015 and 2016 were as follows:

 

     Assets      Liabilities  

Type

   2015      2016      2015      2016  
    

(In thousands of USD, EUR, GBP and other

foreign currencies)

 

AED

     1,481        7,479        1,705        1,534  

AUD

     158        187        595,284        632,613  

BDT

     43,332        49,110        889        833  

BWP

     301        4,296        —          3,222  

CAD

     —          —          858        —    

CHF

     —          —          400,029        400,308  

CNY

     —          —          26,140        —    

EUR

     6,141        17,585        33,552        14,111  

GBP

     —          3        99        110  

IDR

     —          52,568        —          —    

INR

     972,175        1,059,092        206,159        161,631  

JOD

     2,972        1,746        —          5  

JPY

     1,425,163        520,746        20,325,211        20,442,504  

KZT

     47,177        12,157        —          —    

MGA

     2,768,360        3,408,579        151,729        150,430  

MXN

     7,704        —          —          —    

PHP

     489,309        415,818        77,337        136,700  

PKR

     211,212        274,090        12,928        5,051  

SAR

     1,083        1,149        —          —    

TWD

     —          —          30        —    

USD

     1,260,094        1,319,524        9,331,854        9,445,567  

UYU

     —          1,307        —          586  

ZAR

     238        386        —          75  

The following analysis sets forth the sensitivity of our consolidated net income before income taxes (our “pre-tax income”) to changes in exchange rates, interest rates, electricity rates and fuel costs. For purposes of this section, we and our related parties are deemed one entity. The range of changes in such risk categories represents our view of the changes that are reasonably possible over a one-year period, although it is difficult to predict such changes as a result of adverse economic developments in Korea. See Item 3.D. “Risk Factors—Risks Relating to Korea and the Global Economy—Unfavorable financial and economic conditions in Korea and globally may have a material adverse impact on us.” The following discussion only addresses material market risks faced by us and does not discuss other risks which we face in the normal course of business, including country risk, credit risk and legal risk. Unless otherwise specified, all calculations are made under IFRS.

If Won depreciates against U.S. dollar and all other foreign currencies held by us by 10% and all other variables are held constant from their levels as of December 31, 2016, we estimate that our unrealized foreign exchange translation losses will increase by Won 1,101 billion in 2017. Such sensitivity analysis is conducted for monetary assets and liabilities denominated in foreign currencies other than functional currency as of December 31, 2016 and 2015, before accounting for swap transactions. To manage our foreign currency risk related to foreign currency-denominated receivables and payables, we have a policy of entering into currency forward agreements. In addition, to manage our foreign currency risk related to foreign currency-denominated expected sales transactions and purchase transactions, we enter into cross-currency swap agreements.

We are exposed to interest rate risk due to our borrowings with floating interest rates. If interest rates increase by 1% on all of our borrowings and debentures bearing variable interest and all other variables are held

 

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constant as of December 31, 2016, we estimate that our income before income taxes will decrease by Won 33 billion (not reflecting the fact that a portion of such interest may be capitalized under IFRS) in 2017. Such sensitivity analysis does not take into consideration interest rate swap transactions. To manage our interest rate risks, we, in addition to maintaining an appropriate mix of fixed and floating rate loans, have entered into certain interest rate swap agreements.

We are exposed to electricity rates risk due to the rate regulation by the Government, which considers the effect of electricity rate changes on the national economy. If the electricity rate rises by 1% and all other variables are held constant as of December 31, 2016, we estimate that our income before income taxes will increase by Won 543 billion in 2017.

We are exposed to fuel price risks due to the heavy influence of fuel costs on our sales and cost of sales. If the fuel prices of anthracite and bituminous coal, oil, LNG and others used for generation by us and our generation subsidiaries rise by 1% and all other variables are held constant as of December 31, 2016, we estimate that our income before income taxes will decrease by Won 141 billion in 2017.

The above discussion and the estimated amounts generated from the sensitivity analyzes referred to above include “forward-looking statements,” which assume for analytical purposes that certain market conditions may occur. Accordingly, such forward-looking statements should not be considered projections by us of future events or losses.

See Note 45 of the notes to our consolidated financial statements included in this annual report for further related information.

 

ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

Item 12.A. Debt Securities

Of the four debt securities issued by us that are registered under the Exchange Act as set forth in the cover page of this annual report, the One Hundred Year 7.95% Zero-to-Full Debentures due April 1, 2096, were guaranteed by Korea Development Bank. However, such guarantee expired on April 1, 2016 by reason of the expiration of a put option period applicable to such debentures in accordance with the terms of such debentures.

Korea Development Bank, a statutory bank for the Korean government, is 100% beneficially owned by the Korean government. The voting rights in our equity interest held by Korea Development Bank are effectively exercised by the Korean government.

The guarantee by Korea Development Bank of our above-mentioned registered debt securities was itself a security registered under the Securities Act. Korea Development Bank is a Schedule B issuer and periodically files registration statements with the Commission. These registration statements typically include financial statements prepared in accordance with the applicable generally accepted accounting principles, currently the Korean International Financial Reporting Standards, and audited in accordance with generally accepted auditing standards in the Republic of Korea.

Item 12.B. Warrants and Rights

Not applicable.

Item 12.C. Other Securities

Not applicable.

 

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Item 12.D. American Depositary Shares

Under the terms of the Deposit Agreement in respect of our ADSs, the holder and beneficiary owners of ADSs, any party depositing or withdrawing or surrendering ADSs or ADRs, whichever applicable, may be required to pay the following fees and charges to Citibank, N.A. acting as depositary for our ADSs:

 

Item

  

Services

  

Fees

1

   Taxes and other governmental charges    As applicable

2

   Registration of transfer of common shares generally on our shareholders’ register, any institution authorized under the applicable law to effect book-entry transfers of securities (including Korea Securities Depositary), or any entity that presently carries out the duties of registrar for the common shares, and applicable to transfers of common shares to the name of the Depositary or its nominee on the making of deposits or withdrawals    A fee of US$1.50 or less per ADS

3

   Cable, telex and facsimile transmission expenses    As applicable

4

   Expenses incurred by the Depositary in the conversion of foreign currency    As applicable

5

   Execution and delivery of ADRs and the surrender of ADRs    Fee of US$0.05 or less per ADS

6

   Cash distribution made by the Depositary or its agent    Fee of US$0.02 or less per ADS

7

   Fee for the distribution of proceeds of sales of securities or rights for distribution other than cash, common shares or rights to subscribe for shares, distribution in shares or distribution in rights to subscribe for shares    Lesser of (i) the fee for the execution and delivery of ADRs referred to above which would have been charged as a result of the deposit by the holders of securities or common shares received in exercise of rights distributed to them, but which securities or rights are instead sold by the Depositary and the net proceeds distributed and (ii) the amount of such proceeds

8

   Depositary services performed in administering the ADRs (which fee shall be assessed against holders of ADSs as of the record date or dates and shall be payable at the sole discretion of the Depositary by billing such holders or by deducting such charge from one or more cash dividends or other cash distributions)    Fee of US$0.02 or less per ADS per calendar year

Depositary fees payable upon the issuance and cancelation of ADSs are typically paid to the depositary by the brokers (on behalf of their clients) receiving the newly-issued ADSs from the depositary and by the brokers (on behalf of their clients) delivering the ADSs to the depositary for cancelation. The brokers in turn charge these transaction fees to their clients.

Depositary fees payable in connection with distributions of cash or securities to ADS holders and the depositary services fee are charged by the depositary to the holders of record of ADSs as of the applicable ADS record date. The depositary fees payable for cash distributions are generally deducted from the cash being

 

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distributed. In the case of distributions other than cash (i.e., stock dividends, rights offerings), the depositary charges the applicable fee to the ADS record date holders concurrent with the distribution. In the case of ADSs registered in the name of the investor (whether certificated or un-certificated in direct registration), the depositary sends invoices to the applicable record date ADS holders. In the case of ADSs held in brokerage and custodian accounts via the central clearing and settlement system, the Depository Trust Company (“DTC”), the depositary generally collects its fees through the systems provided by DTC (whose nominee is the registered holder of the ADSs held in DTC) from the brokers and custodians holding ADSs in their DTC accounts. The brokers and custodians who hold their clients’ ADSs in DTC accounts in turn charge their clients’ accounts the amount of the fees paid to the depositary.

In the event of refusal to pay the depositary fees, the depositary may, under the terms of the Deposit Agreement, refuse the requested service until payment is received or may set-off the amount of the depositary fees from any distribution to be made to the ADS holder.

The fees and charges the ADS holders may be required to pay may vary over time and may be changed by us and by the depositary. The ADS holders will receive prior notice of such changes.

Depositary Payments for the Fiscal Year 2016

The following table sets forth our expenses incurred in 2016, which were reimbursed by Citibank, N.A. in the aggregate:

 

     (In thousands
of U.S. dollars)
 

Reimbursement of legal fees

   US$ 387  

Reimbursement of accounting fees

     273  

Contributions towards our investor relations and other financing efforts (including investor conferences, non-deal roadshows and market information services)

     1,375  

Other

     151  
  

 

 

 

Total

   US$ 2,186  
  

 

 

 

 

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PART II

 

ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

Not applicable.

 

ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

Not applicable.

 

ITEM 15. CONTROLS AND PROCEDURES

Disclosure Control

Under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of December 31, 2016. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can provide only reasonable assurance of achieving their control objectives. Based upon our evaluation, our chief executive officer and chief financial officer concluded that the design and operation of our disclosure controls and procedures as of December 31, 2016 were effective to provide reasonable assurance that information required to be disclosed by us in the reports we file and submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the applicable rules and forms, and that it is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate to allow timely decision regarding required disclosure.

Management’s Annual Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, for our company. Under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, we have evaluated the effectiveness of our internal control over financial reporting as of December 31, 2016 based on the framework established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013). Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements in accordance with generally accepted accounting principles and includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of a company’s assets, (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with generally accepted accounting principles, and that a company’s receipts and expenditures are being made only in accordance with authorizations of a company’s management and directors, and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of a company’s assets that could have a material effect on the consolidated financial statements.

Because of its inherent limitations, a system of internal control over financial reporting can provide only reasonable assurance with respect to consolidated financial statement preparation and presentation and may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

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Following the overhaul in May 2013 by the Committee of Sponsoring Organization of the Treadway (“COSO”) of the COSO Framework relating to internal controls and adoption of the 2013 Integrated Framework of the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO Framework (2013)”), we have, effective January 1, 2014, adopted the COSO Framework (2013) and incorporated it into our internal control system for us and our subsidiaries in order to comply with the Sarbanes Oxley Act and to standardize our internal control system. As required by Section 404 of the Sarbanes-Oxley Act of 2002 and related rules as promulgated by the Securities and Exchange Commission, management assessed the effectiveness of our internal control over financial reporting as of December 31, 2016 using criteria established by the COSO Framework (2013). Based on this evaluation, our management concluded that our internal control over financial reporting was effective as of December 31, 2016 based on the criteria established by the COSO Framework (2013).

Audit Report of the Independent Registered Public Accounting Firm

KPMG Samjong Accounting Corp. has issued an audit report on the effectiveness of our internal control over financial reporting, which is included elsewhere in this annual report.

Changes in Internal Controls

There were no changes in our internal control over financial reporting that occurred during the year ended December 31, 2016 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Our adoption of the COSO Framework (2013) did not have, and is not reasonably likely to have, any material effect on our internal control over financial reporting.

We operate an integrated ERP system for a transparent and efficient management of the core ERP components, including personnel, accounting, procurement, construction and facilities maintenance. In addition, we also operate a strategic enterprise management system that includes business warehouse, management information and business planning and simulation systems. We continue to upgrade and improve the ERP system, which is being used as our core information infrastructure.

 

ITEM 16. [RESERVED]

 

ITEM 16.A. AUDIT COMMITTEE FINANCIAL EXPERT

Our board of directors has determined that we have at least one “audit committee financial expert” as such term is defined by the regulations of the Securities and Exchange Commission issued pursuant to Section 407 of the Sarbanes-Oxley Act of 2002. Our audit committee financial expert is Cho, Jeon-Hyeok. Such member currently remains a member of the audit committee and is independent within the meaning of the Korea Stock Exchange listing standards, the regulations promulgated under the Enforcement Decree of the Korean Commercial Code and the New York Stock Exchange listing standards. For biographic information of our audit committee financial expert, Cho, Jeon-Hyeok, see Item 6.A. “Directors and Senior Management.”

 

ITEM 16.B. CODE OF ETHICS

We have adopted a code of ethics for our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions as required under Section 406 of the Sarbanes-Oxley Act of 2002, together with an insider reporting system in compliance with Section 301 of the Sarbanes-Oxley Act. The code of ethics is available on our website www.kepco.co.kr. We have not granted any waiver, including an implicit waiver, from a provision of the code of ethics to any of the above-mentioned officers during our most recently completed fiscal year.

 

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ITEM 16.C. PRINCIPAL AUDITOR FEES AND SERVICES

The following table sets forth the aggregate fees billed for each of the years ended December 31, 2015 and 2016 for professional services rendered by our principal auditors for such year, for various types of services and a brief description of the nature of such services. KPMG Samjong Accounting Corp., a Korean independent registered public accounting firm, was our principal auditors for the year ended December 31, 2016 and we currently expect KPMG Samjong Accounting Corp. to serve as our principal auditors for the year ended December 31, 2017.

 

    Aggregate Fees Billed During       

Type of Services

  2015     2016     

Nature of Services

    (In millions of Won)       

Audit Fees

  3,004     3,296      Audit service for KEPCO and its subsidiaries.

Audit-Related Fees

    98       —        Accounting advisory service.

Tax Fees

    12       —        Tax return and consulting advisory service.

All Other Fees

    —         —        All other services which do not meet the three categories above.
 

 

 

   

 

 

    

Total

  3,114     3,296     
 

 

 

   

 

 

    

United States law and regulations in effect since May 6, 2003 generally require all service of the principal auditors to be pre-approved by an independent audit committee or, if no such committee exists with respect to an issuer, by the entire board of directors. We have adopted the following policies and procedures for consideration and approval of requests to engage our principal auditors to perform audit and non-audit services. If the request relates to services that would impair the independence of our principal auditors, the request must be rejected. If the service request relates to audit and permitted non-audit services for us and our subsidiaries, it must be forwarded to our audit committee and receive pre-approval.

In addition, United States law and regulations permit the pre-approval requirement to be waived with respect to engagements for non-audit services aggregating no more than five percent of the total amount of revenues we paid to our principal auditors, if such engagements were not recognized by us at the time of engagement and were promptly brought to the attention of our audit committee or a designated member thereof and approved prior to the completion of the audit.

ITEM 16.D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEE

Not applicable.

ITEM 16.E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

Neither we nor any “affiliated purchaser,” as defined in Rule 10b-18(a)(3) of the Exchange Act, purchased any of our equity securities during the period covered by this annual report.

ITEM 16.F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT

Not applicable.

 

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ITEM 16.G. CORPORATE GOVERNANCE

We are committed to high standards of corporate governance. We are in compliance with the corporate governance provisions of the KEPCO Act, the Act on the Management of Public Institutions, the Korean Commercial Code, the Financial Investment Services and Capital Markets Act of Korea and the Listing Rules of the Korea Exchange. We, like all other companies in Korea, must comply with the corporate governance provisions under the Korean Commercial Code, except to the extent the KEPCO Act and the Act on the Management of Public Institutions otherwise require. Our corporate governance is also affected by various regulatory guidelines, including those promulgated by the Ministry of Strategy and Finance. In addition, as a company listed on the Korea Exchange, we are subject to the Financial Investment Services and Capital Markets Act of Korea, unless the Financial Investment Services and Capital Markets Act of Korea otherwise provides.

The Act on the Management of Public Institutions

General Provisions

On April 1, 2007, the Act on the Management of Public Institutions took effect by abolishing and replacing the Government-invested Enterprise Management Basic Act, which was enacted in 1984. Unless stated otherwise therein, the Act on the Management of Public Institutions takes precedence over any other laws and regulations in the event of inconsistency. On April 2, 2007, pursuant to this Act the minister of the Ministry of Strategy and Finance designated us as a “market-oriented public enterprise” as defined under this Act, and we became subject to this Act accordingly. We incorporated the applicable provisions of this Act into our Articles of Incorporation by amendment thereto in September 2007.

The Act on the Management of Public Institutions sets out the rules for corporate governance for entities that are subject to this Act, including the appointment of their respective president and directors. Under this Act as it applies to us as a “market-oriented public enterprise”, (i) a senior non-standing director as appointed by the minister of the Ministry of Strategy and Finance becomes the chairman of our board of directors following the review and resolution of the Public Agencies Operating Committee; (ii) our president and our standing directors who concurrently serve as members of our audit committee are appointed by the President of the Republic upon the motion of the Ministry of Trade, Industry and Energy (in the case of our president) or of the Ministry of Strategy and Finance (in the case of standing directors who concurrently serve as members of our audit committee), following the nomination by such enterprise’s director nomination committee, the review and resolution of the Public Agencies Operating Committee pursuant to the Act on the Management of Public Institutions and an approval at the general meeting of our shareholders; (iii) our standing directors other than the president and those who also serve as audit committee members must be appointed by our president with the approval at the general meeting of our shareholders from a pool of candidates recommended by our director nomination committee; and (iv) our non-standing directors must be appointed by the minister of the Ministry of Strategy and Finance following the review and resolution of the Public Agencies Operating Committee from a pool of candidates recommended by the director nomination committee and an approval at the general meeting of our shareholders, and must have ample knowledge and experience in business management.

The Public Agencies Operating Committee is established pursuant to the Act on the Management of Public Institutions and is comprised of one chairperson who is the Minister of the Ministry of Strategy and Finance and the following members: (i) one Vice Minister-level public official from the Office for Government Policy Coordination as nominated by the minister of the Office for Government Policy Coordination; (ii) one Vice Minister, Deputy Administrator or an equivalent public official of the related administrative agency as prescribed by Presidential Decree; (iii) one Vice Minister, Deputy Administrator, or an equivalent public official of the competent agency who does not fall under subclause (ii); and (iv) 11 or fewer persons commissioned by the President based on the recommendation of the Minister of the Ministry of Strategy and Finance from among persons in various fields including law, economy, press, academia, labor, who have good knowledge and experience in the operation and business administration of public institutions as well as good reputation for impartiality.

 

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Our director nomination committee, which is also known as the Committee for Recommendation of Executive Officers, is comprised of non-standing directors and members appointed by the board of directors. The number of members ranges from five to 15 persons and must be decided by a resolution of the board of directors; provided that, the number of members appointed by the board of directors must be less than half of the total number of members of our director nomination committee.

Under the Act on the Management of Public Institutions and our Articles of Incorporation, the term of office is three years for our president and two years for our directors (standing and non-standing) other than our president. Our directors (including the president) may be reappointed for one or more additional terms of one year. In order to be reappointed, the president must be evaluated on the basis of his management performance; a standing director, on the basis of the performance of the duties for which he was elected to perform, or if the standing director has executed an incentive bonus contract, on the basis of his performance under the contract; and a non-standing director, on the basis of his performance of the duties for which he was elected to perform.

Under the Act on the Management of Public Institutions and our Articles of Incorporation, a recommendation from the director nomination committee is required for the appointment of our executive officers, except in the case of reappointments. The director nomination committee consists of five to fifteen members, including private-sector members appointed by the board of directors. Non-standing directors must comprise at least a majority of the director nomination committee. One of the private-sector members must be able to represent our opinion and must not be currently employed by us. As required under the Act on the Management of Public Institutions, we established an audit committee. At least two-thirds of the audit committee members must be non-standing directors, and at least one committee member must be an expert in finance or accounting. According to the Act on the Management of Public Institutions, our president’s term cannot be terminated unless done so by the President of the Republic pursuant to the Act on the Management of Public Institutions or upon an event as specified in our Articles of Incorporation.

As required under Act on the Management of Public Institutions, we submit to the Government by October 31 every year a report on our medium- to long-term management goals. Under the Act on the Management of Public Institutions, we are also required to give separate public notice of important management matters, such as our budget and financial statements, status of directors and annual reports. In addition, for purposes of providing a comparison of the management performances of government agencies, we are required to post on a designated website a notice on a standard form detailing our management performance. Following consultation with the minister of the Ministry of Trade, Industry and Energy and the review and resolution of the operating committee, the Ministry of Strategy and Finance must examine the adequacy and competency of government agencies and establish plans on merger, abolishment, restructuring and privatization of public agencies. In such case, the minister of the Ministry of Trade, Industry and Energy must execute these plans and submit a performance report to the Ministry of Strategy and Finance.

Application of the Act to Our Generation Subsidiaries

On January 24, 2011, the Ministry of Strategy and Finance changed the designation of our six generation subsidiaries from “other public institutions” to “market-oriented public enterprises”, each as defined in the Act on the Management of Public Institutions, and all of our generation subsidiaries accordingly amended their respective articles of incorporation in 2011 to be in compliance with this Act. As “other public institutions”, our generation subsidiaries previously were not subject to the same regulations under the Act on the Management of Public Institutions applicable to us with regards to corporate governance matters such as the appointment and dismissal of directors and the composition of the boards of directors. However, as “market-oriented public enterprises”, our generation subsidiaries are currently subject to the same such regulations that are applicable to us.

Specifically, prior to such designation, (i) our president appointed the presidents and the statutory auditors of our generation subsidiaries; (ii) the selection of non-standing directors of each such subsidiary was subject to

 

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approval by our president; (iii) the president of each such subsidiary entered into a management contract with our president; and (iv) our evaluation committee conducted performance evaluation of such subsidiaries. However, following such designation, akin to the appointment process applicable to us, (i) the President of the Republic appoints the presidents and standing directors of our generation subsidiaries that concurrently serve as members of the audit committees; (ii) the selection of non-standing directors of these subsidiaries is subject to approval by the minister of the Ministry of Strategy and Finance; (iii) the president of each such generation subsidiary is required to enter into a management contract directly with the minister of the Ministry of Trade, Industry and Energy; and the Public Agencies Operating Committee conducts performance evaluation of such subsidiaries.

Our Control over the Generation Subsidiaries

Designation of our generation subsidiaries as “market-oriented public enterprises” was intended to promote responsible management by and improve operational efficiency of government-affiliated electricity companies by fostering competition among them so as to provide improved service to the general public. Such designation also has had the effect of the Government exercising greater direct control over the appointment of the governing body of our generation subsidiaries (in ways that are similar to how the Government exercises such control over us as our majority shareholder as well as our regulator).

In addition, the Government has imposed a number of regulations that further affect the respective operational boundaries between us and our generation subsidiaries, including as follows:

 

   

In August 2010, in furtherance of the Act on the Management of Public Institutions, the Ministry of Strategy and Finance announced the Proposal for the Improvement in the Structure of the Electric Power Industry, which was designed to promote responsible management by and improve operational efficiency of government-affiliated electricity companies by fostering competition among them. Key initiatives of the proposal included the following: (i) maintain the current structure of having six generation subsidiaries and designate the six generation subsidiaries as market-oriented public enterprises under the Act on the Management of Public Institutions in order to foster competition among the generation subsidiaries and promote efficiency in their operations, and (ii) clarify the scope of the business of us and the six generation subsidiaries (namely, that we shall manage the financial structure and governance of the six generation subsidiaries and nuclear power plant and overseas resources development projects, while the six generation subsidiaries will have greater autonomy with respect to construction and management of generation units and procurement of fuel), among others.

 

   

In January 2011, the Ministry of Strategy and Finance created a “joint cooperation unit” consisting of officers and employees selected from the five thermal power generation subsidiaries in order to reduce inefficiencies in areas such as fuel transportation, inventories, materials and equipment and construction, etc. and allow the thermal power generation subsidiaries to continue utilizing the benefits of economy of scale after split off of our generation business units into separate subsidiaries. The purpose of the joint cooperation unit was to give greater autonomy to the generation subsidiaries with regard to power plant construction and management and fuel procurements, and thereby enhance efficiency in operating power plants. The main functions of the joint cooperation unit are as follows: (i) maintain inventories of bituminous coal through volume exchanges and joint purchases, (ii) reduce shipping and demurrage expenses through joint operation and distribution of dedicated vessels, (iii) reduce costs by sharing information on generation material inventories and (iv) sharing human resources among the five thermal power generation subsidiaries for construction projects, among other things.

 

   

In June 2016, the Government announced the Proposal for Adjustment of Functions of Public Institutions (Energy Sector) for the purpose of streamlining the operations of government-affiliated energy companies by discouraging them from engaging in overlapping or similar businesses with each other, reducing non-core assets and activities and improving management and operational efficiency. The initiatives contemplated in this proposal that would affect us and our generation subsidiaries

 

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include the following: (i) the generation companies should take on greater responsibilities in overseas resource exploration and production projects (as these involve procurement of fuels necessary for electricity generation), while fostering cooperation among each other through closer coordination, (ii) KHNP should take a greater role in export of nuclear technology, and (iii) the current system of retail sale of electricity to end-users should be liberalized to encourage more competition.

However, notwithstanding these developments, we, also a government-controlled entity, remain as the sole shareholder of our generation subsidiaries and continue to exercise significant control over them in such capacity as the sole shareholder well as through other practical means as further described below.

First, as the sole shareholder, we continue to have the right, under the Act on the Management of Public Institutions, to approve or disapprove the appointment of key members of the governing body of our generation subsidiaries (namely, the president and the standing and non-standing directors) by way of a vote at the general shareholders meeting before such appointments are ultimately approved and made by the President of the Republic (in the case of the presidents and standing directors concurrently serving as audit committee members of the generation subsidiaries) or by the president of each generation subsidiary (in the case of other standing directors of such generation subsidiary). Our right to exercise such voting right as a shareholder is also protected by the Commercial Code of Korea.

Second, in practice we retain significant control over our generation subsidiaries through the following means:

 

   

We are the sole purchaser of electricity produced and sold by the generation subsidiaries and continue to have near monopoly in terms of transmitting and distributing electricity in Korea. Accordingly, we continue to have significant influence over our generation subsidiaries in the electricity industry.

 

   

Pursuant to the Electricity Business Act, the adjusted coefficient must be determined so that the price of electricity sold by our generation subsidiaries to us shall have the effect of ensuring a fair rate of return to us as a standalone entity, which means any imbalance caused by excess profits taken by our generation subsidiaries to our loss must be corrected. Since we and the generation subsidiaries participate in the determination of the adjusted coefficient, such determination process can be used as a way for us to exert indirect influence on our generation subsidiaries.

 

   

Our president holds regular meetings (known as “CEO Meetings”) with the presidents of our generation subsidiaries for which our president determines whether and when to convene such meetings, sets the agenda for such meetings and chairs such meetings. Since significant issues that jointly affect us and our generation subsidiaries are often discussed and decided at these meetings, the leadership role exercised by our president in such meetings is significant in setting the policies and direction for us and our generation subsidiaries as a whole.

 

   

We maintain and operate the Affiliated Company Management Team within the parent company organizational structure. The purpose of this team is to support and coordinate the management of the generation subsidiaries. Activities of the Affiliated Company Management Team include preparation of the CEO Meetings, deliberation of major issues to be discussed at CEO Meetings, convening a general meeting of shareholders of the generation subsidiaries and coordination on the decision-making process for the general meeting of shareholders of our generation subsidiaries.

 

   

We also maintain and operate the Committee of Investment Review, which reviews all material domestic and overseas investment projects of our generation subsidiaries before such projects are presented to the board of directors of our generation subsidiaries for approval. Such advance presentation to this Committee is required under the internal regulations of our generation subsidiaries. Accordingly, each generation subsidiary must submit a business plan to us two weeks prior to the meeting of the board of directors of the generation subsidiary for any investment project that is not already covered by the Seventh Basic Plan. Our president selects the chairman of this Committee, typically from the pool of our department heads, as well as its other members.

 

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In addition, our control over our generation subsidiaries is derived from the fact that the Government owns the majority of our shares and effectively controls us as the supervisor and regulator in a heavily regulated industry, and in effect also exercises the same degree of control over our generation subsidiaries through our sole share ownership over our generation subsidiaries as well as its statutory power of direct appointment of the governing bodies of our generation subsidiaries. In effect, we are acting as an intermediate holding company in a vertical control structure involving the Government, us and our generation subsidiaries, where the Government holds the ultimate control over both us and our generation subsidiaries and exercises its such control over our generation subsidiaries in part through us acting as the sole shareholder and the parent company of our generation subsidiaries.

Differences in Korean/New York Stock Exchange Corporate Governance Practices

We are a “foreign private issuer” (as such term is defined in Rule 3b-4 under the Exchange Act), and our ADSs are listed on the New York Stock Exchange, or NYSE. Under Section 303A of the NYSE Listed Company Manual, NYSE-listed companies that are foreign private issuers are permitted to follow home country practice in lieu of the corporate governance provisions specified by the NYSE with limited exceptions. Under the NYSE Listed Company Manual, we as a foreign private issuer are required to disclose significant differences between NYSE’s corporate governance standards and those we follow under Korean law. The following summarizes some significant ways in which our corporate governance practices differ from those followed by U.S. companies listed on the NYSE under the listing rules of the NYSE.

Majority of Independent Directors on the Board

Under the NYSE listing rules, U.S. companies listed on the NYSE must have a board, the majority of which is comprised of independent directors satisfying the requirements of “independence” as set forth in Rule 10A-3 under the Exchange Act. No director qualifies as “independent” unless the board of directors affirmatively determines that the director has no material relationship with the listed company (either directly or as a partner, shareholder or officer of an organization that has a relationship with us). The NYSE rules include detailed tests for determining director independence. As a foreign private issuer, we are exempt from this requirement. Under the Act on the Management of Public Institutions, more than one-half of our directors must be non-standing directors. For a discussion on qualifications of non-standing directors, see Item 6.A. “Directors and Senior Management—Board of Directors.” The Financial Investment Services and Capital Markets Act of Korea deems a non-standing director nominated pursuant to other applicable laws (such as the Act on the Management of Public Institutions) as an “outside” or “non-executive” director. Under the Act on the Management of Public Institutions, a non-standing director is appointed by the Ministry of Strategy and Finance following the review and resolution of the Public Agencies Operating Committee from a pool of candidates recommended by the director nomination committee and an approval at our general meeting shareholders, and must have ample knowledge and experience in business management. Government officials that are not part of the teaching staff in national and public schools are ineligible to become our non-standing directors.

Executive Session

Under the NYSE listing rules, non-management directors of U.S. companies listed on the NYSE are required to meet on a regular basis without management present and independent directors must meet separately at least once per year. While no such requirement currently exists under applicable Korean law, listing standards or our Articles of Incorporation, executive sessions were held from time to time in 2016 in order to promote the exchange of diverse opinions by non-standing directors.

Audit Committee

Under the NYSE listing rules, listed companies must have an audit committee that has a minimum of three members, and all audit committee members must satisfy the requirements of independence set forth in Section 303A.02 of the NYSE Listed Company Manual and Rule 10A-3 under the Exchange Act. Our audit committee

 

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members meet the requirements of independence set forth in Section 303A.02 of the NYSE Listed Company Manual and Rule 10A-3 under the Exchange Act. The audit committee must be directly responsible for the appointment, compensation, retention and oversight of the work of the independent registered public accountants. Our audit committee performs the roles and responsibilities required of an audit committee under the Sarbanes-Oxley Act, including the supervision of the audit by the independent registered public accountants. Under the Korea Exchange listing rules and the Korean Commercial Code, a large listed company must also establish an audit committee of which at least two-thirds of its members must be non-standing directors and whose chairman must be a non-standing director. Under the Act on the Management of Public Institutions, the Korean Commercial Code, the amended Articles of Incorporation and the Korea Exchange listing rules, we are required to maintain an audit committee consisting of three members, of which not less than two members are required to be non-standing directors. Our audit committee is in compliance with the foregoing requirements under the Act on the Management of Public Institutions, the Korean Commercial Code, the amended Articles of Incorporation and the Korea Exchange listing rules.

Nomination/Corporate Governance Committee

Under the NYSE listing rules, U.S. companies listed on the NYSE must have a nomination/corporate governance committee composed entirely of independent directors. In addition to identifying individuals qualified to become board members, this committee must develop and recommend to the board a set of corporate governance principles. Under the Act on the Management of Public Institutions, we are required to have a director nomination committee which consists of non-standing directors and ad hoc members appointed by our Board of Directors. Our standing directors and executives as well as governmental officials that are not part of the teaching staff in national and public schools are ineligible to become a member of our director nomination committee. There is no requirement to establish a corporate governance committee under applicable Korean law.

Pursuant to the NYSE listing standards, non-management directors must meet on a regular basis without management present and independent directors must meet separately at least once per year. No such requirement currently exists under applicable Korean law.

Compensation Committee

Under the NYSE listing rules, U.S. companies listed on the NYSE are required to have a compensation committee which is composed entirely of independent directors. In January 2013, the SEC approved amendments to the listing rules of NYSE and NASDAQ regarding the independence of compensation committee members and the appointment, payment and oversight of compensation consultants. The listing rules were adopted as required by Section 952 of the Dodd-Frank Act and rule 10C-1 of the Exchange Act, which direct the national securities exchanges to prohibit the listing of any equity security of a company that is not in compliance with the rule’s compensation committee director and advisor independence requirements. Certain elements of the listing rules became effective on July 1, 2013 and companies listed on the NYSE must comply with such listing rules by the earlier of the company’s first annual meeting after January 15 or October 31, 2014.

No such requirement currently exists under applicable Korean law or listing standards, and we currently do not have a compensation committee.

Corporate Governance Guidelines and Code of Business Conduct and Ethics

Under the NYSE listing rules, U.S. companies listed on the NYSE are required to establish corporate governance guidelines and to adopt a code of business conduct and ethics for directors, officers and employees, and promptly disclose any waivers of the code for directors or executive officers. As a foreign private issuer, we are exempt from this requirement. Pursuant to the requirements of the Sarbanes-Oxley Act, we have adopted a code of ethics applicable to our President & Chief Executive Officer and all other directors and executive officers including the Chief Financial Officer and the Chief Accounting Officer, as well as all financial, accounting and

 

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other officers that are involved in the preparation and disclosure of our consolidated financial statements and internal control of financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act. We have also adopted an insider reporting system in compliance with Section 301 of the Sarbanes-Oxley Act. The code of ethics applicable to our executive officers and financial officers are available on www.kepco.co.kr .

Shareholder Approval of Equity Compensation Plans

Under the NYSE listing rules, shareholders of U.S. companies listed on the NYSE are required to approve all equity compensation plans. Under Korean law and regulations, stock options can be granted to employees to the extent expressly permitted by the articles of incorporation. We currently do not have any equity compensation plans.

Annual Certification of Compliance

Under the NYSE listing rules, a chief executive officer of a U.S. company listed on the NYSE must annually certify that he or she is not aware of any violation by the company of NYSE corporate governance standards. As a foreign private issuer, we are not subject to this requirement. However, in accordance with rules applicable to both U.S. companies and foreign private issuers, we are required to promptly notify the NYSE in writing if any executive officer becomes aware of any material noncompliance with the NYSE corporate governance standards applicable to us. In addition, foreign private issuers, including us, are required to submit to the NYSE an annual written affirmation relating to compliance with Sections 303A.06 and 303A.11 of the NYSE listed company manual, which are the NYSE corporate governance standards applicable to foreign private issuers. All written affirmations must be executed in the form provided by the NYSE, without modification. An annual written affirmation is required to be submitted to the NYSE within 30 days of filing with the SEC our annual report on Form 20-F. We have been in compliance with this requirement in all material respects and plan to submit such affirmation within the prescribed time line.

Whistle Blower Protection

On May 25, 2011, the SEC adopted final rules to implement whistleblower provisions of the Dodd-Frank Act, which are applicable to foreign private issuers with securities registered under the U.S. securities laws. The final rules provide that any eligible whistleblower who voluntarily provides the SEC with original information that leads to the successful enforcement of an action brought by the SEC under U.S. securities laws must receive an award of between 10 and 30 percent of the total monetary sanctions collected if the sanctions exceed US$1,000,000. An eligible whistleblower is defined as someone who provides information about a possible violation of the securities laws that he or she reasonably believes has occurred, is ongoing, or is about to occur. The possible violation does not need to be material, probably or even likely, but the information must have a “facially plausible relationship to some securities law violation”; frivolous submissions would not qualify. The final rules also prohibit retaliation against the whistleblower. While the final rules do not require employees to first report allegations of wrongdoing through a company’s corporate compliance system, they do seek to incentivize whistleblowers to utilize internal corporate compliance first by, among other things, (i) giving employees who first report information internally the benefit of the internal reporting date for purposes of the SEC program so long as the whistleblower submits the same information to the SEC within 120 days of the initial disclosure; (ii) clarifying that the SEC will consider, as part of the criteria for determining the amount of a whistleblower’s award, whether the whistleblower effectively utilized the company’s corporate compliance program or hindered the function of the program; and (iii) crediting a whistleblower who reports internally first and whose company passes the information along to the SEC, which would mean the whistleblower could receive a potentially higher award for information gathered in an internal investigation initiated as a result of the whistleblower’s internal report.

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complaints to the SEC with respect to information they obtained in these roles by generally providing that information obtained through a communication subject to attorney-client privilege or as a result of legal representation would not be eligible for a whistleblower award unless disclosure would be permitted by attorney conduct rules. Accordingly, officers and directors, auditors and compliance personnel and other persons in similar roles would not be eligible to receive awards for information received in these positions unless (x) they have a reasonable basis to believe that (1) disclosure of the information is necessary to prevent the entity from engaging in conduct that is likely to cause substantial injury to the financial interests of the entity or investors; or (2) the entity is engaging in conduct that will impede an investigation of the misconduct, for example, destroying documents or improperly influencing witnesses; or (y) 120 days have passed since the whistleblower provided the information to senior responsible persons at the entity or 120 days have passed since the whistleblower received the information at a time when these people were already aware of the information.

In Korea, under the Financial Investment Services and Capital Markets Act, anyone may provide or furnish the Financial Services Commission or the Securities and Futures Commission with information on unfair trading or any other violation of the Financial Investment Services and Capital Markets Act. The Financial Services Commission shall keep the identity of the whistleblower confidential, and any institution, organization or company to which the whistleblower belongs may not treat the whistleblower unfavorably, directly or indirectly. In addition, the Financial Services Commission may also reward the whistleblower within the limit of the budget of the Financial Services Commission.

ITEM 16.H. MINE SAFETY DISCLOSURE

Not applicable.

 

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PART III

 

ITEM 17. FINANCIAL STATEMENTS

Not applicable.

 

ITEM 18. FINANCIAL STATEMENTS

Reference is made to Item 19. “Exhibits” for a list of all financial statements filed as part of this annual report.

 

ITEM 19. EXHIBITS

(a) Financial Statements filed as part of this Annual Report

See Index to Financial Statements on page F-1 of this annual report.

(b) Exhibits filed as part of this Annual Report

See Index of Exhibits beginning on page E-1 of this annual report.

 

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SIGNATURES

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this Annual Report on its behalf.

 

KOREA ELECTRIC POWER CORPORATION

 

By:  

/s/    Cho, Hwan-Eik        

Name:   Cho, Hwan-Eik
Title:   President and Chief Executive Officer
Date:   April 28, 2017

 

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INDEX TO FINANCIAL STATEMENTS

 

     Page  

Report of Independent Registered Public Accounting Firm KPMG Samjong Accounting Corp. on Consolidated Financial Statements

     F-2  

Report of Independent Registered Public Accounting Firm KPMG Samjong Accounting Corp. on Internal Control Over Financial Reporting

     F-3  

Consolidated Statements of Financial Position as of December  31, 2015 and 2016

     F-4  

Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2014, 2015 and 2016

     F-6  

Consolidated Statements of Changes in Equity for the Years Ended December 31, 2014, 2015 and 2016

     F-8  

Consolidated Statements of Cash Flows for the Years Ended December  31, 2014, 2015 and 2016

     F-11  

Notes to the Consolidated Financial Statements

     F-13  

 

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REPORT OF INDEPENDENT REGISTERED PUBLIC

ACCOUNTING FIRM ON CONSOLIDATED FINANCIAL STATEMENTS

To the Shareholders and Board of Directors of

Korea Electric Power Corporation:

We have audited the accompanying consolidated statements of financial position of Korea Electric Power Corporation and subsidiaries (the “Company”) as of December 31, 2015 and 2016, and the related consolidated statements of comprehensive income, changes in equity and cash flows for each of the years in the three-year period ended December 31, 2016. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the report of the other auditors provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Korea Electric Power Corporation and subsidiaries as of December 31, 2015 and 2016 and of the consolidated results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2016, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of December 31, 2016, based on the criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated April 28, 2017 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

/s/ KPMG Samjong Accounting Corp.

KPMG Samjong Accounting Corp.

Seoul, Korea

April 28, 2017

 

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON

INTERNAL CONTROL OVER FINANCIAL REPORTING

To the Shareholders and Board of Directors of

Korea Electric Power Corporation:

We have audited Korea Electric Power Corporation and subsidiaries’ (the “Company”) internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the group’s assets that could have a material effect on the financial statements.

Because of the inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2016, based on the criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated statements of financial position of Korea Electric Power Corporation and subsidiaries as of December 31, 2015 and 2016, and the related consolidated statements of comprehensive income, changes in equity and cash flows for each of the years in the three-year period ended December 31, 2016 and our report dated April 28, 2017 expressed an unqualified opinion on those consolidated financial statements.

/s/ KPMG Samjong Accounting Corp.

KPMG Samjong Accounting Corp.

Seoul, Korea

April 28, 2017

 

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Table of Contents

KOREA ELECTRIC POWER CORPORATION AND SUBSIDIARIES

Consolidated Statements of Financial Position

As of December 31, 2015 and 2016

 

     Note             2015      2016  
                   In millions of won  

Assets

           

Current assets

           

Cash and cash equivalents

     5,6,7,45             3,783,065        3,051,353  

Current financial assets, net

     5,10,11,12,45           5,335,621        2,671,989  

Trade and other receivables, net

     5,8,14,20,45,46,47           7,473,548        7,788,876  

Inventories, net

     13           4,946,413        5,479,443  

Income tax refund receivables

     41           9,081        19,163  

Current non-financial assets

     15           397,950        631,860  

Assets held-for-sale

     42           79,647        65,842  
        

 

 

    

 

 

 

Total current assets

           22,025,325        19,708,526  
        

 

 

    

 

 

 

Non-current assets

           

Non-current financial assets, net

     5,6,9,10,11,12,45           2,495,554        2,657,494  

Non-current trade and other receivables, net

     5,8,14,45,46,47           1,798,419        1,903,515  

Property, plant and equipment, net

     18,27,49           141,361,351        145,743,056  

Investment properties, net

     19,27           269,910        353,680  

Goodwill

     16           2,582        2,582  

Intangible assets other than goodwill, net

     21,27,46           855,832        980,821  

Investments in associates

     4,17           4,405,668        4,092,252  

Investments in joint ventures

     4,17           1,287,862        1,418,196  

Deferred tax assets

     41           623,623        795,131  

Non-current non-financial assets

     15           131,233        181,789  
        

 

 

    

 

 

 

Total non-current assets

           153,232,034        158,128,516  
        

 

 

    

 

 

 

Total Assets

     4             175,257,359        177,837,042  
        

 

 

    

 

 

 

Liabilities

           

Current liabilities

           

Trade and other payables, net

     5,22,24,45,47             4,735,697        5,585,411  

Current financial liabilities, net

     5,11,23,45,47           7,857,198        8,942,329  

Income tax payables

     41           2,218,060        1,843,288  

Current non-financial liabilities

     20,28,29           6,320,711        6,368,210  

Current provisions

     26,45           1,579,176        1,999,988  
        

 

 

    

 

 

 

Total current liabilities

           22,710,842        24,739,226  
        

 

 

    

 

 

 

Non-current liabilities

           

Non-current trade and other payables, net

     5,22,24,45,47           3,718,435        3,558,175  

Non-current financial liabilities, net

     5,11,23,45,47           51,062,811        44,835,562  

Non-current non-financial liabilities

     28,29           7,092,252        7,591,605  

Employee benefits liabilities, net

     25,45           1,503,107        1,686,258  

Deferred tax liabilities

     41           8,362,683        8,948,520  

Non-current provisions

     26,45           12,864,754        13,427,151  
        

 

 

    

 

 

 

Total non-current liabilities

           84,604,042        80,047,271  
        

 

 

    

 

 

 

Total Liabilities

     4             107,314,884        104,786,497  
        

 

 

    

 

 

 

 

(Continued)

 

F-4


Table of Contents

KOREA ELECTRIC POWER CORPORATION AND SUBSIDIARIES

Consolidated Statements of Financial Position, Continued

As of December 31, 2015 and 2016

 

     Note             2015     2016  
                   In millions of won  

Equity

          

Contributed capital

     1,30,45          

Share capital

             3,209,820       3,209,820  

Share premium

           843,758       843,758  
        

 

 

   

 

 

 
           4,053,578       4,053,578  

Retained earnings

     31          

Legal reserves

           1,604,910       1,604,910  

Voluntary reserves

           23,720,167       31,847,275  

Unappropriated retained earnings

           22,862,164       19,721,686  
        

 

 

   

 

 

 
           48,187,241       53,173,871  
        

 

 

   

 

 

 

Other components of equity

     34          

Other capital surplus

           1,197,388       1,235,146  

Accumulated other comprehensive loss

           (98,713     (33,875

Other equity

           13,294,973       13,294,973  
        

 

 

   

 

 

 
           14,393,648       14,496,244  
        

 

 

   

 

 

 

Equity attributable to owners of the controlling company

           66,634,467       71,723,693  
        

 

 

   

 

 

 

Non-controlling interests

     16, 33           1,308,008       1,326,852  
        

 

 

   

 

 

 

Total Equity

             67,942,475       73,050,545  
        

 

 

   

 

 

 

Total Liabilities and Equity

             175,257,359       177,837,042  
        

 

 

   

 

 

 

See accompanying notes to the consolidated financial statements.

 

F-5


Table of Contents

KOREA ELECTRIC POWER CORPORATION AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income

For the years ended December 31, 2014, 2015 and 2016

 

     Note             2014     2015     2016  
                  

In millions of won, except per share

information

 

Sales

     4,35,45,47            

Sales of goods

             53,706,828       54,367,036       55,379,487  

Sales of construction services

     20           2,965,185       3,761,204       4,026,857  

Sales of services

           451,013       453,487       356,743  
        

 

 

   

 

 

   

 

 

 
           57,123,026       58,581,727       59,763,087  
        

 

 

   

 

 

   

 

 

 

Cost of sales

     13,25,43,47            

Cost of sales of goods

           (46,509,555     (41,348,917     (41,237,372

Cost of sales of construction services

           (2,752,610     (3,563,120     (3,755,144

Cost of sales of services

           (500,787     (545,692     (557,037
        

 

 

   

 

 

   

 

 

 
           (49,762,952     (45,457,729     (45,549,553
        

 

 

   

 

 

   

 

 

 

Gross profit

           7,360,074       13,123,998       14,213,534  

Selling and administrative expenses

     25,36,43,47           (1,924,366     (2,153,261     (2,639,232

Other income

     37           754,186       808,214       840,184  

Other expenses

     37           (88,220     (108,848     (188,624

Other gains, net

     38           107,396       8,610,773       70,498  
        

 

 

   

 

 

   

 

 

 

Operating profit

     4           6,209,070       20,280,876       12,296,360  

Finance income

     5,11,39           885,290       1,182,988       791,543  

Finance expenses

     5,11,40           (3,140,038     (3,015,457     (2,437,087

Profit (loss) related to associates, joint ventures and subsidiaries

     4,17            

Share in profit of associates and joint ventures

           319,506       280,794       224,435  

Gain on disposal of investments in associates and joint ventures

           47,072       4,731       52  

Gain on disposal of investments in subsidiaries

     16           40,449       8,376       —    

Share in loss of associates and joint ventures

           (78,493     (86,522     (243,361

Loss on disposal of investments in associates and joint ventures

           (1,254     —         (2,935

Impairment loss on investments in associates and joint ventures

     17           (52,279     —         (115,539

Loss on disposal of subsidiaries

           (17     —         —    
        

 

 

   

 

 

   

 

 

 
           274,984       207,379       (137,348
        

 

 

   

 

 

   

 

 

 

Profit before income tax

           4,229,306       18,655,786       10,513,468  

Income tax expense

     41           (1,430,339     (5,239,413     (3,365,141
        

 

 

   

 

 

   

 

 

 

Profit for the period

             2,798,967       13,416,373       7,148,327  

 

(Continued)

 

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Table of Contents

KOREA ELECTRIC POWER CORPORATION AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income, Continued

For the years ended December 31, 2014, 2015 and 2016

 

     Note             2014     2015     2016  
                  

In millions of won, except per share

information

 

Other comprehensive income (loss)

     5,11,25,31,34            

Items that will not be reclassified subsequently to profit or loss:

            

Remeasurements of defined benefit liability, net of tax

     25,31             (108,430     (87,861     (75,926

Share in other comprehensive loss of associates and joint ventures, net of tax

     31           (1,899     (283     (2,515

Items that are or may be reclassified subsequently to profit or loss:

            

Net change in the unrealized fair value of available-for-sale financial assets, net of tax

     34           (97,251     9,648       61,279  

Net change in the unrealized fair value of derivatives using cash flow hedge accounting, net of tax

     5,11,34           (84,793     4,409       28,414  

Foreign currency translation of foreign operations, net of tax

     34           (70,576     18,535       41,360  

Share in other comprehensive income (loss) of associates and joint ventures, net of tax

     34           5,228       89,558       (54,914
        

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss), net of tax

           (357,721     34,006       (2,302
        

 

 

   

 

 

   

 

 

 

Total comprehensive income for the period

             2,441,246       13,450,379       7,146,025  
        

 

 

   

 

 

   

 

 

 

Profit or loss attributable to:

            

Owners of the controlling company

     44             2,686,873       13,289,127       7,048,581  

Non-controlling interests

           112,094       127,246       99,746  
        

 

 

   

 

 

   

 

 

 
             2,798,967       13,416,373       7,148,327  
        

 

 

   

 

 

   

 

 

 

Total comprehensive income attributable to:

            

Owners of the controlling company

             2,335,827       13,308,132       7,041,557  

Non-controlling interests

           105,419       142,247       104,468  
        

 

 

   

 

 

   

 

 

 
             2,441,246       13,450,379       7,146,025  
        

 

 

   

 

 

   

 

 

 

Earnings per share

     44            

Basic and diluted earnings per share

             4,290       20,701       10,980  

See accompanying notes to the consolidated financial statements.

 

F-7


Table of Contents

KOREA ELECTRIC POWER CORPORATION AND SUBSIDIARIES

Consolidated Statements of Changes in Equity

For the years ended December 31, 2014, 2015 and 2016

 

          Equity attributable to owners of the controlling company     Non-
controlling
Interests
    Total
equity
 
          Contributed
capital
    Retained
earnings
    Other
components
of equity
    Subtotal      
          In millions of won  

Balance at January 1, 2014

          4,053,578       32,766,086       13,440,004       50,259,668       1,191,068       51,450,736  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income for the period

             

Profit for the period

      —         2,686,873       —         2,686,873       112,094       2,798,967  

Items that will not be reclassified subsequently to profit or loss:

             

Remeasurements of defined benefit liability, net of tax

      —         (91,340     —         (91,340     (17,090     (108,430

Share in other comprehensive loss of associates and joint ventures, net of tax

      —         (1,899     —         (1,899     —         (1,899

Items that are or may be reclassified subsequently to profit or loss:

             

Net change in the unrealized fair value of available-for-sale financial assets, net of tax

      —         —         (97,263     (97,263     12       (97,251

Net change in the unrealized fair value of derivatives using cash flow hedge accounting, net of tax

      —         —         (80,218     (80,218     (4,575     (84,793

Foreign currency translation of foreign operations, net of tax

      —         —         (84,962     (84,962     14,386       (70,576

Share in other comprehensive income of associates and joint ventures, net of tax

      —         —         4,636       4,636       592       5,228  

Transactions with owners of the Company, recognized directly in equity

             

Dividends paid

      —         (56,073     —         (56,073     (130,969     (187,042

Issuance of share capital by subsidiaries

      —         —         (1,235     (1,235     7,453       6,218  

Equity transaction within consolidation scope—other than issuance of share capital

      —         —         237,159       237,159       72,452       309,611  

Disposal of treasury stocks

      —         —         825,985       825,985       —         825,985  

Changes in consolidation scope

      —         —         —         —         (5,281     (5,281

Dividends paid (hybrid securities)

      —         —         —         —         (16,463     (16,463
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at December 31, 2014

          4,053,578       35,303,647       14,244,106       53,601,331       1,223,679       54,825,010  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(Continued)

 

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Table of Contents

KOREA ELECTRIC POWER CORPORATION AND SUBSIDIARIES

Consolidated Statements of Changes in Equity, Continued

For the years ended December 31, 2014, 2015 and 2016

 

          Equity attributable to owners of the controlling company     Non-
controlling
Interests
    Total
equity
 
          Contributed
capital
    Retained
earnings
    Other
components
of equity
    Subtotal      
          In millions of won  

Balance at January 1, 2015

          4,053,578       35,303,647       14,244,106       53,601,331       1,223,679       54,825,010  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income for the period

             

Profit for the period

      —         13,289,127       —         13,289,127       127,246       13,416,373  

Items that will not be reclassified subsequently to profit or loss:

             

Remeasurements of defined benefit liability, net of tax

      —         (84,271     —         (84,271     (3,590     (87,861

Share in other comprehensive loss of associates and joint ventures, net of tax

      —         (280     —         (280     (3     (283

Items that are or may be reclassified subsequently to profit or loss:

             

Net change in the unrealized fair value of available-for-sale financial assets, net of tax

      —         —         9,744       9,744       (96     9,648  

Net change in the unrealized fair value of derivatives using cash flow hedge accounting, net of tax

      —         —         3,157       3,157       1,252       4,409  

Foreign currency translation of foreign operations, net of tax

      —         —         1,179       1,179       17,356       18,535  

Share in other comprehensive income of associates and joint ventures, net of tax

      —         —         89,476       89,476       82       89,558  

Transactions with owners of the Company, recognized directly in equity

             

Dividends paid

      —         (320,982     —         (320,982     (86,071     (407,053

Issuance of shares of capital by subsidiaries and others

      —         —         2,536       2,536       12,329       14,865  

Equity transaction within consolidation scope—other than issuance of share capital

      —         —         44,166       44,166       9,046       53,212  

Changes in consolidation scope

      —         —         (716     (716     23,229       22,513  

Dividends paid (hybrid securities)

      —         —         —         —         (16,455     (16,455

Others

      —         —         —         —         4       4  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at December 31, 2015

          4,053,578       48,187,241       14,393,648       66,634,467       1,308,008       67,942,475  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(Continued)

 

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Table of Contents

KOREA ELECTRIC POWER CORPORATION AND SUBSIDIARIES

Consolidated Statements of Changes in Equity, Continued

For the years ended December 31, 2014, 2015 and 2016

 

          Equity attributable to owners of the controlling company     Non-
controlling
Interests
    Total
equity
 
          Contributed
capital
    Retained
earnings
    Other
components
of equity
    Subtotal      
          In millions of won  

Balance at January 1, 2016

          4,053,578       48,187,241       14,393,648       66,634,467       1,308,008       67,942,475  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income for the period

             

Profit for the period

      —         7,048,581       —         7,048,581       99,746       7,148,327  

Items that will not be reclassified subsequently to profit or loss:

             

Remeasurements of defined benefit liability, net of tax

      —         (69,330     —         (69,330     (6,596     (75,926

Share in other comprehensive income (loss) of associates and joint ventures, net of tax

      —         (2,532     —         (2,532     17       (2,515

Items that are or may be reclassified subsequently to profit or loss:

             

Net change in the unrealized fair value of available-for-sale financial assets, net of tax

      —         —         61,275       61,275       4       61,279  

Net change in the unrealized fair value of derivatives using cash flow hedge accounting, net of tax

      —         —         27,075       27,075       1,339       28,414  

Foreign currency translation of foreign operations, net of tax

      —         —         31,406       31,406       9,954       41,360  

Share in other comprehensive income (loss) of associates and joint ventures, net of tax

      —         —         (54,918     (54,918     4       (54,914

Transactions with owners of the Company, recognized directly in equity

             

Dividends paid

      —         (1,990,089     —         (1,990,089     (99,982     (2,090,071

Issuance of shares of capital by subsidiaries and others

      —         —         1,750       1,750       14,809       16,559  

Equity transaction within consolidation scope—other than issuance of share capital

      —         —         36,008       36,008       12,299       48,307  

Changes in consolidation scope

      —         —         —         —         3,705       3,705  

Dividends paid (hybrid securities)

      —         —         —         —         (16,455     (16,455
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at December 31, 2016

          4,053,578       53,173,871       14,496,244       71,723,693       1,326,852       73,050,545  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes to the consolidated financial statements.

 

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Table of Contents

KOREA ELECTRIC POWER CORPORATION AND SUBSIDIARIES

Consolidated Statements of Cash Flows

For the years ended December 31, 2014, 2015 and 2016

 

          2014     2015     2016  
          In millions of won  

Cash flows from operating activities

       

Profit for the period

        2,798,967       13,416,373       7,148,327  

Adjustments for:

       

Income tax expense

      1,430,339       5,239,413       3,365,141  

Depreciation

      7,797,046       8,269,118       8,881,273  

Amortization

      76,413       72,266       79,715  

Employee benefit expense

      121,406       314,692       373,753  

Bad debt expense

      54,999       18,350       37,815  

Interest expense

      2,351,624       2,015,684       1,752,868  

Loss on sale of financial assets

      2,700       3,008       9  

Loss on disposal of property, plant and equipment

      50,152       1,933       4,996  

Loss on abandonment of property, plant, and equipment

      309,451       365,056       426,519  

Impairment loss on property, plant and equipment

      38,107       30,344       —    

Impairment loss on intangible assets

      42       22       3,945  

Loss on disposal of intangible assets

      18       16       158  

Accretion expense to provisions, net

      1,295,150       1,602,724       1,782,732  

Loss on foreign currency translation, net

      351,660       617,224       253,468  

Valuation and transaction gain on derivative instruments, net

      (143,239     (708,120     (231,630

Share in loss (income) of associates and joint ventures, net

      (241,013     (194,272     18,926  

Gain on disposal of financial assets

      (98,065     (4     (1,482

Gain on disposal of property, plant and equipment

      (85,775     (8,637,508     (74,035

Gain on disposal of intangible assets

      (4     (32     —    

Gain on disposal of investments in associates and joint ventures

      (47,072     (4,731     (52

Loss on disposal of investments in associates and joint ventures

      1,254       —         2,935  

Gain on disposal of investments in subsidiaries

      (40,449     (8,376     —    

Loss on disposal of investments in subsidiaries

      17       —         —    

Impairment loss on investments in associates and joint ventures

      52,279       —         115,539  

Interest income

      (191,456     (241,585     (241,778

Dividends income

      (14,193     (14,069     (9,446

Impairment loss on available-for-sale securities

      79,618       84,370       86,703  

Others, net

      (20,303     (35,107     66,260  
   

 

 

   

 

 

   

 

 

 
      13,130,706       8,790,416       16,694,332  
   

 

 

   

 

 

   

 

 

 

Changes in:

       

Trade receivables

      96,294       715,498       200,529  

Non-trade receivables

      9,063       (17,102     (68,322

Accrued income

      (207,155     17,051       69,151  

Other receivables

      (906     (9,441     10,093  

Other current assets

      75,410       67,520       (259,492

Inventories

      (1,146,221     (1,190,188     (1,439,545

Other non-current assets

      47,119       (31,465     (2,792

Trade payables

      (257,614     (1,577,551     141,994  

Non-trade payables

      (102,526     38,223       (8,379

Accrued expenses

      (107,277     (410,744     (153,172

Other payables

      —         964       —    

Other current liabilities

      2,249,714       870,945       284,417  

Other non-current liabilities

      (317,437     377,617       809,699  

Investments in associates and joint ventures

      47,120       114,708       75,407  

Provisions

      (675,569     (1,033,502     (1,527,129

Payments of employee benefit obligations

      (860,179     (43,100     (53,477

Plan assets

      (231,342     (214,449     (312,125
   

 

 

   

 

 

   

 

 

 
      (1,381,506     (2,325,016     (2,233,143
   

 

 

   

 

 

   

 

 

 

 

F-11

(Continued)


Table of Contents

KOREA ELECTRIC POWER CORPORATION AND SUBSIDIARIES

Consolidated Statements of Cash Flows, Continued

For the years ended December 31, 2014, 2015 and 2016

 

          2014     2015     2016  
          In millions of won  

Cash generated from operating activities

        14,548,167       19,881,773       21,609,516  

Dividends received

      13,518       38,565       10,294  

Interest paid

      (2,460,457     (2,176,040     (2,041,379

Interest received

      167,269       133,875       240,878  

Income taxes paid

      (222,805     (935,068     (3,298,757
   

 

 

   

 

 

   

 

 

 

Net cash from operating activities

      12,045,692       16,943,105       16,520,552  
   

 

 

   

 

 

   

 

 

 

Cash flows from investing activities

       

Proceeds from disposals of associates and joint ventures

      232,228       22,058       46,644  

Acquisition of associates and joint ventures

      (248,223     (116,114     (113,222

Proceeds from disposals of property, plant and equipment

      111,260       9,843,796       207,960  

Acquisition of property, plant and equipment

      (14,547,499     (14,049,887     (12,028,789

Proceeds from disposals of intangible assets

      1,819       467       430  

Acquisition of intangible assets

      (68,624     (87,946     (124,422

Proceeds from disposals of financial assets

      1,060,117       242,856       10,876,017  

Acquisition of financial assets

      (975,104     (5,326,151     (8,130,621

Increase in loans

      (135,001     (153,570     (206,092

Collection of loans

      101,037       111,714       117,561  

Increase in deposits

      (335,518     (352,669     (468,734

Decrease in deposits

      227,354       185,154       161,166  

Receipt of government grants

      108,681       52,696       32,878  

Usage of government grants

      (36,464     (13,372     (33,516

Net cash inflow (outflow) from changes in consolidation scope

      44,319       (968     3,754  

Other cash inflow (outflow) from investing activities, net

      (715     (132,034     13,116  
   

 

 

   

 

 

   

 

 

 

Net cash used in investing activities

      (14,460,333     (9,773,970     (9,645,870
   

 

 

   

 

 

   

 

 

 

Cash flows from financing activities

       

Proceeds (Repayment of) from short-term borrowings, net

      59,421       (65,355     (49,604

Proceeds from long-term borrowings and debt securities

      9,566,625       4,178,454       2,302,060  

Repayment of long-term borrowings and debt securities

      (8,119,325     (8,960,706     (7,750,047

Payment of finance lease liabilities

      (115,532     (110,040     (118,215

Settlement of derivative instruments, net

      (444,243     73,348       73,246  

Disposal of treasury stocks

      852,962       —         —    

Proceeds on disposal of partial interest in a subsidiary that does not involve loss of control

      376,477       67,914       —    

Change in non-controlling interest

      12,595       36,105       10,538  

Dividends paid (hybrid bond)

      (16,463     (16,455     (16,455

Dividends paid

      (186,985     (409,884     (2,088,429

Other cash outflow from financing activities, net

      (356     —         (570
   

 

 

   

 

 

   

 

 

 

Net cash from (used in) financing activities

      1,985,176       (5,206,619     (7,637,476
   

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents before effect of exchange rate fluctuations

      (429,465     1,962,516       (762,794

Effect of exchange rate fluctuations on cash held

      (6,548     24,249       31,082  
   

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

      (436,013     1,986,765       (731,712

Cash and cash equivalents at January 1

      2,232,313       1,796,300       3,783,065  
   

 

 

   

 

 

   

 

 

 

Cash and cash equivalents at December 31

        1,796,300       3,783,065       3,051,353  
   

 

 

   

 

 

   

 

 

 

See accompanying notes to the consolidated financial statements.

 

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Table of Contents

KOREA ELECTRIC POWER CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2016

 

1. Reporting Entity (Description of the controlling company)

Korea Electric Power Corporation (“KEPCO”) was incorporated on January 1, 1982 in accordance with the Korea Electric Power Corporation Act (the “KEPCO Act”) to engage in the generation, transmission and distribution of electricity and development of electric power resources in the Republic of Korea. KEPCO also provides power plant construction services. KEPCO’s stock was listed on the Korea Stock Exchange on August 10, 1989 and KEPCO listed its Depository Receipts (DR) on the New York Stock Exchange on October 27, 1994. KEPCO’s head office is located in Naju, Jeollanam-do.

As of December 31, 2016, KEPCO’s share capital amounts to ₩3,209,820 million and KEPCO’s shareholders are as follows:

 

     Number of shares      Percentage of
ownership
 

Government of the Republic of Korea

     116,841,794        18.20

Korea Development Bank

     211,235,264        32.90

Foreign investors

     197,308,414        30.74

Other

     116,578,605        18.16
  

 

 

    

 

 

 
     641,964,077        100.00
  

 

 

    

 

 

 

In accordance with the Restructuring Plan enacted on January 21, 1999 by the Ministry of Trade, Industry and Energy, KEPCO spun off its power generation divisions on April 2, 2001, resulting in the establishment of six power generation subsidiaries.

 

2. Basis of Preparation

The consolidated financial statements of Korea Electric Power Corporation and subsidiaries (the “Company”) were authorized for issuance by the Board of Directors on February 17, 2017.

 

(1) Statement of compliance

These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).

 

(2) Basis of measurement

These consolidated financial statements have been prepared on the historical cost basis, except for the following material items in the consolidated statements of financial position:

 

    derivative financial instruments are measured at fair value

 

    available-for-sale financial assets are measured at fair value

 

    liabilities for defined benefit plans are recognized at the net of the total present value of defined benefit obligations less the fair value of plan assets

 

(3) Functional and presentation currency

These consolidated financial statements are presented in Korean won (“Won”), which is KEPCO’s functional and presentation currency.

 

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(4) Use of estimates and judgments

The preparation of the consolidated financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.

The following are the key assumptions concerning the future, and other key sources of estimation uncertainty at the end of the reporting period, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year.

 

  (i) Unbilled revenue

Energy delivered but not metered nor billed are calculated at the reporting date are estimated based on consumption statistics and selling price estimates. Determination of the unbilled revenues at the end of the reporting period is sensitive to the estimated consumptions and prices based on statistics. Unbilled revenue recognized as of December 31, 2015 and 2016 are ₩1,599,592 million and ₩1,615,322 million, respectively.

 

  (ii) Continuing operation of Wolsong Unit 1 nuclear power plant

Wolsong Unit 1 nuclear power plant of the Company commenced operations on November 21, 1982 and ended its operations on November 20, 2012 pursuant to its 30-year operating license. On February 27, 2015, the Nuclear Safety and Security Commission (NSSC) evaluated the safety of operation on the Wolsong Unit 1 nuclear power plant and approved to continue its operation until November 20, 2022. As described in note 50, the lawsuit related to the validity of the approval of NSSC is currently ongoing. The consolidated financial statements were prepared based on the judgment of the Company that the approval of NSSC is valid and Wolsong Unit 1 nuclear power plant will be operating until 2022.

Information about critical judgments in applying accounting policies that have the most significant effect on the amounts recognized in the consolidated financial statements is included in the following notes:

 

    Note 17 – Investments in Associates and Joint Ventures

 

    Note 18 – Property, Plant and Equipment

 

    Note 20 – Construction Services Contracts

 

    Note 45 – Risk Management

Information about assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment within the next financial year is included in the following notes:

 

    Note 41 – Income taxes

 

    Note 25 – Employment benefits

 

(5) Changes in accounting policies

 

  (i) IAS 16, ‘Property, Plant and Equipment’

The Company has adopted amendments to IAS 16, ‘Property, Plant and Equipment’, since January 1, 2016. Amendments to IAS 16, ‘Property, Plant and Equipment’, specify that the use of revenue-based methods to calculate the depreciation of an asset is not appropriate.

Upon adoption of the amendments, there is no significant impact on the Company’s consolidated financial statements.

 

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Table of Contents
  (ii) IAS 38, ‘Intangible Assets’

The Company has adopted amendments to IAS 38, ‘Intangible Assets’, since January 1, 2016. Amendments to IAS 38, ‘Intangible Assets’, introduce a rebuttable presumption that the use of revenue-based amortization methods for intangible assets is inappropriate. This presumption can be rebutted only when revenue and the consumption of the economic benefits of the intangible asset are highly correlated, or when the intangible asset is expressed as a measure of revenue.

Upon adoption of the amendments, there is no significant impact on the Company’s consolidated financial statements.

 

  (iii) IFRS 11, ‘Joint Arrangement’

The Company has adopted amendments to IFRS 11, ‘Joint Arrangement’, since January 1, 2016. Amendments to IFRS 11, ‘Joint Arrangement’, require an investor to apply the principles of business combination accounting when it acquires an interest in a joint operation that constitutes a business as defined in IFRS 3, ‘Business Combinations’.

Upon adoption of the amendments, there is no significant impact on the Company’s consolidated financial statements.

 

(6) New standards and amendments not yet adopted

The following new standards, interpretations and amendments to existing standards are effective for annual periods beginning after January 1, 2016, and the Company has not early adopted them yet. The management is in the process of evaluating the potential impact on the consolidated financial statements upon the adoption of the new standards, interpretations and the amendments.

 

  (i) IFRS 9, ‘Financial Instruments’

IFRS 9, ‘Financial Instruments’, is effective for annual periods beginning on or after January 1, 2018, with earlier adoption permitted. It replaces existing guidance in IAS 39, ‘Financial Instruments: Recognition and Measurement’. The Company plans to adopt IFRS 9 for the year beginning on January 1, 2018. IFRS 9 will generally be applied retrospectively; however the Company plans to take advantage of the exemption allowing it not to restate the comparative information for prior periods with respect to classification and measurement including impairment changes. New hedge accounting requirements will generally be applied prospectively except for certain exemptions including the accounting for the time value of options.

Key features of the new standard, IFRS 9, are 1) classification and measurement of financial assets that reflects the business model in which the assets are managed and their cash flow characteristics, 2) impairment methodology that reflects ‘expected credit loss’ (ECL) model for financial assets, and 3) expanded scope of hedged items and hedging instruments which qualify for hedge accounting and changes in assessment method for effect of hedging relationships.

IFRS 9 will require the Company to assess the financial impact from application of IFRS 9 and revise its accounting processes and internal controls related to financial instruments. Actual impact of adopting IFRS 9 will be dependent on the financial instruments the Company holds and economic conditions at that time as well as accounting policy elections and judgment that it will make in the future.

 

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The Company has not initiated any changes in internal controls processes or accounting processing systems, and has not performed an assessment of the impact resulting from the application of IFRS 9. The Company is currently performing a detailed assessment of the potential impact from the application of IFRS 9 and plans to complete the assessment in advance of its effective date. Expected impacts on the consolidated financial statements are generally categorized as follows:

 

  1 Classification and measurement of financial assets

Under IFRS 9, financial assets are classified into three principal categories; measured at amortized cost, fair value through other comprehensive income (FVOCI) and fair value through profit or loss (FVTPL) based on the business model in which assets are managed and their cash flow characteristics. Under IFRS 9, derivatives embedded in hybrid contracts where the host is a financial asset are not bifurcated. Instead, the hybrid financial instrument as a whole is assessed for classification.

As there are additional requirements for a financial asset to be classified as measured at amortized costs or FVOCI under IFRS 9 compared to the existing guidance in IAS 39, the adoption of IFRS 9 would potentially increase the proportion of financial assets that are measured at FVTPL, increasing volatility in the Company’s profit or loss.

The criteria for classification and measurement of financial assets under IFRS 9 are as follows:

 

    A financial asset is measured at amortized cost if it meets both of the following conditions and is not designated as at FVTPL: 1) the asset is held within a business model whose objective is to hold assets to collect contractual cash flows; and 2) the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

 

    A financial asset is measured at FVOCI if it meets both of the following conditions and is not designated as at FVTPL: 1) the asset is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets; and 2) the contractual terms of the financial asset give rise on specified dates to cash flow that are solely payments of principal and interest on the principal amount outstanding.

 

    On initial recognition of equity investment that is not held for trading, the Company may irrevocably elect to present subsequent changes in fair value in OCI, and will not reclassify (recycle) the those items in OCI to profit or loss subsequently.

 

    A financial asset is measured at FVTPL if the contractual terms of the financial asset give rise to specified dates to cash flows that are not solely payments of principal and interest on the principal amount outstanding, the debt instrument is held within a business model whose objective is to sell the asset, or the equity instruments that are not elected to be designated as measured at FVOCI.

As of December 31, 2016, the Company has loans and receivables amounting to ₩16,273,877 million, available-for-sale financial assets amounting to ₩1,014,732 million, and financial assets at fair value through profit or loss amounting to ₩367,477 million.

 

  2 Classification and measurement of financial liabilities

Under IFRS 9, the amount of change in the fair value attributable to the changes in the credit risk of the financial liabilities is presented in OCI, not recognized in profit or loss, and the OCI amount will not be reclassified (recycled) to profit or loss. However, if doing so creates or increase an accounting mismatch, the amount of change in the fair value is recognized in profit or loss.

As a portion of fair value change which was recognized in profit or loss under the existing standard, IAS 39, will be presented in OCI under IFRS 9, profit or loss related to valuation of the same financial liabilities is likely to decrease.

 

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The Company does not have any financial liability designated as at FVTPL as of December 31, 2016.

 

  3 Impairment: Financial assets and contract assets

IFRS 9 replaces the ‘incurred loss’ model in the existing standard with a forward-looking ‘expected credit loss’ (ECL) model for debt instruments, lease receivables, contractual assets, loan commitments, financial guarantee contracts.

Under IFRS 9, impairment losses are likely to be recognized earlier than using the incurred loss model under the existing guidance in IAS 39 as loss allowances will be measured on either of the 12-month or lifetime ECL based on the extent of increase in credit risk since inception as shown in the below table.

 

Classification

      

Loss allowances

Stage 1

   Credit risk has not increased significantly since the initial recognition      12-month ECL: ECLs that resulted from possible default events within the 12 months after the reporting date

Stage 2

   Credit risk has increase significantly since the initial recognition      Lifetime ECL: ECL that resulted from all possible default events over the expected life of a financial instrument

Stage 3

   Credit-impaired     

Under IFRS 9, financial assets of which the credit was impaired at the initial recognition, cumulative changes in lifetime ECL since the initial recognition are recognized as loss allowances.

As of December 31, 2016, the Company has debt instruments in financial assets measured at amortized cost amounting to ₩16,438,054 million (loans and receivables) and has recognized loss allowances of ₩164,177 million.

 

  4 Hedge accounting

IFRS 9 retains the mechanics of hedge accounting (fair value hedge, cash flow hedge, hedging on net investment in a foreign operation) which was defined in the existing guidance in IFRS 9, but provides principle-based and less complex guidance in hedging which focuses on the risk management activities. More hedged items and hedging instruments would qualify for hedge accounting, more qualitative and forward-looking approach will be taken to assessing hedge effectiveness, and qualitative threshold (80~125%) is removed under IFRS 9.

Certain transactions which were not qualified for hedge accounting under the existing standard will likely quality for hedge accounting under IFRS 9, decreasing volatility in the Company’s profits or loss.

As of December 31, 2016, the Company has asset and liabilities designated as hedged items amounting to ₩413,897 million and ₩117,157 million, respectively.

When initially applying IFRS 9, the Company may choose as its accounting policy to continue to apply the hedge accounting requirements of IAS 39.

 

  (ii) IFRS 15, ‘Revenue from Contracts with Customers’

IFRS 15, ‘Revenue from Contracts from Customers’, is effective for annual periods beginning on or after January 1, 2018, with earlier adoption permitted.

It replaces existing revenue recognition guidance, including IAS 18, ‘Revenue’, IAS 11, ‘Construction Contracts’, SIC-31, ‘Revenue-Barter transactions involving advertising services’, IFRIC 13 ‘Customer Loyalty Programs’, IFRIC 15, ‘Agreements for the construction of real estate’, and IFRIC 18, ‘Transfers of assets from customers’.

 

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Existing IFRS standards and interpretations including IAS 18 provide revenue recognition guidance by transaction types such as sales of goods, rendering of services, interest income, royalty income, dividend income and construction revenue; however, under the new standard, IFRS 15, the five-step approach (Step 1: Identify the contract(s) with a customer, Step 2: Identify the performance obligations in the contract, Step 3: Determine the transaction price, Step 4: Allocate the transaction price to the performance obligations in the contract, Step 5: Recognize revenue when the entity satisfied a performance obligation) is applied for all types of contracts or agreements.

The Company is currently performing a detailed assessment of the impact resulting from the application of IFRS 15 and plans to complete the assessment in advance of its effective date.

 

  (iii) IFRS 16, ‘Leases’

IFRS 16, published in January 2016, replaces existing guidance in IAS 17, ‘Leases’. It eliminates the current dual accounting model for lessees, which distinguishes between on-balance sheet finance leases and off-balance sheet operating leases. Instead, there is a single, on-balance sheet accounting model that is similar to current finance lease accounting. Lessor accounting remains similar to current practice (i.e. lessors continue to classify leases as finance and operating leases). IFRS 16 is effective for annual reporting periods beginning on or after January 1, 2019, with early adoption permitted if IFRS 15 ‘Revenue from Contracts with Customers’ has also been applied.

 

  (iv) Amendments to IAS 12, ‘Income Taxes’

The amendments clarify that unrealized losses on fixed-rate debt instruments measured at fair value and measured at cost for tax purposes give rise to a deductible temporary difference regardless of whether the holder expects to recover the carrying amount of the debt instrument by sale or by use and that the estimate of probable future taxable profit may include the recovery of some of assets for more than their carrying amount. When the Company assesses whether there will be sufficient taxable profit, the Company should compare the deductible temporary differences with future taxable profit that excludes tax deductions resulting from the reversal of those deductible temporary differences. The amendments are effective for annual periods beginning on or after January 1, 2017.

The adoption of the amendments is not expected to have a significant impact on the Company’s consolidated financial statements.

 

  (v) Amendments to IFRS 2, ‘Share-based Payment’

The amendments include: 1) when measuring the fair value of share-based payment, the effects of vesting and non-vesting conditions on the measurement of cash-settled share-based payment should be consistent with the measurement of equity-settled share-based payment, 2) Share-based payment transaction in which the company settles the share-based payment arrangement net by withholding a specified portion of the equity instruments per statutory tax withholding requirements would be classified as equity-settled in its entirety, if otherwise would be classified as equity-settled without the net settlement feature, and 3) when a cash-settled share-based payment changes to an equity-settled share-based payment because of modifications of the terms and conditions, the original liability recognized is derecognized and the equity-settled share-based payment is recognized at the modification date fair value. Any difference between the carrying amount of the liability at the modification date and the amount recognized in equity at the same date would be recognized in profit and loss immediately. The amendments are effective for annual periods beginning on or after January 1, 2018.

The adoption of the amendments is not expected to have a significant impact on the Company’s consolidated financial statements.

 

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  (vi) Amendments to IAS 7, ‘Statement of Cash Flows’

The amendments require changes in liabilities arising from financing activities to be disclosed. The amendments are effective for annual periods beginning on or after January 1, 2017.

To satisfy the new disclosure requirements, the Company intends to present a reconciliation between the opening and closing balances for liabilities with changes arising from financing activities.

 

  (vii) IFRIC 22, ‘Foreign Currency Transactions and Advance Consideration

IFRIC 22, published on December 8, 2016, clarifies the date of the transaction for the purpose of determining the exchange rate to use on initial recognition of the related asset, expense or income, when an entity has received or paid advance consideration in a foreign currency. IFRIC 22 is effective for annual reporting periods beginning on or after January 1, 2018, with earlier adoption permitted.

The Company is currently performing a detailed assessment of the impact resulting from the application of IFRIC 22 and plans to complete the assessment in advance of its effective date.

 

  (viii) Amendments to IAS 40, ‘Investment Property’

The amendments clarify when an entity should transfer a property asset to, or from, investment property. The amendments are effective for annual periods beginning on or after January 1, 2018, with earlier adoption permitted.

The Company is currently performing a detailed assessment of the impact resulting from the application of amendments to IAS 40 and plans to complete the assessment in advance of its effective date.

 

3. Significant Accounting Policies

Except as described in note 2.(5), the Company applied the following significant accounting policies consistently for all periods presented.  

 

(1) Basis of consolidation

The consolidated financial statements are the financial statements of a group in which the assets, liabilities, equity, income, expenses and cash flows of the parent and its subsidiaries are presented as those of a single economic entity. Subsidiaries are controlled by the Company. The Company controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity.

Income and expense of a subsidiary acquired or disposed of during the year are included in the consolidated statement of comprehensive income from the effective date of acquisition and up to the effective date of disposal, as appropriate. Total comprehensive income of subsidiaries is attributed to the owners of the Company and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance.

When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with those of the Company.

Transactions within the Company are eliminated during the consolidation.

Changes in the Company’s ownership interests in a subsidiary that do not result in the Company losing control over the subsidiary are accounted for as equity transactions. The carrying amounts of the Company’s interests and the non-controlling interests are adjusted to reflect the changes in their relative interests in the subsidiary. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognized directly in equity and attributed to owners of the Company.

 

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When the Company loses control of a subsidiary, the income or loss on disposal is calculated as the difference between (i) the aggregate of the fair value of the consideration received and the fair value of any retained interest and (ii) the previous carrying amount of the assets (including goodwill), and liabilities of the subsidiary and any non-controlling interests. When assets of the subsidiary are carried at revalued amounts or fair values and the related cumulative gain or loss has been recognized in other comprehensive income and accumulated in equity, the amounts previously recognized in other comprehensive income and accumulated in equity are accounted for as if the Company had directly disposed of the relevant assets (i.e. reclassified to income or loss or transferred directly to retained earnings). The fair value of any investment retained in the former subsidiary at the date when control is lost is recognized as the fair value on initial recognition for subsequent accounting under IAS 39, ‘Financial Instruments’: Recognition and Measurement or, when applicable, the cost on initial recognition of an investment in an associate or a jointly controlled entity.

 

(2) Business combinations

A business combination is accounted for by applying the acquisition method, unless it is a combination involving entities or businesses under common control.

The consideration transferred in a business combination is measured at fair value, which is calculated as the sum of the acquisition-date fair values of the assets transferred by the Company, liabilities incurred by the Company to the former owners of the acquiree and the equity interests issued by the Company in exchange for control of the acquiree. Acquisition-related costs are generally recognized in income or loss as incurred.

At the acquisition date, the identifiable assets acquired and the liabilities assumed are recognized at their fair value at the acquisition date, except that:

 

    deferred tax assets or liabilities and liabilities or assets related to employee benefit arrangements are recognized and measured in accordance with IAS 12, ‘ Income Taxes’ and IAS 19, ‘ Employee Benefits’ respectively;

 

    Assets (or disposal groups) that are classified as held for sale in accordance with IFRS 5, ‘Non-current Assets Held for Sale’ are measured in accordance with that standard.

Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree, and the fair value of the acquirer’s previously held equity interest in the acquiree (if any) over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed. If, after reassessment, net of the acquisition-date amounts of the identifiable assets acquired and liabilities assumed exceeds the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree and the fair value of the acquirer’s previously held interest in the acquiree (if any), the excess is recognized immediately in income or loss as a bargain purchase gain.

Non-controlling interest that is present on acquisition day and entitles the holder to a proportionate share of the entity’s net assets in an event of liquidation, may be initially measured either at fair value or at the non-controlling interest’s proportionate share of the recognized amounts of the acquiree’s identifiable net assets. The choice of measurement can be elected on a transaction-by-transaction basis. Other types of non-controlling interests are measured at fair value or, when applicable, on the basis specified in other IFRSs. When the consideration transferred by the Company in a business combination includes assets or liabilities resulting from a contingent consideration arrangement, the contingent consideration is measured at its acquisition-date fair value and included as part of the consideration transferred in a business combination. Changes in the fair value of the contingent consideration that qualify as measurement period adjustments are adjusted retrospectively, with corresponding adjustments against goodwill. Measurement period adjustments are adjustments that arise from additional information obtained during the ‘measurement period’ (which cannot exceed one year from the acquisition date) about facts and circumstances that existed at the acquisition date.

 

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The subsequent accounting for changes in the fair value of the contingent consideration that do not qualify as measurement period adjustments depends on how the contingent consideration is classified. Contingent consideration that is classified as equity is not re-measured at subsequent reporting dates and its subsequent settlement is accounted for within equity. Contingent consideration that is classified as an asset or a liability is re-measured at subsequent reporting dates in accordance with IAS 39, ‘Financial Instruments: Recognition and Measurement’, or with IAS 37, ‘Provisions’, Contingent Liabilities and Contingent Assets, as appropriate, with the corresponding gain or loss being recognized in income or loss.

When a business combination is achieved in stages, the Company’s previously held equity interest in the acquiree is re-measured to fair value at the acquisition date (i.e. the date when the Company obtains control) and the resulting gain or loss, if any, is recognized in income or loss. Amounts arising from interests in the acquiree prior to the acquisition date that have previously been recognized in other comprehensive income are reclassified to income or loss where such treatment would be appropriate if that interest were disposed of.

If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the Company reports provisional amounts for the items for which the accounting is incomplete. Those provisional amounts are adjusted during the measurement period (see above), or additional assets or liabilities are recognized, to reflect new information obtained about facts and circumstances that existed at the acquisition date that, if known, would have affected the amounts recognized at that date.

The assets and liabilities acquired under business combinations under common control are recognized at the carrying amounts recognized previously in the consolidated financial statements of the ultimate parent. The difference between consideration transferred and carrying amounts of net assets acquired is recognized as part of share premium.

 

(3) Investments in associates

An associate is an entity over which the Company has significant influence and that is neither a subsidiary nor an interest in a joint venture. Significant influence is the power to participate in the financial and operating policy decisions of the investee but does not control or joint control over those policies.

The results and assets and liabilities of associates are incorporated in these consolidated financial statements using the equity method of accounting. If the investment is classified as held for sale, in which case it is accounted for in accordance with IFRS 5 ‘Non-current Assets Held for Sale’, any retained portion of an investment in associates that has not been classified as held for sale shall be accounted for using the equity method until disposal of the portion that is classified as held for sale takes place. If the Company holds 20% ~ 50% of the voting power of the investee, it is presumed that the Company has significant influence.

After the disposal takes place, the Company shall account for any retained interest in associates in accordance with IAS 39 ‘Financial Instruments: Recognition and Measurement’ unless the retained interest continues to be an associates, in which case the entity uses the equity method.

Under the equity method, an investment in an associate is initially recognized in the consolidated statement of financial position at cost and adjusted thereafter to recognize the Company’s share of the income or loss and other comprehensive income of the associate. When the Company’s share of losses of an associate exceeds the Company’s interest in that associate (which includes any long-term interests that, in substance, form part of the Company’s net investment in the associate), the Company discontinues recognizing its share of further losses. Additional losses are recognized only to the extent that the Company has incurred legal or constructive obligations or made payments on behalf of the associate.

Any excess of the cost of acquisition over the Company’s share of the net fair value of the identifiable assets, liabilities and contingent liabilities of an associate recognized at the date of acquisition is recognized as goodwill, which is included within the carrying amount of the investment. Any excess of the Company’s

 

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share of the net fair value of the identifiable assets, liabilities and contingent liabilities over the cost of acquisition, after reassessment, is recognized immediately in income or loss. The requirements of IAS 39,’Financial Instruments: Recognition and Measurement’, are applied to determine whether it is necessary to recognize any impairment loss with respect to the Company’s investment in an associate. When necessary, the entire carrying amount of the investment (including goodwill) is tested for impairment in accordance with IAS 36 ‘Impairment of Assets’ as a single asset by comparing its recoverable amount (higher of value in use and fair value less costs to sell) with its carrying amount, any impairment loss recognized forms part of the carrying amount of the investment. Any reversal of that impairment loss is recognized in accordance with IAS 36 to the extent that the recoverable amount of the investment subsequently increases.

Upon disposal of an associate that results in the Company losing significant influence over that associate, any retained investment is measured at fair value at that date and the fair value is regarded as its fair value on initial recognition as a financial asset in accordance with IAS 39. The difference between the previous carrying amount of the associate attributable to the retained interest and its fair value is included in the determination of the gain or loss on disposal of the associate. In addition, the Company accounts for all amounts previously recognized in other comprehensive income in relation to that associate on the same basis as would be required if that associate had directly disposed of the related assets or liabilities. Therefore, if a gain or loss previously recognized in other comprehensive income by that associate would be reclassified to income or loss on the disposal of the related assets or liabilities, the Company reclassifies the gain or loss from equity to income or loss (as a reclassification adjustment) when it loses significant influence over that associate.

When the Company transacts with its associate, incomes and losses resulting from the transactions with the associate are recognized in the Company’s consolidated financial statements only to the extent of interests in the associate that are not related to the Company.

 

(4) Joint arrangements

A joint arrangement is an arrangement of which two or more parties have joint control. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control. Joint arrangements are classified into two types—joint operations and joint ventures. A joint operation is a joint arrangement whereby the parties that have joint control of the arrangement (i.e. joint operators) have rights to the assets, and obligations for the liabilities, relating to the arrangement. A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement (i.e. joint ventures) have rights to the net assets of the arrangement.

If the Company is a joint operator, the Company is to recognize and measure the assets and liabilities (and recognize the related revenues and expenses) in relation to its interest in the arrangement in accordance with relevant IFRSs applicable to the particular assets, liabilities, revenues and expenses. If the joint arrangement is a joint venture, the Company is to account for that investment using the equity method accounting in accordance with IAS 28, ‘Investment in Associates and Joint Ventures’ (refer to note 3.(3)), except when the Company is applicable to the IFRS 5, ‘Non-current Assets Held for Sale’.

 

(5) Non-current assets held for sale

Non-current assets and disposal groups are classified as held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the non-current asset (or disposal group) is available for immediate sale in its present condition. Management must be committed to the sale, which should be expected to qualify for recognition as a completed sale within one year from the date of classification.

 

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When the Company is committed to a sale plan involving loss of control of a subsidiary, all of the assets and liabilities of that subsidiary are classified as held for sale when the criteria described above are met, regardless of whether the Company will retain a non-controlling interest in its former subsidiary after the sale.

Non-current assets (and disposal groups) classified as held for sale are measured at the lower of their previous carrying amount and fair value less costs to sell.

 

(6) Goodwill

The Company measures goodwill which acquired in a business combination at the amount recognized at the date on which it obtains control of the acquiree (acquisition date) less any accumulated impairment losses. Goodwill acquired in a business combination is allocated to each CGU that is expected to benefit from the synergies arising from the business acquired.

The Company assesses at the end of each reporting period whether there is any indication that an asset may be impaired. An impairment loss is recognized if the carrying amount of an asset or a CGU exceeds its recoverable amount. Impairment losses are recognized in profit or loss.

Any impairment identified at the CGU level will first reduce the carrying value of goodwill and then be used to reduce the carrying amount of the other assets in the CGU on a pro rata basis. Except for impairment losses in respect of goodwill which are never reversed, an impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized.

 

(7) Revenue recognition

Revenue from the sale of goods, rendering of services or use of the Company assets is measured at the fair value of the consideration received or receivable, net of returns, trade discounts and volume rebates, which are recognized as a reduction of revenue. Revenue is recognized when the amount of revenue can be measured reliably and it is probable that the economic benefits associated with the transaction will flow to the Company.

 

  (i) Sales of goods

The Korean government approves the utility rates charged to customers by the Company’s power transmission and distribution division. The Company’s utility rates are designed to recover the Company’s reasonable costs plus a fair investment return.

The Company recognize revenue from electricity sales revenue based on power sold (transferred to the customer) up to the reporting date. To determine the amount of power sold, the Company estimates daily power volumes of electricity for residential, commercial, general, etc. The differences between the current month’s estimated amount and actual (meter-read) amount, is adjusted for (trued-up) during the subsequent month.

 

  (ii) Sales of other services

Revenue from services rendered is recognized in profit or loss in proportion to the stage of completion of the transaction at the reporting date. The stage of completion is assessed by reference to surveys of work performed or services performed to date as a percentage of total services to be performed or the proportion that costs incurred to date bear to the estimated total costs of the transaction or other methods that reliably measures the services performed.

 

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  (iii) Dividend income and interest income

Dividend income is recognized in profit or loss on the date that the Company’s right to receive payment is established, which in the case of quoted securities is the ex-dividend date.

Interest income is recognized as it accrues in profit or loss, using the effective interest method. Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset’s net carrying amount on initial recognition.

 

  (iv) Rental income

The Company’s policy for recognition of revenue from operating leases is described in note 3 (9) below.

 

  (v) Deferral of revenue—Transfer of Assets from Customers

The Company recovers a substantial amount of the cost related to its electric power distribution facilities from customers through the transfer of assets, while the remaining portion is recovered through electricity sales from such customers in the future. As such, the Company believes there exists a continued service obligation to the customers in accordance with IFRIC 18, ‘Transfer of Assets from Customers’ when the Company receives an item of property, equipment, or cash for constructing or acquiring an item of property or equipment, in exchange for supplying electricity to customers. The Company defers the amounts received, which are subsequently recognized as revenue on a straight-line basis over the estimated service period which does not exceed the transferred asset’s useful life.

 

(8) Construction services revenue

The Company provides services related to the construction of power plants related to facilities of its customers, mostly in foreign countries.

When the outcome of a construction contract can be estimated reliably, revenue and costs are recognized based on the stage of completion of the contract activity at the end of the reporting period, measured based on the proportion of contract costs incurred for work performed to date relative to the estimated total contract costs, except where this would not be representative of the stage of completion. Variations in contract work, claims and incentive payments are included to the extent that the amount can be measured reliably and its receipt is considered probable.

When the outcome of a construction contract cannot be estimated reliably, contract revenue is recognized to the extent of contract costs incurred when it is probable the revenue will be realized. Contract costs are recognized as expenses in the period in which they are incurred. When it is probable that total contract costs will exceed total contract revenue, the expected loss is recognized as an expense immediately.

When contract costs incurred to date plus recognized income less recognized losses exceed progress billings, the surplus is presented as amounts due from customers for contract work. For contracts where progress billings exceed contract costs incurred to date plus recognized income less recognized losses, the surplus is presented as the amounts due to customers for contract work. Amounts received before the related work is performed are included in the consolidated statements of financial position, as a liability, as advance received. Amounts billed for work performed but not yet paid by the customer are included in the consolidated statements of financial position as accounts and other receivables.

 

(9) Leases

The Company classifies and accounts for leases as either a finance or operating lease, depending on the terms. Leases where the Company assumes substantially all of the risks and rewards of ownership are classified as finance leases. All other leases are classified as operating leases.

 

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  (i) The Company as lessor

Amounts due from lessees under finance leases are recognized as receivables at the amount of the Company’s net investment in the leases. Finance lease income is allocated to accounting periods so as to reflect a constant periodic rate of return on the Company’s net investment outstanding in respect of the leases.

Rental income from operating leases is recognized on a straight-line basis over the term of the relevant lease. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognized on a straight-line basis over the lease term.

 

  (ii) The Company as lessee

Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.

Assets held under finance leases are initially recognized as assets of the Company at their fair value at the inception of the lease or, if lower, at the present value of the minimum lease payments. The corresponding liability to the lessor is included in the statement of financial position as a finance lease obligation.

Lease payments are apportioned between finance expenses and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance expenses are recognized immediately in income or loss, unless they are directly attributable to qualifying assets, in which case they are capitalized in accordance with the Company’s general policy on borrowing costs. Contingent rentals are recognized as expenses in the periods in which they are incurred.

Operating lease payments are recognized as an expense on a straight-line basis over the lease term, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed. Contingent rentals arising under operating leases are recognized as an expense in the period in which they are incurred.

In the event that lease incentives are received to enter into operating leases, such incentives are recognized as a liability. The aggregate benefit of incentives is recognized as a reduction of rental expense on a straight-line basis, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed.

 

  (iii) Determining whether an arrangement contains a lease

At inception of an arrangement, the Company determines whether the arrangement is or contains a lease.

At inception or on reassessment of an arrangement that contains a lease, the Company separates payments and other consideration required by the arrangement into those for the lease and those for other elements on the basis of their relative fair values. If the Company concludes for a finance lease that it is impracticable to separate the payments reliably, then an asset and a liability are recognized at an amount equal to the fair value of the underlying asset.

 

(10) Foreign currencies

Transactions in foreign currencies are translated to the respective functional currencies of the Company entities at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are retranslated to the functional currency using the reporting date’s exchange rate. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are retranslated to the functional currency at the exchange rate at the date that the fair value was determined.

 

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Exchange differences are recognized in profit or loss in the period in which they arise except for:

 

    Exchange differences on foreign currency borrowings relating to assets under construction for future productive use, which are included in the cost of those assets when they are regarded as an adjustment to interest costs on those foreign currency borrowings;

 

    Exchange differences on transactions entered into in order to hedge certain foreign currency risks (refer to note 3.(25);

Derivative financial instruments, including hedge accounting); and

 

    Exchange differences on monetary items receivable from or payable to a foreign operation for which settlement is neither planned nor likely to occur (therefore forming part of the net investment in the foreign operation), which are recognized initially in other comprehensive income and reclassified from equity to income or loss on disposal or partial disposal of the net investment.

For the purpose of presenting financial statements, the assets and liabilities of the Company’s foreign operations are expressed in Korean won using exchange rates prevailing at the end of the reporting period. Income and expense items are translated at the average exchange rates for the period, unless exchange rates fluctuated significantly during that period, in which case the exchange rates at the dates of the transactions are used. Exchange differences arising, if any, are recognized in other comprehensive income and accumulated in equity.

When a foreign operation is disposed of, the relevant amount in the translation is transferred to profit or loss as part of the gain or loss on disposal.

 

(11) Borrowing costs

The Company capitalizes borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset as part of the cost of that asset. Other borrowing costs are recognized in expense as incurred. A qualifying asset is an asset that requires a substantial period of time to get ready for its intended use or sale.

Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalization.

All other borrowing costs are recognized in income or loss in the period in which they are incurred.

 

(12) Government grants

Government grants are not recognized unless there is reasonable assurance that the Company will comply with the grant’s conditions and that the grant will be received.

Benefit from a government loan at a below-market interest rate is treated as a government grant, measured as the difference between proceeds received and the fair value of the loan based on prevailing market interest rates.

 

  (i) If the Company received grants related to assets

Government grants whose primary condition is that the Company purchase, construct or otherwise acquire long-term assets are deducted in calculating the carrying amount of the asset. The grant is recognized in profit or loss over the life of a depreciable asset as a reduced depreciation expense.

 

  (ii) If the Company received grants related to income

Government grants which are intended to compensate the Company for expenses incurred are recognized as other income (government grants) in profit or loss over the periods in which the Company recognizes the related costs as expenses.

 

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(13) Employee benefits

When an employee has rendered service to the Company during a period, the Company recognizes the contribution payable to a defined contribution plan in exchange for that service as a liability (accrued expense).

For defined benefit pension plans and other post-employment benefits, the net periodic pension expense is actuarially determined by “Pension Actuarial System” developed by independent actuaries using the projected unit credit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits will be paid and that have terms to maturity approximating the terms of the related pension liability. However, if there is not a deep market, market yields on government bonds are used.

Net defined benefit liability’s measurement is composed of actuarial gains and losses, return on plan assets excluding net interest on net defined benefit liability, and any change in the effect of the asset ceiling, excluding net interest, which are immediately recognized in other comprehensive income. The actuarial gains or losses recognized in other comprehensive income which will not be reclassified into net profit or loss for later periods are immediately recognized in retained earnings. Past service cost will be recognized as expenses upon the earlier of the date of change or reduction to the plan, or the date of recognizing termination benefits.

The retirement benefit obligation recognized in the statement of financial position represents the present value of the defined benefit obligation as adjusted for unrecognized actuarial gains and losses and unrecognized past service cost, and as reduced by the fair value of plan assets. Any asset resulting from this calculation is limited to unrecognized actuarial losses and past service cost, plus the present value of available refunds and reductions in future contributions to the plan.

 

(14) Income taxes

Income tax expense comprises current and deferred tax. Current tax and deferred tax are recognized in profit or loss except to the extent that it relates to a business combination, or items recognized directly in equity or in other comprehensive income.

 

  (i) Current tax

Current tax is the expected tax payable or receivable on the taxable profit or loss for the year, using tax rates enacted or substantively enacted at the end of the reporting period and any adjustment to tax payable in respect of previous years. The taxable profit is different from the accounting profit for the period since the taxable profit is calculated excluding the temporary differences, which will be taxable or deductible in determining taxable profit (tax loss) of future periods, and non-taxable or non-deductible items from the accounting profit.

 

  (ii) Deferred tax

Deferred tax is recognized, using the asset-liability method, in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. A deferred tax liability is recognized for all taxable temporary differences. A deferred tax asset is recognized for all deductible temporary differences to the extent that it is probable that taxable profit will be available against which they can be utilized. However, deferred tax is not recognized for the following temporary differences: taxable temporary differences arising on the initial recognition of goodwill, or the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting profit or loss nor taxable income.

The measurement of deferred tax liabilities and deferred tax assets reflects the tax consequences that would follow from the manner in which the Company expects, at the end of the reporting period, to

 

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recover or settle the carrying amount of its assets and liabilities. Deferred tax assets or deferred tax liabilities on investment properties measured at fair value, unless any contrary evidence exists, are measured using the assumption that the carrying amount of the property will be recovered entirely through sale.

The Company recognizes a deferred tax liability for all taxable temporary differences associated with investments in subsidiaries, associates, and interests in joint ventures, except to the extent that the Company is able to control the timing of the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. The Company recognizes a deferred tax asset for all deductible temporary differences arising from investments in subsidiaries and associates, to the extent that it is probable that the temporary difference will reverse in the foreseeable future and taxable profit will be available against which the temporary difference can be utilized.

The carrying amount of a deferred tax asset is reviewed at the end of each reporting period and reduces the carrying amount to the extent that it is no longer probable that sufficient taxable profit will be available to allow the benefit of part or all of that deferred tax asset to be utilized.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. The measurement of deferred tax liabilities and deferred tax assets reflects the tax consequences that would follow from the manner in which the Company expects, at the end of the reporting period to recover or settle the carrying amount of its assets and liabilities.

Deferred tax assets and liabilities are offset only if there is a legally enforceable right to offset the related current tax liabilities and assets, and they relate to income taxes levied by the same tax authority and they intend to settle current tax liabilities and assets on a net basis.

 

  (iii) Current and deferred tax for the year

Current and deferred tax are recognized in income or loss, except when they relate to items that are recognized in other comprehensive income or directly in equity, in which case, the current and deferred tax are also recognized in other comprehensive income or directly in equity respectively. Where current tax or deferred tax arises from the initial accounting for a business combination, the tax effect is included in the accounting for the business combination.

 

(15) Property, plant and equipment

Property, plant and equipment are initially measured at cost and after initial recognition, are carried at cost less accumulated depreciation and accumulated impairment losses. The cost of property, plant and equipment includes expenditures arising directly from the construction or acquisition of the asset, any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management and the initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located.

Subsequent costs are recognized in the carrying amount of property, plant and equipment at cost or, if appropriate, as separate items if it is probable that future economic benefits associated with the item will flow to the Company and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognized. The costs of the day-to-day servicing are recognized in profit or loss as incurred.

Property, plant and equipment, except for land, are depreciated on a straight-line basis over estimated useful lives that appropriately reflect the pattern in which the asset’s future economic benefits are expected to be consumed. For loaded nuclear fuel related to long-term raw materials and spent nuclear fuels related to asset retirement costs, the Company uses the production method to measure and recognizes as expense the economic benefits of the assets.

 

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The estimated useful lives of the Company’s property, plant and equipment are as follows:

 

     Useful lives (years)

Buildings

   8 ~ 40

Structures

   8 ~ 50

Machinery

   2 ~ 32

Vehicles

   3 ~ 8

Loaded heavy water

   30

Asset retirement costs

   18, 30, 40, 60

Finance lease assets

   6 ~ 32

Ships

   9

Others

   4 ~ 15

A component that is significant compared to the total cost of property, plant and equipment is depreciated over its separate useful life.

Depreciation methods, residual values and useful lives of property, plant and equipment are reviewed at the end of each reporting period and if change is deemed appropriate, it is treated as a change in accounting estimate. As a result of such annual review, useful lives of certain machinery were changed during 2016. Depreciation expenses increased by ₩160,985 million for the year ended December 31, 2016. Depreciation expenses are expected to increase by ₩130,514 million and ₩91,197 million for the years ending December 31, 2017 and 2018, respectively, and to decrease by ₩382,696 million for the years after December 31, 2018.

Property, plant and equipment are derecognized on disposal, or when no future economic benefits are expected from its use or disposal. Gains or losses arising from derecognition of a property, plant and equipment, measured as the difference between the net disposal proceeds and the carrying amount of the asset, are recognized in income or loss when the asset is derecognized.

 

(16) Investment property

Property held for the purpose of earning rentals or benefiting from capital appreciation is classified as investment property. Investment property is initially measured at its cost. Transaction costs are included in the initial measurement. Subsequently, investment property is carried at depreciated cost less any accumulated impairment losses.

Subsequent costs are recognized in the carrying amount of investment property at cost or, if appropriate, as separate items if it is probable that future economic benefits associated with the item will flow to the Company and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognized. The costs of the day-to-day servicing are recognized in profit or loss as incurred.

Investment property except for land, are depreciated on a straight-line basis over 8 ~ 40 years as estimated useful lives.

The estimated useful lives, residual values and depreciation method are reviewed at the end of each reporting period, with the effect of any changes in estimate accounted for on a prospective basis.

An investment property is derecognized upon disposal or when the investment property is permanently withdrawn from use and no future economic benefits are expected from the disposal. Any gain or loss arising on derecognition of the property (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in income or loss in the period in which the property is derecognized.

 

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(17) Intangible assets

 

  (i) Intangible assets acquired separately

Intangible assets with finite useful lives that are acquired separately are carried at cost less accumulated amortization and accumulated impairment losses. Amortization is recognized on a straight-line basis over their estimated useful lives. The estimated useful life and amortization method are reviewed at the end of each reporting period, with the effect of any changes in estimate being accounted for on a prospective basis. Intangible assets with indefinite useful lives that are acquired separately are carried at cost less accumulated impairment losses.

 

  (ii) Research and development

Expenditure on research activities is recognized as an expense in the period in which it is incurred.

An internally-generated intangible asset arising from development (or from the development phase of an internal project) is recognized if, and only if, all of the following have been demonstrated:

 

    The technical feasibility of completing the intangible asset so that it will be available for use or sale;

 

    The intention to complete the intangible asset and use or sell it;

 

    The ability to use or sell the intangible asset;

 

    How the intangible asset will generate probable future economic benefits;

 

    The availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset; and

 

    The ability to measure reliably the expenditure attributable to the intangible asset during its development.

The amount initially recognized for internally-generated intangible assets is the sum of the expenditure incurred from the date when the intangible asset first meets the recognition criteria listed above. When the development expenditure does not meet the criteria listed above, an internally-generated intangible asset cannot be recognized and the expenditure is recognized in income or loss in the period in which it is incurred.

Internally-generated intangible assets are reported at cost less accumulated amortization and accumulated impairment losses.

The estimated useful lives and amortization methods of the Company’s intangible assets with finite useful lives are as follows:

 

     Useful lives (years)    Amortization methods

Usage rights for donated assets

   10 ~ 20    Straight

Software

   4, 5    Straight

Industrial rights

   5, 10    Straight

Development expenses

   5    Straight

Leasehold rights

   10    Straight

Mining right

   —      Unit of production

Others

   3 ~ 50 or Indefinite    Straight

 

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  (iii) Intangible assets acquired in a business combination

Intangible assets that are acquired in a business combination are recognized separately from goodwill are initially recognized at their fair value at the acquisition date (which is regarded as their cost).

Subsequent to initial recognition, intangible assets acquired in a business combination are reported at cost less accumulated amortization and accumulated impairment losses, on the same basis as intangible assets that are acquired separately.

 

  (iv) Derecognition of intangible assets

An intangible asset is derecognized on disposal, or when no future economic benefits are expected from its use or disposal. Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset, and are recognized in income or loss when the asset is derecognized.

 

(18) Greenhouse gas emissions rights (allowances) and obligations

In connection with Enforcement of Allocation and Trading of Greenhouse Gas Emissions Allowances, the Company applies the following accounting policies for greenhouse gas emissions rights and obligations.

 

  (i) Greenhouse gas emissions rights

Greenhouse gas emissions rights consist of the allowances received free of charge from the government and the ones purchased. The cost of the greenhouse gas emissions rights includes expenditures arising directly from the acquisition and any other costs incurred during normal course of the acquisition.

Greenhouse gas emissions rights are held by the Company to fulfill the legal obligation and recorded as intangible assets. To the extent that the portion to be submitted to the government within one year from the end of reporting period, the greenhouse gas emissions rights are classified as current assets. Greenhouse gas emissions rights recorded as intangible assets are initially measured at cost and substantially remeasured at cost less accumulated impairment losses.

Greenhouse gas emissions rights are derecognized on submission to the government or when no future economic benefits are expected from its use or disposal.

 

  (ii) Greenhouse gas emissions obligations

Greenhouse gas emissions obligations are the Company’s present legal obligation to submit the greenhouse gas emissions allowances to the government and recognized when an outflow of resources is probable and a reliable estimate can be made of the amount of the obligation. Greenhouse gas emissions obligations are measured as the sum of the carrying amount of the allocated rights that will be submitted to the government and the best estimate of expenditure required to settle the obligation at the end of the reporting period for any excess emission.

 

(19) Impairment of non-financial assets other than goodwill

At the end of each reporting period, the Company reviews the carrying amounts of its tangible and intangible assets with definite useful lives to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the Company estimates the recoverable amount of the cash-generating unit to which the asset belongs. Where a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash-generating units, or otherwise they are allocated to the smallest group of cash-generating units for which a reasonable and consistent allocation basis can be identified.

 

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Intangible assets with indefinite useful lives and intangible assets not yet available for use are tested for impairment at least annually, and whenever there is an indication that the asset may be impaired.

Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.

If the recoverable amount of an asset (or a cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or the cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognized immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease.

When an impairment loss subsequently reverses, the carrying amount of the asset (or a cash-generating unit) is increased to the revised estimate of its recoverable amount, to the extent the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset (or cash-generating unit) in prior years. A reversal of an impairment loss is recognized immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase.

 

(20) Inventories

Inventories are measured at the lower of cost and net realizable value. Cost of inventories for inventories in transit are measured by using specific identification method. Cost of inventories, except for those in transit, are measured under the weighted average method and consists of the purchase price, cost of conversion and other costs incurred in bringing the inventories to their present location and condition.

Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses. The amount of any write-down of inventories to net realizable value and all losses of inventories are recognized as an expense in the period the write-down or loss occurs. The amount of any reversal of any write-down of inventories, arising from an increase in net realizable value, are recognized as a reduction in the amount of inventories recognized as an expense in the period in which the reversal occurs.

 

(21) Provisions

Provisions are recognized when the Company has a present legal or constructive obligation as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.

The risks and uncertainties that inevitably surround many events and circumstances are taken into account in reaching the best estimate of a provision. Where the effect of the time value of money is material, provisions are determined at the present value of the expected future cash flows.

Where some or all of the expenditures required to settle a provision are expected to be reimbursed by another party, the reimbursement shall be recognized when, and only when, it is virtually certain that reimbursement will be received if the entity settles the obligation. The reimbursement shall be treated as a separate asset.

Provisions are reviewed at the end of each reporting period and adjusted to reflect the current best estimates. If it is no longer probable that an outflow of resources embodying economic benefits will be required to settle the obligation, the provision is reversed.

 

  (i) Provision for employment benefits

The Company determines the provision for employment benefits as the incentive payments based on the results of the individual performance evaluation or management assessment.

 

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  (ii) Provision for decommissioning costs of nuclear power plants

The Company records the fair value of estimated decommissioning costs as a liability in the period in which the Company incurs a legal obligation associated with retirement of long-lived assets that result from acquisition, construction, development and/or normal use of the assets. Accretion expense consists of period-to-period changes in the liability for decommissioning costs resulting from the passage of time and revisions to either the timing or the amount of the original estimate of undiscounted cash flows.

 

  (iii) Provision for disposal of spent nuclear fuel

Under the Radioactive Waste Management Act, the Company is levied to pay the spent nuclear fuel fund for the management of spent nuclear fuel. The Company recognizes the provision of present value of the payments.

 

  (iv) Provision for low and intermediate radioactive wastes

Under the Radioactive Waste Management Act, the Company recognizes the provision for the disposal of low and intermediate radioactive wastes in best estimate of the expenditure required to settle the present obligation.

 

  (v) Provision for Polychlorinated Biphenyls (“PCBs”)

Under the regulation of Persistent Organic Pollutants Management Act, enacted in 2007, the Company is required to remove PCBs, a toxin, from the insulating oil of its transformers by 2025. As a result of the enactments, the Company is required to inspect the PCBs contents of transformers and dispose of PCBs in excess of safety standards under the legally settled procedures. The Company’s estimates and assumptions used to determine fair value can be affected by many factors, such as the estimated costs of inspection and disposal, inflation rate, discount rate, regulations and the general economy.

 

  (vi) Provisions for power plant regional support program

Power plant regional support programs consist of scholarship programs to local students, local economy support programs, local culture support programs, environment development programs, and local welfare programs. The Company recognizes the provision in relation to power plant regional support program.

 

  (vii) Provisions for transmission and transformation facilities-neighboring areas support program

The Company has present obligation to conduct transmission and transformation facilities-neighboring areas support program under Act on assistance to transmission and transformation facilities-neighboring areas. The Company recognizes the provision of estimated amount to fulfill the obligation.

 

  (viii) Renewable Portfolio Standard (“RPS”) provisions

RPS program is required to generate a specified percentage of total electricity to be generated in the form of renewable energy and provisions are recognized for the governmental regulations to require the production of energies from renewable energy sources such as solar, wind and biomass.

 

(22) Non-derivative financial assets

The Company recognizes and measures non-derivative financial assets by the following four categories: financial assets at fair value through profit or loss, held-to-maturity investments, loans and receivables and available-for-sale financial assets. The Company recognizes financial assets in the statement of financial position when the Company becomes a party to the contractual provisions of the instrument. Upon initial

 

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recognition, non-derivative financial assets are measured at their fair value plus, in the case of a financial asset not at fair value through profit or loss, transaction costs that are directly attributable to the asset’s acquisition or issuance.

A regular way purchase or sale of financial assets shall be recognized and derecognized, as applicable, using trade date accounting or settlement date accounting. A regular way purchase or sale is a purchase or sale of a financial asset under a contract whose terms require delivery of the asset within the time frame established generally by regulation or convention in the marketplace concerned.

 

  (i) Effective interest method

The effective interest method is a method of calculating the amortized cost of a debt instrument and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts (including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the debt instrument, or, where appropriate, a shorter period, to the net carrying amount on initial recognition. Income is recognized on an effective interest basis for debt instruments other than those financial assets classified as financial assets at fair value through profit or loss.

 

  (ii) Financial assets at fair value through profit or loss (FVTPL)

A financial asset is classified as financial assets are classified at fair value through profit or loss if it is held for trading or is designated as such upon initial recognition. Upon initial recognition, transaction costs are recognized in profit or loss when incurred. A financial assets its acquired principally for the purpose of selling it in the near term are classified as a short-term financial assets held for trading and also all the derivatives including an embedded derivate that is not designated and effective as a hedging instrument are classified at the short-term trading financial asset as well. Financial assets at fair value through profit or loss are measured at fair value, and changes therein are recognized in profit or loss.

A financial asset is classified as held for trading if:

 

    It has been acquired principally for the purpose of selling it in the near term; or

 

    On initial recognition it is part of a portfolio of identified financial instruments that the Company manages together and has a recent actual pattern of short term profit taking; or

 

    It is derivative, including an embedded derivative that is not designated and effective as a hedging instrument.

A financial asset other than a financial asset held for trading may be designated as at financial assets at fair value through profit or loss upon initial recognition if:

 

    Such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise; or

 

    The financial asset forms part of a group of financial assets or financial liabilities or both, which is managed and its’ performance is evaluated on a fair value basis in accordance with the Company’s documented risk management or investment strategy, and information about the grouping is provided internally on that basis; or

 

    It forms a part of a contract containing one or more embedded derivatives, and with IAS No. 39, Financial Instruments; Recognition and Measurement permits the entire combined contract (asset or liability) to be designated as at financial assets at fair value through profit or loss.

Financial assets at fair value through profit or loss are stated at fair value, with any gains or losses arising on re-measurement recognized in income or loss. The net gain or loss recognized in income or loss incorporates any dividend or interest earned on the financial asset and is included in the ‘finance income and finance expenses’ line item in the consolidated statement of comprehensive income.

 

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  (iii) Held-to-maturity investments

A non-derivative financial asset with a fixed or determinable payment and fixed maturity, for which the Company has the positive intention and ability to hold to maturity, are classified as held-to-maturity investments. Subsequent to initial recognition, held-to-maturity investments are measured at amortized cost using the effective interest method.

 

  (iv) Available-for-sale financial assets

Available-for-sale financial assets are those non-derivative financial assets that are designated as available-for-sale or are not classified as financial assets at fair value through profit or loss, held-to-maturity investments or loans and receivables.

Gains and losses arising from changes in fair value are recognized in other comprehensive income and accumulated in the valuation reserve. However, impairment losses, interest calculated using the effective interest method, and foreign exchange gains and losses on monetary assets are recognized in income or loss. Unquoted equity investments which are not traded in an active market, whose fair value cannot be measured reliably are carried at cost.

When a financial asset is derecognized or impairment losses are recognized, the cumulative gain or loss previously recognized in other comprehensive income is reclassified from equity to profit or loss.

Dividends on an available-for-sale equity instrument are recognized in profit or loss when the Company’s right to receive payment is established.

The fair value of available-for-sale monetary assets denominated in a foreign currency is determined in that foreign currency and translated at the spot rate at the end of the reporting period. The foreign exchange gains and losses that are recognized in income or loss are determined based on the amortized cost of the monetary asset. Other foreign exchange gains and losses are recognized in other comprehensive income.

 

  (v) Loans and receivables

Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an active market. Subsequent to initial recognition, loans and receivables are measured at amortized cost using the effective interest method except for loans and receivables of which the effect of discounting is immaterial.

 

  (vi) Impairment of financial assets

Financial assets, other than those at financial assets at fair value through profit or loss, are assessed for indicators of impairment at the end of each reporting period. Financial assets are considered to be impaired when there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have been affected.

For listed and unlisted equity investments classified as available-for-sale financial asset, a significant or prolonged decline in the fair value of the security below its cost is considered to be objective evidence of impairment in addition to the criteria mentioned below.

For all other financial assets, objective evidence of impairment could include:

 

    Significant financial difficulty of the issuer or counterparty; or

 

    Breach of contract, such as a default or delinquency in interest or principal payments, or

 

    It becoming probable that the borrower will enter bankruptcy or financial re-organization; or

 

    The disappearance of an active market for that financial asset because of financial difficulties.

 

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For certain categories of financial asset, such as trade receivables, assets that are assessed not to be impaired individually are, in addition, assessed for impairment on a collective basis. Objective evidence of impairment for a portfolio of receivables could include the Company’s past experience of collecting payments, an increase in the number of delayed payments in the portfolio past the average credit period and, as well as observable changes in national or local economic conditions that correlate with default on receivables.

For financial assets recorded at amortized cost, the amount of the impairment loss recognized is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the financial asset’s original effective interest rate.

For financial assets carried at cost, the amount of the impairment loss is measured as the difference between the asset’s carrying amount and the present value of the estimated future cash flows discounted at the current market rate of return for a similar financial asset. Such impairment loss will not be reversed in subsequent periods.

The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade receivables, where the carrying amount is reduced through the use of an allowance account. When a trade receivable is considered uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying amount of the allowance account are recognized in income or loss.

When an available-for-sale financial asset is considered to be impaired, cumulative gains or losses previously recognized in other comprehensive income are reclassified to income or loss in the period.

For financial assets measured at amortized cost, if, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed through profit or loss to the extent that the carrying amount of the investment at the date the impairment is reversed does not exceed what the amortized cost would have been had the impairment not been recognized.

In respect of available-for-sale equity securities, impairment losses previously recognized in profit or loss are not reversed through profit or loss. Any increase in fair value subsequent to an impairment loss is recognized in other comprehensive income. In respect of available-for-sale debt securities, impairment losses are subsequently reversed through profit or loss if an increase in the fair value of the investment can be objectively related to an event occurring after the recognition of the impairment loss.

 

  (vii) De-recognition of financial assets

The Company derecognizes a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. Any interest in transferred financial assets that is created or retained by the Company is recognized as a separate asset or liability. If the Company retains substantially all the risks and rewards of ownership of the transferred financial assets, the Company continues to recognize the transferred financial assets and recognizes financial liabilities for the consideration received.

On de-recognition of a financial asset in its entirety, the difference between the asset’s carrying amount and the sum of the consideration received and receivable and the cumulative gain or loss that had been recognized in other comprehensive income and accumulated in equity is recognized in income or loss.

On de-recognition of a financial asset other than in its entirety (e.g. when the Company retains an option to repurchase part of a transferred asset), the Company allocates the previous carrying amount of the financial asset between the part it continues to recognize under continuing involvement, and the part it no longer recognizes on the basis of the relative fair values of those parts on the date of the

 

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transfer. The difference between the carrying amount allocated to the part that is no longer recognized and the sum of the consideration received for the part no longer recognized and any cumulative gain or loss allocated to it that had been recognized in other comprehensive income is recognized in income or loss. A cumulative gain or loss that had been recognized in other comprehensive income is allocated between the part that continues to be recognized and the part that is no longer recognized on the basis of the relative fair values of those parts.

 

(23) Non-derivative financial liabilities and equity instruments issued by the Company

 

  (i) Classification as debt or equity

Debt and equity instruments are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangement.

 

  (ii) Equity instruments

An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the Company are recognized at the proceeds received, net of direct issue costs.

Repurchase of the Company’s own equity instruments is recognized and deducted directly in equity. No gain or loss is recognized in income or loss on the purchase, sale, issue or cancelation of the Company’s own equity instruments.

 

  (iii) Financial liabilities

Financial liabilities are recognized when the Company becomes a party to the contractual provisions of the instruments. Financial liabilities are initially measured at fair value. Transaction cost that are directly attributable to the issue of financial liabilities are added to or deducted from the fair value of the financial liabilities, as appropriate, on initial recognition. Transaction cost directly attributable to acquisition of financial liabilities at fair value through profit or loss are recognized immediately in profit or loss.

Financial liabilities are classified as either financial liabilities at fair value through profit or loss or other financial liabilities.

 

  (iv) Financial liabilities at fair value through profit or loss (FVTPL)

Financial liabilities are classified as at financial liabilities at fair value through profit or loss when the financial liability is either held for trading or it is designated as financial liabilities at fair value through profit or loss.

A financial liability is classified as held for trading if:

 

    It has been acquired principally for the purpose of repurchasing it in the near term; or

 

    On initial recognition it is part of a portfolio of identified financial instruments that the Company manages together and has a recent actual pattern of short-term profit-taking; or

 

    It is a derivative that is not designated and effective as a hedging instrument.

A financial liability other than a financial liability held for trading may be designated as at FVTPL upon initial recognition if:

 

    Such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise; or

 

    The financial liability forms part of a Company of financial assets or financial liabilities or both, which is managed and its performance is evaluated on a fair value basis, in accordance with the Company’s documented risk management or investment strategy, and information about the grouping is provided internally on that basis; or

 

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    It forms part of a contract containing one or more embedded derivatives, and IAS 39, ‘Financial Instruments: Recognition and Measurement’, permits the entire combined contract (asset or liability) to be designated as at FVTPL.

Financial liabilities at fair value through profit or loss are stated at fair value, with any gains or losses arising on re-measurement recognized in income or loss. The net gain or loss recognized in income or loss incorporates any interest paid on the financial liability and is included in ‘finance income and finance expenses’.

 

  (v) Other financial liabilities

Other financial liabilities, including borrowings, are initially measured at fair value, net of transaction costs.

Other financial liabilities are subsequently measured at amortized cost using the effective interest method, with interest expense recognized on an effective yield basis. The effective interest method is a method of calculating the amortized cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability, or (where appropriate) a shorter period, to the net carrying amount on initial recognition.

 

  (vi) Financial guarantee contract liabilities

Financial guarantee contract liabilities are initially measured at their fair values and, if not designated as at FVTPL, are subsequently measured at the higher of: (a) the amount of the obligation under the contract, as determined in accordance with IAS 37, ‘Provisions, Contingent Liabilities and Contingent Assets; or (b) the amount initially recognized less, cumulative amortization recognized in accordance with IAS 18, ‘Revenue’.

 

  (vii) De-recognition of financial liabilities

The Company derecognizes financial liabilities when, and only when, the Company’s obligations are discharged, canceled or they expire. The difference between the carrying amount of the financial liability derecognized and the consideration paid and payable is recognized in income or loss.

 

(24) Service Concession Arrangements

The Company recognizes revenues from construction services and operating services related to service concession arrangements in accordance with IAS 11, ’Construction Contracts’ and IAS 18, ‘Revenue’, respectively. If the Company performs more than one service under a single contract or arrangement, consideration received or receivable is allocated by reference to the relative fair values of the services delivered, when the amounts are separately identifiable.

The Company recognizes a financial asset to the extent that it has an unconditional contractual right to receive cash or another financial asset for the construction services and an intangible asset to the extent that it receives a right (license) to charge users of the public service. Borrowing costs attributable to the arrangement are recognized as an expense in the period in which they are incurred unless the Company has a contractual right to receive an intangible asset (a right to charge users of the public service). In this case, borrowing costs attributable to the arrangement are capitalized during the construction phase of the arrangement.

 

(25) Derivative financial instruments, including hedge accounting

The Company enters into a variety of derivative financial instruments to manage its exposure to interest rate and foreign exchange rate risk, including foreign exchange forward contracts, interest rate swaps and cross currency swaps and others.

 

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Derivatives are initially recognized at fair value. Subsequent to initial recognition, derivatives are measured at fair value. The resulting gain or loss is recognized in income or loss immediately unless the derivative is designated and effective as a hedging instrument, in such case the timing of the recognition in income or loss depends on the nature of the hedge relationship.

A derivative with a positive fair value is recognized as a financial asset; a derivative with a negative fair value is recognized as a financial liability. A derivative is presented as a non-current asset or a non-current liability if the remaining maturity of the instrument is more than 12 months and it is not expected to be realized or settled within 12 months. Other derivatives are presented as current assets or current liabilities.

 

  (i) Separable embedded derivatives

Derivatives embedded in other financial instruments or other host contracts are treated as separate derivatives when their risks and characteristics are not closely related to those of the host contracts and when the host contracts are not measured at FVTPL.

An embedded derivative is presented as a non-current asset or a non-current liability if the remaining maturity of the hybrid instrument to which the embedded derivative is part of, is more than 12 months and it is not expected to be realized or settled within 12 months. All other embedded derivatives are presented as current assets or current liabilities.

 

  (ii) Hedge accounting

The Company designates certain hedging instruments, which include derivatives, embedded derivatives and non-derivatives in respect of foreign currency risk, as either fair value hedges or cash flow hedges. Hedges of foreign exchange risk on firm commitments are accounted for as cash flow hedges.

At the inception of the hedge relationship, the entity documents the relationship between the hedging instrument and the hedged item, along with its risk management objectives and its strategy for undertaking various hedge transactions. Furthermore, at the inception of the hedge and on an ongoing basis, the Company documents whether the hedging instrument is highly effective in offsetting changes in fair values or cash flows of the hedged item.

 

  (iii) Fair value hedges

Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recognized in income or loss immediately, together with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk. The changes in the fair value of the hedging instrument and the change in the hedged item attributable to the hedged risk relating to the hedged items are recognized in the consolidated statements of comprehensive income.

Hedge accounting is discontinued when the Company revokes the hedging relationship, when the hedging instrument expires or is sold, terminated, or exercised, or when it no longer qualifies for hedge accounting. The fair value adjustment to the carrying amount of the hedged item arising from the hedged risk is amortized as income or loss as of that date.

 

  (iv) Cash flow hedges

The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognized in other comprehensive income. The gain or loss relating to the ineffective portion is recognized immediately in income or loss, and is included in the ‘finance income and expense’.

Amounts previously recognized in other comprehensive income and accumulated in equity are reclassified to income or loss in the periods when the hedged item is recognized in income or loss, in the same line of the consolidated statement of comprehensive income as the recognized hedged item. However, when the forecast transaction that is hedged results in the recognition of a non-financial asset

 

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or a non-financial liability, the gains and losses previously accumulated in equity are transferred from equity and included in the initial measurement of the cost of the non-financial asset or non-financial liability.

Hedge accounting is discontinued when the Company revokes the hedging relationship, when the hedging instrument expires or is sold, terminated, or exercised, or it no longer qualifies for hedge accounting. Any gain or loss accumulated in equity at that time remains in equity and is recognized when the forecast transaction is ultimately recognized in income or loss. When a forecast transaction is no longer expected to occur, the gain or loss accumulated in equity is recognized immediately in income or loss.

 

4. Segment, Geographic and Other Information

 

(1) Segment determination and explanation of the measurements

The Company’s operating segments are its business components that generate discrete financial information that is reported to and regularly reviewed by the Company’s the chief operating decision maker, the Chief Executive Officer, for the purpose of resource allocation and assessment of segment performance. The Company’s reportable segments are ‘Transmission and distribution’, ‘Electric power generation (Nuclear)’, ‘Electric power generation (Non-nuclear)’, ‘Plant maintenance & engineering service’ and ‘Others’; others mainly represent the business unit that manages the Company’s foreign operations.

Segment operating profit (loss) is determined the same way that consolidated operating profit is determined under IFRS without any adjustment for corporate allocations. The accounting policies used by each segment are consistent with the accounting policies used in the preparation of the consolidated financial statements. Segment assets and liabilities are determined based on separate financial statements of the entities instead of on a consolidated basis. There are various transactions between the reportable segments, including sales of property, plant and equipment and so on, that are conducted on an arms-length basis at market prices that would be applicable to an independent third-party. For subsidiaries which are in a different segment from that of its immediate parent company, their carrying amount in separate financial statements is eliminated in the consolidating adjustments in the tables below. In addition, consolidation adjustments in the table below include adjustments of the amount of investment in associates and joint ventures from the cost basis amount reflected in segment assets to that determined using equity method in the consolidated financial statements.

 

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(2) Financial information of the segments for the years ended December 31, 2014, 2015 and 2016, respectively, are as follows:

 

          2014  

Segment

        Total
segment
revenue
    Intersegment
revenue
    Revenue
from
external
customers
    Depreciation
and
amortization
    Interest
income
    Interest
expense
    Profit related
to associates
and joint
ventures
    Employee
benefit
expense
    Loss on
abandonment
of property,
plant, and
equipment
    Increase in
provisions,
net
          Operating
profit

(loss)
 
          In millions of won  

Transmission and distribution

        56,982,583       1,445,914       55,536,669       2,717,040       28,798       1,394,131       231,502       8,408       309,442       290,444         2,050,726  

Electric power generation (Nuclear)

      9,379,564       9,364,451       15,113       2,905,115       21,995       582,353       1,227       42,667       —         719,794         2,544,378  

Electric power generation (Non-nuclear)

      25,067,653       24,680,221       387,432       2,189,202       30,528       308,731       40,260       38,417       —         147,892         1,385,687  

Plant maintenance & engineering service

      2,620,713       1,887,954       732,759       70,374       16,033       223       1,995       39,983       —         139,965         335,076  

Others

      537,578       86,525       451,053       26,983       109,427       79,175       —         1,026       9       33         95,803  

Consolidation adjustments

      (37,465,065)       (37,465,065     —         (35,255     (15,325     (12,989     —         (9,095     —         (2,978    

 

 

 

(202,600

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 
        57,123,026       —         57,123,026       7,873,459       191,456       2,351,624       274,984       121,406       309,451       1,295,150      

 

 

 

 

 

6,209,070

 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Finance income

                         

 

 

 

 

 

885,290

 

 

 

                         

 

 

 

Finance expense

                         

 

 

 

 

 

(3,140,038

 

 

                         

 

 

 

Profit related to associates and joint ventures

                         

 

 

 

 

 

274,984

 

 

 

                         

 

 

 

Profit before income tax

                       

 

 

 

 

 

 

 

    4,229,306  
                         

 

 

 

 

          2015  

Segment

        Total
segment
revenue
    Intersegment
revenue
    Revenue
from
external
customers
    Depreciation
and
amortization
    Interest
income
    Interest
expense
    Profit (loss)
related to
associates
and joint

ventures
    Employee
benefit
expense
    Loss on
abandonment
of property,
plant, and
equipment
    Increase in
provisions,
net
          Operating
profit

(loss)
 
          In millions of won  

Transmission and distribution

        58,164,394       1,230,975       56,933,419       2,859,037       132,809       1,092,594       220,406       135,261       359,521       872,096         13,319,310  

Electric power generation (Nuclear)

      10,642,352       10,596,189       46,163       3,070,828       24,612       532,490       (595     54,572       —         401,839         3,806,617  

Electric power generation (Non-nuclear)

      21,469,345       20,906,081       563,264       2,337,353       22,171       319,647       (10,686     74,007       5,305       148,053         2,704,260  

Plant maintenance & engineering service

      2,533,887       2,016,699       517,188       85,662       12,293       542       (1,746     74,542       —         174,912         332,531  

Others

      672,250       150,557       521,693       27,491       108,104       127,684       —         343       230       34         80,165  

Consolidation adjustments

      (34,900,501     (34,900,501     —         (38,987     (58,404     (57,273     —         (24,033     —         5,790         37,993  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 
        58,581,727       —         58,581,727       8,341,384       241,585       2,015,684       207,379       314,692       365,056       1,602,724         20,280,876  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 
Finance income                             1,182,988  
                         

 

 

 
Finance expense                             (3,015,457
                         

 

 

 

Profit related to associates and joint
ventures

                            207,379  
                         

 

 

 
Profit before income tax                               18,655,786  
                         

 

 

 

 

F-41


Table of Contents
          2016  

Segment

        Total segment
revenue
    Intersegment
revenue
    Revenue from
external
customers
    Depreciation
and
amortization
    Interest
income
    Interest
expense
    Profit (loss)
related to
associates
and joint
ventures
    Employee
benefit
expense
    Loss on
abandonment

of property,
plant, and
equipment
    Increase in
provisions,
net
    Operating
profit (loss)
 
          In millions of won  

Transmission and distribution

          59,862,284       1,890,489       57,971,795       3,226,700       80,882       844,200       (128,402     162,326       424,356       711,430       5,274,308  

Electric power generation (Nuclear)

      11,168,579       11,129,385       39,194       3,130,820       33,111       474,590       (1,082     70,582       —         576,223       3,770,165  

Electric power generation (Non-nuclear)

      21,394,223       20,561,044       833,179       2,523,306       24,171       359,607       (8,342     79,846       2,133       276,619       3,211,684  

Plant maintenance & engineering service

      2,618,388       2,190,207       428,181       98,843       10,672       2,156       478       86,268       —         221,301       210,680  

Others

      567,836       77,098       490,738       26,817       115,928       97,926       —         1,050       30       168       76,336  

Consolidation adjustments

      (35,848,223     (35,848,223     —         (45,498     (22,986     (25,611     —         (26,319     —         (3,009     (246,813
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
          59,763,087       —         59,763,087       8,960,988       241,778       1,752,868       (137,348     373,753       426,519       1,782,732       12,296,360  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Finance income

                          791,543  
                       

 

 

 

Finance expense

                          (2,437,087
                       

 

 

 

Loss related to associates and joint ventures

                          (137,348
                       

 

 

 

Profit before income tax

                        10,513,468  
                       

 

 

 

 

F-42


Table of Contents
(3) Information related to segment assets and segment liabilities as of and for the years ended December 31, 2015 and 2016 are as follows:

 

          2015  

Segment

        Segment
assets
    Investments
in
associates

and joint
ventures
     Acquisition
of
non-current
assets
     Segment
liabilities
 
          In millions of won  

Transmission and distribution

        106,306,250       4,338,888        5,885,919        53,125,589  

Electric power generation (Nuclear)

      51,043,890       16,385        2,647,304        27,386,113  

Electric power generation (Non-nuclear)

      44,453,545       1,283,432        5,063,195        25,587,071  

Plant maintenance & engineering service

      2,990,862       54,825        249,627        1,172,351  

Others

      5,962,546       —          144,846        2,312,658  
   

 

 

   

 

 

    

 

 

    

 

 

 

Segment totals

      210,757,093       5,693,530        13,990,891        109,583,782  
   

 

 

   

 

 

    

 

 

    

 

 

 

Consolidation adjustments:

           

Elimination of inter-segment amounts

      (36,505,833     —          146,942        1,339,753  

Equity method adjustment

      1,050,574       —          —          —    

Deferred taxes

      —         —          —          (3,603,808

Others

      (44,475     —          —          (4,843
   

 

 

   

 

 

    

 

 

    

 

 

 
      (35,499,734     —          146,942        (2,268,898
   

 

 

   

 

 

    

 

 

    

 

 

 

Consolidated totals

        175,257,359       5,693,530        14,137,833        107,314,884  
   

 

 

   

 

 

    

 

 

    

 

 

 

 

          2016  

Segment

        Segment
assets
    Investments
in
associates
and joint
ventures
     Acquisition
of
non-current
assets
    Segment
liabilities
 
          In millions of won  

Transmission and distribution

        105,321,129       4,121,462        6,345,004       49,854,420  

Electric power generation (Nuclear)

      52,782,915       15,384        1,945,610       27,366,938  

Electric power generation (Non-nuclear)

      47,427,642       1,320,203        3,508,313       26,205,049  

Plant maintenance & engineering service

      3,106,909       53,399        180,715       1,218,047  

Others

      7,423,132       —          365,470       2,761,262  
   

 

 

   

 

 

    

 

 

   

 

 

 

Segment totals

      216,061,727       5,510,448        12,345,112       107,405,716  
   

 

 

   

 

 

    

 

 

   

 

 

 

Consolidation adjustments:

          

Elimination of inter-segment amounts

      (39,114,371     —          (191,901     (5,811,800

Equity method adjustment

      906,239       —          —         —    

Deferred taxes

      (5,830     —          —         4,301,404  

Others

      (10,723     —          —         (1,108,823
   

 

 

   

 

 

    

 

 

   

 

 

 
      (38,224,685     —          (191,901     (2,619,219
   

 

 

   

 

 

    

 

 

   

 

 

 

Consolidated totals

        177,837,042       5,510,448        12,153,211       104,786,497  
   

 

 

   

 

 

    

 

 

   

 

 

 

 

F-43


Table of Contents
(4) Geographic information

The following information on revenue from external customers and non-current assets is determined by the location of the customers and of the assets:

 

Geographical unit

         Revenue from external customers     Non-current assets(*2)  
         2014     2015     2016     2014     2015     2016  
           In millions of won  

Domestic

         53,893,877       54,351,076       55,310,011       136,053,940       143,788,043       148,297,677  

Overseas(*1)

       3,229,149       4,230,651       4,453,076       6,542,282       4,526,395       4,474,699  
    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
         57,123,026       58,581,727       59,763,087       142,596,222       148,314,438       152,772,376  
    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

  (*1) Middle East and other Asian countries make up the majority of overseas revenue and non-current assets.

 

  (*2) Amount excludes financial assets and deferred tax assets.

 

(5) Information on significant customers

There is no individual customer comprising more than 10% of the Company’s revenue for the years ended December 31, 2014, 2015 and 2016.

 

F-44


Table of Contents
5. Classification of Financial Instruments

 

(1) Classification of financial assets as of December 31, 2015 and 2016 are as follows:

 

          2015  
          Financial
assets at fair
value through
profit or loss
    Loans and
receivables
    Available-for-sale
financial assets
    Held-to-maturity
investments
    Derivative assets
(using hedge
accounting)
    Total  
          In millions of won  

Current assets

             

Cash and cash equivalents

        —         3,783,065       —         —         —         3,783,065  

Current financial assets

             

Held-to-maturity investments

      —         —         —         381       —         381  

Derivative assets

      1,498       —         —         —         95,759       97,257  

Other financial assets

      —         5,237,983       —         —         —         5,237,983  

Trade and other receivables

      —         7,473,548       —         —         —         7,473,548  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
      1,498       16,494,596       —         381       95,759       16,592,234  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Non-current assets

             

Non-current financial assets

             

Available-for-sale financial assets

      —         —         584,479       —         —         584,479  

Held-to-maturity investments

      —         —         —         3,242       —         3,242  

Derivative assets

      253,510       —         —         —         266,383       519,893  

Other financial assets

      —         1,387,940       —         —         —         1,387,940  

Trade and other receivables

      —         1,798,419       —         —         —         1,798,419  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
      253,510       3,186,359       584,479       3,242       266,383       4,293,973  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
        255,008       19,680,955       584,479       3,623       362,142       20,886,207  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

          2016  
          Financial
assets at fair
value through
profit or loss
    Loans and
receivables
    Available-for-sale
financial assets
    Held-to-maturity
investments
    Derivative assets
(using hedge
accounting)
    Total  
          In millions of won  

Current assets

             

Cash and cash equivalents

        —         3,051,353       —         —         —         3,051,353  

Current financial assets

             

Held-to-maturity investments

      —         —         —         114       —         114  

Derivative assets

      79,709       —         —         —         113,574       193,283  

Other financial assets

      —         2,478,592       —         —         —         2,478,592  

Trade and other receivables

      —         7,788,876       —         —         —         7,788,876  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
      79,709       13,318,821       —         114       113,574       13,512,218  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Non-current assets

             

Non-current financial assets

             

Available-for-sale financial assets

      —         —         1,014,732       —         —         1,014,732  

Held-to-maturity investments

      —         —         —         3,130       —         3,130  

Derivative assets

      287,768       —         —         —         300,323       588,091  

Other financial assets

      —         1,051,541       —         —         —         1,051,541  

Trade and other receivables

      —         1,903,515       —         —         —         1,903,515  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
      287,768       2,955,056       1,014,732       3,130       300,323       4,561,009  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
        367,477       16,273,877       1,014,732       3,244       413,897       18,073,227  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

F-45


Table of Contents
(2) Classification of financial liabilities as of December 31, 2015 and 2016 are as follows:

 

          2015  
          Financial liabilities
at fair value through

profit or loss
     Financial liabilities
recognized at
amortized cost
     Derivative liabilities
(using hedge
accounting)
     Total  
          In millions of won  

Current liabilities

            

Borrowings

        —          1,144,027        —          1,144,027  

Debt securities

      —          6,702,926        —          6,702,926  

Derivative liabilities

      9,487        —          758        10,245  

Trade and other payables

      —          4,735,697        —          4,735,697  
   

 

 

    

 

 

    

 

 

    

 

 

 
      9,487        12,582,650        758        12,592,895  
   

 

 

    

 

 

    

 

 

    

 

 

 

Non-current liabilities

            

Borrowings

      —          1,932,259        —          1,932,259  

Debt securities

      —          48,974,287        —          48,974,287  

Derivative liabilities

      39,524        —          116,741        156,265  

Trade and other payables

      —          3,718,435        —          3,718,435  
   

 

 

    

 

 

    

 

 

    

 

 

 
      39,524        54,624,981        116,741        54,781,246  
   

 

 

    

 

 

    

 

 

    

 

 

 
        49,011        67,207,631        117,499        67,374,141  
   

 

 

    

 

 

    

 

 

    

 

 

 

 

          2016  
          Financial liabilities
at fair value through

profit or loss
     Financial liabilities
recognized at
amortized cost
     Derivative liabilities
(using hedge
accounting)
     Total  
          In millions of won  

Current liabilities

            

Borrowings

        —          1,115,521        —          1,115,521  

Debt securities

      —          7,823,557        —          7,823,557  

Derivative liabilities

      3,251        —          —          3,251  

Trade and other payables

      —          5,585,411        —          5,585,411  
   

 

 

    

 

 

    

 

 

    

 

 

 
      3,251        14,524,489           14,527,740  
   

 

 

    

 

 

    

 

 

    

 

 

 

Non-current liabilities

            

Borrowings

      —          1,773,891        —          1,773,891  

Debt securities

      —          42,926,236        —          42,926,236  

Derivative liabilities

      18,278        —          117,157        135,435  

Trade and other payables

      —          3,558,175        —          3,558,175  
   

 

 

    

 

 

    

 

 

    

 

 

 
      18,278        48,258,302        117,157        48,393,737  
   

 

 

    

 

 

    

 

 

    

 

 

 
        21,529        62,782,791        117,157        62,921,477  
   

 

 

    

 

 

    

 

 

    

 

 

 

 

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Table of Contents
(3) Classification of comprehensive income (loss) from financial instruments for the years ended December 31, 2014, 2015 and 2016 are as follows:

 

               2014     2015     2016  
               In millions of won  

Cash and cash equivalents

   Interest income         56,384       54,687       61,380  

Available-for-sale financial assets

   Dividends income       14,193       14,069       9,446  
   Impairment loss on available-for-sale financial assets       (79,618     (84,370     (86,703
   Gain (loss) on disposal of available-for-sale financial assets       95,365       (3,004     1,473  
   Interest income       382       29       —    

Held-to-maturity investments

   Interest income       89       99       97  

Loans and receivables

   Interest income       29,507       28,586       25,106  

Trade and other receivables

   Interest income       99,680       100,771       102,237  

Short-term financial instruments

   Interest income       5,199       46,921       45,763  

Long-term financial instruments

   Interest income       215       10,492       7,195  

Financial assets at fair value through profit or loss

   Gain on valuation of derivatives       59,164       220,285       113,671  
   Gain (loss) on transaction of derivatives       (24,746     8,605       (8,039

Derivative assets
(using hedge accounting)

  

Gain on valuation of derivatives (profit or loss)

      88,809       244,020       145,458  
   Gain (loss) on valuation of derivatives (equity, before tax)(*)       (60,284     (12,572     50,047  
   Gain (loss) on transaction of derivatives       818       2,818       (13,994

Financial liabilities carried at amortized cost

  

Interest expense of borrowings and debt securities

      (1,664,682     (1,392,477     (1,202,065
   Loss on retirement of financial liabilities       (199     (33     (23,000
   Interest expense of trade and other payables       (98,407     (84,527     (68,375
   Interest expense of others       (588,535     (538,680     (482,428
   Loss on foreign currency transactions and translations       (271,953     (708,178     (290,485

Financial liabilities at fair value through profit or loss

   Gain on valuation of derivatives       10,494       35,312       23,225  
   Gain (loss) on transaction of derivatives       (38,909     107,454       17,045  

Derivative liabilities
(using hedge accounting)

  

Gain on valuation of derivatives (profit or loss)

      51,788       93,914       5,714  
   Gain (loss) on valuation of derivatives (equity, before tax)(*)       (76,013     9,728       (3,297
   Loss on transaction of derivatives       (4,180     (4,288     (51,450

 

(*) Items are included in other comprehensive income or loss. All other income and gain amounts listed above are included in finance income, and all expense and losses listed above are included in finance expenses in the consolidated statements of comprehensive income or loss.

 

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Table of Contents
6. Restricted Deposits

Restricted deposits as of December 31, 2015 and 2016 are as follows:

 

                2015      2016  
                In millions of won  

Cash and cash equivalents

   Escrow accounts          4,828        91  
   Deposits for government project        5,839        16,457  
   Collateral provided for borrowings        6,839        80,327  
   Collateral provided for lawsuit        641        241  
   Deposits for transmission regional support program        204        2,137  
   Pledge        740        —    

Non-current available-for-sale financial asset

  

Decommissioning costs of nuclear power plants

       —          437,015  

Short-term financial instruments

   Bidding guarantees        —          118  
   Restriction on withdrawal related to ‘win-win growth program’ for small and medium enterprises        18,000        33,000  

Other current receivables

   Deposit for lawsuit        —          16,000  

Long-term financial instruments

   Guarantee deposits for checking account        2        2  
   Guarantee deposits for banking accounts at oversea branches        333        342  
   Decommissioning costs of nuclear power plants        652,700        214,121  
   Collateral provided for borrowings        20        —    
   Funds for developing small and medium enterprises(*1)        100,000        200,000  
       

 

 

    

 

 

 
            790,146        999,851  
       

 

 

    

 

 

 

 

  (*1) Deposits for small and medium enterprise at IBK for construction of Bitgaram Energy Valley and support for the high potential businesses as of December 31, 2016.

 

7. Cash and Cash Equivalents

Cash and cash equivalents as of December 31, 2015 and 2016 are as follows:

 

           2015      2016  
           In millions of won  

Cash

         109        119  

Other demand deposits

       1,309,396        1,725,785  

Short-term deposits classified as cash equivalents

       374,575        120,594  

Short-term investments classified as cash equivalents

       2,098,985        1,204,855  
    

 

 

    

 

 

 
         3,783,065        3,051,353  
    

 

 

    

 

 

 

 

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Table of Contents
8. Trade and Other Receivables

 

(1) Trade and other receivables as of December 31, 2015 and 2016 are as follows:

 

           2015  
           Gross
amount
     Allowance for
doubtful accounts
    Present value
discount
    Book
value
 
           In millions of won  

Current assets

           

Trade receivables

         6,862,762        (51,956     (14     6,810,792  

Other receivables

       718,717        (52,778     (3,183     662,756  
    

 

 

    

 

 

   

 

 

   

 

 

 
       7,581,479        (104,734     (3,197     7,473,548  
    

 

 

    

 

 

   

 

 

   

 

 

 

Non-current assets

           

Trade receivables

       447,010        —         —         447,010  

Other receivables

       1,396,107        (38,968     (5,730     1,351,409  
    

 

 

    

 

 

   

 

 

   

 

 

 
       1,843,117        (38,968     (5,730     1,798,419  
    

 

 

    

 

 

   

 

 

   

 

 

 
         9,424,596        (143,702     (8,927     9,271,967  
    

 

 

    

 

 

   

 

 

   

 

 

 

 

           2016  
           Gross
amount
     Allowance for
doubtful accounts
    Present value
discount
    Book
value
 
           In millions of won  

Current assets

           

Trade receivables

         7,260,227        (71,985     —         7,188,242  

Other receivables

       652,782        (50,071     (2,077     600,634  
    

 

 

    

 

 

   

 

 

   

 

 

 
       7,913,009        (122,056     (2,077     7,788,876  
    

 

 

    

 

 

   

 

 

   

 

 

 

Non-current assets

           

Trade receivables

       491,509        —         —         491,509  

Other receivables

       1,455,860        (37,590     (6,264     1,412,006  
    

 

 

    

 

 

   

 

 

   

 

 

 
       1,947,369        (37,590     (6,264     1,903,515  
    

 

 

    

 

 

   

 

 

   

 

 

 
         9,860,378        (159,646     (8,341     9,692,391  
    

 

 

    

 

 

   

 

 

   

 

 

 

 

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Table of Contents
(2) Other receivables as of December 31, 2015 and 2016 are as follows:

 

          2015  
          Gross
amount
     Allowance for
doubtful accounts
    Present value
discount
    Book
value
 
          In millions of won  

Current assets

          

Non-trade receivables

        330,669        (52,778     —         277,891  

Accrued income

      88,256        —         —         88,256  

Deposits

      235,745        —         (3,183     232,562  

Finance lease receivables

      12,098        —         —         12,098  

Others

      51,949        —         —         51,949  
   

 

 

    

 

 

   

 

 

   

 

 

 
      718,717        (52,778     (3,183     662,756  
   

 

 

    

 

 

   

 

 

   

 

 

 

Non-current assets

          

Non-trade receivables

      93,782        (31,829     —         61,953  

Accrued income

      582        —         —         582  

Deposits

      256,745        —         (5,730     251,015  

Finance lease receivables

      941,710        —         —         941,710  

Others

      103,288        (7,139     —         96,149  
   

 

 

    

 

 

   

 

 

   

 

 

 
      1,396,107        (38,968     (5,730     1,351,409  
   

 

 

    

 

 

   

 

 

   

 

 

 
        2,114,824        (91,746     (8,913     2,014,165  
   

 

 

    

 

 

   

 

 

   

 

 

 

 

          2016  
          Gross
amount
     Allowance for
doubtful accounts
    Present value
discount
    Book
value
 
          In millions of won  

Current assets

          

Non-trade receivables

        360,021        (50,071     —         309,950  

Accrued income

      62,063        —         —         62,063  

Deposits

      193,720        —         (2,077     191,643  

Finance lease receivables

      12,225        —         —         12,225  

Others

      24,753        —         —         24,753  
   

 

 

    

 

 

   

 

 

   

 

 

 
      652,782        (50,071     (2,077     600,634  
   

 

 

    

 

 

   

 

 

   

 

 

 

Non-current assets

          

Non-trade receivables

      80,393        (26,942     —         53,451  

Accrued income

      174        —         —         174  

Deposits

      320,935        —         (6,264     314,671  

Finance lease receivables

      960,649        —         —         960,649  

Others

      93,709        (10,648     —         83,061  
   

 

 

    

 

 

   

 

 

   

 

 

 
      1,455,860        (37,590     (6,264     1,412,006  
   

 

 

    

 

 

   

 

 

   

 

 

 
        2,108,642        (87,661     (8,913     2,012,640  
   

 

 

    

 

 

   

 

 

   

 

 

 

 

(3) Trade and other receivables are classified as loans and receivables, and are measured using the effective interest method. No interest is accrued for trade receivables related to electricity for the duration between the billing date and the payment due dates. But once trade receivables are overdue, the Company imposes a monthly interest rate of 1.5% on the overdue trade receivables. The Company holds deposits of three months’ expected electricity usage for customers requesting temporary usage and customers with past defaulted payments.

 

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Table of Contents
(4) Aging analysis of trade receivables as of December 31, 2015 and 2016 are as follows:

 

           2015      2016  
           In millions of won  

Trade receivables: (not overdue, not impaired)

         7,198,403        7,592,363  
    

 

 

    

 

 

 

Trade receivables: (overdue, not impaired)

       891        820  
    

 

 

    

 

 

 

Less than 60 days

       891        820  
    

 

 

    

 

 

 

Trade receivables: (impairment reviewed)

       110,478        158,553  
    

 

 

    

 

 

 

60 ~ 90 days

       31,973        44,277  

90 ~ 120 days

       11,010        18,917  

120 days ~ 1 year

       35,097        42,534  

Over 1 year

       32,398        52,825  
    

 

 

    

 

 

 
       7,309,772        7,751,736  

Less: allowance for doubtful accounts

       (51,956      (71,985

Less: present value discount

       (14      —    
    

 

 

    

 

 

 
         7,257,802        7,679,751  
    

 

 

    

 

 

 

The Company assesses at the end of each reporting period whether there is any objective evidence that trade receivables are impaired, and provides allowances for doubtful accounts which includes impairment for trade receivables that are individually significant. The Company considers receivables as overdue if the receivables are outstanding 60 days after the maturity and sets an allowance based on past experience of collection.

 

(5) Aging analysis of other receivables as of December 31, 2015 and 2016 are as follows:

 

           2015      2016  
           In millions of won  

Other receivables: (not overdue, not impaired)

         1,918,132        1,887,620  
    

 

 

    

 

 

 

Other receivables: (overdue, not impaired)

       20,249        46,887  
    

 

 

    

 

 

 

Less than 60 days

       20,249        46,887  
    

 

 

    

 

 

 

Other receivables: (impairment reviewed)

       176,443        174,135  
    

 

 

    

 

 

 

60 ~ 90 days

       2,409        7,352  

90 ~ 120 days

       10,097        2,160  

120 days ~ 1 year

       21,433        17,613  

Over 1 year

       142,504        147,010  
    

 

 

    

 

 

 
       2,114,824        2,108,642  

Less: allowance for doubtful accounts

       (91,746      (87,661

Less: present value discount

       (8,913      (8,341
    

 

 

    

 

 

 
         2,014,165        2,012,640  
    

 

 

    

 

 

 

 

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Table of Contents
(6) Changes in the allowance for doubtful accounts for the years ended December 31, 2014, 2015 and 2016 are as follows:

 

          2014     2015     2016  
          Trade
receivables
    Other
receivables
    Trade
receivables
    Other
receivables
    Trade
receivables
    Other
receivables
 
          In millions of won  

Beginning balance

        65,024       69,887       80,644       67,932       51,956       91,746  

Bad debt expense

      39,018       15,981       1,308       18,473       38,719       233  

Write-off

      (23,398     (7,534     (28,978     (888     (18,939     (928

Reversal

      —         (241     (1,018     (413     —         (5,489

Others

      —         (10,161     —         6,642       249       2,099  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance

        80,644       67,932       51,956       91,746       71,985       87,661  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

9. Available-for-sale Financial Assets

 

(1) Changes in available-for-sale financial assets for the years ended December 31, 2015 and 2016 are as follows:

 

        2015  
        Beginning
balance
    Acquisition     Disposal     Valuation     Impairment     Others     Ending
Balance
 
    In millions of won  

Listed:

               

Korea District Heating Corp.

      127,241       —         —         3,169       —         —         130,410  

Kwanglim Co., Ltd.

      128       —         —         134       —         —         262  

Ssangyong Motor Co., Ltd.

      357       —         —         (58     —         —         299  

Sungjee Construction. Co., Ltd.

      5       —         —         —         —         —         5  

Korea Line Corp.

      —         —         —         —         —         —         —    

Namkwang Engineering & Construction Co., Ltd.

      2       —         —         (3     —         2       1  

Pumyang Construction Co., Ltd.

      —         —         —         —         —         —         —    

ELCOMTEC Co., Ltd.

      48       —         —         5       —         —         53  

PAN ocean Co., Ltd.

      5       —         —         1       —         —         6  

Borneo International Furniture Co., Ltd.

      4       —         —         7       —         92       103  

TONGYANG Inc.

      66       —         —         140       —         11       217  

TONGYANG networks Inc.

      3       —         —         3       —         —         6  

Nexolon Co., Ltd.

      —         —         —         59       —         3,137       3,196  

PT Adaro Energy Tbk

      44,109       —         —         (23,097     (23,206     23,206       21,012  

Energy Fuels Inc.

      11,568       —         —         (4,866     (9,391     8,615       5,926  

Baralaba Coal Company Limited (formerly, Cockatoo Coal Limited)

      628       —         —         (572     (572     558       42  

Denison Mines Corp.

      62,339       —         —         (22,187     (20,154     14,459       34,457  

Fission 3.0(*1)

      61       —         (57     11       —         15       30  

Fission Uranium Corp.

      651       —         —         (28     —         (69     554  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
      247,215       —         (57     (47,282     (53,323     50,026       196,579  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Unlisted:

               

K&C—Gyeongnam youth job creation Investment Fund(*1)

      1,340       —         (133     —         —         —         1,207  

Hanwha Electric Power Venture Fund(*1)

      1,804       —         (1,804     —         —         —         —    

Korea Investment—Korea EXIM Bank CERs Private Special Asset Investment Trust I(*1)

      4,752       —         (3,000     —         (1,181     —         571  

 

F-52


Table of Contents
        2015  
        Beginning
balance
    Acquisition     Disposal     Valuation     Impairment     Others     Ending
Balance
 
    In millions of won  

Troika Overseas Resource Development Private Equity Firm

 

    13,340       —         —         —         (11,787     —         1,553  

IBK-AUCTUS Green Growth Private Equity firm(*1)

      2,325       —         (1,470     —         —         —         855  

Global Dynasty Overseas Resource Development Private Equity Firm

      2,233       —         —         —         —         —         2,233  

Intellectual Discovery, Ltd.

      5,000       —         —         —         (3,625     —         1,375  

Hanwha-KOSEP New Renewable Energy Private Special Assets Investment Trust 1(*1)

      498       802       (231     —         —         —         1,069  

Construction Guarantee

      795       —         —         10       —         —         805  

Plant & Mechanical Contractors Financial Cooperative of Korea

      36       —         —         —         —         —         36  

Fire Guarantee

      20       —         —         —         —         —         20  

Korea Software Financial Cooperative

      301       —         —         —         —         —         301  

Engineering Financial Cooperative

      60       —         —         —         —         —         60  

Electric Contractors Financial Cooperative

      152       —         —         —         —         —         152  

Korea Specialty Contractor Financial Cooperative

      417       —         —         —         —         —         417  

Information & Communication Financial Cooperative

      10       —         —         —         —         —         10  

Korea Electric Engineers Association

      40       —         —         —         —         —         40  

Hwan Young Steel Co., Ltd.

      97       —         —         —         —         —         97  

Woobang ENC Co., Ltd

      22       —         —         —         —         —         22  

Dongnam Co., Ltd.

      72       —         —         —         —         —         72  

SAMBO AUTO. Co., Ltd.

      38       —         —         —         —         —         38  

Mobo Co., Ltd.

      14       —         —         —         —         —         14  

Poonglim Industrial Co., Ltd.

      78       —         —         —         —         15       93  

HANKOOK Silicon Co., Ltd.

      7,513       —         —         —         —         —         7,513  

Kun Young Engineering & Construction Co., Ltd.

      5       —         —         —         —         —         5  

Pumyang Asset Management Co., Ltd.

      3       —         —         —         —         —         3  

Dae Kwang Semiconductor Co., Ltd.

      6       —         —         —         —         —         6  

Sanbon Department Store

      124       —         —         —         (121     —         3  

Woori Ascon Co., Ltd.

      10       —         —         —         —         —         10  

Miju Steel Mfg. Co., Ltd.

      51       —         —         —         —         —         51  

BnB Sungwon Co., Ltd.

      15       —         —         —         —         —         15  

Hana Civil Engineering Co., Ltd.

      1       —         —         —         —         —         1  

KC Development Co., Ltd.

      6       —         —         —         —         —         6  

IMHWA Corp.

      5       —         —         —         —         —         5  

IXELON Co., Ltd.

      23       —         —         —         (23     —         —    

DAIM Special Vehicle Co., Ltd.

      10       —         —         —         —         —         10  

ASA KIMJE Co., Ltd.

      465       —         —         —         (465     —         —    

ASA JEONJU Co., Ltd.

      697       —         —         —         (628     —         69  

KYUNGWON Co., Ltd.

      14       —         —         —         —         —         14  

Moonkyung Silica Co., Ltd.

      —         —         —         —         —         —         —    

Yousung Remicon Co., Ltd.

      4       —         —         —         —         —         4  

Sungkwang Timber Co., Ltd.

      4       —         —         —         —         —         4  

Yongbo Co., Ltd.

      3       —         —         —         —         —         3  

HJ Steel Co., Ltd.

      —         —         —         —         —         2       2  

Ildong Air Conditioning Co., Ltd.

      —         —         —         —         (2     2       —    

 

F-53


Table of Contents
        2015  
        Beginning
balance
    Acquisition     Disposal     Valuation     Impairment     Others     Ending
Balance
 
    In millions of won  

KS Remicon Co., Ltd.

      —         —         —         —         —         3       3  

Sewoong Heavy Industries Co., Ltd.

      —         —         —         —         —         40       40  

SIN-E Steel Co., Ltd.

      —         —         —         —         —         33       33  

Joongang Platec Co., Ltd.

      —         —         —         —         —         72       72  

Hangjin Steel Co., Ltd.

      —         —         —         —         (116     116       —    

Pyungsan SI Ltd.

      —         —         —         —         —         9       9  

Samgong Development Co., Ltd.

      —         —         —         —         —         7       7  

Joongang Development Co., Ltd.

      —         —         —         —         —         8       8  

AJS Co., Ltd.

      —         —         —         —         —         32       32  

SHIN-E B&P Co., Ltd.

      —         —         —         —         —         10       10  

MSE Co., Ltd.

      —         —         —         —         —         9       9  

Ilrim Nano Tec Co., Ltd.

      —         —         —         —         —         15       15  

Kwang Myeong Electronics Technology Co., Ltd.

      —         —         —         —         —         11       11  

Youngjin Hi-Tech Co., Ltd.

      —         —         —         —         (105     126       21  

Dong Woo International Co., Ltd.

      —         —         —         —         —         18       18  

Bench Mark Construction Co., Ltd.

      —         —         —         —         —         —         —    

Buyoung Co., Ltd.

      —         —         —         —         —         3       3  

Ilsuk Co., Ltd.

      —         —         —         —         —         10       10  

Dongyang Telecom Co., Ltd.

      —         —         —         —         —         11       11  

Han Young Construction Co., Ltd.

      —         —         —         —         —         3       3  

Jongwon Remicon Co., Ltd.

      —         —         —         —         —         13       13  

Ace Heat Treating Co., Ltd.

      —         —         —         —         —         72       72  

Zyle Daewoo Motor Sales Co., Ltd.

      —         —         —         —         —         —         —    

Daewoo Development Co., Ltd.

      —         —         —         —         —         —         —    

Daewoo Songdo Development Co., Ltd.

      —         —         —         —         (2     2       —    

Seyang Inc.

      —         —         —         —         —         27       27  

Seungri Enterprise Co., Ltd.

      —         —         —         —         —         3       3  

Onggane Food Co., Ltd

      —         —         —         —         —         1       1  

Shin-E P&C Co., Ltd.

      —         —         —         —         —         1       1  

Montista Telecom Co., Ltd.

      —         —         —         —         (3     3       —    

Ejung Ad Co., Ltd.

      —         —         —         —           3       3  

Solvus Co., Ltd.

      —         —         —         —         —         3       3  

Myung Co., Ltd.

      —         —         —         —         —         2       2  

Emotion Co., Ltd.

      —         —         —         —         —         8       8  

Youngdong Concrete Co., Ltd.

      —         —         —         —         —         7       7  

Shinil Engineering Co., Ltd.

      —         —         —         —         —         3       3  

Korea Castiron Industrial Co., Ltd.

      —         —         —         —         —         22       22  

FFG DMC Co., Ltd.

      —         —         —         —         —         17       17  

Daeseong Metal Co., Ltd.

      —         —         —         —         —         47       47  

Biwang Industry Co., Ltd

      —         —         —         —         —         2       2  

Huimun Co., Ltd.

      —         —         —         —         —         4       4  

Sunun IT F Co., Ltd.

      —         —         —         —         —         8       8  

Young Sung Co., Ltd.

      —         —         —         —         —         27       27  

Yuil Industrial Electronics Co., Ltd.

      —         —         —         —         —         16       16  

DN TEK Inc.

      —         —         —         —         —         62       62  

Daeyang F.M.S Corporation

      —         —         —         —         —         3       3  

Kwang Jin Structure Co., Ltd.

      —         —         —         —         —         31       31  

Woojin Industry Corporation

      —         —         —         —         —         16       16  

Kwang Sung Industry Co., Ltd.

      —         —         —         —         —         7       7  

Matsaeng Food Co., Ltd.

      —         —         —         —         —         6       6  

Futech Mold Co., Ltd.

      —         —         —         —         —         14       14  

Samcheonri Industrial Co., Ltd.

      —         —         —         —         —         13       13  

 

F-54


Table of Contents
        2015  
        Beginning
balance
    Acquisition     Disposal     Valuation     Impairment     Others     Ending
Balance
 
    In millions of won  

Woojoo Environment Ind. Co., Ltd.

      —         —         —         —         —         13       13  

Cheongatti Co., Ltd.

      —         —         —         —         —         4       4  

Hyungji Esquire Co., Ltd.

      —         —         —         —         —         21       21  

Kolmar Pharma Co., Ltd.

      —         —         —         —         —         52       52  

Morado Co., Ltd.

      —         —         —         —         —         2       2  

Myung Sung Tex Co., Ltd.

      —         —         —         —         —         2       2  

Areva nc Expansion

      227,876       —         —         —         —         (57,758     170,118  

Navanakorn Electric Co., Ltd.

      16,836       —         —         —         —         1,115       17,951  

PT. Kedap Saayq

      12,989       —         —         —         (12,989     —         —    

Set Holding

      167,832       —         —         11,753       —         —         179,585  

PT. Cirebon Energi Prasarana

      —         635       —         —         —         —         635  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
      467,936       1,437       (6,638     11,763       (31,047     (55,551     387,900  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
 

    715,151       1,437       (6,695     (35,519     (84,370     (5,525     584,479  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(*1) The Company recognized gain and loss on disposal of available-for-sale financial assets amounting to ₩4 million and ₩3,008 million, respectively, from the sales of shares of Fission 3.0, K&C- Gyeongnam Youth Job Creation Investment Fund, Korea Investment—Korea EXIM Bank CERs Private Special Asset Investment Trust 1, IBK-AUCTUS Green Growth Private Equity Firm and others and from the liquidation of Hanwha Electric Power Venture fund for the year ended December 31, 2015.

 

          2016  
          Beginning
balance
    Acquisition     Disposal     Valuation     Impairment     Others     Ending
balance
 
          In millions of won  

Listed:

               

Korea District Heating Corp.

        130,410       —         —         23,773       —         —         154,183  

Kwanglim Co., Ltd.(*1)

      262       —         (214     598       —         (646     —    

Ssangyong Motor Co., Ltd.

      299       —         —         5       —         —         304  

Sungjee Construction. Co., Ltd.

      5       —         —         16       —         —         21  

Korea Line Corp.

      —         —         —         —         —         —         —    

Namkwang Engineering & Construction Co., Ltd.

      1       —         —         (1     —         —         —    

Pumyang Construction Co., Ltd.

      —         —         —         —         —         —         —    

ELCOMTEC Co., Ltd.

      53       —         —         21       —         —         74  

PAN ocean Co., Ltd.

      6       —         —         1       —         —         7  

Borneo International Furniture Co., Ltd.

      103       —         —         —         —         —         103  

TONGYANG Inc.(*1)

      217       —         (44     25       —         (198     —    

TONGYANG networks Inc.(*1)

      6       —         (3     —         —         (3     —    

Nexolon Co., Ltd.(*1)

      3,196       —         (3,137     569       —         (628     —    

Dongbu Corporation,

      —         —         —         —         —         12       12  

PT Adaro Energy Tbk

      21,012       —         —         52,049       —         —         73,061  

Energy Fuels Inc.

      5,926       —         —         (2,775     (3,273     3,507       3,385  

Baralaba Coal Company Limited (formerly, Cockatoo Coal Limited)

      42       —         —         —         —         —         42  

Denison Mines Corp.

      34,457       —         —         —         (5,849     7,896       36,504  

Fission 3.0

      30       —         —         (16     —         2       16  

Fission Uranium Corp.

      554       —         —         (126     —         31       459  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
      196,579       —         (3,398     74,139       (9,122     9,973       268,171  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

F-55


Table of Contents
          2016  
          Beginning
balance
    Acquisition     Disposal     Valuation     Impairment     Others     Ending
balance
 
          In millions of won  

Unlisted:

               

K&C—Gyeongnam youth job creation Investment Fund

        1,207       —         —         —         —         —         1,207  

Korea investment—Korea EXIM Bank CERs Private Special Asset Investment Trust I

      571       —         —         —         —         —         571  

Troika Overseas Resource Development Private Equity Firm

      1,553       —         —         —         —         —         1,553  

IBK-AUCTUS Green Growth Private Equity firm(*1)

      855       —         (814     —         —         —         41  

Global Dynasty Overseas Resource Development Private Equity Firm

      2,233       —         —         —         —         —         2,233  

Intellectual Discovery, Ltd.

      1,375       —         —         —         —         —         1,375  

Hanwha-KOSEP New Renewable Energy Private Special Assets Investment Trust 1(*1)

      1,069       3,685       (365     —         —         —         4,389  

Construction Guarantee

      805       —         —         14       —         —         819  

Plant & Mechanical Contractors Financial Cooperative of Korea

      36       —         —         —         —         —         36  

Fire Guarantee

      20       —         —         —         —         —         20  

Korea Software Financial Cooperative

      301       3,000       —         —         —         —         3,301  

Engineering Financial Cooperative

      60       —         —         —         —         —         60  

Electric Contractors Financial Cooperative

      152       —         —         —         —         —         152  

Korea Specialty Contractor Financial Cooperative

      417       —         —         —         —         —         417  

Information & Communication Financial Cooperative

      10       —         —         —         —         —         10  

Korea Electric Engineers Association

      40       —         —         —         —         —         40  

Korea investment—Investment Pool for Public funds 10

      —         142,470       —         (1,155     —         —         141,315  

Samsung investment—Investment Pool for Public funds 2

      —         213,710       —         (1,790     —         —         211,920  

Samsung investment—Investment Pool for Public funds 1

      —         53,220       —         (8     —         —         53,212  

Korea investment—Hanwha KT Mater Lease Private Special Investment Trust(*1)

      —         31,200       (640     8       —         —         30,568  

Onggane Food Co., Ltd.

      1       —         —         —         —         —         1  

Shin-E P&C Co., Ltd.

      1       —         —         —         —         —         1  

Ejung Ad Co., Ltd.

      3       —         —         —         —         —         3  

Solvus Co., Ltd.

      3       —         —         —         —         —         3  

Myung Co., Ltd.

      2       —         —         —         —         —         2  

Emotion Co., Ltd.

      8       —         —         —         —         —         8  

Youngdong Concrete Co., Ltd.

      7       —         —         —         —         —         7  

Shinil Engineering Co., Ltd.

      3       —         —         —         —         —         3  

Korea Castiron Industrial Co., Ltd.

      22       —         —         —         (22     —         —    

FFG DMC Co., Ltd.

      17       —         —         —         (68     51       —    

Daeseong Metal Co., Ltd.

      47       —         —         —         —         (47     —    

Biwang Industry Co., Ltd

      2       —         —         —         —         —         2  

Huimun Co., Ltd.

      4       —         —         —         —         —         4  

Sunun IT F Co., Ltd.

      8       —         —         —         —         (8     —    

 

F-56


Table of Contents
          2016  
          Beginning
balance
    Acquisition     Disposal     Valuation     Impairment     Others     Ending
balance
 
          In millions of won  

Young Sung Co., Ltd.

        27       —         —         —         —         —         27  

Yuil Industrial Electronics Co., Ltd.

      16       —         —         —         —         —         16  

DN TEK Inc.

      62       —         —         —         (56     —         6  

Daeyang F.M.S Corporation

      3       —         —         —         —         20       23  

Kwang Jin Structure Co., Ltd.

      31       —         —         —         —         —         31  

Woojin Industry Corporation

      16       —         —         —         —         —         16  

Kwang Sung Industry Co., Ltd.

      7       —         —         —         —         —         7  

Matsaeng Food Co., Ltd.

      6       —         —         —         —         (6     —    

Futech Mold Co., Ltd.

      14       —         —         —         —         —         14  

Samcheonri Industrial Co., Ltd.

      13       —         —         —         —         —         13  

Woojoo Environment Ind. Co., Ltd.

      13       —         —         —         —         —         13  

Cheongatti Co., Ltd.

      4       —         —         —         —         —         4  

Hyungji Esquire Co., Ltd.

      21       —         —         —         —         1       22  

Kolmar Pharma Co., Ltd.

      52       —         —         —         (49     —         3  

Morado Co., Ltd.

      2       —         —         —         —         —         2  

Myung Sung Tex Co., Ltd.

      2       —         —         —         —         —         2  

Kwang Sung Co., Ltd.

      —         —         —         —         —         31       31  

EverTechno. Co.,Ltd.

      —         —         —         —         (140     147       7  

Autowel Co.,Ltd.

      —         —         —         —         —         13       13  

Woobang Construction Co., Ltd.

      —         —         —         —         —         8       8  

Shin Pyung Co., Ltd.

      —         —         —         —         —         3       3  

JMC Heavy Industries Co., Ltd.

      —         —         —         —         —         27       27  

Najin Steel Co., Ltd.

      —         —         —         —         —         5       5  

Kunyang Food Co., Ltd.

      —         —         —         —         (1     1       —    

Sinkwang Industry Co., Ltd.

      —         —         —         —         —         5       5  

Join Land Co., Ltd.

      —         —         —         —         —         1       1  

Crystal Co., Ltd.

      —         —         —         —         —         2       2  

Elephant & Friends Co., Ltd.

      —         —         —         —         —         3       3  

Mireco Co., Ltd.

      —         —         —         —         —         11       11  

L&K Industry Co., Ltd.

      —         —         —         —         —         24       24  

JO Tech Co., Ltd.

      —         —         —         —         —         25       25  

Samwoo EMC Co., Ltd.

      —         —         —         —         (117     117       —    

Kendae Printing Co., Ltd.

      —         —         —         —         —         21       21  

Golden Tech Co., Ltd.

      —         —         —         —         (114     114       —    

Dauning Co., Ltd.

      —         —         —         —         —         6       6  

Korea Trecision Co., Ltd.

      —         —         —         —         —         5       5  

Buhmwoo Chemical Corp.

      —         —         —         —         (20     20       —    

Ace Track Co., Ltd.

      —         —         —         —         (160     219       59  

Taebok Machinery Co., Ltd.

      —         —         —         —         —         11       11  

Yooah Industry Co., Ltd.

      —         —         —         —         —         13       13  

Yoo-A Construction Co., Ltd.

      —         —         —         —         —         11       11  

Dung Hwan Co., Ltd.

      —         —         —         —         —         5       5  

Dongjin Metal Co., Ltd.

      —         —         —         —         (27     27       —    

Hurim Biocell Co., Ltd.

      —         —         —         —         —         5       5  

P. J, Trading Co., LTd.

      —         —         —         —         —         —         —    

Sunjin Power Tech Co., Ltd.

      —         —         —         —         (157     247       90  

Smart Power Co.,Ltd.

      —         200       —         —         —         —         200  

Sunjin Inprecision Co.,Ltd.

      —         —         —         —         (169     169       —    

Haseung Industries Co.,Ltd.

      —         —         —         —         —         28       28  

Beer Yeast Korea Inc.

      —         —         —         —         —         7       7  

Daeryung Corporation

      —         —         —         —         —         10       10  

Korea Bio Red Ginseng Co.,Ltd.

      —         —         —         —         —         10       10  

ESGI Co.,Ltd.

      —         —         —         —         (120     120       —    

 

F-57


Table of Contents
          2016  
          Beginning
balance
    Acquisition     Disposal     Valuation     Impairment     Others     Ending
balance
 
          In millions of won  

ENH Co.,Ltd.

      —         —         —         —         (55     55       —    

HS Development Co.,Ltd.

      —         —         —         —         —         54       54  

OCO Co.,Ltd.

      —         —         —         —         —         11       11  

B CON Co.,Ltd.

      —         —         —         —         —         6       6  

Doosun Co.,Ltd.

      —         —         —         —         (62     62       —    

CheonIl Metal Co., Ltd.

      —         —         —         —         —         4       4  

Teakwang Tech Co., Ltd.

      —         —         —         —         —         12       12  

SsangMa Machine Co., Ltd.

      —         —         —         —         —         1       1  

SinJin Co., Ltd.

      —         —         —         —         —         9       9  

Ace Integration Co., Ltd

      —         —         —         —         —         21       21  

AceInti Agricultural Co., Ltd.

      —         —         —         —         —         1       1  

KyungDong Co., Ltd.

      —         —         —         —         —         1       1  

ChunWon Development Co., Ltd.

      —         —         —         —         —         39       39  

WonIl Co., Ltd.

      —         —         —         —         —         50       50  

SungLim Industrial Co., Ltd.

      —         —         —         —         —         1       1  

DaeHa Co., Ltd.

      —         —         —         —         —         11       11  

Korea Minerals Co., Ltd.

      —         —         —         —         —         135       135  

HyoDong Development Co., Ltd.

      —         —         —         —         —         24       24  

Haspe Tech Co., Ltd.

      —         —         —         —         —         20       20  

JoHyun Co., Ltd.

      —         —         —         —         —         18       18  

KC Co., Ltd.

      —         —         —         —         —         3       3  

SeongJi Industrial Co.,Ltd.

      —         —         —         —         —         1       1  

SsangYong E&C Co., Ltd.(*1)

      —         —         (9     —         —         9       —    

Areva nc Expansion

      170,118       —         —         —         (69,927     (1,719     98,472  

Navanakorn Electric Co., Ltd.

      17,951       —         —         —         —         558       18,509  

PT. Kedap Saayq

      —         —         —         —         —         —         —    

Set Holding

      179,585       —         —         (9,415     —         —         170,170  

PT. Cirebon Energi Prasarana

      635       1,999       —         —         —         75       2,709  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
      387,900       449,484       (1,828     (12,346     (77,581     932       746,561  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
        584,479       449,484       (5,226     61,793       (86,703     10,905       1,014,732  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(*1) The Company recognized gain and loss on disposal of available-for-sale financial assets amounting to ₩1,482 million and ₩9 million, respectively, from the sales of shares of Kwanglim Co., Ltd., TONGYANG Inc., TONGYANG networks Inc., Nexolon Co., Ltd. and SsangYong E&C Co., Ltd. and from the partial sales of IBK-AUCTUS Green Growth Private Equity Firm, Hanwha-KOSEP New Renewable Energy Private Special Assets Investment Trust 1 and Korea investment—Hanwha KT Mater Lease Private Special Investment Trust for the year ended December 31, 2016.

 

F-58


Table of Contents
(2) Available-for-sale financial assets of December 31, 2015 and 2016 are as follows:

 

     2015  
     Shares      Ownership            Acquisition
cost
     Book
value
     Fair
value
 
     In millions of won  

Listed

                

Korea District Heating Corp.

     2,264,068        19.55          173,201        130,410        130,410  

Kwanglim Co., Ltd.

     84,515        0.44        386        262        262  

Ssangyong Motor Co., Ltd.

     38,568        0.03        428        299        299  

Sungjee Construction. Co., Ltd.

     1,053        0.01        49        5        5  

Korea Line Corp.

     18        0.00        1        —          —    

Namkwang Engineering & Construction Co., Ltd.

     232        0.00        15        1        1  

Pumyang Construction Co., Ltd.

     7        0.00        2        —          —    

ELCOMTEC Co., Ltd.

     32,875        0.04        217        53        53  

PAN ocean Co., Ltd.

     1,492        0.00        14        6        6  

Borneo International Furniture Co., Ltd.

     64,037        0.28        97        103        103  

TONGYANG Inc.

     78,511        0.03        45        217        217  

TONGYANG networks Inc.

     4,422        0.01        3        6        6  

Nexolon Co., Ltd.

     3,665,367        2.59        3,138        3,196        3,196  

PT Adaro Energy Tbk

     480,000,000        1.50        71,554        21,012        21,012  

Energy Fuels Inc.

     1,711,814        3.79        16,819        5,926        5,926  

Baralaba Coal Company Limited (formerly, Cockatoo Coal Limited)

     49,881,423        0.07        18,445        42        42  

Denison Mines Corp.

     58,284,000        11.24        84,134        34,457        34,457  

Fission 3.0

     300,000        0.17        —          30        30  

Fission Uranium Corp.

     800,000        0.21        785        554        554  
          

 

 

    

 

 

    

 

 

 
             369,333        196,579        196,579  
          

 

 

    

 

 

    

 

 

 

Unlisted(*1)

                

K&C—Gyeongnam youth job creation Investment Fund

     24        10.00        1,207        1,207        —    

Korea Investment—Korea EXIM Bank CERs Private Special Asset Investment Trust I

     1,758,731,002        14.18        1,752        571        —    

Troika Overseas Resource Development Private Equity Firm

     13,340,012,100        3.66        13,340        1,553        —    

IBK-AUCTUS Green Growth Private Equity firm

     233        6.30        855        855        —    

Global Dynasty Overseas Resource Development Private Equity Firm

     2,233,407,439        7.46        2,233        2,233        —    

Intellectual Discovery, Ltd.

     1,000,000        8.81        5,000        1,375        —    

Hanwha-KOSEP New Renewable Energy Private Special Assets Investment Trust 1

     1,069,432,095        5.00        1,069        1,069        —    

Construction Guarantee(*2)

     571        0.02        601        805        805  

Plant & Mechanical Contractors Financial Cooperative of Korea

     50        0.01        36        36        —    

Fire Guarantee

     40        0.02        20        20        —    

Korea Software Financial Cooperative

     301        0.15        301        301        —    

Engineering Financial Cooperative

     528        0.10        60        60        —    

Electric Contractors Financial Cooperative

     800        0.03        152        152        —    

Korea Specialty Contractor Financial Cooperative

     476        0.01        417        417        —    

Information & Communication Financial Cooperative

     70        0.01        10        10        —    

Korea Electric Engineers Association

     400        0.26        40        40        —    

 

F-59


Table of Contents
     2015  
     Shares      Ownership            Acquisition
cost
     Book
value
     Fair
value
 
     In millions of won  

Hwan Young Steel Co., Ltd.

     10,916        0.14          1,092        97        —    

Woobang ENC Co., Ltd

     14        0.00        22        22        —    

Dongnam Co., Ltd.

     2,070        0.46        72        72        —    

SAMBO AUTO. Co., Ltd.

     15,066        0.02        38        38        —    

Mobo Co., Ltd.

     504        0.00        14        14        —    

Poonglim Industrial Co., Ltd.

     1,915        0.01        93        93        —    

HANKOOK Silicon Co., Ltd.

     7,513,022        10.44        7,513        7,513        —    

Kun Young Engineering & Construction Co., Ltd.

     100        0.00        5        5        —    

Pumyang Asset Management Co., Ltd.

     13        0.00        3        3        —    

Dae Kwang Semiconductor Co., Ltd.

     589        0.07        6        6        —    

Sanbon Department Store

     828        0.01        124        3        —    

Woori Ascon Co., Ltd.

     25        0.34        10        10        —    

Miju Steel Mfg. Co., Ltd.

     99,804        0.23        51        51        —    

BnB Sungwon Co., Ltd.

     589        0.07        15        15        —    

Hana Civil Engineering Co., Ltd.

     23        0.00        1        1        —    

KC Development Co., Ltd.

     839        0.02        6        6        —    

IMHWA Corp.

     329        0.11        5        5        —    

IXELON Co., Ltd.

     2,292        0.02        23        —          —    

DAIM Special Vehicle Co., Ltd.

     58        0.08        10        10        —    

ASA KIMJE Co., Ltd.

     23,245        1.11        465        —          —    

ASA JEONJU Co., Ltd.

     34,846        1.34        697        69        —    

KYUNGWON Co., Ltd.

     2,812        0.17        14        14        —    

Moonkyung Silica Co., Ltd.

     42        0.56        —          —          —    

Yousung Remicon Co., Ltd.

     8        0.26        4        4        —    

Sungkwang Timber Co., Ltd.

     9        0.34        4        4        —    

Yongbo Co., Ltd.

     61        0.20        3        3        —    

HJ Steel Co., Ltd.

     218        0.07        2        2        —    

Ildong Air Conditioning Co., Ltd.

     218        0.16        3        —          —    

KS Remicon Co., Ltd.

     12        0.04        3        3        —    

Sewoong Heavy Industries Co., Ltd.

     7,931        0.10        40        40        —    

SIN-E Steel Co., Ltd.

     109        0.08        33        33        —    

Joongang Platec Co., Ltd.

     3,591        0.75        72        72        —    

Hangjin Steel Co., Ltd.

     116        1.08        116        —          —    

Pyungsan SI Ltd.

     434        0.01        9        9        —    

Samgong Development Co., Ltd.

     12        0.01        7        7        —    

Joongang Development Co., Ltd.

     540        0.12        8        8        —    

AJS Co., Ltd.

     12,906        0.23        32        32        —    

SHIN-E B&P Co., Ltd.

     119        0.13        10        10        —    

MSE Co., Ltd.

     429        0.13        9        9        —    

Ilrim Nano Tec Co., Ltd.

     1,520        0.07        15        15        —    

Kwang Myeong Electronics Technology Co., Ltd.

     113        0.37        11        11        —    

Youngjin Hi-Tech Co., Ltd.

     2,512        0.25        126        21        —    

Dong Woo International Co., Ltd.

     90        0.37        18        18        —    

Bench Mark Construction Co., Ltd.

     2        0.00        —          —          —    

Buyoung Co., Ltd.

     270        0.00        3        3        —    

Ilsuk Co., Ltd.

     152        0.17        10        10        —    

Dongyang Telecom Co., Ltd.

     1,760        0.01        11        11        —    

Han Young Construction Co., Ltd.

     35        0.03        3        3        —    

Jongwon Remicon Co., Ltd.

     31        0.18        13        13        —    

Ace Heat Treating Co., Ltd.

     477        1.43        72        72        —    

Zyle Daewoo Motor Sales Co., Ltd.

     22        0.00        —          —          —    

Daewoo Development Co., Ltd.

     8        0.00        —          —          —    

Daewoo Songdo Development Co., Ltd.

     301        0.00        2        —          —    

 

F-60


Table of Contents
     2015  
     Shares      Ownership            Acquisition
cost
     Book
value
     Fair
value
 
     In millions of won  

Seyang Inc.

     537        0.05%            27        27        —    

Seungri Enterprise Co., Ltd.

     93        0.05%          3        3        —    

Onggane Food Co., Ltd

     5        0.07%          1        1        —    

Shin-E P&C Co., Ltd.

     12        0.00%          1        1        —    

Montista Telecom Co., Ltd.

     5,409        0.00%          3        —          —    

Ejung Ad Co., Ltd.

     132        0.09%          3        3        —    

Solvus Co., Ltd.

     1,056        0.04%          3        3        —    

Myung Co., Ltd.

     89        0.05%          2        2        —    

Emotion Co., Ltd.

     167        0.61%          8        8        —    

Youngdong Concrete Co., Ltd.

     32        0.32%          7        7        —    

Shinil Engineering Co., Ltd.

     887        0.06%          3        3        —    

Korea Castiron Industrial Co., Ltd.

     617        1.86%          22        22        —    

FFG DMC Co., Ltd.

     12        0.00%          17        17        —    

Daeseong Metal Co., Ltd.

     518        2.37%          47        47        —    

Biwang Industry Co., Ltd

     406        0.04%          2        2        —    

Huimun Co., Ltd.

     263        0.26%          4        4        —    

Sunun IT F Co., Ltd.

     133        0.52%          8        8        —    

Young Sung Co., Ltd.

     89        0.40%          27        27        —    

Yuil Industrial Electronics Co., Ltd.

     804        0.32%          16        16        —    

DN TEK Inc.

     12,401        0.29%          62        62        —    

Daeyang F.M.S Corporation

     84        0.05%          3        3        —    

Kwang Jin Structure Co., Ltd.

     3,072        0.60%          31        31        —    

Woojin Industry Corporation

     3        0.00%          16        16        —    

Kwang Sung Industry Co., Ltd.

     325        0.35%          7        7        —    

Matsaeng Food Co., Ltd.

     277        0.56%          6        6        —    

Futech Mold Co., Ltd.

     274        0.27%          14        14        —    

Samcheonri Industrial Co., Ltd.

     533        0.98%          13        13        —    

Woojoo Environment Ind. Co., Ltd.

     101        0.11%          13        13        —    

Cheongatti Co., Ltd.

     57        0.10%          4        4        —    

Hyungji Esquire Co., Ltd.

     52        0.02%          21        21        —    

Kolmar Pharma Co., Ltd.

     1,426        0.01%          52        52        —    

Morado Co., Ltd.

     209        0.04%          2        2        —    

Myung Sung Tex Co., Ltd.

     20        0.00%          2        2        —    

Areva nc Expansion

     1,077,124        13.49%          288,443        170,118        —    

Navanakorn Electric Co., Ltd.(*3)

     4,442,800        29.00%          17,216        17,951        —    

PT. Kedap Saayq

     671        10.00%          18,540        —          —    

Set Holding(*4)

     1,100,220        2.50%          229,255        179,585        179,585  

PT. Cirebon Energi Prasarana

     420        10.00%          635        635        —    
          

 

 

    

 

 

    

 

 

 
             592,550        387,900        180,390  
          

 

 

    

 

 

    

 

 

 
               961,883        584,479        376,969  
          

 

 

    

 

 

    

 

 

 

 

(*1) Book values of unlisted equity securities held by the Company for which a quoted market price does not exist in an active market and fair value cannot be measured reliably were measured at cost.

 

(*2) The Company has estimated the fair value of the investment in Construction Guarantee based upon the price which would be applied when the investment is returned. The Company has recognized the difference between its fair value and book value as a gain or loss on valuation of available-for-sale financial assets in other comprehensive income or loss during the year ended December 31, 2015.

 

(*3) Although the Company holds more than 20% of the equity shares of these investments, the Company cannot exercise significant influence.

 

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Table of Contents
(*4) The Company has estimated the fair value of Set Holding by using the discounted cash flow method and has recognized the difference between its fair value and book value as gain or loss on valuation of available-for-sale financial assets in other comprehensive income or loss during the year ended December 31, 2015.

 

    2016  
    Shares     Ownership           Acquisition cost     Book value     Fair value  
    In millions of won  

Listed

           

Korea District Heating Corp.

    2,264,068       19.55         173,201       154,183       154,183  

Ssangyong Motor Co., Ltd.

    38,568       0.03       428       304       304  

Sungjee Construction. Co., Ltd.

    10,530       0.01       49       21       21  

Korea Line Corp.

    18       0.00       1       —         —    

Namkwang Engineering & Construction
Co., Ltd.

    46       0.00       15       —         —    

Pumyang Construction Co., Ltd.

    7       0.00       2       —         —    

ELCOMTEC Co., Ltd.

    32,875       0.04       217       74       74  

PAN ocean Co., Ltd.

    1,492       0.00       14       7       7  

Borneo International Furniture Co., Ltd.

    64,037       0.28       97       103       103  

Dongbu Corporation,

    1,229       0.02       12       12       12  

PT Adaro Energy Tbk

    480,000,000       1.50       71,554       73,061       73,061  

Energy Fuels Inc.

    1,711,814       2.59       16,819       3,385       3,385  

Baralaba Coal Company Limited (formerly, Cockatoo Coal Limited)(*6)

    99,763       0.07       18,445       42       42  

Denison Mines Corp.

    58,284,000       10.93       84,134       36,504       36,504  

Fission 3.0

    300,000       0.17       —         16       16  

Fission Uranium Corp.

    800,000       0.17       785       459       459  
       

 

 

   

 

 

   

 

 

 
          365,773       268,171       268,171  
       

 

 

   

 

 

   

 

 

 

Unlisted (*1)

           

K&C—Gyeongnam youth job creation Investment Fund

    24       10.00       1,207       1,207       —    

Korea investment – Korea EXIM Bank CERs Private Special Asset Investment Trust I

    1,758,731,002       14.18       1,752       571       —    

Troika Overseas Resource Development Private Equity Firm

    13,340,012,100       3.66       13,340       1,553       —    

IBK-AUCTUS Green Growth Private Equity firm

    152       6.29       41       41       —    

Global Dynasty Overseas Resource Development Private Equity Firm

    2,233,407,439       7.46       2,233       2,233       —    

Intellectual Discovery, Ltd.

    1,000,000       8.81       5,000       1,375       —    

Hanwha-KOSEP New Renewable Energy Private Special Assets Investment Trust 1

    4,256,096,329       5.00       4,389       4,389       —    

Construction Guarantee(*2)

    571       0.02       601       819       819  

Plant & Mechanical Contractors Financial Cooperative of Korea

    50       0.01       36       36       —    

Fire Guarantee

    40       0.02       20       20       —    

Korea Software Financial Cooperative

    5,186       1.39       3,301       3,301       —    

Engineering Financial Cooperative

    486       0.05       60       60       —    

Electric Contractors Financial Cooperative

    800       0.03       152       152       —    

Korea Specialty Contractor Financial Cooperative

    476       0.01       417       417       —    

Information & Communication Financial Cooperative

    70       0.01       10       10       —    

Korea Electric Engineers Association

    400       0.24       40       40       —    

 

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Table of Contents
    2016  
    Shares     Ownership           Acquisition cost     Book value     Fair value  
    In millions of won  

Korea investment—Investment Pool for Public
funds 10(*5)

    —         —             142,470       141,315       141,315  

Samsung investment—Investment Pool for Public funds 2(*5)

    —         —           213,710       211,920       211,920  

Samsung investment—Investment Pool for Public funds 1(*5)

    —         —           53,220       53,212       53,212  

Korea investment—Hanwha KT Mater Lease Private Special Investment Trust (*5)

    —         —           30,560       30,568       30,568  

Hwan Young Steel Co., Ltd.

    10,916       0.14       1,092       97       —    

SAMBO AUTO. Co., Ltd.

    15,066       0.02       38       38       —    

Mobo Co., Ltd.

    504       0.00       14       14       —    

HANKOOK Silicon Co., Ltd.

    3,005,208       10.44       7,513       1,495       —    

Dae Kwang Semiconductor Co., Ltd.

    589       0.07       6       6       —    

Sanbon Department Store

    828       0.01       124       3       —    

Miju Steel Mfg. Co., Ltd.

    99,804       0.23       51       51       —    

BnB Sungwon Co., Ltd.

    589       0.07       15       15       —    

Hana Civil Engineering Co., Ltd.

    23       0.00       1       1       —    

KC Development Co., Ltd.

    839       0.02       6       6       —    

IMHWA Corp.

    329       0.11       5       5       —    

DALIM Special Vehicle Co., Ltd.

    58       0.08       10       10       —    

ASA JEONJU Co., Ltd.

    34,846       1.34       697       69       —    

Moonkyung Silica Co., Ltd.

    42       0.56       —         —         —    

Sungkwang Timber Co., Ltd.

    9       0.34       4       4       —    

Yongbo Co., Ltd.

    61       0.20       3       3       —    

HJ Steel Co., Ltd.

    218       0.07       2       2       —    

KS Remicon Co., Ltd.

    12       0.04       3       3       —    

SIN-E Steel Co., Ltd.

    109       0.08       33       33       —    

Joongang Platec Co., Ltd.

    3,591       0.75       72       35       —    

Pyungsan SI Ltd.

    434       0.01       9       9       —    

Samgong Development Co., Ltd.

    12       0.01       7       7       —    

Joongang Development Co., Ltd.

    540       0.12       8       8       —    

AJS Co., Ltd.

    12,906       0.23       32       32       —    

SHIN-E B&P Co., Ltd.

    119       0.13       10       10       —    

MSE Co., Ltd.

    429       0.13       9       9       —    

Ilrim Nano Tec Co., Ltd.

    1,520       0.07       15       15       —    

Youngjin Hi-Tech Co., Ltd.

    2,512       0.25       126       21       —    

Dong Woo International Co., Ltd.

    90       0.37       18       18       —    

Buyoung Co., Ltd.

    270       0.00       3       3       —    

Ilsuk Co., Ltd.

    152       0.17       10       10       —    

Dongyang Telecom Co., Ltd.

    1,760       0.01       11       11       —    

Han Young Construction Co., Ltd.

    35       0.03       3       3       —    

Jongwon Remicon Co., Ltd.

    31       0.18       13       13       —    

Ace Heat Treating Co., Ltd.

    477       1.43       72       72       —    

Zyle Daewoo Motor Sales Co., Ltd.

    22       0.00       —         —         —    

Daewoo Development Co., Ltd.

    8       0.00       —         —         —    

Seyang Inc.

    537       0.05       27       27       —    

Seungri Enterprise Co., Ltd.

    93       0.05       3       3       —    

Onggane Food Co., Ltd

    5       0.07       1       1       —    

Shin-E P&C Co., Ltd.

    12       0.00       1       1       —    

Ejung Ad Co., Ltd.

    132       0.09       3       3       —    

Solvus Co., Ltd.

    1,056       0.04       3       3       —    

Myung Co., Ltd.

    89       0.05       2       2       —    

Emotion Co., Ltd.

    167       0.61       8       8       —    

 

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Table of Contents
    2016  
    Shares     Ownership           Acquisition cost     Book value     Fair value  
    In millions of won  

Youngdong Concrete Co., Ltd.

    32       0.32         7       7       —    

Shinil Engineering Co., Ltd.

    887       0.06       3       3       —    

Biwang Industry Co., Ltd

    406       0.04       2       2       —    

Huimun Co., Ltd.

    263       0.26       4       4       —    

Young Sung Co., Ltd.

    89       0.40       27       27       —    

Yuil Industrial Electronics Co., Ltd.

    804       0.32       16       16       —    

DN TEK Inc.

    12,401       0.29       62       6       —    

Daeyang F.M.S Corporation

    593       0.40       23       23       —    

Kwang Jin Structure Co., Ltd.

    3,072       0.60       31       31       —    

Woojin Industry Corporation

    3       0.00       16       16       —    

Kwang Sung Industry Co., Ltd.

    325       0.35       7       7       —    

Futech Mold Co., Ltd.

    274       0.27       14       14       —    

Samcheonri Industrial Co., Ltd.

    533       0.98       13       13       —    

Woojoo Environment Ind. Co., Ltd.

    101       0.11       13       13       —    

Cheongatti Co., Ltd.

    57       0.10       4       4       —    

Hyungji Esquire Co., Ltd.

    55       0.02       22       22       —    

Kolmar Pharma Co., Ltd.

    1,426       0.01       52       3       —    

Morado Co., Ltd.

    209       0.04       2       2       —    

Myung Sung Tex Co., Ltd.

    20       0.00       2       2       —    

Kwang Sung Co., Ltd.

    610       0.53       31       31       —    

EverTechno. Co.,Ltd.

    29,424       0.73       147       7       —    

Autowel Co.,Ltd.

    260       0.38       13       13       —    

Woobang Construction Co., Ltd.

    8       0.00       8       8       —    

Shin Pyung Co., Ltd.

    6       0.03       3       3       —    

JMC Heavy Industries Co., Ltd.

    2,724       0.10       27       27       —    

Najin Steel Co., Ltd.

    37       0.06       5       5       —    

Sinkwang Industry Co., Ltd.

    1,091       1.68       5       5       —    

Join Land Co., Ltd.

    33       0.00       1       1       —    

Crystal Co., Ltd.

    22       0.07       2       2       —    

Elephant & Friends Co., Ltd.

    563       0.61       3       3       —    

Mireco Co., Ltd.

    109       0.25       11       11       —    

L&K Industry Co., Ltd.

    1,615       0.60       24       24       —    

JO Tech Co., Ltd.

    1,263       0.62       25       25       —    

Kendae Printing Co., Ltd.

    422       0.60       21       21       —    

Dauning Co., Ltd.

    231       0.41       6       6       —    

Korea Trecision Co., Ltd.

    22       0.45       5       5       —    

Ace Track Co., Ltd.

    3,130       1.08       219       59       —    

Taebok Machinery Co., Ltd.

    109       1.08       11       11       —    

Yooah Industry Co., Ltd.

    130       0.02       13       13       —    

Yoo-A Construction Co., Ltd.

    105       0.20       11       11       —    

Dung Hwan Co., Ltd.

    531       0.02       5       5       —    

Hurim Biocell Co., Ltd.

    113       0.00       5       5       —    

P. J, Trading Co., Ltd.

    12       0.04       —         —         —    

Sunjin Power Tech Co., Ltd.

    4,941       0.92       247       90       —    

Smart Power Co.,Ltd.

    133,333       5.55       200       200       —    

Haseung Industries Co.,Ltd.

    55       0.62       28       28       —    

Beer Yeast Korea Inc.

    1,388       0.43       7       7       —    

Daeryung Corporation

    207       0.19       10       10       —    

Korea Bio Red Ginseng Co.,Ltd.

    194       0.09       10       10       —    

ENH Co.,Ltd.

    1,086       0.19       54       54       —    

OCO Co.,Ltd.

    123       0.37       11       11       —    

B CON Co.,Ltd.

    96       1.16       6       6       —    

Teakwang Tech Co., Ltd.

    11       0.15       4       4       —    

 

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Table of Contents
    2016  
    Shares     Ownership           Acquisition cost     Book value     Fair value  
    In millions of won  

SsangMa Machine Co., Ltd.

    2,460       0.11           12       12       —    

SinJin Co., Ltd.

    4       0.05       1       1       —    

Ace Integration Co., Ltd

    233       0.30       9       9       —    

AceInti Agricultural Co., Ltd.

    93       0.09       21       21       —    

Teakwang Tech Co., Ltd.

    3       0.00       1       1       —    

KyungDong Co., Ltd.

    130       0.01       1       1       —    

ChunWon Development Co., Ltd.

    193       0.19       39       39       —    

WonIl Co., Ltd.

    999       0.15       50       50       —    

SungLim Industrial Co., Ltd.

    29       0.03       1       1       —    

DaeHa Co., Ltd.

    141       0.54       11       11       —    

Korea Minerals Co., Ltd.

    191       0.05       135       135       —    

HyoDong Development Co., Ltd.

    119       0.15       24       24       —    

Haspe Tech Co., Ltd.

    652       0.55       20       20       —    

JoHyun Co., Ltd.

    350       1.56       18       18       —    

KC Co., Ltd.

    5,107       0.17       3       3       —    

SeongJi Industrial Co.,Ltd.

    41       0.05       1       1       —    

Areva nc Expansion

    1,077,124       13.49       288,443       98,472       98,472  

Navanakorn Electric Co., Ltd.(*3)

    8,885,600       26.93       17,216       18,509       —    

PT. Kedap Saayq

    671       10.00       18,540       —         —    

Set Holding(*4)

    1,100,220       2.50       229,255       170,170       170,170  

PT. Cirebon Energi Prasarana

    22,420       10.00       2,612       2,709       —    
       

 

 

   

 

 

   

 

 

 
          1,040,553       746,561       706,476  
       

 

 

   

 

 

   

 

 

 
              1,406,326       1,014,732       974,647  
       

 

 

   

 

 

   

 

 

 

 

(*1) Book values of unlisted equity securities held by the Company for which a quoted market price does not exist in an active market and fair value cannot be measured reliably were measured at cost.

 

(*2) The Company has estimated the fair value of the investment in Construction Guarantee based upon the price which would be applied when the investment is returned. The Company has recognized the difference between its fair value and book value as a gain or loss on valuation of available-for-sale financial assets in other comprehensive income or loss during the year ended December 31, 2016.

 

(*3) Although the Company holds more than 20% of the equity shares of these investments, the Company cannot exercise significant influence.

 

(*4) The Company has estimated the fair value of Set Holding by using the discounted cash flow method and has recognized the difference between its fair value and book value as gain or loss on valuation of available-for-sale financial assets in other comprehensive income or loss during the year ended December 31, 2016.

 

(*5) As of December 31, 2016, the Company invested in ₩437,015 million as beneficiary securities exclusively for payment of decommissioning cost of nuclear power plants. The Company has measured the fair value of the beneficiary securities based on its net asset value.

 

(*6) The number of shares has changed due to the merger of shares (500:1) during the year ended December 31, 2016.

 

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Table of Contents
10. Held-to-maturity Investments

Held-to-maturity investments as of December 31, 2015 and 2016 are as follows:

 

            2015  
            Beginning balance      Acquisition      Disposal     Others     Ending balance  
            In millions of won  

Government bonds

          3,601        432        (410     —         3,623  

Corporate bonds

        13        —          —         (13     —    
     

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 
          3,614        432        (410     (13     3,623  
     

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Current

          265        —          (186     301       380  

Non-current

        3,349        432        (224     (314     3,243  

 

            2016  
            Beginning balance      Acquisition      Disposal     Others     Ending balance  
            In millions of won  

Government bonds

          3,623        149        (528     —         3,244  
     

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 
          3,623        149        (528     —         3,244  
     

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Current

          380        —          (380     114       114  

Non-current

        3,243        149        (148     (114     3,130  

 

11. Derivatives

 

(1) Derivatives as of December 31, 2015 and 2016 are as follows:

 

          2015      2016  
          Current      Non-current      Current      Non-current  
          In millions of won  

Derivative assets

            

Currency forward

        1,498        24,896        8,370        32,806  

Currency swap

      95,759        491,219        184,913        540,057  

Interest rate swap

      —          3,778        —          4,705  

Others(*1)

      —          —          —          10,523  
   

 

 

    

 

 

    

 

 

    

 

 

 
        97,257        519,893        193,283        588,091  
   

 

 

    

 

 

    

 

 

    

 

 

 

Derivative liabilities

            

Currency forward

        1,142        —          1,153        34  

Currency swap

      758        66,976        —          56,612  

Interest rate swap

      8,345        89,289        2,098        78,789  
   

 

 

    

 

 

    

 

 

    

 

 

 
        10,245        156,265        3,251        135,435  
   

 

 

    

 

 

    

 

 

    

 

 

 

 

  (*1) The Company has a put option to sell shares of DS POWER Co., Ltd, a related party of the Company, and the fair value of the option is recorded in ‘Others’. (Note 17)

 

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Table of Contents
(2) Currency forward contracts which are not designated as hedge instruments as of December 31, 2016 are as follows:

 

Counterparty

   Contract
Date
     Maturity
date
  Contract amounts      Contract
exchange rate
 
        Pay      Receive     
     In millions of won and thousands of foreign currencies  

KEB Hana Bank

     2014.04.10      2021.07.12            55,120        USD 52,000        1,060.00  

KEB Hana Bank

     2014.04.28      2021.07.12        50,784        USD 48,000        1,058.00  

Bank of America

     2014.04.29      2021.07.12        105,400        USD 100,000        1,054.00  

KEB Hana Bank

     2014.05.09      2021.07.12        104,600        USD 100,000        1,046.00  

JP Morgan

     2016.12.09      2017.01.09        35,215        USD 30,219        1,165.31  

Woori Bank

     2016.12.08      2017.01.09        59,657        USD 51,411        1,160.40  

Standard Chartered

     2016.12.06      2017.01.03        11,712        USD 10,000        1,171.20  

Nova Scotia

     2016.12.08      2017.01.09        11,590        USD 10,000        1,159.00  

BNP Paribas

     2016.12.13      2017.01.17        2,681        USD 2,300        1,165.65  

BNP Paribas

     2016.12.14      2017.01.17        4,673        USD 4,000        1,168.20  

BTMU

     2016.12.08      2017.01.12        11,594        USD 10,000        1,159.40  

BTMU

     2016.12.12      2017.01.17        11,704        USD 10,000        1,170.40  

BTMU

     2016.12.14      2017.01.17        2,330        USD 2,000        1,165.10  

Mizuho Bank

     2016.12.08      2017.01.12        11,594        USD 10,000        1,159.35  

Nonghyup Bank

     2016.12.12      2017.01.17        5,852        USD 5,000        1,170.40  

Societe Generale

     2016.12.12      2017.01.17        3,979        USD 3,400        1,170.40  

Societe Generale

     2016.12.15      2017.01.19        14,160        USD 12,000        1,180.00  

Societe Generale

     2016.12.28      2017.01.31        8,212        USD 6,800        1,207.60  

BNP Paribas

     2016.11.22      2017.01.25        2,351        USD 2,000        1,175.40  

BNP Paribas

     2016.11.25      2017.01.31        2,353        USD 2,000        1,176.40  

Citibank

     2016.11.25      2017.01.31        1,029        USD 874        1,177.85  

Mizuho Bank

     2016.12.30      2017.03.03        9,596        USD 8,000        1,199.45  

HSBC

     2016.11.18      2017.05.22        4,717        USD 4,000        1,179.35  

HSBC

     2016.11.22      2017.01.25        7,046        USD 6,000        1,174.32  

HSBC

     2016.12.07      2017.02.09        4,669        USD 4,000        1,167.15  

HSBC

     2016.12.15      2017.01.25        USD 2,489        2,923        1,174.32  

HSBC

     2016.12.28      2017.02.09        USD 3,424        3,997        1,167.15  

HSBC

     2016.12.29      2017.01.25        USD 2,693        3,162        1,174.32  

HSBC

     2016.12.30      2017.03.03        3,605        USD 3,000        1,201.55  

HSBC

     2016.12.30      2017.03.03        8,396        USD 7,000        1,199.45  

Standard Chartered

     2016.12.13      2017.02.15        871        USD 748        1,163.60  

Nova Scotia

     2016.11.22      2017.01.23        7,080        USD 6,000        1,180.03  

Nova Scotia

     2016.11.24      2017.01.31        3,004        USD 2,540        1,182.55  

Nova Scotia

     2016.12.26      2017.02.28        2,397        USD 2,000        1,198.70  

Nova Scotia

     2016.12.30      2017.03.03        6,017        USD 5,000        1,203.30  

Nova Scotia

     2016.12.30      2017.03.03        9,597        USD 8,000        1,199.60  

Nonghyup Bank

     2016.11.22      2017.01.25        2,446        USD 2,083        1,174.73  

Nonghyup Bank

     2016.12.27      2017.02.28        2,410        USD 2,000        1,205.20  

Credit Agricole

     2016.11.21      2017.01.23        1,182        USD 1,000        1,181.55  

Credit Agricole

     2016.12.26      2017.02.28        2,397        USD 2,000        1,198.25  

Societe Generale

     2016.11.22      2017.01.25        2,352        USD 2,000        1,175.90  

Societe Generale

     2016.11.30      2017.02.02        1,167        USD 1,000        1,166.70  

Societe Generale

     2016.12.29      2017.02.02        USD 913        1,065        1,166.70  

Societe Generale

     2016.12.06      2017.02.08        1,168        USD 1,000        1,167.65  

Societe Generale

     2016.12.23      2017.02.27        4,807        USD 4,000        1,201.78  

Mizuho Bank

     2016.12.12      2017.01.10        19,887        USD 17,000        1,169.83  

Credit Agricole

     2016.12.19      2017.01.13        8,302        USD 7,000        1,186.05  

Standard Chartered

     2016.12.15      2017.01.13        16,503        USD 14,000        1,178.76  

KEB Hana Bank

     2016.12.29      2017.01.05        341        EUR 270        1,262.26  

KEB Hana Bank

     2016.08.26      2017.02.16        4,812        EUR 3,800        1,266.30  

 

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Counterparty

   Contract
Date
     Maturity
date
  Contract amounts      Contract
exchange rate
 
        Pay      Receive     
     In millions of won and thousands of foreign currencies  

KEB Hana Bank

     2016.09.07      2017.09.06          3,121        EUR 2,500        1,248.20  

KEB Hana Bank

     2016.08.26      2017.08.09        1,280        CNY 7,800        164.13  

KEB Hana Bank

     2016.09.07      2017.09.06        834        CNY 5,200        160.48  

Societe Generale

     2016.12.14      2017.06.16        2,245        USD 1,929        1,163.90  

Nova Scotia

     2016.12.13      2017.06.15        2,328        USD 2,000        1,164.20  

Nomura

     2016.12.07      2017.06.12        1,000        USD 858        1,165.10  

Nova Scotia

     2016.11.16      2017.05.18        23        USD 20        1,166.50  

Societe Generale

     2016.11.30      2017.06.02        771        USD 661        1,166.70  

Nova Scotia

     2016.12.07      2017.06.09        737        USD 631        1,167.70  

Nomura

     2016.12.01      2017.06.05        5,839        USD 5,000        1,167.80  

Credit Suisse

     2016.11.29      2017.06.01        5,840        USD 5,000        1,167.90  

Nova Scotia

     2016.12.07      2017.06.09        3,505        USD 3,000        1,168.20  

Societe Generale

     2016.11.28      2017.05.31        2,047        USD 1,751        1,168.50  

BNP Paribas

     2016.12.29      2017.07.03        4,241        USD 3,513        1,207.40  

Nova Scotia

     2016.12.15      2017.03.20        USD 15,000        17,678        1,178.50  

Nova Scotia

     2016.12.16      2017.03.20        USD 3,000        3,552        1,184.00  

Nova Scotia

     2016.12.20      2017.03.22        USD 3,000        3,571        1,190.40  

Nova Scotia

     2016.12.23      2017.03.27        USD 3,000        3,606        1,202.00  

KEB Hana Bank

     2015.08.26      2017.07.31        JPY 630,000        6,377        10.12  

BNP Paribas

     2015.02.12      2017.01.10        IDR 6,567,882        USD 486        13,525.00  

BNP Paribas

     2015.02.12      2017.02.10        IDR 6,567,882        USD 486        13,525.00  

BNP Paribas

     2015.02.12      2017.03.10        IDR 6,567,882        USD 486        13,525.00  

BNP Paribas

     2015.02.12      2017.04.10        IDR 6,567,882        USD 486        13,525.00  

BNP Paribas

     2015.02.12      2017.05.10        IDR 6,567,882        USD 486        13,525.00  

BNP Paribas

     2015.02.12      2017.06.12        IDR 6,567,882        USD 486        13,525.00  

BNP Paribas

     2015.02.12      2017.07.10        IDR 6,567,882        USD 486        13,525.00  

BNP Paribas

     2015.02.12      2017.08.10        IDR 2,889,868        USD 214        13,525.00  

 

(3) Currency swap contracts which are not designated as hedge instruments as of December 31, 2016 are as follows:

 

Counterparty

   Contract year           Contract amount      Contract interest rate   Contract
exchange rate
 
           Pay      Receive      Pay   Receive  
     In millions of won and thousands of foreign currencies  

Deutsche Bank

     2013~2018           110,412        JPY 10,000,000      6.21%   4.19%     11.04  

IBK

     2013~2018         111,800        USD 100,000      3.16%   2.79%     1,118.00  

Bank of America

     2013~2018         103,580        JPY 10,000,000      7.05%   4.19%     10.36  

Credit Suisse

     2014~2019         118,632        CHF 100,000      2.98%   1.50%     1,186.32  

Standard Chartered

     2014~2019         114,903        CHF 100,000      4.00%   1.50%     1,149.03  

Standard Chartered

     2014~2029         102,470        USD 100,000      3.14%   3.57%     1,024.70  

Standard Chartered

     2014~2017         51,215        USD 50,000      2.24%   3M Libor + 0.55%     1,024.30  

Mizuho Bank

     2014~2017         153,645        USD 150,000      2.35%   3M Libor + 0.65%     1,024.30  

Societe Generale

     2014~2024         105,017        USD 100,000      4.92%   5.13%     1,050.17  

KEB Hana Bank

     2015~2024         107,970        USD 100,000      4.75%   5.13%     1,079.70  

Credit Agricole

     2015~2024         94,219        USD 86,920      4.85%   5.13%     1,083.97  

Citibank

     2012~2022         112,930        USD 100,000      2.79%   3.00%     1,129.30  

JP Morgan

     2012~2022         112,930        USD 100,000      2.79%   3.00%     1,129.30  

Bank of America

     2012~2022         112,930        USD 100,000      2.79%   3.00%     1,129.30  

Shinhan Bank

     2016~2022         112,930        USD 100,000      2.79%   3.00%     1,129.30  

HSBC

     2012~2022         111,770        USD 100,000      2.89%   3.00%     1,117.70  

KEB Hana Bank

     2012~2022         111,770        USD 100,000      2.87%   3.00%     1,117.70  

Standard Chartered

     2012~2022         111,770        USD 100,000      2.89%   3.00%     1,117.70  

Deutsche Bank

     2012~2022         55,885        USD 50,000      2.79%   3.00%     1,117.70  

 

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Table of Contents

Counterparty

   Contract year           Contract amount      Contract interest rate   Contract
exchange rate
 
           Pay      Receive      Pay   Receive  
     In millions of won and thousands of foreign currencies  

DBS

     2013~2018           108,140        USD 100,000      2.63%   3M Libor+0.84%     1,081.40  

DBS

     2013~2018         108,140        USD 100,000      2.57%   3M Libor+0.84%     1,081.40  

DBS

     2013~2018         108,140        USD 100,000      2.57%   3M Libor+0.84%     1,081.40  

HSBC

     2013~2018         107,450        USD 100,000      3.41%   2.88%     1,074.50  

Standard Chartered

     2013~2018         107,450        USD 100,000      3.44%   2.88%     1,074.50  

JP Morgan

     2013~2018         107,450        USD 100,000      3.48%   2.88%     1,074.50  

Bank of America

     2014~2018         107,450        USD 100,000      3.09%   2.88%     1,074.50  

Citibank

     2014~2018         107,450        USD 100,000      3.09%   2.88%     1,074.50  

JP Morgan

     2014~2017         102,670        USD 100,000      2.89%   3M Libor+0.78%     1,026.70  

Deutsche Bank

     2014~2017         102,670        USD 100,000      2.89%   3M Libor+0.78%     1,026.70  

HSBC

     2014~2019         105,260        USD 100,000      2.48%   2.38%     1,052.60  

Standard Chartered

     2014~2019         105,260        USD 100,000      2.48%   2.38%     1,052.60  

Korea Development Bank

     2016~2019         105,260        USD 100,000      2.48%   2.38%     1,052.60  

Nomura

     2015~2025         111,190        USD 100,000      2.60%   3.25%     1,111.90  

Korea Development Bank

     2015~2025         111,190        USD 100,000      2.62%   3.25%     1,111.90  

Woori Bank

     2015~2025         55,595        USD 50,000      2.62%   3.25%     1,111.90  

KEB Hana Bank

     2015~2025         55,595        USD 50,000      2.62%   3.25%     1,111.90  

 

(4) Currency swap contracts which are designated as hedge instruments as of December 31, 2016 are as follows:

 

    Contract year           Contract amount     Contract interest rate   Contract
exchange rate
 

Counterparty

          Pay     Receive     Pay   Receive  
    In millions of won and thousands of foreign currencies  

Standard Chartered

    2011~2017           105,260       USD 100,000     3.99%   3.63%     1,052.60  

Barclays Bank PLC

    2011~2017         105,260       USD 100,000     3.99%   3.63%     1,052.60  

Citibank

    2011~2017         105,260       USD 100,000     3.99%   3.63%     1,052.60  

Citibank

    2013~2018         54,570       USD 50,000     2.90%   3M Libor+1.01%     1,091.40  

Standard Chartered

    2013~2018         54,570       USD 50,000     2.90%   3M Libor+1.01%     1,091.40  

Credit Suisse

    2013~2018         111,410       USD 100,000     3.22%   3M Libor+1.50%     1,114.10  

HSBC

    2014~2020         99,901       AUD 100,000     3.52%   5.75%     999.01  

HSBC

    2014~2020         100,482       AUD 100,000     3.48%   5.75%     1,004.82  

Standard Chartered

    2013~2020         USD 117,250       AUD 125,000     3M Libor+1.25%   5.75%     0.94  

Standard Chartered

    2014~2020         126,032       USD 117,250     3.55%   3M Libor+1.25%     1,074.90  

JP Morgan

    2014~2019         107,190       USD 100,000     3M Libor+3.25%   2.75%     1,071.90  

Morgan Stanley

    2014~2019         107,190       USD 100,000     3M Libor+3.25%   2.75%     1,071.90  

Deutsche Bank

    2014~2019         107,190       USD 100,000     3M Libor+3.25%   2.75%     1,071.90  

Korea Development Bank

    2016~2021         121,000       USD 100,000     2.15%   2.50%     1,210.00  

Morgan Stanley

    2016~2021         121,000       USD 100,000     3M Libor+2.10%   2.50%     1,210.00  

BNP Paribas

    2016~2021         121,000       USD 100,000     3M Libor+2.10%   2.50%     1,210.00  

Morgan Stanley

    2012~2017         285,000       USD 250,000     3.76%   3.13%     1,140.00  

Credit Agricole

    2012~2017         142,500       USD 125,000     3.83%   3.13%     1,140.00  

JP Morgan

    2012~2017         142,500       USD 125,000     3.83%   3.13%     1,140.00  

Credit Agricole

    2013~2019         118,343       CHF 100,000     3.47%   1.63%     1,183.43  

Morgan Stanley

    2013~2019         59,172       CHF 50,000     3.40%   1.63%     1,183.43  

Nomura

    2013~2019         59,172       CHF 50,000     3.47%   1.63%     1,183.43  

Morgan Stanley

    2013~2018         107,360       USD 100,000     3.27%   2.88%     1,073.60  

Credit Agricole

    2013~2018         107,360       USD 100,000     3.34%   2.88%     1,073.60  

JP Morgan

    2013~2018         161,040       USD 150,000     3.34%   2.88%     1,073.60  

Standard Chartered

    2013~2018         161,040       USD 150,000     3.34%   2.88%     1,073.60  

Standard Chartered

    2014~2019         104,490       USD 100,000     2.77%   2.63%     1,044.90  

Credit Agricole

    2014~2019         104,490       USD 100,000     2.77%   2.63%     1,044.90  

 

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Table of Contents
    Contract year           Contract amount     Contract interest rate   Contract
exchange rate
 

Counterparty

          Pay     Receive     Pay   Receive  
    In millions of won and thousands of foreign currencies  

Morgan Stanley

    2014~2019           104,490       USD 100,000     2.70%   2.63%     1,044.90  

Barclays Bank PLC

    2013~2018         81,188       USD 75,000     2.65%   1.88%     1,082.50  

Credit Agricole

    2013~2018         81,188       USD 75,000     2.65%   1.88%     1,082.50  

Deutsche Bank

    2013~2018         81,188       USD 75,000     2.65%   1.88%     1,082.50  

Citibank

    2013~2018         81,188       USD 75,000     2.65%   1.88%     1,082.50  

Standard Chartered

    2014~2017         54,205       USD 50,000     2.93%   3M Libor+1.05%     1,084.10  

Credit Agricole

    2014~2017         54,205       USD 50,000     2.93%   3M Libor+1.05%     1,084.10  

HSBC

    2012~2017         115,140       USD 100,000     3.38%   2.50%     1,151.40  

BNP Paribas

    2012~2017         115,140       USD 100,000     3.38%   2.50%     1,151.40  

KEB Hana Bank

    2012~2017         115,140       USD 100,000     3.38%   2.50%     1,151.40  

Barclays Bank PLC

    2012~2017         57,570       USD 50,000     3.38%   2.50%     1,151.40  

Standard Chartered

    2012~2017         57,570       USD 50,000     3.38%   2.50%     1,151.40  

Nomura

    2012~2017         57,570       USD 50,000     3.38%   2.50%     1,151.40  

Credit Agricole

    2012~2017         57,570       USD 50,000     3.38%   2.50%     1,151.40  

Societe Generale

    2013~2018         106,190       USD 100,000     3.48%   2.63%     1,061.90  

BNP Paribas

    2013~2018         53,095       USD 50,000     3.48%   2.63%     1,061.90  

KEB Hana Bank

    2013~2018         53,095       USD 50,000     3.48%   2.63%     1,061.90  

Standard Chartered

    2013~2018         106,030       USD 100,000     3.48%   2.63%     1,060.30  

Barclays Bank PLC

    2013~2018         53,015       USD 50,000     3.48%   2.63%     1,060.30  

KEB Hana Bank

    2013~2018         31,809       USD 30,000     3.48%   2.63%     1,060.30  

Societe Generale

    2013~2018         21,206       USD 20,000     3.48%   2.63%     1,060.30  

HSBC

    2013~2018         53,015       USD 50,000     3.47%   2.63%     1,060.30  

Nomura

    2013~2018         53,015       USD 50,000     3.47%   2.63%     1,060.30  

Credit Agricole

    2014~2020         110,680       USD 100,000     2.29%   2.50%     1,106.80  

Societe Generale

    2014~2020         55,340       USD 50,000     2.16%   2.50%     1,106.80  

KEB Hana Bank

    2014~2020         55,340       USD 50,000     2.16%   2.50%     1,106.80  

KEB Hana Bank

    2014~2020         55,340       USD 50,000     2.21%   2.50%     1,106.80  

Standard Chartered

    2014~2020         55,340       USD 50,000     2.21%   2.50%     1,106.80  

HSBC

    2014~2020         55,340       USD 50,000     2.21%   2.50%     1,106.80  

Nomura

    2014~2020         55,340       USD 50,000     2.21%   2.50%     1,106.80  

Barclays Bank PLC

    2014~2020         55,340       USD 50,000     2.21%   2.50%     1,106.80  

HSBC

    2014~2020         55,340       USD 50,000     2.21%   2.50%     1,106.80  

 

(5) Interest rate swap contracts which are not designated as hedge instruments as of December 31, 2016 are as follows:

 

Counterparty

   Contract
year
     Contract
amount
     Contract interest rate per annum  
         Pay   Receive  
     In millions of won  

Standard Chartered

     2012~2017      160,000      3.57%     3M CD + 0.32

JP Morgan

     2013~2018        150,000      3.58%     3M CD + 0.31 %

Credit Suisse

     2014~2018        200,000      2.98%     1Y CMT + 0.31

Korea Development Bank(*)

     2014~2029        40,000      3M CD – 0.03%     4.65%  

Export-Import Bank of Korea

     2015~2031        USD 15,893      2.67%     6M USD Libor  

ING Bank

     2015~2031        USD 7,861      2.67%     6M USD Libor  

BNP Paribas

     2015~2031        USD 7,861      2.67%     6M USD Libor  

 

(*) The contract is an interest rate swap hedging on Electricity Bonds 885, and the banks would notify the Company of the early termination every year on the early termination notification date (every year on April 28, from 2017 until 2028). The contract will be terminated if the early termination is notified.

 

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(6) Interest rate swap contracts which are designated as hedge instruments as of December 31, 2016 are as follows:

 

Counterparty

   Contract
year
     Contract
amount
    

Contract interest rate per annum

 
        

Pay

   Receive  
            In thousands of U.S. dollars       

BNP Paribas

     2009~2027        USD 94,790      4.16%      6M USD Libor  

KFW

     2009~2027        USD 94,790      4.16%      6M USD Libor  

Credit Agricole

     2016~2033        USD 99,694      3.98% ~ 4.10%      6M USD Libor  

SMBC

     2016~2033        USD 130,369      4.05% ~ 4.18%      6M USD Libor  

 

(7) Gain and loss on valuation and transaction of derivatives for the years ended December 31, 2015 and 2016 are as follows and included in finance income and costs in the consolidated statements of comprehensive income (loss):

 

         Net income effects of
valuation gain (loss)
     Net income effects of
transaction gain (loss)
    Accumulated other
comprehensive
income (loss)(*)
 
         2015      2016      2015      2016     2015     2016  
         In millions of won  

Currency forward

       357        15,993        8,523        4,266       —         —    

Currency swap

       431,565        253,035        75,752        (68,266     (6,926     40,031  

Interest rate swap

       161,609        8,517        30,314        7,562       4,082       6,719  

Other derivatives

       —          10,523        —          —         —         —    
    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 
       593,531        288,068        114,589        (56,438     (2,844     46,750  
    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

 

(*) As of December 31, 2016, the net gain on valuation of derivatives using cash flow hedge accounting of ₩28,414 million, net of tax, is included in other comprehensive income or loss.

 

12. Other Financial Assets

 

(1) Other financial assets as of December 31, 2015 and 2016 are as follows:

 

          2015      2016  
          Current      Non-current      Current      Non-current  
          In millions of won  

Loans and receivables

        106,013        678,126        198,133        683,353  

Allowance for doubtful accounts

      —          —          —          (4,532

Present value discount

      (859      (48,223      (1,001      (41,746

Long / short-term financial instruments

      5,132,829        758,037        2,281,460        414,466  
   

 

 

    

 

 

    

 

 

    

 

 

 
        5,237,983        1,387,940        2,478,592        1,051,541  
   

 

 

    

 

 

    

 

 

    

 

 

 

 

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(2) Loans and receivables as of December 31, 2015 and 2016 are as follows:

 

          2015  
          Face value      Present value
discount
     Book value  
          In millions of won  

Short-term loans and receivables

         

Loans for tuition

        29,210        (859      28,351  

Loans for housing

      11,170        —          11,170  

Fisheries loan

      6,032        —          6,032  

Other loans

      59,601        —          59,601  
   

 

 

    

 

 

    

 

 

 
      106,013        (859      105,154  
   

 

 

    

 

 

    

 

 

 

Long-term loans and receivables

         

Loans for tuition

      390,738        (47,822      342,916  

Loans for housing

      132,239        —          132,239  

Loans for related parties

      99,768        —          99,768  

Fisheries loan

      1,664        (401      1,263  

Other loans

      53,717        —          53,717  
   

 

 

    

 

 

    

 

 

 
      678,126        (48,223      629,903  
   

 

 

    

 

 

    

 

 

 
        784,139        (49,082      735,057  
   

 

 

    

 

 

    

 

 

 

 

          2016  
          Face value     Allowance for
doubtful accounts
     Present value
discount
     Book value  
          In millions of won  

Short-term loans and receivables

           

Loans for tuition

        29,028       —          (1,001      28,027  

Loans for housing

      12,556       —          —          12,556  

Fisheries loan

      352       —          —          352  

Other loans

      156,197       —          —          156,197  
   

 

 

   

 

 

    

 

 

    

 

 

 
      198,133       —          (1,001      197,132  
   

 

 

   

 

 

    

 

 

    

 

 

 

Long-term loans and receivables

           

Loans for tuition

      404,200       —          (41,593      362,607  

Loans for housing

      125,850       —          —          125,850  

Loans for related parties

      91,249       (4,532      —          86,717  

Fisheries loan

      1,312       —          (153      1,159  

Other loans

      60,742       —          —          60,742  
   

 

 

   

 

 

    

 

 

    

 

 

 
      683,353       (4,532      (41,746      637,075  
   

 

 

   

 

 

    

 

 

    

 

 

 
        881,486       (4,532      (42,747      834,207  
   

 

 

   

 

 

    

 

 

    

 

 

 

 

(3) Changes in the allowance for doubtful accounts of Loans and receivables for the year ended December 31, 2016 is as follows:

 

            2016  
            In millions of won  

Beginning balance

            —    

Bad debt expense

        4,352  

Other

        180  
     

 

 

 

Ending balance

            4,532  
     

 

 

 

 

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(4) Long-term and short-term financial instruments as of December 31, 2015 and 2016 are as follows:

 

            2015      2016  
            Current      Non-current      Current      Non-current  
            In millions of won  

Time deposits

          2,131,089        3        1,820,391        30,000  

ABCP

        2,598,791        5,000        351,800        132,600  

CP

        48,350        —          16,000        —    

CD

        163,649        —          60,443        —    

RP

        —          652,700        —          1,521  

Others

        190,950        100,334        32,826        250,345  
     

 

 

    

 

 

    

 

 

    

 

 

 
          5,132,829        758,037        2,281,460        414,466  
     

 

 

    

 

 

    

 

 

    

 

 

 

 

13. Inventories

Inventories as of December 31, 2015 and 2016 are as follows:

 

           2015  
           Acquisition cost      Valuation allowance      Book value  
           In millions of won  

Raw materials

         3,304,220        (1,238      3,302,982  

Work-in-progress

       133,226        —          133,226  

Finished goods

       51,073        —          51,073  

Supplies

       1,062,307        (4,428      1,057,879  

Inventories in transit

       392,340        —          392,340  

Other inventories

       8,913        —          8,913  
    

 

 

    

 

 

    

 

 

 
         4,952,079        (5,666      4,946,413  
    

 

 

    

 

 

    

 

 

 

 

           2016  
           Acquisition cost      Valuation allowance      Book value  
           In millions of won  

Raw materials

         3,182,711        (1,323      3,181,388  

Merchandise

       20        —          20  

Work-in-progress

       118,640        —          118,640  

Finished goods

       57,659        —          57,659  

Supplies

       1,289,160        (4,553      1,284,607  

Inventories in transit

       827,437        —          827,437  

Other inventories

       9,692        —          9,692  
    

 

 

    

 

 

    

 

 

 
         5,485,319        (5,876      5,479,443  
    

 

 

    

 

 

    

 

 

 

The reversal of the allowance for loss on inventory valuation due to increase in the net realizable value of inventory deducted from cost of sales was ₩3,029 million for the year ended December 31, 2014. The allowance for loss on inventory valuation due to decrease in the net realizable value of inventory added to cost of sales was ₩533 million for the year ended December 31, 2015. The reversal of the allowance for loss on inventory valuation due to increase in the net realizable value of inventory deducted from cost of sales was ₩2,473 million for the year ended December 31, 2016. The amounts of loss from inventory valuation included in other gains or losses for the years ended December 31, 2014, 2015 and 2016 were ₩2,709 million, ₩1,318 million and ₩2,683 million, respectively.

 

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14. Finance Lease Receivables

 

(1) Finance lease contracts

The Company entered into a power purchase agreement (“PPA”) with Jordan Electric Power Company to provide a 373MW level Qatrana gas combined power plant over a 25 year lease term, and accounts for the PPA as a finance lease. Also, the Company has fly-ash pipe conduit finance leases with an average lease term of 7 years. In addition, the Company entered into a PPA with the Comision Federal de Electricidad in Mexico to provide for 25 years of all electricity generated from the power plant after completion of its construction and collect rates consisting of fixed costs (to recover the capital) and variable costs during the contracted period.

 

(2) Finance lease receivables as of December 31, 2015 and 2016 are as follows and included in current and non-current trade and other receivables, net, in the consolidated statements of financial position:

 

            2015      2016  
            Minimum lease
payments
     Present value
of minimum
lease payments
     Minimum lease
payments
     Present value
of minimum
lease payments
 
            In millions of won  

Less than 1 year

          98,488        12,098        55,708        12,225  

1 ~ 5 years

        407,426        203,699        423,152        214,176  

More than 5 years

        1,689,281        738,011        1,690,492        746,473  
     

 

 

    

 

 

    

 

 

    

 

 

 
          2,195,195        953,808        2,169,352        972,874  
     

 

 

    

 

 

    

 

 

    

 

 

 

 

(3) There are no impaired finance lease receivables as of December 31, 2015 and 2016.

 

15. Non-Financial Assets

Non-financial assets as of December 31, 2015 and 2016 are as follows:

 

           2015      2016  
         Current      Non-current      Current      Non-current  
           In millions of won  

Advance payment

         102,842        25,172        93,279        71,238  

Prepaid expenses

       159,378        85,105        228,142        78,066  

Others(*)

       135,730        20,956        310,439        32,485  
    

 

 

    

 

 

    

 

 

    

 

 

 
         397,950        131,233        631,860        181,789  
    

 

 

    

 

 

    

 

 

    

 

 

 

 

  (*) Details of others as of December 31, 2015 and 2016 are as follows:

 

           2015      2016  
         Current      Non-current      Current      Non-current  
           In millions of won  

Tax refund receivables

         39,158        2,658        30,959        2,188  

Greenhouse gas emissions rights

       51,158        —          145,105        —    

Others

       45,414        18,298        134,375        30,297  
    

 

 

    

 

 

    

 

 

    

 

 

 
         135,730        20,956        310,439        32,485  
    

 

 

    

 

 

    

 

 

    

 

 

 

 

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16. Consolidated Subsidiaries

 

(1) Consolidated subsidiaries as of December 31, 2015 and 2016 are as follows:

 

               Percentage of ownership (%)  

Subsidiaries

  

Key operation activities

  

Location

           2015                      2016          

Korea Hydro & Nuclear Power Co., Ltd.

   Power generation    KOREA      100.00%        100.00%  

Korea South-East Power Co., Ltd.

   Power generation    KOREA      100.00%        100.00%  

Korea Midland Power Co., Ltd.

   Power generation    KOREA      100.00%        100.00%  

Korea Western Power Co., Ltd.

   Power generation    KOREA      100.00%        100.00%  

Korea Southern Power Co., Ltd.

   Power generation    KOREA      100.00%        100.00%  

Korea East-West Power Co., Ltd.

   Power generation    KOREA      100.00%        100.00%  

KEPCO Engineering & Construction Company, Inc.(*1)

   Architectural engineering for utility plant and others    KOREA      66.32%        65.77%  

KEPCO Plant Service & Engineering Co., Ltd.

   Utility plant maintenance and others    KOREA      52.48%        51.00%  

KEPCO Nuclear Fuel Co., Ltd.

   Nuclear fuel    KOREA      96.36%        96.36%  

KEPCO KDN Co., Ltd.

  

Electric power information

technology and others

   KOREA      100.00%        100.00%  

Garolim Tidal Power Plant
Co., Ltd.(*2)

   Power generation    KOREA      49.00%        49.00%  

KEPCO International HongKong Ltd.

   Holding company    HONG KONG      100.00%        100.00%  

KEPCO International Philippines Inc.

   Holding company    PHILIPPINES      100.00%        100.00%  

KEPCO Gansu International Ltd.

   Holding company    HONG KONG      100.00%        100.00%  

KEPCO Philippines Holdings Inc.

   Holding company    PHILIPPINES      100.00%        100.00%  

KEPCO Philippines Corporation

   Operation of utility plant    PHILIPPINES      100.00%        100.00%  

KEPCO Ilijan Corporation

   Utility plant rehabilitation and operation    PHILIPPINES      51.00%        51.00%  

KEPCO Lebanon SARL

   Operation of utility plant    LEBANON      100.00%        100.00%  

KEPCO Neimenggu International Ltd.

   Holding company    HONG KONG      100.00%        100.00%  

KEPCO Shanxi International Ltd.

   Holding company    HONG KONG      100.00%        100.00%  

KOMIPO Global Pte Ltd.

   Holding company    SINGAPORE      100.00%        100.00%  

KEPCO Canada Energy Ltd.

   Resources development    CANADA      100.00%        100.00%  

KEPCO Netherlands B.V.

   Holding company    NETHERLANDS      100.00%        100.00%  

KOREA Imouraren Uranium Investment Corp.

   Resources development    FRANCE      100.00%        100.00%  

KEPCO Australia Pty., Ltd.

   Resources development    AUSTRALIA      100.00%        100.00%  

KOSEP Australia Pty., Ltd.

   Resources development    AUSTRALIA      100.00%        100.00%  

KOMIPO Australia Pty., Ltd.

   Resources development    AUSTRALIA      100.00%        100.00%  

KOWEPO Australia Pty., Ltd.

   Resources development    AUSTRALIA      100.00%        100.00%  

KOSPO Australia Pty., Ltd.

   Resources development    AUSTRALIA      100.00%        100.00%  

KEPCO Middle East Holding Company

   Holding company    BAHRAIN      100.00%        100.00%  

Qatrana Electric Power Company

   Construction and operation of utility plant    JORDAN      80.00%        80.00%  

KHNP Canada Energy, Ltd.

   Resources development    CANADA      100.00%        100.00%  

KEPCO Bylong Australia Pty., Ltd.

   Resources development    AUSTRALIA      100.00%        100.00%  

Korea Waterbury Uranium Limited Partnership

   Resources development    CANADA      79.64%        79.64%  

KEPCO Canada Uranium Investment Limited Partnership

   Resources development    CANADA      100.00%        —    

Korea Electric Power Nigeria Ltd.

   Operation of utility plant    NIGERIA      100.00%        100.00%  

KEPCO Holdings de Mexico

   Holding company    MEXICO      100.00%        100.00%  

KST Electric Power Company

   Construction and operation of utility plant    MEXICO      56.00%        56.00%  

KEPCO Energy Service Company

   Operation of utility plant    MEXICO      100.00%        100.00%  

KEPCO Netherlands S3 B.V.

   Holding company    NETHERLANDS      100.00%        100.00%  

 

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Table of Contents
               Percentage of ownership (%)  

Subsidiaries

  

Key operation activities

  

Location

           2015                      2016          

PT. KOMIPO Pembangkitan Jawa Bali

   Operation of utility plant    INDONESIA      51.00%        51.00%  

PT. Cirebon Power Service(*2)

   Operation of utility plant    INDONESIA      27.50%        27.50%  

KOWEPO International Corporation

   Operation of utility plant    PHILIPPINES      99.99%        99.99%  

KOSPO Jordan LLC

   Operation of utility plant    JORDAN      100.00%        100.00%  

EWP Philippines Corporation

   Operation of utility plant    PHILIPPINES      100.00%        100.00%  

EWP America Inc.

   Holding company    USA      100.00%        100.00%  

EWP Renewable Co.

   Holding company    USA      100.00%        100.00%  

DG Fairhaven Power, LLC

   Power generation    USA      100.00%        100.00%  

DG Kings Plaza, LLC

   Power generation    USA      100.00%        —    

DG Whitefield, LLC

   Power generation    USA      100.00%        100.00%  

Springfield Power, LLC

   Power generation    USA      100.00%        100.00%  

KNF Canada Energy Limited

   Resources development    CANADA      96.36%        96.36%  

PT KEPCO Resource Indonesia

   Holding company    INDONESIA      100.00%        100.00%  

EWP Barbados 1 SRL

   Holding company    BARBADOS      100.00%        100.00%  

California Power Holdings, LLC

   Power generation    USA      100.00%        100.00%  

Gyeonggi Green Energy Co., Ltd.

   Power generation    KOREA      62.01%        62.01%  

PT. Tanggamus Electric Power

   Power generation    INDONESIA      52.50%        52.50%  

Gyeongju Wind Power Co., Ltd.

   Power generation    KOREA      70.00%        70.00%  

KOMIPO America Inc.

   Holding company    USA      100.00%        100.00%  

EWPRC Biomass Holdings, LLC

   Holding company    USA      100.00%        100.00%  

KOSEP USA, INC.

   Power generation    USA      100.00%        100.00%  

PT. EWP Indonesia

   Holding company    INDONESIA      99.95%        99.95%  

KEPCO Netherlands J3 B.V.

   Holding company    NETHERLANDS      100.00%        100.00%  

Korea Offshore Wind Power Co., Ltd.

   Operation of utility plant    KOREA      100.00%        100.00%  

Global One Pioneer B.V.

   Holding company    NETHERLANDS      100.00%        100.00%  

Global Energy Pioneer B.V.

   Holding company    NETHERLANDS      100.00%        100.00%  

Mira Power Limited(*3)

   Power generation    PAKISTAN      76.00%        76.00%  

KOSEP Material Co., Ltd.(*4)

   Power generation    KOREA      46.22%        46.22%  

Commerce and Industry Energy
Co., Ltd.(*5)

   Power generation    KOREA      59.03%        59.03%  

KEPCO Singapore Holdings Pte., Ltd.

   Holding company    SINGAPORE      100.00%        100.00%  

KOWEPO India Private Limited

   Holding company    INDIA      100.00%        100.00%  

KEPCO KPS Philippines Corp.

   Utility plant maintenance and others    PHILIPPINES      52.48%        51.00%  

KOSPO Chile SpA

   Holding company    CHILE      100.00%        100.00%  

PT. KOWEPO Sumsel Operation and Maintenance Services

   Utility plant maintenance and others    INDONESIA      95.00%        95.00%  

HeeMang Sunlight Power Co., Ltd.

   Power generation    KOREA      100.00%        100.00%  

Fujeij Wind Power Company

   Operation of utility plant    JORDAN      100.00%        100.00%  

KOSPO Youngnam Power Co., Ltd.

   Operation of utility plant    KOREA      50.00%        50.00%  

Global One Carbon Private Equity Investment Trust 2

   Holding company    KOREA      —          96.67%  

Chitose Solar Power Plant LLC

   Power generation    JAPAN      —          80.10%  

KEPCO Energy Solution Co. Ltd.

   Energy service    KOREA      —          100.00%  

Solar School Plant Co., Ltd.

   Power generation    KOREA      —          100.00%  

KOSPO Power Services Limitada

   Utility plant maintenance and others    CHILE      —          65.00%  

Energy New Industry Specialized Investment Private Investment Trust

   Holding company    KOREA      —          99.75%  

KOEN Bylong Pty., Ltd.

   Resources development    AUSTRALIA      —          100.00%  

KOMIPO Bylong Pty., Ltd.

   Resources development    AUSTRALIA      —          100.00%  

KOWEPO Bylong Pty., Ltd.

   Resources development    AUSTRALIA      —          100.00%  

KOSPO Bylong Pty., Ltd.

   Resources development    AUSTRALIA      —          100.00%  

EWP Bylong Pty., Ltd.

   Resources development    AUSTRALIA      —          100.00%  

KOWEPO Lao International

   Utility plant maintenance and others    LAOS      —          100.00%  

 

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Table of Contents
(*1) Considering treasury stocks, the effective percentage of ownership is 66.08%.

 

(*2) These subsidiaries are included in the consolidated financial statements as the Company obtained the majority of the voting power through the shareholders’ agreement.

 

(*3) As of reporting date, the reporting period of all subsidiaries is December 31, except for Mira Power Limited which is November 30.

 

(*4) According to the shareholders’ agreement reached in April 2014, Korea South-East Power Co., Ltd. (“KOSEP”) signed a contract with Long Lasting Value (“LLV”) to guarantee the principal and certain rate of return on LLV’s shares in KOSEP Material Co., Ltd. Moreover, LLV has put options to sell their investment to KOSEP. Therefore, the Company accounted for this agreement as KOSEP acquiring the shares of KOSEP Material from LLV. As such, the effective percentage of ownership is 86.20% as of December 31, 2016.

 

(*5) The Company guarantees a certain return on investment related to Commerce and Industry Energy Co., Ltd. for the financial investors. The financial investors have a right to sell their shares to the Company which can be exercised 84 months after the date of investment. Accordingly, the purchase price including the return on investment is classified as a liability.

 

(2) Subsidiaries newly included in or excluded from consolidation for the year ended December 31, 2016 are as follows:

 

  (i) Subsidiaries newly included in consolidation

 

Subsidiary

  

Reason

Global One Carbon Private Equity Investment Trust 2

   Newly Established

Chitose Solar Power Plant LLC

   Newly Established

KEPCO Energy Solution Co. Ltd.

   Newly Established

Solar School Plant Co., Ltd.

   Newly Established

KOSPO Power Services Limitada

   Newly Established

Energy New Industry Specialized Investment Private
Investment Trust

   Newly Established

KOEN Bylong Pty., Ltd.

   Newly Established

KOMIPO Bylong Pty., Ltd.

   Newly Established

KOWEPO Bylong Pty., Ltd.

   Newly Established

KOSPO Bylong Pty., Ltd.

   Newly Established

EWP Bylong Pty., Ltd.

   Newly Established

KOWEPO Lao International

   Newly Established

 

  (ii) Subsidiaries excluded from consolidation

 

Subsidiary

  

Reason

KEPCO Canada Uranium Investment Limited Partnership

   Dissolved

DG Kings Plaza, LLC

   Liquidated

 

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Table of Contents
(3) Summary of financial information of consolidated subsidiaries as of and for the years ended December 31, 2015 and 2016 are as follows:

 

2015

 

Subsidiaries

         Total
assets
     Total
liabilities
     Sales      Profit (loss)
for the period
 
           In millions of won  

Korea Hydro & Nuclear Power Co., Ltd.

         51,043,890        27,386,113        10,642,352        2,465,244  

Korea South-East Power Co., Ltd.

       9,326,835        4,859,827        4,961,711        601,204  

Korea Midland Power Co., Ltd.

       7,857,199        4,648,144        3,927,443        226,244  

Korea Western Power Co., Ltd.

       9,225,791        5,719,032        4,214,540        294,617  

Korea Southern Power Co., Ltd.

       9,216,084        5,525,865        4,317,995        224,757  

Korea East-West Power Co., Ltd.

       8,828,603        4,836,904        4,047,655        454,942  

KEPCO Engineering & Construction Company, Inc.

       855,156        438,371        657,603        31,047  

KEPCO Plant Service & Engineering Co., Ltd.

       1,029,304        246,342        1,171,082        168,632  

KEPCO Nuclear Fuel Co., Ltd.

       666,677        328,364        253,524        35,115  

KEPCO KDN Co., Ltd.

       439,725        159,275        451,678        33,578  

Garolim Tidal Power Plant Co., Ltd.

       655        346        —          (76

KEPCO International HongKong Ltd.

       172,686        18        —          4,993  

KEPCO International Philippines Inc.

       115,594        1,542        —          38,541  

KEPCO Gansu International Ltd.

       17,405        540        —          (6

KEPCO Philippines Holdings Inc.

       132,094        26        —          24,690  

KEPCO Philippines Corporation

       13,998        218        —          265  

KEPCO Ilijan Corporation

       603,865        58,572        126,234        54,596  

KEPCO Lebanon SARL

       741        10,182        —          (1,541

KEPCO Neimenggu International Ltd.

       184,860        348        —          8,027  

KEPCO Shanxi International Ltd.

       562,652        242,270        —          22,949  

KOMIPO Global Pte Ltd.

       187,885        29        —          16,572  

KEPCO Canada Energy Ltd.

       55,945        23        —          (64

KEPCO Netherlands B.V.

       169,496        61        —          1,409  

KOREA Imouraren Uranium Investment Corp.

       224,499        263        —          5,964  

KEPCO Australia Pty., Ltd.

       510,892        2,541        4,510        168  

KOSEP Australia Pty., Ltd.

       18,180        1,581        4,729        346  

KOMIPO Australia Pty., Ltd.

       17,397        559        4,729        349  

KOWEPO Australia Pty., Ltd.

       18,320        1,578        4,729        353  

KOSPO Australia Pty., Ltd.

       18,358        1,567        4,729        356  

KEPCO Middle East Holding Company

       147,618        150,798        —          14,142  

Qatrana Electric Power Company

       521,206        412,587        17,844        31,767  

KHNP Canada Energy, Ltd.

       42,731        22        —          (123

KEPCO Bylong Australia Pty., Ltd.

       183,468        236,545        —          (23,352

Korea Waterbury Uranium Limited Partnership

       20,370        699        —          (48

KEPCO Canada Uranium Investment Limited Partnership

       38,804        14        —          (26,171

Korea Electric Power Nigeria Ltd.

       1,721        1,179        55,768        309  

KEPCO Holdings de Mexico

       39        34        —          (13

KST Electric Power Company

       564,358        529,439        97,879        14,631  

KEPCO Energy Service Company

       1,435        604        6,034        875  

KEPCO Netherlands S3 B.V.

       66,251        189        —          716  

PT. KOMIPO Pembangkitan Jawa Bali

       16,536        6,170        20,143        8,047  

PT. Cirebon Power Service

       2,795        1,010        6,663        459  

KOWEPO International Corporation

       —          —          —          —    

KOSPO Jordan LLC

       12,998        1,117        9,840        2,693  

EWP Philippines Corporation

       2,664        1,592        —          258  

EWP America Inc.(*)

       115,562        82,167        59,124        3,227  

KNF Canada Energy Limited

       1,874        18        —          (66

 

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2015

 

Subsidiaries

         Total
assets
     Total
liabilities
     Sales      Profit (loss)
for the period
 
           In millions of won  

PT KEPCO Resource Indonesia

         1,210        —          —          (217

EWP Barbados 1 SRL

       260,638        370        2,829        273  

Gyeonggi Green Energy Co., Ltd.

       315,299        249,608        104,674        (4,111

PT. Tanggamus Electric Power

       106,892        91,416        60,044        (7,138

Gyeongju Wind Power Co., Ltd.

       62,600        27,822        5,993        968  

KOMIPO America Inc.

       13,487        2,480        —          218  

KOSEP USA, INC.

       40,035        4,178        4,975        153  

PT. EWP Indonesia

       1,039        15        —          (374

KEPCO Netherlands J3 B.V.

       121,492        81        —          18,858  

Korea Offshore Wind Power Co., Ltd.

       7,579        2,317        —          (4,213

Global One Pioneer B.V.

       40        20        —          (48

Global Energy Pioneer B.V.

       42        20        —          (48

Mira Power Limited

       110,918        66,963        —          (1,581

KOSEP Material Co., Ltd.

       29,768        28,013        26,310        (17,665

Commerce and Industry Energy Co., Ltd.

       99,638        86,727        24,774        (3,387

KEPCO Singapore Holdings Pte., Ltd.

       1,817        —          —          (9

KOWEPO India Private Limited

       911        10        —          (105

KEPCO KPS Philippines Corp.

       5,688        953        14,278        1,677  

KOSPO Chile SpA

       133        4,642        —          (942

PT. KOWEPO Sumsel Operation and Maintenance Services

       2,053        51        5,405        1,762  

HeeMang Sunlight Power Co., Ltd.

       4,711        —          —          (9

Fujeij Wind Power Company

       83        —          —          —    

KOSPO Youngnam Power Co., Ltd.

       82,173        32,166        —          7  

 

  (*) Financial information of EWP America Inc. includes that of seven other subsidiaries, EWP Renewable Co., DG Fairhaven Power, LLC, DG Kings Plaza, LLC, DG Whitefield, LLC, Springfield Power, LLC, California Power Holdings, LLC, and EWPRC Biomass Holdings, LLC.

 

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Table of Contents

2016

 

Subsidiaries

        Total
assets
    Total
liabilities
    Sales     Profit (loss)
for the period
 
          In millions of won  

Korea Hydro & Nuclear Power Co., Ltd.

          52,782,915       27,366,938       11,168,579       2,454,810  

Korea South-East Power Co., Ltd.

      9,773,778       4,794,330       5,093,598       531,061  

Korea Midland Power Co., Ltd.

      9,066,666       5,416,336       3,719,981       400,696  

Korea Western Power Co., Ltd.

      9,810,714       5,866,916       4,169,712       401,936  

Korea Southern Power Co., Ltd.

      9,806,023       5,637,950       4,200,035       426,337  

Korea East-West Power Co., Ltd.

      8,967,951       4,488,911       4,210,898       467,603  

KEPCO Engineering & Construction Company, Inc.

      786,596       364,676       506,012       17,796  

KEPCO Plant Service & Engineering Co., Ltd.

      1,086,421       301,490       1,214,304       86,657  

KEPCO Nuclear Fuel Co., Ltd.

      713,230       346,012       309,911       33,115  

KEPCO KDN Co., Ltd.

      519,901       205,869       588,160       43,127  

Garolim Tidal Power Plant Co., Ltd.

      632       346       —         -24  

KEPCO International HongKong Ltd.

      173,138       41       —         4,532  

KEPCO International Philippines Inc.

      114,141       1,468       —         56,783  

KEPCO Gansu International Ltd.

      17,928       557       —         (18

KEPCO Philippines Holdings Inc.

      125,100       27       —         13,517  

KEPCO Philippines Corporation

      13,704       8,949       —         (8,717

KEPCO Ilijan Corporation

      558,030       58,449       116,667       51,552  

KEPCO Lebanon SARL

      1,458       10,312       —         810  

KEPCO Neimenggu International Ltd.

      186,636       —         —         7,082  

KEPCO Shanxi International Ltd.

      549,189       218,047       —         5,812  

KOMIPO Global Pte Ltd.

      223,082       1,095       —         36,764  

KEPCO Canada Energy Ltd.

      202       24       —         (27,216

KEPCO Netherlands B.V.

      128,014       35       —         224  

KOREA Imouraren Uranium Investment Corp.

      154,302       764       —         (68,417

KEPCO Australia Pty., Ltd.

      503,657       1,545       3,670       (19,006

KOSEP Australia Pty., Ltd.

      25,174       521       5,357       4,028  

KOMIPO Australia Pty., Ltd.

      25,413       10       5,388       4,023  

KOWEPO Australia Pty., Ltd.

      25,550       10       5,357       4,012  

KOSPO Australia Pty., Ltd.

      25,625       10       5,357       4,033  

KEPCO Middle East Holding Company

      128,846       125,008       —         6,840  

Qatrana Electric Power Company

      546,123       417,800       18,866       19,601  

KHNP Canada Energy, Ltd.

      54,374       46       —         (6,304

KEPCO Bylong Australia Pty., Ltd.

      220,721       277,358       —         (2,357

Korea Waterbury Uranium Limited Partnership

      20,882       149       —         2,348  

Korea Electric Power Nigeria Ltd.

      696       493       9,794       35  

KEPCO Holdings de Mexico

      262       19       —         251  

KST Electric Power Company

      596,823       539,459       146,295       17,322  

KEPCO Energy Service Company

      1,309       310       5,337       580  

KEPCO Netherlands S3 B.V.

      55,609       54       —         3,731  

PT. KOMIPO Pembangkitan Jawa Bali

      16,246       4,549       21,632       8,989  

PT. Cirebon Power Service

      3,456       1,228       7,463       301  

KOWEPO International Corporation

      —         —         —         —    

KOSPO Jordan LLC

      11,524       687       7,321       317  

EWP Philippines Corporation

      1,966       955       —         (41

EWP America Inc.(*)

      104,809       80,252       33,616       (8,704

KNF Canada Energy Limited

      1,967       20       —         (46

PT KEPCO Resource Indonesia

      913       18       —         (341

EWP Barbados 1 SRL

      267,859       425       1,656       (902

Gyeonggi Green Energy Co., Ltd.

      301,126       221,078       108,557       19,211  

PT. Tanggamus Electric Power

      184,861       167,641       40,903       2,041  

Gyeongju Wind Power Co., Ltd.

      76,569       49,293       6,413       1,269  

KOMIPO America Inc.

      11,518       2,432       —         (2,240

KOSEP USA, INC.

      159       39,028       3,791       (72,817

PT. EWP Indonesia

      2,154       50       —         1,088  

KEPCO Netherlands J3 B.V.

      125,337       68       —         12,433  

 

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Table of Contents

2016

 

Subsidiaries

        Total
assets
    Total
liabilities
    Sales     Profit (loss)
for the period
 
          In millions of won  

Korea Offshore Wind Power Co., Ltd.

        37,826       2,048       —         (4,960

Global One Pioneer B.V.

      161       22       —         (54

Global Energy Pioneer B.V.

      338       22       —         (59

Mira Power Limited

      178,141       133,730       —         (954

KOSEP Material Co., Ltd.

      2,398       1,497       3,232       (901

Commerce and Industry Energy Co., Ltd.

      99,432       87,316       28,375       (536

KEPCO Singapore Holdings Pte., Ltd.

      2,568       13       —         (33

KOWEPO India Private Limited

      879       —         —         1  

KEPCO KPS Philippines Corp.

      7,897       1,213       12,843       2,060  

KOSPO Chile SpA

      6,656       4,787       —         125  

PT. KOWEPO Sumsel Operation and Maintenance Services

      1,439       700       6,165       (96

HeeMang Sunlight Power Co., Ltd.

      7,102       3,391       12       (308

Fujeij Wind Power Company

      47,935       46,636       —         (873

KOSPO Youngnam Power Co., Ltd.

      284,368       205,680       —         (931

Global One Carbon Private Equity Investment Trust 2

      3,002       —         —         9  

Chitose Solar Power Plant LLC

      49,728       38,806       —         (811

KEPCO Energy Solution Co. Ltd.

      299,933       233       —         (300

Solar School Plant Co., Ltd.

      200,268       259       1       9  

KOSPO Power Services Limitada

      4,385       1,262       7,300       2,963  

Energy New Industry Specialized Investment Private
Investment Trust

      501,275       33       —         (7

KOEN Bylong Pty., Ltd.

      6,135       —         —         —    

KOMIPO Bylong Pty., Ltd.

      6,135       —         —         —    

KOWEPO Bylong Pty., Ltd.

      6,135       —         —         —    

KOSPO Bylong Pty., Ltd.

      6,135       —         —         —    

EWP Bylong Pty., Ltd.

      6,135       —         —         —    

KOWEPO Lao International

      218       181       —         (108

 

  (*) Financial information of EWP America Inc. includes that of six other subsidiaries, EWP Renewable Co., DG Fairhaven Power, LLC, DG Whitefield, LLC, Springfield Power, LLC, California Power Holdings, LLC, and EWPRC Biomass Holdings, LLC.

 

(4) Significant restrictions on abilities to subsidiaries are as follows:

 

Company

 

Nature and extent of any significant restrictions

Gyeonggi Green Energy Co., Ltd.

  Acquisition or disposal of assets of more than ₩35 billion, change in the capacity of cogeneration units (except for the change due to performance improvement of equipment, maintenance) will require unanimous consent of all directors.

KOSPO Youngnam Power Co., Ltd.

  Dividends can only be paid when all conditions of the loan agreement are satisfied or prior written consent of financial institutions is obtained. Shares cannot be wholly or partially transferred without prior written consent of financial institutions.

 

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(5) Details of non-controlling interest prior to intra-group eliminations as of and for the years ended December 31, 2015 and 2016 are as follows:

 

2015  

Description

        KEPCO Ilijan
Corporation
    KEPCO Plant
Service &
Engineering
Co., Ltd.
    KEPCO
Engineering &

Construction
Company, Inc.
    Others     Total  
          In millions of won  

Percentage of ownership

      49.00     47.52     33.37    

Current assets

        161,855       547,152       341,559       631,442       1,682,008  

Non-current assets

      442,010       482,152       513,597       1,976,302       3,414,061  

Current liabilities

      (22,522     (195,030     (342,315     (296,152     (856,019

Non-current liabilities

      (36,050     (51,312     (96,056     (1,566,200     (1,749,618

Net assets

      545,293       782,962       416,785       745,392       2,490,432  

Book value of non-controlling interest

      267,194       372,064       139,081       644,787       1,423,126  

Sales

      126,234       1,171,082       657,603       637,544       2,592,463  

Profit for the period

      54,596       168,632       31,047       61,554       315,829  

Profit for the period attributable to non-controlling interest

      26,752       78,852       10,360       11,802       127,766  

Cash flows from operating activities

      83,697       140,625       11,280       (29,888     205,714  

Cash flows from investing activities

      (16,021     (104,477     (134,874     (178,241     (433,613

Cash flows from financing activities before dividends to non-controlling interest

      (39,730     (40,581     69,955       226,976       216,620  

Dividends to non-controlling interest

      (36,080     (34,569     (7,300     (24,577     (102,526

Effect of exchange rate fluctuation

      4,123       3       (51     6,399       10,474  

Net increase (decrease) of cash and cash equivalents

      (4,011     (38,999     (60,990     669       (103,331

 

2016  

Description

        KEPCO Ilijan
Corporation
    KEPCO Plant
Service &
Engineering
Co., Ltd.
    KEPCO
Engineering &

Construction
Company, Inc.
    Others     Total  
          In millions of won  

Percentage of ownership

      49.00     49.00     33.92    

Current assets

        154,758       553,924       270,553       1,211,510       2,190,745  

Non-current assets

      403,272       532,497       516,043       2,379,882       3,831,694  

Current liabilities

      (19,256     (264,506     (286,444     (297,510     (867,716

Non-current liabilities

      (39,193     (36,984     (78,232     (1,919,924     (2,074,333

Net assets

      499,581       784,931       421,920       1,373,958       3,080,390  

Book value of non-controlling interest

      244,794       384,616       143,115       684,093       1,456,618  

Sales

      116,667       1,214,304       506,012       674,461       2,511,444  

Profit for the period

      51,552       86,657       17,796       102,170       258,175  

Profit for the period attributable to non-controlling interest

      25,260       42,462       6,036       26,709       100,467  

Cash flows from operating activities

      102,546       121,240       18,748       84,086       326,620  

Cash flows from investing activities

      (117     79,807       (7,556     (367,674     (295,540

Cash flows from financing activities before dividends to non-controlling interest

      (56,863     (39,911     (1,634     877,863       779,455  

Dividends to non-controlling interest

      (55,705     (36,139     (2,539     (22,054     (116,437

Effect of exchange rate fluctuation

      1,529       127       (854     7,216       8,018  

Net increase (decrease) of cash and cash equivalents

      (8,610     125,124       6,165       579,437       702,116  

 

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Table of Contents
(6) Changes in goodwill

 

  (i) Details of goodwill as of December 31, 2015 and 2016 are as follows:

 

            2015      2016  
            In millions of won  

Acquisition cost

          2,582        2,582  

Accumulated impairment

        —          —    
     

 

 

    

 

 

 

Carrying book value

          2,582        2,582  
     

 

 

    

 

 

 

 

  (ii) There are no changes in goodwill for the years ended December 31, 2015 and 2016.

 

(7) Disposals of subsidiaries

KEPCO Canada Uranium Investment Limited Partnership was dissolved and the Company liquidated DG Kings Plaza, LLC during the year ended December 31, 2016. The Company disposed of the shares of Boulder Solar Power, LLC and liquidated KOWEPO America LLC during the year ended December 31, 2015.

 

  (i) The fair value of consideration as of December 31, 2015 and 2016 are as follows:

 

           2015      2016  
           In millions of won  

Consideration received in cash

         10,664        898  

Fair value of remaining shares after disposal

       13,860        —    

Net assets transferred due to dissolution

       —          34,148  
    

 

 

    

 

 

 
         24,524        35,046  
    

 

 

    

 

 

 

 

  (ii) The carrying value of assets and liabilities of subsidiaries as at the date the Company lost its control during the years ended December 31, 2015 and 2016 are as follows:

 

            2015      2016  
            In millions of won  

Current assets

        

Cash and cash equivalents

          10,071        898  

Current financial assets, net

        1,077        81  

Non-current assets

        

Available-for-sale financial assets

        —          34,089  

Property, plant and equipment, net

        2,460        —    

Other

        2,893        —    

Current liabilities

        

Current financial liabilities

        —          (22

Current non-financial liabilities

        (7      —    
     

 

 

    

 

 

 
            16,494        35,046  
     

 

 

    

 

 

 

 

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Table of Contents
  (iii) Gain from disposals of subsidiaries for the years ended December 31, 2015 and 2016 are as follows:

 

           2015      2016  
           In millions of won  

Fair value of sale price

         24,524        35,046  

Net assets disposed

       (16,494      (35,046

Non-controlling interests

       —          —    

Realization of unrealized gain

       —          —    

Other comprehensive income(*1)

       346        —    
    

 

 

    

 

 

 

Gain from disposals of subsidiaries(*2)

         8,376        —    
    

 

 

    

 

 

 

 

(*1) This represents the amount subsequently reclassified from other comprehensive income to profit for the period when the Company lost its control of the subsidiaries.

 

(*2) Gain from disposals of subsidiaries is included in the consolidated financial statements of comprehensive income.

 

  (iv) Net cash flow from sales of subsidiaries for the years ended December 31, 2015 and 2016 are as follows:

 

           2015      2015  
           In millions of won  

Consideration received in cash

         10,664        898  

Less: cash held by disposed subsidiaries

       (10,071      (898
    

 

 

    

 

 

 

Net cash flow

         593        —    
    

 

 

    

 

 

 

 

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Table of Contents
(8) Cash dividends received from subsidiaries for the years ended December 31, 2014, 2015 and 2016, respectively, are as follows:

 

Subsidiaries

         2014      2015      2016  
           In millions of won  

Korea Hydro & Nuclear Power Co., Ltd.

         —          446,399        635,200  

Korea South-East Power Co., Ltd.

       34,800        57,485        124,169  

Korea Midland Power Co., Ltd.

       12,244        16,580        23,073  

Korea Western Power Co., Ltd.

       32,048        22,749        36,238  

Korea Southern Power Co., Ltd.

       30,800        10,272        17,849  

Korea East-West Power Co., Ltd.

       8,100        25,280        67,906  

KEPCO Engineering & Construction Company, Inc.

       10,996        14,574        5,069  

KEPCO Plant Service & Engineering Co., Ltd.

       43,095        40,584        39,911  

KEPCO Nuclear Fuel Co., Ltd.

       5,936        6,280        3,411  

KEPCO KDN Co., Ltd.

       3,424        4,046        3,392  

Korea Engineering & Power Services Co., Ltd.

       1,573        —          —    

KEPCO International HongKong Ltd.

       74,927        25,826        9,107  

KEPCO International Philippines Inc.

       100,122        32,891        61,862  

KEPCO Ilijan Corporation

       101,647        38,128        57,979  

KEPCO Philippines Holdings Inc.

       2,811        19,221        17,747  

KEPCO Neimenggu International Ltd.

       6,308        25,338        10,735  

KOMIPO Global Pte Ltd.

       —          —          10,432  

Qatrana Electric Power Company

       —          16,857        8,331  

KOSPO Jordan LLC

       446        —          1,095  

KEPCO Energy Service Company

       —          —          294  

EWP Philippines Corporation

       —          5,586        —    

KEPCO Netherlands S3 B.V.

       —          1,382        —    

PT. KOMIPO Pembangkitan Jawa Bali

       2,827        3,169        3,222  

KEPCO Netherlands J3 B.V.

       —          19,254        12,507  

Gyeongju Wind Power Co., Ltd.

       651        1,294        679  
    

 

 

    

 

 

    

 

 

 
         472,755        833,195        1,150,208  
    

 

 

    

 

 

    

 

 

 

 

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Table of Contents
17. Investments in Associates and Joint Ventures

 

(1) Investments in associates and joint ventures as of December 31, 2015 and 2016 are as follows:

 

2015

 

Investees

 

Key operation activities

  

Location

   Percentage of
ownership
           Acquisition
cost
     Book
value
 
                           In millions of won  

<Associates>

               

Daegu Green Power Co., Ltd.

  Power generation    KOREA      47.80          76,193        80,267  

Korea Gas Corporation(*1)

  Importing and wholesaling LNG    KOREA      20.47        94,500        2,102,813  

Korea Electric Power Industrial Development Co., Ltd.

 

Electricity metering and others

  

KOREA

    
29.00

      
4,727
 
    
18,994
 

YTN Co., Ltd.

  Broadcasting    KOREA      21.43        59,000        38,365  

Cheongna Energy Co., Ltd.

 

Generating and distributing

vapor and hot/cold water

   KOREA      43.90        48,353        19,490  

Gangwon Wind Power Co., Ltd.(*2)

  Power generation    KOREA      15.00        5,725        12,890  

Hyundai Green Power Co., Ltd.

  Power generation    KOREA      29.00        88,885        113,664  

Korea Power Exchange(*6)

  Management of power market and others    KOREA      100.00        127,839        208,735  

AMEC Partners Korea Ltd.(*3)

  Resources development    KOREA      19.00        707        230  

Hyundai Energy Co., Ltd.(*9)

  Power generation    KOREA      30.66        30,118        6,990  

Ecollite Co., Ltd.

  Artificial light-weight aggregate    KOREA      36.10        1,516        —    

Taebaek Wind Power Co., Ltd.

  Power generation    KOREA      25.00        3,810        4,956  

Taeback Guinemi Wind Power Co., Ltd. (formerly, Muju Wind Power Co., Ltd.)

  Power generation    KOREA      25.00        2,850        2,587  

Pyeongchang Wind Power Co., Ltd.

  Power generation    KOREA      25.00        3,875        3,402  

Daeryun Power Co., Ltd.(*3, 10)

  Power generation    KOREA      13.13        25,477        36,156  

JinanJangsu Wind Power Co., Ltd.

  Power generation    KOREA      25.00        100        77  

Changjuk Wind Power Co., Ltd.

  Power generation    KOREA      30.00        3,801        6,143  

KNH Solar Co., Ltd.

  Power generation    KOREA      27.00        1,296        1,924  

SPC Power Corporation

  Power generation    PHILIPPINES      38.00        20,635        58,033  

Gemeng International Energy Co., Ltd.

  Power generation    CHINA      34.00        413,153        728,396  

PT. Cirebon Electric Power

  Power generation    INDONESIA      27.50        40,365        60,574  

KNOC Nigerian East Oil Co., Ltd.(*4)

  Resources development    NIGERIA      14.63        12        —    

KNOC Nigerian West Oil Co., Ltd.(*4)

  Resources development    NIGERIA      14.63        12        —    

Dolphin Property Limited(*4)

  Rental company    NIGERIA      15.00        12        61  

PT Wampu Electric Power

  Power generation    INDONESIA      46.00        21,292        18,963  

PT. Bayan Resources TBK

  Resources development    INDONESIA      20.00        615,860        525,066  

S-Power Co., Ltd.

  Power generation    KOREA      49.00        132,300        130,908  

Pioneer Gas Power Limited(*8)

  Power generation    INDIA      40.00        49,831        51,187  

Eurasia Energy Holdings

 

Power generation and

resources development

   RUSSIA      40.00        461        —    

Xe-Pian Xe-Namnoy Power Co., Ltd.

  Power generation    LAOS      25.00        32,717        31,863  

Busan Solar Co., Ltd.(*3)

  Power generation    KOREA      19.80        793        925  

Hadong Mineral Fiber Co., Ltd.

  Recycling fly ashes    KOREA      25.00        50        —    

Green Biomass Co., Ltd.(*12)

  Power generation    KOREA      14.00        714        —    

PT. Mutiara Jawa

  Manufacturing and operating floating coal terminal    INDONESIA      29.00        2,978        —    

Samcheok Eco Materials Co., Ltd.(*3, 11)

  Recycling fly ashes    KOREA      2.67        686        —    

Noeul Green Energy Co., Ltd.

  Power generation    KOREA      20.00        400        295  

Naepo Green Energy Co., Ltd.

  Power generation    KOREA      25.00        29,200        26,746  

Goseong Green Energy Co., Ltd.(*2)

  Power generation    KOREA      2.90        2,900        2,670  

Gangneung Eco Power Co., Ltd.(*2)

  Power generation    KOREA      3.72        2,900        2,688  

Shin Pyeongtaek Power Co., Ltd.

  Power generation    KOREA      40.00        40        —    

Heang Bok Do Si Photovoltaic Power Co., Ltd.

  Power generation    KOREA      28.00        194        189  

DS POWER Co., Ltd.(*2)

  Power generation    KOREA      14.44        17,900        10,960  

 

F-86


Table of Contents

2015

 

Investees

 

Key operation activities

  

Location

   Percentage of
ownership
           Acquisition
cost
     Book
value
 
                           In millions of won  

Dongducheon Dream Power Co., Ltd.

  Power generation    KOREA      33.61          61,535        55,667  

KS Solar Co., Ltd.(*3)

  Power generation    KOREA      19.00        637        618  

Yeongwol Energy Station Co., Ltd.(*2)

  Power generation    KOREA      10.00        1,400        1,290  

Jinbhuvish Power Generation Pvt. Ltd.(*2)

  Power generation    INDIA      5.16        9,000        8,350  

SE Green Energy Co., Ltd.

  Power generation    KOREA      47.76        3,821        3,575  

Daegu Photovoltaic Co., Ltd.

  Power generation    KOREA      29.00        1,230        1,886  

Jeongam Wind Power Co., Ltd.

  Power generation    KOREA      40.00        1,680        702  

Korea Power Engineering Service Co., Ltd.

  Construction and service    KOREA      29.00        290        1,805  

Busan Green Energy Co., Ltd.

  Power generation    KOREA      29.00        14,564        14,512  

Jungbu Bio Energy Co., Ltd.(*2)

  Power generation    KOREA      18.87        1,000        904  

Korea Electric Vehicle Charging Service

 

Electric vehicle charge service

   KOREA      28.00        1,596        1,446  

Ulleungdo Natural Energy Co., Ltd.

  Renewable power generation    KOREA      29.85        8,000        7,417  

Korea Nuclear Partners Co., Ltd.

  Electric material agency    KOREA      29.00        290        289  
            

 

 

    

 

 

 
               2,069,220        4,405,668  
            

 

 

    

 

 

 

<Joint ventures>

               

KEPCO-Uhde Inc.(*7)

  Power generation    KOREA      52.80        11,355        8,549  

Eco Biomass Energy Sdn. Bhd.(*7)

  Power generation    MALAYSIA      61.53        9,661        —    

Datang Chaoyang Renewable Power Co., Ltd.

  Power generation    CHINA      40.00        27,660        27,640  

Shuweihat Asia Power Investment B.V.

  Holding company    NETHERLANDS      49.00        60,191        20,474  

Shuweihat Asia Operation & Maintenance Company(*7)

  Maintenance of utility plant    CAYMAN      55.00        30        486  

Waterbury Lake Uranium L.P.

  Resources development    CANADA      40.00        26,602        20,299  

ASM-BG Investicii AD

  Power generation    BULGARIA      50.00        16,101        20,203  

RES Technology AD

  Power generation    BULGARIA      50.00        15,595        13,789  

KV Holdings, Inc.

  Power generation    PHILIPPINES      40.00        2,103        2,010  

KEPCO SPC Power Corporation(*7)

  Construction and operation of utility plant    PHILIPPINES      75.20        94,579        208,524  

Canada Korea Uranium Limited Partnership(*5)

  Resources development    CANADA      12.50        5,404        —    

KEPCO Energy Resource Nigeria Limited

  Holding company    NIGERIA      30.00        8,463        —    

Gansu Datang Yumen Wind Power Co., Ltd.

  Power generation    CHINA      40.00        16,621        16,107  

Datang Chifeng Renewable Power Co., Ltd.

  Power generation    CHINA      40.00        121,928        171,224  

Datang KEPCO Chaoyang Renewable Power Co., Ltd.

  Power generation    CHINA      40.00        10,858        10,580  

Rabigh Electricity Company

  Power generation    SAUDI ARABIA      40.00        109,743        59,368  

Rabigh Operation & Maintenance Company

  Maintenance of utility plant    SAUDI ARABIA      40.00        70        3,586  

Jamaica Public Service Company Limited

  Power generation    JAMAICA      40.00        301,910        241,918  

KW Nuclear Components Co., Ltd.

  Manufacturing    KOREA      45.00        833        4,985  

Busan Shinho Solar Power Co., Ltd.

  Power generation    KOREA      25.00        2,100        3,678  

GS Donghae Electric Power Co., Ltd.

  Power generation    KOREA      34.00        204,000        200,379  

Global Trade Of Power System Co., Ltd.

 

Exporting products and

technology of small or

medium business by proxy

  

KOREA

    
29.00

      
290
 
    
426
 

 

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Table of Contents

2015

 

Investees

 

Key operation activities

  

Location

   Percentage of
ownership
           Acquisition
cost
     Book
value
 
                           In millions of won  

Expressway Solar-light Power Generation Co., Ltd.

  Power generation    KOREA      29.00          1,856        2,100  

KODE NOVUS I LLC

  Power generation    USA      50.00        19,213        —    

KODE NOVUS II LLC

  Power generation    USA      49.00        12,498        —    

Daejung Offshore Wind Power Co., Ltd.

  Power generation    KOREA      49.90        4,990        3,352  

Amman Asia Electric Power Company(*7)

  Power generation    JORDAN      60.00        111,476        137,668  

KAPES, Inc. (formerly, KEPCO-ALSTOM Power Electronics Systems, Inc.)(*7)

  R&D    KOREA      51.00        5,629        4,501  

Dangjin Eco Power Co., Ltd.

  Power generation    KOREA      34.00        51,000        48,281  

Honam Wind Power Co., Ltd.

  Power generation    KOREA      29.00        3,480        3,926  

Nepal Water & Energy Development Company Private Limited(*7)

 

Construction and operation of utility plant

  

NEPAL

    
52.77

      
18,568
 
    
17,765
 

Chun-cheon Energy Co., Ltd.

  Power generation    KOREA      29.90        32,868        31,976  

Yeonggwangbaeksu Wind Power Co., Ltd.(*3)

  Power generation    KOREA      15.00        3,000        2,668  

Nghi Son 2 Power Ltd.

  Power generation    VIETNAM      50.00        1,072        269  

Kelar S.A(*7)

  Power generation    CHILE      65.00        4,180        —    

PT. Tanjung Power Indonesia

  Power generation    INDONESIA      35.00        746        617  

Incheon New Power Co., Ltd.

  Power generation    KOREA      29.00        461        514  

Seokmun Energy Co., Ltd.

  Power generation    KOREA      29.00        580        —    
            

 

 

    

 

 

 
               1,317,714        1,287,862  
            

 

 

    

 

 

 
                 3,386,934        5,693,530  
            

 

 

    

 

 

 

 

(*1) The effective percentage of ownership is 21.57% considering treasury stocks.

 

(*2) The Company can exercise significant influence by virtue of its contractual right to appoint directors to the board of directors of the entity, and by strict decision criteria of the Company’s financial and operating policy of the board of directors.

 

(*3) The Company can exercise significant influence by virtue of its contractual right to appoint a director to the board of directors of the entity.

 

(*4) The Company can exercise significant influence by virtue of its contractual right to appoint one out of four members of the steering committee of the entity. Moreover, the Company has significant financial transactions, which can affect its influence on the entity.

 

(*5) The Company has joint control over the entity by virtue of its contractual right to appoint directors to the board of directors of the entity, and by strict decision criteria of the Company’s financial and operating policy of the board of directors.

 

(*6) The Government regulates the Company’s ability to make operating and financial decisions over the entity, as the Government requires maintaining arms-length transactions between KPX and the Company’s other subsidiaries. The Company can exercise significant influence by its right to nominate directors to the board of directors of the entity.

 

(*7) According to the shareholders’ agreement, all critical financial and operating decisions must be agreed to by all ownership parties. For these reasons, the entities are classified as joint ventures.

 

(*8) As of reporting date, the reporting period of all associates and joint ventures ends in December 31, except for Pioneer Gas Power Limited whose reporting period ends on March 31.

 

(*9) As of December 31, 2015, 15.64% of ownership of Hyundai Energy Co., Ltd. is held by NH Power II Co., Ltd. and NH Bank. According to the shareholders’ agreement reached on March 2011, not only does the Company have a call option to acquire the investment in Hyundai Energy Co., Ltd. from NH Power II Co., Ltd. and NH Bank with a certain rate of return, NH Power II Co., Ltd. and NH Bank also have put options to dispose of their investment to the Company. In connection with this agreement, the Company applied the equity method on the investment in Hyundai Energy Co., Ltd. with 46.30% of ownership.

 

(*10) The Company’s percentage of ownership has decreased due to the acquisition of Daeryun Power Co., Ltd. and the effective percentage of ownership is 19.45% considering stock purchase options.

 

(*11) The Company’s effective percentage of ownership excluding the redeemable convertible preferred stock is 25.54%.

 

(*12) The effective percentage of ownership is less than 20% but the Company can exercise significant influence by virtue of its contractual right to appoint a director to the board of directors of the entity and the fact that the dominant portion of the investee’s sales transactions is generated from the Company.

 

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Table of Contents

2016

 

Investees

 

Key operation activities

 

Location

  Percentage of
ownership
          Acquisition
cost
    Book
value
 
                        In millions of won  

<Associates>

           

Korea Gas Corporation(*1)

  Importing and wholesaling LNG   KOREA     20.47         94,500       1,933,877  

Korea Electric Power Industrial Development
Co., Ltd.

  Electricity metering and others   KOREA     29.00       4,727       20,475  

YTN Co., Ltd.

  Broadcasting   KOREA     21.43       59,000       38,156  

Cheongna Energy Co., Ltd.

 

Generating and distributing

vapor and hot/cold water

  KOREA     43.90       48,353       12,373  

Gangwon Wind Power Co., Ltd.(*2)

  Power generation   KOREA     15.00       5,725       13,069  

Hyundai Green Power Co., Ltd.

  Power generation   KOREA     29.00       88,885       115,998  

Korea Power Exchange(*6)

 

Management of power market

and others

  KOREA     100.00       127,839       223,238  

AMEC Partners Korea Ltd.(*3)

  Resources development   KOREA     19.00       707       225  

Hyundai Energy Co., Ltd.(*9)

  Power generation   KOREA     30.66       71,070       1,031  

Ecollite Co., Ltd.

  Artificial light-weight aggregate   KOREA     36.10       1,516       —    

Taebaek Wind Power Co., Ltd.

  Power generation   KOREA     25.00       3,810       4,750  

Taeback Guinemi Wind Power Co., Ltd. (formerly, Muju Wind Power Co., Ltd.)

  Power generation   KOREA     25.00       3,420       3,131  

Pyeongchang Wind Power Co., Ltd.

  Power generation   KOREA     25.00       3,875       3,383  

Daeryun Power Co., Ltd.(*3, 10)

  Power generation   KOREA     13.13       25,477       29,873  

Changjuk Wind Power Co., Ltd.

  Power generation   KOREA     30.00       3,801       6,930  

KNH Solar Co., Ltd.

  Power generation   KOREA     27.00       1,296       2,073  

SPC Power Corporation

  Power generation   PHILIPPINES     38.00       20,635       56,818  

Gemeng International Energy Co., Ltd.

  Power generation   CHINA     34.00       413,153       680,065  

PT. Cirebon Electric Power

  Power generation   INDONESIA     27.50       40,365       96,658  

KNOC Nigerian East Oil Co., Ltd.(*4)

  Resources development   NIGERIA     14.63       12       —    

KNOC Nigerian West Oil Co., Ltd.(*4)

  Resources development   NIGERIA     14.63       12       —    

PT Wampu Electric Power

  Power generation   INDONESIA     46.00       21,292       23,188  

PT. Bayan Resources TBK

  Resources development   INDONESIA     20.00       615,860       402,667  

S-Power Co., Ltd.

  Power generation   KOREA     49.00       132,300       123,912  

Pioneer Gas Power Limited(*8)

  Power generation   INDIA     40.00       49,831       50,740  

Eurasia Energy Holdings

 

Power generation and

resources development

  RUSSIA     40.00       461       —    

Xe-Pian Xe-Namnoy Power Co., Ltd.

  Power generation   LAOS     25.00       49,119       51,544  

Hadong Mineral Fiber Co., Ltd.(*17)

  Recycling fly ashes   KOREA     8.33       50       —    

Green Biomass Co., Ltd.(*12)

  Power generation   KOREA     14.00       714       47  

PT. Mutiara Jawa

 

Manufacturing and operating

floating coal terminal

  INDONESIA     29.00       2,978       —    

Samcheok Eco Materials Co., Ltd.(*3, 11)

  Recycling fly ashes   KOREA     2.35       686       —    

Noeul Green Energy Co., Ltd.

  Power generation   KOREA     29.00       1,740       1,217  

Naepo Green Energy Co., Ltd.

  Power generation   KOREA     25.00       29,200       25,438  

Goseong Green Energy Co., Ltd.(*2)

  Power generation   KOREA     1.12       2,900       2,663  

Gangneung Eco Power Co., Ltd.(*2)

  Power generation   KOREA     1.61       2,900       2,646  

Shin Pyeongtaek Power Co., Ltd.

  Power generation   KOREA     40.00       40       —    

Heang Bok Do Si Photovoltaic Power Co., Ltd.

  Power generation   KOREA     28.00       194       181  

DS POWER Co., Ltd.(*2)

  Power generation   KOREA     14.44       17,900       7,190  

Dongducheon Dream Power Co., Ltd.

  Power generation   KOREA     33.61       61,535       46,876  

KS Solar Co., Ltd.(*3)

  Power generation   KOREA     19.00       637       604  

Yeongwol Energy Station Co., Ltd.(*2)

  Power generation   KOREA     10.00       1,400       —    

Jinbhuvish Power Generation Pvt. Ltd.(*2)

  Power generation   INDIA     5.16       9,000       —    

SE Green Energy Co., Ltd.

  Power generation support   KOREA     47.76       3,821       3,525  

Daegu Photovoltaic Co., Ltd.

  Power generation   KOREA     29.00       1,230       1,700  

Jeongam Wind Power Co., Ltd.

  Power generation   KOREA     40.00       5,580       4,000  

Korea Power Engineering Service Co., Ltd.

  Construction and service   KOREA     29.00       290       2,810  

Busan Green Energy Co., Ltd.

  Power generation   KOREA     29.00       14,564       13,803  

Jungbu Bio Energy Co., Ltd.(*2)

  Power generation   KOREA     18.87       1,000       —    

 

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2016

 

Investees

 

Key operation activities

 

Location

  Percentage of
ownership
          Acquisition
cost
    Book
value
 
                        In millions of won  

Korea Electric Vehicle Charging Service

  Electric vehicle charge service   KOREA     28.00         1,596       1,103  

Ulleungdo Natural Energy Co., Ltd.

  Renewable power generation   KOREA     29.85       8,000       6,894  

Korea Nuclear Partners Co., Ltd.

  Electric material agency   KOREA     29.00       290       248  

Tamra Offshore Wind Power Co., Ltd.

  Power generation   KOREA     27.00       8,910       7,015  

Korea Electric Power Corporation Fund(*13)

  Developing electric enterprises   KOREA     98.09       51,500       50,856  

Energy Infra Asset Management Co., Ltd.(*3)

  Asset management   KOREA     9.90       297       259  

Daegu clean Energy Co., Ltd.

  Renewable power generation   KOREA     28.00       140       140  

YaksuESS Co., Ltd

 

Installing ESS related

equipment

  KOREA     29.00       210       196  

Nepal Water & Energy Development Company Private Limited(*14)

 

Construction and operation of utility plant

  NEPAL     52.77%         18,568       18,667  
         

 

 

   

 

 

 
            2,134,911       4,092,252  
         

 

 

   

 

 

 

<Joint ventures>

           

KEPCO-Uhde Inc.(*7)

  Power generation   KOREA     52.8       11,355       301  

Eco Biomass Energy Sdn. Bhd.(*7)

  Power generation   MALAYSIA     61.53       9,661       —    

Datang Chaoyang Renewable Power Co., Ltd.

  Power generation   CHINA     40.00       27,660       28,239  

Shuweihat Asia Power Investment B.V.

  Holding company   NETHERLANDS     49.00       46,037       —    

Shuweihat Asia Operation & Maintenance Company(*7)

  Maintenance of utility plant   CAYMAN     55.00       30       450  

Waterbury Lake Uranium L.P.

  Resources development   CANADA     36.97       26,602       21,314  

ASM-BG Investicii AD

  Power generation   BULGARIA     50.00       16,101       21,488  

RES Technology AD

  Power generation   BULGARIA     50.00       15,595       13,582  

KV Holdings, Inc.

  Power generation   PHILIPPINES     40.00       2,103       2,098  

KEPCO SPC Power Corporation(*7)

  Construction and operation of utility plant   PHILIPPINES     75.20       94,579       245,367  

Canada Korea Uranium Limited Partnership(*5)

  Resources development   CANADA     12.50       5,404       —    

Gansu Datang Yumen Wind Power Co., Ltd.

  Power generation   CHINA     40.00       16,621       12,821  

Datang Chifeng Renewable Power Co., Ltd.

  Power generation   CHINA     40.00       121,928       166,535  

Datang KEPCO Chaoyang Renewable Power Co., Ltd.

  Power generation   CHINA     40.00       10,858       10,843  

Rabigh Electricity Company

  Power generation   SAUDI ARABIA     40.00       109,743       97,802  

Rabigh Operation & Maintenance Company

  Maintenance of utility plant   SAUDI ARABIA     40.00       70       4,427  

Jamaica Public Service Company Limited

  Power generation   JAMAICA     40.00       301,910       249,453  

KW Nuclear Components Co., Ltd.

  Manufacturing   KOREA     45.00       833       7,133  

Busan Shinho Solar Power Co., Ltd.

  Power generation   KOREA     25.00       2,100       3,814  

GS Donghae Electric Power Co., Ltd.

  Power generation   KOREA     34.00       204,000       205,948  

Global Trade Of Power System Co., Ltd.

 

Exporting products and

technology of small or

medium business by proxy

  KOREA     29.00       290       477  

Expressway Solar-light Power Generation Co., Ltd.

  Power generation   KOREA     29.00       1,856       2,343  

KODE NOVUS I LLC

  Power generation   USA     50.00       19,213       —    

KODE NOVUS II LLC

  Power generation   USA     50.00       12,756       —    

Daejung Offshore Wind Power Co., Ltd.

  Power generation   KOREA     49.90       4,990       3,015  

 

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Table of Contents

2016

 

Investees

 

Key operation activities

 

Location

  Percentage of
ownership
          Acquisition
cost
    Book
value
 
                        In millions of won  

Amman Asia Electric Power Company(*7)

  Power generation   JORDAN     60.00         111,476       153,857  

KAPES, Inc. (formerly, KEPCO-ALSTOM Power Electronics Systems, Inc.)(*7)

  R&D   KOREA     51.00       5,629       4,758  

Dangjin Eco Power Co., Ltd.

  Power generation   KOREA     34.00       56,100       53,253  

Honam Wind Power Co., Ltd.

  Power generation   KOREA     29.00       3,480       4,451  

Chun-cheon Energy Co., Ltd.

  Power generation   KOREA     29.90       52,700       50,592  

Yeonggwangbaeksu Wind Power Co., Ltd.(*3)

  Power generation   KOREA     15.00       3,000       2,689  

Nghi Son 2 Power Ltd.

  Power generation   VIETNAM     50.00       1,788       229  

Kelar S.A(*7)

  Power generation   CHILE     65.00       4,180       —    

PT. Tanjung Power Indonesia

  Power generation   INDONESIA     35.00       746       1,946  

Incheon New Power Co., Ltd.

  Power generation   KOREA     29.00       461       563  

Seokmun Energy Co., Ltd.

  Power generation   KOREA     29.00       580       391  

Daehan Wind Power PSC

  Power generation   JORDAN     50.00       285       16  

Barakah One Company(*16)

  Power generation   UAE     18.00       118       116  

Nawah Energy Company(*16)

  Operation of utility plant   UAE     18.00       296       290  

MOMENTUM

  International thermonuclear experimental reactor construction management   FRANCE     33.33       1       67  

Daegu Green Power Co., Ltd.(*15)

  Power generation   KOREA     29.00       46,225       47,528  
         

 

 

   

 

 

 
            1,349,360       1,418,196  
         

 

 

   

 

 

 
              3,484,271       5,510,448  
         

 

 

   

 

 

 

 

(*1) The effective percentage of ownership is 21.57% considering treasury stocks.

 

(*2) The Company can exercise significant influence by virtue of its contractual right to appoint directors to the board of directors of the entity, and by strict decision criteria of the Company’s financial and operating policy of the board of directors.

 

(*3) The Company can exercise significant influence by virtue of its contractual right to appoint a director to the board of directors of the entity.

 

(*4) The Company can exercise significant influence by virtue of its contractual right to appoint one out of four members of the steering committee of the entity. Moreover, the Company has significant financial transactions, which can affect its influence on the entity.

 

(*5) The Company has joint control over the entity by virtue of its contractual right to appoint directors to the board of directors of the entity, and by strict decision criteria of the Company’s financial and operating policy of the board of directors.

 

(*6) The Government regulates the Company’s ability to make operating and financial decisions over the entity, as the Government requires maintaining arms-length transactions between KPX and the Company’s other subsidiaries. The Company can exercise significant influence by its right to nominate directors to the board of directors of the entity.

 

(*7) According to the shareholders’ agreement, all critical financial and operating decisions must be agreed to by all ownership parties. For these reasons, the entities are classified as joint ventures.

 

(*8) As of reporting date, the reporting period of all associates and joint ventures ends in December 31, except for Pioneer Gas Power Limited whose reporting period ends on March 31.

 

(*9) As of December 31, 2016, 15.64% of ownership of Hyundai Energy Co., Ltd. is held by NH Power II Co., Ltd. and NH Bank. According to the shareholders’ agreement reached on March 2011, not only does the Company have a call option to acquire the investment in Hyundai Energy Co., Ltd. from NH Power II Co., Ltd. and NH Bank with a certain rate of return, NH Power II Co., Ltd. and NH Bank also have put options to dispose of their investment to the Company. In connection with this agreement, the Company applied the equity method on the investment in Hyundai Energy Co., Ltd. with 46.30% of ownership.

 

(*10) The Company’s percentage of ownership has decreased due to the acquisition of Daeryun Power Co., Ltd. and the effective percentage of ownership is 19.45% considering stock purchase options.

 

(*11) The Company’s effective percentage of ownership excluding the redeemable convertible preferred stock is 25.54%.

 

(*12) The effective percentage of ownership is less than 20% but the Company can exercise significant influence by virtue of its contractual right to appoint a director to the board of directors of the entity and the fact that the dominant portion of the investee’s sales transactions is generated from the Company.

 

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Table of Contents
(*13) The effective percentage of ownership is more than 50% but the Company does not hold control over relevant business while it exercises significant influence by participating in the Investment Decision Committee. For this reason, the entity is classified as an associate.

 

(*14) The effective percentage of ownership is more than 50%, but the Company does not control the entity according to the shareholders’ agreement. For this reason, the entity is classified as an associate.

 

(*15) The entity is reclassified from associates to joint ventures since the terms of the shareholders’ agreement had been amended.

 

(*16) The effective percentage of ownership is less than 20%, but the Company has joint control over the entity as decisions on the major activities require the unanimous consent of the parties that collectively control the entity.

 

(*17) Although the percentage of ownership temporarily decreased to 8.33% from the difference in timing of capital payment by shareholders, the Company can exercise significant influence by virtue of its right to appoint a director to the board of directors of the entity based on the shareholders’ agreement. The percentage of ownership is 25.00% at the time of completion of capital payment.

 

(2) The fair value of associates which are actively traded on the open market and have a readily available market value as of December 31, 2015 and 2016 are as follows:

 

Investees

         2015      2016  
           In millions of won  

<Associates>

       

Korea Electric Power Industrial Development Co., Ltd.

         46,514        45,474  

Korea Gas Corporation(*)

       696,465        915,705  

YTN Co., Ltd.

       26,235        22,320  

SPC Power Corporation

       65,552        70,253  

PT. Bayan Resources TBK

       446,250        359,200  

 

  (*) The carrying amount of Korea Gas Corporation (“KOGAS”) is ₩1,933,877 million as of December 31, 2016 and management has determined that there is objective evidence of impairment. As a result of the impairment test, the Company has not recognized any impairment loss as the value in use is greater than the carrying amount. The recoverable amount of KOGAS based on its value in use is calculated by considering the long-term natural gas supply and demand programs of future cash flows approved by Ministry of Trade, Industry & Energy and the discount rate of 4.66%.

 

(3) Changes in investments in associates and joint ventures for the years ended December 31, 2015 and 2016 are as follows:

 

           2015  

Investees

         Beginning
balance
    Acquisition     Disposal     Dividends
received
    Share of
income
(loss)
    Other
comprehensive
income

(loss)
    Others     Ending
balance
 
           In millions of won  

<Associates>

                  

Daegu Green Power Co., Ltd.

         71,387       —         —         —         8,902       —         (22     80,267  

Korea Gas Corporation

       2,097,539       —         —         (4,725     67,949       (55,453     (2,497     2,102,813  

Korea Electric Power Industrial Development Co., Ltd.

       21,622       —         —         (1,267     (1,792     —         431       18,994  

YTN Co., Ltd.

       39,889       —         —         (90     (188     (935     (311     38,365  

Cheongna Energy Co., Ltd.

       28,771       —         —         —         (9,281     —         —         19,490  

Gangwon Wind Power Co., Ltd.

       12,385       —         —         (852     1,279       78       —         12,890  

Hyundai Green Power Co., Ltd.

       113,033       —         —         (8,889     9,520       —         —         113,664  

Korea Power Exchange

       198,021       —         —         —         9,944       —         770       208,735  

AMEC Partners Korea Ltd.

       200       —         —         —         30       —         —         230  

Hyundai Energy Co., Ltd.(*1)

       35,925       —         —         —         (13,731     —         (15,204     6,990  

Ecollite Co., Ltd.

       —         —         —         —         —         —         —         —    

Taebaek Wind Power Co., Ltd.

       5,525       —         —         —         (569     —         —         4,956  

Taeback Guinemi Wind Power Co., Ltd. (formerly, Muju Wind Power Co., Ltd.)

       2,706       —         —         —         (119     —         —         2,587  

 

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           2015  

Investees

         Beginning
balance
    Acquisition     Disposal     Dividends
received
    Share of
income
(loss)
    Other
comprehensive
income

(loss)
    Others     Ending
balance
 
           In millions of won  

Pyeongchang Wind Power Co., Ltd.

         3,693       —         —         —         (291     —         —         3,402  

Daeryun Power Co., Ltd.

       41,951       —         —         —         (5,798     —         3       36,156  

JinanJangsu Wind Power Co., Ltd.

       77       —         —         —         —         —         —         77  

Changjuk Wind Power Co., Ltd.

       6,486       —         —         —         (343     —         —         6,143  

KNH Solar Co., Ltd.

       1,744       —         —         —         178       2       —         1,924  

SPC Power Corporation

       47,799       —         —         (1,349     5,375       381       5,827       58,033  

Gemeng International Energy Co., Ltd.

       667,578       —         —         (37,163     51,766       89,481       (43,266     728,396  

PT. Cirebon Electric Power

       43,335       —         —         —         12,210       5,029       —         60,574  

KNOC Nigerian East Oil Co., Ltd.

       —         —         —         —         (880     (641     1,521       —    

KNOC Nigerian West Oil Co., Ltd.

       —         —         —         —         (1,092     (599     1,691       —    

Dolphin Property Limited

       61       —         —         —         —         —         —         61  

PT Wampu Electric Power

       16,071       2,357       —         —         (600     1,135       —         18,963  

PT. Bayan Resources TBK

       540,011       —         —         —         (11,341     (3,604     —         525,066  

S-Power Co., Ltd.

       104,244       24,300       —         —         2,364       —         —         130,908  

Pioneer Gas Power Limited

       50,668       —         —         —         59       460       —         51,187  

Eurasia Energy Holdings

       —         —         —         —         —         —         —         —    

Xe-Pian Xe-Namnoy Power Co., Ltd.

       22,152       9,244       —         —         (749     1,216       —         31,863  

Busan Solar Co., Ltd.

       853       —         —         —         72       —         —         925  

Hadong Mineral Fiber Co., Ltd.

       3       —         —         —         (3     —         —         —    

Green Biomass Co., Ltd.

       —         —         —         —         —         —         —         —    

PT. Mutiara Jawa

       818       —         —         —         (818     —         —         —    

Samcheok Eco Materials Co., Ltd.

       212       —         —         —         (178     (34     —         —    

Noeul Green Energy Co., Ltd.

       189       200       —         —         (91     (3     —         295  

Naepo Green Energy Co., Ltd.

       28,064       —         —         —         (1,318     —         —         26,746  

Goseong Green Energy Co., Ltd.

       2,586       —         —         —         84       —         —         2,670  

Gangneung Eco Power Co., Ltd.

       2,783       —         —         —         (95     —         —         2,688  

Shin Pyeongtaek Power Co., Ltd.

       —         —         —         —         —         —         —         —    

Heang Bok Do Si Photovoltaic Power Co., Ltd.

       221       —         —         —         (32     —         —         189  

DS POWER Co., Ltd.

       15,642       —         —         —         (4,671     —         (11     10,960  

Dongducheon Dream Power Co., Ltd.(*2)

       100,545       —         —         —         (3,412     —         (41,466     55,667  

KS Solar Co., Ltd.

       325       —         —         —         293       —         —         618  

Yeongwol Energy Station Co., Ltd.

       1,741       —         —         —         (451     —         —         1,290  

Jinbhuvish Power Generation Pvt. Ltd.

       8,344       —         —         —         (42     48       —         8,350  

SE Green Energy Co., Ltd.

       3,623       —         —         —         (48     —         —         3,575  

Daegu Photovoltaic Co., Ltd.

       1,581       —         —         —         305       —         —         1,886  

Jeongam Wind Power Co., Ltd.

       93       880       —         —         (271     —         —         702  

Korea Power Engineering Service Co., Ltd.

       1,334       —         —         (44     542       —         (27     1,805  

Busan Green Energy Co., Ltd.

       —         14,564       —         —         (52     —         —         14,512  

Jungbu Bio Energy Co., Ltd.

       —         1,000       —         —         (96     —         —         904  

Korea Electric Vehicle Charging Service

       —         1,596       —         —         (135     —         (15     1,446  

Ulleungdo Natural Energy Co., Ltd.

       —         8,000       —         —         (583     —         —         7,417  

Korea Nuclear Partners Co., Ltd.

       —         290       —         —         (1     —         —         289  
    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
       4,341,830       62,431       —         (54,379     111,801       36,561       (92,576     4,405,668  
    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

<Joint ventures>

                  

KEPCO-Uhde Inc.

       9,042       —         —         —         (493     —         —         8,549  

Eco Biomass Energy Sdn. Bhd.

       —         —         —         —         —         —         —         —    

Datang Chaoyang Renewable Power Co., Ltd.

       27,514       —         —         —         (135     261       —         27,640  

 

F-93


Table of Contents
           2015  

Investees

         Beginning
balance
    Acquisition     Disposal     Dividends
received
    Share of
income
(loss)
    Other
comprehensive
income

(loss)
    Others     Ending
balance
 
           In millions of won  

Shuweihat Asia Power Investment B.V.

         16,241       108       —         —         4,008       117       —         20,474  

Shuweihat Asia Operation & Maintenance Company

       345       —         —         (798     922       24       (7     486  

Waterbury Lake Uranium L.P.

       22,010       —         —         —         —         (2,507     796       20,299  

ASM-BG Investicii AD

       19,608       —         —         —         1,384       (789     —         20,203  

RES Technology AD

       14,725       —         —         —         (318     (618     —         13,789  

KV Holdings, Inc.

       1,902       —         —         —         74       34       —         2,010  

KEPCO SPC Power Corporation

       190,519       —         —         (28,986     43,801       3,190       —         208,524  

Canada Korea Uranium Limited Partnership

       —         —         —         —         —         —         —         —    

KEPCO Energy Resource Nigeria Limited

       —         —         —         —         —         —         —         —    

Gansu Datang Yumen Wind Power Co., Ltd.

       17,467       —         —         —         (1,546     186       —         16,107  

Datang Chifeng Renewable Power Co., Ltd.

       169,496       —         —         (8,239     8,512       1,464       (9     171,224  

Datang KEPCO Chaoyang Renewable Power Co., Ltd.

       10,539       —         —         —         (33     74       —         10,580  

Rabigh Electricity Company

       8,121       —         —         —         21,582       29,703       (38     59,368  

Rabigh Operation & Maintenance Company

       4,628       —         —         (1,780     533       205       —         3,586  

Jamaica Public Service Company Limited

       226,892       —         —         —         —         15,027       (1     241,918  

KW Nuclear Components Co., Ltd.

       2,899       —         —         (1,016     3,065       —         37       4,985  

Busan Shinho Solar Power Co., Ltd.

       3,284       —         —         —         394       —         —         3,678  

GS Donghae Electric Power Co., Ltd.

       201,409       —         —         —         (1,064     —         34       200,379  

Global Trade Of Power System Co., Ltd.

       343       —         —         —         83       —         —         426  

Expressway Solar-light Power Generation Co., Ltd.

       2,087       —         —         —         13       —         —         2,100  

KODE NOVUS I LLC

       12,207       —         —         —         (11,639     588       (1,156     —    

KODE NOVUS II LLC

       8,248       —         —         —         (8,104     413       (557     —    

Daejung Offshore Wind Power Co., Ltd.

       3,711       —         —         —         (359     —         —         3,352  

Amman Asia Electric Power Company

       122,391       —         —         (19,510     25,131       10,244       (588     137,668  

KAPES, Inc. (formerly, KEPCO-ALSTOM Power Electronics Systems, Inc.)

       4,617       —         —         —         (98     —         (18     4,501  

Dangjin Eco Power Co., Ltd.

       37,837       20,000       (8,851     —         (712     70       (63     48,281  

Honam Wind Power Co., Ltd.

       3,555       —         —         —         371       —         —         3,926  

Nepal Water & Energy Development Company Private Limited

       17,872       —         —         —         (1,277     1,170       —         17,765  

Chun-cheon Energy Co., Ltd.

       —         32,853       —         —         (719     (158     —         31,976  

Yeonggwangbaeksu Wind Power Co., Ltd.

       2,962       —         —         —         (294     —         —         2,668  

Nghi Son 2 Power Ltd.

       102       722       —         —         (562     2       5       269  

Kelar S.A

       3,156       —         —         —         —         (407     (2,749     —    

PT. Tanjung Power Indonesia

       700       —         —         —         (98     —         15       617  

Incheon New Power Co., Ltd.

       465       —         —         —         49       —         —         514  

Seokmun Energy Co., Ltd.

       —         —         (100     —         —         —         100       —    
    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
       1,166,894       53,683       (8,951     (60,329     82,471       58,293       (4,199     1,287,862  
    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
         5,508,724       116,114       (8,951     (114,708     194,272       94,854       (96,775     5,693,530  
    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(*1) ‘Others’ include ₩15,204 million of assets held-for-sale (note 42).

 

(*2) ‘Others’ include ₩41,170 million of assets held-for-sale (note 42).

 

F-94


Table of Contents
           2016  

Investees

         Beginning
balance
    Acquisition     Disposal     Dividends
received
    Share of
income
(loss)
    Other
comprehensive
income (loss)
    Others     Ending
balance
 
           In millions of won  

<Associates>

                  

Daegu Green Power Co., Ltd.

         80,267       3,347       (34,422     —         (1,814     148       (47,526     —    

Korea Gas Corporation

       2,102,813       —         —         (3,213     (146,308     (14,551     (4,864     1,933,877  

Korea Electric Power Industrial

Development Co., Ltd.

       18,994       —         —         (1,598     4,491       —         (1,412     20,475  

YTN Co., Ltd.

       38,365       —         —         —         (227     32       (14     38,156  

Cheongna Energy Co., Ltd.

       19,490       —         —         —         (7,117     —         —         12,373  

Gangwon Wind Power Co., Ltd.

       12,890       —         —         (1,136     1,270       45       —         13,069  

Hyundai Green Power Co., Ltd.

       113,664       —         —         (8,888     11,222       —         —         115,998  

Korea Power Exchange

       208,735       —         —         —         15,847       —         (1,344     223,238  

AMEC Partners Korea Ltd.

       230       —         —         —         (5     —         —         225  

Hyundai Energy Co., Ltd.

       6,990       —         —         —         (21,163     —         15,204       1,031  

Ecollite Co., Ltd.

       —         —         —         —         —         —         —         —    

Taebaek Wind Power Co., Ltd.

       4,956       —         —         —         (206     —         —         4,750  

Taeback Guinemi Wind Power Co., Ltd. (formerly, Muju Wind Power Co., Ltd.)

       2,587       570       —         —         (26     —         —         3,131  

Pyeongchang Wind Power Co., Ltd.

       3,402       —         —         —         (19     —         —         3,383  

Daeryun Power Co., Ltd.

       36,156       —         —         —         (6,282     (1     —         29,873  

JinanJangsu Wind Power Co., Ltd.

       77       —         (64     —         (13     —         —         —    

Changjuk Wind Power Co., Ltd.

       6,143       —         —         (190     977       —         —         6,930  

KNH Solar Co., Ltd.

       1,924       —         —         —         144       5       —         2,073  

SPC Power Corporation

       58,033       —         —         (7,151     6,416       (477     (3     56,818  

Gemeng International Energy Co., Ltd.

       728,396       —         —         (16,476     26,714       (58,493     (76     680,065  

PT. Cirebon Electric Power

       60,574       —         —         (1,242     31,511       2,568       3,247       96,658  

KNOC Nigerian East Oil Co., Ltd.

       —         —         —         —         (1,346     (398     1,744       —    

KNOC Nigerian West Oil Co., Ltd.

       —         —         —         —         (973     (356     1,329       —    

Dolphin Property Limited

       61       —         —         (35     —         (69     43       —    

PT Wampu Electric Power

       18,963       —         —         —         3,493       (3     735       23,188  

PT. Bayan Resources TBK(*2)

       525,066       —         —         —         (23,257     208       (99,350     402,667  

S-Power Co., Ltd.

       130,908       —         —         —         (7,006     —         10       123,912  

Pioneer Gas Power Limited

       51,187       —         —         —         (698     251       —         50,740  

Eurasia Energy Holdings

       —         —         —         —         —         —         —         —    

Xe-Pian Xe-Namnoy Power Co., Ltd.

       31,863       16,402       —         —         1,576       1,703       —         51,544  

Busan Solar Co., Ltd.

       925       —         (887     —         (38     —         —         —    

Hadong Mineral Fiber Co., Ltd.

       —         —         —         —         —         —         —         —    

Green Biomass Co., Ltd.

       —         —         —         —         (138     —         185       47  

PT. Mutiara Jawa

       —         —         —         —         —         —         —         —    

Samcheok Eco Materials Co., Ltd.

       —         —         —         —         —         —         —         —    

Noeul Green Energy Co., Ltd.

       295       1,340       —         —         (418     —         —         1,217  

Naepo Green Energy Co., Ltd.

       26,746       —         —         —         (1,308     —         —         25,438  

Goseong Green Energy Co., Ltd.

       2,670       —         —         —         71       —         (78     2,663  

Gangneung Eco Power Co., Ltd.

       2,688       —         —         —         56       —         (98     2,646  

Shin Pyeongtaek Power Co., Ltd.

       —         —         —         —         —         —         —         —    

Heang Bok Do Si Photovoltaic Power Co., Ltd.

       189       —         —         —         (10     —         2       181  

DS POWER Co., Ltd.

       10,960       —         —         —         (3,738     —         (32     7,190  

Dongducheon Dream Power Co., Ltd.

       55,667       —         —         —         (8,757     —         (34     46,876  

KS Solar Co., Ltd.

       618       —         —         —         (14     —         —         604  

Yeongwol Energy Station Co., Ltd.(*1)

       1,290       —         —         —         85       25       (1,400     —    

Jinbhuvish Power Generation Pvt. Ltd.(*3)

       8,350       —         —         —         (49     (198     (8,103     —    

 

F-95


Table of Contents
           2016  

Investees

         Beginning
balance
    Acquisition     Disposal     Dividends
received
    Share of
income
(loss)
    Other
comprehensive
income (loss)
    Others     Ending
balance
 
           In millions of won  

SE Green Energy Co., Ltd.

         3,575       —         —         —         (50     —         —         3,525  

Daegu Photovoltaic Co., Ltd.

       1,886       —         —         (411     225       —         —         1,700  

Jeongam Wind Power Co., Ltd.

       702       3,900       —         —         (602     —         —         4,000  

Korea Power Engineering Service Co., Ltd.

       1,805       —         —         —         1,005       —         —         2,810  

Busan Green Energy Co., Ltd.

       14,512       —         —         —         (709     —         —         13,803  

Jungbu Bio Energy Co., Ltd.

       904       —         —         —         (904     —         —         —    

Korea Electric Vehicle Charging Service

       1,446       —         —         —         (343     —         —         1,103  

Ulleungdo Natural Energy Co., Ltd.

       7,417       —         —         —         (516     —         (7     6,894  

Korea Nuclear Partners Co., Ltd.

       289       —         —         —         (41     —         —         248  

Tamra Offshore Wind Power Co., Ltd.

       —         8,910       —         —         (1,895     —         —         7,015  

Korea Electric Power Corporation Fund

       —         51,500       —         —         (644     —         —         50,856  

Energy Infra Asset Management Co., Ltd.

       —         297       —         —         (38     —         —         259  

Daegu clean Energy Co., Ltd.

       —         140       —         —         —         —         —         140  

YaksuESS Co., Ltd

       —         210       —         —         (14     —         —         196  

Nepal Water & Energy Development Company Private Limited

       —         —         —         —         —         —         18,667       18,667  
    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
       4,405,668       86,616       (35,373     (40,340     (131,583     (69,561     (123,175     4,092,252  
    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

<Joint ventures>

                  

KEPCO-Uhde Inc.(*4)

       8,549       —         —         —         (159     —         (8,089     301  

Eco Biomass Energy Sdn. Bhd.

       —         —         —         —         —         —         —         —    

Datang Chaoyang Renewable Power Co., Ltd.

       27,640       —         —         —         1,417       (818     —         28,239  

Shuweihat Asia Power Investment B.V.

       20,474       —         (14,154     (2,957     6,131       (9,494     —         —    

Shuweihat Asia Operation & Maintenance Company

       486       —         —         (931     941       (46     —         450  

Waterbury Lake Uranium L.P.

       20,299       —         —         —         —         1,138       (123     21,314  

ASM-BG Investicii AD

       20,203       —         —         —         1,508       (223     —         21,488  

RES Technology AD

       13,789       —         —         —         (68     (139     —         13,582  

KV Holdings, Inc.

       2,010       —         —         (302     429       (39     —         2,098  

KEPCO SPC Power Corporation

       208,524       —         —         (5,955     48,132       (5,308     (26     245,367  

Canada Korea Uranium Limited Partnership

       —         —         —         —         —         —         —         —    

Gansu Datang Yumen Wind Power Co., Ltd.

       16,107       —         —         —         (2,836     (450     —         12,821  

Datang Chifeng Renewable Power Co., Ltd.

       171,224       —         —         (7,384     7,455       (4,760     —         166,535  

Datang KEPCO Chaoyang Renewable Power Co., Ltd.

       10,580       —         —         (440     1,002       (299     —         10,843  

Rabigh Electricity Company

       59,368       —         —         —         18,961       19,473       —         97,802  

Rabigh Operation & Maintenance Company

       3,586       —         —         (1,934     2,253       229       293       4,427  

Jamaica Public Service Company Limited

       241,918       —         —         —         —         7,535       —         249,453  

KW Nuclear Components Co., Ltd.

       4,985       —         —         (2,191     4,344       —         (5     7,133  

Busan Shinho Solar Power Co., Ltd.

       3,678       —         —         (185     321       —         —         3,814  

GS Donghae Electric Power Co., Ltd.

       200,379       —         —         —         5,575       —         (6     205,948  

Global Trade Of Power System Co., Ltd.

       426       —         —         —         51       —         —         477  

 

F-96


Table of Contents
           2016  

Investees

         Beginning
balance
    Acquisition     Disposal     Dividends
received
    Share of
income
(loss)
    Other
comprehensive
income (loss)
    Others     Ending
balance
 
           In millions of won  

Expressway Solar-light Power Generation Co., Ltd.

         2,100       —         —         —         243       —         —         2,343  

KODE NOVUS I LLC

       —         —         —         —         —         —         —         —    

KODE NOVUS II LLC

       —         258       —         —         (260     —         2       —    

Daejung Offshore Wind Power Co., Ltd.

       3,352       —         —         —         (337     —         —         3,015  

Amman Asia Electric Power Company

       137,668       —         —         (12,684     17,811       11,062       —         153,857  

KAPES, Inc. (formerly, KEPCO-ALSTOM Power Electronics Systems, Inc.)

       4,501       —         —         —         311       —         (54     4,758  

Dangjin Eco Power Co., Ltd.

       48,281       5,100       —         —         (696     (26     594       53,253  

Honam Wind Power Co., Ltd.

       3,926       —         —         (104     629       —         —         4,451  

Nepal Water & Energy Development Company Private Limited

       17,765       —         —         —         359       543       (18,667     —    

Chun-cheon Energy Co., Ltd.

       31,976       19,832       —         —         (1,121     (95     —         50,592  

Yeonggwangbaeksu Wind Power Co., Ltd.

       2,668       —         —         —         16       —         5       2,689  

Nghi Son 2 Power Ltd.

       269       716       —         —         (740     (16     —         229  

Kelar S.A

       —         —         —         —         —         —         —         —    

PT. Tanjung Power Indonesia

       617       —         —         —         1,337       —         (8     1,946  

Incheon New Power Co., Ltd.

       514       —         —         —         41       8       —         563  

Seokmun Energy Co., Ltd.

       —         —         —         —         (197     793       (205     391  

Daehan Wind Power PSC

       —         285       —         —         (261     (8     —         16  

Barakah One Company

       —         118       —         —         —         —         (2     116  

Nawah Energy Company

       —         296       —         —         —         —         (6     290  

MOMENTUM

       —         1       —         —         65       —         1       67  

Daegu Green Power Co., Ltd.

       —         —         —         —         —         —         47,528       47,528  
    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
       1,287,862       26,606       (14,154     (35,067     112,657       19,060       21,232       1,418,196  
    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
         5,693,530       113,222       (49,527     (75,407     (18,926     (50,501     (101,943     5,510,448  
    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(*1) ‘Others’ include ₩1,400 million of assets held-for-sale (note 42).

 

(*2) It was determined that there is objective evidence of impairment due to prolonged operating losses. As a result, the Company recognized an impairment loss of ₩99,338 million in impairment loss on investments in associates and joint ventures for the year ended December 31, 2016.

 

(*3) Due to discontinue of operations during the current year, the Company recognized an impairment loss of ₩8,103 million in impairment loss on investments in associates and joint ventures for the year ended December 31, 2016.

 

(*4) It was determined that there is objective evidence of impairment due to prolonged operating losses. As a result, the Company recognized an impairment loss of ₩8,099 million in impairment loss on investments in associates and joint ventures for the year ended December 31, 2016.

 

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Table of Contents
(4) Summary of financial information of associates and joint ventures as of and for the years ended December 31, 2015 and 2016 are as follows:

 

            2015  

Investees

          Total assets      Total liabilities      Sales      Profit (loss) for
the period
 
            In millions of won  

<Associates>

              

Daegu Green Power Co., Ltd.

          639,118        471,497        321,273        18,625  

Korea Gas Corporation

        42,385,340        32,328,396        26,052,724        319,190  

Korea Electric Power Industrial Development Co., Ltd.

        142,835        77,340        324,162        9,855  

YTN Co., Ltd.

        305,799        126,561        117,418        (520

Cheongna Energy Co., Ltd.

        458,205        419,353        48,519        (21,108

Gangwon Wind Power Co., Ltd.

        114,600        28,994        21,941        8,529  

Hyundai Green Power Co., Ltd.

        1,182,352        790,407        486,435        31,011  

Korea Power Exchange

        236,199        27,464        87,400        9,303  

AMEC Partners Korea Ltd.

        1,332        123        511        155  

Hyundai Energy Co., Ltd.

        526,305        473,736        80,067        (29,749

Ecollite Co., Ltd.

        2,271        345        —          (97

Taebaek Wind Power Co., Ltd.

        48,009        26,212        6,626        (302

Taeback Guinemi Wind Power Co., Ltd. (formerly, Muju Wind Power Co., Ltd.)

        10,349        —          —          (477

Pyeongchang Wind Power Co., Ltd.

        62,565        48,959        —          (1,164

Daeryun Power Co., Ltd.

        838,199        657,551        279,787        (29,806

JinanJangsu Wind Power Co., Ltd.

        306        —          —          (1

Changjuk Wind Power Co., Ltd.

        41,444        19,053        6,472        772  

KNH Solar Co., Ltd.

        27,254        20,105        4,399        861  

SPC Power Corporation

        182,908        30,191        68,149        37,395  

Gemeng International Energy Co., Ltd.

        5,956,288        3,940,455        902,008        95,064  

PT. Cirebon Electric Power

        1,026,729        806,458        295,788        43,968  

KNOC Nigerian East Oil Co., Ltd.

        264,434        337,762        —          (6,069

KNOC Nigerian West Oil Co., Ltd.

        160,765        230,001        —          (7,386

Dolphin Property Limited

        300        1        —          8  

PT Wampu Electric Power

        201,383        160,159        17,476        (2,696

PT. Bayan Resources TBK

        1,043,143        901,952        461,349        (30,014

S-Power Co., Ltd.

        935,870        664,523        632,073        5,336  

Pioneer Gas Power Limited

        310,761        240,833        —          148  

Eurasia Energy Holdings

        599        1,069        —          —    

Xe-Pian Xe-Namnoy Power Co., Ltd.

        506,970        341,261        —          2,760  

Busan Solar Co., Ltd.

        26,059        21,367        4,267        383  

Hadong Mineral Fiber Co., Ltd.

        2        21        —          (30

Green Biomass Co., Ltd.

        10,664        9,343        4,136        (1,323

PT. Mutiara Jawa

        25,013        29,913        1,943        (7,247

Samcheok Eco Materials Co., Ltd.

        23,119        735        —          (2,171

Noeul Green Energy Co., Ltd.

        1,517        44        —          (446

Naepo Green Energy Co., Ltd.

        108,167        1,184        3,126        (5,274

Goseong Green Energy Co., Ltd.

        95,323        3,248        —          (4,312

Gangneung Eco Power Co., Ltd.

        81,459        9,163        —          (3,610

Shin Pyeongtaek Power Co., Ltd.

        25,875        29,190        —          (2,595

Heang Bok Do Si Photovoltaic Power Co., Ltd.

        3,128        2,452        490        81  

DS POWER Co., Ltd.

        641,257        525,524        33,542        (5,759

 

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Table of Contents
            2015  

Investees

          Total assets      Total liabilities      Sales      Profit (loss) for
the period
 
            In millions of won  

Dongducheon Dream Power Co., Ltd.

          1,668,235        1,397,026        1,003,346        (10,307

KS Solar Co., Ltd.

        29,745        26,469        4,667        278  

Yeongwol Energy Station Co., Ltd.

        179,852        166,953        12,068        1,831  

Jinbhuvish Power Generation Pvt. Ltd.

        75,429        19,199        —          (805

SE Green Energy Co., Ltd.

        7,484        —          —          (103

Daegu Photovoltaic Co., Ltd.

        21,039        14,535        3,977        1,051  

Jeongam Wind Power Co., Ltd.

        2,053        299        —          (621

Korea Power Engineering Service Co., Ltd.

        9,194        2,968        25,925        2,296  

Busan Green Energy Co., Ltd.

        50,093        53        —          (180

Jungbu Bio Energy Co., Ltd.

        5,192        400        —          (508

Korea Electric Vehicle Charging Service

        9,577        4,412        —          (482

Ulleungdo Natural Energy Co., Ltd.

        27,113        2,262        —          (1,948

Korea Nuclear Partners Co., Ltd.

        1,002        6        —          (4

<Joint ventures>

              

KEPCO-Uhde Inc.

        17,535        111        —          (765

Eco Biomass Energy Sdn. Bhd.

        —          —          —          —    

Datang Chaoyang Renewable Power Co., Ltd.

        150,157        81,056        16,335        (373

Shuweihat Asia Power Investment B.V.

        41,969        17        —          8,232  

Shuweihat Asia Operation & Maintenance Company

        885        —          2,318        1,666  

Waterbury Lake Uranium L.P.

        51,302        4        —          —    

ASM-BG Investicii AD

        83,766        43,359        12,328        2,833  

RES Technology AD

        73,261        45,684        7,539        (566

KV Holdings, Inc.

        5,025        —          —          186  

KEPCO SPC Power Corporation

        449,553        172,261        175,008        59,610  

Canada Korea Uranium Limited Partnership

        305        124        —          (19

KEPCO Energy Resource Nigeria Limited

        380,282        416,959        —          (16,309

Gansu Datang Yumen Wind Power Co., Ltd.

        98,298        58,030        7,280        (4,507

Datang Chifeng Renewable Power Co., Ltd.

        882,914        454,731        103,860        21,900  

Datang KEPCO Chaoyang Renewable Power Co., Ltd.

        65,110        38,661        7,880        1,216  

Rabigh Electricity Company

        2,644,825        2,297,194        293,184        53,384  

Rabigh Operation & Maintenance Company

        18,186        9,222        22,203        2,144  

Jamaica Public Service Company Limited

        1,086,244        657,962        859,728        3,305  

KW Nuclear Components Co., Ltd.

        36,065        24,777        16,217        7,687  

Busan Shinho Solar Power Co., Ltd.

        51,617        36,903        7,565        1,471  

GS Donghae Electric Power Co., Ltd.

        1,675,986        1,086,534        —          (2,823

Global Trade Of Power System Co., Ltd.

        1,547        78        4,849        287  

Expressway Solar-light Power Generation Co., Ltd.

        21,154        13,913        2,981        443  

KODE NOVUS I LLC

        64,453        110,030        3,421        (59,389

KODE NOVUS II LLC

        22,500        45,306        1,868        (39,345

Daejung Offshore Wind Power Co., Ltd.

        6,795        78        —          (606

Amman Asia Electric Power Company

        875,590        645,998        46,940        41,880  

KAPES, Inc. (formerly, KEPCO-ALSTOM Power Electronics Systems, Inc.)

        50,152        41,326        18,849        (611

Dangjin Eco Power Co., Ltd.

        136,982        945        —          (1,035

Honam Wind Power Co., Ltd.

        41,527        28,100        5,944        1,266  

 

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Table of Contents
            2015  

Investees

          Total assets      Total liabilities      Sales      Profit (loss) for
the period
 
            In millions of won  

Nepal Water & Energy Development Company Private Limited

          42,644        11,136        —          (647

Chun-cheon Energy Co., Ltd.

        149,025        42,094        —          (2,389

Yeonggwangbaeksu Wind Power Co., Ltd.

        104,045        86,257        4,974        (1,956

Nghi Son 2 Power Ltd.

        771        234        —          (1,111

Kelar S.A

        375,136        405,618        —          (3,140

PT. Tanjung Power Indonesia

        37,948        36,185        16,476        (276

Incheon New Power Co., Ltd.

        10,078        8,306        3,318        301  

Seokmun Energy Co., Ltd.

        184,051        184,759        —          (552

 

            2016  

Investees

          Total assets      Total liabilities      Sales      Profit (loss) for
the period
 
            In millions of won  

<Associates>

              

Korea Gas Corporation

          39,927,836        30,541,350        21,108,116        (673,558

Korea Electric Power Industrial Development Co., Ltd.

        144,346        73,742        304,067        17,187  

YTN Co., Ltd.

        304,536        126,324        130,690        2,051  

Cheongna Energy Co., Ltd.

        469,843        447,216        46,484        (16,127

Gangwon Wind Power Co., Ltd.

        102,550        15,753        22,774        8,133  

Hyundai Green Power Co., Ltd.

        1,151,975        751,981        469,547        38,743  

Korea Power Exchange

        255,533        32,295        101,222        15,087  

AMEC Partners Korea Ltd.

        1,216        32        103        (25

Hyundai Energy Co., Ltd.

        505,979        499,205        61,813        (45,800

Ecollite Co., Ltd.

        2,157        336        —          (105

Taebaek Wind Power Co., Ltd.

        43,162        24,162        5,741        (2,796

Taeback Guinemi Wind Power Co., Ltd. (formerly, Muju Wind Power Co., Ltd.)

        12,523        1        —          (106

Pyeongchang Wind Power Co., Ltd.

        75,440        61,909        3,997        (45

Daeryun Power Co., Ltd.

        793,283        644,930        249,558        (32,291

Changjuk Wind Power Co., Ltd.

        37,878        15,162        5,782        1,739  

KNH Solar Co., Ltd.

        25,878        18,199        4,006        638  

SPC Power Corporation

        191,562        42,042        73,674        42,617  

Gemeng International Energy Co., Ltd.

        5,822,879        3,821,905        1,233,972        66,370  

PT. Cirebon Electric Power

        988,975        637,491        265,813        114,653  

KNOC Nigerian East Oil Co., Ltd.

        272,964        358,211        —          (7,051

KNOC Nigerian West Oil Co., Ltd.

        165,396        243,713        —          (6,562

PT Wampu Electric Power

        222,004        171,595        19,260        7,550  

PT. Bayan Resources TBK

        945,436        845,963        593,441        402  

S-Power Co., Ltd.

        886,841        629,992        453,606        (14,885

Pioneer Gas Power Limited

        345,791        276,978        14,353        396  

Eurasia Energy Holdings

        618        1,103        —          —    

Xe-Pian Xe-Namnoy Power Co., Ltd.

        772,699        543,472        —          6,458  

Hadong Mineral Fiber Co., Ltd.

        —          20        —          —    

Green Biomass Co., Ltd.

        9,336        9,001        2,892        (972

PT. Mutiara Jawa

        28,104        34,671        7,175        (1,361

Samcheok Eco Materials Co., Ltd.

        24,143        254        —          (1,945

Noeul Green Energy Co., Ltd.

        115,062        110,866        203        (1,155

Naepo Green Energy Co., Ltd.

        104,029        2,276        4,912        (5,230

 

F-100


Table of Contents
            2016  

Investees

          Total assets      Total liabilities      Sales      Profit (loss) for
the period
 
            In millions of won  

Goseong Green Energy Co., Ltd.

          356,546        110,753        —          (5,489

Gangneung Eco Power Co., Ltd.

        176,805        6,503        —          (3,494

Shin Pyeongtaek Power Co., Ltd.

        54,174        60,518        —          (3,291

Heang Bok Do Si Photovoltaic Power Co., Ltd.

        2,937        2,297        427        (47

DS POWER Co., Ltd.

        726,699        618,793        276,324        (10,031

Dongducheon Dream Power Co., Ltd.

        1,670,945        1,427,773        946,379        (27,936

KS Solar Co., Ltd.

        27,213        24,035        4,152        (79

Jinbhuvish Power Generation Pvt. Ltd.

        70,273        14,513        —          (950

SE Green Energy Co., Ltd.

        7,381        —          —          (103

Daegu Photovoltaic Co., Ltd.

        18,909        13,047        3,317        739  

Jeongam Wind Power Co., Ltd.

        13,199        3,199        —          (1,496

Korea Power Engineering Service Co., Ltd.

        13,401        3,713        27,394        3,463  

Busan Green Energy Co., Ltd.

        147,843        100,247        —          (2,444

Jungbu Bio Energy Co., Ltd.

        11,340        12,037        —          (5,489

Korea Electric Vehicle Charging Service

        10,545        6,604        5,177        (1,225

Ulleungdo Natural Energy Co., Ltd.

        24,836        1,738        —          (1,730

Korea Nuclear Partners Co., Ltd.

        1,363        507        372        (140

Tamra Offshore Wind Power Co., Ltd.

        127,880        101,900        983        (6,307

Korea Electric Power Corporation Fund

        51,970        128        3        (647

Energy Infra Asset Management Co., Ltd.

        2,779        160        32        (381

Daegu clean Energy Co., Ltd.

        500        —          —          —    

YaksuESS Co., Ltd

        6,474        5,801        —          (48

Nepal Water & Energy Development Company Private Limited

        43,788        10,477        —          (703

<Joint ventures>

              

KEPCO-Uhde Inc.

        624        33        —          (16,855

Eco Biomass Energy Sdn. Bhd.

        —          —          —          —    

Datang Chaoyang Renewable Power Co., Ltd.

        142,684        72,086        18,628        3,462  

Shuweihat Asia Power Investment B.V.

        282        4        —          12,380  

Shuweihat Asia Operation & Maintenance Company

        1,016        13        2,388        1,723  

Waterbury Lake Uranium L.P.

        56,181        47        —          —    

ASM-BG Investicii AD

        79,898        36,921        12,604        3,105  

RES Technology AD

        68,553        41,389        7,798        (139

KV Holdings, Inc.

        5,245        1        —          1,072  

KEPCO SPC Power Corporation

        448,069        121,783        165,046        63,689  

Canada Korea Uranium Limited Partnership

        285        144        —          (59

Gansu Datang Yumen Wind Power Co., Ltd.

        89,517        57,464        4,263        (6,815

Datang Chifeng Renewable Power Co., Ltd.

        813,804        397,344        99,795        19,042  

Datang KEPCO Chaoyang Renewable Power Co., Ltd.

        62,600        35,493        8,742        2,505  

Rabigh Electricity Company

        2,691,654        2,258,772        278,431        37,791  

Rabigh Operation & Maintenance Company

        25,032        13,965        25,607        4,870  

Jamaica Public Service Company Limited

        1,291,008        659,296        827,298        25,324  

KW Nuclear Components Co., Ltd.

        26,417        11,990        26,481        9,452  

Busan Shinho Solar Power Co., Ltd.

        47,789        32,533        6,770        1,247  

GS Donghae Electric Power Co., Ltd.

        1,952,297        1,346,568        19,851        16,396  

Global Trade Of Power System Co., Ltd.

        1,661        18        2,667        205  

 

F-101


Table of Contents
            2016  

Investees

          Total assets      Total liabilities      Sales      Profit (loss) for
the period
 
            In millions of won  

Expressway Solar-light Power Generation Co., Ltd.

          20,790        12,710        3,395        960  

KODE NOVUS I LLC

        14,286        104,252        2,362        (50,151

KODE NOVUS II LLC

        3,236        50,267        810        (22,582

Daejung Offshore Wind Power Co., Ltd.

        6,076        34        —          (675

Amman Asia Electric Power Company

        881,164        624,590        13,631        29,684  

KAPES, Inc. (formerly, KEPCO-ALSTOM Power Electronics Systems, Inc.)

        145,576        136,247        31,852        456  

Dangjin Eco Power Co., Ltd.

        149,926        1,001        —          (2,023

Honam Wind Power Co., Ltd.

        41,614        26,375        6,776        2,171  

Chun-cheon Energy Co., Ltd.

        548,306        379,113        —          (3,684

Yeonggwangbaeksu Wind Power Co., Ltd.

        99,773        81,881        11,208        (26

Nghi Son 2 Power Ltd.

        757        302        —          (1,481

Kelar S.A

        617,803        712,124        —          (4,109

PT. Tanjung Power Indonesia

        203,051        197,491        122,583        3,821  

Incheon New Power Co., Ltd.

        7,902        5,961        2,985        168  

Seokmun Energy Co., Ltd.

        235,905        234,556        —          (543

Daehan Wind Power PSC

        750        714        —          (523

Barakah One Company

        17,117,338        17,116,680        —          —    

Nawah Energy Company

        1,645        —          —          —    

MOMENTUM

        2,749        2,547        2,886        194  

Daegu Green Power Co., Ltd.

        636,438        547,017        265,621        (3,981

 

(5) Financial information of associates and joint ventures reconciled to the Company’s investments in consolidated financial statements as of December 31, 2015 and 2016 are as follows:

 

          2015  

Investees

        Net assets     Percentage of
ownership (*)
    Share in
net assets
    Investment
differential
    Intercompany
transaction
    Others     Book
value
 
          In millions of won  

<Associates>

               

Daegu Green Power Co., Ltd.

        167,621       47.80     80,123       144       —         —         80,267  

Korea Gas Corporation

      10,056,944       21.57     2,169,283       —         —         (66,470     2,102,813  

Korea Electric Power Industrial Development Co., Ltd.

      65,495       29.00     18,994       —         —         —         18,994  

YTN Co., Ltd.

      179,238       21.43     38,411       —         (43     (3     38,365  

Cheongna Energy Co., Ltd.

      38,852       43.90     17,056       2,584       (150     —         19,490  

Gangwon Wind Power Co., Ltd.

      85,606       15.00     12,841       —         —         49       12,890  

Hyundai Green Power Co., Ltd.

      391,945       29.00     113,664       —         —         —         113,664  

Korea Power Exchange

      208,735       100.00     208,735       —         —         —         208,735  

AMEC Partners Korea Ltd.

      1,209       19.00     230       —         —         —         230  

Hyundai Energy Co., Ltd.

      52,569       46.30     24,340       —         (1,120     (16,230     6,990  

Ecollite Co., Ltd.

      1,926       36.10     695       —         —         (695     —    

Taebaek Wind Power Co., Ltd.

      21,797       25.00     5,449       —         (493     —         4,956  

Taeback Guinemi Wind Power Co., Ltd. (formerly, Muju Wind Power Co., Ltd.)

      10,349       25.00     2,587       —         —         —         2,587  

Pyeongchang Wind Power Co., Ltd.

      13,606       25.00     3,402       —         —         —         3,402  

Daeryun Power Co., Ltd.

      180,648       19.45     35,136       1,014       —         6       36,156  

JinanJangsu Wind Power Co., Ltd.

      306       25.00     77       —         —         —         77  

Changjuk Wind Power Co., Ltd.

      22,391       30.00     6,717       —         (574     —         6,143  

KNH Solar Co., Ltd.

      7,149       27.00     1,930       —         (6     —         1,924  

SPC Power Corporation

      152,717       38.00     58,033       —         —         —         58,033  

Gemeng International Energy Co., Ltd.

      2,015,833       34.00     685,383       —         —         43,013       728,396  

PT. Cirebon Electric Power

      220,271       27.50     60,574       —         —         —         60,574  

KNOC Nigerian East Oil Co., Ltd.

      (73,328     14.63     (10,728     —         —         10,728       —    

KNOC Nigerian West Oil Co., Ltd.

      (69,236     14.63     (10,129     —         —         10,129       —    

Dolphin Property Limited

      299       15.00     45       —         —         16       61  

PT Wampu Electric Power

      41,224       46.00     18,963       —         —         —         18,963  

PT. Bayan Resources TBK

      141,191       20.00     28,238       498,089       —         (1,261     525,066  

 

F-102


Table of Contents
          2015  

Investees

        Net assets     Percentage of
ownership (*)
    Share in
net assets
    Investment
differential
    Intercompany
transaction
    Others     Book
value
 
          In millions of won  

S-Power Co., Ltd.

        271,347       49.00     132,960       —         (2,052     —         130,908  

Pioneer Gas Power Limited

      69,928       40.00     27,971       23,147       —         69       51,187  

Eurasia Energy Holdings

      (470     40.00     (188     —         —         188       —    

Xe-Pian Xe-Namnoy Power Co., Ltd.

      165,709       25.00     41,427       (8,796     (479     (289     31,863  

Busan Solar Co., Ltd.

      4,692       19.80     929       —         (4     —         925  

Hadong Mineral Fiber Co., Ltd.

      (19     25.00     (5     —         —         5       —    

Green Biomass Co., Ltd.

      1,321       14.00     185       —         —         (185     —    

PT. Mutiara Jawa

      (4,900     29.00     (1,421     70       —         1,351       —    

Samcheok Eco Materials Co., Ltd.

      22,384       2.67     598       —         —         (598     —    

Noeul Green Energy Co., Ltd.

      1,473       20.00     295       —         —         —         295  

Naepo Green Energy Co., Ltd.

      106,983       25.00     26,746       —         —         —         26,746  

Goseong Green Energy Co., Ltd.

      92,075       2.90     2,670       —         —         —         2,670  

Gangneung Eco Power Co., Ltd.

      72,296       3.72     2,689       —         —         (1     2,688  

Shin Pyeongtaek Power Co., Ltd.

      (3,315     40.00     (1,326     —         (1,995     3,321       —    

Heang Bok Do Si Photovoltaic Power Co., Ltd.

      676       28.00     189       —         —         —         189  

DS POWER Co., Ltd.

      115,733       14.44     16,712       —         (5,940     188       10,960  

Dongducheon Dream Power Co., Ltd.

      271,209       33.61     91,153       —         5,398       (40,884     55,667  

KS Solar Co., Ltd.

      3,276       19.00     622       —         (4     —         618  

Yeongwol Energy Station Co., Ltd.

      12,899       10.00     1,290       —         —         —         1,290  

Jinbhuvish Power Generation Pvt. Ltd.

      56,230       5.16     2,901       5,450       —         (1     8,350  

SE Green Energy Co., Ltd.

      7,484       47.76     3,575       —         —         —         3,575  

Daegu Photovoltaic Co., Ltd.

      6,504       29.00     1,886       —         —         —         1,886  

Jeongam Wind Power Co., Ltd.

      1,754       40.00     702       —         —         —         702  

Korea Power Engineering Service Co., Ltd.

      6,226       29.00     1,805       —         —         —         1,805  

Busan Green Energy Co., Ltd.

      50,040       29.00     14,512       —         —         —         14,512  

Jungbu Bio Energy Co., Ltd.

      4,792       18.87     904       —         —         —         904  

Korea Electric Vehicle Charging Service

      5,165       28.00     1,446       —         —         —         1,446  

Ulleungdo Natural Energy Co., Ltd.

      24,851       29.85     7,418       —         —         (1     7,417  

Korea Nuclear Partners Co., Ltd.

      996       29.00     289       —         —         —         289  

<Joint ventures>

               

KEPCO-Uhde Inc.

      17,424       50.85     8,860       —         —         (311     8,549  

Eco Biomass Energy Sdn. Bhd.

      —         61.53     —         —         —         —         —    

Datang Chaoyang Renewable Power Co., Ltd.

      69,101       40.00     27,640       —         —         —         27,640  

Shuweihat Asia Power Investment B.V.

      41,952       49.00     20,556       —         —         (82     20,474  

Shuweihat Asia Operation & Maintenance Company

      885       55.00     487       —         —         (1     486  

Waterbury Lake Uranium L.P.

      51,298       40.00     20,519       —         —         (220     20,299  

ASM-BG Investicii AD

      40,407       50.00     20,203       —         —         —         20,203  

RES Technology AD

      27,577       50.00     13,789       —         —         —         13,789  

KV Holdings, Inc.

      5,025       40.00     2,010       —         —         —         2,010  

KEPCO SPC Power Corporation

      277,292       75.20     208,524       —         —         —         208,524  

Canada Korea Uranium Limited Partnership

      181       12.50     23       —         —         (23     —    

KEPCO Energy Resource Nigeria Limited

      (36,677     30.00     (11,003     —         —         11,003       —    

Gansu Datang Yumen Wind Power Co., Ltd.

      40,268       40.00     16,107       —         —         —         16,107  

Datang Chifeng Renewable Power Co., Ltd.

      428,183       40.00     171,273       —         —         (49     171,224  

Datang KEPCO Chaoyang Renewable Power Co., Ltd.

      26,449       40.00     10,580       —         —         —         10,580  

Rabigh Electricity Company

      347,631       40.00     139,052       —         (79,646     (38     59,368  

Rabigh Operation & Maintenance Company

      8,964       40.00     3,586       —         —         —         3,586  

Jamaica Public Service Company Limited

      428,282       40.00     171,313       (72,370     —         142,975       241,918  

KW Nuclear Components Co., Ltd.

      11,288       45.00     5,080       90       —         (185     4,985  

Busan Shinho Solar Power Co., Ltd.

      14,714       25.00     3,678       —         —         —         3,678  

GS Donghae Electric Power Co., Ltd.

      589,452       34.00     200,414       —         —         (35     200,379  

Global Trade Of Power System Co., Ltd.

      1,469       29.00     426       —         —         —         426  

Expressway Solar-light Power Generation Co., Ltd.

      7,241       29.00     2,100       —         —         —         2,100  

KODE NOVUS I LLC

      (45,577     50.00     (22,789     4,732       —         18,057       —    

 

F-103


Table of Contents
          2015  

Investees

        Net assets     Percentage of
ownership (*)
    Share in
net assets
    Investment
differential
    Intercompany
transaction
    Others     Book
value
 
          In millions of won  

KODE NOVUS II LLC

        (22,806     49.00     (11,175     —         —         11,175       —    

Daejung Offshore Wind Power Co., Ltd.

      6,717       49.90     3,352       —         —         —         3,352  

Amman Asia Electric Power Company

      229,592       60.00     137,755       —         —         (87     137,668  

KAPES, Inc. (formerly, KEPCO-ALSTOM Power Electronics Systems, Inc.)

      8,826       51.00     4,501       —         —         —         4,501  

Dangjin Eco Power Co., Ltd.

      136,037       34.00     46,253       2,696       —         (668     48,281  

Honam Wind Power Co., Ltd.

      13,427       29.00     3,894       32       —         —         3,926  

Nepal Water & Energy Development Company Private Limited

      31,508       52.77     16,627       972       —         166       17,765  

Chun-cheon Energy Co., Ltd.

      106,931       29.90     31,972       3       —         1       31,976  

Yeonggwangbaeksu Wind Power Co., Ltd.

      17,788       15.00     2,668       —         —         —         2,668  

Nghi Son 2 Power Ltd.

      537       50.00     268       —         —         1       269  

Kelar S.A

      (30,482     65.00     (19,814     2,424       —         17,390       —    

PT. Tanjung Power Indonesia

      1,763       35.00     617       —         —         —         617  

Incheon New Power Co., Ltd.

      1,772       29.00     514       —         —         —         514  

Seokmun Energy Co., Ltd.

      (708     29.00     (205     —         —         205       —    

 

(*) The percentage of ownership shown above is after considering the treasury stocks and others.

 

          2016  

Investees

        Net assets     Percentage of
ownership (*)
    Share in
net assets
    Investment
differential
    Intercompany
transaction
    Others     Book
value
 
          In millions of won  

<Associates>

               

Korea Gas Corporation

        9,386,486       21.57     2,024,665       —         —         (90,788     1,933,877  

Korea Electric Power Industrial Development Co., Ltd.

      70,604       29.00     20,475       —         —         —         20,475  

YTN Co., Ltd.

      178,212       21.43     38,191       —         (30     (5     38,156  

Cheongna Energy Co., Ltd.

      22,627       43.90     9,933       2,584       (144     —         12,373  

Gangwon Wind Power Co., Ltd.

      86,797       15.00     13,020       —         —         49       13,069  

Hyundai Green Power Co., Ltd.

      399,994       29.00     115,998       —         —         —         115,998  

Korea Power Exchange

      223,238       100.00     223,238       —         —         —         223,238  

AMEC Partners Korea Ltd.

      1,184       19.00     225       —         —         —         225  

Hyundai Energy Co., Ltd.

      6,774       46.30     3,136       —         (1,079     (1,026     1,031  

Ecollite Co., Ltd.

      1,821       36.10     657       —         —         (657     —    

Taebaek Wind Power Co., Ltd.

      19,000       25.00     4,750       —         —         —         4,750  

Taeback Guinemi Wind Power Co., Ltd. (formerly, Muju Wind Power Co., Ltd.)

      12,522       25.00     3,131       —         —         —         3,131  

Pyeongchang Wind Power Co., Ltd.

      13,531       25.00     3,383       —         —         —         3,383  

Daeryun Power Co., Ltd.

      148,353       19.45     28,855       1,014       —         4       29,873  

Changjuk Wind Power Co., Ltd.

      22,716       30.00     6,815       —         —         115       6,930  

KNH Solar Co., Ltd.

      7,679       27.00     2,073       —         —         —         2,073  

SPC Power Corporation

      149,520       38.00     56,818       —         —         —         56,818  

Gemeng International Energy Co., Ltd.

      2,000,974       34.00     680,331       —         —         (266     680,065  

PT. Cirebon Electric Power

      351,484       27.50     96,658       —         —         —         96,658  

KNOC Nigerian East Oil Co., Ltd.

      (85,247     14.63     (12,472     —         —         12,472       —    

KNOC Nigerian West Oil Co., Ltd.

      (78,317     14.63     (11,458     —         —         11,458       —    

PT Wampu Electric Power

      50,409       46.00     23,188       —         —         —         23,188  

PT. Bayan Resources TBK

      99,473       20.00     19,895       482,109       —         (99,337     402,667  

S-Power Co., Ltd.

      256,849       49.00     125,856       —         (1,944     —         123,912  

Pioneer Gas Power Limited

      68,813       40.00     27,525       23,147       —         68       50,740  

Eurasia Energy Holdings

      (485     40.00     (194     —         —         194       —    

Xe-Pian Xe-Namnoy Power Co., Ltd.

      229,227       25.00     57,307       (4,802     (672     (289     51,544  

Hadong Mineral Fiber Co., Ltd.

      (20     25.00     (5     —         —         5       —    

Green Biomass Co., Ltd.

      335       14.00     47       —         —         —         47  

PT. Mutiara Jawa

      (6,567     29.00     (1,904     70       —         1,834       —    

Samcheok Eco Materials Co., Ltd.

      23,889       2.35     561       —         —         (561     —    

Noeul Green Energy Co., Ltd.

      4,196       29.00     1,217       —         —         —         1,217  

Naepo Green Energy Co., Ltd.

      101,753       25.00     25,438       —         —         —         25,438  

Goseong Green Energy Co., Ltd.

      245,793       1.12     2,742       —         (79     —         2,663  

Gangneung Eco Power Co., Ltd.

      170,302       1.61     2,744       —         (98     —         2,646  

 

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          2016  

Investees

        Net assets     Percentage of
ownership (*)
    Share in
net assets
    Investment
differential
    Intercompany
transaction
    Others     Book
value
 
          In millions of won  

Shin Pyeongtaek Power Co., Ltd.

        (6,344     40.00     (2,538     —         (3,380     5,918       —    

Heang Bok Do Si Photovoltaic Power Co., Ltd.

      640       28.00     179       —         —         2       181  

DS POWER Co., Ltd.

      107,906       14.44     15,582       —         (7,302     (1,090     7,190  

Dongducheon Dream Power Co., Ltd.

      243,172       33.61     81,730       —         (4,768     (30,086     46,876  

KS Solar Co., Ltd.

      3,178       19.00     604       —         —         —         604  

Jinbhuvish Power Generation Pvt. Ltd.

      55,760       5.16     2,877       —         —         (2,877     —    

SE Green Energy Co., Ltd.

      7,381       47.76     3,525       —         —         —         3,525  

Daegu Photovoltaic Co., Ltd.

      5,862       29.00     1,700       —         —         —         1,700  

Jeongam Wind Power Co., Ltd.

      10,000       40.00     4,000       —         —         —         4,000  

Korea Power Engineering Service Co., Ltd.

      9,688       29.00     2,810       —         —         —         2,810  

Busan Green Energy Co., Ltd.

      47,596       29.00     13,803       —         —         —         13,803  

Jungbu Bio Energy Co., Ltd.

      (697     18.87     (132     —         —         132       —    

Korea Electric Vehicle Charging Service

      3,941       28.00     1,103       —         —         —         1,103  

Ulleungdo Natural Energy Co., Ltd.

      23,098       29.85     6,895       —         —         (1     6,894  

Korea Nuclear Partners Co., Ltd.

      856       29.00     248       —         —         —         248  

Tamra Offshore Wind Power Co., Ltd.

      25,980       27.00     7,015       —         —         —         7,015  

Korea Electric Power Corporation Fund

      51,842       98.09     50,852       —         —         4       50,856  

Energy Infra Asset Management Co., Ltd.

      2,619       9.90     259       —         —         —         259  

Daegu clean Energy Co., Ltd.

      500       28.00     140       —         —         —         140  

YaksuESS Co., Ltd

      673       29.00     195       —         —         1       196  

Nepal Water & Energy Development Company Private Limited

      33,311       52.77     17,578       972       —         117       18,667  

<Joint ventures>

               

KEPCO-Uhde Inc.

      591       50.85     301       —         —         —         301  

Eco Biomass Energy Sdn. Bhd.

      —         61.53     —         —         —         —         —    

Datang Chaoyang Renewable Power Co., Ltd.

      70,598       40.00     28,239       —         —         —         28,239  

Shuweihat Asia Power Investment B.V.

      278       49.00     136       —         —         (136     —    

Shuweihat Asia Operation & Maintenance Company

      1,003       55.00     552       —         —         (102     450  

Waterbury Lake Uranium L.P.

      56,134       36.97     20,753       —         —         561       21,314  

ASM-BG Investicii AD

      42,977       50.00     21,489       —         —         (1     21,488  

RES Technology AD

      27,164       50.00     13,582       —         —         —         13,582  

KV Holdings, Inc.

      5,244       40.00     2,098       —         —         —         2,098  

KEPCO SPC Power Corporation

      326,286       75.20     245,367       —         —         —         245,367  

Canada Korea Uranium Limited Partnership

      141       12.50     18       —         —         (18     —    

Gansu Datang Yumen Wind Power Co., Ltd.

      32,053       40.00     12,821       —         —         —         12,821  

Datang Chifeng Renewable Power Co., Ltd.

      416,460       40.00     166,584       —         —         (49     166,535  

Datang KEPCO Chaoyang Renewable Power Co., Ltd.

      27,107       40.00     10,843       —         —         —         10,843  

Rabigh Electricity Company

      432,882       40.00     173,153       —         (75,311     (40     97,802  

Rabigh Operation & Maintenance Company

      11,067       40.00     4,427       —         —         —         4,427  

Jamaica Public Service Company Limited

      631,712       40.00     252,685       (80,161     —         76,929       249,453  

KW Nuclear Components Co., Ltd.

      14,427       45.00     6,492       90       —         551       7,133  

Busan Shinho Solar Power Co., Ltd.

      15,256       25.00     3,814       —         —         —         3,814  

GS Donghae Electric Power Co., Ltd.

      605,729       34.00     205,948       —         —         —         205,948  

Global Trade Of Power System Co., Ltd.

      1,643       29.00     476       —         —         1       477  

Expressway Solar-light Power Generation Co., Ltd.

      8,080       29.00     2,343       —         —         —         2,343  

KODE NOVUS I LLC

      (89,966     50.00     (44,983     4,732       —         40,251       —    

KODE NOVUS II LLC

      (47,031     50.00     (23,516     —         —         23,516       —    

Daejung Offshore Wind Power Co., Ltd.

      6,042       49.90     3,015       —         —         —         3,015  

 

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          2016  

Investees

        Net assets     Percentage of
ownership (*)
    Share in
net assets
    Investment
differential
    Intercompany
transaction
    Others     Book
value
 
          In millions of won  

Amman Asia Electric Power Company

        256,574       60.00     153,944       —         —         (87     153,857  

KAPES, Inc. (formerly, KEPCO-ALSTOM Power Electronics Systems, Inc.)

      9,329       51.00     4,758       —         —         —         4,758  

Dangjin Eco Power Co., Ltd.

      148,925       34.00     50,635       2,618       —         —         53,253  

Honam Wind Power Co., Ltd.

      15,239       29.00     4,419       32       —         —         4,451  

Chun-cheon Energy Co., Ltd.

      169,193       29.90     50,589       3       —         —         50,592  

Yeonggwangbaeksu Wind Power Co., Ltd.

      17,892       15.00     2,684       5       —         —         2,689  

Nghi Son 2 Power Ltd.

      455       50.00     228       —         —         1       229  

Kelar S.A

      (94,321     65.00     (61,309     2,424       —         58,885       —    

PT. Tanjung Power Indonesia

      5,560       35.00     1,946       —         —         —         1,946  

Incheon New Power Co., Ltd.

      1,941       29.00     563       —         —         —         563  

Seokmun Energy Co., Ltd.

      1,349       29.00     391       —         —         —         391  

Daehan Wind Power PSC

      36       50.00     18       —         —         (2     16  

Barakah One Company

      658       18.00     118       —         —         (2     116  

Nawah Energy Company

      1,645       18.00     296       —         —         (6     290  

MOMENTUM

      202       33.33     67       —         —         —         67  

Daegu Green Power Co., Ltd.

      89,421       29.00     25,932       84       —         21,512       47,528  

 

(*) The percentage of ownership shown above is after considering the treasury stocks and others.

 

(6) As of December 31, 2015 and 2016, unrecognized equity interest in investments in associates and joint ventures whose book value has been reduced to zero due to accumulated losses are as follows:

 

            2015      2016  
            Unrecognized
equity interest
    Accumulated
unrecognized
equity interest
     Unrecognized
equity interest
    Accumulated
unrecognized
equity interest
 
            In millions of won  

Green Biomass Co., Ltd.

          (125     —          —         —    

Shin Pyeongtaek Power Co., Ltd.

        1,038       1,326        1,211       2,537  

Chun-cheon Energy Co., Ltd.

        (8     —          —         —    

Seokmun Energy Co., Ltd.

        152       205        (205     —    

Kelar S.A

        17,389       17,389        43,920       61,309  

Hadong Mineral Fiber Co., Ltd.

        5       5        —         5  

PT. Mutiara Jawa

        1,351       1,351        554       1,905  

Eurasia Energy Holdings

        188       188        6       194  

KODE NOVUS I LLC

        22,789       22,789        22,194       44,983  

KODE NOVUS II LLC

        11,175       11,175        12,340       23,515  

Jungbu Bio Energy Co., Ltd.

        —         —          132       132  

 

(7) As of December 31, 2016, shareholders’ agreements on investments in associates and joint ventures that may cause future economic resource or cash outflows are as follows:

 

  (i) Gemeng International Energy Co., Ltd.

Gemeng International Energy Co., Ltd., issued put options on 8% of its shares to its financial investors, KEPCO Woori Sprott PEF (NPS Co-Pa PEF). If the investment fund is not collected until the maturity date (December 25, 2023, two years extension is possible), PEF can exercise the option at strike price which is the same as a principal investment price (including operating fees ratio of below 1% per annum), and also, the Company provided a performance guarantee on this agreement.

 

  (ii) Hyundai Energy Co., Ltd.

The Company had placed guarantees for a fixed return on the investment to NH Power II Co., Ltd. and National Agricultural Cooperative Federation (“NACF”) and had obtained the rights to acquire the investment securities in return preferentially. In addition, NH Power II Co., Ltd. and NACF have a right, which can be exercised for 30 days starting from 2 months to 1 month prior to 17 years after the termination date of the contract to sell their shares to the Company.

 

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  (iii) Taebaek Wind Power Co., Ltd.

In case non-controlling shareholders decide to dispose of their shares in Taebaek Wind Power Co., Ltd. after the warrant period of defect repair for wind power generator has expired, the Company acquires those shares at fair value. The acquisition is to be made after the conditions of the acquisition are discussed among the parties involved, with consideration of various factors such as financial status and business situation.

 

  (iv) Pyeongchang Wind Power Co., Ltd.

In case non-controlling shareholders decide to dispose of their shares in Pyeongchang Wind Power Co., Ltd. after commercial operation of the power plant has started, the Company acquires those shares at fair value. The acquisition is to be made after the conditions of the acquisition are discussed among the parties involved, with the careful consideration of various factors such as financial status and business situation.

 

  (v) Jeongam Wind Power Co., Ltd.

In case non-controlling shareholders decide to dispose of their shares in Jeongam Wind Power Co., Ltd. after the construction of the power plant has been completed, the Company is obligated to acquire those shares at fair value.

 

  (vi) Daejung Offshore Wind Power Co., Ltd.

In case Samsung Heavy Industries Co., Ltd., a co-participant of the joint venture agreement, decides to dispose of its shares in Daejung Offshore Wind Power Co., Ltd., the Company is obligated to acquire those shares after evaluating the economic feasibility of the facilities installed by Samsung Heavy Industries Co., Ltd.

 

  (vii) DS Power Co., Ltd.

The Company has a right to sell all shares and bonds of DS POWER Co., Ltd. to Daesung Industrial Co., Ltd. and Daesung Industrial Co., Ltd. or an authoritative person appointed by Daesung Industrial Co., Ltd.

 

  (viii) Samcheok Eco Materials Co., Ltd.

The Company has the rights to purchase the stocks should preferred stockholders elect to sell their stocks on the expected sell date (3 years from preferred stock payment date) and is required to guarantee the promised yield when preferred stockholders sell their stocks.

 

  (ix) Hyundai Green Power Co., Ltd.

As of December 31, 2016, Hyundai Green Power Co., Ltd., an associate of the Company, which engages in the byproduct gas power generating business, entered into a project financing agreement with a limit of ₩919.2 billion with Korea Development Bank and others. At a certain period in the future, the Company has an appraisal right against the financial investors (Korea Development Bank and others) and also has an obligation to sell its shares when claimed by the financial investors. At a certain period in the future, the Company has an appraisal right against Hyundai Steel Company and a third party designated by Hyundai Steel Company (collectively, “Hyundai Steel Company”), the operating investor of Hyundai Green Power Co., Ltd., according to the conditions of the agreement and also has an obligation to sell its shares when claimed by Hyundai Steel Company.

 

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(8) Significant restrictions on its abilities to associates or joint ventures are as follows:

 

Company

 

Nature and extent of any significant restrictions

KNOC Nigerian East Oil Co., Ltd.,

KNOC Nigerian West Oil Co., Ltd.

  The Company has stopped its operation in Nigeria due to an ongoing litigation and payment or retrieval of investments, loans and advances are restricted until the legal dispute is resolved.

Daeryun Power Co., Ltd.

  Principals on subordinated loans or dividends can only be paid when all conditions of the loan agreement are satisfied or prior written consent of financial institutions is obtained.

Changjuk Wind Power Co., Ltd.

  Principals on subordinated loans or dividends can only be paid when all conditions of the loan agreement are satisfied or prior written consent of financial institutions is obtained.

Taebaek Wind Power Co., Ltd.

  Financial institutions can reject or defer an approval with regard to the request for fund executions on subordinated loans of shareholders in order to pay senior loans based on the loan agreement.

Pyeongchang Wind Power Co., Ltd.

  Principals on subordinated loans or dividends can only be paid when all conditions of the loan agreement are satisfied or prior written consent of financial institutions is obtained.

Daegu Green Power Co., Ltd.

  Principals on subordinated loans or dividends can only be paid when all conditions of the loan agreement are satisfied or prior written consent of financial institutions is obtained. Shares cannot be wholly or partially transferred without prior written consent of financial institutions is obtained.

KS Solar Co., Ltd.

  Dividends can only be paid when all conditions of a loan agreement are satisfied.

KNH Solar Co., Ltd.

  Principal and interest, dividends to shareholders cannot be paid without written consent of financial institutions.

DS Power Co., Ltd.

  Shares cannot be wholly or partially transferred, except as permitted by the agreement.

 

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18. Property, Plant and Equipment

 

(1) Property, plant and equipment as of December 31, 2015 and 2016 are as follows:

 

     2015  
     Acquisition
cost
     Government
grants
     Accumulated
depreciation
     Accumulated
impairment

losses(*)
     Book value  
     In millions of won  

Land

   12,396,460        (3,147      —          —          12,393,313  

Buildings

     14,936,722        (63,932      (5,259,436      (854      9,612,500  

Structures

     58,251,296        (193,119      (17,991,950      (1,184      40,065,043  

Machinery

     57,143,211        (108,935      (20,242,232      (36,230      36,755,814  

Ships

     4,930        —          (4,144      —          786  

Vehicles

     227,733        (29      (167,261      —          60,443  

Equipment

     1,134,376        (1,026      (823,805      —          309,545  

Tools

     836,131        (691      (675,501      —          159,939  

Construction-in- progress

     35,305,133        (139,898      —          (38,107      35,127,128  

Finance lease assets

     2,389,985        —          (1,878,476      —          511,509  

Asset retirement costs

     6,888,547        —          (2,782,460      —          4,106,087  

Others

     9,438,381        —          (7,179,137      —          2,259,244  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   198,952,905        (510,777      (57,004,402      (76,375      141,361,351  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

  (*) The Company separately recognizes impairment loss on each asset, reflecting various factors such as physical impairment and others during the replacement.

 

     2016  
     Acquisition
cost
     Government
grants
     Accumulated
depreciation
     Accumulated
impairment

losses(*)
     Book value  
     In millions of won  

Land

   12,969,741        (3,204      —          —          12,966,537  

Buildings

     17,722,326        (61,188      (5,936,849      (853      11,723,436  

Structures

     63,291,437        (197,641      (19,959,839      (1,183      43,132,774  

Machinery

     67,769,168        (111,064      (24,344,832      (2,391      43,310,881  

Ships

     4,175        —          (3,625      —          550  

Vehicles

     247,751        (107      (176,781      —          70,863  

Equipment

     1,270,660        (732      (894,265      —          375,663  

Tools

     921,115        (430      (742,083      —          178,602  

Construction-in-
progress

     27,334,368        (135,807      —          (38,108      27,160,453  

Finance lease assets

     2,390,779        —          (1,984,426      —          406,353  

Asset retirement costs

     7,129,771        —          (3,064,359      —          4,065,412  

Others

     10,361,294        —          (8,009,762      —          2,351,532  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   211,412,585        (510,173      (65,116,821      (42,535      145,743,056  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

  (*) The Company separately recognizes impairment loss on each asset, reflecting various factors such as physical impairment and others during the replacement.

 

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(2) Changes in property, plant and equipment for the years ended December 31, 2015 and 2016 are as follows:

 

          2015  
          Beginning
balance
    Acquisition     Disposal     Depreciation     Impairment(*1)     Others(*2)     Ending
balance
 
          In millions of won  

Land

        12,238,488       9,370       (192,496     —         —         341,098       12,396,460  

(Government grants)

      (3,103     —         —         —         —         (44     (3,147

Buildings

      8,979,023       12,466       (42,889     (633,770     —         1,361,602       9,676,432  

(Government grants)

      (67,700     —         —         5,064       —         (1,296     (63,932

Structures

      38,654,777       1,787       (181,914     (2,120,749     —         3,904,261       40,258,162  

(Government grants)

      (196,871     —         1,816       9,178       —         (7,242     (193,119

Machinery

      35,460,708       430,524       (250,915     (3,880,076     (1,205     5,105,713       36,864,749  

(Government grants)

      (108,750     —         1,101       11,133       —         (12,419     (108,935

Ships

      1,085       —         —         (299     —         —         786  

Vehicles

      50,576       5,449       (27     (22,175     —         26,649       60,472  

(Government grants)

      (76     —         1       47       —         (1     (29

Equipment

      211,647       56,004       (230     (103,889     —         147,039       310,571  

(Government grants)

      (1,002     —         —         469       —         (493     (1,026

Tools

      152,777       25,940       (90     (67,482     —         49,485       160,630  

(Government grants)

      (862     —         —         268       —         (97     (691

Construction-in-progress

      32,379,512       13,508,590       (13,658     —         (29,139     (10,578,279     35,267,026  

(Government grants)

      (123,938     (27,239     —         —         —         11,279       (139,898

Finance lease assets

      612,395       1,560       (3,959     (110,162     —         11,675       511,509  

Asset retirement costs

      5,354,427       —         —         (551,461     —         (696,879     4,106,087  

Others

      2,219,386       25,436       (98     (804,545     —         819,065       2,259,244  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
        135,812,499       14,049,887       (683,358     (8,268,449     (30,344     481,116       141,361,351  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

  (*1) Korea South-East Power Co., Ltd. and Korea East-West Power Co., Ltd, 100% owned subsidiaries, have determined that there is an impairment indicator and performed an impairment test over the individual assets. As a result, the Company recognized the amount of the carrying amount in excess of its recoverable amount as impairment loss in the consolidated statements of comprehensive income.

 

  (*2) ‘Others’ include ₩23,273 million of land and buildings that were reclassified to assets held for sale (note 42) comprising ₩2,907 million of land and ₩20,366 million of buildings.

 

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          2016  
          Beginning
balance
    Acquisition     Disposal     Depreciation     Impairment     Others(*1)     Ending
balance
 
          In millions of won  

Land

        12,396,460       13,973       (52,569     —         —         611,877       12,969,741  

(Government grants)

      (3,147     —         14       —         —         (71     (3,204

Buildings

      9,676,432       —         (9,020     (676,866     —         2,794,078       11,784,624  

(Government grants)

      (63,932     —         731       5,299       —         (3,286     (61,188

Structures

      40,258,162       455       (524,310     (2,233,333     —         5,829,441       43,330,415  

(Government grants)

      (193,119     —         2,597       9,491       —         (16,610     (197,641

Machinery

      36,864,749       193,017       (243,757     (4,353,596     —         10,961,532       43,421,945  

(Government grants)

      (108,935     (33     1,210       12,272       —         (15,578     (111,064

Ships

      786       —         —         (281     —         45       550  

Vehicles

      60,472       2,493       (34     (27,615     —         35,654       70,970  

(Government grants)

      (29     (58     —         25       —         (45     (107

Equipment

      310,571       67,134       (323     (128,084     —         127,097       376,395  

(Government grants)

      (1,026     —         —         452       —         (158     (732

Tools

      160,630       27,856       (327     (69,842     —         60,715       179,032  

(Government grants)

      (691     —         —         295       —         (34     (430

Construction-in-progress

      35,267,026       11,752,352       (94,443     —         —         (19,628,675     27,296,260  

(Government grants)

      (139,898     (28,434     —         —         —         32,525       (135,807

Finance lease assets

      511,509       34       (31     (96,254     —         (8,905     406,353  

Asset retirement costs

      4,106,087       —         —         (509,310     —         468,635       4,065,412  

Others

      2,259,244       —         (9     (813,248     —         905,545       2,351,532  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
        141,361,351       12,028,789       (920,271     (8,880,595     —         2,153,782       145,743,056  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

  (*1) ‘Others’ include loaded nuclear fuel related to raw materials and asset retirement costs.

 

19. Investment Properties

 

(1) Investment properties as of December 31, 2015 and 2016 are as follows:

 

            2015  
            Acquisition
cost
     Government
grants
     Accumulated
depreciation
     Book
value
 
            In millions of won  

Land

          253,960        —          —          253,960  

Buildings

        27,655        (13      (11,692      15,950  
     

 

 

    

 

 

    

 

 

    

 

 

 
          281,615        (13      (11,692      269,910  
     

 

 

    

 

 

    

 

 

    

 

 

 

 

            2016  
            Acquisition
cost
     Government
grants
     Accumulated
depreciation
     Book
value
 
            In millions of won  

Land

          336,421        —          —          336,421  

Buildings

        29,168        (64      (11,845      17,259  
     

 

 

    

 

 

    

 

 

    

 

 

 
          365,589        (64      (11,845      353,680  
     

 

 

    

 

 

    

 

 

    

 

 

 

 

(2) Changes in investment properties for the years ended December 31, 2015 and 2016 are as follows:

 

            2015  
            Beginning
balance
     Depreciation      Others      Ending
balance
 
            In millions of won  

Land

          301,483        —          (47,523      253,960  

Buildings

        15,791        (669      841        15,963  

(Government grants)

        (10      —          (3      (13
     

 

 

    

 

 

    

 

 

    

 

 

 
          317,264        (669      (46,685      269,910  
     

 

 

    

 

 

    

 

 

    

 

 

 

 

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Table of Contents
            2016  
            Beginning
balance
     Depreciation      Others      Ending
balance
 
            In millions of won  

Land

          253,960        —          82,461        336,421  

Buildings

        15,963        (679      2,039        17,323  

(Government grants)

        (13      1        (52      (64
     

 

 

    

 

 

    

 

 

    

 

 

 
          269,910        (678      84,448        353,680  
     

 

 

    

 

 

    

 

 

    

 

 

 

 

(3) Income and expenses related to investment properties for the years ended December 31, 2015 and 2016 are as follows:

 

            2015      2016  
            In millions of won  

Rental income

          10,931        9,460  

Operating and maintenance expenses related to rental income

        (669      (678
     

 

 

    

 

 

 
          10,262        8,782  
     

 

 

    

 

 

 

 

(4) Fair value of investment properties as of December 31, 2015 and 2016 are as follows:

 

            2015      2016  
            Book
value
     Fair value      Book value      Fair value  
            In millions of won  

Land

          253,960        284,423        336,421        374,042  

Buildings

        15,950        18,263        17,259        20,708  
     

 

 

    

 

 

    

 

 

    

 

 

 
          269,910        302,686        353,680        394,750  
     

 

 

    

 

 

    

 

 

    

 

 

 

The fair values of the investment properties as of the reporting date were determined in consideration of the fluctuation on the publicly announced individual land price after the IFRS transition date (January 1, 2010).

 

(5) All of the Company’s investment property is held under freehold interests.

 

20. Construction Services Contracts

 

(1) Changes in total contract amount in which revenue is not yet recognized for the years ended December 31, 2014, 2015 and 2016 are as follows:

 

            2014  
            Beginning
balance
     Increase and
decrease(*)
     Recognized as
revenue
     Ending
balance
 
            In millions of won  

Nuclear power plant construction in UAE and others

          19,333,416        712,843        (2,965,185      17,081,074  

 

  (*) For the year ended December 31, 2014, the increased balance of contracts from new orders and other is ₩831,159 million and the decreased balance of contracts due to changes in scope of construction work is ₩118,316 million.

 

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Table of Contents
            2015  
            Beginning
balance
     Increase and
decrease(*)
     Recognized
as revenue
     Ending
balance
 
            In millions of won  

Nuclear power plant construction in UAE and others

          17,081,074        (1,011,031      (3,761,204      12,308,839  

 

  (*) For the year ended December 31, 2015, the increased balance of contracts from new orders and other is ₩412,617 million and the decreased balance of contracts due to changes in scope of construction work is ₩1,423,648 million.

 

            2016  
            Beginning
balance
     Increase and
decrease(*)
     Recognized
as revenue
     Ending
balance
 
            In millions of won  

Nuclear power plant construction in UAE and others

          12,308,839        (1,045,094      (4,026,857      7,236,888  

 

  (*) For the year ended December 31, 2016, the increased balance of contracts from new orders and other is ₩718,118 million and the decreased balance of contracts due to changes in scope of construction work is ₩1,763,212 million.

 

(2) Accumulated earned revenue, expense and others related to the Company’s construction contracts as of December 31, 2015 and 2016 are as follows:

 

            2015  
            Accumulated
earned revenue
     Accumulated
expense
     Accumulated
profit
     Unearned
advance receipts
 
            In millions of won  

Nuclear power plant construction in UAE and others

          12,224,934        11,573,516        651,418        —    

 

            2016  
            Accumulated
earned revenue
     Accumulated
expense
     Accumulated
profit
     Unearned
advance receipts
 
            In millions of won  

Nuclear power plant construction in UAE and others

          15,314,737        14,396,890        917,847        —    

 

(3) Gross amount due from customers recognized as assets and due to customers recognized as liabilities for contract work as of December 31, 2015 and 2016 are as follows:

 

            2015      2016  
            Assets(*1)      Liabilities(*2)      Assets(*1)      Liabilities(*2)  
            In millions of won  

Nuclear power plant construction in UAE and others

          55,317        893,992        44,930        651,985  

 

  (*1) Included in trade and other receivables, net, in the consolidated statements of financial position.

 

  (*2) Included in non-financial liabilities in the consolidated statements of financial position.

 

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Table of Contents
21. Intangible Assets other than Goodwill

 

(1) Intangible assets as of December 31, 2015 and 2016 are as follows:

 

            2015  
            Acquisition
cost
     Government
grants
    Accumulated
amortization
    Accumulated
impairment
losses
    Book
value
 
            In millions of won  

Software

          389,220        (699     (331,334     —         57,187  

Licenses and franchises

        3,398        —         (3,398     —         —    

Copyrights, patents rights
and other industrial rights

        34,178        —         (12,303     —         21,875  

Mining rights

        508,392        —         (8,855     —         499,537  

Development expenditures

        751,784        (6,835     (699,977     —         44,972  

Intangible assets under development

        94,886        (10,483     —         —         84,403  

Usage rights of donated assets and other

        375,275        (32     (326,684     —         48,559  

Leasehold rights

        19,112        —         (18,367     —         745  

Greenhouse gas emissions rights

        805        —         —         —         805  

Others

        189,941        (1     (80,067     (12,124     97,749  
     

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 
          2,366,991        (18,050     (1,480,985     (12,124     855,832  
     

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

 

            2016  
            Acquisition
cost
     Government
grants
    Accumulated
amortization
    Accumulated
impairment
losses
    Book
value
 
            In millions of won  

Software

          458,382        (595     (365,161     —         92,626  

Licenses and franchises

        3,398        —         (3,398     —         —    

Copyrights, patents rights
and other industrial rights

        35,756        —         (15,675     —         20,081  

Mining rights

        549,371        —         (10,511     —         538,860  

Development expenditures

        785,966        (5,152     (723,561     —         57,253  

Intangible assets under development

        119,474        (11,090     —         (3,941     104,443  

Usage rights of donated assets and other

        426,346        (21     (342,244     —         84,081  

Leasehold rights

        23,350        —         (18,718     —         4,632  

Greenhouse gas emissions rights

        6,283        —         —         —         6,283  

Others

        173,213        —         (88,527     (12,124     72,562  
     

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 
          2,581,539        (16,858     (1,567,795     (16,065     980,821  
     

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents
(2) Changes in intangible assets for as of December 31, 2015 and 2016 are as follows:

 

          2015  
          Beginning
balance
    Acquisition     Disposal     Amortization     Impairment     Others     Ending
balance
 
          In millions of won.  

Software

        52,556       10,477       (2     (29,795     187       24,463       57,886  

(Government grants)

      (488     —         —         177       —         (388     (699

Licenses and franchises

      54       —         —         (54     —         —         —    

Copyrights, patents rights
and other industrial rights

      22,677       129       (2     (2,866     —         1,937       21,875  

Mining rights

      504,214       23,151       —         (228     —         (27,600     499,537  

Development expenditures

      55,857       8,096       (5     (24,862     —         12,721       51,807  

(Government grants)

      (8,183     —         —         2,937       —         (1,589     (6,835

Intangible assets under development

      74,909       40,300       —         —         (22     (20,301     94,886  

(Government grants)

      (10,692     (1,884     —         —         —         2,093       (10,483

Usage rights of donated assets and other

      57,687       —         —         (9,096     —         —         48,591  

(Government grants)

      (43     —         —         11       —         —         (32

Leasehold rights

      779       —         —         (34     —         —         745  

Greenhouse gas emissions rights

      —         805       —         —         —         —         805  

Others

      71,734       6,872       (443     (8,456     88       27,955       97,750  

(Government grants)

      (1     —         —         —         —         —         (1
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
        821,060       87,946       (452     (72,266     253       19,291       855,832  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

          2016  
          Beginning
balance
    Acquisition     Disposal     Amortization     Impairment     Others     Ending
balance
 
          In millions of won  

Software

        57,886       18,267       —         (32,378     —         49,446       93,221  

(Government grants)

      (699     —         —         249       —         (145     (595

Licenses and franchises

               

Copyrights, patents rights and other industrial rights

      21,875       85       (39     (2,697     —         857       20,081  

Mining rights

      499,537       26,311       —         (899     —         13,911       538,860  

Development expenditures

      51,807       212       —         (21,993     —         32,379       62,405  

(Government grants)

      (6,835     —         —         2,771       —         (1,088     (5,152

Intangible assets under development

      94,886       66,588       —         —         (3,945     (41,996     115,533  

(Government grants)

      (10,483     (1,597     —         —         —         990       (11,090

Usage rights of donated assets and other

      48,591       —         —         (15,513     —         51,024       84,102  

(Government grants)

      (32     —         —         11       —         —         (21

Leasehold rights

      745       —         —         (351     —         4,238       4,632  

Greenhouse gas emissions rights

      805       6,283       —         —         —         (805     6,283  

Others

      97,750       8,273       (550     (8,916     3       (23,998     72,562  

(Government grants)

      (1     —         —         1       —         —         —    
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
        855,832       124,422       (589     (79,715     (3,942     84,813       980,821  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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(3) Significant specific intangible assets as of December 31, 2015 and 2016 are as follows:

 

2015

Type

  

Description

  

Currency

   Amount     

Remaining useful years

     In millions of won and thousands of Australian dollars

Software

   ERP system and others    KRW      1,293      2 months ~ 2 years and 11 months

Copyrights, patents rights and other industrial rights

  

 

Smart technology verification and standard design project conducting right

   KRW      6,750      6 years and 9 months

Mining rights

   Mining right of Bylong mine    AUD      401,225      —   (*)

Development expenditures

  

KOSPO Evolutionary Efficient & Powerful System(KEEPS)

   KRW      2,104      1 year and 6 months

Development expenditures

  

Development of maintenance system for utility plant

   KRW      1,084      1 year and 11 months

Intangible assets under development

   Contributions to ARP NRC DC    KRW      29,148      —  

Intangible assets under development

  

CHF testing for best representative of

HIPER/X2-Gen Fuel and development of best explanatory CHF correlation

   KRW      9,871      —  

Usage rights of donated assets

  

Songdo international business

district(sector 1, 3) sharing charge

   KRW      2,793      1 year and 10 months

Usage rights of donated assets

  

Dangjin power plant load facility usage right

   KRW      33,055      5 years and 3 months

Others

   Shingwangju electricity supply facility usage right    KRW      2,297      3 years and 5 months

Others

   Sillim electricity supply facility usage right    KRW      2,642      5 years and 11 months

 

(*) Mining rights are amortized using the units-of-production method and the amortization has not commenced yet.

 

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Table of Contents

2016

Type

  

Description

  

Currency

   Amount     

Remaining useful years

     In millions of won and thousands of Australian dollars

Software

  

ERP system and others

  

KRW

    
506
 
  

11 months ~

1 year and 11 months

   SCADA O/S (POWERON RELIANCE)    KRW      4,206      3 years and 1 month

Copyrights, patents rights and other industrial rights

  

Smart technology verification and standard design project conducting right

   KRW      5,750      5 years and 9 months

Mining rights

   Mining right of Bylong mine    AUD      401,225      —  (*)

Development expenditures

  

Development of maintenance system for utility plant

   KRW      518      11 months

Intangible assets under development

   Contributions to ARP NRC DC    KRW      41,190      —  

Usage rights of donated assets

   Sejong Haengbogdosi sharing charge    KRW      44,502      9 years and 11 months
   Dangjin power plant load facility usage right    KRW      26,759      4 years and 3 months

Others

   Sillim electricity supply facility usage right    KRW      2,196      4 years and 11 months

 

(*) Mining rights are amortized using the units-of-production method and the amortization has not commenced yet.

 

(4) For the years ended December 31, 2015 and 2016, the Company recognized research and development expenses of 611,220 million and 705,504 million, respectively.

 

22. Trade and Other Payables

Trade and other payables as of December 31, 2015 and 2016 are as follows:

 

            2015      2016  
            Current      Non-current      Current      Non-current  
            In millions of won  

Trade payables

          1,957,647        —          2,610,373        —    

Other trade payables

        1,379,035        3,048,299        1,498,582        3,033,780  

Accrued expenses

        1,082,880        2,373        1,152,933        2,161  

Leasehold deposits received

        2,451        —          1,426        1,008  

Other deposits received

        195,237        105,105        197,711        93,751  

Finance lease liabilities

        116,885        542,509        121,176        420,003  

Dividends payable

        1,562        —          3,204        —    

Others(*)

        —          20,149        6        7,472  
     

 

 

    

 

 

    

 

 

    

 

 

 
          4,735,697        3,718,435        5,585,411        3,558,175  
     

 

 

    

 

 

    

 

 

    

 

 

 

 

  (*) Details of others as of December 31, 2015 and 2016 are as follows:

 

            2015      2016  
            Current      Non-current      Current      Non-current  
            In millions of won  

Advance received from local governments

          —          20,149        —          7,472  

Others

        —          —          6        —    
     

 

 

    

 

 

    

 

 

    

 

 

 
          —          20,149        6        7,472  
     

 

 

    

 

 

    

 

 

    

 

 

 

 

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Table of Contents
23. Borrowings and Debt Securities

 

(1) Borrowings and debt securities as of December 31, 2015 and 2016 are as follows:

 

            2015     2016  
            In millions of won  

Current liabilities

     

Short-term borrowings

          603,673       805,523  

Current portion of long-term borrowings

        541,307       310,977  

Current portion of debt securities

        6,704,602       7,825,310  

Less : Current portion of discount on long-term borrowings

        (953     (979

Less : Current portion of discount on debt securities

        (1,676     (1,753
     

 

 

   

 

 

 
        7,846,953       8,939,078  
     

 

 

   

 

 

 

Non-current liabilities

       

Long-term borrowings

        1,951,119       1,799,750  

Debt securities

        49,077,131       43,012,960  

Less : Discount on long-term borrowings

        (18,860     (25,859

Less : Discount on debt securities

        (103,067     (86,880

Add: Premium on debt securities

        223       156  
     

 

 

   

 

 

 
        50,906,546       44,700,127  
     

 

 

   

 

 

 
          58,753,499       53,639,205  
     

 

 

   

 

 

 

 

(2) Repayment schedule of borrowings and debt securities as of December 31, 2015 and 2016 are as follows:

 

2015

 

Type

         Borrowings     Debt Securities  
           In millions of won  

Less than 1 year

         1,144,980       6,704,602  

1 ~ 5 years

       860,351       27,725,651  

Over 5 years

       1,090,768       21,351,480  
    

 

 

   

 

 

 
         3,096,099       55,781,733  
    

 

 

   

 

 

 

 

2016

 

Type

         Borrowings     Debt Securities  
           In millions of won  

Less than 1 year

         1,116,500       7,825,310  

1 ~ 5 years

       295,162       24,462,410  

Over 5 years

       1,504,588       18,550,550  
    

 

 

   

 

 

 
         2,916,250       50,838,270  
    

 

 

   

 

 

 

 

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Table of Contents
(3) Short-term borrowings as of December 31, 2015 and 2016 are as follows:

 

2015

 

Type

 

Creditor

  Interest rate (%)     Maturity     Foreign
currency
          Local
currency
 
    In millions of won and thousands of U.S. dollars  

Local short-term borrowings

 

Woori Investment Bank and others

    1.80~2.46      

2016.01.04~

2016.09.13

 

 

    —             559,530  

Foreign short-term borrowings

  ING and others     6.50       2016.12.03       USD 2,163         2,535  

Foreign short-term borrowings

 

Citi Bank and others

    3M Libor+0.35       2016.03.22       USD 12,265         14,375  

Local bank overdraft

  Woori Bank    
Standard overdraft
rate+1.12
 
 
    2016.02.25       —           27,233  
           

 

 

 
                603,673  
           

 

 

 

 

2016

 

Type

 

Creditor

  Interest rate (%)     Maturity     Foreign
currency
          Local
currency
 
    In millions of won and thousands of foreign currencies  

Local short-term borrowings

 

Woori Investment Bank and others

    1.54~2.51      

2017.01.25~

2017.09.13

 

 

    —             436,800  

Foreign short-term borrowings

  SCNT and others     1.58~6.50      

2017.03.30~

2017.12.03

 

 

    USD 35,086         42,401  

Foreign short-term borrowings

 

Export-import Bank of Korea

   
3M
Libor+0.54~0.63
 
 
   

2017.05.17~

2017.12.18

 

 

    AUD 311,174         271,360  

Local bank overdraft

  Nonghyup Bank     2.45       2017.01.05       —           37,000  

Local bank overdraft

  Woori Bank    
Standard overdraft
rate+1.12
 
 
    2017.02.25       —           17,962  
           

 

 

 
                805,523  
           

 

 

 

 

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(4) Long-term borrowings as of December 31, 2015 and 2016 are as follows:

 

2015

 

Type

 

Interest rate (%)

 

Maturity

  Foreign
currency
    Local
currency
 
    In millions of won and thousands of foreign currencies  

Local long-term borrowings

       

Korea Development Bank

 

Others

 

0.50

 

2018~2044

 

 

—  

 

 

6,418

 

  Facility   2.67~4.60   2023~2028     —         52,437  
  Facility   3yr KTB rate-1.25   2027     —         9,000  
  Facility  

1yr KoFC bond rate

+0.31

  2018     —         200,000  
  Operating funds   2.75   2018     —         12,000  

KEB Hana Bank

  Commercial Paper   3M CD+0.03~0.54   2016~2017     —         500,000  
  Facility   3yr KTB rate-1.25   2021~2028     —         10,363  
  Facility   4.60   2028     —         18,411  
  Energy rationalization   3yr KTB rate-1.25   2019     —         650  
  Energy rationalization   3.20~3.70   2021~2022     —         3,835  

Korea Industrial Bank

  PF Refinancing   CD+1.25   2030     —         22,500  
  Others   3yr KTB rate-1.25   2016     —         4,000  

Export-Import Bank of Korea

 

Project loans

 

2.00

 

2026

 

 

—  

 

 

 

30,935

 

Korea Resources Corporation

  Development of power resources   3yr KTB rate-2.25   2022~2027     —         44,674  
  Facility   3yr KTB rate-2.25   2023~2024     —         4,400  
  Project loans   —     2022~2027     —         8,677  
  Others   3yr KTB rate-2.25   2024~2025     —         13,057  

Shinhan Bank and others

 

Collateral borrowing

 

2.22

 

2017

 

 

—  

 

 

 

30,000

 

  Facility   3yr AA- CB rate+1.10   2028     —         27,617  
  Operating funds   2.70~3.35   2017~2018     —         25,000  

Kookmin Bank

  Facility   MOR+0.62~0.79   2017~2023     —         25,300  

Others

  Facility   4.60~5.80   2025~2028     —         144,359  
  Facility   3yr AA- CB rate+1.10   2028     —         18,411  
  PF Refinancing   4.10   2030     —         62,500  
  Others   —     2020~2036     —         45,847  
  Others   —     2028     —         7,250  
         

 

 

 
            1,327,641  
         

 

 

 

Foreign long-term borrowings

       

Korea National Oil Corporation

  Project loans   —     2021~2023     USD 8,744       10,248  

Export-Import Bank of Korea and others

  Direct loan and others  

3M Libor+2.75~

3.70

  2027     JOD 188,580       312,104  
  Commercial loan and others  

3M Libor+1.50~

2.50

  2030~2033     USD 312,601       366,368  
  PF Loan  

6M Libor+2.50~

2.70

  2032     USD 64,389       75,464  

SCNT and others

  Shareholder’s loan   6.50~8.00   2023     USD 34,924       40,931  
  Shareholder’s loan   8.00   2031     JOD 7,128       11,797  

 

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Table of Contents

2015

 

Type

 

Interest rate (%)

 

Maturity

  Foreign
currency
    Local
currency
 
    In millions of won and thousands of foreign currencies  

PT PJB and others

  Shareholder’s loan   12.75   2017     IDR 22,346,550       1,899  

HSBC and others

  Syndicated loan  

3M Libor+0.30~

0.50

  2017~2019     USD 31,774       37,239  

IFC and others

  Others   6M Libor+5.00   2031     PKR 5,891,200       65,805  

Others

  Others   3M Libor+0.65   2017     USD 199,269       233,543  
  Others   —     2019     USD 8,010       9,387  
         

 

 

 
            1,164,785  
         

 

 

 
        2,492,426  

Less : Discount of long-term borrowings

        (19,813

Less : Current portion of long-term borrowings

        (541,307

Add : Current portion of discount of long-term borrowings

        953  
         

 

 

 
      1,932,259  
     

 

 

 

 

2016

 

Type

 

Interest rate (%)

 

Maturity

  Foreign
currency
    Local
currency
 
    In millions of won and thousands of foreign currencies  

Local long-term borrowings

       

Korea Development Bank

  Others   0.50   2018~2044     —       5,663  
  Facility   2.45~4.60   2023~2028     —         61,835  
  Facility   1yr KoFC bond rate+ 0.31   2018     —         125,000  
  Operating funds   2.75   2018     —         12,000  

KEB Hana Bank

  Commercial Paper   3M CD+0.14   2017     —         100,000  
  Facility   4.60   2028     —         16,851  
  Facility   3yr KTB rate-1.25   2017~2028     —         9,655  

Korea Industrial Bank

  PF Refinancing   CD+1.25   2030     —         22,500  

Export-Import Bank of Korea

  Project loans   1.50   2026     —         30,935  

Korea Resources Corporation

  Development of power resources   3yr KTB rate -2.25   2022~2025     —         14,039  
  Facility   3yr KTB rate -2.25   2017~2024     —         3,842  
  Project loans   —     2022~2025     —         3,733  
  Others   KTB rate -2.25   2024~2025     —         12,131  

Shinhan Bank

  Collateral borrowing   2.22   2017     —         30,000  
  Facility   CB rate+1.10   2028     —         25,276  
  Operating funds   2.70~2.86   2017~2018     —         25,000  
  Others   4.10   2035     —         55,000  
  Others   3yr KTB rate+1.10   2035     —         55,000  

Kookmin Bank

  Facility   MOR+0.62 ~ 0.79   2017~2023     —         45,000  

Others

  Facility   1.75~4.60   2026~2029     —         146,472  
  Facility   CB rate+1.10 ~1.20   2022~2028     —         34,951  
  PF Refinancing   4.10   2030     —         62,500  
  Others   8.00   2036     —         102,347  
  Others   —     2028     —         7,250  
         

 

 

 
            1,006,980  
         

 

 

 

 

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Table of Contents

2016

 

Type

 

Interest rate (%)

 

Maturity

  Foreign
currency
    Local
currency
 
    In millions of won and thousands of foreign currencies  

Foreign long-term borrowings

       

Korea National Oil Corporation

  Project loans   —     2021~2023     USD 8,744       10,567  

Export-Import Bank of Korea and others

  Direct loan and others  

3M Libor+2.75~

3.70

  2027     JOD 178,892       305,332  
  Commercial loan and others  

3M Libor+1.50~

2.50

  2030~2033     USD 299,859       362,379  
  PF Loan  

6M Libor+2.50~

2.70

  2032     USD 119,647       144,594  

SCNT and others

  Shareholder’s loan   6.50~8.00   2023     USD 40,618       49,086  
  Shareholder’s loan   8.00   2031     JOD 7,128       12,166  

PT PJB

  Shareholder’s loan   12.75   2019     IDR 16,705,505       1,500  

Samsung Life Insurance and others

  Syndicated Loan   3.10   2032     JPY 1,758,000       18,227  

Woori Bank and others

  Syndicated Loan   JPY 6M Libor+2.10   2032     JPY 1,172,000       12,151  

SMBC and others

  Equity Bridge Loan   1M Libor+0.90   2019     USD 37,978       45,897  

IFC and others

  Others   6M Libor+5.00   2031     PKR 11,706,160       134,972  

Others

  Others   —     2019     USD 5,691       6,876  
         

 

 

 
            1,103,747  
         

 

 

 
        2,110,727  

Less : Discount of long-term borrowings

        (26,838

Less : Current portion of long-term borrowings

        (310,977

Add : Current portion of discount on long-term borrowings

        979  
         

 

 

 
      1,773,891  
         

 

 

 

 

(5) Local debt securities as of December 31, 2015 and 2016 are as follows:

 

     Issue date      Maturity      Interest rate (%)         2015     2016  
     In millions of won  

Electricity Bonds(*1)

    

2009.12.03~

2014.08.27

 

 

    

2017.01.05~

2033.08.06

 

 

   2.73~5.51         22,960,000       19,860,000  

Electricity Bonds

    
2012.07.10~
2013.06.25
 
 
    
2017.07.10~
2018.06.25
 
 
   3M CD+0.31~0.32         910,000       310,000  

Corporate Bonds(*2)

    

2009.05.04~

2016.12.02

 

 

    

2017.01.17~

2040.12.10

 

 

   1.36~5.84         20,710,010       19,552,708  
              

 

 

   

 

 

 
        44,580,010       39,722,708  

Less : Discount on local debt securities

        (40,228     (34,667

Less : Current portion of local debt securities

        (5,730,000     (5,650,010

Add : Current portion of discount on local debt securities

        1,187       728  
              

 

 

   

 

 

 
        38,810,969       34,038,759  
              

 

 

   

 

 

 

 

(*1) Electricity Bonds 885 (₩40,000 million) can be redeemed every April 28 after three years from its issue date, April 28, 2014.

 

(*2) Corporate Bonds of HeeMang Sunlight Power Co., Ltd (₩2,697 million) can be redeemed every March 31 after five years from its issue date, March 31, 2016.

 

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(6) Foreign debt securities as of December 31, 2015 and 2016 are as follows:

 

    2015  

Type

  Issue date     Maturity     Interest rate (%)   Foreign currency           Local currency  
    In millions of won and thousands of foreign currencies  

FY-96

   

1996.04.01~

1996.12.06

 

 

   

2026.12.06~

2096.04.01

 

 

  6.00~8.37     USD 249,136             291,990  

FY-97

   

1997.01.31~

1997.08.04

 

 

   

2027.02.01~

2027.08.01

 

 

  6.75~7.00     USD 314,717         368,848  

FY-04

    2004.04.23       2034.04.23     5.13     USD 286,920         336,270  

FY-06

   

2006.03.14~

2006.09.29

 

 

   

2016.03.14~

2016.09.29

 

 

  5.50~6.00     USD 650,000         761,800  

FY-08

    2008.11.27       2018.11.27     4.19     JPY 20,000,000         194,401  

FY-11

   

2011.07.13~

2011.07.29

 

 

   

2017.01.30~

2021.07.13

 

 

  3.63~4.75     USD 800,000         937,600  

FY-12

   

2012.05.10~

2012.09.19

 

 

   

2017.05.10~

2022.09.19

 

 

  2.50~3.13     USD 1,750,000         2,051,000  

FY-13

   

2013.02.05~

2013.11.27

 

 

   

2018.02.05~

2018.11.27

 

 

  1.88~2.88     USD 1,900,000         2,226,800  

FY-13

   

2013.09.26~

2013.10.23

 

 

   

2019.03.26~

2019.04.23

 

 

  1.50~1.63     CHF 400,000         474,156  

FY-13

    2013.09.25       2020.09.25     5.75     AUD 325,000         277,258  

FY-13

   

2013.02.20~

2013.07.25

 

 

   

2018.02.20~

2018.07.25

 

 

  3M Libor+0.84~1.50     USD 500,000         586,000  

FY-14

   

2014.02.11~

2014.12.02

 

 

   

2019.02.11~

2029.07.30

 

 

  2.38~3.57     USD 1,500,000         1,758,000  

FY-14

   

2014.01.28~

2014.07.31

 

 

   

2017.01.28~

2017.07.31

 

 

  3M Libor+0.55~1.05     USD 500,000         586,000  

FY-15

    2015.06.15       2025.06.15     3.25     USD 300,000         351,600  
           

 

 

 
        11,201,723  

Less : Discount on foreign debt securities

        (64,515

Add : Premium on foreign debt securities

        223  

Less : Current portion of foreign debt securities

        (974,602

Add : Current portion of discount on foreign debt securities

        489  
           

 

 

 
            10,163,318  
     

 

 

 

 

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Table of Contents
    2016  

Type

  Issue date     Maturity     Interest rate (%)   Foreign currency           Local currency  
    In millions of won and thousands of foreign currencies  

FY-96

   
1996.04.01~
1996.12.06
 
 
   
2026.12.06~
2096.04.01
 
 
  6.00~8.37     USD 249,068             300,999  

FY-97

   
1997.01.31~
1997.08.04
 
 
   
2027.02.01~
2027.08.01
 
 
  6.75~7.00     USD 314,717         380,335  

FY-04

    2004.04.23       2034.04.23     5.13     USD 286,920         346,743  

FY-08

    2008.11.27       2018.11.27     4.19     JPY 20,000,000         207,362  

FY-11

   
2011.07.13~
2011.07.29
 
 
   
2017.01.30~
2021.07.13
 
 
  3.63~4.75     USD 800,000         966,800  

FY-12

   
2012.05.10~
2012.09.19
 
 
   
2017.05.10~
2022.09.19
 
 
  2.50~3.13     USD 1,750,000         2,114,875  

FY-13

   
2013.02.05~
2013.11.27
 
 
   
2018.02.05~
2018.11.27
 
 
  1.88~2.88     USD 1,900,000         2,296,150  

FY-13

   
2013.09.26~
2013.10.23
 
 
   
2019.03.26~
2019.04.23
 
 
  1.50~1.63     CHF 400,000         472,532  

FY-13

    2013.09.25       2020.09.25     5.75     AUD 325,000         283,416  

FY-13

   
2013.02.20~
2013.07.25
 
 
   
2018.02.20~
2018.07.25
 
 
  3M Libor+0.84~1.50     USD 500,000         604,250  

FY-14

   
2014.02.11~
2014.12.02
 
 
   
2019.02.11~
2029.07.30
 
 
  2.38~3.57     USD 1,500,000         1,812,750  

FY-14

   
2014.01.28~
2014.07.31
 
 
   
2017.01.28~
2017.07.31
 
 
  3M Libor+0.55~1.05     USD 500,000         604,250  

FY-15

    2015.06.15       2025.06.15     3.25     USD 300,000         362,550  

FY-16

    2016.01.21       2021.07.21     2.50     USD 300,000         362,550  
           

 

 

 
        11,115,562  

Less : Discount on foreign debt securities

        (53,966

Add : Premium on foreign debt securities

        156  

Less : Current portion of foreign debt securities

        (2,175,300

Add : Current portion of discount on foreign debt securities

        1,025  
     

 

 

 
            8,887,477  
     

 

 

 

 

24. Finance Lease Liabilities

 

(1) Lease contracts

The Company enters into power purchase agreements (“PPA”) with GS EPS and three other providers. The Company recognizes these PPAs as finance leases; under the PPAs, there is no transfer of ownership or bargain purchase option of the plants at the end of the agreement, however, the present value of the future minimum power purchase payments equals substantially all of the plants’ respective fair values over a twenty-year period which makes up the major part of the respective plants’ economic life.

 

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(2) Finance lease liabilities as of December 31, 2015 and 2016 are as follows and are included in current and non-current trade and other payables, net, in the consolidated statements of financial position:

 

            2015      2016  
            Minimum lease
payments
     Present value of
minimum lease
payments
     Minimum lease
payments
     Present value of
minimum lease
payments
 
            In millions of won  

Less than 1 year

          182,072        116,885        175,512        121,176  

1 ~ 5 years

        525,465        393,957        404,029        306,282  

More than 5 years

        206,323        148,552        152,247        113,721  
     

 

 

    

 

 

    

 

 

    

 

 

 
          913,860        659,394        731,788        541,179  
     

 

 

    

 

 

    

 

 

    

 

 

 

 

(3) Current and non-current portion of financial lease liabilities as of December 31, 2015 and 2016 are as follows:

 

            2015      2016  
            In millions of won  

Current finance lease liabilities

          116,885        121,176  

Non-current finance lease liabilities

        542,509        420,003  
     

 

 

    

 

 

 
          659,394        541,179  
     

 

 

    

 

 

 

 

(4) Lease payments recognized as an expense from a lessee position for the years ended December 31, 2015 and 2016 are as follows:

 

            2015      2016  
            In millions of won  

Minimum lease payment

          194,960        177,585  

Contingent rent payment

        (17,682      (20,956

 

(5) The Company does not have any irrevocable operating lease contracts as of December 31, 2015 and 2016.

 

25. Employment Benefits

 

(1) Employment benefit obligations as of December 31, 2015 and 2016 are as follows:

 

            2015      2016  
            In millions of won  

Net defined benefit obligations

          1,495,782        1,678,470  

Other long-term employee benefit obligations

        7,325        7,788  
     

 

 

    

 

 

 
          1,503,107        1,686,258  
     

 

 

    

 

 

 

 

(2) Principal assumptions on actuarial valuation as of December 31, 2015 and 2016 are as follows:

 

     2015      2016  

Discount rate

     2.39%~2.58%        2.45%~2.64%  

Future salary and benefit levels

     5.43%        5.23%  

Weighted average duration

     13.21 years        13.34 years  

 

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(3) Details of expense relating to defined benefit plans for the years ended December 31, 2015 and 2016 are as follows:

 

           2015      2016  
           In millions of won  

Current service cost

         315,811        378,930  

Interest cost

       63,808        67,104  

Expected return on plan assets

       (22,557      (23,612

Loss from settlement

       (641      (706
    

 

 

    

 

 

 
         356,421        421,716  
    

 

 

    

 

 

 

Expenses as described above are recognized in those items below in the financial statements.

 

           2015      2016  
           In millions of won  

Cost of sales

         262,760        312,391  

Selling and administrative expenses

       51,932        61,362  

Others (Construction-in-progress and others)

       41,729        47,963  
    

 

 

    

 

 

 
         356,421        421,716  
    

 

 

    

 

 

 

In addition, for the years ended December 31, 2015 and 2016, employee benefit obligations expenses of ₩57,940 million and ₩62,435 million, respectively, are recognized as cost of sales, and ₩9,971 million and ₩11,450 million, respectively, are recognized as selling and administrative expenses, and ₩14,195 million and ₩14,024 million, respectively, are recognized as construction-in-progress and others, related to the Company’s defined contribution plans.

 

(4) Details of defined benefit obligations as of December 31, 2015 and 2016 are as follows:

 

           2015      2016  
           In millions of won  

Present value of defined benefit obligation from funded plans

         2,426,414        2,867,377  

Fair value of plan assets

       (930,632      (1,188,907
    

 

 

    

 

 

 
       1,495,782        1,678,470  
    

 

 

    

 

 

 

Present value of defined benefit obligation from unfunded plans

       —          —    
    

 

 

    

 

 

 

Net liabilities incurred from defined benefit plans

         1,495,782        1,678,470  
    

 

 

    

 

 

 

 

(5) Changes in the present value of defined benefit obligations for the years ended December 31, 2015 and 2016 are as follows:

 

           2015      2016  
           In millions of won  

Beginning balance

         1,992,447        2,426,414  

Current service cost

       315,811        378,930  

Interest cost(*)

       63,808        67,104  

Remeasurement component

       122,825        120,993  

Loss from settlement

       (641      (707

Actual payments

       (67,291      (125,233

Others

       (545      (124
    

 

 

    

 

 

 

Ending balance

         2,426,414        2,867,377  
    

 

 

    

 

 

 

 

  (*) Corporate bond (AAA rated) yield at year-end is applied to the interest cost on employee benefit obligations.

 

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(6) Changes in the fair value of plan assets for the years ended December 31, 2015 and 2016 are as follows:

 

           2015      2016  
           In millions of won  

Beginning balance

         724,250        930,632  

Expected return

       22,557        23,612  

Remeasurement component

       (5,924      (5,706

Contributions by the employers

       214,449        312,125  

Actual payments

       (24,191      (71,756

Others

       (509      —    
    

 

 

    

 

 

 

Ending balance

         930,632        1,188,907  
    

 

 

    

 

 

 

In addition, loss on accumulated remeasurement component amounting to ₩202,878 million and ₩222,997 million has been recognized as other comprehensive income or loss for the years ended December 31, 2015 and 2016, respectively.

 

(7) Details of the fair value of plan assets as of December 31, 2015 and 2016 are as follows:

 

           2015      2016  
           In millions of won  

Equity instruments

         12,791        86,054  

Debt instruments

       243,372        383,654  

Bank deposit

       129,350        305,670  

Others

       545,119        413,529  
    

 

 

    

 

 

 
         930,632        1,188,907  
    

 

 

    

 

 

 

For the years ended December 31, 2015 and 2016, actual returns on plan assets amounted to ₩16,633 million and ₩17,906 million, respectively.

 

(8) Remeasurement component recognized in other comprehensive income (loss) for the years ended December 31, 2015 and 2016 are as follows:

 

           2015      2016  
           In millions of won  

Actuarial gain (loss) from changes in financial assumptions

         140,411        (27,792

Experience adjustments

       (17,586      148,785  

Expected return

       5,924        5,706  
    

 

 

    

 

 

 
         128,749        126,699  
    

 

 

    

 

 

 

Remeasurement component recognized as other comprehensive income or loss is recorded in retained earnings.

 

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26. Provisions

 

(1) Provisions as of December 31, 2015 and 2016 are as follows:

 

            2015      2016  
            Current      Non-current      Current      Non-current  
            In millions of won  

Employment benefits

                

Provisions for employment benefits

        718,365        —          810,607        —    

Litigation

              

Litigation provisions

        57,737        110,228        79,359        118,878  

Decommissioning cost

              

Nuclear plants

        —          9,684,286        —          10,195,928  

Spent fuel

        —          1,375,185        —          1,374,225  

Waste

        —          1,502,140        2,566        1,476,936  

PCBs

        —          182,400        —          191,744  

Other recovery provisions

        —          862        —          507  

Others

              

Power plant regional support program

        129,655        —          152,851        —    

Transmission regional support program

        228,785        —          282,608        —    

Provisions for tax

        —          136        106        136  

Provisions for financial guarantee

        1,839        2,449        458        29,207  

Provisions for RPS

        363,178        —          417,404        —    

Provisions for greenhouse gas emissions obligations

        78,829        —          249,644        —    

Others

        788        7,068        4,385        39,590  
     

 

 

    

 

 

    

 

 

    

 

 

 
          1,579,176        12,864,754        1,999,988        13,427,151  
     

 

 

    

 

 

    

 

 

    

 

 

 

 

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(2) Changes in provisions for the years ended December 31, 2015 and 2016 are as follows:

 

          2015  
          Beginning
balance
    Increase in
provision
    Payment     Reversal     Others(*)     Ending
balance
 
          In millions of won  

Employment benefits

             

Provisions for employment benefits

        707,310       727,079       (715,850     (174     —         718,365  

Litigation

             

Litigation provisions

      200,289       111,301       (85,819     (58,306     500       167,965  

Decommissioning cost

             

Nuclear plants

      10,331,270       650,218       (622     (1,296,580     —         9,684,286  

Spent fuel

      1,298,749       568,190       (491,754     —         —         1,375,185  

Waste

      1,604,241       58,294       (160,699     —         304       1,502,140  

PCBs

      199,518       10,359       (27,477     —         —         182,400  

Other recovery provisions

      828       34       —         —         —         862  

Others

             

Power plant regional support program

      120,093       37,569       (37,648     —         9,641       129,655  

Transmission regional support program

      —         393,460       (164,675     —         —         228,785  

Provisions for tax

      649       —         —         (513     —         136  

Provisions for financial guarantee

      3,695       3,528       —         (2,936     1       4,288  

Provisions for RPS

      329,562       259,964       (165,259     (61,089     —         363,178  

Provisions for greenhouse gas emissions obligations

      —         78,829       —         —         —         78,829  

Others

      6,992       1,410       (590     44       —         7,856  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
        14,803,196       2,900,235       (1,850,393     (1,419,554     10,446       14,443,930  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
          2016  
          Beginning
balance
    Increase in
provision
    Payment     Reversal     Others(*)     Ending
balance
 
          In millions of won  

Employment benefits

             

Provisions for employment benefits

        718,365       1,047,342       (947,982     (7,108     (10     810,607  

Litigation

             

Litigation provisions

      167,965       124,931       (294,403     (20,736     220,480       198,237  

Decommissioning cost

             

Nuclear plants

      9,684,286       513,383       (1,741     —         —         10,195,928  

Spent fuel

      1,375,185       469,982       (470,942     —         —         1,374,225  

Waste

      1,502,140       49,092       (71,998     —         268       1,479,502  

PCBs

      182,400       30,675       (21,331     —         —         191,744  

Other recovery provisions

      862       —         —         (20     (335     507  

Others

             

Power plant regional support program

      129,655       50,252       (41,540     —         14,484       152,851  

Transmission regional support program

      228,785       253,664       (199,841     —         —         282,608  

Provisions for tax

      136       125       —         —         (19     242  

Provisions for financial guarantee

      4,288       29,741       —         (4,298     (66     29,665  

Provisions for RPS

      363,178       420,154       (309,975     (55,953     —         417,404  

Provisions for greenhouse gas emissions obligations

      78,829       298,618       (116,336     (11,467     —         249,644  

Others

      7,856       37,491       (2,699     (9     1,336       43,975  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
        14,443,930       3,325,450       (2,478,788     (99,591     236,138       15,427,139  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(*) ‘Others’ primarily include the amount recognized as addition to construction-in-progress.

 

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27. Government Grants

 

(1) Government grants as of December 31, 2015 and 2016 are as follows:

 

            2015      2016  
            In millions of won  

Land

          (3,147      (3,204

Buildings

        (63,932      (61,188

Structures

        (193,119      (197,641

Machinery

        (108,935      (111,064

Vehicles

        (29      (107

Equipment

        (1,026      (732

Tools

        (691      (430

Construction-in-progress

        (139,898      (135,807

Investment properties

        (13      (64

Software

        (699      (595

Development expenditures

        (6,835      (5,152

Intangible assets under development

        (10,483      (11,090

Usage rights of donated assets and other

        (32      (21

Others

        (1      —    
     

 

 

    

 

 

 
          (528,840      (527,095
     

 

 

    

 

 

 

 

(2) Changes in government grants for the years ended December 31, 2015 and 2016 are as follows:

 

          2015  
          Beginning
balance
    Receipt     Acquisition      Offset the
items of
depreciation
expense and
others
     Disposal      Others     Ending
balance
 
          In millions of won  

Cash

        —         (52,696     —          —          —          52,696       —    

Land

      (3,103     —         —          —          —          (44     (3,147

Buildings

      (67,700     —         —          5,064        —          (1,296     (63,932

Structures

      (196,871     —         —          9,178        1,816        (7,242     (193,119

Machinery

      (108,750     —         —          11,133        1,101        (12,419     (108,935

Vehicles

      (76     —         —          47        1        (1     (29

Equipment

      (1,002     —         —          469        —          (493     (1,026

Tools

      (862     —         —          268        —          (97     (691

Construction-in-progress

      (123,938     —         11,279        —          —          (27,239     (139,898

Investment properties

      (10     —         —          —          —          (3     (13

Software

      (488     —         —          177        —          (388     (699

Development expenditures

      (8,183     —         —          2,937        —          (1,589     (6,835

Intangible assets under development

      (10,692     —         2,093        —          —          (1,884     (10,483

Usage rights of donated assets and other

      (43     —         —          11        —          —         (32

Others

      (1     —         —          —          —          —         (1
   

 

 

   

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 
        (521,719     (52,696     13,372        29,284        2,918        1       (528,840
   

 

 

   

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

 

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            2016  
            Beginning
balance
    Receipt     Acquisition      Offset the
items of
depreciation
expense and
others
     Disposal      Others     Ending
balance
 
            In millions of won  

Cash

          —         (32,878     —          —          —          32,878       —    

Land

        (3,147     —         —          —          14        (71     (3,204

Buildings

        (63,932     —         —          5,299        731        (3,286     (61,188

Structures

        (193,119     —         —          9,491        2,597        (16,610     (197,641

Machinery

        (108,935     —         —          12,272        1,210        (15,611     (111,064

Vehicles

        (29     —         —          25        —          (103     (107

Equipment

        (1,026     —         —          452        —          (158     (732

Tools

        (691     —         —          295        —          (34     (430

Construction-in-progress

        (139,898     —         32,525        —          —          (28,434     (135,807

Investment properties

        (13     —         —          1        —          (52     (64

Software

        (699     —         —          249        —          (145     (595

Development expenditures

        (6,835     —         —          2,771        —          (1,088     (5,152

Intangible assets under development

        (10,483     —         991        —          —          (1,598     (11,090

Usage rights of donated assets and other

        (32     —         —          11        —          —         (21

Others

        (1     —         —          1        —          —         —    
     

 

 

   

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 
          (528,840     (32,878     33,516        30,867        4,552        (34,312     (527,095
     

 

 

   

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

 

28. Deferred Revenues

Deferred revenue related to the Company’s construction contracts as of December 31, 2015 and 2016 are as follows which included in current and non-current non-financial liabilities in the consolidated statements of financial position:

 

            2015      2016  
            In millions of won  

Beginning balance

          6,850,016        7,165,297  

Increase during the current year / period

        691,276        1,087,765  

Recognized as revenue during the current year / period

        (375,995      (427,297
     

 

 

    

 

 

 

Ending balance

          7,165,297        7,825,765  
     

 

 

    

 

 

 

 

29. Non-financial Liabilities

Non-financial liabilities as of December 31, 2015 and 2016 are as follows:

 

            2015      2016  
            Current      Non-current      Current      Non-current  
            In millions of won  

Advance received

          5,017,735        215,096        4,498,739        148,404  

Unearned revenue

        21,810        63,850        26,084        41,936  

Deferred revenue

        372,157        6,793,140        445,018        7,380,747  

Withholdings

        146,258        6,731        263,263        10,781  

Others

        762,751        13,435        1,135,106        9,737  
     

 

 

    

 

 

    

 

 

    

 

 

 
          6,320,711        7,092,252        6,368,210        7,591,605  
     

 

 

    

 

 

    

 

 

    

 

 

 

 

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30. Contributed Capital

 

(1) Details of shares issued as of December 31, 2015 and 2016 are as follows:

 

    2015  
    Shares
authorized
    Shares issued           Par value
per share
    Owned by
government(*)
    Owned by
others
    Total  
    In millions of won except share information        

Common shares

    1,200,000,000       641,964,077           5,000       1,640,385       1,569,435       3,209,820  

 

  (*) Korea Development Bank’s ownership of ₩1,056,176 million is included.

 

    2016  
    Shares
authorized
    Shares issued           Par value
per share
    Owned by
government(*)
    Owned by
others
    Total  
    In millions of won except share information        

Common shares

    1,200,000,000       641,964,077           5,000       1,640,385       1,569,435       3,209,820  

 

  (*) Korea Development Bank’s ownership of ₩1,056,176 million is included.

 

(2) Details in number of outstanding capital stock for the years ended December 31, 2015 and 2016 are as follows.

 

     2015      2016  
     Number of shares  

Beginning balance

     641,964,077        641,964,077  
  

 

 

    

 

 

 

Ending balance

     641,964,077        641,964,077  
  

 

 

    

 

 

 

 

(3) Details of share premium as of December 31, 2015 and 2016 are as follows:

 

            2015      2016  
            In millions of won  

Share premium

          843,758        843,758  

 

31. Retained Earnings and Dividends Paid

 

(1) Details of retained earnings as of December 31, 2015 and 2016 are as follows:

 

            2015      2016  
            In millions of won  

Legal reserve(*)

          1,604,910        1,604,910  

Voluntary reserves

        23,720,167        31,847,275  

Retained earnings before appropriations

        22,862,164        19,721,686  
     

 

 

    

 

 

 

Retained earnings

          48,187,241        53,173,871  
     

 

 

    

 

 

 

 

  (*) The KEPCO Act requires KEPCO to appropriate a legal reserve equal to at least 20 percent of net income for each accounting period until the reserve equals 50 percent of KEPCO’s common stock. The legal reserve is not available for cash dividends; however, this reserve may be credited to paid-in capital or offset against accumulated deficit by the resolution of the shareholders.

 

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(2) Details of voluntary reserves as of December 31, 2015 and 2016 are as follows:

 

           2015      2016  
           In millions of won  

Reserve for investment on social overhead capital

         5,277,449        5,277,449  

Reserve for research and human development(*)

       330,000        330,000  

Reserve for business expansion

       17,902,718        26,029,826  

Reserve for equalizing dividends

       210,000        210,000  
    

 

 

    

 

 

 
         23,720,167        31,847,275  
    

 

 

    

 

 

 

 

  (*) The reserve for research and human development is appropriated by KEPCO to use as qualified tax credits to reduce corporate tax liabilities. The reserve is available for cash dividends for a certain period as defined by the Tax Incentive Control Law of Korea.

 

(3) Changes in retained earnings for the years ended December 31, 2015 and 2016 are as follows:

 

           2015      2016  
           In millions of won  

Beginning balance

         35,303,647        48,187,241  

Net profit for the period attributed to owner of the Company

       13,289,127        7,048,581  

Changes in equity method retained earnings

       (280      (2,532

Remeasurements of defined benefit liability, net of tax

       (84,271      (69,330

Dividend paid

       (320,982      (1,990,089
    

 

 

    

 

 

 

Ending balance

         48,187,241        53,173,871  
    

 

 

    

 

 

 

 

(4) Dividends paid for the years ended December 31, 2015 and 2016 are as follows:

 

    2015  

In millions of won

  Number of
shares issued
    Number of
treasury stocks
    Number of
shares eligible for
dividends
          Dividends paid
per share
    Dividends
paid
 
                            (In won)        

Common shares

    641,964,077       —         641,964,077           500       320,982  

 

    2016  

In millions of won

  Number of
shares issued
    Number of
treasury stocks
    Number of
shares eligible for
dividends
          Dividends paid
per share
    Dividends
paid
 
                            (In won)        

Common shares

    641,964,077       —         641,964,077           3,100       1,990,089  

 

(5) Changes in retained earnings of investments in associates and joint ventures for the years ended December 31, 2015 and 2016 are as follows:

 

     2015      2016  
     In millions of won  

Beginning balance

   (2,131      (2,411

Changes

     (280      (2,532
  

 

 

    

 

 

 

Ending balance

   (2,411      (4,943
  

 

 

    

 

 

 

 

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(6) Changes in remeasurement components for the years ended December 31, 2015 and 2016 are as follows:

 

          2015     2016  
          In millions of won  

Beginning balance

        (116,705     (202,878

Changes

      (127,184     (119,316

Income tax effect

      42,913       49,986  

Transfer to reserve for business expansion

      (1,902     49,211  
   

 

 

   

 

 

 

Ending balance

        (202,878     (222,997
   

 

 

   

 

 

 

 

32. Statement of Appropriation of Retained Earnings

For the year ended December 31, 2015, the Company’s retained earnings were appropriated on March 22, 2016. For the year ended December 31, 2016, the Company’s retained earnings were appropriated on March 21, 2017. Statements of appropriation of retained earnings of KEPCO, the controlling company, for the years ended December 31, 2015 and 2016 are as follows:

 

              2015     2016  
              In millions of won except for
dividends per share
 

I.       Retained earnings before appropriations

     

Unappropriated retained earnings carried over from prior years

          —         —    

Net income

      10,165,653       4,261,986  

Remeasurements of the defined benefit plan

      (48,457     (4,328
     

 

 

   

 

 

 
        10,117,196       4,257,658  
     

 

 

   

 

 

 

II.     Transfer from voluntary reserves

      —         —    
     

 

 

   

 

 

 

III.    Subtotal (I+II)

      10,117,196       4,257,658  
     

 

 

   

 

 

 

IV.   Appropriations of retained earnings

      (10,117,196     (4,257,658

Legal reserve

      —         —    

Dividends (government, individual)

     

(Amount of dividends per share (%) :

 

Current year—₩1,980 (40%)

Prior year—₩3,100 (62%)

      (1,990,089     (1,271,089

Reserve for business expansion

      (8,127,107     (2,986,569

V.     Unappropriated retained earnings to be carried over forward to subsequent year

      —         —    

 

33. Hybrid Bonds

Bond-type hybrid securities classified as equity (non-controlling interest) as of December 31, 2016 and 2015 are as follows:

 

Issuer

  Hybrid bond     Issued date     Maturity     Yield (%)           Amount  
    In millions of won  

Korea Western Power Co., Ltd.

   

1st bond-type

hybrid bond

 

 

    2012.10.18       2042.10.18      
5yr government
bond rate+1.20
 
 
        100,000  

Korea South-East Power Co., Ltd.

   

1st bond-type

hybrid bond

 

 

    2012.12.07       2042.12.06       4.38         170,000  

Korea South-East Power Co., Ltd.

   

2nd bond-type

hybrid bond

 

 

    2012.12.07       2042.12.06       4.44         230,000  

Expense of issuance

 

      (1,340
           

 

 

 
                498,660  
           

 

 

 

 

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Although these instruments have contractual maturity dates, the contractual agreements allow these subsidiaries to indefinitely extend the maturity dates and defer the payment of interest without modification to the other terms of the instruments. When the Company decides to not pay dividends on ordinary shares, they are not required to pay interest on the hybrid bonds.

Substantially, as these instruments have no contractual obligation to pay principal and interest, these instruments have been classified as equity (non-controlling interest) in the Company’s consolidated financial statements.

 

34. Other Components of Equity

 

(1) Other components of equity of the parent as of December 31, 2015 and 2016 are as follows:

 

          2015      2016  
          In millions of won  

Other capital surplus

        1,197,388        1,235,146  

Accumulated other comprehensive loss

      (98,713      (33,875

Other equity

      13,294,973        13,294,973  
   

 

 

    

 

 

 
        14,393,648        14,496,244  
   

 

 

    

 

 

 

 

(2) Changes in other capital surplus for the years ended December 31, 2015 and 2016 are as follows:

 

          2015     2016  
          Gains on
disposal of

Treasury
stocks
    Others     Subtotal     Gains on
disposal of
treasury
stocks
    Others     Subtotal  
          In millions of won  

Beginning balance

        387,524       763,878       1,151,402       387,524       809,864       1,197,388  

Disposal of subsidiary

      —         58,310       58,310       —         36,008       36,008  

Change in consolidation scope

      —         (716     (716     —         —         —    

Issuance of share capital of subsidiary

      —         2,536       2,536       —         1,750       1,750  

Income tax effect

      —         (14,144     (14,144     —         —         —    
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance

        387,524       809,864       1,197,388       387,524       847,622       1,235,146  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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(3) Changes in accumulated other comprehensive income (loss) for the years ended December 31, 2015 and 2016 are as follows:

 

          2015  
          Available-for-sale
financial asset
valuation  reserve
    Shares in other
comprehensive

income of
investments in
associates and
joint  ventures
    Reserve for
overseas
operations

translation credit
    Reserve for
gain (loss) on
valuation of

derivatives
    Total  
          In millions of won  

Beginning balance

        (34,649     186,897       (255,641     (98,876     (202,269

Changes in the unrealized fair value of available-for-sale financial assets, net of tax

      9,744       —         —         —         9,744  

Shares in other comprehensive income of associates and joint ventures, net of tax

      —         89,476       —         —         89,476  

Foreign currency translation of foreign operations, net of tax

      —         —         1,179       —         1,179  

Net change in the unrealized fair value of derivatives using cash flow hedge accounting, net of tax

      —         —         —         3,157       3,157  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance

        (24,905     276,373       (254,462     (95,719     (98,713
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

          2016  
          Available-for-sale
financial asset
valuation  reserve
    Shares in other
comprehensive

Income (loss) of
investments in
associates and
joint  ventures
    Reserve for
overseas
operations

translation credit
    Reserve for
gain (loss) on
valuation of

derivatives
    Total  
          In millions of won  

Beginning balance

        (24,905     276,373       (254,462     (95,719     (98,713

Changes in the unrealized fair value of available-for-sale financial assets, net of tax

      61,275       —         —         —         61,275  

Shares in other comprehensive loss of associates and joint ventures, net of tax

      —         (54,918     —         —         (54,918

Foreign currency translation of foreign operations, net of tax

      —         —         31,406       —         31,406  

Net change in the unrealized fair value of derivatives using cash flow hedge accounting, net of tax

      —         —         —         27,075       27,075  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance

        36,370       221,455       (223,056     (68,644     (33,875
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(4) Details of other equity for the years ended December 31, 2015 and 2016 are as follows:

 

            2015     2016  
            In millions of won  

Statutory revaluation reserve

          13,295,098       13,295,098  

Changes in other equity

        (125     (125
     

 

 

   

 

 

 
          13,294,973       13,294,973  
     

 

 

   

 

 

 

 

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35. Sales

 

  Details of sales for the years ended December 31, 2014, 2015 and 2016 are as follows:

 

           2014      2015      2016  
           Domestic      Overseas      Domestic      Overseas      Domestic      Overseas  
           In millions of won  

Sales of goods

         53,408,869        297,959        53,961,463        405,573        54,982,095        397,392  

Electricity

       52,625,226        —          53,229,470        —          54,304,529        —    

Heat supply

       258,492        —          204,987        —          181,597        —    

Others

       525,151        297,959        527,006        405,573        495,969        397,392  

Sales of service

       222,973        228,040        209,189        244,298        195,697        161,046  

Sales of construction services

       262,035        2,703,150        180,424        3,580,780        132,219        3,894,638  
    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
         53,893,877        3,229,149        54,351,076        4,230,651        55,310,011        4,453,076  
    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

36. Selling and Administrative Expenses

 

(1) Selling and administrative expenses for the years ended December 31, 2014, 2015 and 2016 are as follows:

 

           2014      2015      2016  
           In millions of won  

Salaries

           556,808        655,432        734,930  

Retirement benefit expense

       12,418        61,903        72,812  

Welfare and benefit expense

       89,804        119,866        162,243  

Insurance expense

       10,619        10,636        11,513  

Depreciation

       69,182        102,867        169,431  

Amortization of intangible assets

       40,260        40,465        35,171  

Bad debt expense

       39,018        290        38,719  

Commission

       550,335        562,171        605,879  

Advertising expense

       27,236        30,085        34,658  

Training expense

       5,664        4,988        6,314  

Vehicle maintenance expense

       12,015        10,529        10,390  

Publishing expense

       3,109        3,124        3,643  

Business development expense

       3,053        3,338        3,477  

Rent expense

       34,914        44,905        40,020  

Telecommunication expense

       21,586        22,678        25,448  

Transportation expense

       1,907        753        596  

Taxes and dues

       42,894        55,970        46,531  

Expendable supplies expense

       6,009        7,272        6,834  

Water, light and heating expense

       9,758        9,558        9,720  

Repairs and maintenance expense

       40,397        74,330        75,122  

Ordinary development expense

       154,244        178,472        188,063  

Travel expense

       13,025        14,388        16,115  

Clothing expense

       7,577        5,751        8,273  

Survey and analysis expense

       526        590        666  

Membership fee

       798        1,040        1,132  

Others

       171,210        131,860        331,532  
    

 

 

    

 

 

    

 

 

 
           1,924,366        2,153,261        2,639,232  
    

 

 

    

 

 

    

 

 

 

 

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(2) Other selling and administrative expenses for the years ended December 31, 2014, 2015 and 2016 are as follows:

 

          2014      2015      2016  
          In millions of won  

Accommodation development expenses

          22,530        28,134        186,896  

Miscellaneous wages

      30,397        43,109        31,907  

Litigation and filing expenses

      9,222        10,670        12,328  

Compensation for damages

      46,946        9,032        60,341  

Outsourcing expenses

      1,377        2,865        3,530  

Reward expenses

      2,094        2,472        3,267  

Overseas market development expenses

      —          1,541        2,177  

Others

      58,644        34,037        31,086  
   

 

 

    

 

 

    

 

 

 
          171,210        131,860        331,532  
   

 

 

    

 

 

    

 

 

 

 

37. Other Income and Expense

 

(1) Other income for the years ended December 31, 2014, 2015 and 2016 are as follows:

 

          2014      2015      2016  
          In millions of won  

Reversal of other provisions

          5,271        6,355        22,034  

Reversal of allowance for doubtful accounts

      241        413        5,489  

Gains on government grants

      —          204        111  

Gains on assets contributed

      2,418        9,004        12,254  

Gains on liabilities exempted

      858        2,588        1,959  

Compensation and reparations revenue

      156,019        166,355        114,530  

Gains on electricity infrastructure development fund

      18,888        —          —    

Revenue from research contracts

      9,615        5,342        13,143  

Revenue related to transfer of assets from customers

      351,857        375,995        427,297  

Rental income

      182,511        196,406        211,580  

Others

      26,508        45,552        31,787  
   

 

 

    

 

 

    

 

 

 
          754,186        808,214        840,184  
   

 

 

    

 

 

    

 

 

 

 

(2) Details of others of other income for the years ended December 31, 2014, 2015 and 2016 are as follows:

 

          2014      2015      2016  
          In millions of won  

Refund of claim for rectification

          9,996        7,623        8,722  

Adjustment of research project

      4,003        4,090        4,148  

Maintenance expenses on lease building

      1,282        324        354  

Training expenses

      2,916        4,774        4,478  

Deposit redemption

      2,235        430        991  

Reversal of expenses on litigation

      521        219        893  

Revenue on royalty fee

      897        2,739        2,486  

Reimbursement of insurance fee

      310        11,797        —    

Gains on guarantee contracts

      —          4,523        2,796  

Others

      4,348        9,033        6,919  
   

 

 

    

 

 

    

 

 

 
          26,508        45,552        31,787  
   

 

 

    

 

 

    

 

 

 

 

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(3) Other expense for the years ended December 31, 2014, 2015 and 2016 are as follows:

 

          2014      2015      2016  
          In millions of won  

Compensation and indemnification expense

          —          16,959        —    

Accretion expenses of other provisions

      1,052        4,575        4,556  

Depreciation expenses on investment properties

      821        669        678  

Depreciation expenses on idle assets

      6,658        6,698        6,639  

Other bad debt expense

      15,981        18,473        4,585  

Donations

      37,889        34,134        114,094  

Others

      25,819        27,340        58,072  
   

 

 

    

 

 

    

 

 

 
          88,220        108,848        188,624  
   

 

 

    

 

 

    

 

 

 

 

(4) Details of others of other expense for the years ended December 31, 2014, 2015 and 2016 are as follows:

 

           2014      2015      2016  
           In millions of won  

Operating expenses related to the idle assets

           985        779        459  

Research grants

       617        1,392        1,461  

Supporting expenses on farming and fishing village

       14,211        14,626        15,201  

Operating expenses on fitness center

       1,928        2,912        2,706  

Expenses on adjustment of research and development grants

       —          709        —    

Forfeit of taxes and dues

       —          1,105        4,582  

Expenses on R&D supporting

       1,956        146        690  

Movement expense

       2,262        3,191        —    

Others

       3,860        2,480        32,973  
    

 

 

    

 

 

    

 

 

 
           25,819        27,340        58,072  
    

 

 

    

 

 

    

 

 

 

 

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38. Other Gains (Losses)

 

(1) Composition of other gains (losses) for the years ended December 31, 2014, 2015 and 2016 are as follows:

 

           2014      2015      2016  
           In millions of won  

Other gains

          

Gains on disposal of property plant, and equipment

         85,775        8,637,508        74,035  

Gains on disposal of intangible assets

       4        32        —    

Reversal of impairment loss on intangible assets

       18        275        3  

Gains on foreign currency translation

       5,152        13,784        15,311  

Gains on foreign currency transaction

       56,368        61,007        55,377  

Gains on insurance proceeds

       3,046        30        —    

Others

       194,888        162,128        187,792  

Other losses

          

Losses on disposal of property plant and equipment

       (50,152      (73,073      (42,715

Losses on disposal of intangible assets

       (18      (16      (158

Impairment loss on property, plant and equipment

       (38,107      (30,344      —    

Impairment loss on intangible assets

       (42      (22      (3,945

Losses on foreign currency translation

       (12,663      (15,097      (23,835

Losses on foreign currency transaction

       (53,252      (75,615      (72,058

Others

       (83,621      (69,824      (119,309
    

 

 

    

 

 

    

 

 

 
         107,396        8,610,773        70,498  
    

 

 

    

 

 

    

 

 

 

 

(2) Details of others of other gains for the years ended December 31, 2014, 2015 and 2016 are as follows:

 

           2014      2015      2016  
           In millions of won  

Gains on disposal of inventories

         12,127        10,758        9,494  

Gains on valuation of inventories

       2,756        7        2  

Gains on proxy collection of TV license fee

       37,433        38,529        38,991  

Gains on compensation of impaired electric poles

       2,319        —          3,650  

Gains on compensation for infringement on contract

       7,824        7,414        3,040  

Gains on harbor facilities dues

       5,935        5,943        2,957  

Gains on technical fees

       1,121        1,258        1,271  

Reversal of occupation development training fees

       1,850        1,878        1,756  

Gains on disposal of waste

       2,467        2,880        4,222  

Gains on insurance

       2,748        11,865        3,786  

Gains on litigation

       1,954        600        —    

Gains on tax rebate

       2,388        1,661        5,226  

Gains on other commission

       8,672        2,177        4,639  

Gains on research tasks

       28,599        1,446        10  

Gains on settlement and others

       —          2,803        2,188  

Gains on sales of greenhouse gas emissions rights

       —          52        46  

Others

       76,695        72,857        106,514  
    

 

 

    

 

 

    

 

 

 
         194,888        162,128        187,792  
    

 

 

    

 

 

    

 

 

 

 

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(3) Details of others of other losses for the years ended December 31, 2014, 2015 and 2016 are as follows:

 

           2014      2015      2016  
           In millions of won  

Losses on valuation of inventories

         3,231        1,318        2,683  

Losses on disposal of inventories

       1,996        13,469        3,092  

Losses due to disaster

       2,404        263        1,522  

Losses on rounding adjustment of electric charge surtax

       1,236        1,251        1,260  

Losses on adjustments of levies

       5,091        13,928        1,184  

Losses on write-off

       4,297        —          —    

Forfeit of taxes and dues

       6,825        190        4,582  

Commission and others

       139        —          —    

Losses on litigation

       22,999        488        2,581  

Others

       35,403        38,917        102,405  
    

 

 

    

 

 

    

 

 

 
         83,621        69,824        119,309  
    

 

 

    

 

 

    

 

 

 

 

39. Finance Income

 

(1) Finance income for the years ended December 31, 2014, 2015 and 2016 are as follows:

 

           2014      2015      2016  
           In millions of won  

Interest income

         191,456        241,585        241,778  

Dividends income

       14,193        14,069        9,446  

Gains on disposal of financial assets

       98,065        4        1,482  

Gains on valuation of derivatives

       312,347        610,582        293,830  

Gains on transaction of derivatives

       52,618        151,851        45,549  

Gains on foreign currency translation

       121,177        127,372        161,905  

Gains on foreign currency transaction

       95,418        37,377        37,553  

Other finance income

       16        148        —    
    

 

 

    

 

 

    

 

 

 
         885,290        1,182,988        791,543  
    

 

 

    

 

 

    

 

 

 

 

(2) Interest income included in finance income for the years ended December 31, 2014, 2015 and 2016 are as follows:

 

           2014      2015      2016  
           In millions of won  

Cash and cash equivalents

         56,384        54,687        61,380  

Available-for-sale financial assets

       382        29        —    

Held-to-maturity investments

       89        99        97  

Loans and receivables

       29,507        28,586        25,106  

Short-term financial instrument

       5,199        46,921        45,763  

Long-term financial instrument

       215        10,492        7,195  

Other financial assets

       —          —          —    

Trade and other receivables

       99,680        100,771        102,237  
    

 

 

    

 

 

    

 

 

 
         191,456        241,585        241,778  
    

 

 

    

 

 

    

 

 

 

 

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40. Finance Expenses

 

(1) Finance expenses for the years ended December 31, 2014, 2015 and 2016 are as follows:

 

           2014      2015      2016  
           In millions of won  

Interest expense

           2,351,624        2,015,684        1,752,868  

Losses on sale of financial assets

       2,700        3,008        9  

Impairment of available-for-sale financial assets

       79,618        84,370        86,703  

Losses on valuation of derivatives

       102,091        17,051        5,762  

Losses on transaction of derivatives

       119,635        37,262        101,987  

Losses on foreign currency translation

       465,326        743,283        406,849  

Losses on foreign currency transaction

       18,827        113,723        57,889  

Losses on repayment of financial liabilities

       199        33        23,000  

Other

       18        1,043        2,020  
    

 

 

    

 

 

    

 

 

 
           3,140,038        3,015,457        2,437,087  
    

 

 

    

 

 

    

 

 

 

 

(2) Interest expense included in finance expenses for the years ended December 31, 2014, 2015 and 2016 are as follows:

 

           2014      2015      2016  
           In millions of won  

Trade and other payables

           98,407        84,527        68,375  

Short-term borrowings

       27,038        14,627        6,969  

Long-term borrowings

       167,781        103,503        91,584  

Debt securities

       2,306,330        2,177,855        1,922,900  

Other financial liabilities

       588,535        538,680        482,428  
    

 

 

    

 

 

    

 

 

 
       3,188,091        2,919,192        2,572,256  
    

 

 

    

 

 

    

 

 

 

Less: Capitalized borrowing costs

       (836,467      (903,508      (819,388
    

 

 

    

 

 

    

 

 

 
           2,351,624        2,015,684        1,752,868  
    

 

 

    

 

 

    

 

 

 

Capitalization rates for the years ended December 31, 2014, 2015 and 2016 are 3.28% ~ 4.35%, 2.36% ~ 4.25% and 2.29% ~ 4.16%, respectively.

 

41. Income Taxes

 

(1) Income tax expense for the years ended December 31, 2014, 2015 and 2016 are as follows:

 

           2014      2015      2016  
           In millions of won  

Current income tax expense

          

Payment of income tax

           897,129        2,682,779        2,689,640  

Adjustment in respect of prior years due to change in estimate

       (29,823      (23,248      231,113  

Current income tax directly recognized in equity

       9,137        37,768        30,059  
    

 

 

    

 

 

    

 

 

 
       876,443        2,697,299        2,950,812  
    

 

 

    

 

 

    

 

 

 

Deferred income tax expense

          

Generation and realization of temporary differences

       248,796        48,878        509,762  

Changes of unrecognized tax losses, tax credit and temporary differences for prior periods

       (26,067      71,999        (86,845

Changes in deferred tax on tax losses carryforwards

       345,887        2,374,237        —    

Tax credit carryforwards

       (14,720      47,000        (8,588
    

 

 

    

 

 

    

 

 

 
       553,896        2,542,114        414,329  
    

 

 

    

 

 

    

 

 

 

Income tax expense

           1,430,339        5,239,413        3,365,141  
    

 

 

    

 

 

    

 

 

 
          

 

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(2) Reconciliation between actual income tax expense and amount computed by applying the statutory tax rate of 24.2% to income before income taxes for the years ended December 31, 2014, 2015 and 2016 are as follows:

 

           2014     2015     2016  
           In millions of won  

Income before income tax

           4,229,306       18,655,786       10,513,468  
    

 

 

   

 

 

   

 

 

 

Income tax expense computed at applicable tax rate of 24.2%

       1,023,492       4,514,700       2,544,259  

Adjustments

        

Effect of applying gradual tax rate

       (1,503     (4,147     (5,082

Effect of non-taxable revenue

       (50,728     (8,047     (29,554

Effect of non-deductible expenses

       43,152       17,734       22,258  

Effects of tax credits and deduction

       (75,804     (103,435     (194,731

Recognition (reversal) of unrecognized deferred tax asset, net

       (26,067     71,999       (86,845

Deferred income tax related to investments in subsidiaries and associates

       516,557       784,793       862,956  

Others, net

       31,063       (10,936     20,767  
    

 

 

   

 

 

   

 

 

 
       436,670       747,961       589,769  

Adjustment in respect of prior years due to change in estimate

       (29,823     (23,248     231,113  
    

 

 

   

 

 

   

 

 

 

Income tax expense

           1,430,339       5,239,413       3,365,141  
    

 

 

   

 

 

   

 

 

 

Effective tax rate

       34     28     32

 

(3) Income tax directly adjusted to shareholders’ equity (except for accumulated other comprehensive income (loss)) for the years ended December 31, 2014, 2015 and 2016 are as follows:

 

          2014      2015      2016  
          In millions of won  

Dividends of hybrid securities

        5,256        5,253        5,253  

Gain on disposal of investments in subsidiaries

      (75,958      (14,144      (7,006

Gain on disposal of treasury stocks

      (26,976      —          —    
   

 

 

    

 

 

    

 

 

 
        (97,678)        (8,891      (1,753
   

 

 

    

 

 

    

 

 

 

 

(4) Income tax recognized as other comprehensive income (loss) for the years ended December 31, 2014, 2015 and 2016 are as follows:

 

          2014      2015      2016  
          In millions of won  

Income tax recognized as other comprehensive income (loss)

         

Gain (loss) on valuation of available-for-sale financial assets

        26,149        (6,315      (8,143

Net change in the unrealized fair value of derivatives using cash flow hedge accounting, net of tax

      51,504        7,253        (18,335

Remeasurements of defined benefit obligations

      60,270        42,913        49,986  

Investments in associates

      (16,813      13,648        7,731  

Others

      (14,295      (10,840      573  
   

 

 

    

 

 

    

 

 

 
        106,815        46,659        31,812  
   

 

 

    

 

 

    

 

 

 

 

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(5) Changes in deferred income tax assets (liabilities) recognized in the statements of financial position for the years ended December 31, 2015 and 2016 are as follows:

 

          2015  
          Beginning
balance
    Amounts
recognized
in profit

or loss
    Amount
recognized in
other
comprehensive
income (loss)
    Amounts
recognized
directly
in equity
    Ending
balance
 
          In millions of won  

Deferred income tax on temporary differences

           

Employee benefits

        352,934       11,495       42,913       —         407,342  

Cash flow hedge

      51,354       (87,620     7,253       —         (29,013

Investments in associates or subsidiaries

      (5,769,627     (669,035     2,808       (14,144     (6,449,998

Property, plant and equipment

      (5,979,863     484,077       —         —         (5,495,786

Finance lease

      (197,097     (75,333     —         —         (272,430

Intangible assets

      12,309       (2,889     —         —         9,420  

Financial assets at fair value through profit or loss

      2,840       (2,844     —         —         (4

Available-for-sale financial assets

      (41,836     (1,048     (6,315     —         (49,199

Deferred revenue

      230,644       (15,283     —         —         215,361  

Provisions

      3,459,775       (87,352     —         —         3,372,423  

Doubtful receivables

      1,356       49       —         —         1,405  

Other finance liabilities

      23,237       (2,192     —         5,253       26,298  

Gains or losses on foreign exchange translation

      53,794       74,920       —         —         128,714  

Allowance for doubtful accounts

      15,452       3,524       —         —         18,976  

Accrued income

      (3,245     (7,986     —         —         (11,231

Special deduction for property, plant and equipment

      (194,674     327       —         —         (194,347

Impairment of non-current assets

      86,720       (86,720     —         —         —    

Reserve for research and human development

      (35,499     14,811       —         —         (20,688

Others

      460,019       116,566       —         —         576,585  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
      (7,471,407     (332,533     46,659       (8,891     (7,766,172
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Deferred income tax on unused tax losses and tax credit

           

Tax losses

      2,176,175       (2,176,178     —         —         (3

Tax credit

      98,286       (71,171     —         —         27,115  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
      2,274,461       (2,247,349     —         —         27,112  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
        (5,196,946     (2,579,882     46,659       (8,891     (7,739,060
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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          2016  
          Beginning
balance
    Amounts
recognized
in profit

or loss
    Amount
recognized in
other
comprehensive
income (loss)
    Amounts
recognized
directly
in equity
    Ending
balance
 
          In millions of won  

Deferred income tax on temporary differences

           

Employee benefits

        407,342       36,003       49,986       —         493,331  

Cash flow hedge

      (29,013     (6,235     (18,335     —         (53,583

Investments in associates or subsidiaries

      (6,449,998     (717,072     7,731       (7,006     (7,166,345

Property, plant and equipment

      (5,495,786     (31,532     —         —         (5,527,318

Finance lease

      (272,430     (73,001     —         —         (345,431

Intangible assets

      9,420       (433     —         —         8,987  

Financial assets at fair value through profit or loss

      (4     (58     —         —         (62

Available-for-sale financial assets

      (49,199     (11,005     (8,143     —         (68,347

Deferred revenue

      215,361       (1,502     —         —         213,859  

Provisions

      3,372,423       210,948       —         —         3,583,371  

Doubtful receivables

      1,405       1,291       —         —         2,696  

Other finance liabilities

      26,298       (1,302     —         5,253       30,249  

Gains or losses on foreign exchange translation

      128,714       10,224       —         —         138,938  

Allowance for doubtful accounts

      18,976       (1,724     —         —         17,252  

Accrued income

      (11,231     5,864       —         —         (5,367

Special deduction for property, plant and equipment

      (194,347     38       —         —         (194,309

Reserve for research and human development

      (20,688     7,805       —         —         (12,883

Others

      576,585       118,712       573       —         695,870  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
      (7,766,172     (452,979     31,812       (1,753     (8,189,092
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Deferred income tax on unused tax losses and tax credit

           

Tax losses

      (3     3       —         —         —    

Tax credit

      27,115       8,588       —         —         35,703  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
      27,112       8,591       —         —         35,703  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
        (7,739,060     (444,388     31,812       (1,753     (8,153,389
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(6) Deferred income tax assets (liabilities) recognized in the statements of financial position as of December 31, 2015 and 2016 are as follows:

 

           2015      2016  
           In millions of won  

Deferred income tax assets

         623,623        795,131  

Deferred income tax liabilities

       (8,362,683      (8,948,520
    

 

 

    

 

 

 
         (7,739,060      (8,153,389
    

 

 

    

 

 

 

 

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(7) Details of deductible temporary differences, tax losses and unused tax credits not recognized in the deferred income tax assets as of December 31, 2015 and 2016 are as follows:

 

          2015      2016  
          In millions of won  

Deductible temporary differences

        441,704        426,718  

 

42. Assets Held-for-Sale

Assets held-for-sale as of December 31, 2015 and 2016 are as follows:

 

          2015      2016  
          In millions of won  

Land(*1)

        2,907        2,907  

Building(*1)

      20,366        20,366  

Investments in associates(*2, 3)

      56,374        42,569  
   

 

 

    

 

 

 
        79,647        65,842  
   

 

 

    

 

 

 

 

  (*1) The board of directors of KEPCO Engineering & Construction Company, Inc., a subsidiary of the Company, determined to dispose the office building in Yongin as part of the government’s plan to relocate state-run companies for balanced national development and moved the head office to Kimchun, Kyungsangbukdo, in 2015. As the Company believes the book value of Yongin office will be recovered by a disposal transaction rather than continuous operation, it reclassified buildings, land and structures as assets held-for-sale.

 

  (*2) Korea Western Power Co., Ltd., a subsidiary of the Company, plans to dispose certain portion of its investment in Dongducheon Dream Power Co., Ltd. and reclassified the relevant book value to non-current assets held-for-sale.

 

  (*3) Korea Hydro & Nuclear Power Co., Ltd., a subsidiary of the Company, reclassified its investments in Yeongwol Energy Station Co., Ltd. to assets held-for-sale according to the shareholders’ agreement. The reclassified amount is determined as using the lower amount of either the book value or net fair value.

 

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43. Expenses Classified by Nature

Expenses classified by nature for the years ended December 31, 2014, 2015 and 2016 are as follows:

 

          2014  
          Selling and
administrative
expenses
     Cost of sales      Total  
          In millions of won  

Raw materials used

        —          20,150,934        20,150,934  

Salaries

      556,808        2,633,641        3,190,449  

Retirement benefit expense

      12,418        147,843        160,261  

Welfare and benefit expense

      89,804        313,483        403,287  

Insurance expense

      10,619        65,322        75,941  

Depreciation

      69,182        7,720,386        7,789,568  

Amortization of intangible assets

      40,260        36,153        76,413  

Bad debt expense

      39,018        —          39,018  

Commission

      550,335        355,263        905,598  

Advertising expense

      27,236        7,414        34,650  

Training expense

      5,664        9,387        15,051  

Vehicle maintenance expense

      12,015        9,297        21,312  

Publishing expense

      3,109        3,917        7,026  

Business development expense

      3,053        3,960        7,013  

Rent expense

      34,914        98,321        133,235  

Telecommunication expense

      21,586        70,140        91,726  

Transportation expense

      1,907        3,638        5,545  

Taxes and dues

      42,894        250,722        293,616  

Expendable supplies expense

      6,009        26,279        32,288  

Water, light and heating expense

      9,758        26,910        36,668  

Repairs and maintenance expense

      40,397        1,388,975        1,429,372  

Ordinary development expense

      154,244        391,491        545,735  

Travel expense

      13,025        46,792        59,817  

Clothing expense

      7,577        5,039        12,616  

Survey and analysis expense

      526        2,391        2,917  

Membership fee

      798        6,047        6,845  

Power purchase

      —          12,601,686        12,601,686  

Others

      171,210        3,387,521        3,558,731  
   

 

 

    

 

 

    

 

 

 
        1,924,366        49,762,952        51,687,318  
   

 

 

    

 

 

    

 

 

 

 

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           2015  
           Selling and
administrative
expenses
     Cost of sales      Total  
           In millions of won  

Raw materials used

         —          14,626,933        14,626,933  

Salaries

       655,432        2,962,476        3,617,908  

Retirement benefit expense

       61,903        320,700        382,603  

Welfare and benefit expense

       119,866        426,186        546,052  

Insurance expense

       10,636        83,910        94,546  

Depreciation

       102,867        8,158,884        8,261,751  

Amortization of intangible assets

       40,465        31,801        72,266  

Bad debt expense

       290        —          290  

Commission

       562,171        353,703        915,874  

Advertising expense

       30,085        8,498        38,583  

Training expense

       4,988        11,186        16,174  

Vehicle maintenance expense

       10,529        8,323        18,852  

Publishing expense

       3,124        3,981        7,105  

Business development expense

       3,338        4,312        7,650  

Rent expense

       44,905        142,054        186,959  

Telecommunication expense

       22,678        73,180        95,858  

Transportation expense

       753        5,336        6,089  

Taxes and dues

       55,970        397,161        453,131  

Expendable supplies expense

       7,272        29,874        37,146  

Water, light and heating expense

       9,558        26,870        36,428  

Repairs and maintenance expense

       74,330        1,771,760        1,846,090  

Ordinary development expense

       178,472        432,748        611,220  

Travel expense

       14,388        52,910        67,298  

Clothing expense

       5,751        4,135        9,886  

Survey and analysis expense

       590        3,071        3,661  

Membership fee

       1,040        6,401        7,441  

Power purchase

       —          11,428,027        11,428,027  

Others

       131,860        4,083,309        4,215,169  
    

 

 

    

 

 

    

 

 

 
         2,153,261        45,457,729        47,610,990  
    

 

 

    

 

 

    

 

 

 

 

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           2016  
           Selling and
administrative
expenses
     Cost of sales      Total  
           In millions of won  

Raw materials used

         —          13,470,586        13,470,586  

Salaries

       734,930        3,425,712        4,160,642  

Retirement benefit expense

       72,812        374,826        447,638  

Welfare and benefit expense

       162,243        507,691        669,934  

Insurance expense

       11,513        79,987        91,500  

Depreciation

       169,431        8,704,525        8,873,956  

Amortization of intangible assets

       35,171        44,544        79,715  

Bad debt expense

       38,719        —          38,719  

Commission

       605,879        423,179        1,029,058  

Advertising expense

       34,658        9,693        44,351  

Training expense

       6,314        13,347        19,661  

Vehicle maintenance expense

       10,390        7,016        17,406  

Publishing expense

       3,643        4,615        8,258  

Business development expense

       3,477        4,836        8,313  

Rent expense

       40,020        133,670        173,690  

Telecommunication expense

       25,448        75,925        101,373  

Transportation expense

       596        5,153        5,749  

Taxes and dues

       46,531        464,962        511,493  

Expendable supplies expense

       6,834        34,668        41,502  

Water, light and heating expense

       9,720        25,820        35,540  

Repairs and maintenance expense

       75,122        1,896,656        1,971,778  

Ordinary development expense

       188,063        517,441        705,504  

Travel expense

       16,115        63,611        79,726  

Clothing expense

       8,273        5,363        13,636  

Survey and analysis expense

       666        3,209        3,875  

Membership fee

       1,132        8,714        9,846  

Power purchase

       —          10,755,739        10,755,739  

Others

       331,532        4,488,065        4,819,597  
    

 

 

    

 

 

    

 

 

 
         2,639,232        45,549,553        48,188,785  
    

 

 

    

 

 

    

 

 

 

 

44. Earnings Per Share

 

(1) Basic earnings per share for the years ended December 31, 2014, 2015 and 2016 are as follows:

 

                            

Type

         2014      2015      2016  
           In won  

Basic earnings per share

         4,290        20,701        10,980  

 

(2) Diluted earnings per share for the years ended December 31, 2014, 2015 and 2016 are as follows:

 

                            

Type

         2014      2015      2016  
           In won  

Diluted earnings per share

         4,290        20,701        10,980  

 

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(3) Basic earnings per share

Net profit for the period and weighted average number of common shares used in the calculation of basic earnings per share for the years ended December 31, 2014, 2015 and 2016 are as follows:

 

Type

         2014      2015      2016  
           In millions of won except number of shares  

Controlling interest in net profit

         2,686,873        13,289,127        7,048,581  

Profit used in the calculation of total basic earnings per share

       2,686,873        13,289,127        7,048,581  

Weighted average number of common shares

       626,353,314        641,964,077        641,964,077  

 

(4) Diluted earnings per share

Diluted earnings per share is calculated by applying adjusted weighted average number of common shares under the assumption that all dilutive potential common shares are converted to common shares.

Earnings used in the calculation of total diluted earnings per share for the years ended December 31, 2014, 2015 and 2016 are as follows:

 

Type

         2014      2015      2016  
           In millions of won  

Profit used in the calculation of total diluted earnings per share

         2,686,873        13,289,127        7,048,581  

Weighted average common shares used in calculating diluted earnings per share are adjusted from weighted average common shares used in calculating basic earnings per share. Detailed information of the adjustment for the years ended December 31, 2014, 2015 and 2016 are as follows:

 

Type

   2014      2015      2016  
     In number of shares  

Weighted average number of common shares

     626,353,314        641,964,077        641,964,077  

Diluted weighted average number of shares

     626,353,314        641,964,077        641,964,077  

 

(5) There are no potential dilutive instruments and diluted earnings per share are same as basic earnings per share for the years ended December 31, 2014, 2015 and 2016.

 

45. Risk Management

 

(1) Capital risk management

The Company manages its capital to ensure that entities in the Company will be able to continue while maximizing the return to shareholder through the optimization of the debt and equity balance. The capital structure of the Company consists of net debt (offset by cash and cash equivalents) and equity. The Company’s overall capital risk management strategy remains unchanged from that of the prior year.

Details of the Company’s capital management accounts as of December 31, 2015 and 2016 are as follows:

 

          2015     2016  
          In millions of won  

Total borrowings and debt securities

        58,753,499       53,639,205  

Cash and cash equivalents

      3,783,065       3,051,353  
   

 

 

   

 

 

 

Net borrowings and debt securities

      54,970,434       50,587,852  
   

 

 

   

 

 

 

Total shareholder’s equity

      67,942,475       73,050,545  
   

 

 

   

 

 

 

Debt to equity ratio

      80.91     69.25

 

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(2) Financial risk management

The Company is exposed to various risks related to its financial instruments, such as, market risk (currency risk, interest rate risk, price risk), credit risk. The Company monitors and manages the financial risks relating to the operations of the Company through internal risk reports which analyze exposures by degree and magnitude of risks. The Company uses derivative financial instruments to hedge certain risk exposures. The Company’s overall financial risk management strategy remains unchanged from that of the prior year.

 

  (i) Credit risk

Credit risk is the risk of finance loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises primarily from the sales activities, securities and derivatives. In addition, credit risk exposure may exist within financial guarantees and unused line of credits. As these financial institutions the Company makes transactions with are reputable financial institutions, the credit risk from them are considered limited. The Company decides credit transaction limits based on evaluation of client’s credit, through information obtained from the credit bureau and disclosed financial position at committing contracts.

 

  Credit risk management

Electricity sales, the main operations of the Company are the necessity for daily life and industrial activities of Korean nationals, and have importance as one of the national key industries. The Company dominates the domestic market supplying electricity to customers. The Company is not exposed to credit risk as customers of the Company are from various industries and areas. The Company uses publicly available information and its own internal data related to trade receivables, to rate its major customers and to measure the credit risk that a counter party will default on a contractual obligation. For the incurred but not recognized loss, it is measured considering overdue period.

 

  Impairment and allowance account

In accordance with the Company policies, individual material financial assets are assessed on a regular basis, trade receivables that are assessed not to be impaired individually are, in addition, assessed for impairment on a collective basis. Value of the acquired collateral (including the confirmation of feasibility) and estimated collectable amounts are included in this assessment.

Allowance for bad debts assessed on a collective basis are recognized for (i) the Company of assets which individually are not material and (ii) incurred but not recognized losses that are assessed using statistical methods, judgment and past experience.

Book values of the financial assets represent the maximum exposed amounts of the credit risk. Details of the Company’s level of maximum exposure to credit risk as of December 31, 2015 and 2016 are as follows:

 

            2015      2016  
            In millions of won  

Cash and cash equivalents

          3,783,065        3,051,353  

Derivative assets (trading)

        255,008        367,477  

Available-for-sale financial assets

        584,479        1,014,732  

Held-to-maturity investments

        3,623        3,244  

Loans and receivables

        735,057        834,207  

Long-term/short-term financial instruments

        5,890,866        2,695,926  

Derivative assets (using hedge accounting)

        362,142        413,897  

Trade and other receivables

        9,271,967        9,692,391  

Financial guarantee contracts(*)

        271,010        1,396,152  

 

  (*) Maximum exposure associated with the financial guarantee contracts is the maximum amounts of the obligation.

 

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As of the reporting date, there are no financial assets and non-financial assets that were acquired through the exercise of the right of collateralized assets and reinforcement of credit arrangement.

 

  (ii) Market risk

Market risk is the risk that the Company’s fair values of the financial instruments or future cash flows are affected by the changes in the market. Market risk consists of interest rate risk, currency risk and other price risk.

 

  (iii) Sensitivity analysis

Significant assets and liabilities with uncertainties in underlying assumptions

 

  Defined benefit obligation

A sensitivity analysis of defined benefit obligation assuming a 1% increase and decrease movements in the actuarial valuation assumptions as of December 31, 2015 and 2016 are as follows:

 

                2015     2016  

Type

  

Accounts

         1% Increase     1% Decrease     1% Increase     1% Decrease  
     In millions of won  

Future salary increases

  

Increase (decrease) in defined benefit obligation

         293,205       (271,758     344,874       (304,685

Discount rate

   Increase (decrease) in defined benefit obligation        (267,648     315,870       (305,031     371,689  

Changes of employee benefits assuming a 1% increase and decrease movements in discount rate on plan asset for the years ended December 31, 2015 and 2016 are ₩7,265 million and ₩9,096 million, respectively.

 

  Provisions

Changes in provisions due to movements in underlying assumptions as of December 31, 2015 and 2016 are as follows:

 

Type

   Accounts    2015     2016  

PCBs

   Inflation rate      2.65     1.29
   Discount rate      3.21     2.77

Nuclear plants

   Inflation rate      1.40     1.40
   Discount rate      3.55     3.55

Spent fuel

   Inflation rate      2.93     2.93
   Discount rate      4.49     4.49

 

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A sensitivity analysis of provisions assuming a 0.1% increase and decrease movements in the underlying assumptions as of December 31, 2015 and 2016 are as follows:

 

                2015     2016  

Type

   Accounts          0.1% Increase     0.1% Decrease     0.1% Increase     0.1% Decrease  
     In millions of won  

Discount rate

   PCBs          (875     881       (817     822  
   Nuclear plants        (201,318     206,720       (209,277     215,139  
   Spent fuel        (52,390     54,425       (52,353     54,387  

Inflation rate

   PCBs        885       (881     834       (830
   Nuclear plants        220,720       (215,086     240,115       (233,553
   Spent fuel        55,212       (53,219     55,173       (53,182

Management judgment effected by uncertainties in underlying assumptions

 

  Foreign currency risk

The Company undertakes transactions denominated in foreign currencies; consequently, exposures to exchange rate fluctuations arise. The carrying amounts of the Company’s foreign currency denominated monetary assets and monetary liabilities as of December 31, 2015 and 2016 are as follows:

 

     Assets      Liabilities  

Type

   2015      2016      2015      2016  
     In thousands of foreign currencies  

AED

     1,481        7,479        1,705        1,534  

AUD

     158        187        595,284        632,613  

BDT

     43,332        49,110        889        833  

BWP

     301        4,296        —          3,222  

CAD

     —          —          858        —    

CHF

     —          —          400,029        400,308  

CNY

     —          —          26,140        —    

EUR

     6,141        17,585        33,552        14,111  

GBP

     —          3        99        110  

IDR

     —          52,568        —          —    

INR

     972,175        1,059,092        206,159        161,631  

JOD

     2,972        1,746        —          5  

JPY

     1,425,163        520,746        20,325,211        20,442,504  

KZT

     47,177        12,157        —          —    

MGA

     2,768,360        3,408,579        151,729        150,430  

MXN

     7,704        —          —          —    

PHP

     489,309        415,818        77,337        136,700  

PKR

     211,212        274,090        12,928        5,051  

SAR

     1,083        1,149        —          —    

TWD

     —          —          30        —    

USD

     1,260,094        1,319,524        9,331,854        9,445,567  

UYU

     —          1,307        —          586  

ZAR

     238        386        —          75  

A sensitivity analysis on the Company’s income for the period assuming a 10% increase and decrease in currency exchange rates as of December 31, 2015 and 2016 are as follows:

 

          2015     2016  

Type

        10% Increase     10% Decrease     10% Increase     10% Decrease  
          In millions of won  

Increase (decrease) of income before
income tax

        (1,063,285     1,063,285       (1,101,372     1,101,372  

Increase (decrease) of shareholder’s
equity(*)

      (1,063,285     1,063,285       (1,101,372     1,101,372  

 

  (*) The effect on the shareholders’ equity excluding the impact of income taxes.

 

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The sensitivity analysis above is conducted for monetary assets and liabilities denominated in foreign currencies other than functional currency, without consideration of hedge effect of related derivatives, as of December 31, 2015 and 2016.

To manage its foreign currency risk related to foreign currency denominated receivables and payables, the Company has a policy to enter into currency forward agreements. In addition, to manage its foreign currency risk related to foreign currency denominated expected sales transactions and purchase transactions, the Company enters into cross-currency swap agreements.

 

  Interest rate risk

The Company is exposed to interest rate risk due to its borrowing with floating interest rates. A 1% increase or decrease is used when reporting interest rate risk internally to key management personnel and represents management’s assessment of the reasonably possible change in interest rates.

The Company’s borrowings and debt securities with floating interest rates as of December 31, 2015 and 2016 are as follows:

 

Type

         2015      2016  
           In millions of won  

Short-term borrowings

         41,608        289,322  

Long-term borrowings

       1,977,745        1,459,969  

Debt securities

       2,082,000        1,518,500  
    

 

 

    

 

 

 
         4,101,353        3,267,791  
    

 

 

    

 

 

 

A sensitivity analysis on the Company’s long-term borrowings and debt securities assuming a 1% increase and decrease in interest rates, without consideration of hedge effect of related derivatives for the years ended December 31, 2015 and 2016 are as follows:

 

           2015     2016  

Type

         1% Increase     1% Decrease     1% Increase     1% Decrease  
           In millions of won  

Increase (decrease) of profit before income tax

         (41,014     41,014       (32,678     32,678  

Increase (decrease) of shareholder’s equity(*)

       (41,014     41,014       (32,678     32,678  

 

  (*) The effect on the shareholders’ equity excluding the impact of income taxes.

To manage its interest rate risks, the Company enters into certain interest swap agreements or maintains an appropriate mix of fixed and floating rate borrowings.

 

  Electricity rates risk

The Company is exposed to electricity rates risk due to the rate regulation of the government which considers the effect of electricity rate on the national economy.

A sensitivity analysis on the Company’s income for the period assuming a 1% increase and decrease in price of electricity for the years ended December 31, 2015 and 2016 are as follows:

 

          2015     2016  

Type

        1% Increase     1% Decrease     1% Increase     1% Decrease  
          In millions of won  

Increase (decrease) of profit before income tax

        532,295       (532,295     543,045       (543,045

Increase (decrease) of shareholder’s equity(*)

      532,295       (532,295     543,045       (543,045

 

  (*) The effect on the shareholders’ equity excluding the impact of income taxes.

 

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  (iv) Liquidity risk

The Company has established an appropriate liquidity risk management framework for the management of the Company’s short, medium and long-term funding and liquidity management requirements. The Company manages liquidity risk by continuously monitoring forecasted and actual cash flows, and by matching the maturity profiles of financial assets and liabilities.

In addition, the Company has established credit lines on its trade financing and bank overdrafts, and through payment guarantees it has received, it maintains an adequate credit (borrowing) line. In addition, the Company has the ability to utilize excess cash or long-term borrowings for major construction investments.

The following table shows the details of maturities of non-derivative financial liabilities as of December 31, 2015 and 2016. This table, based on the undiscounted cash flows of the non-derivative financial liabilities, has been completed based on the respective liabilities’ earliest maturity date.

 

          2015  

Type

        Less than
1 year
    1~2 Years     2~5 Years     More than
5 years
    Total  
          In millions of won  

Borrowings and debt securities

        9,862,441       11,252,946       23,642,523       28,566,566       73,324,476  

Finance lease liabilities

      182,072       175,512       349,953       206,323       913,860  

Trade and other payables

      4,618,812       314,361       617,120       2,244,445       7,794,738  

Financial guarantee contracts(*)

      168,885       62,116       40,009       —         271,010  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
        14,832,210       11,804,935       24,649,605       31,017,334       82,304,084  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

          2016  

Type

        Less than
1 year
    1~2 Years     2~5 Years     More than
5 years
    Total  
          In millions of won  

Borrowings and debt securities

        10,613,185       9,786,209       19,353,498       24,461,835       64,214,727  

Finance lease liabilities

      175,512       174,534       229,495       152,247       731,788  

Trade and other payables

      5,464,234       307,222       660,426       2,170,525       8,602,407  

Financial guarantee contracts(*)

      249,200       40,617       865,842       240,493       1,396,152  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
        16,502,131       10,308,582       21,109,261       27,025,100       74,945,074  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

  (*) This represents the total guarantee amounts associated with the financial guarantee contracts. Financial guarantee liabilities which are recognized as of December 31, 2015 and 2016 are ₩4,288 million and ₩29,665 million, respectively.

The expected maturities for non-derivative financial assets as of December 31, 2015 and 2016 in detail are as follows:

 

           2015  

Type

         Less than
1 year
    1~5 Years     More than
5 years
    Other(*)     Total  
           In millions of won  

Cash and cash equivalents

         3,783,065       —         —         —         3,783,065  

Available-for-sale financial assets

       —         —         —         584,479       584,479  

Held-to-maturity investments

       381       3,242       —         —         3,623  

Loans and receivables

       106,013       268,820       397,976       11,330       784,139  

Long-term/short-term financial instruments

       5,132,829       5,000       752,703       334       5,890,866  

Trade and other receivables

       7,476,745       765,979       958,968       79,202       9,280,894  
    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
         16,499,033       1,043,041       2,109,647       675,345       20,327,066  
    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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            2016  

Type

          Less than
1 year
     1~5 Years      More than
5 years
     Other(*)      Total  
            In millions of won  

Cash and cash equivalents

          3,051,353        —          —          —          3,051,353  

Available-for-sale financial assets

        —          —          —          1,014,732        1,014,732  

Held-to-maturity investments

        114        3,126        4        —          3,244  

Loans and receivables

        198,133        233,564        439,666        5,591        876,954  

Long-term/short-term financial instruments

        2,281,460        200,001        214,122        343        2,695,926  

Trade and other receivables

        7,790,953        915,679        919,901        74,199        9,700,732  
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
          13,322,013        1,352,370        1,573,693        1,094,865        17,342,941  
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

  (*) The maturities cannot be presently determined.

Derivative liabilities classified by maturity periods which from reporting date to maturity date of contract as of December 31, 2015 and 2016 are as follows:

 

            2015  

Type

          Less than
1 year
    1~2 Years     2~5 Years     More than
5 years
    Total  
            In millions of won  

Gross settlement

             

—Trading

          (9,552     (4,627     (47,971     —         (62,150

—Hedging

        1,260       2,032       (44,233     (62,534     (103,475
     

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
          (8,292     (2,595     (92,204     (62,534     (165,625
     

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

           2016  

Type

         Less than
1 year
    1~2 Years     2~5 Years     More than
5 years
    Total  
           In millions of won  

Gross settlement

            

—Trading

         (3,081     (24,044     —         (2,799     (29,924

—Hedging

       (2,645     (2,645     (56,484     (56,575     (118,349
    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
         (5,726     (26,689     (56,484     (59,374     (148,273
    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(3) Fair value risk

The fair value of the Company’s actively-traded financial instruments (i.e. short-term financial assets held for trading, available-for-sale financial assets, etc.) is based on the traded market-price as of the reporting period end. The fair value of the Company’s financial assets is the amount which the asset could be exchanged for or the amount a liability could be settled for.

The fair values of financial instruments where no active market exists or where quoted prices are not otherwise available are determined by using valuation techniques. Valuation techniques include using recent arm’s length market transactions between knowledgeable, willing parties, if available, reference to the current fair value of another instrument that is substantially the same, discounted cash flow analysis and option pricing models. If there is a valuation technique commonly used by market participants to price the instrument and that technique has been demonstrated to provide reliable estimates of prices obtained in actual market transactions, the Company uses that technique.

 

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For trade receivables and payables, the Company considers the carrying value net of impairment as fair value. While for disclosure purposes, the fair value of financial liabilities is estimated by discounting a financial instruments with similar contractual cash flows based on the effective interest method.

 

  (i) Fair value and book value of financial assets and liabilities as of December 31, 2015 and 2016 are as follows:

 

            2015      2016  

Type

          Book value      Fair value      Book value      Fair value  
            In millions of won  

Assets recognized at fair value

              

Available-for-sale financial assets(*1)

          584,479        584,479        1,014,732        1,014,732  

Derivative assets (trading)

        255,008        255,008        367,477        367,477  

Derivative assets (using hedge accounting)

        362,142        362,142        413,897        413,897  

Long-term financial instruments

        758,037        758,037        414,466        414,466  

Short-term financial instruments

        5,132,829        5,132,829        2,281,460        2,281,460  
     

 

 

    

 

 

    

 

 

    

 

 

 
        7,092,495        7,092,495        4,492,032        4,492,032  
     

 

 

    

 

 

    

 

 

    

 

 

 

Assets carried at amortized cost

              

Held-to-maturity investments

        3,623        3,623        3,244        3,244  

Loans and receivables

        735,057        735,057        834,207        834,207  

Trade and other receivables

        9,271,967        9,271,967        9,692,391        9,692,391  

Cash and cash equivalents

        3,783,065        3,783,065        3,051,353        3,051,353  
     

 

 

    

 

 

    

 

 

    

 

 

 
        13,793,712        13,793,712        13,581,195        13,581,195  
     

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities recognized at fair value

              

Derivative liabilities (trading)

        49,011        49,011        21,529        21,529  

Derivative liabilities (using hedge accounting)

        117,499        117,499        117,157        117,157  
     

 

 

    

 

 

    

 

 

    

 

 

 
        166,510        166,510        138,686        138,686  
     

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities carried at amortized cost

              

Secured borrowings

        641,363        641,363        744,565        744,565  

Unsecured bond

        55,677,213        59,619,941        50,749,793        54,455,659  

Finance lease liabilities

        659,394        659,394        541,179        541,179  

Unsecured borrowings

        2,407,690        2,427,847        2,089,885        2,099,574  

Trade and other payables(*2)

        7,794,738        7,794,738        8,602,407        8,602,407  

Bank overdraft

        27,233        27,233        54,962        54,962  
     

 

 

    

 

 

    

 

 

    

 

 

 
          67,207,631        71,170,516        62,782,791        66,498,346  
     

 

 

    

 

 

    

 

 

    

 

 

 

 

  (*1) Book values of equity securities held by the Company that were measured at cost as of December 31, 2015 and 2016 are ₩207,508 million and ₩138,557 million, respectively, as a quoted market price does not exist in an active market and its fair value cannot be measured reliably.

 

  (*2) Excludes finance lease liabilities.

 

  (ii) Interest rates used for determining fair value

The interest rates used to discount estimated cash flows, when applicable, are based on the government yield curve at the reporting date plus an adequate credit spread.

 

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The discount rate used for calculating fair value as of December 31, 2015 and 2016 are as follows:

 

Type

   2015      2016  

Derivatives

     0.28% ~ 4.16%        0.02% ~ 4.16%  

Borrowings and debt securities

     0.15% ~ 5.80%        0.02% ~ 4.38%  

Finance lease

     9.00% ~ 10.83%        9.00% ~ 10.83%  

 

  (iii) Fair value hierarchy

The following table provides an analysis of financial instruments that are measured subsequent to initial recognition at fair value, classified as Level 1, 2 or 3, based on the degree to which the fair value is observable.

Level 1: Unadjusted quoted prices in active markets for identical assets or liabilities;

Level 2: Inputs other than quoted prices that are observable for the asset or liability either directly or indirectly; and

Level 3: Inputs that are not based on observable market data.

Fair values of financial instruments by hierarchy level as of December 31, 2015 and 2016 are as follows:

 

            2015  

Type

          Level 1      Level 2      Level 3      Total  
            In millions of won  

Financial assets at fair value

              

Available-for-sale financial assets

          196,579        —          180,390        376,969  

Derivative assets

        —          617,150        —          617,150  
     

 

 

    

 

 

    

 

 

    

 

 

 
        196,579        617,150        180,390        994,119  
     

 

 

    

 

 

    

 

 

    

 

 

 

Financial liabilities at fair value

              

Derivative liabilities

        —          166,510        —          166,510  
     

 

 

    

 

 

    

 

 

    

 

 

 

 

            2016  

Type

          Level 1      Level 2      Level 3      Total  
            In millions of won  

Financial assets at fair value

              

Available-for-sale financial assets

          268,171        437,015        269,461        974,647  

Derivative assets

        —          770,851        10,523        781,374  
     

 

 

    

 

 

    

 

 

    

 

 

 
        268,171        1,207,866        279,984        1,756,021  
     

 

 

    

 

 

    

 

 

    

 

 

 

Financial liabilities at fair value

              

Derivative liabilities

        —          138,686        —          138,686  
     

 

 

    

 

 

    

 

 

    

 

 

 

The fair value of available-for-sale financial assets publicly traded is measured at the closing bid price quoted at the end of the reporting period. Meanwhile, the fair value of unquoted available-for-sale financial assets is calculated using the valuation results from an external pricing service in which weighted average borrowing rates of interest of evaluated companies are used as a discount rate. The fair value of derivatives is measured using valuation model which is determined at the present value of estimated future cash flows discounted at current market interest rate.

 

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Changes of financial assets and liabilities which are classified as level 3 for the years ended December 31, 2015 and 2016 are as follows:

 

          2015  
          Beginning
balance
    Acquisition     Reclassified
category
    Valuation     Disposal     Foreign
currency
translation
    Ending
balance
 
          In millions of won  

Financial assets at fair value

               

Available-for-sale financial assets

               

Unlisted securities

        168,627       —         —         11,763       —         —         180,390  

 

          2016  
          Beginning
balance
    Acquisition     Reclassified
category
    Valuation     Disposal     Foreign
currency
translation
    Ending
balance
 
          In millions of won  

Financial assets at fair value

               

Available-for-sale financial assets

               

Unlisted securities

        180,390       —         98,472       (9,401     —         —         269,461  

 

46. Service Concession Arrangements

 

(1) Gas Complex Thermal Power Plant at Ilijan, Philippines (BOT)

 

  (i) Significant terms and concession period of the arrangement

The Company has entered into a contract with National Power Corporation (the “NPC”), based in the Republic of the Philippines whereby the Company can collect the electricity rates which are composed of fixed costs and variable costs during the concession period after building, rehabilitating, and operating the power plant.

 

  (ii) Rights and classification of the arrangement

The Company has the rights to use and own the power plant during the concession period from 2002 to 2022. At the end of the concession period, the Company has an obligation to transfer its ownership of the power plant to NPC.

 

  (iii) The Company’s expected future collections of service concession arrangements as of December 31, 2016 are as follows:

 

Type

         Amounts  
           In millions of won  

Less than 1 year

         126,233  

1 ~ 2 years

       126,233  

2 ~ 3 years

       126,233  

Over 3 years

       305,062  
    

 

 

 
         683,761  
    

 

 

 

 

(2) Hydroelectric Power Generation at Semangka, Indonesia (BOT)

 

  (i) Significant terms and concession period of the arrangement

The Company has entered into a contract with PT. Perusahaan Listrik Negara (the “PLN”) whereby the Company provides electricity generated and charge tariff rates designed to recover capital cost, fixed

 

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O&M cost, water usage cost, variable O&M cost and special facilities cost during the concession period after building, rehabilitating, and operating the power plant for approximately 30 years (2017~2047) subsequent to the completion of plant construction.

 

  (ii) Rights and classification of the arrangement

The Company has the rights to use and own the power plant during the concession period from 2017 to 2047. At the end of the concession period, PNL has an option to take over the ownership of the power plant from the Company.

 

  (iii) The Company’s expected future collections of service concession arrangements as of December 31, 2016 are as follows:

 

Type

         Amounts  
           In millions of won  

Less than 1 year

         9,210  

1 ~ 2 years

       30,739  

2 ~ 3 years

       30,051  

Over 3 years

       683,233  
    

 

 

 
         753,233  
    

 

 

 

 

  (iv) Accumulated contract costs and profits related to the Company’s contract in process as of December 31, 2016 were ₩113,362 million and ₩7,133 million, respectively. There are no amount due from customers and advance receipts in progress.

 

47. Related Parties

 

(1) Related parties of the Company as of December 31, 2016 are as follows:

 

Type

  

Related party

Parent

   Republic of Korea government

Subsidiaries

(87 subsidiaries)

   Korea Hydro & Nuclear Power Co., Ltd., Korea South-East Power Co., Ltd., Korea Midland Power Co., Ltd., Korea Western Power Co., Ltd., Korea Southern Power Co., Ltd., Korea East-West Power Co., Ltd., KEPCO Engineering & Construction Company, Inc., KEPCO Plant Service & Engineering Co., Ltd., KEPCO Nuclear Fuel Co., Ltd., KEPCO KDN Co., Ltd., Garolim Tidal Power Plant Co., Ltd., Gyeonggi Green Energy Co., Ltd., Korea Offshore Wind Power Co., Ltd., KOSEP Material Co., Ltd., KEPCO International HongKong Ltd., KEPCO International Philippines Inc., KEPCO Philippines Corporation, KEPCO Ilijan Corporation, KEPCO Gansu International Ltd., KEPCO Philippines Holdings Inc., KEPCO Lebanon SARL, KEPCO Neimenggu International Ltd., KEPCO Australia Pty., Ltd., KEPCO Shanxi International Ltd., KOMIPO Global Pte Ltd., KOSEP Australia Pty., Ltd., KOMIPO Australia Pty., Ltd., KOWEPO Australia Pty., Ltd., KOMIPO Global Pte Ltd., KOSPO Australia Pty., Ltd., KEPCO Canada Energy Ltd., KEPCO Netherlands B.V., KOREA Imouraren Uranium Investment Corp., KEPCO Middle East Holding Company, Qatrana Electric Power Company, Korea Electric Power Nigeria Ltd., KOWEPO International Corporation, KOSPO Jordan LLC, Korea Waterbury Uranium Limited Partnership, PT. Cirebon Power Service, EWP America Inc., KHNP Canada Energy, Ltd., KEPCO Bylong Australia

 

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   Pty., Ltd., KNF Canada Energy Limited, KEPCO Holdings de Mexico, KST Electric Power Company, KEPCO Energy Service Company, KEPCO Netherlands S3 B.V., PT. KOMIPO Pembangkitan Jawa Bali, PT KEPCO Resource Indonesia, EWP Barbados 1 SRL, PT. Tanggamus Electric Power, KOMIPO America Inc., KOSEP USA, INC., PT. EWP Indonesia, KEPCO Netherlands J3 B.V., Global One Pioneer B.V., Global Energy Pioneer B.V., Mira Power Limited, EWP Philippines Corporation, KEPCO Singapore Holdings Pte., Ltd., KOWEPO India Private Limited, KEPCO KPS Philippines Corp., KOSPO Chile SpA, PT. KOWEPO Sumsel Operation And Maintenance Services, Commerce and Industry Energy Co., Ltd., Gyeongju Wind Power Co., Ltd., California Power Holdings, LLC, DG Fairhaven Power, LLC, DG Whitefield, LLC, EWP Renewable Co., EWPRC Biomass Holdings, LLC, Springfield Power, LLC, HeeMang Sunlight Power Co., Ltd., Fujeij Wind Power Company, KOSPO Youngnam Power Co., Ltd., Global One Carbon Private Equity Investment Trust 2., Chitose Solar Power Plant LLC., Solar School Plant Co., Ltd., KEPCO Energy Solution Co. Ltd., KOSPO Power Services Limitada, KOEN Bylong Pty., Ltd., KOWEPO Bylong Pty., Ltd., KOSPO Bylong Pty., Ltd., EWP Bylong Pty., Ltd., KOWEPO Lao International, KOMIPO Bylong Pty Ltd., Energy New Industry Specialized Investment Private Investment Trust

Associates

(57 associates)

   Dongducheon Dream Power Co., Ltd., Korea Gas Corporation, SE Green Energy Co., Ltd., Daegu Photovoltaic Co., Ltd., Jeongam Wind Power Co., Ltd., Korea Power Engineering Service Co., Ltd., Yeongwol Energy Station Co., Ltd., KS Solar Co., Ltd., Heang Bok Do Si Photovoltaic Power Co., Ltd., Korea Electric Power Industrial Development Co., Ltd., DS POWER Co., Ltd., Goseong Green Energy Co., Ltd., Gangneung Eco Power Co., Ltd., Shin Pyeongtaek Power Co., Ltd., Naepo Green Energy Co., Ltd., Noeul Green Energy Co., Ltd., YTN Co., Ltd., Cheongna Energy Co., Ltd., Samcheok Eco Materials Co., Ltd., Gangwon Wind Power Co., Ltd., Hyundai Green Power Co., Ltd., Korea Power Exchange, AMEC Partners Korea Ltd., Hyundai Energy Co., Ltd., Ecollite Co., Ltd., Taebaek Wind Power Co., Ltd., Taeback Guinemi Wind Power Co., Ltd. (formerly, Muju Wind Power Co., Ltd.), Pyeongchang Wind Power Co., Ltd., Daeryun Power Co., Ltd., Changjuk Wind Power Co., Ltd., KNH Solar Co., Ltd., S-Power Co., Ltd., Hadong Mineral Fiber Co., Ltd., Green Biomass Co., Ltd., SPC Power Corporation, Gemeng International Energy Co., Ltd., PT. Cirebon Electric Power, KNOC Nigerian East Oil Co., Ltd., KNOC Nigerian West Oil Co., Ltd., PT Wampu Electric Power, PT. Bayan Resources TBK, Nepal Water & Energy Development Company Private Limited, Pioneer Gas Power Limited, Eurasia Energy Holdings, Xe-Pian Xe-Namnoy Power Co., Ltd., PT. Mutiara Jawa, Jinbhuvish Power Generation Pvt. Ltd., Busan Green Energy Co., Ltd., Jungbu Bio Energy Co., Ltd., Korea Electric Vehicle Charge Service, Ulleungdo Natural Energy Co., Ltd., Korea Nuclear Partners Co., Ltd., Tamra Offshore Wind Power Co., Ltd., Korea Electric Power Corporation Fund, Energy Infra Asset Management Co., Ltd., Daegu clean Energy Co., Ltd., YaksuESS Co.,Ltd

 

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Joint ventures

(41 joint ventures)

   Daegu Green Power Co., Ltd., KEPCO SPC Power Corporation, Daejung Offshore Wind Power Co., Ltd., KAPES, Inc. (formerly, KEPCO-ALSTOM Power Electronics Systems, Inc.), Dangjin Eco Power Co., Ltd., Honam Wind Power Co., Ltd., Seokmun Energy Co., Ltd., Incheon New Power Co., Ltd., Chun-cheon Energy Co., Ltd., Yeonggwangbaeksu Wind Power Co., Ltd., KW Nuclear Components Co., Ltd., KEPCO-Uhde Inc., GS Donghae Electric Power Co., Ltd., Busan Shinho Solar Power Co., Ltd., Global Trade Of Power System Co., Ltd., Expressway Solar-light Power Generation Co., Ltd., Gansu Datang Yumen Wind Power Company Ltd., Datang Chifeng Renewable Power Co., Ltd., Rabigh Electricity Company, Eco Biomass Energy Sdn. Bhd., Rabigh Operation & Maintenance Company, Datang KEPCO Chaoyang Renewable Power Co., Ltd., Shuweihat Asia Power Investment B.V., Shuweihat Asia Operation & Maintenance Company, Waterbury Lake Uranium L.P., ASM-BG Investicii AD, RES Technology AD, Jamaica Public Service Company Limited, KV Holdings, Inc., Datang Chaoyang Renewable Power Co., Ltd., KODE NOVUS I LLC, KODE NOVUS II LLC, Amman Asia Electric Power Company, Kelar S.A, PT. Tanjung Power Indonesia, Nghi Son 2 Power Ltd., Canada Korea Uranium Limited Partnership, Daehan Wind Power PSC, MOMENTUM, Barakah One Company, Nawah Energy Company

Others

   Korea Development Bank

 

(2) Transactions between the Company and its subsidiaries are eliminated during the consolidation and are not disclosed in notes.

 

(3) Related party transactions for the years ended December 31, 2014, 2015 and 2016 are as follows:

<Sales and Others>

 

                Sales and others  

Company name

  Transaction type           2014      2015      2016  
                In millions of won  

<Associates>

           

Daegu Green Power Co., Ltd.

    Electricity sales           1,320        1,055        —    

Dongducheon Dream Power Co., Ltd.

    Electricity sales         12,446        14,811        15,221  

Korea Gas Corporation

    Electricity sales         82,117        90,480        89,030  

Gumi-ochang Photovoltaic Power Co., Ltd.

    Electricity sales         14        —          —    

Chungbuk Photovoltaic Power Co., Ltd

    Electricity sales         6        —          —    

Cheonan Photovoltaic Power Co., Ltd.

    Electricity sales         2        —          —    

Jeongam Wind Power Co., Ltd.

    Electricity sales         8        8        6  

Korea Power Engineering Service Co., Ltd.

    Service         1,239        1,743        1,455  

Golden Route J Solar Power Co., Ltd.

    Electricity sales         1        —          —    

Yeongwol Energy Station Co., Ltd.

    Service         3,676        814        858  

KOSCON Photovoltaic Co., Ltd.

    Electricity sales         5        —          —    

Yeonan Photovoltaic Co., Ltd.

    Electricity sales         4        —          —    

Q1 Solar Co., Ltd.

    Electricity sales         13        —          —    

Best Solar Energy Co., Ltd.

    Electricity sales         16        —          —    

Seokcheon Solar Power Co., Ltd.

    Electricity sales         54        —          —    

D Solar Energy Co., Ltd.

    Electricity sales         8        —          —    

KS Solar Co., Ltd.

    Electricity sales         15        21        20  

Hyundai Asan Solar Power Co., Ltd.

    Electricity sales         8        —          —    

Heang Bok Do Si Photovoltaic Power Co., Ltd.

    Rental income and others         1        1        2  

Jeonnam Solar Co., Ltd.

    Electricity sales         16        —          —    

 

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              Sales and others  

Company name

 

Transaction type

        2014      2015      2016  
              In millions of won  

Korea Electric Power Industrial Development Co., Ltd.

  Service         15,852        12,361        10,723  

DS POWER Co., Ltd.

  Service       152,025        106,183        35,133  

Goseong Green Energy Co., Ltd.

  Electricity sales       4,004        9,306        9,195  

Gangneung Eco Power Co., Ltd.

  Service       6,446        9,761        5,223  

Shin Pyeongtaek Power Co., Ltd.

  Electricity sales       174        11,344        3,579  

Naepo Green Energy Co., Ltd.

  Electricity sales       8        66        104  

Noeul Green Energy Co., Ltd.

  Electricity sales       —          45        177  

Samcheok Eco Materials Co., Ltd.

  Electricity sales       —          —          64  

YTN Co., Ltd.

  Electricity sales       7,446        1,753        1,785  

Busan Green Energy Co., Ltd.

  Service       —          1        133  

Jungbu Bio Energy Co., Ltd.

  Electricity sales       —          —          6  

Korea Electric Vehicle Charge Service

  Electricity sales       —          2        89  

Ulleungdo Natural Energy Co., Ltd.

  Service       —          229        691  

Tamra Offshore Wind Power Co., Ltd.,

  Electricity sales       —          —          12  

Cheongna Energy Co., Ltd.

  Service       14,153        21,081        6,831  

Gangwon Wind Power Co., Ltd.

  Electricity sales       2,152        1,046        1,273  

Hyundai Green Power Co., Ltd.

  Electricity sales and design service       14,943        15,401        14,835  

Korea Power Exchange

  Service       16,300        4,272        7,141  

Hyundai Energy Co., Ltd.

  Service       58,566        25,402        24,719  

Taebaek Wind Power Co., Ltd.

  Service       1,653        872        796  

Pyeongchang Wind Power Co., Ltd.

  Design service       120        72        497  

Daeryun Power Co., Ltd.

  Electricity sales       1,611        1,731        1,516  

Changjuk Wind Power Co., Ltd.

  Electricity sales       1,848        754        863  

KNH Solar Co., Ltd.

  Electricity sales       17        17        17  

S-Power Co., Ltd.

  Service and electricity sales       7,564        7,278        5,994  

Busan Solar Co., Ltd.

  Electricity sales       17        16        8  

Green Biomass Co., Ltd.

  Electricity sales       —          51        2  

SPC Power Corporation

  Dividend income       —          1,433        8,346  

PT. Bayan Resources TBK

  Service       —          164        160  

Gemeng International Energy Co., Ltd.

  Dividend income       6,905        37,163        16,476  

Dolphin Property Limited

  Dividend income       —          —          35  

E-POWER S.A.

  Dividend income       1,456        —          —    

Nepal Water & Energy Development Company

Private Limited

  Service       —          —          375  

Pioneer Gas Power Limited

  Service       214        274        164  

Xe-Pian Xe-Namnoy Power Co., Ltd.

  Service       1,333        584        773  

<Joint ventures>

           

Daegu Green Power Co., Ltd.

  Electricity sales       —          —          768  

KEPCO SPC Power Corporation

  Service       17,243        29,572        10,344  

Daejung Offshore Wind Power Co., Ltd.

  Electricity sales       —          1        1  

KAPES, Inc. (formerly, KEPCO-ALSTOM Power

Electronics Systems, Inc.)

  Commission       1,129        1,315        1,176  

Dangjin Eco Power Co., Ltd.

  Technical fee       352        334        1,787  

Honam Wind Power Co., Ltd.

  Electricity sales       73        65        169  

Seokmun Energy Co., Ltd.

  Technical fee       1,910        2,395        1,627  

Incheon New Power Co., Ltd.

  Construction revenue       6,637        388        524  

KW Nuclear Components Co., Ltd.

  Service       2,307        1,948        3,327  

Chun-cheon Energy Co., Ltd.

  Technical fee       —          2,201        3,079  

 

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Table of Contents
              Sales and others  

Company name

 

Transaction type

        2014      2015      2016  
              In millions of won  

Yeonggwangbaeksu Wind Power Co., Ltd.

  Electricity sales         —          927        1,591  

KEPCO-Uhde Inc.

  Service       —          —          6  

GS Donghae Electric Power Co., Ltd.

  Electricity sales       4,053        5,614        12,994  

Busan Shinho Solar Power Co., Ltd.

  Electricity sales       24        24        210  

Yeongam Wind Power Co., Ltd.

  Electricity sales       47        —          —    

Global Trade Of Power System Co., Ltd.

  Electricity sales       39        —          —    

Datang Chifeng Renewable Power Co., Ltd.

  Interest income       10,849        9,702        8,216  

Rabigh Electricity Company

  Interest income       38,954        565        699  

Rabigh Operation & Maintenance Company

  Service       2,822        1,780        2,395  

Datang Chaoyang Renewable Power Co., Ltd.

  Dividend income       740        —          —    

Shuweihat Asia Power Investment B.V.

  Dividend income       —          —          2,957  

Shuweihat Asia Operation & Maintenance Company

  Service       869        1,006        1,179  

ASM-BG Investicii AD

  Service       —          —          322  

Jamaica Public Service Company Limited

  Service       2,865        3,077        1,905  

KV Holdings, Inc.

  Dividend income       —          —          302  

Datang KEPCO Chaoyang Renewable Power Co., Ltd.

  Dividend income       788        —          440  

Amman Asia Electric Power Company

  Service       26,838        48,968        21,915  

Kelar S.A

  Service       2,041        6,229        1,702  

Barakah One Company

  Service       —          —          25,244  

<Others>

           

Korea Development Bank

  Electricity sales       1,141        4,039        3,102  
  Interest income       —          2,402        3,164  

<Purchase and Others>

 

              Purchase and others  

Company name

 

Transaction type

        2014      2015      2016  
              In millions of won  

<Associates>

           

Daegu Green Power Co., Ltd.

  Electricity purchase         —          318,221        —    

Korea Gas Corporation

  Purchase of power generation fuel       10,134,526        4,598,763        3,633,198  

Dongducheon Dream Power Co., Ltd.

  Electricity purchase       —          1,003,346        946,463  

Gumi-ochang Photovoltaic Power Co., Ltd.

  REC purchase       1,789        —          —    

Chungbuk Photovoltaic Power Co., Ltd.

  REC purchase       575        —          —    

Cheonan Photovoltaic Power Co., Ltd.

  REC purchase       435        —          —    

Daegu Photovoltaic Co., Ltd.

  REC purchase       3,552        3,978        3,243  

Korea Power Engineering Service Co., Ltd.

  Service       2,320        3,241        723  

Golden Route J Solar Power Co., Ltd.

  REC purchase       518        —          —    

Yeongwol Energy Station Co., Ltd.

  REC purchase       8,640        16,408        14,875  

KOSCON Photovoltaic Co., Ltd.

  REC purchase       243        —          —    

Yeonan Photovoltaic Co., Ltd.

  REC purchase       635        —          —    

Q1 Solar Co., Ltd.

  REC purchase       2,501        —          —    

Best Solar Energy Co., Ltd.

  REC purchase       4,882        —          —    

Seokcheon Solar Power Co., Ltd.

  REC purchase       1,193        —          —    

D Solar Energy Co., Ltd.

  REC purchase       1,163        —          —    

Daeryun Power Co., Ltd.

  Electricity purchase       —          274,379        244,023  

Ulleungdo Natural Energy Co., Ltd.

  Electricity purchase       —          —          60  

KS Solar Co., Ltd.

  REC purchase       3,496        6,211        4,080  

Hyundai Asan Solar Power Co., Ltd.

  REC purchase       606        —          —    

 

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              Purchase and others  

Company name

 

Transaction type

        2014      2015      2016  
              In millions of won  

Heang Bok Do Si Photovoltaic Power Co., Ltd.

  Rental fee and others         119        479        410  

Korea Electric Power Industrial Development Co., Ltd.

  Electricity metering service fee       240,416        273,057        250,057  

YTN Co., Ltd.

  Advertisement fee       410        440        554  

Cheongna Energy Co., Ltd.

  Service       —          —          73  

Gangwon Wind Power Co., Ltd.

  Electricity purchase       28,836        21,946        22,780  

Hyundai Green Power Co., Ltd.

  Electricity purchase       477,642        486,443        469,547  

Korea Power Exchange

  Trading Fees       74,861        79,283        91,433  

Hyundai Energy Co., Ltd.

  Electricity purchase       2,961        1,684        1,313  

Taebaek Wind Power Co., Ltd.

  REC purchase       10,362        6,626        5,741  

Pyeongchang Wind Power Co., Ltd.

  Service       —          —          1,594  

Changjuk Wind Power Co., Ltd.

  Electricity purchase       15,549        6,472        5,786  

KNH Solar Co., Ltd.

  Electricity purchase       4,914        4,598        4,006  

S-Power Co., Ltd.

  Service       105,107        614,658        437,206  

Busan Solar Co., Ltd.

  Electricity purchase       4,910        4,055        1,079  

Green Biomass Co., Ltd.

  Woodchip purchase       1,690        3,782        2,232  

<Joint ventures>

           

Daegu Green Power Co., Ltd.

  Electricity purchase       —          —          263,797  

KAPES, Inc. (formerly, KEPCO-ALSTOM Power

Electronics Systems, Inc.)

  Service       383        47,130        140,555  

Honam Wind Power Co., Ltd.

  Electricity purchase       5,304        5,944        6,776  

Yeonggwangbaeksu Wind Power Co., Ltd.

  Electricity purchase       —          4,974        11,208  

GS Donghae Electric Power Co., Ltd.

  Service       —          —          903  

Busan Shinho Solar Power Co., Ltd.

  REC purchase       8,115        7,565        6,770  

Yeongam Wind Power Co., Ltd.

  REC purchase       7,080        —          —    

Global Trade Of Power System Co., Ltd.

  Service       79        192        882  

Expressway Solar-light Power Co., Ltd.

  Electricity purchase       3,205        3,451        2,942  

Jamaica Public Service Company Limited

  Service       96        106        127  

Amman Asia Electric Power Company

  Service       —          125        —    

<Others>

           

Korea Development Bank

  Interest expense       60,631        21,719        8,231  
  Dividend paid       17,294        96,087        654,829  

 

(4) Receivables and payables arising from related party transactions as of December 31, 2015 and 2016 are as follows:

 

                Receivables      Payables  

Company name

  

Type

         2015      2016      2015      2016  
                In millions of won  

<Associates>

                

Dongducheon Dream Power Co., Ltd.

   Trade receivables          1,206        1,073        —          —    
   Trade payables        —          —          100,396        93,493  

Korea Gas Corporation

   Trade receivables        7,931        8,739        —          —    
   Non-trade receivables and others        255        78        —          —    
   Trade payables        —          —          302,752        399,563  
   Non-trade payables and others        —          —          —          9,090  

Daegu Photovoltaic Co., Ltd.

   Trade payables        —          —          —          56  

Jeongam Wind Power Co., Ltd.

   Non-trade payables and others        —          —          1        4  

 

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Table of Contents
                Receivables      Payables  

Company name

  

Type

         2015      2016      2015      2016  
                In millions of won  

Yeongwol Energy Station Co., Ltd.

   Trade receivables          7,063        7,064        —          —    
   Trade payables        —          —          229        229  

KS Solar Co., Ltd.

   Trade receivables        2        2        —          —    
   Trade payables        —          —          68        53  
   Non-trade payables and others        —          —          281        —    

Korea Electric Power Industrial

Development Co., Ltd.

   Trade receivables        469        362        —          —    
   Non-trade receivables and others        27        47        —          —    
   Non-trade payables and others        —          —          27,569        18,628  

DS Power Co., Ltd.

   Trade receivables        260        1,775        —          —    
   Non-trade payables and others        —          —          135        —    

Goseong Green Energy Co., Ltd.

   Non-trade payables and others        —          —          3,900        3,900  

Gangneung Eco Power Co., Ltd.

   Trade receivables        1        1        —          —    
   Non-trade receivables and others        1,701        2,137        —          —    

Shin Pyeongtaek Power Co., Ltd.

   Non-trade receivables and others        272        215        —          —    

Naepo Green Energy Co., Ltd.

   Trade receivables        9        14        —          —    

Noeul Green Energy Co., Ltd.

   Trade receivables        —          18        —          —    

Samcheok Eco Materials Co., Ltd.

   Trade receivables        —          21        —          —    

YTN Co., Ltd.

   Trade receivables        93        165        —          —    
   Non-trade payables and others        —          —          154        132  

Busan Green Energy Co., Ltd.

   Trade receivables        —          9        —          —    

Korea Electric Vehicle Charge Service

   Trade receivables        —          12        —          —    

Ulleungdo Natural Energy Co., Ltd.

   Non-trade receivables and others        —          111        —          —    

Cheongna Energy Co., Ltd.

   Trade receivables        157        165        —          —    
   Non-trade receivables and others        375        —          —          —    
   Non-trade payables and others        —          —          —          82  

Gangwon Wind Power Co., Ltd.

   Trade receivables        12        8        —          —    
   Trade payables        —          —          1,753        2,031  

Hyundai Green Power Co., Ltd.

   Trade receivables        962        569        —          —    
   Trade payables        —          —          36,079        31,507  

Korea Power Exchange

   Trade receivables        1,452        1,066        —          —    
   Non-trade receivables and others        112        53        —          —    
   Trade payables        —          —          3,529        —    
   Non-trade payables and others        —          —          1,529        1,235  

Hyundai Energy Co., Ltd.

   Trade receivables        44,510        72        —          —    
   Non-trade receivables and others        —          68,798        —          —    
   Trade payables        —          —          178        86  
   Non-trade payables and others        —          —          8,030        —    

Ecollite Co., Ltd.

   Non-trade receivables and others        210        210        —          —    

 

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Table of Contents
                Receivables      Payables  

Company name

  

Type

         2015      2016      2015      2016  
                In millions of won  

Taebaek Wind Power Co., Ltd.

   Non-trade receivables and others          147        112        —          —    
   Trade payables        —          —          349        386  
   Non-trade payables and others        —          —          —          304  

Pyeongchang Wind Power Co., Ltd.

   Trade receivables        —          4        —          —    
   Non-trade receivables and others        170        —          —          —    
   Non-trade payables and others        —          —          —          255  

Daeryun Power Co., Ltd.

   Trade receivables        117        140        —          —    
   Trade payables        —          —          27,374        21,646  

Changjuk Wind Power Co., Ltd.

   Non-trade receivables and others        153        100        —          —    
   Trade payables        —          —          —          358  
   Non-trade payables and others        —          —          330        334  

KNH Solar Co., Ltd.

   Trade receivables        2        1        —          —    
   Non-trade payables and others        —          —          —          204  

S-Power Co., Ltd.

  

Trade receivables

       121        142        —          —    
   Non-trade receivables and others        —          393        —          —    
   Trade payables        —          —          54,141        51,844  

Green Biomass Co., Ltd.

  

Non-trade receivables and others

       109        —          —          —    
   Non-trade payables and others        —          —          152        113  

Nepal Water & Energy Development Company Private Limited

  

Non-trade receivables and others

       —          889        —          —    

Pioneer Gas Power Limited

  

Non-trade receivables and others

       26        82        —          —    

Xe-Pian Xe-Namnoy Power Co., Ltd.

  

Non-trade receivables and others

       —          58        —          —    

<Joint ventures>

                

Daegu Green Power Co., Ltd.

   Trade receivables        95        52        —          —    
   Non-trade receivables and others        —          1        —          —    
   Trade payables        —          —          22,200        27,400  

KEPCO SPC Power Corporation

  

Non-trade receivables and others

       252        2,349        —          —    

KAPES, Inc. (formerly, KEPCO-ALSTOM Power Electronics Systems, Inc.)

  

Non-trade receivables and others

       251        235        —          —    
  

Non-trade payables and others

       —          —          61        11,992  

Dangjin Eco Power Co., Ltd.

  

Non-trade receivables and others

       300        833        —          —    

Honam Wind Power Co., Ltd.

  

Trade payables

       —          —          342        424  
   Non-trade payables and others        —          —          2,124        3,082  

Seokmun Energy Co., Ltd.

  

Trade receivables

       —          114        —          —    
   Non-trade receivables and others        2,086        160        —          —    

Incheon New Power Co., Ltd.

  

Trade receivables

       128        128        —          —    

Chun-cheon Energy Co., Ltd.

  

Non-trade receivables and others

       112        255        —          —    

Yeonggwangbaeksu Wind Power Co., Ltd.

  

Trade receivables

       7        6        —          —    
  

Non-trade receivables and others

       136        145        —          —    
   Trade payables        —          —          627        761  
   Non-trade payables and others        —          —          2,000        1,362  

 

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Table of Contents
                Receivables      Payables  

Company name

  

Type

         2015      2016      2015      2016  
                In millions of won  

KEPCO-Uhde Inc.

  

Non-trade payables and others

         —          —          —          4  

GS Donghae Electric Power Co., Ltd.

   Trade receivables        970        775        —          —    
   Non-trade receivables and others        1,216        1,497        —          —    
   Non-trade payables and others        —          —          —          993  

Busan Shinho Solar Power Co., Ltd.

  

Trade receivables

       2        3        —          —    
   Trade payables        —          —          272        129  
   Non-trade payables and others        —          —          970        670  

Datang Chifeng Renewable Power Co., Ltd.

  

Non-trade receivables and others

       368        210        —          —    

Rabigh Operation & Maintenance Company

  

Trade receivables

       —          2,275        —          —    
  

Non-trade receivables and others

       1,780        —          —          —    

ASM-BG Investicii AD

  

Non-trade receivables and others

       —          64        —          —    

Jamaica Public Service Company Limited

  

Trade receivables

       1,193        615        —          —    
   Non-trade receivables and others        581        —          —          —    

Amman Asia Electric Power Company

  

Trade receivables

       739        2,509        —          —    

<Others>

                

Korea Development Bank

  

Accrued interest income

       212        672        —          —    
   Non-trade receivables and others        45,623        217,481        —          —    
   Non-trade payables and others        —          —          493        408  
   Derivatives        3,777        25,306        2,313        3,278  

 

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Table of Contents
(5) Loans and others arising from related party transactions as of December 31, 2015 and 2016 are as follows:

 

Type

 

Company name

        Beginning
balance
    Loans     Collection     Others     Ending
balance
 
              In millions of won  

Associates

  KNOC Nigerian East Oil Co., Ltd.,         28,296       129       —         857       29,282  
  KNOC Nigerian West Oil Co., Ltd.            
  (Allowance for doubtful accounts)       (17,755     —         —         (436     (18,191

Associates

  PT. Cirebon Electric Power       40,979       2,976       (17,838     616       26,733  

Associates

  PT. Mutiara Jawa       450       —         (450     —         —    

Associates

  Xe-Pian Xe-Namnoy Power Co., Ltd.       1,413       —         —         —         1,413  

Associates

  PT Wampu Electric Power       —         13,465       —         557       14,022  

Associates

  Jungbu Bio Energy Co., Ltd.       —         9,000       —         396       9,396  

Associates

  Hyundai Energy Co., Ltd.       —         2,465       —         —         2,465  

Joint ventures

  KEPCO SPC Power Corporation       29,651       —         (2,669     813       27,795  

Joint ventures

 

Datang Chifeng Renewable Power

Co., Ltd.

      23,775       —         (7,847     416       16,344  

Joint ventures

 

Jamaica Public Service Company

Limited

      2,345       —         (2,322     (23     —    

Joint ventures

  Rabigh Electricity Company       45,552       —         (42,594     (317     2,641  

Joint ventures

  KODE NOVUS II LLC       —         1,360       —         3,172       4,532  
  (Allowance for doubtful accounts)       —         (4,352     —         (180     (4,532
  Daehan Wind Power PSC       —         683       —         —         683  
     

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
          154,706       25,726       (73,720     5,871       112,583  
     

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(6) Borrowings arising from related party transactions as of December 31, 2015 and 2016 are as follows:

 

   

Related parties

   Type           Beginning
balance
     Borrowings      Repayment     Others     Ending
balance
 
                 In millions of won  

Korea Development

   Facility           261,437        33,958        (87,402     —         207,993  

Bank

   Others         6,418        —          (755     —         5,663  
   Operating funds         12,000        25,000        —         —         37,000  
   Syndicated Loan            6,344        —         (269     6,075  

 

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(7) Guarantees provided to associates or joint ventures as of December 31, 2016 are as follows:

 

Primary guarantor

 

Secondary guarantor

 

Type of guarantees

  Credit limit    

Guarantee

In millions of won and thousands of foreign currencies

Korea Electric Power Corporation

 

KEPCO SPC Power Corporation

 

Debt guarantees

 

 

USD 71,192

 

 

SMBC, Export-Import Bank of Korea and ADB

Korea Electric Power Corporation

 

Shuweihat Asia Operation & Maintenance Company

 

Performance guarantees

 

 

USD 11,000

 

 

SAPCO

Korea Electric Power Corporation

 

KNOC Nigerian East Oil Co., Ltd. and KNOC Nigerian West Oil Co., Ltd.

 

Performance guarantees

 

 

USD 34,650

 

 

Korea National Oil Corporation (Nigerian government)

Korea Electric Power Corporation

 

Rabigh Operation & Maintenance Company

 

Performance guarantees and others

 

 

USD 1,387

 

 

RABEC

Korea Electric Power Corporation

 

Nghi Son 2 Power Ltd.

 

Bidding guarantees

 

 

USD 10,000

 

 

SMBC Ho Chi Minh

Korea Electric Power Corporation

 

Barakah One Company

 

Debt guarantees

 

 

USD 900,000

 

 

Export-Import Bank of Korea and others

    Performance guarantees and others     USD 3,404,275    

Korea Western Power Co., Ltd.

 

Cheongna Energy Co., Ltd.

 

Collateralized money invested

 

 

KRW 27,211

 

 

KEB Hana Bank and others

    Guarantees for supplemental funding and others (*1)     —      

Korea Western Power Co., Ltd.

 

Xe-Pian Xe-Namnoy Power Co., Ltd.

 

Payment guarantees for business reserve

 

 

USD 2,500

 

 

Krung Thai Bank

    Collateralized money invested     USD 43,276    
    Impounding bonus guarantees     USD 5,000     SK E&C

Korea Western Power Co., Ltd.

 

Rabigh Operation & Maintenance Company

 

Performance guarantees and others

 

 

SAR 5,600

 

 

Saudi Arabia British Bank

Korea Western Power Co., Ltd.

 

Daegu Photovoltaic Co., Ltd.

 

Collateralized money

invested

 

 

KRW 1,230

 

 

IBK

Korea Western Power Co., Ltd.

 

Dongducheon Dream Power Co., Ltd.

 

Collateralized money

invested

 

 

KRW 111,134

 

 

Kookmin Bank and others

Korea Western Power Co., Ltd.

 

PT. Mutiara Jawa

 

Collateralized money

invested

 

 

USD 2,610

 

 

Woori Bank

Korea Western Power Co., Ltd.

 

Heang Bok Do Si Photovoltaic Power Co., Ltd.

 

Collateralized money

invested

 

 

KRW 194

 

 

Nonghyup Bank

Korea Western Power Co., Ltd.

 

Shin Pyeongtaek Power Co., Ltd.

 

Collateralized money

invested

 

 

KRW 40

 

 

Kookmin Bank

 

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Primary guarantor

 

Secondary guarantor

 

Type of guarantees

  Credit limit    

Guarantee

In millions of won and thousands of foreign currencies

Korea East-West Power Co., Ltd.

 

Busan Shinho Solar Power Co., Ltd.

 

Collateralized money

invested

 

 

KRW 2,100

 

 

Heungkuk Life Insurance Co., Ltd. and others

Korea East-West Power Co., Ltd.

 

Seokmun Energy Co., Ltd.

 

Collateralized money

invested

 

 

KRW 580

 

 

KEB Hana Bank and others

    Guarantees for supplemental funding(*1)     KRW 15,370    

Korea East-West Power Co., Ltd.

 

Chun-cheon Energy Co., Ltd.

 

Collateralized money

invested

 

 

KRW 52,700

 

 

Kookmin Bank and others

    Guarantees for supplemental funding(*1)     KRW 60,270    

Korea East-West Power Co., Ltd.

 

Honam Wind Power Co., Ltd.

 

Collateralized money

invested

 

 

KRW 3,480

 

 

Shinhan Bank

Korea East-West Power Co., Ltd.

 

GS Donghae Electric Power Co., Ltd.

 

Collateralized money

invested

 

 

KRW 204,000

 

 

Korea Development Bank and others

Korea East-West Power Co., Ltd.

 

Yeonggwangbaeksu Wind Power Co., Ltd.

 

Collateralized money

invested

 

 

KRW 3,000

 

 

Hyundai Marine & Fire Insurance Co., Ltd. and others

Korea East-West Power Co., Ltd.

 

PT. Tanjung Power Indonesia

 

Debt guarantees

 

 

USD 49,221

 

 

The Bank of Tokyo-Mitsubishi

Korea Southern Power Co., Ltd.

 

KNH Solar Co., Ltd.

 

Collateralized money invested Performance guarantees and guarantees for supplemental funding and others(*1)

 

 

KRW 1,296

—  

 

 

 

Shinhan Bank and Kyobo Life Insurance Co., Ltd.

Korea Southern Power Co., Ltd.

 

Daeryun Power Co., Ltd.

 

Collateralized money invested Guarantees for supplemental funding and others(*1)

 

 

KRW 25,477

—  

 

 

 

Korea Development Bank and others

Korea Southern Power Co., Ltd.

 

Changjuk Wind Power Co., Ltd.

 

Collateralized money invested Guarantees for supplemental funding(*1)

 

 

KRW 3,801

—  

 

 

 

Shinhan Bank and Woori Bank

Korea Southern Power Co., Ltd.

 

Daegu Green Power Co., Ltd.

 

Collateralized money invested

 

 

KRW 46,226

 

 

Shinhan Bank

Korea Southern Power Co., Ltd.

 

KS Solar Co., Ltd.

 

Collateralized money invested

 

 

KRW 637

 

 

Shinhan Capital Co., Ltd.

Korea Southern Power Co., Ltd.

 

Kelar S.A

 

Performance guarantees

 

 

USD 50,700

 

 

KEB Hana Bank, SMBC, Mizuho Bank, BTMU, Natixis

    Debt guarantees     USD 132,600     BANCO SANTANDER-CHILE, SMBC, Mizuho Bank

 

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Primary guarantor

 

Secondary guarantor

 

Type of guarantees

  Credit limit    

Guarantee

In millions of won and thousands of foreign currencies

Korea Southern Power Co., Ltd.

 

DS Power Co., Ltd.

 

Collateralized money invested

 

Guarantees for supplemental funding and others(*1)

 

 

 

KRW 2,900

 

—  

 

 

 

 

Korea Development Bank and others

Korea Southern Power Co., Ltd.

 

Pyeongchang Wind Power Co., Ltd.

 

Collateralized money invested

 

Performance guarantees and guarantees for supplemental funding and others(*1)

 

 

 

KRW 3,875

 

—  

 

 

 

 

Woori Bank and Shinhan Bank

Korea Southern Power Co., Ltd.

 

Taebaek Wind Power Co., Ltd.

 

Guarantees for supplemental funding and others(*1)

 

 

—  

 

 

Shinhan Bank

KEPCO Engineering & Construction Company, Inc.

 

DS Power Co., Ltd.

 

Collateralized money invested

 

 

KRW 15,000

 

 

Korea Development Bank and others

Korea Midland Power Co., Ltd.

 

Hyundai Green Power Co., Ltd.

 

Collateralized money invested

 

Guarantees for supplemental funding and others(*1)

 

 

 

KRW 87,003

 

—  

 

 

 

 

Korea Development Bank and others

Korea Midland Power Co., Ltd.

 

PT. Cirebon Electric Power

 

Debt guarantees

 

 

USD 9,653

 

 

Mizuho Bank

Korea Midland Power Co., Ltd.

 

PT Wampu Electric Power

 

Debt guarantees

 

 

USD 5,367

 

 

SMBC

Korea Midland Power Co., Ltd.

 

Gangwon Wind Power Co., Ltd.

 

Collateralized money invested

 

 

KRW 7,409

 

 

IBK and others

Korea South-East Power Co., Ltd.

 

Hyundai Energy Co., Ltd.

 

Collateralized money invested

 

 

KRW 47,067

 

 

Korea Development Bank and others

    Performance guarantees and guarantees for supplemental funding and others(*1)     KRW 78,600    

Korea South-East Power Co., Ltd.

 

RES Technology AD

 

Collateralized money invested

 

Debt guarantees

 

 

 

KRW 15,595

 

EUR 4,271

 

 

 

 

Korea Development Bank and others

Korea South-East Power Co., Ltd.

 

ASM-BG Investicii AD

 

Collateralized money invested

 

Debt guarantees

 

 

 

KRW 16,101

 

EUR 4,175

 

 

 

 

Korea Development Bank and others

Korea South-East Power Co., Ltd.

 

Express Solar-light Power Generation Co., Ltd.

 

Guarantees for supplemental funding and others (*1, 2)

 

 

KRW 2,500

 

 

Woori Bank

Korea South-East Power Co., Ltd.

 

S-Power Co., Ltd.

 

Collateralized money invested

 

 

KRW 132,300

 

 

Korea Development Bank and others

KOSEP USA, INC.

  KODE NOVUS II LLC   Guarantees for supplemental funding and others(*1)     USD 3,750     Korea Development Bank

KOSEP USA, INC.

  KODE NOVUS I LLC   Guarantees for supplemental funding and others(*1)     —       Export-Import Bank of Korea and others

Korea Hydro & Nuclear Power Co., Ltd.

 

Yeongwol Energy Station Co., Ltd.

 

Collateralized money invested

 

 

KRW 1,400

 

 

Meritz Fire & Marine Insurance Co., Ltd.

 

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Primary guarantor

 

Secondary guarantor

 

Type of guarantees

  Credit limit    

Guarantee

In millions of won and thousands of foreign currencies

Korea Hydro & Nuclear Power Co., Ltd.

 

Noeul Green Energy Co., Ltd.,

 

Collateralized money invested

 

 

KRW 1,740

 

 

KEB Hana Bank and others

Korea Hydro & Nuclear Power Co., Ltd.

 

Busan Green Energy Co., Ltd.

 

Collateralized money invested

 

 

KRW 14,564

 

 

Shinhan Bank and others

KEPCO Plant Service & Engineering Co., Ltd.

 

Incheon New Power Co., Ltd.

 

Collateralized money invested

 

 

KRW 6,800

 

 

Shinhan Bank

    Guarantees for supplemental funding and others(*1)     —      

 

(*1) The Company guarantees to provide supplemental funding for business with respect to excessive business expenses or insufficient repayment of borrowings.

 

(*2) The Company has granted the right to Hana Financial Investment Co., Ltd., as an agent for the creditors to Express Solar-light Power Generation Co., Ltd. (“ESPG”), to the effect that in the event of acceleration of ESPG’s payment obligations under certain borrowings to such creditors, Hana Financial may demand the Company to dispose of shares in ESPG held by the Company and apply the resulting proceeds to repayment of ESPG’s obligations.

 

(8) As of December 31, 2016, there is no financial guarantee contract provided by related parties.

 

(9) Derivatives transactions with related parties as of December 31, 2016 are as follows:

 

  (i) Currency Swap

 

Counterparty

   Contract
year
            Contract
Amount
     Contract interest rate
per annum
           Contract
exchange
rate
 
             Pay      Receive      Pay(%)     Receive(%)       
     In millions of won and thousands of U.S. dollars  

Korea Development Bank

     2016~2019             105,260        USD 100,000        2.48     2.38          1,052.60  
     2015~2025           111,190        USD 100,000        2.62     3.25        1,111.90  
     2016~2021           121,000        USD 100,000        2.15     2.50        1,210.00  

 

  (ii) Interest Rate Swap

 

Counterparty

   Contract
year
     Contract
amount
     Contract interest rate per annum  
         Pay (%)     Receive (%)  
     In millions of won  

Korea Development Bank(*)

     2014~2029        40,000        3M CD – 0.03     4.65

 

(*) The contract is an interest rate swap hedging on Electricity Bonds 885, and the banks would notify the Company of the early termination every year on the early termination notification date (every year on April 28, from 2017 until 2028). The contract will be terminated if the early termination is notified.

 

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(10) Salaries and other compensations to the key members of management of the Company for the years ended December 31, 2014, 2015 and 2016 are as follows:

 

Type

          2014      2015      2016  
            In millions of won  

Salaries

          993        1,271        1,463  

Employee benefits

        44        59        33  
     

 

 

    

 

 

    

 

 

 
          1,037        1,330        1,496  
     

 

 

    

 

 

    

 

 

 

 

48. Non-Cash Transactions

Significant non-cash investing and financing transactions for the years ended December 31, 2014, 2015 and 2016 are as follows:

 

Transactions

          2014      2015      2016  
            In millions of won  

Transfer from construction-in-progress to other assets

          9,465,204        10,491,054        19,971,599  

Recognition of asset retirement cost and related provision for decommissioning costs

        282,396        699,673        470,941  

Transfer from provision for disposal of spent nuclear fuel to accrued expenses

        377,697        491,755        283,675  

 

49. Commitments for Expenditure

 

(1) The agreements for acquisition of property, plant and equipment as of December 31, 2015 and 2016 are as follows:

 

           2015      2016  

Contracts

         Amounts      Balance      Amounts      Balance  
           In millions of won  

Purchase of cable (PVC, 1C, 2500SQ) 103,374M and others (Bukdangjin-Shintangjung)

         —          —          42,500        42,500  

Purchase of GIS (800KV 8000A 50KA) 10CB – SinjungbuS/S

       —          —          63,730        63,730  

Purchase of GIS (362KV 6300A 63KA) 26CB – SingosungS/S

       —          —          36,950        19,897  

Purchase of GIS (362KV 6300A 63KA) 27CB – KwangyangS/S

       —          —          37,476        27,760  

Purchase of GIS (362KV 6300A 63KA) and 1 other 18CB – BukbusanS/S

       —          —          34,000        20,766  

Purchase of cable (TR CNCE-W/AL,1C,400SQ)

       —          —          71,986        50,593  

Purchase of cable (TR CNCE-W,600MM2, 13, 2KV)

       50,581        50,581        50,581        —    

Purchase of transformer (765/345/23kV 666.7MVA, 2TANK) 6 units – ShinjungbuS/S

       —          —          37,500        37,500  

Purchase of Ground Switch (44-D-A125, 600AX4)

       43,624        42,912        43,624        —    

Purchase of Concrete Poles (10M, 350KGF)

       —          —          129,175        105,905  

Purchase of Concrete Poles (10M, 350KGF)

       106,037        74,549        106,037        —    

Purchase of switch (25.8kV Eco)

       —          —          40,226        28,072  

Purchase of cable (PVC,1C,2000SQ)

       —          —          50,256        50,256  

Construction of New Kori units (#3,4)

       6,856,150        214,678        6,856,150        —    

Construction of New Kori units (#5,6)

       8,625,387        7,899,368        8,625,387        7,286,503  

Construction of New Hanwool units (#1,2)

       7,982,343        2,578,707        7,982,342        1,157,700  

Construction of New Hanwool units (#3,4)

       8,261,817        8,238,651        8,261,818        8,170,896  

 

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           2015      2016  

Contracts

         Amounts      Balance      Amounts      Balance  
           In millions of won  

Construction of Yeosu Thermal Power units (#1)

         489,440        30,853        174,291        1,139  

Other 31 contracts

       199,846        140,563        430,204        222,555  

Purchase of main machine for construction of Seoul Combined units (#1,2)

       360,500        328,210        360,500        300,663  

Construction of Seoul Combined units (#1,2)

       227,000        182,630        225,205        129,589  

Electricity construction of New Boryeong units (#1,2)

       245,357        36,893        354,740        26,878  

Purchase of smoke eliminating machine for construction of New Boryeong units (#1,2)

       118,058        8,775        121,093        2,023  

Purchase of coal handling machine for construction of New Boryeong units (#1,2)

       146,353        25,266        146,353        3,543  

Service of designing New Boryeong units (#1,2)

       126,038        32,910        126,038        24,333  

Purchase of main machine for construction of New Boryeong units (#1,2)

       851,132        137,744        851,132        10,746  

Construction of New Boryeong units (#1,2)

       246,964        10,859        288,438        17,828  

Purchase of factory process piping of New Boryeong units (#1,2)

       37,294        11        37,294        —    

Purchase of processing plant of New Boryeong units (#1,2)

       33,269        9,116        34,490        —    

Construction of port facilities for New Boryeong units (#1,2)

       78,166        —          78,166        —    

Purchase of generator for Wonju RDF combined & heat power plant

       52,877        —          52,877        —    

Purchase of main machine for Heang Bok Do Si combined & heat power plant

       337,283        —          337,283        —    

Purchase of coal handling machine for construction of Taean (#9,10) and IGCC units (conditional contract for installation)

       146,634        9,943        192,945        38,218  

Purchase of furnace for construction of Taean units (#9,10)

       546,637        66,271        584,148        46,059  

Service of designing Taean units (#9,10)

       107,516        26,437        109,700        18,981  

Purchase of desulfurization machine for construction of Taean units (#9,10)

       91,592        6,175        92,086        1,017  

Purchase of turbine generator for construction of Taean units (#9,10)

       426,139        103,146        228,794        6,788  

Purchase of gas plant machine for construction of Taean IGCC units

       457,423        4,541        457,991        —    

Purchase of combined generating machine for construction of Taean IGCC units

       204,514        25,808        208,972        2,102  

Purchase of oxygen plant for construction of Taean IGCC units

       97,804        4,252        98,979        221  

Service of designing Taean IGCC plant units

       44,374        5,520        44,802        3,342  

Construction of Samcheok units (#1,2)

       384,716        27,018        457,943        15,851  

Purchase of furnace for construction of Samcheok units (#1,2)

       1,091,303        115,896        1,091,303        51,594  

Purchase of coal handling machine for construction of Samcheok units (#1,2)

       290,417        23,795        303,273        155  

Service of designing Samcheok units (#1,2)

       112,949        42,631        114,047        36,510  

Service of designing Dangjin units (#9,10)

       109,340        16,261        122,426        6,125  

Construction of yard for Andong natural gas power plant

       40,960        2,528        41,961        2,600  

Purchase of main equipment

       152,286        138,057        152,286        39,248  

 

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(2) As of December 31, 2016, details of contracts for inventory purchase commitment are as follows:

The Company imports all of its uranium ore concentrates from sources outside Korea (including the United States, United Kingdom, Kazakhstan, France, Russia, South Africa, Canada and Australia) which are paid for with currencies other than Won, primarily in U.S. dollars. In order to ensure stable supply, the Company entered into long-term and medium-term contracts with various suppliers, and supplements such supplies with purchases of fuels on spot markets. The long-term and medium-term contract periods vary among contractors and the stages of fuel manufacturing process. Contract prices for processing of uranium are generally based on market prices. Contract periods for ore concentrates, conversion, enrichment and design and fabrication are as follows:

 

Type

   Periods      Contracted amounts  

Concentrate

     2016 ~ 2030        34,719 Ton U3O8  

Transformed

     2016 ~ 2022        18,738 Ton U  

Enrichment

     2016 ~ 2029        34,879 Ton SWU  

Molded

     2016 ~ 2022        1,852 Ton U  

 

50. Contingencies and Commitments

 

(1) Ongoing litigations related with contingent liabilities and assets as of December 31, 2015 and 2016 are as follows:

 

     2015      2016  
     Number of cases      Claim amount      Number of cases      Claim amount  
     In millions of won  

As the defendant

     750      1,052,301        675      636,433  

As the plaintiff

     202        580,987        193        489,605  

As of December 31, 2016, in addition to the litigations mentioned above, there are ongoing litigations of Korea Hydro & Nuclear Power Co., Ltd. (“KHNP”), a subsidiary of KEPCO, against KEPCO Engineering & Construction Company, Inc., a subsidiary of KEPCO, as a co-defendant (one case amounting to ₩62,744 million) and KEPCO Plant Service & Engineering Co., Ltd., a subsidiary of KEPCO, as a co-defendant (two cases amounting to ₩201 million).

A national litigation agency filed a lawsuit against NSSC regarding NSSC’s approval to continue operation of Wolsong Unit 1 nuclear power plant and it is ongoing as of December 31, 2016.

The Company is the defendant against a number of claims. The followings are potentially significant claims pertaining to the Company.

 

  Hyundai Engineering & Construction Co., Ltd.(“Hyundai E&C”), SK Engineering & Construction Co., Ltd. and GS Engineering & Construction Co., Ltd. filed a lawsuit for increase in contract bill (formerly, amounted to ₩1,000 million) against KHNP in September 2013, in relation to the design changes on the plant construction of New Hanwool 1 & 2. Hyundai Engineering & Construction Co., Ltd. and two other companies increased the contract bill to ₩133,426 million in October 2014 and ₩204,040 million in November 2015, respectively, and submitted an application to demand extra contract payments due to the design changes. KHNP has paid ₩217,624 million of the claim amounts in full upon the first ruling in November 2016 and recognized the amount as addition to construction-in-progress accordingly. KHNP has made an appeal against the first ruling and the lawsuit is currently ongoing.

 

  In December 2013, the Supreme Court of Korea ruled that regular bonuses also fall under the category of ordinary wages on the condition that those bonuses are paid regularly and uniformly. Also, the Supreme Court ruled that employees are entitled to retroactively demand certain wages based on the new ordinary wages that include regular bonuses as additional wages. However, the request may be limited to the extent of the principle of good faith.

 

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The Company believes that the possibility of economic outflow is probable on the ongoing and the expected lawsuit. For this reason, the Company recognized ₩178,572 million of other provision in relation to the lawsuit.

Except these significant claims, there are seven arbitration cases pertaining to the Company as of December 31, 2016 and the significant arbitration cases are as follows:

 

  KEPCO and KEPCO KDN Co., Ltd., a subsidiary of KEPCO, have been accused of breach of contract in relation to ERP software, which is provided by SAP Korea Ltd. The litigation was filed in the International Chamber of Commerce International Court of Arbitration but the Company has not recognized any provision because the probability of economic benefit outflow is remote and the related amount cannot be reliably estimated.

 

  Hyundai Samsung Joint Venture (HSJV), one of the subcontractors of the Company, filed an arbitration against the Company at the London Court of International Arbitration (LCIA) in 2016 due to disagreements in UAE nuclear power plant construction project, but the Company has not recognized any losses because the probability of economic benefit outflow is remote and the related amount cannot be reasonably estimated.

 

  Hyundai E&C, GS Engineering & Construction Corp., and Hansol SeenTec Co., Ltd. filed on arbitration against the Company to the Korea Commercial Arbitration Board in relation to the request for additional construction costs but the Company has not recognized any provision because the probability of economic benefit outflow is remote and the related amount cannot be reliably estimated.

 

  Halla Corporation filed on arbitration against the Company to the Korea Commercial Arbitration Board in relation to the request for additional construction costs but the Company has not recognized any losses because the probability of economic benefit outflow is remote and the related amount cannot be reasonably estimated.

 

(2) Guarantees of borrowings provided to other companies as of December 31, 2015 and 2016 are as follows:

 

  In order to secure its status as a shareholder of Navanakorn Electric Co., Ltd., the Company has signed a fund supplement contract. According to the contract, in case Navanakorn Electric Co., Ltd. does not have sufficient funds for its operation or repayment of borrowings, the Company bears a payment obligation in proportion to its ownership.

 

  The Company has outstanding borrowings with a limit of USD 275,600 thousand from its creditors such as International Finance Corporation. Regarding the borrowing contract, the Company has guaranteed capital contribution of USD 69,808 thousand and additional contribution up to USD 19,000 thousand for contingencies, if any. Moreover, for one of the electricity purchasers, Central Power Purchasing Agency Guarantee Ltd., the Company has provided performance guarantee up to USD 2,110 thousand, in case of construction delay or insufficient contract volume after commencement of the construction.

 

  The Company has provided PT. Perusahaan Listrik Negara performance guarantee up to USD 917 thousand in proportion to its ownership in the electricity purchase contract with PT. Cirebon Energi Prasarana in relation to the second electric power generation business in Cirebon, Indonesia. Also, in relation to the business, the Company has provided Limited Notice To Proceed 2 (“LNTP 2”) Offshore performance payment guarantee amounting to USD 2,784 thousand to Hyundai Engineering Co. Ltd., Toshiba Corporation and MHPS, and LNTP 2 Onshore performance payment guarantee amounting to USD 380 thousand to Hyundai E&C and Toshiba Asia Pacific Indonesia (TAPI) based on the interest owned by the Company to progress the construction.

 

  The Company has provided the Export-Import Bank of Korea and SMBC guarantee of mutual investment of USD 401 thousand, which is equivalent to the ownership interest of PT Mega Power Mandiri, in order to guarantee the expenses related to hydroelectric power business of PT Wampu Electric Power, an associate of the Company.

 

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  The Company has provided the Export-Import Bank of Korea, BNP Paribas and ING Bank guarantee of mutual investment of USD 2,684 thousand, which is equivalent to the ownership interest of PT BS Energy and PT Nusantara Hydro Alam, in order to guarantee the expenses related to hydroelectric power business of Tanggamus, Indonesia.

 

(3) Credit lines provided by financial institutions as of December 31, 2016 are as follows:

 

Commitments

  

Financial institutions

  Currency   Limited amount     Exercised amount  
         In millions of won and thousands of foreign
currencies
 

Commitments on bank-overdraft

   Nonghyup Bank and others   KRW     1,635,000       54,962  

Commitments on bank-daylight overdraft

   Nonghyup Bank   KRW     280,000       —    

Limit amount available for CP

   Shinhan Bank and others   KRW     700,000       —    

Limit amount available for card

   KEB Hana Bank and others   KRW     46,323       3,102  
   Banco de Oro   PHP     5,000       5,000  

Loan limit

   Kookmin Bank and others   KRW     1,132,282       718,617  
   BNP Paribas and others   USD     1,954,150       127,395  

Certification of payment on L/C

   Shinhan Bank (*)   KRW     19,721       19,721  
   Woori Bank and others   USD     881,380       227,315  

Certification of performance guarantee on contract

   Kookmin Bank and others   EUR     21,291       21,291  
   KEB Hana Bank   INR     236,443       185,077  
  

Seoul Guarantee Insurance

and others

  KRW     93,781       93,781  
   Bank of Kathmandu   NPR     32,633       32,633  
   KEB Hana Bank and others   USD     634,223       579,844  

Certification of bidding

   SMBC and others   USD     18,660       18,660  

Advance payment bond, Warranty bond, Retention bond and others

   Bank of Kathmandu   NPR     7,176       7,176  
   KEB Hana Bank   SAR     95,756       91,097  
   HSBC and others   USD     3,615,443       523,114  

Others

   Export-Import Bank of Korea   EUR     1,400       —    
   KEB Hana Bank   INR     157,830       157,830  
   KEB Hana Bank   JPY     756,669       756,669  
   Nonghyup Bank and others   KRW     277,336       7,257  
   KEB Hana Bank   SAR     2,240       —    
   KEB Hana Bank and others   USD     1,111,636       561,443  

Inclusive credit

   Shinhan Bank   INR     47,489       47,489  
   KEB Hana Bank   KRW     258,000       143,840  
   HSBC and others   USD     302,510       2,510  
   KEB Hana Bank   USD     30,000       7,730  
     INR       256,582  
     BRL       426  

Trade finance

   BNP Paribas and others   USD     750,000       —    

 

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(*) The Company was provided with a guarantee of ₩198 million from Daewoo Engineering & Construction Co. Ltd. for some of its commitments.

 

(4) As of December 31, 2016, the blank check and assets provided as collaterals or pledges to financial institutions by the Company are follows:

 

Guarantor

  

Guarantee

  

Type of guarantee

  

Currency

   Amount     

Description

     In millions of won and thousands of foreign currencies

Korea East-West Power Co., Ltd.

  

Korea Development

Bank and others

  

Shareholdings of

Gyeongju Wind Power

Co., Ltd.

   KRW      15,958      Collateral for borrowings

Korea Midland Power Co.,Ltd.

   IBK and others   

Shareholdings of

Commerce and

Industry Energy Co.,

Ltd.

   KRW      13,605      Collateral for borrowings

Korea Southern Power Co., Ltd.

  

Shinhan Bank

and others

  

Shareholdings of KOSPO Youngnam

Power Co., Ltd.

   KRW      40,000      Collateral for borrowings

Korea South-East Power Co., Ltd.

  

International Finance Corporation

and others

  

Shareholdings of

Mira Power Limited

   KRW      38,206      Collateral for borrowings

Korea Hydro & Nuclear Power Co., Ltd.

  

Korea

Development

Bank and others

  

Shareholdings of

Gyeonggi Green

Energy Co., Ltd.

   KRW      47,000      Collateral for borrowings

Gyeonggi Green Energy Co., Ltd.

  

Korea

Development

Bank and others

  

Factory estate and

others

   KRW      327,080      Collateral for borrowings(*)

Commerce and Industry Energy Co., Ltd.

   IBK and others   

Land, buildings,

structures and

machinery and others

 

Cash and cash equivalents

  

KRW

 

 

 

KRW

    

 

110,500

 

9,051

 

 

 

   Collateral for borrowings

Gyeongju Wind Power Co., Ltd.

  

SK Securities Co.,

Ltd. and others

  

Property, plant and

equipment and others

   KRW      31,962      Collateral for borrowings
      Existing or expected trade receivables    KRW      3,431     
      Cash and cash equivalents    KRW      716     

KOSPO Youngnam Power Co., Ltd.

  

Shinhan Bank

and others

  

Bank deposit and

insurance claim

   KRW      396,120      Collateral for borrowings

Qatrana Electric Power Company

  

The Islamic

Development

Bank and others

  

Finance Lease receivable

and property, plant and equipment and others

   JOD      188,580      Collateral for borrowings

KST Electric Power Company

   Scotiabank Inverlat, S.A   

Finance Lease receivable

and others

   USD      332,850      Collateral for borrowings

 

(*) The Company was provided with shares of Gyeonggi Green Energy Co., Ltd., one of its subsidiaries, from the investors as collateral related to long-term borrowings. Additionally, pledge for shares, pledge for transfer of rights of long-term borrowings, pledge for insurance claims and other pledges were established.

 

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The Company has ₩1,197 million of project loans from Korea Resource Corporation as of December 31, 2016. The Company has provided a blank check as repayment guarantee.

 

(5) The Company temporarily suspended operations of the Gangneung hydroelectric generating plant, with a carrying amount of ₩94,886 million as of December 31, 2016, to improve the quality of water used in generating electricity. The expenses related to the suspension of operations of ₩459 million and depreciation on the utility plant of ₩6,639 million are recorded to other expenses for the year ended December 31, 2016.

 

(6) Due to the Korean government’s announcement of suspension of operation in the Gaeseong Industrial District, it is uncertain if the Company can exercise the property rights for the Company’s facility in the Gaeseong Industrial District as of December 31, 2016. The book value of facility is ₩19,820 million and the amount of trade receivables related to the companies residing in Gaeseong industrial complex is ₩3,172 million. The Company has entered into an insurance agreement covering up to ₩7,000 million with the Export-Import Bank of Korea related to Gaeseong industrial complex. The ultimate outcome of this event cannot be reasonably estimated.

 

51. Subsequent Events

 

(1) Subsequent to December 31, 2016, Korea Western Power Co., Ltd., a subsidiary of the Company, issued non-guaranteed bonds and additional foreign currency short-term borrowings for funding facilities and operations as follows:

 

Company Name

  

Type

   Issued date      Maturity      Maturity            Amounts  
     In millions of won and thousands of foreign currencies  

Korea Western Power Co., Ltd.

   Short-term borrowings      2017.01.11        2017.07.10        1.62        USD 13,618  
   Corporate bonds #33-1      2017.02.22        2022.02.22        2.04          70,000  
   Corporate bonds #33-2      2017.02.22        2027.02.22        2.34        130,000  

 

(2) On January 19, 2017, Marubeni Korea Corporation filed on arbitration against the Company to the Korean Commercial Arbitration Board in relation to the refund of ₩4,050 million paid by Marubeni Korea Corporation to the Company as a penalty payment for the delayed delivery of Pyeongtaek 2 compound main equipment. The Company was notified on February 14, 2017 and is planning to appoint an arbitrator to proceed with arbitration. The management of the Company anticipates that the result of the arbitration will not have a significant impact on the Company’s business or financial position.

 

(3) Ordinary wage lawsuit

As of December 31, 2016, a total of eight lawsuits filed at the Busan High Court and others against KHNP in relation to the ordinary wages were ongoing. Two of these lawsuits filed to the Seoul Central District Court were ruled on February 3, 2017 with a partial favor to the plaintiff. The Company believes the ruling did not have any significant impact on the provisions recorded at December 31, 2016.

 

(4) Result of Wolsong Unit 1 lawsuit

On February 7, 2017, regarding the lawsuit against NSSC by a group of plaintiffs as disclosed in note 2.(4).(ii), the Seoul Administrative Court ruled to annul the NSSC’s permission for life extension of the operational period of Wolsong Unit 1 nuclear power plant. On February 14, 2017, NSSC appealed against the first judgment. KHNP, a subsidiary of the Company, is continuing to operate Wolsong Unit 1 nuclear power plant based on the judgment of NSSC that the approval of NSSC is valid, and believes that Wolsong Unit 1 nuclear power plant will be operating until 2022. Meanwhile, the Joint Action for a Nuclear-free Society submitted a suspension of execution of permission to operate Wolsong Unit 1 nuclear power plant to the Seoul Administrative Court. On February 14, 2017, KHNP participated in the appeal against a suspension of execution of permission to operate Wolsong Unit 1 nuclear power plant as a third party and a stakeholder.

 

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INDEX OF EXHIBITS

 

  1.1    Articles of Incorporation, as last amended on November 11, 2016 (in English)
  2.1    Form of Deposit Agreement*
  8.1    List of Subsidiaries
12.1    Certifications of our Chief Executive Officer required by Rule 13a-14(a) of the Exchange Act (Certifications under Section 302 of the Sarbanes-Oxley Act of 2002)
12.2    Certifications of our Chief Financial Officer required by Rule 13a-14(a) of the Exchange Act (Certifications under Section 302 of the Sarbanes-Oxley Act of 2002)
13.1    Certifications of our Chief Executive Officer required by Rule 13a-14(b) and Section 1350 of Chapter 63 of the United States Code (18 U.S.C. 1350) (Certifications under Section 906 of the Sarbanes-Oxley Act of 2002)
13.2    Certifications of our Chief Financial Officer required by Rule 13a-14(b) and Section 1350 of Chapter 63 of the United States Code (18 U.S.C. 1350) (Certifications under Section 906 of the Sarbanes-Oxley Act of 2002)
15.1    The Korea Electric Power Corporation Act, as amended on May 21, 2014 (in English)**
15.2    Enforcement Decree of the Korea Electric Power Corporation Act, as amended on August 31, 2016 (in English)
15.3    The Act on the Management of Public Institutions, as amended on March 22, 2016 (in English)
15.4    Enforcement Decree of the Act on the Management of Public Institutions, as amended on September 22, 2016 (in English)

 

* Incorporated by reference to the Registrant’s Registration Statement on Form F-6 with respect to the ADSs, registered under Registration No. 333-196703.
** Incorporated by reference to the Registrant’s annual report on Form 20-F (No. 001-13372) previously filed on April 30, 2015.

 

E-1

Exhibit 1.1

ARTICLES OF INCORPORATION OF

KOREA ELECTRIC POWER CORPORATION

Enacted on December 8, 1981

1st Amended on May 29, 1984

2nd Amended on December 13, 1984

3rd Amended on August 1, 1985

4th Amended on December 3, 1986

5th Amended on May 24, 1989

6th Amended on June 23, 1989

7th Amended on March 18, 1991

8th Amended on November 21, 1992

9th Amended on March 15, 1996

10th Amended on March 19, 1997

11th Amended on April 11, 1998

12th Amended on August 29, 1998

13th Amended on March 20, 1999

14th Amended on June 29, 2001

15th Amended on August 12, 2003

16th Amended on June 15, 2005

17th Amended on September 7, 2007

18th Amended on March 6, 2008

19 th Amended on March 30, 2009

20 th Amended on March 19, 2010

21 st Amended on March 21, 2011

22 nd Amended on April 16, 2012

23 rd Amended on November 6, 2013

24 th Amended on November 20, 2014

25 th Amended on November 11, 2016

CHAPTER I. GENERAL PROVISIONS

Article 1 (Name)

This Corporation shall be established under the Korea Electric Power Corporation Act (hereinafter called the “Act”) and named Hankook Chollryuk Kongsa, with its name in English the “Korea Electric Power Corporation” (its abbreviation in English shall be “KEPCO”) (hereinafter called the “Corporation”).

Article 2 (Purpose)

The Corporation shall conduct the following business activities:

 

  1. Development of electric power resources;

 

  2. Generation, transmission, transformation and distribution of electricity and other related business activities;

 

  3. Research and development of technology related to the businesses mentioned in Item 1 and 2 (Amended on Mar. 30, 2009);

 

  4. Overseas businesses related to the businesses mentioned in Item 1 through 3 (Newly established on Mar. 30, 2009);

 

1


  5. Investments or contributions related to the businesses mentioned in Items 1 through 4 (Amended on Mar. 30, 2009);

 

  6. Businesses incidental to Items 1 through 5 (Amended on Mar. 30, 2009);

 

  7. Development and operation of certain real estate held by the Corporation falling under one of the following:

 

  a. it is necessary to develop certain real estate held by the Corporation due to external factors, such as relocation, consolidation, conversion to indoor or underground facilities or deterioration of the Corporation’s substation or office; or

 

  b. it is necessary to develop certain real estate held by the Corporation to accommodate the development of the relevant real estate due to such real estate being incorporated or adjacent to an area under planned urban development (Newly established on Mar. 21, 2011); and

 

  8. Other activities entrusted by the Government (Amended on Mar. 30, 2009)

Article 3 (Location of the Head Office)

The head office of the Corporation shall be located in Naju-si, Jeollanam-do province and the district divisions, district head offices and branches may be established pursuant to resolution of the Board of Directors. (Amended on Mar. 19, 2010, Nov. 20, 2014)

Article 4 (Change of Articles of Incorporation)

In case the Corporation intends to change the Articles of Incorporation, the Corporation shall obtain approval of the Minister of the Ministry of Trade, Industry and Energy, following the resolutions of the Board of Directors and the General Meeting of Shareholders. (Amended on Mar. 30, 2009, Nov. 6, 2013)

Article 5 (Method of Public Notice)

Public notice by the Corporation shall be posted on the homepage of the Corporation ( http://www.kepco.co.kr ). Provided , however, that if such posting is not possible due to unavoidable circumstances such as computer problems, such notice shall be provided in Seoul Shinmun and Maeil Business Newspaper, each in a daily newspaper which is published in Seoul. (Amended on Nov. 21, 1992, Mar. 20, 1999, Jun. 15, 2005, Mar. 19, 2010, Nov. 6, 2013)

CHAPTER II. SHARES

Article 6 (Total Number of Shares to be Issued)

The total number of shares which the Corporation is authorized to issue is 1,200,000,000 shares.

Article 7 (Par Value and Types of Shares and Denominations of Share Certificates)

 

(1) The par value of a share shall be 5,000 Won. All shares to be issued by the Corporation shall be common stock and class shares, both of which shall be in registered form. (Amended on Nov. 21, 1992, Apr. 16, 2012)

 

(2) Share certificates shall be issued in eight (8) denominations of one (1), five (5), ten (10), fifty (50), one-hundred (100), five-hundred (500), one-thousand (1,000) and ten-thousand (10,000) shares. (Amended on Mar. 20, 1999)

 

2


Article 7-2 (Number and Rights of Class Shares)

 

(1) The class shares to be issued by the Corporation shall be preferred dividend shares that shall not have voting rights. The total number of such shares authorized to be issued by the Corporation is 150,000,000 shares. (Amended on Apr. 16, 2012)

 

(2) The dividend rate, which the Board of Directors decides upon issuing, on each class share in Paragraph (1) shall be based on a preferred dividend rate which is an amount equal to or greater than eight (8) percent per annum of par value, and such amount of dividends will be paid on a priory basis. (Amended on Mar. 19, 1997, Apr. 16, 2012)

 

(3) If the rate of dividends on each common share is greater than the rate of dividends on each class share in Paragraph (1), the difference shall be divided among the common shares and preferred shares on a pro rata basis. (Amended on Mar. 19, 1997, Apr. 16, 2012)

 

(4) If the dividends on class shares in Paragraph (1) as set forth herein are not paid from the profits of any fiscal year, the accumulated amount of dividends will be paid on a priority basis the next fiscal year. (Amended on Mar. 19, 1997, Apr. 16, 2012)

 

(5) If the dividends on class shares in Paragraph (1) as set forth herein are not paid for any fiscal year, the preferred shares shall be deemed to have voting rights from the General Meeting of Shareholders immediately following the General Meeting of Shareholders at which the resolution not to pay such dividends on preferred shares was adopted to the end of the General Meeting of Shareholders at which the resolution to pay such dividends on preferred shares is adopted. (Amended on Mar. 19, 1997, Apr. 16, 2012)

(Newly established on Nov. 21, 1992)

Article 8 (Total Number of Shares to Be Issued at the Time of Incorporation)

The total number of shares to be issued by the Corporation at the time of incorporation shall be 608,334,637 shares.

Article 9 (Non-Issuance of Share Certificates)

Upon request from the shareholders, the Corporation shall not issue share certificates for all or a portion of the shares.

Article 10 (Preemptive Rights)

 

(1) The Corporation shall allocate any new shares to shareholders in proportion to the number of shares held by each shareholder. However, in such case, the Corporation may, pursuant to the resolution of the Board of Directors, allocate class shares in Article 7-2 to holders of the outstanding class shares in Article 7-2 in proportion to their respective shareholding ratio. (Amended on Nov. 21, 1992, Mar. 15, 1996, Apr. 16, 2012)

 

(2) The Board of Directors shall determine disposition of new shares which have not been subscribed for (hereinafter referred to as the “non-subscribed shares”) or fractions of new shares (hereinafter referred to as the “fractional shares”).

 

(3) Notwithstanding Paragraph (1), the Board of Directors may allocate new shares to persons other than existing shareholders pursuant to a resolution of the Board of Directors, in the event of any of the Items below: (Amended on Mar. 15, 1996, Apr. 11, 1998)

 

  1. If new shares are issued by public offering or underwritten by any underwriters pursuant to the Financial Investment Services and Capital Markets Act (the “FSCMA”) (Amended on Mar. 30, 2009);

 

  2. If new shares are preferentially allocated to members of the ESOA pursuant to the FSCMA (Amended on Mar. 30, 2009);

 

3


  3. If new shares represented by depositary receipts are issued pursuant to the FSCMA (Amended on Mar. 30, 2009);

 

  4. If new shares are issued by public offering pursuant to the FSCMA (Amended on Mar. 30, 2009); or

 

  5. If new shares are issued to any person who makes a contribution in-kind pursuant to the State Properties Act. (Newly established on Aug. 12, 2003, amended on Mar. 30, 2009)

 

(4) If new shares are allocated to any person other than shareholders pursuant to Paragraph (3) above, the items as set forth in Subparagraph (1) to (4) of Article 416 of the Commercial Law shall be notified or announced to the shareholders two (2) weeks prior to the due date of payment. (Newly established on Apr. 16, 2012)

 

(5) Pursuant to a special resolution by the General Meeting of Shareholders, new shares may be issued and allocated to persons other than existing shareholders. (Amended on Mar. 15, 1996)

 

(6) Notwithstanding Paragraph (1) above, new shares shall not be allocated to any shareholders who acquired shares in violation of relevant laws and regulations and these Articles of Incorporation.

Article 10-2 (Public Offering)

 

(1) The Corporation may issue new shares by public offering of not more than 10% of the total number of issued and outstanding shares by a resolution of the Board of Directors, pursuant to the FSCMA. (Amended on Mar. 30, 2009)

 

(2) If the Corporation issues new shares by public offering, the type, quantity and issue price of shares to be newly issued shall be determined by a resolution of the Board of Directors; provided that the issue price of such new shares shall not be less than the price as prescribed in the FSCMA and the Enforcement Decree thereof. (Amended on Mar. 30, 2009, Nov. 6, 2013)

(Newly established on Apr. 11, 1998)

Article 11 (Calculation of Dividend for New Shares)

With respect to the distribution of dividends on new shares issued in any fiscal year for the purpose of rights offering or bonus issue or distribution of dividends, such new shares shall be deemed to have been issued at the end of the immediately preceding fiscal year.

(Newly established on Mar. 19, 1997)

Article 12 (Restriction on the Concentration of Share Ownership)

 

(1) No person other than the Government and the ESOA may own shares of the Corporation in excess of three percent (3%) of the total number of shares issued by the Corporation in his own amount, regardless of the nominal owner of the shares. However, in accordance with Article 167 of the FSCMA, in such cases where a person obtains approval from the Financial Services Commission such restriction will not be applied. (Amended on Aug. 29, 1998, Nov. 6, 2013)

 

(2) Any person who acquired shares in violation of Paragraph (1) may not exercise voting rights with regard to the excess portion of shares. (Amended on Nov. 21, 1992, Nov. 6, 2013)

Article 13 (Changes in Entries in the Register of Shareholders)

 

(1) The Corporation may appoint a transfer agent.

 

(2) The appointment of a transfer agent and the place and scope of business of the transfer agent shall be determined by the Board of Directors and publicly notified.

 

4


Article 14 (Report of Addresses, Names and Seals of Shareholders)

 

(1) Shareholders and registered pledgees shall report to the transfer agent mentioned in Article 13 their respective names, addresses and seals. (Amended on Mar. 19, 2010)

 

(2) Shareholders and registered pledgees who reside in foreign countries shall report their respective addresses to which and agents to whom notices may be given in Korea.

 

(3) Any changes in the items stated in Paragraphs (1) and (2) shall also be reported.

Article 14-2 (Electronic Register of Shareholders)

The Corporation may prepare the register of shareholders in an electronic format as provided in the Commercial Act. (Newly established on Mar. 19, 2010)

Article 15 (Suspension of Changes in the Register of Shareholders)

 

(1) The Corporation shall suspend changes in the register of shareholders from January 1 to January 31 of each year. (Amended on Aug. 29, 1998, Sep. 7, 2007)

 

(2) The Corporation shall permit the shareholders whose names appear in the register of shareholders on December 31 of each year to exercise the rights as shareholders in the Ordinary General Meeting of Shareholders held in respect of such fiscal year. (Amended on Aug. 29, 1998, Sep. 7, 2007)

 

(3) If necessary for convening of an extraordinary Meeting of Shareholders or for other cause, the Corporation may set a record date regarding to the rights of shareholders or suspend changes in the register of shareholders for a period designated by the Corporation and not exceeding three (3) months pursuant to the resolution of the Board of Directors. The Corporation shall give public notice at least two (2) weeks prior to the day when the suspension of changes in the register of shareholders begins or the record date. (Amended on Aug. 29, 1998, Nov. 6, 2013)

CHAPTER III. BONDS

Article 16 (Bonds)

 

(1) The Corporation may issue its bonds pursuant to Article 16 of the Act and Articles 10 through 19 of the Enforcement Decree of the Act. (Amended Nov. 6, 2013)

 

(2) The Board of Directors may authorize the President of the Corporation to issue bonds for a period not exceeding one (1) year by setting the amount and type of bond, conditions of issuing and repayment period. (Newly established on Apr. 16, 2012)

Article 17 (Issuance of Convertible Bonds)

 

(1) The Corporation may issue convertible bonds to persons other than existing shareholders up to a total par value of two trillion (2,000,000,000,000) Won. (Amended on Nov. 21, 1992, Mar. 15, 1996)

 

(2) The convertible bonds mentioned in Paragraph (1) may be issued on the condition that certain portion of par value of the convertible bonds as determined by the Board of Directors shall be converted into shares.

 

(3) The shares to be issued upon conversion shall be either common shares ( provided that the total par value of the convertible bonds converted into common shares shall be 1.5 trillion Won) or preferred shares ( provided that the total par value of the convertible bonds convertible into class shares under Article 7-2 shall be 500 billion Won). The conversion price shall be decided by the Board of Directors at the time of issuance of convertible bonds; provided that the conversion price shall not be less than the par value of each share. (Amended on Nov. 21, 1992, Mar. 15, 1996, Apr. 16, 2012)

 

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(4) The period during which bondholders may exercise their conversion rights shall commence from one (1) month from the issuance date of the convertible bonds and end on the day immediately preceding the redemption date thereof; provided that the Board of Directors may adjust the conversion period within the foregoing period by its resolution. (Amended on Nov. 21, 1992, Nov. 6, 2013)

 

(5) With respect to matters relating to any distribution of dividends on converted shares and any payment of interests on convertible bonds, provisions of Article 11 shall apply mutatis mutandis . (Amended on Nov. 21, 1992, Mar. 19, 1997)

Article 17-2 (Issuance of Bonds with Warrants)

 

(1) The Corporation may issue bonds with warrants to persons other than existing shareholders up to a total par value of one trillion (1,000,000,000,000) Won.

 

(2) The amount of new shares which can be subscribed for by the holders of the bonds with warrants shall be determined by the Board of Directors; provided that the maximum amount of such new shares shall not exceed the par value of the bonds with warrants.

 

(3) The shares to be issued upon exercise of warrants shall be either common shares ( provided that the total par value of the bonds with warrants for common shares shall be 500 billion won) or preferred shares ( provided that the total par value of the bonds with warrants for preferred shares shall be 500 billion won). The issue price shall be not less than the par value of the shares as determined by the Board of Directors at the time of the issuance of the relevant bonds with warrants. (Amended Apr. 16, 2012)

 

(4) The period during which the warrant holder may exercise his right to subscribe for new shares shall commence from one (1) month after the issuance date of the bonds with warrants and end on the day immediately preceding the redemption date thereof; provided that the Board of Directors may adjust the period for exercise of warrant within the foregoing period by its resolution. (Amended Nov. 6, 2013)

 

(5) With respect to matters relating to any distribution of dividends on shares issued upon any exercise of warrants, provisions of Article 11 shall apply mutatis mutandis . (Amended on Mar. 19, 1997)

(Newly established on Nov. 21, 1992)

Article 17-3 (Limit on the Issuance of Equity Related Bonds)

Notwithstanding Article 17, Paragraph (1) and Article 17-2, Paragraph (1) above, the aggregate of the total par value of the convertible bonds and the total par value of the bonds with warrants may not exceed two trillion (2,000,000,000,000) Won. (Newly established on Nov. 21, 1992, amended on Mar. 15, 1996)

CHAPTER IV. GENERAL MEETING OF SHAREHOLDERS

Article 18 (Convention of General Meeting of Shareholders)

 

(1) The ordinary General Meeting of Shareholders shall be held within three (3) months after the end of each fiscal year and the extraordinary General Meeting of Shareholders shall be held at such other times as are deemed necessary.

 

(2) The General Meeting of Shareholders shall be held at the place where the head office is located.

 

(3) The General Meeting of Shareholders shall be convened by the President. In the event that the President is absent or fails to serve, then the person designated in the order and method of Article 28, Paragraph (3) shall convene the meeting. (Amended on Mar. 18, 1991, Mar. 20, 1999)

 

(4) At the General Meeting of Shareholders, no resolutions shall be made on any matters other than the agenda set forth in the prior notice to shareholders.

 

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Article 19 (Notice of Convening of the General Meeting of Shareholders)

In convening a General Meeting of Shareholders, written notice, stating the date, time and place of the meeting and the agenda for such Meeting, shall be dispatched at least two (2) weeks prior to the date set for such Meeting; provided , however, that with respect to shareholders holding not more than 1% of the total number of issued and outstanding voting shares, the notice may be replaced by giving at least two (2) week advance public notice with respect to the convening of and agenda for the Meeting at least twice in at least two (2) daily newspapers published in Seoul or giving such public notice at DART (Data Analysis, Retrieval and Transfer System) operated by the Financial Supervisory Service or the Korea Exchange. (Amended on Mar. 30, 2009)

Article 20 (Chairman)

The chairman of the General Meeting of Shareholders shall be the President. In the event that the President is absent or fails to serve, then the person designated pursuant to the order and method of Article 28, Paragraph (3) shall serve as Chairman. (Amended on Mar. 18, 1991, Mar. 20, 1999)

Article 21 (Maintenance of Order by the Chairman)

 

(1) The Chairman of the General Meeting of Shareholders may order those who try to obstruct proceedings of disturbing public order to stop or cancel their speeches or to leave the hall.

 

(2) The chairman of the General Meeting of Shareholders may limit the length and time of speeches by shareholders for the smooth progress of proceedings.

Article 22 (Voting Rights of Shareholders)

 

(1) Each shareholder shall have one (1) voting right for each share he owns.

 

(2) Shares owned by the Corporation itself shall not have voting rights.

Article 23 (Exercise of Voting Right by Proxy)

 

(1) Shareholders may exercise their voting rights by proxy.

 

(2) The proxy holder mentioned in Paragraph (1) shall submit a document establishing his authority (power of attorney) before the opening of the General Meeting of Shareholders.

 

(3) The Corporation may solicit proxies in accordance with the FSCMA and the Enforcement Decree thereof. (Amended on Mar. 30, 2009, Nov. 6, 2013)

Article 24 (Quorum and Adoption of Resolutions)

All resolutions of general meetings of shareholders, except as otherwise provided by the relevant laws and regulations, shall be adopted if the approval of a majority vote of the shareholders present at such meeting is obtained and such majority also represents at least one-fourth (1/4) of the total number of shares issued and outstanding. (Amended on Mar. 15, 1996)

Article 25 (Preparation of Minutes)

The proceedings of a General Meeting of Shareholders and the results thereof shall be recorded in minutes which shall bear the name and seal or signature of the chairperson and the directors present, and shall be kept at the Corporation’s head office, the district divisions (district head offices) and branches. (Amended on Mar. 15, 1996, Mar. 19, 2010)

 

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Article 25-2 (Management Disclosure)

In order to ensure management transparence and provide to the shareholders information relating to the management of the Corporation, the Corporation shall disclose information on the management of the corporation according to Article 11 of the Public Agencies Management Act.

(Newly established on Sep. 7, 2007)

CHAPTER V. OFFICERS AND EMPLOYEES

Article 26 (Number of Officers)

 

(1) The Corporation shall have not more than fifteen (15) directors. The number of standing directors including the President shall not be more than seven (7) persons and the number of non-standing directors shall be not more than eight (8) persons; provided that the total number of standing directors should be less than 50/100 of the total number of directors.

 

(2) Deleted on Sep. 7, 2007

(Amended on Mar. 20, 1999)

Article 26-2 (Appointment of Officers)

 

(1) For the appointment of the position of the President, the Director Nomination Committee pursuant to Article 28-2 makes multiple recommendations followed by Director Nomination Committee deliberations and resolution of the Public Agencies Operating Committee pursuant to Article 8 of the Public Agencies Management Act and the resolution of the Generation Meeting of shareholders, and shall be appointed by the President of the Republic of Korea as motioned by the Minister of the Ministry of Trade, Industry and Energy. (Amended on Sep. 7, 2007, Mar. 30, 2009, Nov. 6, 2013)

 

(2) The Standing Directors except for the President shall be appointed by the President following a resolution of the General Meeting of Shareholders. Provided , however, that a Standing Director who becomes a member of the Audit Committee in accordance with the provisions of Article 41-2 shall be appointed by the President of the Republic of Korea, as motioned by the Minister of the Ministry of Strategy and Finance, following the deliberation and resolution of the Public Agencies Operation Committee and the resolution of the General Meeting of Shareholders from the pool of candidates who have been recommended by the Director Nomination Committee. (Amended on Jun. 15, 2005, Sep. 7, 2007, Mar. 19, 2010)

 

(3) The non-standing director shall be selected from the experts from the private sector (provided, however, that public service personnel shall be limited to public educational officials at national or public schools who have ample expert knowledge and experience on management among the pool of candidates who have been recommended by the Director Nomination Committee, and appointed by the Minister of the Ministry of Strategy and Finance upon deliberation and resolution by the Public Agencies Operation Committee. (Amended on Jun. 15, 2005, Sep. 7, 2007, Mar. 30, 2009)

 

(4) Deleted on Sep. 7, 2007

 

(5) Deleted on Sep. 7, 2007

 

(6) The President shall not be dismissed from office unless the person who appointed the President dismissed the President pursuant to Article 22 Paragraph (1), Article 35 Paragraph (3), and Article 48 Paragraph (6) of the Public Agencies Management Act. (Newly established on Sep. 7, 2007)

 

(7) When a public officer falls under any of the following subparagraphs, the person with appointive powers or rights to recommend appointment may put a restriction on the dismissal at one’s own request. (Newly established on Nov. 6, 2013)

 

  1. When the public officer is under an investigation related to corruption

 

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  2. When the internal audit team or an external audit institution demands serious disciplinary measures as a result of an audit, or when a resolution for a serious disciplinary action on the public officer is requested by the disciplinary committee

(Newly established on Mar. 20, 1999)

Article 27 (Officers’ Term of Office)

 

(1) The President’s term of office shall be (3) years, and the directors’ terms of office shall be (2) years. (Amended on Apr. 11, 1998, Sep. 7, 2007)

 

(2) An officer’s term of office may be renewed by an increment of one (1) year pursuant to Article 28, Paragraph (2) of the Public Agencies Management Act. (Newly established on Sep. 7, 2007)

 

(3) The renewal of an officer’s term of office pursuant to Paragraph (2) above shall not require the recommendation of the Director Nomination Committee. (Newly established on Sep. 7, 2007)

 

(4) The renewal of the President’s term of office pursuant to Paragraph (2) above shall require the execution of a new contract pursuant to Article 28-3(3). Such renewal does not require the resolution of the Director Nomination Committee pursuant to Article 28-3(2). (Newly established on Sep. 7, 2007)

 

(5) An officer whose term of office has expired shall perform his duties until his successor has been appointed.

Article 28 (Duties of Officers)

 

(1) (Deleted on Sep. 7, 2007)

 

(2) The President shall represent the Corporation, supervise the affairs of the Corporation, and take the responsibility for the results of administration of the Corporation.

 

(3) In the event that the President cannot perform his duties due to an unavoidable reason, one of the Standing Directors shall act for the President in such order of priority as shall be specified in the Organization Regulations. However, if none of the Standing Directors is able to serve as the chairperson of the Board of Directors, the Senior Non-standing Director, the most senior Non-standing Director (based on the date of appointment if the Senior Non-standing Director is unable to serve) and the eldest Non-standing Director (based on age if there are more than one such most senior Non-standing Director) shall serve as the chairperson of the Board of Directors, in that order of priority. (Amended on Sep. 7, 2007)

 

(4) Directors shall deliberate on the agenda presented to the Board of Directors for discussion and participate in the voting.

 

(5) The standing directors shall assist the President to implement business of the Corporation. The title of a standing director shall be any of Executive Vice President, Vice-President or Head of Business Organization.

 

(6) The sharing of business among the standing directors shall be determined by the President. (Amended on Jun. 29, 2001)

 

(7) (Deleted on Sep. 7, 2007)

(Amended on Mar. 20, 1999)

Article 28-2 (Director Nomination Committee)

 

(1) The Corporation shall organize and manage the Director Nomination Committee in order to receive recommendation for candidates for directors and to discuss with the Presidential candidate on the Administration Agreement pursuant to Article 28-3 Paragraph (2). (Amended on Sep. 7, 2007)

 

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(2) The Director Nomination Committee shall consist of members selected by the Board of Directors totaling not less than five (5) and not more than fifteen (15) persons, and the Board of Directors shall elect less than one-half of the Director Nomination Committee. (Amended on Sep. 7, 2007)

 

(3) No officer or employee of the Corporation (except for Non-standing Directors) and any public employee (except for teachers as defined under the Public Educational Officials Act) shall be eligible to become a member of the Director Nomination Committee. (Amended on Sep. 7, 2007)

 

(4) The chairperson of the Director Nomination Committee shall be elected among its members who are Non-standing Directors by the vote of the members of the Director Nomination Committee. (Amended on Sep. 7, 2007)

 

(5) (Deleted on Sep. 7, 2007)

 

(6) The Director Nomination Committee shall act by the affirmative votes of the majority of its members. (Amended on Sep. 7, 2007)

 

(7) The Director Nomination Committee shall examine the qualification of the candidates for officers in accordance with the criteria determined by the Board of Directors while taking into account the following criteria: (Amended on Sep. 7, 2007)

 

  1. Criteria for evaluation of talent and ability as an officer; and (Amended on Sep. 7, 2007)

 

  2. Criteria for evaluation of the expert knowledge of and experience in the electric power industry.

(Newly established on Mar. 20, 1999)

Article 28-3 (Administration Agreement with President)

 

(1) In connection with the appointment of the President pursuant to Article 26-2 Paragraph (1), the Board of Directors shall prepare a proposed contract setting forth the specific management goals and incentive structure for the President during such President’s term and submit it to the Director Nomination Committee. The President cannot participate in the Board meeting where such proposed contract shall be determined. (Amended on Sep. 7, 2007)

 

(2) The Director Nomination Committee shall negotiate the terms and conditions of the proposed contract as submitted pursuant to Paragraph (1) above with the candidate for the President’s office who is recommended by the Committee, and shall report the results to the Minister of the Ministry of Trade, Industry and Energy. For purposes of such negotiation, the Director Nomination Committee may change certain terms and conditions of the contract, as necessary. (Newly established on Sep. 7, 2007, amended on Mar. 30, 2009, Nov. 6, 2013)

 

(3) The person who is appointed as the President of the Corporation shall execute the contract with the Minister of the Ministry of Trade, Industry and Energy pursuant to Paragraph (2) above. The Minister of the Ministry of Trade, Industry and Energy may negotiate with the person appointed as the President and may change the terms and conditions of the contract from the contract determined pursuant to Paragraph (1) or (2) above. (Newly established on Sep. 7, 2007, amended on Mar. 30, 2009, Nov. 6, 2013)

 

(4) The President and the Minister of the Ministry of Trade, Industry and Energy may change the terms and conditions of the contract after the execution thereof through mutual negotiation in the event of unavoidable circumstances, pursuant to Paragraph (3) above. (Newly established on Sep. 7, 2007, amended on Mar. 30, 2009, Nov. 6, 2013)

 

(5) The President may execute performance agreements with Standing Directors (other than the Standing Director who is a member of the audit committee), and may review the performance records. If the performance records are low based on the review, the President may dismiss such Standing Directors. (Amended on Sep. 7, 2007, Mar. 19, 2010)

 

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Article 28-4 (Deleted on Sep. 7, 2007)

Article 28-5 (Deleted on Sep. 7, 2007)

Article 29 (Appointment and Dismissal of Employees)

 

(1) The employees of the Corporation shall be appointed and dismissed by the President.

 

(2) The employees shall be appointed in accordance with their scores on tests, service records, and other actual proof of abilities. (Amended on Nov. 6, 2013)

 

(3) (Deleted on Nov. 11, 2016)

Article 30 (Deleted on Nov. 11, 2016)

Article 31 (Deleted on Mar. 20, 1999)

Article 32 (Restriction on Officers’ and Employees’ Holding of Concurrent Positions)

No Standing Director or employee of the Corporation shall engage in any business activities for profit other than the performance of his duties for the Corporation. The President may engage in not-for-profit activities upon obtaining approval of the Minister of the Ministry of Trade, Industry and Energy. Standing Directors and employees of the Corporation may engage in not-for-profit activities upon obtaining approval of the President. (Amended on Sep. 7, 2007, Mar. 30, 2009, Nov. 6, 2013)

Article 33 (Restriction on Power of Representation of the President)

With regard to matters in which the interest of the President conflicts with that of the Corporation, the President shall not represent the Corporation.

Article 34 (Appointment of Attorney-in-fact)

The President may appoint an attorney-in-fact from among the employees who shall be authorized to do all judicial or non-judicial acts relating to all or any part of the business of the Corporation.

Article 35 (Remuneration for Officers and Employees)

 

(1) The maximum limit of remuneration for officers shall be determined by a resolution of the General Meeting of Shareholders. (Newly inserted on Mar. 6, 2008)

 

(2) The standards and payment method for remuneration of officers and employees shall be determined by a resolution of the Board of Directors. (Amended on Sep. 7, 2007, Mar. 6, 2008)

 

(3) The standards for remuneration in Paragraph (2) with respect to the President and the Standing Directors shall be determined by the Board of Directors pursuant to the guidelines on remuneration established by the Minister of the Ministry of Strategy and Finance upon deliberation and resolution by the Operation Committee, taking into account the following. (Amended on Sep. 7, 2007, Mar. 6, 2008, amended on Mar. 30, 2009)

 

  1. President: Evaluation of the Corporation’s performance records, the terms of the contract and the level of performance under the performance contract pursuant to Article 28-3 Paragraphs (3) and (4);

 

  2. Standing Directors (other than the Standing Director who is a member of the audit committee): Performance evaluation under the performance agreement pursuant to Article 28-3 Paragraph (5); and (Amended on Mar. 19, 2010)

 

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  3. Standing Director who is a member of the audit committee: Performance evaluation pursuant to Article 36 of the Act on the Management of Public Agencies. (Newly established on Mar. 19, 2010)

 

(4) Any interested officer may not participate in the meeting of the Board of Directors which is convened to determine the remuneration of officers in Paragraphs (2) and (3). (Amended on Mar. 20, 1999, Mar. 6, 2008, Mar. 30, 2009)

Article 36 (Advisor)

 

(1) The President of the Corporation may commission an advisor.

 

(2) The advisor shall advise the President with respect to important matters relating to the business of the Corporation.

CHAPTER VI. BOARD OF DIRECTORS

Article 37 (Establishment and Organization of the Board of Directors)

 

(1) The Corporation shall establish the Board of Directors.

 

(2) The Board of Directors shall be divided into standing directors (including the President) and non-standing directors. (Amended on Apr. 11, 1998, Mar. 20, 1999)

 

(3) Deleted on Sep. 7, 2007

 

(4) The Chairperson of the Board of Directors becomes a Senior Non-standing Director pursuant to Article 37-2. However, if the Chairperson of the Board of Directors becomes unable to carry out his duties due to unavoidable reasons, the most senior Non-standing Director (based on the date of appointment if the Senior Non-standing Director is unable to serve) and the eldest Non-standing Director (based on age if there are more than one such most senior Non-standing Director) shall serve as the Chairperson of the Board of Directors, in that order of priority. (Amended on Sep. 7, 2007)

Article 37–2 (Senior Non-standing Director)

 

(1) The Corporation shall have one (1) Senior Non-standing Director.

 

(2) The Senior Non-standing Director shall be appointed by the Minister of the Ministry of Strategy and Finance upon deliberation and resolution by the Operation Committee. (Amended on Mar. 30, 2009)

 

(3) The Senior Non-standing Director may call and preside over a non-standing director’s meeting to discuss the matters for resolution by the Board of Directors meeting and other matters related to the management of the Corporation.

 

(4) The President shall assist the Senior Non-standing Director as necessary for the Senior Non-standing Director to be able to perform his duties.

(Newly established on Sep. 7, 2007)

Article 38 (Matters for Resolution by the Board of Directors) (Amended on Sep. 7, 2007)

 

(1) The Board of Directors shall deliberate, and make resolutions on the following matters;

 

  1. Setting objectives for the administration, budget, financial plan and operating program;

 

  2. Use of emergency funds, and budget carry-over;

 

  3. Settlement of accounts;

 

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  4. Acquisition and disposal of basic property;

 

  5. Raising of long-term loans, issuing of bonds and planning for the redemption thereof;

 

  6. Electric rates;

 

  7. Disposition of surplus funds;

 

  8. Investment of contribution to other corporations; (Amended on Sep. 7, 2007)

 

  9. Amendment of the Articles of Incorporation;

 

  10. Establishment and revision of the regulations of the Corporation;

 

  11. Guarantee of the debt of other corporations; (Amended on Sep. 7, 2007)

 

  12. Remuneration for Directors (Amended on Sep. 7, 2007)

 

  13. Other matters deemed necessary by the President for which the Board of Director’s deliberation and resolution have been requested; and, (Amended on Sep. 7, 2007)

 

  14. Any other matters deemed necessary by the Board of Directors.

 

(2) With respect to matters for deliberation and resolution stated in Paragraph (1) above, the scope and the standard of deliberation and resolution by the Board of Directors shall be determined by the Regulation on the Board of Directors.

(Amended on Mar. 20, 1999)

Article 38-2 (Subjects to be Reported to the Board of Directors)

 

(1) The President shall report the following to the Board of Directors:

 

  1. Matters noted by the audit by the National Assembly, accounting audit pursuant to Article 43-1 of the Public Agencies Management Act, audit by the Board of Audit and Inspection pursuant to Article 52 of the Public Agencies Management Act, as well as planned corrective measures and the performance thereof;

 

  2. Outcome of the Corporation’s collective bargaining and estimate of the required budget (only to the extent that a collective bargaining agreement has been executed); and

 

  3. Any other matters which the Board of Directors requires that the President to report.

(Newly established on Sep. 7, 2007)

Article 39 (Proposing Persons)

Matters required to be determined by a resolution of the Board of Directors shall be proposed by the President or any other director. (Amended on Apr. 11, 1998)

Article 40 (Meeting of the Board of Directors)

The meeting of the Board of Directors shall be called by the Chairperson of the Board of Directors or upon the request of more than one third of the Directors, and the Chairman shall preside over such meeting. (Amended on Apr. 11, 1998, Mar. 20, 1999, Sep. 7, 2007)

Article 41 (Quorum of Opening Meeting and Voting)

 

(1) Resolutions of the Board of Directors shall be adopted in the presence of a majority of the directors in office and by the affirmative vote of a majority of the directors in office.

 

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(2) In case any directors are restricted from participating in the resolution of the Board of Directors pursuant to the applicable laws and regulations or these Articles of Incorporation, the number of such directors shall not be included to the number of directors in office described in Paragraph (1) above.

 

(3) No President or Director who has a special interest in a matter for the resolution by the Board of Directors may vote on such matter. (Amended on Sep. 7, 2007)

 

(4) The Board of Directors may create a committee in the event that a need for such committee is recognized. The Board of Directors by resolution may decide upon the details pertaining to the composition, authority and management of such committee unless otherwise provided by law. (Amended on Sep. 7, 2007)

 

(5) In regard to the Board of Directors’ communications methods, Article 391-2 of the Commercial Code shall apply as to the resolutions regarding the means of communication for the Board of Directors. (Amended on Sep. 7, 2007)

(Amended on Mar. 20, 1999)

Article 41-2 (Composition of the Audit Committee)

 

(1) For purposes of the committee pursuant to Article 41-4, the Corporation shall establish an Audit Committee in lieu of a Board of Auditors.

 

(2) The Audit Committee shall consist of three (3) Directors, provided that at least two (2) members of the Audit Committee shall be Non-standing Directors and at least one (1) member of the Audit Committee shall be an accounting or financial expert pursuant to the Enforcement Decree of the FSCMA. (Amended on Mar. 30, 2009, Mar. 21, 2011)

 

(3) The Audit Committee shall by resolution elect one of its members who is a Non-standing Director as the Committee Chairperson, and the Chairperson shall represent the Audit Committee.

(Newly established on Sep. 7, 2007)

Article 41-3 (Responsibilities of the Audit Committee)

 

(1) The Audit Committee shall conduct an audit on the Corporation’s business and accounting, and shall report the results of such audit to the Board of Directors.

 

(2) The Audit Committee may request management reporting from affiliated corporations, as necessary to carry out its duties. If the affiliated corporations do not promptly report or if there is a need to verify such report, the Audit Committee may inspect the business and assets of the affiliated corporations.

 

(3) The Audit Committee shall approve the selection of outside auditors.

 

(4) The Audit Committee shall represent the Corporation in cases of a conflict of interests between the Corporation and the President.

 

(5) In addition to the matters set forth in Paragraphs (1) through (4) above, the Audit Committee shall carry out such matters as delegated by the Board of Directors.

(Newly established on Sep. 7, 2007)

Article 42 (Deleted on Sep. 7, 2007)

Article 43 (Urgent Enforcement)

 

(1) In the event that there is not enough time or it is otherwise impossible to convene a meeting of the Board of Directors, the President may act on such urgent affairs first and then place such urgent affairs before the Board of Directors for approval in the shortest time possible. (Amended on Apr. 11, 1998)

 

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(2) In the event that the Board of Directors does not approve a matter requiring urgent enforcement as provided for in Paragraph (1) above, the measure taken shall become void from such time.

Article 44 (Minutes of the Board of Directors)

The course of the proceedings of the meeting of the Board of Directors and the results thereof shall be recorded in minutes, which shall bear the names and seals or signatures of the chairman and the directors present at such meeting and shall be kept at the Corporation’s head office. (Amended on Mar. 15, 1996)

Article 45 (Request for Audit)

More than two (2) Non-standing Directors may, if deemed necessary, request the Audit Committee to conduct an audit on specific issues related to the management of the Corporation. Absent a special reason, the Audit Committee shall comply with the request. (Amended on Sep. 7, 2007)

CHAPTER VII. ACCOUNTING

Article 46 (Fiscal Year)

The fiscal year of the Corporation shall be the same as that of the Government.

Article 47 (Budget and Accounting)

The budgeting and accounting of the Corporation shall be governed by the provisions of the Public Agencies Management Act. (Amended on Sep. 7, 2007)

Article 48 (Disposition of Profit)

If the Corporation shows a profit at the end of any fiscal year, the profit from such fiscal year shall be disposed of in the following order of priority, pursuant to the resolution of the General Meeting of Shareholders;

 

  1. Covering any accumulated deficit;

 

  2. Setting aside, as legal reserve, two-tenths or more of the profit until the accumulated reserve reaches one-half of the capital of the Corporation;

 

  3. Paying dividends to shareholders;

 

  4. Setting aside reserve for business expansion;

 

  5. Setting aside reserve for dividends equalization; and (Newly Established on Mar. 20, 1999)

 

  6. Carrying forward as surplus profit.

Article 49 (Accounting)

All matters of accounting shall be confirmed through the resolution of the General Meeting of Shareholders.

Article 50 (Submission, Approval, Publication and Keeping of Financial Statements)

 

(1) The President of the Corporation shall prepare and submit to the Audit Committee, no later than six (6) weeks before the date set for an ordinary General Meeting of Shareholders, the following documents and supplementary schedules thereto and a business report, following approval thereof by the Board of Directors: (Amended on Sep. 7, 2007)

 

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  1. A balance sheet (statement of financial position); (Amended on Apr. 16, 2012)

 

  2. A statement of profit and loss (statement of comprehensive income); (Amended on Apr. 16, 2012)

 

  3. Other documents specifying financial position of the Corporation and business performance as determined by the relevant laws; and (Amended on Apr. 16, 2012)

 

  4. Consolidated financial statement. (Newly established on Apr. 16, 2012)

 

(2) The Audit Committee shall submit an audit report to the President at least one (1) week prior to the ordinary General Meeting of Shareholders. (Amended on Apr. 11, 1998, Sep. 7, 2007)

 

(3) From one (1) week before the day set for the ordinary General Meeting of Shareholders, the Corporation shall keep the documents set forth in Item 1 through 3 of Paragraph (1) above together with the business report and audit report at the head office for five (5) years and shall keep copies of such documents and reports at the district divisions (district head offices) and branches for three (3) years. (Amended on Mar. 19, 2010)

 

(4) The documents set forth in Item 1 through 3 of Paragraph (1) above shall be submitted to the ordinary General Meeting of Shareholders for its approval, and the contents of the business report shall be reported.

 

(5) The Corporation shall, without delay, give public notice of the balance sheet when the documents set forth in Item 1 through 3 of Paragraph (1) above are approved by the General Meeting of Shareholders.

Article 51 (Dividends)

 

(1) Any rights to dividends shall be extinguished by prescription unless exercised with five (5) years.

 

(2) Dividends to which rights has extinguished pursuant to Paragraph (1) above shall revert to the Corporation.

 

(3) The Corporation may pay dividends to shareholders other than the Government preferentially.

 

(4) The Corporation shall make efforts to treat the members of ESOA favorably in payment of dividends.

Article 52 (Deleted on Aug. 29, 1998)

ADDENDA

Article 1 (Implementation Date)

This Articles of Incorporation shall be implemented on and after the date of incorporation.

Article 2 (Succession of Legal Rights and Obligations)

 

(1) The Corporation shall be the general successor of Korea Electric Company in terms of its legal rights and obligations.

 

(2) Based on the above mentioned, the asset to be passed onto the Corporation shall be priced by the book value of the day before the establishment date of the Corporation, while the asset shall be considered as the Government investment capital of the Corporation.

Article 3 (Interim Measures on the Extinctive Prescription of Bonds)

The extinctive prescription of the principal and interest of the bonds issued under the Korea Electric Power Company regulations shall follow previous regulations.

 

16


Article 4 (Employee Status)

The existing employees of the Korea Electric Power Company at the time of incorporation of the Corporation shall be deemed as employees of the Corporation.

Article 5 (Company Regulations)

 

(1) The company regulations of the Korea Electric Power Company shall be applied to the Corporation after its incorporation, and the wording of ‘Korea Electric Power Company’ shall be changed to ‘Korea Electric Power Corporation’.

 

(2) Company regulations of the paragraph (1) in conflict with the laws and regulations shall be void.

 

(3) Company regulations of the paragraph (1) shall be consolidated and updated within 3 months of the incorporation.

Article 6 (Details on the Establishment Committee)

 

(1) Addresses and names of the establishment committee are as follows.

 

(2) Following committee members sign and pass this Articles of Incorporation under the Incorporation Law Addenda Article 9.

Establishment Committee:

Address: 168-43 Sungbuk-dong, Sungbuk-gu, Seoul

Name: Choi, Dong Kyu

Address: 5-10 Hyehwa-dong, Chongro-gu, Seoul

Name: Lee, Bong Suh

Address: 7-1305 Miju APT, 2Chungryang-dong, Dongdaemun-gu, Seoul

Name: Kim, Tae Seung

Address: 5/4 86-36 Sangsu-dong, Mapo-gu, Seoul

Name: Lee, Dong Ho

Address: 1-1005 Samik APT, Ichon-dong, Yongsan-gu, Seoul

Name: Yoon, Seung Sik

Address: 52-404 Walkerhill APT, 21 San, Gwangjang-dong, Sungdong-gu, Seoul

Name: Sung, Nak Jung

ADDENDA (1984.5.29)

Article 1 (Implementation Date)

This Articles of Incorporation shall be implemented on and after the date of incorporation.

Article 2 (Interim Means on Tenure of Executive Officers)

In case the Corporate Chairman or Corporation Supervisor is reelected, their tenures shall be calculated with previous tenures under previous regulations included.

Article 3 (Interim Means on Tenure of Executive Members)

In case the Executive Members are reappointed under the Government Investment Company Act Addenda Article 4-1 as Executive Members under Article 12, their tenures shall be calculated with previous tenures under previous regulations included.

 

17


ADDENDA (1984.12.13)

The Articles of Incorporation shall be implemented on and after the date of June 1, 1984.

ADDENDA (1985.8.1)

The Articles of Incorporation shall be implemented on and after the date of promulgation.

ADDENDA

The Articles of Incorporation shall be implemented on and after the date of December 3, 1986.

ADDENDA

The Articles of Incorporation shall be implemented on and after the date of May 24, 1989.

ADDENDA

The Articles of Incorporation shall be implemented on and after the date of June 23, 1989.

ADDENDA

The Articles of Incorporation shall be implemented on and after the date of March 18, 1991.

ADDENDA

The Articles of Incorporation shall be implemented on and after the date of November 21, 1992.

ADDENDA

The Articles of Incorporation shall be implemented on and after the date of March 15, 1996; provided that the provisions of Articles 24, 25, 44 shall be applicable on and after the date of October 1, 1996.

ADDENDA

The Articles of Incorporation shall be implemented on and after the date of March 19, 1997.

ADDENDA

The Articles of Incorporation shall be implemented on and after the date of April 11, 1998.

ADDENDA

The Articles of Incorporation shall be implemented on and after the date of August 29, 1998.

 

18


ADDENDA (1999.3.20)

 

(1) (Enforcement Date) The Articles of Incorporation shall be implemented on and after the date of promulgation; provided that the provisions of Articles 37, 38 and 40 shall be applicable to the date of first Board of Directors’ meeting after the appointment of new member(s).

 

(2) (Special Exception to Existing Executive Officers) The executive officers governed by the former Articles of Incorporation shall be considered as employees of the Corporation.

ADDENDA (2001.6.29)

The Articles of Incorporation shall be implemented on and after the date of promulgation.

ADDENDA (2003.8.12)

The Articles of Incorporation shall be implemented on and after the date of promulgation.

ADDENDA (2005.6.15)

 

(1) (Enforcement Date) These Articles of Incorporation shall become effective on the date of promulgation.

 

(2) (Transitional Measures concerning Auditor) The Auditor in office as of the effectiveness of these articles of incorporation, appointed by the articles of incorporation which was in effect immediately prior to these articles of corporation, shall be deemed as standing auditor appointed by these articles of incorporation.

ADDENDA (2007. 9 .7)

 

(1) (Effective) These Articles of Incorporation is effective from the date of proclamation.

 

(2) (Special Application for Officers’ Terms of Office) Notwithstanding Article 27, the Directors who were in office when the Corporation was designated as a Public Institution pursuant to Article 6 of the Public Agencies Management Act shall be deemed as appointed under these Articles of Incorporation and the above-mentioned Act, and their terms of office shall be the remainder of the terms in effect at the time of the commencement of such terms pursuant to the law and the articles of incorporation then in effect.

 

(3) (Special Application for the President’s Employment Contract) Notwithstanding Article 28-3, the contract between the Corporation and the President relating to the management and performance of the President who was in office at the time that the Corporation was designated as a Public Institution pursuant to Article 6 of the Public Agencies Management Act shall be deemed as a contract that has been executed in accordance to these Articles of Incorporation,

 

(4) (Special Application for the Audit Committee) Notwithstanding Article 41-2, the rules relating to the Audit Committee shall take effect upon the expiration of the term of the auditor in employment at the time when the Corporation was designated as a Public Institution pursuant to Article 6 of the Public Agencies Management Act, and until then the corresponding rules that were previously in effect shall be governing.

ADDENDA (2008.3.6)

The Articles of Incorporation shall be implemented on and after the date of promulgation.

 

19


ADDENDA (2009.3.30)

The Articles of Incorporation shall be implemented on and after the date of promulgation.

ADDENDA (2010.3.19)

The Articles of Incorporation shall be implemented on and after the date of promulgation. Provided that the provisions of Article 5 and Article 14-2 shall be implemented on and after May 29, 2010.

ADDENDA (2011.3.21)

The Articles of Incorporation shall be implemented on and after the date of promulgation.

ADDENDA (2012.4.16)

The Articles of Incorporation shall be implemented on and after the date of April 16, 2012.

ADDENDA (2013.11.6)

The Articles of Incorporation shall be implemented on and after the date of November 6, 2013.

ADDENDA (2014.11.20)

The Articles of Incorporation shall be implemented on and after the date of November 20, 2014.

Addenda (2016.10.24)

The Articles of Incorporation shall be implemented on and after the date of November 11, 2016.

 

20

EXHIBIT 8.1

LIST OF SUBSIDIARIES

 

    

Consolidated subsidiaries

  

Jurisdiction of Incorporation

1.    Korea Hydro & Nuclear Power Co., Ltd.    Korea
2.    Korea South-East Power Co., Ltd.    Korea
3.    Korea Midland Power Co., Ltd.    Korea
4.    Korea Western Power Co., Ltd.    Korea
5.    Korea Southern Power Co., Ltd.    Korea
6.    Korea East-West Power Co., Ltd.    Korea
7.    KEPCO Engineering & Construction Company, Inc.    Korea
8.    KEPCO Plant Service & Engineering Co., Ltd.    Korea
9.    KEPCO Nuclear Fuel Co., Ltd.    Korea
10.    KEPCO KDN Co., Ltd.    Korea
11.    Garolim Tidal Power Plant Co., Ltd.    Korea
12.    KEPCO International HongKong Ltd.    Hong Kong
13.    KEPCO International Philippines Inc.    Philippines
14.    KEPCO Gansu International Ltd.    Hong Kong
15.    KEPCO Philippines Holdings Inc.    Philippines
16.    KEPCO Philippines Corporation    Philippines
17.    KEPCO Ilijan Corporation    Philippines
18.    KEPCO Lebanon SARL    Lebanon
19.    KEPCO Neimenggu International Ltd.    Hong Kong
20.    KEPCO Shanxi International Ltd.    Hong Kong
21.    KOMIPO Global Pte Ltd.    Singapore
22.    KEPCO Canada Energy Ltd.    Canada
23.    KEPCO Netherlands B.V.    Netherlands
24.    KOREA Imouraren Uranium Investment Corp.    France
25.    KEPCO Australia Pty., Ltd.    Australia
26.    KOSEP Australia Pty., Ltd.    Australia
27.    KOMIPO Australia Pty., Ltd.    Australia
28.    KOWEPO Australia Pty., Ltd.    Australia
29.    KOSPO Australia Pty., Ltd.    Australia
30.    KEPCO Middle East Holding Company    Bahrain
31.    Qatrana Electric Power Company    Jordan
32.    KHNP Canada Energy, Ltd.    Canada
33.    KEPCO Bylong Australia Pty., Ltd.    Australia
34.    Korea Waterbury Uranium Limited Partnership    Canada
35.    Korea Electric Power Nigeria Ltd.    Nigeria
36.    KEPCO Holdings de Mexico    Mexico
37.    KST Electric Power Company    Mexico
38.    KEPCO Energy Service Company    Mexico
39.    KEPCO Netherlands S3 B.V.    Netherlands
40.    PT. KOMIPO Pembangkitan Jawa Bali    Indonesia
41.    PT. Cirebon Power Service    Indonesia
42.    KOWEPO International Corporation    Philippines
43.    KOSPO Jordan LLC    Jordan
44.    EWP Philippines Corporation    Philippines
45.    EWP America Inc.    USA
46.    EWP Renewable Co.    USA
47.    DG Fairhaven Power, LLC    USA
48.    DG Whitefield, LLC    USA
49.    Springfield Power, LLC    USA


    

Consolidated subsidiaries

  

Jurisdiction of Incorporation

50.    KNF Canada Energy Limited    Canada
51.    PT KEPCO Resource Indonesia    Indonesia
52.    EWP Barbados 1 SRL    Barbados
53.    California Power Holdings, LLC    USA
54.    Gyeonggi Green Energy Co., Ltd.    Korea
55.    PT. Tanggamus Electric Power    Indonesia
56.    Gyeongju Wind Power Co., Ltd.    Korea
57.    KOMIPO America Inc.    USA
58.    EWPRC Biomass Holdings, LLC    USA
59.    KOSEP USA, INC.    USA
60.    PT. EWP Indonesia    Indonesia
61.    KEPCO Netherlands J3 B.V.    Netherlands
62.    Korea Offshore Wind Power Co., Ltd.    Korea
63    Global One Pioneer B.V.    Netherlands
64    Global Energy Pioneer B.V.    Netherlands
65.    Mira Power Limited    Pakistan
66.    KOSEP Material Co., Ltd.    Korea
67.    Commerce and Industry Energy Co., Ltd.    Korea
68.    KEPCO Singapore Holdings Pte., Ltd.    Singapore
69.    KOWEPO India Private Limited    India
70.    KEPCO KPS Philippines Corp.    Philippines
71.    KOSPO Chile SpA    Chile
72.    PT. KOWEPO Sumsel Operation And Maintenance Services    Indonesia
73.    HeeMang Sunlight Power Co., Ltd.    Korea
74.    Fujeij Wind Power Company    Jordan
75.    KOSPO Youngnam Power Co., Ltd.    Korea
76.    Global One Carbon Private Equity Investment Trust 2    Korea
77.    Chitose Solar Power Plant LLC    Japan
78.    KEPCO Energy Solution Co. Ltd.    Korea
79.    Solar School Plant Co., Ltd.    Korea
80.    KOSPO Power Services Limitada    Chile
81.    Energy New Industry Specialized Investment Private Investment Trust    Korea
82.    KOEN Bylong Pty., Ltd.    Australia
83.    KOMIPO Bylong Pty., Ltd.    Australia
84.    KOWEPO Bylong Pty., Ltd.    Australia
85.    KOSPO Bylong Pty., Ltd.    Australia
86.    EWP Bylong Pty., Ltd.    Australia
87.    KOWEPO Lao International    Laos

All of the foregoing entities do business under their respective names set forth above.

EXHIBIT 12.1

CERTIFICATIONS

I, Cho, Hwan-Eik, certify that:

 

1. I have reviewed this annual report on Form 20-F of Korea Electric Power Corporation (the “Company”);

 

2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this annual report;

 

4. The Company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have:

 

  (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

 

  (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

  (c) Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this annual report based on such evaluation; and

 

  (d) Disclosed in this annual report any change in the Company’s internal control over financial reporting that occurred during the period covered by the Annual Report that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

5. The Company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and the audit committee of the Company’s board of directors (or persons performing the equivalent functions):

 

  (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and

 

  (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting.

Date: April 28, 2017

 

By:  

/s/     Cho, Hwan-Eik       

Name:   Cho, Hwan-Eik
Title:   President and Chief Executive Officer

EXHIBIT 12.2

CERTIFICATIONS

I, Hyun, Sang-Kwon, certify that:

 

1. I have reviewed this annual report on Form 20-F of Korea Electric Power Corporation (the “Company”);

 

2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this annual report;

 

4. The Company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have:

 

  (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

 

  (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

  (c) Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this annual report based on such evaluation; and

 

  (d) Disclosed in this annual report any change in the Company’s internal control over financial reporting that occurred during the period covered by the Annual Report that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

5. The Company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and the audit committee of the Company’s board of directors (or persons performing the equivalent functions):

 

  (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and

 

  (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting.

Date: April 28, 2017

 

By:  

/s/     Hyun, Sang-Kwon       

Name:   Hyun, Sang-Kwon
Title:  

Executive Vice President and

Chief Financial Officer

EXHIBIT 13.1

CERTIFICATION OF PERIODIC FINANCIAL REPORT

PURSUANT TO 18 U.S.C. SECTION 1350

In connection with the Annual Report of Korea Electric Power Corporation (the “Company”) on Form 20-F for the fiscal year ended December 31, 2016 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Cho, Hwan-Eik, President and Chief Executive Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge, that:

 

  1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

  2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: April 28, 2017

 

By:  

/s/    Cho, Hwan-Eik

Name:

  Cho, Hwan-Eik
Title:   President and Chief Executive Officer

EXHIBIT 13.2

CERTIFICATION OF PERIODIC FINANCIAL REPORT

PURSUANT TO 18 U.S.C. SECTION 1350

In connection with the Annual Report of Korea Electric Power Corporation (the “Company”) on Form 20-F for the fiscal year ended December 31, 2016 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Hyun, Sang-Kwon, Executive Vice President & Chief Financial Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge, that:

 

  1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

  2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: April 28, 2017

 

By:  

/s/    Hyun,  Sang-Kwon

Name:   Hyun, Sang-Kwon
Title:  

Executive Vice President and

Chief Financial Officer

Exhibit 15.2

ENFORCEMENT DECREE OF THE KOREA ELECTRIC POWER

CORPORATION ACT (THE “KEPCO ACT”)

[Full text of the Presidential Decree No. 11971 was amended as of September 27, 1986]

Amended on May 24, 1989 : Presidential Decree No. 12711

Amended on Mar 31, 1990 : Presidential Decree No. 12964

Amended on July 1, 1992 : Presidential Decree No. 13638

Amended on Mar 6, 1993 : Presidential Decree No. 13870

Amended on July 1, 1995 : Presidential Decree No. 14701

Amended on July 6, 1995 : Presidential Decree No. 14719

Amended on April 27, 1996 : Presidential Decree No. 14988

Amended on Feb 22, 1997 : Presidential Decree No. 15282

Amended on Dec 31, 1998 : Presidential Decree No. 15959

Amended on May 13, 1999 : Presidential Decree No. 16308

Amended on Sep 4, 2006 : Presidential Decree No. 19671

Amended on Oct 27, 2006 : Presidential Decree No. 19719

Amended on Mar 16, 2007 : Presidential Decree No. 19929

Amended on Feb 29, 2008 : Presidential Decree No. 20678

Amended on Apr 21, 2009 : Presidential Decree No. 21441

Amended on Apr 30, 2009 : Presidential Decree No. 21461

Amended on Apr 13, 2010 : Presidential Decree No. 22443

Amended on Oct 13, 2010 : Presidential Decree No. 22443

Amended on Mar 23, 2013 : Presidential Decree No. 24442

Amended on Aug 31, 2016 : Presidential Decree No. 27472

Article 1 (Purpose)

The purpose of this Decree is to regulate matters entrusted by the KEPCO Act (the “Act”) and matters necessary for enforcement thereof.

Article 2 (Registration of Establishment)

The following matters are subjects of registration of establishment for Korea Electric Power Corporation (the “Corporation”) under Paragraph 2 of Article 7 of the KEPCO Act:

 

  1. Purpose of establishment;

 

  2. Name;

 

  3. Locations of head office, subsidiaries and branches;

 

  4. Total number of shares to be issued by the Corporation;

 

  5. Par value of share;

 

  6. Total number of shares to be issued initially by the Corporation;

 

  7. Names and addresses of officers; and

 

  8. Method of public notices.

Article 3 (Registration of Establishment of Branches, etc.)

 

(1) If the Corporation establishes a subsidiary or a branch (collectively, the “branches”), registration thereof shall be made as follows:

 

  1. At the location of the head office: the name and location of the new branch shall be registered within two weeks;

 

1


  2. At the location of the new branch: matters specified in each item of Article 2 shall be registered within three weeks;

 

  3. At the location of an existing branch: the name and location of the new branch shall be registered within three weeks.

 

(2) If a new branch is established in the same district as the head office or branch as being subject to the same registry office, the name and location of the new branch office shall be registered within three weeks.

Article 4 (Registration of Relocation)

 

(1) If the Corporation relocates the head office or a branch to a district subject to a different registry office, such relocation shall be registered at the former district within two weeks, and matters of each item set forth in Article 2 shall be registered at the new district within three weeks.

 

(2) If the Corporation relocates the head office or a branch with the district subject to the same registry office, such relocation shall be registered within two weeks.

Article 5 (Registration of Alteration)

If any item specified in Article 2 is altered, such alteration shall be registered within two weeks in the district of the head office and three weeks in the district of the branch.

Article 6 (Registration of Appointment of Agent, etc.)

 

(1) If the President of the Corporation (the “President”) appoints an agent in accordance with Article 11 of the Act, each of the following items shall be registered within two weeks in the district of the head office or of the branch where the agent is located. If matters so registered are altered, the same requirement shall apply.

 

  1. Name and address of the agent;

 

  2. Name and district of the head office or the branch where the agent is located;

 

  3. Any restrictions on the authority of the agent;

 

(2) If the agent specified in Paragraph (1) above is terminated, such termination shall be registered at the district of the head office or the branch where the agent was located.

Article 7 (Attachments to the Registration Application)

The Corporation shall attach documents as set out below classifications to its registration application:

 

  1. For registration of establishment pursuant to Article 2: articles of incorporation, and documents evidencing the equity capital and qualifications of officers;

 

  2. For registration of establishment of a branch pursuant to Article 3: documents evidencing the establishment of the branch;

 

  3. For registration of relocation pursuant to Article 4, documents evidencing the relocation of the head office or the branch;

 

  4. For registration of alteration pursuant to Article 5, documents evidencing such alteration;

 

  5. For registration of appointment, change or termination of an agent pursuant to Article 6: documents evidencing that such appointment, change or termination of the agent was made in accordance with Article 11 of the Act, and if the authority of the agent is restricted pursuant to Article 6, Paragraph (1), Item (3) hereof, documents evidencing such restriction.

Article 8 (Calculation of the Registration Period)

If an approval or consent of the Minister of the Ministry of Trade, Industry and Energy is required for any matters to be registered by the Corporation, the registration period shall be deemed to have commenced from the date when documents regarding such approval or consent are delivered to the applicant.

 

2


Article 9 (Research and Development of Technology)

 

(1) The President shall establish a business plan for the research and development of technology as set forth in Article 13, Paragraph (1), Item (3) of the Act, by obtaining the resolution of the board of directors, and submit such plan to the Minister of the Ministry of Trade, Industry and Energy prior to the commencement of the following year. The same requirements shall apply in the case of any alteration of such business plan.

 

(2) The business plan specified in Paragraph (1) shall include each of the following items:

 

  1. Matters regarding the research and development of technology;

 

  2. Plan for the promotion and support of institutions that research electric power;

 

  3. Matters regarding investments and contributions; and

 

  4. Other matters that are deemed necessary for research and development of technology.

 

(3) The following institutions (the “Relevant Institutions”) may receive contributions from the Corporation for performing research and development of technology pursuant to Article 2, Paragraph 1:

 

  1. Energy and Economy Institute;

 

  2. Korea Advanced Institute of Science & Technology;

 

  3. Korea Atomic Energy Research Institute;

 

  4. Korea Institute of Energy and Resources;

 

  5. Electronics and Telecommunications Research Institute;

 

  6. Korea Electric Technology Research Institute;

 

  7. Korea Research Institute of Chemical Technology;

 

  8. Korea Machinery Research Institute;

 

  9. Korea Standards Research Institute;

 

  10. Korea Electrical Engineering & Science Research Institute;

 

  11. Korea Institute of Energy Technology Evaluation and Planning pursuant to Article 13 of the Energy Act;

 

  12. Korea Institute of Industrial Technology;

 

  13. Korean Electrical Manufacturers Association pursuant to Article 38 of Industrial Development Act;

 

  14. Korea Institute for Industrial Economics and Trade;

 

  15. Korea Development Institute;

 

  16. Korea Institute for Advancement of Technology pursuant to Article 38 of the Industrial Technology Innovation Promotion Act and Korea Evaluation Institute of Industrial Technology pursuant to Article 39 thereof;

 

  17. Korea Testing Laboratory; and

 

  18. Korea Institute of Radiological & Medical Sciences.

Article 9-2 (Presentation of Business Plan, etc.)

 

(1) Any Relevant Institution specified in Paragraph (3) of Article 9 which seeks to receive a contribution shall submit to the President a business plan and budget in a manner determined by the President, at least four months prior to the commencement of each fiscal year. The same requirements shall apply to amendment of the business plan or budget.

 

(2) If the business plan or budget specified in Paragraph (1) is deemed to be unreasonable, the President may request adjustment thereof.

 

3


(3) Relevant Institutions shall submit to the President a quarterly report indicating the status of the execution of the business plan and the budget within 20 days following the end of the relevant quarter.

 

(4) The Corporation shall determine the details of research and development of technology other than the matters set forth in Paragraphs (1) through (3) above.

Article 9-3 (Requirements for Business Activities Relating to the Use of Owned Real Property)

The phrase “requirements made by Presidential Decree” referred to in Article 30, Paragraph (1), Item 7 of the Act means the following:

 

(1) There must be a need to develop the owned real property due to external factors such as the relocation, integration, indoor or underground installment, or aging of the substations or offices of the Corporation.

 

(2) There must be a need to develop the owned real property in order to comply with directions for local development for reasons of being included in a city development plan and for reasons of adjacency thereto.

Article 9-4 (Approval of Business Activities Relating to the Use of Owned Real Property)

 

(1) If the Corporation desires to obtain approval from the Minister of the Ministry of Trade, Industry and Energy as specified in Article 13, Paragraph (3) of the Act, the Corporation shall prepare and submit to the Minister of the Ministry of Trade, Industry and Energy a business plan including the following matters:

 

  1. Purpose of the business activity;

 

  2. Location and area of the business activity;

 

  3. Duration of the business activity;

 

  4. Methods of the business activity;

 

  5. Costs of the business activity and related funding plans;

 

  6. Documents relating to the feasibility of the business activity; and

 

  7. Other matters necessary for the implementation of the business activity

 

(2) The Minister of the Ministry of Trade, Industry and Energy may approve the application under Paragraph (1) above if such application:

 

  1. meets any of the requirements set forth in Article 9-3; and

 

  2. is in accordance with the method of the business activity under Article 13, Paragraph (4) of the Act.

 

(3) The Minister of the Ministry of Trade, Industry and Energy may obtain advice from related institutions and real property development experts before it approves the business activity.

 

(4) The Minister of the Ministry of Trade, Industry and Energy shall notify the Corporation of the Ministry’s decision on the approval of the business activity within 30 days of its receipt of the business plan under Paragraph (1) above; provided, that if there is an unavoidable reason such as a large scale of the business activity, the Minister of the Ministry of Trade, Industry and Energy may extend such period for up to 20 days.

Article 9-5 (Direct Implementation of Business Activity Using Owned Premises)

The phrase “event defined by Presidential Decree” in the proviso of Article 13, Paragraph (4) of the Act refers to an event where both of the following requirements are satisfied:

 

  1. A business activity in relation to the use of owned real property which satisfies any of the requirements in Article 9-3 shall be subject to public bidding; and

 

  2. No person that qualifies for entrustment or a trustee as set forth in the main text of Paragraph (4) of Article 13 of the Act participates in the public bidding specified in Item 1 above.

 

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Article 9-6 (Reporting the Use of Proceeds from the Business Activities in Relation to the Use of Owned Real Property)

The Corporation shall submit to the Minister of the Ministry of Trade, Industry and Energy records relating to the use of proceeds from the business activities in relation to the use of owned real property specified in Article 14, Paragraph (2) of the Act by March 31 of the following year.

Article 10 (Form of Debentures)

Debentures issued under Article 16 of the Act shall be in bearer form; provided, however, that they may be in registered form upon the request of the subscribers or the holders.

Article 11 (Method of Issuance of Bonds)

 

(1) The Corporation shall issue debentures through placement, firm commitment underwriting or sale.

 

(2) If the debentures are issued by way of sale as specified in Paragraph (1) above, the selling period and the particulars prescribed in Items 1 through 6 of Paragraph (2) of Article 12 shall be publicly notified in advance.

Article 12 (Subscription of Debentures)

 

(1) Any person who intends to subscribe for the debentures shall state the number of and subscription purchase for the debentures being subscribed and the subscriber’s address on two application forms and affix his/her name and seal thereunto. If the debentures are being offered in the form of bidding based on the minimum subscription price, the subscriber shall state on the application form the bid price.

 

(2) The application form shall contain the following items:

 

  1. Name of the Corporation;

 

  2. Aggregate amount of the debentures;

 

  3. Denomination and par value;

 

  4. Interest rate;

 

  5. Method and time of redemption of bonds and method of interest payment;

 

  6. Issue price (or if applicable, minimum issue price);

 

  7. Aggregate outstanding balance of debentures, if any; and

 

  8. Name and address of the placement agent, if any.

Article 13 (Method of Underwriting of Whole Amount of Bonds)

Article 12 shall not apply to debentures that are offered on a firm commitment underwritten basis pursuant to a contract or the portion of debentures which are subscribed by the placement agent.

Article 14 (Total Issue Amount)

The Corporation may state on the debenture subscription form that the debentures shall be issued even if the total amount of actual subscription is less than the total issue amount specified in the form. In this case, the total amount of actual subscription shall be deemed to be the total issue amount.

Article 15 (Payment of the Subscription Amount)

 

(1) When subscription for the debentures has been completed, the Corporation shall cause the subscribers to pay in full the subscription price immediately following the completion of subscription.

 

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(2) The placement agent may take action specified in Paragraph (1) above on behalf of the Corporation.

 

(3) Debentures that are being issued by way of an offering may not be issued until full payment of the total subscription price as equal to the issue amount.

Article 16 (Particulars to be Specified in the Debenture Certificate)

Each debenture certificate shall contain the following particulars and shall be signed and affixed with seal by the President:

 

  1. Name of the Corporation;

 

  2. Particulars set forth in Items 2 through 5 of Paragraph (2) of Article 12 (but, in case of debentures being issued by way of a sale, the particulars prescribed in Item 2 of Paragraph (2) of Article 12 shall be omitted);

 

  3. Serial number; and

 

  4. Issue date of the debenture.

Article 17 (Register of Debentures)

 

(1) The Corporation shall keep a register of debentures at the head office and shall record the following particulars:

 

  1. Number of denominations and serial number;

 

  2. Issue date of the debenture; and

 

  3. Particulars stated in Items 2 through 5 and 8 of Paragraph (2) of Article 12.

 

(2) If the debenture is in registered form, the following particulars shall be entered in the register in addition to the particulars mentioned in Paragraph (1) above:

 

  1. Name and address of each debenture holders; and

 

  2. Date of acquisition of each debenture certificate.

 

(3) Any owner or holder of the debenture may request to inspect the register at any time during the business hours of the Corporation.

Article 18 (Loss or mutilation of Interest Coupon)

 

(1) In the case of debentures issued in bearer form with interest coupons, if at the time of the redemption of the debenture any interest coupon is lost or mutilated, the amount corresponding to such interest coupon shall be deducted from the redemption amount.

 

(2) Any holder of a coupon mentioned in the Paragraph above may demand payment of the amount deducted in exchange for such coupon.

Article 19 (Notice to Debenture Holders, etc.)

 

(1) Any notice or demand to the subscriber or rights holder prior to the issue of the debenture shall be sent to such address written on the subscription application; provided, that if another address is given to the Corporation, such notice or demand shall be sent to such address.

 

(2) Any notice or demand to holders of debentures in bearer form shall be made by public notice; provided, that if the address of such holds can be known, public notice is not required.

 

(3) Any notice or demand to holders of debentures in register form shall be sent to the address written on the debenture register; provided, that if another address is given to the Corporation, such notice or demand shall be sent to such address.

 

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Article 20 (Asset Revaluation Method)

 

(1) In cases of revaluing its assets in accordance with Article 17, the Corporation shall use the following methods to calculate the market value of such assets (“Revaluation value”).

 

  1. Tangible Fixed Assets (excluding land):

Market value calculated using the following formula based on acquisition cost, construction price index, replacement cost and accrued depreciation as of the date of revaluation. Acquisition cost means the purchase price or the sum of the cost of goods plus ancillary costs (or if the revaluation has been made pursuant to the Asset Revaluation Act, the value so revalued); construction price index means the price index per item of construction materials or fixed assets as of the revaluation date as calculated by the Corporation based on the original acquisition date (or if the revaluation has been made pursuant to the Asset Revaluation Act, the date of the most recent revaluation); and replacement cost price means the costs of re-acquiring the relevant asset.

{(acquisition cost * construction price index) or replacement cost price} * (1—accumulated depreciation/acquisition cost)

 

  2. Intangible fixed assets, standing timber, tangible assets listed as provisional price and assets for which revaluation is difficult based on the formula specified in the preceding Paragraph 1: a value calculated in accordance with the appraisal rules specified in Article 3 of the Appraisal and Certified Appraiser Act.

 

(2) If the revaluation value of the assets calculated in accordance with Paragraph (1) above falls short of the book value, the book value shall be deemed the revaluation value.

 

(3) In the case of revaluation in accordance with Paragraph 1 above, the Corporation shall determine the criteria for the construction price index calculation and other necessary criteria and obtain the approval of the Minister of the Ministry of Trade, Industry and Energy. The foregoing procedures shall apply to the alteration of such criteria. Minor alterations are not subject to the Minister’s approval.

 

(4) The phrase “assets defined by the Presidential Decree” specified in the proviso of Article 17 refers to the following:

 

  1. Land; and

 

  2. Buildings containing electricity distribution installations and work-related installations; provided that the scope of electricity distribution installations and work-related installations shall be as set forth under the accounting regulations.

Addendum No. 24442 (Mar 23, 2013)

Article 1. (Effective Date)

The Decree shall take effect as of the date of promulgation.

Article 12. (Amendment of Other Laws)

This Decree shall be amended by replacing the references to “Minister of Knowledge Economy” to “Minister of Trade, industry and Energy” in Article 8, Article 9, paragraph 1, Article 9-4, paragraph 1, 2, 3 and 4, Article 9, paragraph 1 and Article 20, paragraph 3 herein.

 

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Exhibit 15.3

ACT ON THE MANAGEMENT OF PUBLIC INSTITUTIONS

Act No. 8258, Jan. 19, 2007

Amended by Act No. 8635, Aug. 3, 2007

Act No. 8696, Dec. 14, 2007

Act No. 8852, Feb. 29, 2008

Act No. 9277, Dec. 31, 2008

Act No. 9345, Jan. 30, 2009

Act No. 9513, Mar. 25, 2009

Act No. 9829, Dec. 29, 2009

Act No. 10286, May 17, 2010

Act No. 10896, Jul. 25, 2011

Act No. 11690, Mar. 23, 2013

Act No. 11845, May 28, 2013

Act No. 12268, Jan 21, 2014

Act No. 12673, May 28, 2014

Act No. 14076, Mar. 22, 2016

CHAPTER I GENERAL PROVISIONS

Article 1 (Purpose)

The purpose of this Act is to provide for basic matters concerning the management of public institutions and necessary matters concerning the firm establishment of the system for self-controlling and accountable management with the aims of rationalizing their management, heightening transparency in management, and thus contributing to the improvement of public institutions’ services to the people.

Article 2 (Scope of Application, etc.)

 

(1) This Act shall apply to the public institutions designated and publicly notified under the provisions of Articles 4 through 6.

 

(2) As to public institutions, this Act shall apply in preference to any other Act, notwithstanding any pertinent provisions therein contrary to this Act, except as specifically provided for in this Act to follow the pertinent provisions in any other Act.

Article 3 (Guarantee for Self-Controlling Management)

The Government shall guarantee the self-controlling management of public institutions to establish the accountable management system in public institutions.

Article 4 (Public Institutions)

 

(1) The Minister of Strategy and Finance may designate a legal entity, organization or institution (hereinafter referred to as an “institution”) other than the State or a local government as a public institution, if it falls under any of the following subparagraphs: <Amended by Act No. 8852, Feb. 29, 2008>

 

  1. An institution established by direct operation of another Act with an investment by the Government;

 

  2. An organization to whom the amount of the Government grants (including the revenue from its commissioned affairs or monopoly, if it is an institution to whom some affairs of the Government are commissioned or a monopoly is granted by direct operation under Acts and subordinate statutes; hereinafter the same shall apply) exceeds one-half of the amount of its total revenue;

 

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  3. An institution which the Government holds at least fifty percent of the outstanding shares in or secures practical control over in making decisions on its policies through the exercise of the power to appoint executives with at least thirty percent of such outstanding shares or otherwise;

 

  4. An institution which the Government together with an institution falling under any of subparagraphs 1 through 3 holds at least fifty percent of the. outstanding shares in or secures practical control over in making decisions on its policies through the exercise of the power to appoint executives with at least thirty percent of such outstanding shares or otherwise;

 

  5. An institution which a single institution or two or more institutions falling under any of subparagraphs 1 through 4 hold at least fifty percent of the outstanding shares in or secure practical control over in making decisions on its policies through the exercise of the power to appoint executives with at least thirty percent of such outstanding shares or otherwise;

 

  6. An institution established by an institution failing under any of subparagraph 1 through 4 with an investment by the State or the establishing institution.

 

(2) Notwithstanding the provisions of paragraph (1), the Minister of Strategy and Finance may not designate an institution as a public institution, if it falls under any of the following subparagraphs: <Amended by Act No. 8696, Dec. 14, 2007; Act No. 8852, Feb. 29, 2008>

 

  1. An institution established for the purpose of mutual aid, improvement of welfare, enhancement of interests, or maintenance of order in business transactions between its members;

 

  2. An institution established by a local government and run by the management in which the local government is involved;

 

  3. The Korea Broadcasting System under the Broadcasting Act and the Korea Educational Broadcasting System under the Korea Educational Broadcasting System Act.

 

(3) Necessary matters concerning the criteria and method for calculating the amount of the Government grants and the amount of the total revenue under the provisions of paragraph (1) 2 and the criterion of the secured practical control under the provisions of subparagraphs 3 through 5 of the said paragraph shall be prescribed by Presidential Decree.

Article 5 (Classification of Public Institutions)

 

(1) The Minister of Strategy and Finance shall classify public institutions into the categories of public corporation, quasi-governmental institution, and non-classified public institution for designation purpose, while the public corporations and quasi-governmental institutions shall be designated among public institutions whose prescribed number of personnel is at least fifty persons. <Amended by Act No. 8852, Feb. 29, 2008>

 

(2) In designating public corporations and quasi-governmental institutions under the provisions of paragraph (1), the Minister of Strategy and Finance shall designate public corporations among those whose self-generating revenue reaches or exceeds 1/2 of the amount of its total revenue, while the Minister shall designate quasi-governmental institutions among public institutions not classified into public corporations. <Amended by Act No. 8852, Feb. 29, 2008>

 

(3) The Minister of Strategy and Finance shall classify the public corporations and quasi-governmental institutions under the provisions of paragraphs (1) and (2) into the following subparagraphs, and shall designate them accordingly: <Amended by Act No. 8852, Feb. 29, 2008>

 

  1. Public corporations:

 

  (a) Market-based public corporations: Public corporations whose asset size reaches or exceeds two trillion won and whose self-generating revenue out of the amount of total revenue reaches or exceeds the criterion prescribed by Presidential Decree;

 

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  (b) Quasi-market-based public corporations: Public corporations other than the market-based public corporations;

 

  2. Quasi-governmental institutions:

 

  (a) Fund-management-based quasi-governmental institutions: Quasi-governmental institutions to which the management of a fund is assigned or commissioned under the National Finance Act;

 

  (b) Commissioned-service-based quasi-governmental institutions: Quasi-governmental institutions other than the fund-management-based quasi-governmental institutions.

 

(4) The Minister of Strategy and Finance shall designate the institutions not classified into either public corporations or quasi-governmental institutions. among the public institutions under the provisions of paragraph (2) as non-classified public institutions. <Amended by Act No. 8852, Feb. 29, 2008>

 

(5) The more specific criteria and method for determining the self-generating revenue and the total revenue under the provisions of paragraphs (2) and (3) shall be prescribed by Presidential Decree.

Article 6 (Procedure for Designation of Public Institutions, etc.)

 

(1) The Minister of Strategy and Finance shall newly designate public institutions, cancel the designation thereof or designate such public institutions by changing the classification within one month after the commencement of each fiscal year: Provided, That the Minister of Strategy and Finance may newly designate public institutions, cancel the designation thereof or designate such institutions by changing the classification, according to the following classification even in the middle of a fiscal year: <Amended by Act No. 9829, Dec. 29, 2009>

 

  1. Where an institution falling under each subparagraph of Article 4 (1) is newly established: Newly designate;

 

  2. Where an institution designated as a public institution is no longer subject to this Act due to privatization, consolidation, discontinuation or division of the institution or due to amendments, repeal, etc. of relevant Acts and subordinate statutes or where it becomes necessary to change the designation thereof: Cancel designation or designate by changing the classification.

 

(2) In designating a new public corporation, quasi-governmental institution or non-classified public institution, or canceling or changing the designation under the provisions of paragraph (1), the Minister of Strategy and Finance shall consult with the administrative agency having control over the affairs of the prospective public corporation, a quasi-governmental institution or non-classified public institution (hereinafter referred to as the “competent agency”) in accordance with relevant statutes, and then shall refer it to the committee for management of public institutions under the provisions of Article 8 for deliberation and resolution.

<Amended by Act No. 8852, Feb. 29, 2008>

 

(3) Whenever designating a new public corporation, quasi-governmental institution, or non-classified institution, or canceling or changing such designation under the provisions of paragraphs (1) and (2), the Minister of Strategy and Finance shall make a public notification thereof. In such cases, the list of existing public corporations, quasi-governmental institutions, and non-classified public institutions may be publicly notified together, if considered necessary to do so. <Amended by Act No. 8852, Feb. 29, 2008>,

 

(4) Necessary matters concerning the procedure, etc. for the designation (including changes in designation) of public corporations, quasi-governmental institutions, and non-classified public institutions, the cancelation of such designation, and the public notification shall be prescribed by Presidential Decree.

Article 7 (Examination on Establishment of New Institution)

 

(1)

The head of the competent agency who desires to establish a new institution falling under any of the following subparagraphs, pursuant to Acts, shall request the Minister of Strategy and Finance to examine the

 

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  feasibility of the establishment of such a new establishment before making a prior announcement of such a legislative bill: <Amended by Act No. 8852, Feb. 29, 2008>

 

  1. An institution for which the ground for investment by the Government is specified in the legislative bill;

 

  2. An institution in which case the amount of the Government grants is estimated to exceed 1/2 of its total revenue;

 

  3. An institution specified as the one in which the Government alone or together with a public institution shall invest at least 30 percent of its capital.

 

(2) The Minister of Strategy and Finance shall, upon receiving the request for examination under the provisions of paragraph (1), examine the needs, effects, etc. of new establishment of the institution, financial support by referring it to the committee for management of public institutions under the provisions of Article 8 for deliberation and resolution, and then shall notify the head of the competent agency of the results therefrom. <Amended by Act No. 8852, Feb. 29, 2008>

 

(3) Necessary matters concerning the examination, etc. on the feasibility of the establishment of a new institution under the provisions of paragraphs (1) and (2) shall be prescribed by Presidential Decree.

CHAPTER II COMMITTEE FOR MANAGEMENT OF PUBLIC INSTITUTIONS

Article 8 (Establishment of Committee for Management of Public Institutions)

The committee for management of public institutions (hereinafter referred to as the “management committee”) shall be established under the control of the Minister of Strategy and Finance for deliberation and resolution on the following matters concerning the management of public institutions: <Amended by Act No. 8852, Feb. 29, 2008; Act No. 9277, Dec. 31, 2008: Act No. 9829, Dec. 29, 2009, Act No. 14076, Mar. 22, 2016>

 

  1. Designation of public corporations, quasi-governmental institutions, and non-classified public institutions, and cancelation and change of such designation under the provisions of Articles 4 through 6;

 

  2. Examination on establishment of a new institution under the provisions of Article 7;

 

  3. Publication concerning the management of public institutions under Article 11 (1) 15;

 

  4. Personnel action, etc. based on a violation of the duty of publication, etc. under Article 12 (3);

 

  5. Adjustment, etc. of functions of public institutions under the provisions of Article 14;

 

  6. Assistance in innovation, etc. of public institutions under the provisions of Article 15;

 

  7. Appointment of the non-standing senior directors of market-based public corporations and quasi market-based public corporations under the proviso to Article 21 (2);

 

  8. Appointment, etc. of executives of public corporations and quasi-governmental institutions under the provisions of Articles 25 and 26;

 

  9. Guidelines for remuneration under Article 33;

 

  10. Removal, recommendation of removal, etc. of the executives of public corporations and quasigovernmental institutions under the provisions of Article 35 (2);

 

  11. Evaluation, etc. of performance of duties of non-standing directors and auditors under the provisions of Article 36;

 

  12. Evaluation, etc. of business performance of public corporations and quasi-governmental institutions under the provisions of Article 48;

 

4


  13. Guidelines for management of public institutions and quasi-governmental institutions under the provisions of Article 50;

 

  14. Monitoring of the adequacy of supervision over public corporations and quasi-governmental institutions and improvement of such supervision under the provisions of Article 51 (4);

 

  15. Other matters prescribed by Presidential Decree concerning the management of public institutions.

Article 9 (Composition of Management Committee)

 

(1) The management committee shall be comprised of one chairperson and the following members, and the Minister of Strategy and Finance shall be the chairperson: <Amended by Act No. 8852, Feb. 29, 2008; Act No. 11690, Mar. 23, 2013>

 

  1. One Vice-Minister-level public official of the Prime Minister’s Office as nominated by the Minister of the Prime Minister’s Office;

 

  2. Vice Minister, Deputy Administrator, or an equivalent public official of the related administrative agency as prescribed by Presidential Decree;

 

  3. Vice Minister, Deputy Administrator, or an equivalent public official of the competent agency who does not fall under subparagraph 2;

 

  4. Eleven or less persons commissioned by the President on the recommendation of the Minister of Strategy and Finance from among people from various fields including law, economy, press, academia, labor, etc. with good knowledge and experience in the area of management and business administration of public institutions and also good reputation for impartiality.

 

(2) The term of office of the committee members under the provisions of paragraph (1) 4 shall be three years, and they may be consecutively appointed.

 

(3) The committee members under the provisions of paragraph (1) 4 shall perform their duties earnestly following their conscience for the establishment of self-controlling and accountable management system in public institutions and the enhancement of the efficiency in their management.

 

(4) A committee member under the provisions of paragraph (1) 4 may be dismissed if he/she falls under any of the following subparagraphs:

 

  1. If he/she is unable to perform his/her duties due to physical or mental disability;

 

  2. If he/she is found incompetent to his/her office on the ground of neglect of his/her duties, indecent manner, or otherwise;

 

  3. If he/she is indicted in a criminal case in connection with his/her duties.

 

(5) The committee chairperson may recommend the President to dismiss a committee member under the provisions of paragraph (1) 4, if the committee member falls under any of the subparagraphs of paragraph

(4): Provided, That the committee chairperson shall compulsorily recommend the President to dismiss a committee member who falls under paragraph (4) 1.

 

(6) Necessary matters concerning the composition of the management committee shall be prescribed by Presidential Decree.

Article 10 (Management Committee’s Meeting)

 

(1) The management committee’s meeting shall be formed with 20 or less members including the chairperson, and the members who should attend the management committee’s meeting shall be designated by the chairperson among the members who fall under Article 9 (1) 2 and 3 depending upon the nature of the matters on the agenda, while the number of members who fall under subparagraph 4 of the said paragraph shall constitute a majority of the members of the meeting. <Amended by Act No. 8852, Feb. 29, 2008>

 

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(2) The management committee’s meeting shall be duly formed to open with the presence of a majority of the members of the meeting, and shall adopt a resolution with the affirmative vote of a majority of the members present at the meeting.

 

(3) The Chairperson of the Board of Audit and Inspection and the head of the administrative agency concerned may present their opinions to the management committee, if considered necessary in relation to the deliberation and resolution by the management committee, and may dispatch a public official of the Board or the agency to appear before the management committee for speaking upon the request from the committee chairperson or the resolution of the management committee.

 

(4) The management committee shall have one executive secretary for processing its affairs, and the executive secretary shall be appointed by the committee chairperson from among the public officials in the Senior Civil Service.

 

(5) Necessary matters concerning the operation of the management committee shall be prescribed by Presidential Decree.

CHAPTER III PUBLICATION, ETC. ON MANAGEMENT OF PUBLIC INSTITUTIONS

Article 11 (Publication on Management)

 

(1) A public institution shall publish the following matters: Provided, That if any of the following matters is information subject to non-disclosure under the Official Information Disclosure Act or the head of the competent agency has consulted with the Minister of Strategy and Finance thereon because it is deemed necessary for national security, the relevant matters may be excluded from disclosure: <Amended by Act No. 8852, Feb. 29, 2008; Act No. 9277, Dec. 31, 2008: Act No. 9829, Dec. 29, 2009; Act No. 14076, Mar. 22, 2016>

 

  1. Business goals, budget, and management plan;

 

  2. Statements on settlement of accounts;

 

  3. Current status of executive officers and operating personnel (including the gender of such executive officers, types of employment workers, rate of non-regular workers converted to regular workers);

Budget for personnel expenses and fringe benefits, and status of execution thereof (the budget for different types of allowances shall be disclosed by type);

 

  5. Present status of the details of transactions and the interchange of human resources with subsidiaries;

 

  6. Results of survey on customer satisfaction level conducted in accordance with the provisions of Article 13 (2);

 

  7. Results of audit and appraisal of the actual performance of duties of audit commissioners of the audit committee under Article 36 (1);

 

  8. Results of business performance evaluation under the provisions of Article 48 (limited to public corporations and quasi-governmental institutions);

 

  9. Articles of association, the corporate bond register, internal regulations such as guidelines established and rules and minutes of directors’ meeting;

 

  10. Audit report prepared by the auditor or the audit committee (including matters pointed out, matters requesting disposition and a plan of measures for them);

 

  11. The result of audit on public institutions by the heads of the competent authorities (including matters pointed out, matters requesting disposition and a plan of measures for them);

 

  12.

Details of the judgment on the liability for damages or the request for disciplinary action, correction, improvement, etc. under Articles 31 (Judgment on Liability for Damages) through 34-2

 

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  (Recommendation, etc.) of the Board of Audit and Inspection Act or the request for correction under Article 16 (Disposition of Results of Inspection or Investigation) of the Act on the Inspection and Investigation of State Administration, if any, and the measures taken by the public institution, etc. for such judgment or demand;

 

  13. Status of operation of the disciplinary system, including information about the disciplinary system and disciplinary actions taken;

 

  14. Status of lawsuits, legal advice, attorneys and legal advisors;

 

  15. Other important matters concerning the management of the public institution, as requested by the Minister of Strategy and Finance to publish after deliberation and resolution by the management committee.

 

(2) Every public institution shall publish the matters specified in each subparagraph of paragraph (1) on its Internet webpage, and shall keep necessary documents at its offices.

 

(3) Every public institution shall, upon receiving a request for inspection or a copy of the matters published in accordance with the provisions of paragraph (1), allow the requesting person to inspect them or deliver him/her a copy or reproduced material. In such cases, the provisions of Article 17 (Defrayment of Expenses) of the Official Information Disclosure Act shall apply mutatis mutandis to the defrayment of expenses incurred therefrom.

 

(4) Necessary matters concerning the publication on management of public institutions shall be prescribed by Presidential Decree.

Article 12 (Consolidated Publication)

 

(1) The Minister of Strategy and Finance may prepare a separate standardized form for consolidating main items among the matters that shall be published by each public institution under the provisions of Article 11 (1) and publish such items in the consolidated form (hereafter referred to as the “consolidated publication” in this Article). <Amended by Act No. 8852, Feb. 29, 2008>

 

(2) The Minister of Strategy and Finance may request public institutions to submit necessary data for consolidated publication, and public institutions shall, in turn, comply with such a request unless there are extraordinary circumstances otherwise. <Amended by Act No. 8852, Feb. 29, 2008>

 

(3) If a public institution fails to perform the duty to make the publication on management under the provisions of Article 11 or the consolidated publication under the provisions of paragraph (1) in good faith, or if it publishes a false fact, the Minister of Strategy and Finance may order the public institution to publish such failure in publication or false publication, order it to correct such false fact, etc., and request the head of the competent agency or the relevant public institution, after deliberation and resolution by the management committee, to make personnel disposition, etc. against the person concerned. <Amended by Act No. 8852, Feb. 29, 2008>

 

(4) Necessary matters concerning the guidelines, method, etc. for the consolidated publication shall be prescribed by Presidential Decree.

Article 13 (Customer Charter and Customer Satisfaction Level Survey)

 

(1) Every public institution that provides a direct service to the people shall establish and publish a customer charter containing the following descriptions:

 

  1. Fundamental duties;

 

  2. Details of the service provided and desirable level of the service;

 

  3. Procedures for processing complaints and correction for the service provided and liability for damages, etc.;

 

7


  4. Efforts, plans, etc. for improvement of the service provided.

 

(2) Every public institution that provides a direct service to the people shall conduct a survey on customer satisfaction level at least once a year on those who have experienced the service provided by the institution. In this case, the Minister of Strategy and Finance may instruct public institutions to conduct a consolidated survey on customer satisfaction level and integrate the results of such survey for publication. <Amended by Act No. 8852, Feb. 29, 2008>

 

(3) Necessary matters concerning the scope of public institutions bound to establish and publicly announce the customer charter or conduct the customer satisfaction level survey under the provisions of paragraphs (1) and (2), the establishment and ‘public announcement of the customer charter, the procedure, scope, etc. of the customer satisfaction level survey shall be prescribed by Presidential Decree.

Article 14 (Adjustment of Functions of Public Institutions, etc.)

 

(1) The Minister of Strategy and Finance shall examine the appropriateness of functions performed by public institutions after consultation with heads of the competent agencies and deliberation and resolution by the management committee, and shall establish a plan for consolidation, merger, or abolition of institutions, readjustment of their functions, privatization, etc. <Amended by Act No. 8852, Feb. 29, 2008>

 

(2) The heads of the competent agencies shall implement the plan as established under the provisions of paragraph (1), and shall submit the report on ‘their performances to the Minister of Strategy and Finance. <Amended by Act No. 8852, Feb. 29, 2008>

 

(3) The Minister of Strategy and Finance may, if considered necessary as a result of an analysis on the details of the report submitted under the provisions of paragraph (2) and a confirmation and inspection of the actual state of the performances, demand the head of the competent agency, after deliberation and resolution by the management committee, to take necessary measures for smooth implementation of the plan. <Amended by Act No. 8852, Feb. 29, 2008>

 

(4) Necessary matters concerning the establishment and implementation of the plan under the provisions of paragraphs (1) through (3) shall be prescribed by Presidential Decree.

Article 15 (Innovation of Public Institutions)

 

(1) Every public institution shall promote continuous innovation in management for enhancing the efficiency in management and improving the quality of public service.

 

(2) The Minister of Strategy and Finance may take necessary measures including the establishment of related guidelines, rating of innovated levels, etc., after deliberation and resolution by the management committee, to assist in management innovation under the provisions of paragraph (1). <Amended by Act No. 8852, Feb. 29, 2008>

CHAPTER IV MANAGEMENT OF PUBLIC CORPORATIONS AND QUASI-GOVERNMENTAL INSTITUTIONS

SECTION 1 Articles of Association

Article 16 (Mandatory Provisions of Articles of Association)

 

(1) The articles of association of public corporations and quasi-governmental institutions shall contain the provisions concerning the following matters: Provided, That the provisions irrelevant to a certain public corporation or quasi-governmental institution in light of its form, characteristics, or business affairs may be omitted: <Amended by Act No. 9277, Dec. 31, 2008>

 

  1. Purpose;

 

  2. Name;

 

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  3. Location of principal office;

 

  4. Capital amount;

 

  5. Stock or investment certificates;

 

  6. Matters concerning executives and employees;

 

  7. General meeting of shareholders or investors;

 

  8. Management of the board of directors;

 

  9. Scope of business, details and the execution thereof;

 

  10. Accounting;

 

  11. Method of public notice;

 

  12. Issuance of corporate bonds;

 

  13. Amendment to the articles of association;

 

  14. Other matters prescribed by Presidential Decree.

 

(2) Every public corporation and quasi-governmental institution shall obtain authorization for the articles of association under the provisions of paragraph (1) from the head of the competent agency within three months after it is designated as a public corporation or quasi-governmental institution in accordance with Article 6. The foregoing shall apply to an amendment, revision, or modification of any provisions in the articles of association as authorized.

SECTION 2 Board of Directors

Article 17 (Establishment and Functions of Board of Directors)

 

(1) Every public corporation and quasi-governmental institution shall have the board of directors for deliberation and resolution on the following matters: <Amended by Act No. 10286, May 17, 2010>

 

  1. Business goals, budget, management plan and mid-and long-term financial management plan;

 

  2. Use of reserve fund and carry-over of budget;

 

  3. Settlement of accounts;

 

  4. Acquisition and disposition of fundamental assets;

 

  5. Borrowing of long-term loans, issuance of corporate bonds, and repayment plan for such loans or bonds;

 

  6. Selling prices for products and services;

 

  7. Appropriation of retained earnings;

 

  8. Investment in and contribution to other corporation, etc.;

 

  9. Guarantees for obligations of other corporation: Provided, That it shall exclude the guarantees for obligations provided by a public corporation and quasi-governmental institution that engage in a guarantee business under the relevant Act in the course of executing its business;

 

  10. Amendment of the articles of association;

 

  11. Establishment and amendment of bylaws;

 

  12. Remuneration for executives;

 

  13. Matters that the head of the public corporation or quasi-governmental institution (hereinafter referred to as the “institution head”) considers it necessary to refer to the board of directors for deliberation and resolution;

 

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  14. Other matters considered necessary by the board of directors,

 

(2) The institution head shall report the following matters to the board of directors:

 

  1. Matters pointed out at the inspection of state administration, the accounting audit conducted under the provisions of Article 43 (1), or the audit conducted by the Board of Audit and Inspection under the provisions of Article 52, and the plan for measures to be taken for such matters and the results thereof;

 

  2. Results of an collective agreement executed by the public corporation or quasi-governmental institution and the estimated budget required for such an agreement (limited to a case where a collective agreement is entered into);

 

  3. Other matters on which the board of directors demands the institution head to report.

 

(3) Where any other Act requires a public corporation or quasi-governmental institution to have any organization in lieu of the board of directors to perform the functions under the provisions of paragraph (1) in providing for the establishment and management of the public corporation or the quasi-governmental institution, such organization in whatsoever name shall be deemed to be the board of directors, while the members of such an organization shall be deemed to be the directors under this Act, to whom this Act shall apply.

Article 18 (Composition)

 

(1) The board of directors shall be comprised of not more than 15 directors including the institution head: Provided, That it may be comprised of not less than fifteen directors if the institution falls under any of the followings:

 

  1. A public corporation or quasi-governmental institution having the general meeting of members such as the general meeting of shareholders or the general meeting of investors and established as a federation of local or trade institutions under any other Act;

 

  2. Where the number of directors as of the time when it is designated as a public corporation or quasigovernmental institution under the provisions of Article 6 exceeds 15 persons: Provided, That the foregoing shall be applicable only for the period of time during which the term of incumbent directors as of the time of designation under the proviso to Article 28 (1) is guaranteed;

 

  3. Where the number of directors exceeds 15 persons as a consequence of appointment of non-standing directors in accordance with the provisions of the latter part of Article 25 (3),

 

(2) The chairperson of the board of directors of a market-based public corporation and quasi-market-based public corporation, the asset size of which is not less than two trillion won shall become a non-standing senior director under Article 21: Provided, That one of the non-standing directors shall act as chairperson on behalf of the chairperson, as provided for in the articles of association, if the chairperson is unable to perform his/her duties due to unavoidable reasons. <Amended by Act No. 9829, Dec. 29, 2009>

 

(3) In applying paragraph (2), if no non-standing director exists at the time an institution is designated as a market-based public corporation or quasi-market-based public corporation under Article 6, the person prescribed by Acts and subordinate statutes at the time the institution is designated as a market-based public corporation or a quasi-market-based public institution shall be the chairperson of the board of directors until non-standing directors are appointed in accordance with the second sentence of Article 25 (3). <Amended by Act No, 9829, Dec. 29, 2009>

 

(4) The institution head shall become the chairperson of the board of directors of a quasi-market-based public corporation, the asset size of which is less than two trillion won, or a quasi-governmental institution: Provided; That the concurrent holding of the office of the institution head and the office of the chairperson of the board of directors shall be prohibited, if there are provisions in any other Act that prohibit such concurrent holding of offices. <Amended by Act No. 9829, Dec. 29, 2009>

 

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Article 19 (Meeting)

 

(1) The meeting of the board of directors shall be convened by the chairperson or at the request of at least 1/3 of incumbent directors, and the chairperson shall preside over the meeting.

 

(2) A resolution at the directors’ meeting shall be adopted by the affirmative vote of a majority of incumbent directors.

 

(3) The institution head or a director who has a specific interest in a matter put on the agenda of the directors’ meeting shall not participate in resolution on the matter. In this case, a director, etc. who is barred from participating in resolution shall not be included in the number of incumbent directors under the provisions of paragraph (2).

 

(4) The auditor may attend the directors’ meeting to present his/her opinion.

 

(5) The provisions of Article 391 (Method of Resolution by Board of Directors) (2) and 391-3 (Minutes of Board of Directors) (1) and (2) of the Commercial Act shall apply mutatis mutandis respectively to the resolution of the board of directors via telecommunication means, the minutes of the directors’ meeting, etc.

Article 20 (Committees)

 

(1) The board of directors of a public corporation may establish committees within the board of directors in accordance with the articles of association of the relevant public corporation. In such cases, the provisions of Article 393-2 (Committees of Board of Directors) of the Commercial Act shall apply mutatis mutandis to the matters concerning composition, power, etc. of such committees.

 

(2) Any market-based public corporation and quasi-market-based public corporation, the asset size of which is not less than two trillion won shall establish an audit committee under the board of directors as the committee under paragraph (1), in lieu of an auditor under Article 24 (1): Provided, That if a public corporation which shall newly establish an audit committee has an auditor, the audit committee shall be established after expiration of the auditor’s term of office. <Amended by Act No. 9829, Dec. 29, 2009>

 

(3) A quasi-market-based public corporation, the asset size of which is less than two trillion won, and a quasigovernmental institution may have an audit committee in accordance with the provisions of other Act. <Amended by Act No. 9829, Dec. 29, 2009>

 

(4) Except as otherwise provided herein, Articles 542-11 and 542-12 (3) through (6) of the Commercial Act shall apply mutatis mutandis to the composition, power, etc. of the audit committee. <Amended by Act No. 8635, Aug. 3, 2007; Act No. 9829, Dec. 29, 2009>

 

(5) The audit committee shall audit business affairs and accounting in accordance with the provisions of Article 32 (5), and shall report the results thereof to the board of directors.

Article 21 (Non-standing Senior Director)

 

(1) Every public corporation and quasi-governmental institution shall have one non-standing senior director.

 

(2) The non-standing senior director shall be elected by and among non-standing directors: Provided, That the non-standing senior director of a market-based public corporation and quasi-market-based public corporation, the asset size of which is not less than two trillion won, shall be appointed by the Minister of Strategy and Finance among non-standing directors after deliberation and resolution by the management committee. <Amended by Act No. 8852, Feb. 29, 2008; Act No. 9829, Dec. 29, 2009>

 

(3) Necessary matters concerning the non-standing senior director’s qualification, performance of duties, etc. shall be prescribed by Presidential Decree.

 

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Article 22 (Request for Removal, etc.)

 

(1) If it is found that the institution head commits an act in violation of a statute or the articles of association, neglects his/her duties, or he/she has a serious trouble in performing his/her duties as the institution head, the board of directors may request the head of the competent agency to remove or recommend to remove the institution head, after resolution to the effect by the board of directors.

 

(2) A non-standing director may, if considered necessary, request the auditor or the audit committee to audit a specific case in connection with the management of the public corporation or quasi-governmental institution by a written request jointly signed by two or more non-standing directors. In this case, the auditor or audit committee shall take action in accordance with such a request, unless there is a particular reason otherwise.

 

(3) Non-standing directors may demand the institution head to furnish them with materials necessary for performing their duties. In this case, the institution head shall comply with such a demand, unless there is a particular reason otherwise.

Article 23 (Fund Management Deliberation Council)

 

(1) Notwithstanding the proviso to Article 74 (Fund Management Deliberation Council) (1) of the National Finance Act, every fund-management-based quasi-governmental institution shall have a deliberative organization for fund management (hereinafter referred to as the “fund management deliberation council”), independent of the board of directors of the quasi-governmental institution: Provided, That a fund management-based quasi-governmental institution shall not have the fund management deliberation council, if there is other statute that requires that an organization for deliberation on important policies for the fund managed by the fund-management-based quasi-governmental institution be established in the competent agency.

 

(2) The matters concerning the functions, composition, and management of the fund management deliberation council under the provisions of the main sentence of paragraph (1) shall be governed by the National Finance Act.

 

(3) Where a fund-management-based quasi-governmental institution has the fund management deliberation council established under the provisions of paragraph (1) and there is other statute that specifies some of the matters set forth in subparagraphs of Article 17 (1) as the matters subject to deliberation and resolution by the fund management deliberation council, the matters so specified may be excluded from the matters subject to deliberation and resolution under the provisions of Article 17 (1).

SECTION 3 Executives

Article 24 (Executives)

 

(1) Every public corporation and quasi-governmental institution shall have directors including the institution head and auditors: Provided, That no auditor is required if there is an audit committee established under the provisions of Article 20 (2) and (3).

 

(2) Directors shall be classified into standing and non-standing directors.

 

(3) The number of standing directors of a public corporation and a quasi-governmental institution, the size of which meets or exceeds the criteria prescribed by Presidential Decree or which is prescribed by Presidential Decree considering the special characteristics of its business affairs, shall be less than 1/2 of the fixed number of directors including the institution head: Provided, That fixed number of standing directors, while the terms of office of the executives are guaranteed under the proviso to Article 28 (1), may equal or exceed 1/2 of the fixed number of directors including the institution head, if the fixed number of standing directors at the time the corporation or institution is designated as a public corporation or quasi-governmental institution under Article 6 equals or exceeds 1/2 of the fixed number of directors including the institution head. <Amended by Act No. 9829, Dec. 29, 2009>

 

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(4) The number of standing directors of a quasi-governmental institution, other than that under the main sentence of paragraph (3) shall be less than 2/3 of the fixed number of directors including the institution head: Provided, That the fixed number of standing directors, while the terms of office of the executives are guaranteed under the proviso to Article 28 (1), may equal or exceed 2/3 of the number of directors including the institution head, if the “fixed number” of standing directors at the time such institution is designated as a quasi-governmental institution under Article 6 equals or exceeds 2/3 of the fixed number of directors including the institution head. <Newly Inserted by Act No. 9829, Dec. 29, 2009>

 

(5) An auditor shall be a standing or non-standing position, as prescribed by other Acts, subordinate statutes or the articles of association. <Newly Inserted by Act No. 9829, Dec. 29, 2009>

Article 25 (Appointment and Removal of Executives of Public Corporations)

 

(1) The head of a public corporation shall be appointed by the President on the recommendation of the head of the competent agency among a plural number of people recommended by the committee for recommendation of executives under the provisions of Article 29 (hereinafter referred to as the “executive recommendation committee”) and then selected through the deliberation and resolution by the management committee: Provided, That the head of a public corporation. the size of which is below the criteria prescribed by Presidential Decree shall be appointed by the head of the competent agency among a plural number of people recommended by the executive recommendation committee and then selected through the deliberation and resolution by the management committee.

 

(2) Standing directors of a public corporation shall be appointed by the head of the public corporation: Provided, That a standing director who becomes an audit commissioner of the audit committee under Article 20 (2) and (3) (hereinafter referred to as “standing audit commissioner”) shall be appointed either by the President or the Minister of Strategy and Finance. <Amended by Act No. 9829, Dec. 29, 2009>

 

(3) Non-standing directors of a public corporation shall be appointed by the Minister of Strategy and Finance after deliberation and resolution by the management committee among a plural number of people who have good knowledge and experience in the area of management (excluding public officials except teaching staff of national and public schools) as recommended by the executive recommendation committee. In such cases, a public corporation that has no non-standing director at the time of designation under the provisions of Article 6 shall appoint at least two non-standing directors within three months after designation. <Amended by Act No. 8852, Feb. 29, 2008>

 

(4) The auditor of a public corporation shall be appointed by the President on the recommendation of the Minister of Strategy and Finance among a plural number of people recommended by the executive recommendation committee and then selected through the deliberation and resolution by the management committee: Provided, That the auditor of a public corporation, the size of which is below the criteria prescribed by Presidential Decree shall be appointed by the Minister of Strategy and Finance among a plural number of people recommended by the executive recommendation committee and then selected through the deliberation and resolution by the management committee. <Amended by Act No. 8852, Feb. 29, 2008>

 

(5) The head of a public corporation shall not be removed earlier than the expiry of his/her term unless he/she is removed by the person who has the power to appoint him/her under Articles 22 (1), 35 (3), and 48 (8) or there is a ground for removal as specified in the articles of association. <Amended by Act No. 9277, Dec. 31, 2008; Act No. 9513, Mar: 25, 2009>

Article 26 (Appointment and Removal of Executives of Quasi-Governmental Institutions)

 

(1)

The head of a quasi-governmental institution shall be appointed by the head of the competent agency among a plural number of people recommended by the executive recommendation committee: Provided, That the head of a quasi-governmental institution, the size of which meets or exceeds the criteria prescribed by Presidential Decree or which is specified by Presidential Decree considering the peculiarities of its business

 

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  affairs, shall be appointed by President on the recommendation of the head of the competent agency among a plural number of people recommended by the executive recommendation committee.

 

(2) Standing directors of a quasi-governmental institution shall be appointed by the head of the quasigovernmental institution, and, where other Acts and subordinate statutes require to establish a separate recommendation committee for standing directors, the provisions of such Acts and subordinate statutes shall govern the recommendation of standing directors: Provided, That a standing audit commissioner shall be appointed either by the President or the Minister of Strategy and Finance according to the procedures prescribed by paragraph (4). <Amended by Act No. 9829, Dec. 29, 2009>

 

(3) Non-standing directors of a quasi-governmental institution (excluding those appointed as ex officio non-standing directors pursuant to other Acts and subordinate statutes or the articles of association of the quasigovernmental institution; hereafter the same shall apply in this paragraph) shall be appointed by the head of the competent agency, while the non-standing directors of a quasi-governmental institution, the size of which meets or exceeds the criteria prescribed by Presidential Decree or which is prescribed by Presidential Decree considering the special characteristics of its business affairs, shall be appointed by the head of competent agency from among a plural number of people recommended by the executive recommendation committee: Provided, That where other Acts and subordinate statutes provides for a separate procedure for the recommendation of non-standing directors, the provisions of such Acts and subordinate statutes shall govern the recommendation of non-standing directors. <Amended by Act No. 9829, Dec. 29, 2009>

 

(4) The auditor of a quasi-governmental institution shall be appointed by the Minister of Strategy and Finance among a plural number of people recommended by the executive recommendation committee and selected through the deliberation and resolution by the management committee: Provided, That the auditor of a quasi-governmental institution shall, if its size exceeds the criteria prescribed by Presidential Decree or if it is specified by Presidential Decree considering the peculiarities of its business affairs, be appointed by the President on the recommendation of the Minister of Strategy and Finance among a plural number of people recommended by the executive recommendation committee and then selected through the deliberation and resolution by the management committee. <Amended by Act No. 8852, Feb. 29, 2008>

 

(5) Article 25 (5) shall apply mutatis mutandis to the guarantee of the term of office for the head of a quasigovernmental institution. In such cases, “head of a public corporation” shall be read as “head of a quasigovernmental institution”. <Amended by Act No. 9829, Dec. 29, 2009>

Article 27 (Special Exception concerning Appointment of Executives of Public Corporations and Quasi-Governmental Institutions with General Meeting of Members)

The public corporations and quasi-governmental institutions that have the general meeting of members including the general meeting of shareholders and the general meeting of investors shall obtain the resolution of the general meeting of ‘members in connection with the appointment of executives, if such resolution is required by other statute.

Article 28 (Term of Office)

 

(1) The term of office of the institution head appointed in accordance with the provisions of Articles 25 and 26 shall be three years, while the term of office of directors and auditors shall be two years: Provided, That the directors incumbent at the time the public institution is designated as a public corporation or quasigovernmental institution under the provisions of Article 6 shall be deemed to have been appointed under the provisions of Articles 25 and 26, and the relevant statute in force at the beginning of the terms of office of such directors shall apply to their terms.

 

(2) The executives of public corporations and quasi-governmental institutions may be appointed consecutively by one year. In such cases, the person who has the power to appoint executives shall decide whether to appoint directors consecutively, considering the matters as categorized in the following subparagraphs:

 

  1. Institution head: Results of the business performance evaluation under the provisions of Article 48;

 

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  2. Standing directors: Results of the actual performance evaluation of the performance agreement executed under the provisions of Article 31 (7) and results of performance of other duties;

 

  3. Non-standing directors and auditors: Results from the evaluation of performance of duties under the provisions of Article 36 and results of performance of other duties.

 

(3) Consecutive appointment to an executive of a public corporation or quasi-governmental institution under the provisions of paragraph (2) does not require the recommendation process of the executive recommendation committee.

 

(4) Whenever an institution head is appointed for a consecutive term in accordance with the provisions of paragraph (2), an agreement shall be made again in compliance with the provisions of Article 31 (3). In such cases, the consultation with the executive recommendation committee under the provisions of Article 31 (2) is not required.

 

(5) Executives shall perform their duties until their successors are appointed, even after expiration of their terms.

Article 29 (Executive Recommendation Committee)

 

(1) Every public corporation and quasi-governmental institution shall have the executive recommendation committee for recommending ‘candidates for executives of the public corporation or quasi-governmental institution under Articles 25 and 26 and for negotiating the matters concerning the draft agreement with candidates for the institution head under Article 31 (2). <Amended by Act No. 982~ Dec. 29, 2009>

 

(2) The executive recommendation committee shall be comprised of non-standing directors of the public corporation or quasi-governmental institution and the members appointed by the board of directors.

 

(3) Neither executives and employees of a public corporation or quasi-governmental institution nor public officials may become members of the executive recommendation committee: Provided, That the foregoing shall not apply to non-standing directors of the public corporation or quasi-governmental institution, teaching staff under the Public Educational Officials Act, and public officials of the competent agency for the quasi-governmental institution.

 

(4) The fixed number of the members appointed by the board of directors shall be less than 1/2 of the fixed number of the members of the executive recommendation committee: Provided, That if only one non-standing director exists at the time the executive recommendation committee is established, the fixed number of the members appointed by the board of directors may be 1/2 of the fixed number of the members of the executive recommendation committee. <Amended by Act No. 9829, Dec. 29, 2009>

 

(5) The chairperson of the executive recommendation committee shall be elected by the committee members among non-standing directors of the public corporation or quasi-governmental institution, who are also the committee members.

 

(6) If there is no non-standing director in a public corporation or a quasi-governmental institution at the time when the executive recommendation committee is established, the committee shall be comprised of outside members appointed by the board of directors, and the chairperson of the committee shall be elected by and among the outside members.

 

(7) Necessary matters concerning the composition, management, etc. of the executive recommendation committee shall be prescribed by Presidential Decree.

Article 30 (Criteria of Recommendation of Candidates for Executives)

 

(1) The executive recommendation committee shall recommend the people, as candidates for the institution head, who have good knowledge and experience relating to corporate management and business affairs of the public corporation or quasi-governmental institution and competent ability for Chief Executive Officer.

 

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(2) The executive recommendation committee shall recommend the people, as candidates for directors other than the institution head and an auditor, who have good knowledge, experience, and competent ability necessary for performing their duties as a director or auditor of the public corporation or quasigovernmental institution.

 

(3) In order to recommend candidates for executives, the executive recommendation committee may invite the general public for the candidacy as prescribed by Presidential Decree.

Article 31 (Agreement with Institution Head, etc.)

 

(1) In relation to the appointment of the institution head under the provisions of Articles 25 (1) and 26 (1), the board of directors shall prepare a draft agreement that contains the specific business goals that the institution head shall achieve during his/her term of office, the performance-based compensation, etc., and shall deliver the draft to the executive recommendation committee. In this case, the incumbent institution head may not participate in the directors’ meeting for preparing such a draft agreement.

 

(2) The executive recommendation committee shall, upon receiving the draft agreement in accordance with the provisions of paragraph (1),·negotiate the terms and conditions of the agreement with the people whom the committee considers recommending as candidates for the institution head, and shall inform the head of the competent agency of the result therefrom. In this case, the executive recommendation committee may revise, amend, or modify the details, terms and conditions of the draft agreement partially, if necessary for negotiation with the candidates for the institution head.

 

(3) The head of the competent agency shall execute an agreement with a person who shall be appointed to the institution head in accordance with the draft agreement as negotiated under the provisions of paragraph (2), but an agreement with the head of a public corporation shall be executed after prior consultation with the Minister of Strategy and Finance. In this case, the head of the competent agency may negotiate the terms and conditions of the agreement with the person who shall be appointed to the institution head to agree on the terms and conditions different from those of the draft agreement under the provisions of paragraphs (1) and (2). <Amended by Act No. 8852, Feb. 29,2008>

 

(4) The institution head and the head of the competent agency may amend, revise, or modify the details, terms, or conditions of the agreement by negotiations, when unavoidable circumstances occur after the agreement is executed in accordance with the provisions of paragraph (3): Provided, That the head of the competent agency shall consult with the Minister of Strategy and Finance in advance, when he/she intends to agree with the head of a public corporation to amend, revise, or modify the details, terms, or conditions of the agreement. <Amended by Act No. 8852, Feb. 29, 2008>

 

(5) The head of the competent agency shall execute the agreement under the provisions of paragraph (3) with the institution head incumbent at the time when the institution is designated as a public corporation or quasigovernmental institution (excluding the case of change in designation) under Article 6, within three months after such designation: Provided, That the agreement under the provisions of paragraph (3) shall not be executed, if the remaining term is less than six months.

 

(6) The Minister of Strategy and Finance or the head of the competent agency may evaluate the performance of the head of a public corporation or quasi-governmental institution on at least one occasion during his/her term of office based on the reports on the performance of the agreements entered into under paragraph (3) or (4). <Newly Inserted by Act No. 14076, Mar. 22, 2016>

 

(7) The institution head may enter into a performance agreement with standing directors of the relevant institution (excluding a standing audit commissioner; hereafter the same shall apply in this paragraph) and evaluate their actual performance and may remove any standing director, if a result of evaluation of the director’s actual performance shows poor performance. <Amended by Act No. 9829, Dec. 29, 2009; by Act No. 14076, Mar. 22, 2016>

 

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Article 32 (Executives’ Duties, etc.)

 

(1) The institution head shall represent the public corporation or quasi-governmental institution, have overall control over its business affairs, and take the responsibility for the business performance of the public corporation or quasi-governmental institution.

 

(2) The institution head shall not represent the public corporation or quasi-governmental institution with respect to a matter in which the public corporation or quasi-governmental institution and he/she have conflicting interests. In such cases, the auditor or the audit committee shall represent the public corporation or quasigovernmental institution instead. <Amended by Act No. 9829, Dec. 29, 2009>

 

(3) When the institution head is unable to perform his/her duties due to an unavoidable reason or cause, one of standing directors shall act on behalf of the institution head in accordance with the provisions of the articles of association, while a director prescribed by the articles of association shall act on behalf of the institution head if there is no standing director or if the standing director is unable to act on his/her behalf.

 

(4) Directors shall deliberate on the matters brought up to the directors’ meeting, and shall participate in resolution.

 

(5) The auditor shall audit the business affairs and accounting of the public corporation or quasi-governmental institution in compliance with the audit guidelines prescribed by the Minister of Strategy and Finance, and shall present his/her opinion to the board of directors. In this case, the Board of Audit and Inspection may present its opinion concerning the audit guidelines to the Minister of Strategy and Finance. <Amended by Act No. 8852, Feb. 29, 2008>

 

(6) The institution head shall assist, as necessary, the auditor or the audit committee in employment, placement, etc. of employees necessary for performing his/her/its duties. <Amended by Act No. 9829, Dec. 29, 2009>

Article 33 (Guidelines for Remuneration for Executives)

 

(1) The guidelines for remuneration for executives of a public corporation or quasi-governmental institution shall be determined by the board of directors in accordance with the guidelines for remuneration determined by the Minister of Strategy and Finance through the deliberation and resolution of the management committee, considering the following matters: <Amended by Act No. 9277, Dec. 31, 2008; Act No. 9829, Dec. 29, 2009, Act No. 14076, Mar. 22, 2016>

 

  1. Institution head: The business performance of the public corporation or quasi-governmental institution, the details of the agreements under Article 31 (3) and (4), and the performance level thereof;

 

  2. Standing directors (excluding standing audit commissioners): Results from the evaluation of actual execution of the performance agreement under Article 31 (7);

 

  3. Standing auditors and standing audit commissioners: Results from the evaluation of actual performance of duties under Article 36.

 

(2) An interested executive shall not participate in the directors’ meeting in which the guidelines for remuneration for executives under the provisions of paragraph (1) are established.

 

(3) Notwithstanding the provisions of paragraph (1), the relevant statutes, etc. in force at the time of designation shall apply to the remuneration for the executive for the year in which the institution is designated as a public corporation or quasi-governmental institution under the provisions of Article 6 (excluding the year in which the designation is changed).

Article 34 (Grounds for Disqualification)

 

(1) A person who falls under any of the following subparagraphs shall not be qualified for an executive of a public corporation or quasi-governmental institution: <Amended by Act No. 9277, Dec. 31, 2008; Act No. 9513, Mar. 25, 2009>

 

  1. A person who falls under any of the subparagraphs of Article 33 (Disqualifications) of the State Public Officials Act;

 

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  2. A person in whose case three years have not passed since he/she was removed from his/her office in accordance with Articles 22 (1), 31 (6), 35 (2) and (3), 36 (2) and 48 (4) and (8).

 

(2) An executive shall be automatically discharged, if he/she falls under any subparagraph of paragraph (1) or if it is discovered that he/she has fallen under any subparagraph of paragraph (1) at the time of his/her appointment.

 

(3) An act in which an executive discharged under the provisions of paragraph (2) was involved before he/she is discharged shall remain valid and effective.

Article 35 (Liabilities, etc. of Directors and Auditors)

 

(1) The provisions of Articles 382-3 (Directors’ Duty to be Faithful), 382-4 (Directors’ Duty to Keep Secret), 399 (Liability to Company), 400 (Release of Liability to Company) and 401 (Liability to Third Parties) of the Commercial Act shall apply mutatis mutandis to directors of public corporations and quasigovernmental institutions, while the provisions for release of liability to company in Articles 414 (Liability of Auditor) and 415 (Provisions Applicable Mutatis Mutandis) of the Commercial Act shall apply mutatis mutandis to auditors of public corporations and quasi governmental institutions (including auditors of the audit committee; hereafter the same shall apply in this Article).

 

(2) If a non-standing director (excluding a non-standing director of a quasi-governmental institution; hereafter the same shall apply in this paragraph) or auditor (including a standing audit commissioner; hereafter the same shall apply in this paragraph) fails or neglects to perform his/her duties and responsibilities under paragraph (1) and his/her duties under Article 32, the Minister of Strategy and Finance may, following the deliberation and resolution of the management committee, remove the non-standing director or the auditor or suggest the person who has the power to appoint to remove the non-standing director or auditor and may also demand the relevant public corporation or quasi-governmental institution to claim compensation ‘for damages. <Amended by Act No. 8852, Feb. 29, 2008; Act No. 9829, Dec. 29, 2009>

 

(3) If the institution head, a standing director (excluding a standing audit commissioner; hereafter the same shall apply in this paragraph) or non-standing director of a quasi-governmental institution fails or neglects to perform his/her duties and responsibilities under paragraph (1) and his/her duties under Article 32, the head of the competent agency may remove the institution head, standing director or non-standing director of the quasi-government institution or suggest or demand the person who has the power to appoint to remove the institution head, standing director or non-standing director of the quasi-government institution, and may also demand the relevant public corporation or quasi-governmental institution to claim compensation for damage: Provided, That if the head of the competent agency removes the institution head of a public corporation or recommends the person who has the power to appoint to remove the institution head of a public corporation, it shall undergo the deliberation and resolution of the management committee. <Amended by Act No. 9829, Dec. 29, 2009>

Article 36 (Evaluation of Actual Performance of Duties of Non-Standing Directors and Auditors)

 

(1) The Minister of Strategy and Finance may, in cases where it is necessary, evaluate the actual performance of duties of non-standing directors, an auditor, or auditors of the audit committee of a public corporation or quasi-governmental institution. <Amended by Act No. 8852, Feb. 29, 2008>

 

(2) The Minister of Strategy and Finance may remove or recommend the person who has the power to appoint to remove a non-standing director, auditor, or auditor of the audit committee after deliberation and resolution by the management committee, if a result from the evaluation of actual performance of duties of the non-standing director, the auditor, or auditor of audit committee under the provisions of paragraph (1) shows poor performance. <Amended by Act No. 8852, Feb. 29, 2008>

 

(3) The criteria and method for the evaluation of actual performance of duties under the provisions of paragraph (1) shall be prescribed by the Minister of Strategy and Finance after deliberation and resolution by the management committee. <Amended by Act No. 8852, Feb. 29, 2008>

 

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Article 37 (Prohibition of Executives and Employees from Taking Concurrent Offices)

 

(1) Neither standing executives nor employees of a public corporation or quasi-governmental institution may engage in a business other than their duties for the purpose of making a profit.

 

(2) If a standing executive of a public corporation or quasi-governmental institution obtains permission from the person who has the power to appoint or recommend him/her or if an employee of a public corporation or quasi-governmental institution obtains permission from the institution head, he/she may take a non-profit office concurrently.

 

(3) The scope of the business for profit under the provisions of paragraph (1) shall be prescribed by Presidential Decree.

SECTION 4 Budget and Accounting

Article 38 (Fiscal Year)

The fiscal year of public corporations and quasi-governmental institutions shall conform to the State’s fiscal year.

Article 39 (Accounting Principles, etc.)

 

(1) The accounting of public corporations and quasi-governmental institutions shall be based on accruals to clearly show business performance and increases, decreases, and changes in assets.

 

(2) A public corporation or quasi-governmental institution may place an individual, legal entity, organization, etc. under restrictions on qualification for participating in a bid for a certain period of time not exceeding two years, if it is clearly foreseeable on its judgment that the individual, legal entity, organization, etc. will interfere with fair competition or proper performance of a contract.

 

(3) Necessary matters concerning the accounting principles and restrictions on the qualification for bidding under the provisions of paragraphs (1) and (2) shall be prescribed by Ordinance of the Ministry of Strategy and Finance. <Amended by Act No. 8852, Feb. 29, 2008>

Article 39-2 (Establishment, etc. of Mid-and Long-Term Financial Management Plan)

 

(1) The heads of institutions falling under any of the falling subparagraphs shall annually establish mid-and long-term financial management plans-thereinafter referred to as “mid-and long-term financial management plan”) for five fiscal years or more, including the relevant year, have the plans finalized via the resolution by the board of directors, and submit them to the Minister of Strategy and Finance and the heads of competent administrative agencies by June 30: <Amended by Act No. 12268, Jan. 21, 2014>

 

  1. Public corporations and quasi-governmental institutions with total asset size over two trillion won or those with a clause on government’s compensation for loss in the laws forming the basis of the foundation thereof;

 

  2. Other public corporations and quasi-governmental institutions under the category prescribed by Presidential Decree, in consideration of the size of their asset and liabilities.

 

(2) The mid-and long-term financial plan shall include the following details:

 

  1. Business goals under Article 46;

 

  2. Business plans and investment directions;

 

  3. Financial outlook, the grounds thereof, and management plans;

 

  4. Liability management plans detailing the outlook for liability increase and/or decrease, the grounds thereof, management plans, etc.;

 

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  5. Evaluation and analysis on any change against the mid-and long-term financial management plan of the previous year, causes of changes and management plans, etc.;

 

  6. Other matters prescribed by Presidential Decree.

 

(3) The Minister of Strategy and Finance may require of the head of the relevant institution that is a public corporation, and the head of the responsible institution may require of the relevant institution that is a quasigovernmental institution, to change the Mid- and Long-Term Financial Management Plan, respectively, considering the national policy directions, management and economic environments concerning the institutions establishing such Mid- and Long-Term Financial Management Plan. <Newly Inserted by Act No. 12268, Jan. 21, 2014>

 

(4) Matters, such as detailed methods for preparing a mid-and long-term financial management plan shall be prescribed by Presidential Decree. <Amended by Act No. 12268, Jan. 21, 2014>

[This Article Newly Inserted by Act No. 10286, May 17, 2010]

Article 40 (Budget Compilation)

 

(1) The budget of a public corporation or quasi-governmental institution shall be compiled with the separate parts of the general provisions, the estimated income statement, the estimated balance sheet, and the financial plan.

 

(2) The institution head shall-prepare a budget bill for the next fiscal year in accordance with the business goals under the provisions of Article 46 and the guidelines for management under the provisions of Article 50; and shall submit the bill to the board of directors of the public corporation or quasi-governmental institution no later than the beginning of the next fiscal year.

 

(3) The institution head shall conduct a preliminary feasibility study as prescribed by Presidential Decree, in order to compile a budget for a new investment project and capital investment: Provided, That such preliminary feasibility study need not be conducted for any of the following projects: : <Newly Inserted by Act No. 14076, Mar. 22, 2016>

 

  1. A project for which the preliminary feasibility study is conducted under Article 38 of the National Finance Act among projects funded by the government budget;

 

  2. A project related to inter-Korean exchanges and cooperation or a project implemented under an agreement or treaty entered into with another country;

 

  3. A simple improvement and maintenance project implemented to increase the use of an existing facility, such as road maintenance and improvement of deteriorated waterworks;

 

  4. A project that needs to be implemented urgently to support the recovery from a disaster defined under subparagraph 1 of Article 3 of the Framework Act on the Management of Disasters and Safety (hereinafter referred to as “disaster”), or to ensure the safety of facilities and to cope with health or food safety issues;

 

  5. A project that needs to be implemented urgently to prevent a disaster, to which the consent of the competent Standing Committee of the National Assembly has been granted;

 

  6. A project that should be implemented pursuant to the statutes;

 

  7. A project that needs to be implemented as a national policy in order to ensure balanced regional development and to cope with urgent economic and social situations, and that meets both of the following requirements. In such cases, the details of a project exempt from the preliminary feasibility study and the grounds for exemption shall be reported without delay to the competent Standing Committee of the National Assembly:

 

  (a) A detailed project plan including the purpose, scale and implementation method of the project and other matters shall have been formulated;

 

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  (b) The project shall have been confirmed at the meeting of the State Council because it needs to be implemented as a national policy.

 

(4) The budget bill prepared and submitted under the provisions of paragraph (2) shall be finally adopted by resolution of the board of directors: Provided, That if other Act requires a separate process in connection with the budget of a public corporation or quasi-governmental institution, such as a resolution by the general meeting of members including the general meeting of shareholders or investors or a resolution by the fund management deliberation council under the provisions of Article 23, the budget shall be finalized through such a process after resolution by the board of directors, while if other Act requires approval of the head of the competent agency for finalizing a budget of a quasi-governmental institution, such approval shall be obtained from the head of the competent agency after resolution by the board of directors. <Amended by Act No. 14076, Mar. 22, 2016>

 

(5) The budget already finalized at the time of designation as a public corporation or quasi-governmental institution under the provisions of Article 6 shall be deemed to have been prepared and finalized in accordance with the provisions of paragraphs (1) through (4). <Amended by Act No. 14076, Mar. 22, 2016>

 

(6) The institution head who intends to revise the finalized budget of the public corporation or quasi-governmental institution because of a change in business goals of the public corporation or quasi-governmental institution or any other unavoidable circumstances shall prepare and submit a bill of revised budget to the board of directors. In this case, paragraph (4) shall apply mutatis mutandis to the finalization of the bill of revised budget. <Amended by Act No. 14076, Mar. 22, 2016>

 

(7) When the budget is finalized or revised under the provisions of paragraphs (4) through (6), the public corporation or quasi-governmental institution shall report the details to the Minister of Strategy and Finance, the head of the competent agency, and the Chairperson of the Board of Audit and Inspection: Provided, That it shall be deemed to have been reported to the head of the competent agency, where approval under the proviso to paragraph (4) has been obtained from the head of the competent agency. <Amended by Act No. 14076, Mar. 22, 2016>

Article 41 (Quasi-Budget)

 

(1) If a public corporation or quasi-governmental institution fails to finalize its budget before the beginning of a fiscal year due to a natural disaster or any other inevitable cause or event, the public corporation or quasigovernmental institution may compile and manage a budget based on the budget for the preceding fiscal year (hereafter referred to as the “quasi-budget” in this Article).

 

(2) The quasi-budget shall become ineffective when the budget for the fiscal year is finally established. In this case, the budget already executed under the quasi-budget shall be deemed to have been executed under the budget for the corresponding fiscal year.

Article 42 (Establishment of Management Plan)

 

(1) When the budget is finally established under the provisions of Article 40 (4) and (5), the public corporation or quasi-governmental institution shall establish a management plan, without delay, in accordance with the budget for the corresponding fiscal year after resolution by the board of directors: Provided, That the management plan already established at the time of designation as a public corporation or quasi-governmental institution in accordance with Article 6 shall be deemed to have been established under this Act. <Amended by Act No. 14076, Mar. 22, 2016>

 

(2) When a public corporation or quasi-governmental institution revises the budget established in accordance with the provisions of Article 40 (6) it shall revise the management plan established in accordance with the provisions of paragraph (1), without delay, after resolution by the board of directors. <Amended by Act No. 14076, Mar. 22, 2016>

 

(3)

A public corporation or quasi-governmental institution shall submit the management plan established for the corresponding fiscal year under the provisions of paragraphs (1) and (2) to the Minister of Strategy and

 

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  Finance (only in the cases of public corporations) and the head of the competent agency within two months after the budget is finalized in accordance with the provisions of Article 40 (4) through (6). <Amended by Act No. 8852, Feb. 29, 2008, Act No. 14076, Mar. 22, 2016>

Article 43 (Submission of Statements on Settlement of Accounts)

 

(1) Every public corporation and quasi-governmental institution shall prepare the statements on the settlement of accounts for the corresponding fiscal year, without delay, at the end of the fiscal year, and shall take an accounting audit conducted by an accounting auditor (hereinafter referred to as “accounting auditor”) appointed from among persons falling under any of the following subparagraphs. In such cases, every public corporation and quasi-governmental institution shall submit the statements on settlement of accounts within the period prescribed by the Rules of the Board of Audit and Inspection: <Amended by Act No. 9513, Mar. 25, 2009>

 

  1. An accounting firm (hereinafter referred to as “accounting firm”) under Article 23 the Certified Public Accountant Act;

 

  2. An audit team (hereinafter referred to as “audit team”) under Article 3 (1) 3 under the Act on External Audit of Stock Companies.

 

(2) Each public corporation and quasi-governmental institution shall, respectively to the Minister of Strategy and Finance and the head of the competent agency, submit each of the following statements on the settlement of accounts prepared according to paragraph (1) no later than the last day of February of the following year and finalize the settlement of accounts by obtaining approval no later than the last day of March: Provided, That the settlement of accounts shall be finally approved by the general meeting of members, if the public corporation or quasi-governmental institution has the general meeting of members, such as the general meeting of shareholders or investors: <Amended by Act No. 8852, Feb. 29, 2008; Act No. 9513, Mar. 25, 2009; Act No. 9829, Dec. 29, 2009>

 

  1. Financial statements (including the auditor’s’ opinion by an accounting auditor) and accompanying documents;

 

  2. Other documents necessary for clarifying the details of the settlement of accounts.

 

(3) The Minister of Strategy and Finance and the head of the competent agency shall submit, to the Board of Audit and Inspection, the statements on the settlement of accounts of the public corporation or quasigovernmental institution as finalized in accordance with paragraph (2) and other necessary documents (hereafter referred to as “statements, etc. on the settlement of accounts” in this Article) no later than May 10 every year. <Amended by Act No. 8852, Feb. 29, 2008; Act No. 9829, Dec. 29, 2009>

 

(4) The Board of Audit and Inspection shall, upon receiving the statements, etc. on the settlement of accounts under paragraph (3), inspect the statements, etc. on the settlement of accounts submitted by the legal entities under Article 22 (1) 3 of the Board of Audit and Inspection Act and other public corporations and quasigovernmental institutions as specified by the Rule of the Board of Audit and Inspection, and shall submit the results thereof to the Minister of Strategy and Finance by no later than July 31. <Amended by Act No. 8852, Feb. 29, 2008; Act No. 9829, Dec. 29, 2009>

 

(5) Necessary matters concerning the criteria for selection of an accounting firm and audit team qualified for accounting audits under paragraph (1), the procedures of accounting audits, and the audit by the Board of Audit and Inspection for the settlement of accounts under paragraph (4) shall be prescribed by the Rule of the Board of Audit and Inspection. <Amended by Act No. 9513, Mar. 25, 2009>

 

(6) The Minister of Strategy and Finance shall report to the State Council the statements, etc. on the settlement of accounts under paragraph (3) along with the results of the audit conducted by the Board of Audit and Inspection under paragraph (4), and shall also submit them to the National Assembly by no later than August 20. <Amended by Act No. 8852, Feb. 29, 2008; Act No. 9829, Dec. 29, 2009>

 

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(7) Notwithstanding the provisions of paragraphs (1) through (6), the settlement of accounts for the year in which a public corporation or a quasi-governmental institution is designated under the provisions of Article 6 shall be governed by the statues in force at the time of such designation.

Article 43-2 (Consultation on Transferring Capital of Public Corporation, etc.)

 

(1) Where a public corporation intends to transfer the profit reserve, the accumulated fund for business expansion, other reserves or accumulated funds into the capital, it shall consult with the Minister of Strategy and Finance in advance before passing the relevant procedure such as the board of directors, a general meeting of stockholders, etc.

 

(2) Where a public corporation has transferred the profit reserve, the accumulated fund for business expansion, other reserves or accumulated funds into the capital, it shall report the fact to the head of the competent agency.

[This Article Newly Inserted by Act No. 10896, Jul. 25, 2011]

[The Pre-existing Article 43-2 Moved to Article 43-3, Jul 25, 2011]

Article 43-3 (Appointment, etc. of Accounting Auditors)

 

(1) Any public corporation or quasi-governmental institution shall establish and operate an appointment committee for accounting auditors with its specialty and independence guaranteed (if an audit committee under Article 20 is established, it shall be deemed the appointment committee for accounting auditors) to appoint the accounting auditors. In such cases, all non-standing directors of the relevant public corporation or quasi-governmental institution shall be appointed as the members of the appointment committee for accounting auditors.

 

(2) Matters concerning the composition and operation of the appointment committee for accounting auditors under paragraph (1) shall be prescribed, by Presidential Decree.

 

(3) Articles 3 (3) through (5) and (7), 4 (7) and 9.(1) of the Act on External Audit of Stock Companies shall apply mutatis mutandis to grounds for disqualification, qualifications, appointment, powers, etc. of accounting auditors. In such cases, an “auditor,” a “company” and the “auditor selection and appointment commission” shall be deemed an “accounting auditor,” a “public corporation or quasi-governmental institution” and the “appointment committee for accounting auditors,” respectively.

 

(4) Any accounting auditor and a certified public accountant, employee and other person under his/her control shall not disclose any confidential information acquired in the course of performing his/her duties concerning the accounting audits of a public corporation or quasi-governmental institutions: Provided, That this shall not apply to cases where special provisions exist pursuant to other Acts or the Rules of the Board of Audit and Inspection under Article 43 (5). <Amended by Act No. 10896, Jul. 25, 2011>

[This Article Newly Inserted by Act No. 9513, Mar. 25, 2009]

[This Article Moved from Article 43-2. The Pre-existing Article 43-3 Moved to Article 43-4, Jul. 25, 2011]

Article 43-4 (Liability for Damage)

Article 17 (1) through (5) and (7) of the Act on External Audit of Stock Companies shall apply mutatis mutandis to liability of an accounting auditor, director, auditor, member of the audit committee or other person for damage to a public corporation, quasi-governmental institution or a third party. In such cases, an “auditor,” a “company” and “Article 4” shall be deemed an “accounting auditor,” a “public corporation or quasigovernmental institution” and “Article 43,” respectively.

 

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[This Article Newly Inserted by Act 9513, Mar. 25, 2009]

[This Article Moved from Article 43-3, Jul. 25, 2011]

Article 44 (Commission of Purchasing Goods and Contracting Construction Works)

 

(1) Where any public corporation or quasi-governmental institution intends to purchase competing products among small and medium enterprises under Article 6 of the Act on Facilitation of Purchase of Small and Medium Enterprise-Manufactured Products and Support for Development of their Markets for not less than the amount announced by the Minister of Strategy and Finance pursuant to Article 4 (1) of the Act on Contracts to which the State is a Party, the public corporation or quasi-governmental institution shall commission the purchase thereof to the Administrator of the Public Procurement Service or purchase them according to contracting methods under Article 5 of the Government Procurement Act: Provided, That this shall not apply to cases prescribed by Ordinance of the Ministry of Strategy and Finance considering the uniqueness, specialty, safety and other aspects of a product to be purchased. <Newly Inserted by Act No. 9829, Dec. 29, 2009>

 

(2) A public corporation or quasi-governmental institution may commission the Administrator of the Public Procurement Service to purchase goods in demand or execute a contract for construction works, if considered necessary. <Amended by Act No. 9829, Dec. 29, 2009>

Article 45 (Investment Method)

When the Government invests the capital in a public corporation or quasi-governmental institution, the Minister of Strategy and Finance shall decide on the period and method for such investment to implement it accordingly. <Amended by Act No. 8852, Feb. 29, 2008>

SECTION 5 Evaluation and Supervision of Management

Article 46 (Establishment of Management Goals)

 

(1) The institution head shall set up medium and long-term management goals for not less than five fiscal years including the following year, considering the substance of business, the management environment, and the details, etc. of the agreements executed under the provisions of Article 31 (3) and (4), and shall submit them to the Minister of Strategy and Finance and the head of the competent agency by no later than October 31 every year after finalizing them through resolution by the board of directors. <Amended by Act No. 8852, Feb. 29, 2008; Act No. 10286, May 17, 2010>

 

(2) Notwithstanding the provisions of paragraph (1), with respect to the year in which the institution is designated as a public corporation or quasi-governmental institution (excluding a change in designation) under the provisions of Article 6, the institution head shall set up medium and long-term management goals for not less than three fiscal years including the corresponding year within three months after such designation, and shall submit them to the Minister of Strategy and Finance and the head of the competent agency after finalizing them through resolution by the board of directors. <Amended by Act No. 8852, Feb. 29, 2008>

 

(3) Whenever the management goals set up under paragraphs (1) and (2) are changed, the head of institutions shall submit the details of the change to the Minister of Strategy and Finance and the head of the competent agency immediately after finalizing them through resolution by the board of directors. <Amended by Act No. 8852, Feb. 29, 2008; Act No. 10286, May 17, 2010>

 

(4) Considering the management environment, the economic situation, the direction of national policies, etc. of a public corporation or quasi-governmental institution, the Minister of Strategy and Finance may demand the head of a public corporation to change business goals, while the head of the competent agency may demand such a change to the head of a quasi-governmental institution. <Amended by Act No. 8852, Feb. 29, 2008>

 

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Article 47 (Report on Management Performance, etc.)

 

(1) Every public corporation and quasi-governmental institution shall prepare a report describing the management performance for the preceding year (hereinafter referred to as the “management performance report”) and a report on performance of the agreement executed by the institution head in accordance with the provisions of Article 31 (3) and (4), and shall submit them to the Minister of Strategy and Finance and the head of the competent agency by no later than March 20 each year. <Amended by Act No. 8852, Feb. 29, 2008>

 

(2) The provisions of paragraph (1) shall not be applicable to the year in which the institution is designated as a public corporation or quasi-governmental institution under the provisions of Article 6 (excluding a change in designation).

 

(3) The management performance report shall be accompanied by the statements on the settlement of accounts prepared according to Article 43 (1). <Amended by Act No. 9829, Dec. 29, 2009>

Article 48 (Management Performance Evaluation)

 

(1) The Minister of Strategy and Finance shall evaluate the management performance of a public corporation or quasi-governmental institution based on the report on the performance of the agreement under the provisions of Article 31 (3) and (4), the management goals under the provisions of Article 46 and the management performance report: Provided, That such management performance evaluation shall not be made in the year during which the institution is designated as a public corporation or quasi-governmental institution under the provisions of Article 6 (excluding a change in designation). <Amended by Act No. 8852, Feb. 29, 2008>

 

(2) In making the management performance evaluation of a public corporation or quasi-governmental institution under the provisions of main sentence of paragraph (1), the Minister of Strategy and Finance shall utilize the results from the evaluations already made for the institutions subject to the evaluation of fund management under the provisions of Article 82 (Evaluation of Fund Management) of the National Finance Act and the institutions subject to the evaluation under Article 32 (Fostering Government-Invested Research Institutes, etc.) (3) of the Framework Act on Science and Technology. <Amended by Act No. 8852, Feb. 29, 2008, May 28, 2014>

 

(3) The Minister of Strategy and Finance may request a public corporation or quasi-governmental institution to submit relevant data, if necessary for the management performance evaluation under paragraph (1). <Amended by Act No. 8852, Feb. 29, 2008; Act No. 9277, Dec. 31, 2008>

 

(4) In cases where a public corporation or quasi-government institution has failed to submit a report on the execution of an agreement under Article 31 (3) and (4), a management performance report and their attached documents or prepare and submit them falsely, the Minister of Strategy and Finance shall modify the result of management performance evaluation and the piece rate through the deliberation and resolution of the management committee, or take measures, such as caution, warning or such to the relevant institution, or request the head of the competent agency or institution head to take personnel measures for the related persons. In such cases, if the auditor or the audits of the audit committee has failed or neglected to perform the related duties, the Minister of Strategy and Finance may dismiss the relevant auditor or audits of the audit committee through the deliberation and resolution of the management committee or memorialize a person who has the power to appoint the institution head and standing directors to dismiss him/her. <Newly Inserted by Act No. 9277, Dec. 31, 2008>

 

(5) Criteria and methods for the evaluation of management performance under paragraph (1) shall be prescribed by the Minister of Strategy and Finance through deliberation and resolution by the management committee, in such a manner that the following matters shall be included in the evaluation of a public corporation or quasi-governmental institution: <Amended by Act No. 14076, Mar. 22, 2016>

 

  1. The rationality and achievement level of management goals;

 

25


  2. The public nature and efficiency of major projects;

 

  3. The adequacy of organizational and personnel management, including types of employment of employees;

 

  4. Soundness in financial management and budget-saving efforts, including the implementation of the mid- and long-term financial management plan formulated under Article 39-2;

 

  5. Results of the customer satisfaction survey conducted under Article 13 (2);

 

  6. Operation of a rational performance-based payment system;

 

  7. Other matters related to the management of the public corporation or quasi-governmental institution.

 

(6) The Minister of Strategy and Finance may organize and operate a management evaluation team for public corporations and quasi-governmental institutions (hereinafter referred to as “management evaluation team”) to ensure the efficient execution of management performance evaluation under paragraph (1) and to provide professional and technical research or consultation concerning management performance evaluation. <Newly Inserted by Act No. 9513, Mar. 25, 2009>

 

(7) The Minister of Strategy and Finance shall finish the evaluation of the management performance of public corporations and quasi-governmental institutions by no later than June 20 each year, and shall report the results therefrom to the National Assembly and the President after deliberation and resolution by the management committee. <Amended by Act No. 8852, Feb. 29, 2008; Act No. 9277 Dec. 31, 2008; Act No. 9513 Mar. 25, 2009>

 

(8) The Minister of Strategy and Finance may recommend or request the person who has the power to appoint the institution head and standing directors of a public corporation or a quasi-governmental institution to remove the institution head or the standing directors under the provisions of Articles 25 and 26 after deliberation and resolution by the management committee, if the results from the business performance evaluation under paragraph (7) show poor performance of the public corporation or quasi-governmental institution. <Amended by Act No. 8852, Feb. 29, 2008; Act No. 9277, Dec. 31, 2008; Act No. 9513, Mar. 25, 2009>

 

(9) The Minister of Strategy and Finance may request a public corporation or quasi-government institution which has caused the insolvent management due to the excessive appropriation of personnel expenses as a result of the management performance evaluation under paragraph (1) and the violation of guidelines of operation under Article 50 (1) to take personnel or budgetary measures for securing of the responsibility for future management and improvement in management through the deliberation and resolution of the management committee. <Newly Inserted by Act No. 9277, Dec. 31, 2008; Act No. 9513 Mar. 25, 2009>

 

(10) Necessary matters concerning the procedure for the management performance evaluation, the measures following the results from the management performance evaluation under paragraph (1), and composition, operation, etc. of the management evaluation team shall be prescribed by Presidential Decree. <Amended by Act No. 9277, Dec. 31, 2008; Act No. 9513, Mar. 25, 2009>

Article 49 (Preparation of Annual Report)

The Minister of Strategy and Finance may prepare and publish an annual report concerning the business status, etc. of public corporations and quasi-governmental institutions every year, based on the management performance reports and the results from the management performance evaluation under the provisions of Article 48. <Amended by Act No. 8852, Feb. 29, 2008>

Article 50 (Guidelines for Management)

 

(1)

The Minister of Strategy and Finance shall establish the guidelines for the following matters in connection with the daily affairs relating to the administration of public corporations and quasi-governmental

 

26


  institutions (hereinafter referred to: as the “management guidelines”) after deliberation and resolution by the management committee, and shall notify the guidelines to the heads of public corporations, quasigovernmental institutions and competent agencies: <Amended by Act No. 8852, Feb. 29, 2008>

 

  1. Matters concerning the administration of organization and the prescribed number and management of personnel;

 

  2. Matters concerning the budget and the fund administration;

 

  3. Other matters that the Minister of Strategy and Finance considers necessary for securing the financial soundness of public corporations and quasi-governmental institutions.

 

(2) If necessary for transparent and fair personnel management, ethical management, etc. of public corporations and quasi-governmental institutions, the head of a relevant administrative agency accountable for the related policy may present the Minister of Strategy and Finance his/her opinion about the management guidelines under the provisions of paragraph (1). <Amended by Act No. 8852, Feb. 29, 2008>

Article 51 (Supervision over Public Corporations and Quasi-Governmental Institutions)

 

(1) The Minister of Strategy and Finance and the head of the competent agency shall limit their supervision over public corporations and quasi-governmental institutions to the matters and the extent specifically prescribed in this Act or other statute to ensure that self-controlling management of public corporations and quasi-governmental institutions is not undermined. <Amended by Act No. 8852, Feb. 29, 2008>

 

(2) The Minister of Strategy and Finance shall supervise the matters concerning the compliance with the management guidelines for public corporations. <Amended by Act No. 8852, Feb. 29, 2008>

 

(3) The head of the competent agency shall supervise the following matters of public corporations and quasigovernmental institutions:

 

  1. Matters concerning proper execution of the business commissioned by the head of the competent agency to public corporations and quasi-governmental institutions under relevant statutes or the business directly related to their assigned business affairs and other matters prescribed by related statutes;

 

  2. Matters concerning the compliance with the’ management guidelines for quasi-governmental institutions.

 

(4) The Minister of Strategy and Finance and the head of the competent agency shall monitor whether the supervision under the provisions of paragraphs (2) and (3) is properly executed, as prescribed by Presidential Decree, and shall take measures necessary for improvement, after deliberation and resolution by the management committee. <Amended by Act No. 8852, Feb. 29, 2008>

Article 51-2 (Consultations on Establishment, etc. of Funding or Investment Institutions)

 

(1) Where a public corporation or quasi-governmental institution intends to establish a funding or investment institution or to fund or invest in other corporations, it shall hold a prior consultation with the head of the competent institution and the Minister of Strategy and Finance: Provided, That, where the public corporation or quasi-governmental institution has already followed the formalities equivalent to a prior consultation, or a public institution dealing with finance makes an investment, in specific cases prescribed by Presidential Decree, it need not hold a prior consultation.

 

(2) Matters necessary for the prior consultation under paragraph (1) and other matters shall be prescribed by Presidential Decree. <Newly Inserted by Act No. 14076, Mar. 22, 2016>

Article 52 (Audit by Board of Audit and Inspection)

 

(1) The Board of Audit and Inspection may audit the business affairs and accounting of public corporations and quasi-governmental institutions in accordance with the Board of Audit and Inspection Act.

 

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(2) The Board of Audit and Inspection may commission or delegate the audit under the provisions of paragraph (1) to the head of a related administrative agency, etc.

 

(3) Necessary matters concerning the scope of the heads of related administrative agencies, etc. to whom the Board of Audit and Inspection may commission or delegate the audit of public corporations and quasigovernmental institutions under the provisions of paragraph (2), the report on the results of the audit, the actions following the results, etc. shall be prescribed by the Rule of the Board of Audit and Inspection.

Article 52-2 (Presentation of Audit Result to National Assembly)

 

(1) A public corporation or a quasi-government institution shall present matters falling under the following subparagraphs to the competent standing committee of the National Assembly without delay:

 

  1. An audit report having synthesized the audit result executed by the auditor or the audit committee;

 

  2. Matters pointed out and matters requesting disposition in the audit executed by the Board of Audit and Inspection pursuant to Article 52 and a plan of measures for them.

 

(2) The Minister of Strategy and Finance shall present the result of evaluation of the actual performance of duties of the auditor or the audits of the audit committee executed pursuant to Article 36 (1) to the National Assembly without delay.”

[This Article Newly Inserted by Act No. 9277, Dec. 31, 2008]

CHAPTER V SUPPLEMENTARY PROVISIONS

Article 53 (Legal Fiction of Public Officials in Application of Penal Provisions)

A person who serves as an executive officer or employee of a public institution, a member of the management committee, or member of the executive recommendation committee, who is not a public official, shall be deemed a public official in application of Articles 129 through 132 of the Criminal Act. <Amended by Act No. 14076, Mar. 22, 2016>

Article 53-2 (Notification by Investigation Agencies, etc. Upon Commencement and Completion of Investigations

Upon commencing or completing an inquiry or investigation into a case related to the duties of an executive officer or employee of a public institution, the Board of Audit and Inspection of Korea, the Prosecutors’ Office, the Korea National Police Agency, or any other investigation agency shall notify the head of the public institution of the relevant facts and results of the inquiry or investigation within 10 days. <Newly Inserted by Act No. 14076, Mar. 22, 2016>

Article 53-3 (Restrictions on Voluntary Dismissal from Office)

A person authorized to appoint or recommend executives officers of a public institution may elect to disapprove the voluntary dismissal of an executive officer who has applied for voluntary dismissal from office, if the executive officer is being investigated by the Prosecutors’ Office, the Police Agency, or any other investigation agency, or audited by the Board of Audit and Inspection or any other audit agency in relation to his/her misconduct, or if a request has been made to the disciplinary committee of the public institution concerned to pass a resolution on a severe disciplinary action against the executive officer. <Newly Inserted by Act No. 14076, Mar. 22, 2016>

Article 54 (Exercise, etc. of Minority Stockholders’ Rights)

Article 542-6 of the Commercial Act shall apply mutatis mutandis to the exercise of minority stockholder’s rights in and a stockholder’s proposal to public corporations and quasi-governmental institutions, stocks of which have not been listed in the securities exchange prescribed by the Presidential Decree. <Amended by Act No. 11845, May 28, 2013>

 

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[This Article Wholly Amended by Act No. 9829, Dec. 29, 2009]

CHAPTER VI PENAL PROVISIONS

Article 55 (Penal Provisions)

 

(1) If any accounting auditor, certified public accountant under an accounting auditor’s control, auditor or member of the appointment committee for accounting auditors (referring to an audit commissioner if an audit committee is established) receives, requests for or promises money, valuables or gains after having received an illegal solicitation in respect of his/her duty, he/she shall be punished by imprisonment for not more than three years or by a fine not exceeding ten million won: Provided, That each of the aforesaid persons shall be punished by a fine not exceeding the amount equivalent to five times the economic gains acquired in respect of the duty in question, if five times the amount of the economic gains acquired in respect of the duty in question exceeds three million won in cases of imposition of a fine.

 

(2) Any person who promises, provides or indicates his/her intention to provide money, valuables or gains prescribed under paragraph (1) shall be also subject to paragraph (1).

 

(3) Money, valuables or gains prescribed under” paragraphs (1) and (2) shall be confiscated. Where all or any of the money, valuables or gains cannot be confiscated, the equivalent value shall be additionally collected.

[This Article Newly Inserted by Act No. 9513, Mar. 25, 2009]

Article 56 (Penal Provisions)

 

(1) Where any person under Article 635 (1) of the Commercial Act or any other person who is in charge of accounting of a public corporation or quasi-governmental institution prepares and announces a false financial statement, in violation of the accounting principles under Article 39 (1), shall be punished by imprisonment for not more than five years or by a fine not exceeding five million won.

 

(2) Where any person under Article 635 (1) of the Commercial Act or any other person who is in charge of accounting of a public corporation or quasi-governmental institution or who is an accounting auditor or certified public accountant under his/her control performs any of the following acts, such person shall be punished by imprisonment for not more than three years or by a fine not exceeding 30 million won: <Amended by Act No. 10896, Jul. 25, 2011>

 

  1. Where he/she fails to appoint an accounting auditor without justifiable grounds;

 

  2. Where he/she omits to make an entry of any matter to be entered in the auditor’s opinion or makes any false entry;

 

  3. Where he/she divulges confidential information, in violation of Article 43-3 (4);

 

  4. Where he/she fails to prepare the statements on the settlement of accounts.

 

(3) Where any person under Article 635 (1) of the Commercial Act or any other person who is in charge of accounting of a public corporation or quasi-governmental institution or who is an accounting auditor or certified public accountant under his/her control performs any of the following acts, such person shall be punished by imprisonment for not more than two years or by a fine not exceeding 20 million won: <Amended by Act No. 10896, Jul. 25, 2011>

 

  1. Where he/she presents false data to an accounting auditor or certified public accountant under his/her control or interferes with an accounting auditor in conducting a normal accounting audit by false or other illegal means;

 

  2. Where he/she refuses, interferes with or challenges an accounting auditor’s requests for inspection, reproduction, submission, etc. of data or investigation under Article 43-3 (3) or fails to submit relevant data, without justifiable grounds;

 

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  3. Where he/she fails to submit the statements on the settlement of account to an accounting auditor, in violation of Article 43 (1).

[This Article Newly Inserted by Act No. 9513, Mar. 25, 2009]

ADDENDA

Article 1 (Enforcement Date)

This Act shall enter into force on April 1, 2007: Provided, That necessary actions for the composition of the management committee under the provisions of Article 9 and the designation of public corporations, quasigovernmental institutions, and non-classified public institutions to whom this Act shall apply for the first time after this Act enters into force may be done even before the enforcement of this Act.

Article 2 (Repeal of other Acts)

The following Acts shall be repealed respectively:

 

  1. The Framework Act on the Management of Government-Invested Institutions;

 

  2. The Framework Act on the Management of Government-Affiliated Institutions.

Article 3 (Initial Designation and Classification of Public Institutions, etc.)

 

(1) The Minister of Planning and Budget shall designate the public corporations, quasi-governmental institutions, and non-classified public institutions to whom this Act shall apply, after consultation with the heads of the competent agencies and deliberation and resolution by the management committee, simultaneously with the enforcement of this Act, and shall publicly notify such designation.

 

(2) In designating the public corporations and quasi-governmental institutions initially and publicly notifying such designation under the provisions of paragraph (1), the Minister of Planning and Budget shall designate the institutions whose prescribed number of personal is not less than 50 employees among the institutions subject to application of the Framework Act on the Management of Government-Invested Institutions, the Framework Act on the Management of Government-Affiliated Institutions, and the Act on the Improvement of Managerial Structure and Privatization of Public Enterprises at the time when this Act enters into force.

Article 4 (Transitional Measures)

 

(1) Notwithstanding the provisions of Article 9 (2), the members of the management committee initially commissioned under the provisions of Article 9 (1) 4 may be given different terms of office for three years, two years, and one year respectively.

 

(2) Notwithstanding the provisions of Article 31 (5), the agreement on management and performance already executed by the head of an institution designated as a public corporation or quasi-governmental institution for the first time after the enforcement of this Act in connection of his/her appointment at the time when he/she was appointed to the office shall be deemed to be the agreement entered into between the head of the competent agency and the institution head under this Act.

 

(3) Notwithstanding the provisions of Article 46 (2), the management goals set up at the time of the enforcement of this Act by a public corporation or quasi-governmental institution designated for the first time after enforcement of this Act shall be deemed to have been set up in accordance with this Act.

 

(4) Notwithstanding the proviso to Article 48 (1), the relevant provisions of the Framework Act on the Management of Government-Invested Institutions and the Framework Act on the Management of Government-Affiliated Institutions shall apply to the evaluation of the report and the evaluation of management performance of a public corporation’ or quasi-governmental institution designated for the first time after the enforcement of this Act.

 

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(5) The matters resolved by the former committee for management of government-invested institutions and the former committee for management of government-affiliated institutions existing at the time of enforcement of this Act shall be deemed to have been resolved by the management committee under this Act.

Article 5 (Relations to other Acts and Subordinate Statutes)

In cases where any other Acts and subordinate statutes enforceable at the time when this Act enters into force have cited a government-invested or government-affiliated institution, it shall be deemed, until December 31, 2009, to have cited an institution identified as a government-invested or government affiliated institution under the Framework Act on the Management of Government-Invested Institutions or the Framework Act on the Management of Government-Affiliated Institutions enforceable at the time when this Act enters into force. <Amended by Act No. 9345, Jan. 30, 2009>

ADDENDA <Act No. 8635, Aug. 3, 2007>

Article 1 (Enforcement Date)

This Act shall enter into force one year and six months after the date of its promulgation. (Proviso Omitted.)

Articles 2 through 44 Omitted.

ADDENDUM <Act No. 8696, Dec. 14, 2007>

This Act shall enter into force on the date of its promulgation.

ADDENDA <Act No. 8852, Feb. 29, 2008> Article 1 (Enforcement Date)

This Act shall enter into force on the date of its promulgation. (Proviso Omitted.)

Articles 2 through 7 Omitted.

ADDENDUM <Act No. 9277, Dec. 31, 2008>

This Act shall enter into force three months after the date of its promulgation.

ADDENDUM <Act No. 9345, Jan. 30, 2009>

This Act shall enter into force on the date of its promulgation.

ADDENDA <Act No. 9513, Mar. 25, 2009>

 

(1) (Enforcement Date) This Act shall enter into force on January 1, 2010: Provided, That the amended provisions (limited to the parts amended under this Act) of Articles 25, 34 and 48 of the amended ACT ON THE MANAGEMENT OF PUBLIC INSTITUTIONS (Act No. 9277) shall enter into force three months after the date of its promulgation.

 

(2) (Applicability concerning Accounting Audits, Appointment of Accounting Auditors, Accounting Auditor’s Liability for Damage) The amended provisions of Articles 43, 43-2 and 43-3 shall apply beginning with the settlement of accounts for the fiscal year of 2010.

 

(3) (Applicability concerning Composition and Operation of Management Evaluation Team) The amended provisions (limited to the parts amended under this Act) of Article 48 of the amended ACT ON THE MANAGEMENT OF PUBLIC INSTITUTIONS (Act No. 9277) shall apply beginning with the first evaluation of management performance conducted after this Act enters into force.

 

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ADDENDA <Act No. 9829, Dec. 29, 2009>

 

(1) (Enforcement Date) This Act shall enter into force on the date of its promulgation: Provided, That the amended provisions of Articles 24, 26 (3) and 44 shall enter into force three months after the date of its promulgation.

 

(2) (Applicability concerning Submission of Statements on Settlement of Accounts) The amended provisions of Article 43 shall apply beginning with the settlement of accounts for the fiscal year of 2010.

 

(3) (Applicability concerning Appointment and Removal of Executives) Where the procedure of appointing and removing the executives of a public corporation and quasi-governmental institution is in progress at the time this Act enters into force, the, former provisions shall govern, notwithstanding the amended provisions of Articles 25 and 26.

ADDENDA <Act No. 10286, May 17, 2010>

 

(1) (Enforcement Date) This Act shall enter into force on the date of its promulgation.

 

(2) (Applicability concerning Mid-and Long-term Financial Management Plan) The amended provisions of Articles 39-2 and 46 shall apply beginning with mid-and long-term financial management plans and mid and long-term business goals to be established in 2012.

ADDENDA <Act No. 10896, Jul. 25, 2011>

This Act shall enter into force on the date of its promulgation.

ADDENDA <Act No. 12673, May 28, 2014>

Article 1 (Enforcement Date)

This Act shall enter into force on the date of its promulgation.

Articles 2 through 3 Omitted.

Articles 4 (Amendment of other Act) <Act No. 12673, May 28, 2014> (The Framework Act on Science and Technology)

Article 1 (Effective Date)

This Act shall take effect on the date of its promulgation. <Proviso omitted>

Articles 2 and 3 omitted

Article 4 (Amendment of Other Acts)

 

  (1) The ACT ON THE MANAGEMENT OF PUBLIC INSTITUTIONS is partially amended as follows.

“under the provisions of Article 32 (Fostering Government-Invested Research Institutes, etc.) (2) of the Framework Act on Science and Technology” in Article 48(2) shall be changed to “under Article 32 (Fostering Government-Invested Research Institutes, etc.) (3) of the Framework Act on Science and Technology”

 

  (2) through (5) omitted

ADDENDA <Act No. 14076, Mar. 22, 2016>

This Act shall enter into force six months after the date of its promulgation.

 

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Exhibit 15.4

ENFORCEMENT DECREE OF THE ACT ON THE MANAGEMENT OF PUBLIC INSTITUTIONS

Enforced on Oct. 15, 2011

Amended by Presidential Decree No. 23221, Oct. 14, 2011

Presidential Decree No. 11690, Mar. 23, 2013

Presidential Decree No. 24780, Oct. 2, 2013

Presidential Decree No. 25279, Mar. 24, 2014

Presidential Decree No. 25532, Aug. 6, 2014

Presidential Decree No. 25751, Nov. 19, 2014

Presidential Decree No. 27073, Mar. 31, 2016

Presidential Decree No. 27505, Sep. 22, 2016

Article 1 (Purpose)

The purpose of this Decree is to provide for the matters delegated by the Act on the Management of Public Institutions and the matters necessary for the enforcement thereof.

Article 2 (Amount of Total Revenue)

The term “amount of total revenue” in Articles 4 (1) 2 and Article 5 (2) and (3) 1 (a) of the Act on the Management of Public Institutions (hereinafter referred to as the “Act”) means an amount calculated in accordance with the attached Table 1, excluding the amount of obligations to pay in the future from the revenue acquired by the institution as earnings from its business or granted as an aid by the State, a local government, a private sector, etc. and the derivative revenue yielded from such revenue.

Article 3 (Amount of Government Aid)

The term “amount of the Government grants” in Article 4 (1) 2 of the Act means the aggregate of the following amounts out of the amount of total revenue:

 

  1. The amount of revenue transferred from the Government including contributions and subsidies, and the amount of revenue transferred from a private sector, etc. in compliance with a mandatory provision of a statute including charges under the Framework Act on the Management of Charges;

 

  2. The amount of revenue earned from a business specified by a statute as a business of the institution or commissioned on the ground prescribed for such commission by a statute or the amount of revenue earned from an monopoly provided for by a statute or granted on the ground prescribed by a statute. In this case, the amount of revenue means all revenues earned from a commissioned business or monopoly including fee, admission fee, use charge, insurance premium, contribution, charge, etc. in whatsoever name; and

 

  3. The amount of derivative revenue yielded from the management of the revenues specified in subparagraphs 1 and 2.

Article 4 (Criterion of Securing Practical Control)

The term “secure practical control over” in Article 4 (1) 3 through 5 of the Act means one of the following cases:

 

  1. Where it is possible, because of the largest shares in possession, to control the institution by the exercise of shareholder rights in the light of the diversification of shares;

 

1


  2. Where involvement in appointment (including approval and recommendation) of the head of the institution or a majority of members of its board of directors is secured by a statute or the articles of incorporation; or

 

  3. Where an authority to approve the budget or business plan of the institution is secured by a statute or the articles of incorporation.

Article 5 (Self-Generating Revenue)

The term “self-generating revenue” in Article 5 (2) and (3) 1 (a) of the Act means the aggregate of the following revenues, excluding the amount falling under subparagraph 1 of Article 3 from calculation of the following revenues:

 

  1. Revenue from the business for its original purpose: The amount of revenue directly generated from the business specified in the Act that provides for the ground for the establishment of the institution or its articles of incorporation, as calculated in accordance with the attached Table 2;

 

  2. Revenue from other business: The amount of revenue generated from the business not specified in the Act that provides for the ground for the establishment of the institution or its articles of incorporation, as calculated in accordance with the attached Table 2; and

 

  3. Revenue from any sources other than business: The amount of incidental revenue accrued derivatively from the business specified in subparagraphs 1 and 2 such as interest income accrued from the momentary fund management, as calculated in accordance with the attached Table 2.

Article 6 (Method for Calculating Total Revenue, etc.)

 

(1) The amount of total revenue under Articles 4 (1) 2 and 5 (2) and (3) 1 (a) of the Act, the amount of the Government grants under Article 4 (1) 2 of the Act, and the amount of self-generating revenue under Article 5 (2) and (3) 1 (a) of the Act (hereinafter referred to as the “amount of total revenue, etc.”) shall be the average amount for the latest three years, calculated based on the financial statements for the settlement of accounts for the latest three years.

 

(2) In calculating total revenue, etc. in accordance with paragraph (1), an institution whose financial statements have been prepared for less than three years shall calculate its total revenue, etc. utilizing the financial statements for the corresponding period of time, while an institution whose financial statements have not been prepared yet shall prepare data equivalent to those statements based on its budget for such calculation.

 

(3) The financial statements under paragraph (1) shall be basically the financial statements prepared on the basis of accruals: Provided, That an institution that does not prepare such statements in accordance with accruals shall prepare data equivalent to those statements for such calculation.

 

(4) The prescribed number of personnel in applying Article 5 (1) of the Act, Article 3 (2) of the Addenda to the Act and Articles 21 and 22 of this Decree shall mean the prescribed number of personnel as of the end of the year immediately preceding the designation as a public institution or the appointment or removal of executives: Provided, That in cases of a public institution in which the prescribed number of personnel as of the end of the immediately preceding year does not exist due to reasons, such as being newly designated as a public institution under the proviso to the part, other than the subparagraphs of Article 6 (1) of the Act, it refers to the prescribed number on the day such reason arises. <Amended by Presidential Decree No. 22088, Mar. 26, 2010>

 

(5)

The asset size under Article 5 (3) 1 (a), the main sentence of the Article 18 (2) and (4), the main sentence of Article 20 (2) and (3) and the proviso to the Article 21 (2) of the Act and Article 22 (1) 2 of this Decree shall be calculated based on the financial statements for the settlement of accounts for the latest year: Provided, That in cases of a public institution, financial statements of which are not prepared due to reasons, such as being newly designated as a public institution under the proviso to the part, other than the

 

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  subparagraphs of Article 6 (1) of the Act, the asset size shall be calculated based on the budget of the year in which such reason arises. <Amended by Presidential Decree No. 22088, Mar. 26, 2010>

 

(6) The amount of total revenue under Articles 21 and 22 (1) 1 shall be calculated based on the financial statements for the settlement of accounts for the latest year: Provided, That in cases of a public institution, financial statements of which are not prepared due to reasons, such as being newly designated as a public institution under the proviso to the part other than the subparagraphs of Article 6 (1) of the Act, the amount of total revenue shall be calculated based on the budget of the year in which such reason arises. <Amended by Presidential Decree No. 22088, Mar. 26, 2010>

 

(7) The Minister of Strategy and Finance may prepare more specific guidelines for calculating total revenue, etc. to notify them to the administrative agencies that control the affairs of public corporations, quasigovernmental institutions, and non-classified public institutions under relevant statutes (hereinafter referred to as the “competent agencies”). <Amended by Presidential Decree No. 20720, Feb. 29, 2008>

Article 7 (Criterion of Designation of Market-based Public Corporations)

“Criterion prescribed by Presidential Decree” in Article 5 (3) 1 (a) of the Act means 85 percent.

Article 8 (Procedure for Designation of Public Institutions. etc.)

 

(1) The head of the competent agency shall notify the Minister of Strategy and Finance of the institutions subject to designation of public institutions under Article 4 of the Act no later than one month before the beginning of each fiscal year. <Amended by Presidential Decree No. 20720, Feb. 29, 2008>

 

(2) If a change occurs in the legal personality, name, etc. of a public institution, or any reason for initial designation of or designation of a public institution by changing the classification or any reason for the cancelation of designation under the proviso to the part, other than the subparagraphs of Article 6 (1) of the Act occurs, the head of the competent agency shall immediately notify the details thereof to the Minister of Strategy and Finance. <Amended by Presidential Decree No. 22088, Mar. 26, 2010>

Article 9 (Examination on Establishment of New Institution)

When the head of the competent agency requests the Minister of Strategy and Finance to examine the feasibility of the establishment of a new institution in accordance with Article 7 (1) of the Act, the head shall submit a plan containing the following descriptions and materials: <Amended by Presidential Decree No. 20720, Feb. 29, 2008>

 

  1. Scope and substance of the business of the institution;

 

  2. Services and goods that the new institution will provide;

 

  3. Annual revenue expected and budget of the Government grants required in the next five years;

 

  4. Plan for the management of the organization and human resources for the next five years;

 

  5. Current status of related institutions already established;

 

  6. Other materials requested by the Minister of Strategy and Finance.

Article 10 (Matter Subject to Deliberation and Resolution by Management Committee)

“Other matters prescribed by Presidential Decree concerning management of public institutions” in subparagraph 14 of Article 8 of the Act means the following matters:

 

  1. Matters concerning the items, guidelines, procedure, etc. for the consolidated publication under Article 16;

 

3


  2. Matters concerning the scope of public institutions that provide direct services to the people under Article 17 (1);

 

  3. Matters concerning the designation of the institutions exempt from the function adjustment. etc. under Article 18 (2);

 

  4. Matters concerning the request for evaluation of business performance under Article 27 (1);

 

  5. Matters concerning the management of the management evaluation team for public corporations and quasi-governmental institutions under Article 28 (4);

 

  6. Matters concerning the determination on whether to consider as actual revenue under subparagraph 3 (c) of attached Table 1.

Article 11 (Composition of Management Committee)

 

(1) “Vice Minister, Deputy Administrator, or an equivalent public official of the related administrative agency as prescribed by Presidential Decree” in Article 9 (1) 2 of the Act means one of the following persons: <Amended by Presidential Decree No. 20720, Feb. 29, 2008; Presidential Decree No. 11690, Mar. 23 2013; Presidential Decree No. 25751, Nov. 19, 2014>

 

  1. One Vice-Minister of the Ministry of Strategy and Finance nominated by the Minister of the Ministry of Strategy and Finance;

 

  2. Vice-Minister of the Ministry of Government Administration and Home Affairs;

 

  3. One Vice-Minister level public official nominated by the Chairman of Anti-Corruption & Civil Rights Commission;

 

  4. Minister of Personnel Management

 

(2) “People who have good knowledge and experience in the area of the management and business administration of public institutions” in Article 9 (1) 4 of the Act means the following persons: <Amended by Presidential Decree No. 20947, Jul. 29, 2008>

 

  1. Persons who have a career of working for a university, a college, or an officially recognized research institute as an adjunct professor or in an equivalent position for at least five years;

 

  2. Persons who have a career as a judge, a public prosecutor, or a lawyer for at least ten years;

 

  3. Persons who have a career of working for a public institution under the Act and this Decree or a stock-listed corporation under Article 9 (15) 3 of the Financial Investment Services and Capital Markets Act for at least twenty years and who have served as an executive for at least three years;

 

  4. Persons who have a career of engaging in the area of audit or accounting for the institutions enumerated in subparagraph 3 with a license of certified public accountant for at least ten years;

 

  5. Persons who have worked as a public official in the Senior Civil Service or a public official in political service;

 

  6. Other persons whose career, etc. relating to the management of a public institution are recognized as equivalent to the criteria set forth in subparagraphs 1 through 5.

 

(3) The management committee may establish and run an advisory team composed of related specialists to give advices on specialized or technical matters relating to the management of public institutions.

Article 12 (Management of Management Committee)

 

(1) The chairperson shall convene the meeting of the management committee and shall take the chair in the meeting.

 

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(2) If the chairperson is unable to perform his/her duties, the member designated by the chairperson shall act on behalf of the chairperson. <Amended by Presidential Decree No. 22088, Mar. 26, 2010>

 

(3) The management committee may request a public official concerned or an executive or an employee of a public institution to appear before the committee, submit materials, and present his/her opinion, whenever necessary for executing its business.

 

(4) Allowances, travel expense, and other necessary expenses may be reimbursed to the committee members, other than public officials within the limit of its budget.

 

(5) The chairperson shall send the materials related to the matters on the agenda brought up to the meeting of the management committee, in advance, to the Chairperson of the Board of Audit and Inspection and the heads of related administrative agencies pursuant to Article 10 (3) of the Act.

 

(6) Other necessary matters concerning the management of the management committee shall be prescribed by the chairperson after resolution by the management committee.

 

(7) The matters under paragraph (6) shall include the matters concerning the preparation and preservation of the minutes of meeting of the management committee and the disclosure of the contents of the minutes of meeting under the Official Information Disclosure Act.

Article 13 (Exclusion, Challenge, Abstention of Members of Management Committee)

 

(1) A committee member shall be excluded from deliberation and resolution on any of the following matters:

 

  1. A matter in which the member has direct interests;

 

  2. A matter in which the member’s spouse, relative by blood within the fourth degree, or relative by marriage within the second degree or an institution to which the member belongs has interests;

 

  3. A matter in which a person who acts as an advisor, a consultant, etc. for the member or an institution to which the member belongs has interests.

 

(2) A person who has direct interests in a matter subject to deliberation and resolution by the management committee may file an application for challenge against a member, if there is any ground on which it is difficult to expect fairness in deliberation and resolution. In such cases, the chairperson shall decide whether to accept the application for challenge without referring it to the management committee for resolution.

 

(3) A committee member may voluntarily abstain from deliberation and resolution on a case, if he/she falls under any of the grounds set forth in paragraph (t) or (2).

Article 14 (Subcommittees)

 

(1) The management committee may have subcommittees composed of some of the committee members for carrying out its business in an efficient manner.

 

(2) The chairperson and members of a subcommittee shall be appointed by the chairperson of the management committee.

 

(3) The subcommittee shall review matters decided by a resolution of the management committee, and shall report the results thereof to the management committee.

 

(4) Other necessary matters concerning the composition and management of subcommittees shall be prescribed by the chairperson after resolution by the management committee.

Article 15 (Publication on Management)

The publication on the matters specified in Article 11 (1) of the Act shall be made as follows: <Amended by Presidential Decree No. 22088, Mar. 26, 2010, Presidential Decree No. 27505, Sep. 22, 2016>

 

  1. The publication on management shall be made by posting and furnishing the data for the latest five years concerning the matters subject to publication;

 

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  2. The statements on the settlement of accounts under Article 11 (1) 2 of the Act shall be posted and furnished within ninety days after the end of each business year;

 

  3. The information about the matters under Article 11 (1) 1 and 3 through 15 of the Act shall be posted and furnished without delay whenever such a matter arises.

Article 16 (Consolidated Publication)

 

(1) The Minister of Strategy and Finance shall prescribe the items subject to consolidated publication under Article 12 of the Act and the matters concerning the criteria and procedure therefor (hereinafter referred to as “criteria, etc. for consolidated publication”) after deliberation and resolution by the management committee, and shall notify them to the heads of public institutions. <Amended by Presidential Decree No. 20720, Feb. 29, 2008>

 

(2) Whenever revising the matters concerning the criteria, etc. for consolidated publication prescribed in accordance with paragraph (1), the Minister of Strategy and Finance shall finalize such revision after deliberation and resolution by the management committee, and shall notify it to the heads of public institutions no later than fourteen days before enforcing the criteria, etc. for consolidated publication as revised. <Amended by Presidential Decree No. 20720, Feb. 29, 2008>

 

(3) The head of a public institution shall publish the management information in accordance with the criteria, etc. for consolidated publication under paragraphs (1) and (2) in the Internet site designated by the Minister of Strategy and Finance. <Amended by Presidential Decree No. 20720, Feb. 29, 2008>

Article 17 (Customer Charter, etc.)

 

(1) The Minister of Strategy and Finance shall determine the scope of public institutions that provide direct service to the people, after deliberation and resolution by the management committee, and shall notify it to the heads of public institutions. <Amended by Presidential Decree No. 20720, Feb. 29, 2008>

 

(2) Every public institution shall, upon establishing the customer charter under Article 13 (1) of the Act, announce it through the Internet, etc. or post it at a certain place to make it known to the people.

 

(3) The heads of public institutions may request an independent specialized institution to conduct a survey on customer satisfaction level under Article 13 (2) of the Act.

Article 18 (Adjustment of Functions of Public Institutions, etc.)

 

(1) The Minister of Strategy and Finance may carry out adjustment of functions, etc. of public institutions under Article 14 of the Act step by step, considering the nature, peculiarities in business affairs, etc. of public institutions. <Amended by Presidential Decree No. 20720, Feb. 29, 2008>

 

(2) The Minister of Strategy and Finance may exclude institutions that fall under any of the following subparagraphs among public institutions from those subject to adjustment of functions, etc., after deliberation and resolution by the management committee: <Amended by Presidential Decree No. 2072~ Feb. 29, 2008>

 

  1. An institution for which a relevant Act provides that it is necessary to guarantee independence of the Government and neutrality in executing the functions of the institution;

 

  2. An institution in which case three years have not passed yet since its establishment;

 

  3. An institution for which the management committee determines it is not proper to be subjected to adjustment of function, etc., considering the peculiarities in its business affairs, etc.

 

(3)

Where the Minister of Strategy and Finance deems necessary for the purpose of smooth development of the plan under Article 14(3) of the Act, it may order the head of the competent agency to consign disposal of

 

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  property owned by the Nation and public institutions to Korea Asset Management Corporation under the Act on the Efficient Disposal of Non-performing Assets, Etc. of Financial Company and the Establishment of Korea Asset Management Corporation (hereinafter referred to as “Korea Asset Management Corporation”) after deliberation and resolution by the management committee: <Newly inserted by Presidential Decree on July 14, 2011; Presidential Decree No. 25279, Mar. 24 2014>

 

(4) When consigning such property pursuant to paragraph (3), the head of the competent agency or the heads of public institutions shall conclude a consignment agreement containing each of the following subparagraphs with the Korea Asset Management Corporation. <Newly Inserted on July 14, 2011>

 

  1. Purpose of assignment;

 

  2. Consignment fees and expenses; and

 

  3. Other matters necessary for the performance of consignment work.

Article 19 (Non-Standing Senior Director)

 

(1) The non-standing senior director under Article 21 of the Act shall be appointed from among the persons who have good knowledge and experience in operation and business administration of public institution and good reputation of impartiality and fall under any subparagraph of Article 11 (2).

 

(2) The non-standing senior director may convene and preside over the non-standing directors’ meeting to discuss the matters on the agenda of the directors’ meeting and other matters concerning the management of the institution.

 

(3) The head of a public institution or a quasi-governmental institution shall help the non-standing senior director carry out the affairs set forth in paragraph (2) as necessary.

Article 20 (Excuse for Non-standing Senior Director’s Request for Audit, etc.)

 

(1) If it is difficult to comply with the non-standing director’s request for audit under Article 22 (2) of the Act due to extraordinary circumstances, the auditor or the audit committee shall explain such circumstances to the non-standing senior director, and shall report it to the board of directors.

 

(2) If it is difficult to comply with the non-standing director’s demand for data under Article 22 (3) of the Act due to extraordinary circumstances, the head of a public corporation or a quasi-governmental institution shall explain such circumstances to the non-standing senior director, and shall report it to the board of directors.

Article 21 (Appointment and Removal of Executives of Public Corporations)

The term “public corporation, the size of which is below the criteria prescribed by Presidential Decree” in the provisos to Article 25 (1) and (4) of the Act means a public corporation whose total revenue under Article 2 is less than one hundred billion won or whose prescribed number of personnel is less than five hundred persons.

Article 22 (Appointment and Removal of Executives of Quasi-Governmental Institutions)

 

(1) “Criteria prescribed by Presidential Decree” in the provisos to Article 26 (1) and Article 26 (4) of the Act and “criteria prescribed by Presidential Decree” in the main sentences of the Articles 24 (3) and 26 (3) of the Act means the criteria of each of the following subparagraphs: <Amended by Presidential Decree No. 22088, Mar. 26, 2010>< Amended by Presidential Decree No. 27073, Mar. 31, 2016>

 

  1. Commissioned-service-based quasi-governmental institutions: Whose total revenue under Article 2 shall be no less than one hundred billion won and whose prescribed number of personnel shall be no less than five hundred persons;

 

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  2. Fund-management-based quasi-governmental institutions: Whose asset size (including fund assets in commissioned management) shall be no less than one trillion won and whose prescribed number of personnel shall be no less than five hundred persons.

 

(2) “Quasi-governmental institution …. which is prescribed by Presidential Decree” in the main sentences of Articles 24 (3), in the main sentences of Articles 26(3) and in the proviso to Article 26 (4) of the Act and “quasi-governmental institution …. which is specified by Presidential Decree” in the proviso to Article 26 (1) of the Act means an institution under any of the following subparagraphs: <Amended by Presidential Decree No. 22088, Mar. 26, 2010>< Amended by Presidential Decree No. 27073, Mar. 31, 2016>

 

  1. Independence Hall of Korea under the Independence Hall of Korea Act;

 

  2. Korea Workers’ Compensation & Welfare Corporation under the Industrial Accident Compensation;

 

  3. Korea Consumer Agency under the Framework Act on Consumers;

 

  4. Korea Housing Finance Corporation under the Korea Housing Finance Corporation Act;

 

  5. Act on National Research Foundation of Korea;

 

  6. Korea Student Aid Foundation under the Act on the Establishment, etc. of Korea Student Aid Foundation;

 

  7. Korea International Cooperation Agency under the Korea International Cooperation Agency Act.

Article 23 (Organization and Management of Executive Recommendation Committee)

 

(1) Whenever there is a need to appoint a new executive due to expiration of an executive’s term or any other reason, the board of directors of a public corporation or a quasi-governmental institutions shall organize the executive recommendation committee under Article 29 of the Act (hereinafter referred to as the “recommendation committee”) without delay.’

 

(2) The number of members of the executive recommendation committee shall be decided by a resolution of the board of directors within the range between five and fifteen persons: Provided, That the number of the members may be two or three persons, if the number of non-standing directors at the time of the organization of the recommendation committee is not more than two persons. <Amended by Presidential Decree No. 22088, Mar. 26, 2010>

 

(3) The members appointed by the board of directors under Article 29 (2) of the Act shall be chosen among the people with good knowledge and experience from the various areas of law, economy, press, academia, labor, etc.: Provided, That such members shall include one person who can represent the opinions of the members of the public corporation or the quasi-governmental institution.

 

(4) The recommendation committee shall adopt a’ resolution by the affirmative vote of a majority of its incumbent members.

 

(5) The recommendation committee may commission some of its works including invitation, search, etc. of candidates for executives to a specialized institution.

 

(6) Necessary matters concerning the management of the recommendation committee, such as the organization of the recommendation committee, the system for exclusion, challenge, or abstention of a member, etc. and the appointment of executives. in addition to the matters prescribed by the Act or this Decree shall be provided for by the articles of incorporation or the bylaws of the public corporation or the quasigovernmental institution.

 

(7) The recommendation committee shall prepare and preserve minutes of meetings containing the details, etc., about deliberations and resolutions by the recommendation committee and shall make them public: Provided, That the minutes of meetings may not be made public in cases falling under any of the subparagraphs of Article 9 (1) of the Official Information Disclosure Act. <Amended by Presidential Decree No. 22088, Mar. 26, 2010>

 

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Article 24 (Invitation of Candidates for Executives)

 

(1) When inviting candidates for executives publicly in accordance with Article 30 {3} of the Act, such invitation shall be publicly notified through the Internet homepage of the public corporation or the quasigovernmental institution and one or more daily newspapers, and the period of time allowed for application shall be at least one week: Provided, That such period of time may be shortened with an approval of the head of the competent agency if there are unavoidable circumstances for prompt appointment. <Amended by Presidential Decree No. 22088, Mar. 26, 2010>

 

(2) When publicly notifying the matters concerning the open invitation of candidates for executives under paragraph (1), a public corporation or a quasi-governmental institution shall request the competent agency, the Ministry of Strategy and Finance and the Ministry of Personnel Management to post such invitation on their homepages. <Amended by Presidential Decree No. 20720, Feb. 29, 2008; Presidential Decree No. 11690, Mar. 23, 2013; Presidential Decree No. 25751, 2014>

Article 24-2 (Request for Re-Recommendation of Candidates for Executives)

An appointing authority of or recommending authority for appointment of executives of a public corporation or quasi-government institution under Article 25 or 26 of the Act may make a request for the re-recommendation of candidates for executives to the recommendation committee, if the candidates for executives recommended by the recommendation committee fall under the grounds for disqualifications under Article 34 (1) of the Act or are deemed noticeably inappropriate for the management of public corporations or quasi-government institutions.

[This Article Newly Inserted by Presidential Decree No. 22088, Mar. 26, 2010)

Article 25 (Restriction on Concurrent Offices of Executives and Employees)

The provisions of Article 25 of the State Public Officials Service Regulation shall apply mutatis mutandis to the scope of businesses for profit under Article 37 (3) of the Act.

Article 25-2 (Establishment, etc. of Mid-and Long-Term Financial Management Plan)

 

(1) “The public corporations and quasi-governmental institutions under the category prescribed by Presidential Decree” under Article 39-2 (1) 2 of the Act means a public corporation or a quasi-governmental institution corresponding to one of the following subparagraphs.

 

  1. Public corporations and quasi-governmental institutions, with a clause on government’s compensation for loss to such public corporations and quasi-governmental institutions in the laws forming the basis of the foundation thereof;

 

  2. Of public corporations and quasi-governmental institutions with liabilities larger than assets, those designated and announced by the Minister of Strategy and Finance taking into account the size, reasons, and periods of capital impairment.

 

(2) If the head of an institution falling under the categories prescribed in the subparagraphs of Article 39-2 (1) of the Act established a Mid- and Long-Term Financial Management Plan, it shall be in accordance with the guidance determined and announced by the Minister of Strategy and Finance considering each of the following subparagraphs.

 

  1. The matters relating to specific items which have to be commonly included in the content;

 

  2. The matters relating to the setting of criteria including assumptions to be commonly applied to various future estimates, evaluations, and analyzes;

 

  3. The matters needed to keep the content objective; and

 

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  4. The matters relating to the financial management plan under Article 39-2 (2) 3 of the Act and the liability management plan under Subparagraph 4 of the same Article.

 

(3) The Minister of Strategy and Finance may consult with the head of the responsible institution in case necessary to prescribe the matters relating to the establishment guidance of the Mid- and Long-Term Financial Management Plan under Paragraph 2.

[This Article Newly Inserted by Presidential Decree No. 24780, Oct. 2, 2013]

Article 25-3 (Preliminary Feasibility Study)

 

(1) If the head of a public corporation or quasi-governmental institution (hereinafter referred to as the “institution head” in this Article) intends to compile a budget for a new investment project and capital investment that meets all of the requirements under the following subparagraphs, the institution head shall file an application for preliminary feasibility study with the Minister of Strategy and Finance in accordance with the main sentence of Article 40 (3) of the Act:

 

  1. The total project cost shall not be less than 100 billion won; and

 

  2. The sum of the amount funded by the government and the amount borne by the public corporation shall not be less than 50 billion won.

 

(2) If the institution head files an application for preliminary feasibility study under paragraph (1), the institution head shall also submit a project plan stating the name, overview and necessity, etc. of the project to the Minister of Strategy and Finance.

 

(3) Upon receipt of the application under paragraph (1), the Minister of Strategy and Finance shall determine whether or not to conduct a preliminary feasibility study after consultation with related experts.

 

(4) If the institution head intends to obtain a confirmation that a new investment project and capital investment that meets all of the requirements set forth in the subparagraphs of paragraph (1) is exempt from preliminary feasibility study under the proviso to Article 40 (3) of the Act, the institution head shall submit a request for confirmation of exemption from preliminary feasibility study stating the name, overview and necessity of the project and grounds, etc. for exemption of the project to the Minister of Strategy and Finance. Provided, That even in the case where the institution head intends to obtain confirmation from the Minister of Strategy and Finance that the project concerned is a project that needs to be implemented urgently to prevent a disaster, before obtaining the consent of the competent Standing Committee of the National Assembly under subparagraph 5 of Article 40 (3) of the Act, the institution head may submit a request for confirmation of exemption from preliminary feasibility study.

 

(5) Upon receipt of a request for confirmation of exemption from the preliminary feasibility study under paragraph (4), if the Minister of Strategy and Finance confirms that the project concerned is one of the projects set forth in subparagraphs of Article 40 (3) of the Act after consultation with related experts, the Minister of Strategy and Finance shall notify the institution head of the results.

 

(6) The Minister of Strategy and Finance shall establish guidelines on the criteria for selection of projects subject to a preliminary feasibility study, institution conducting the study, methods and procedures for the study, etc. in accordance with Article 40 (3) of the Act, and notify the institution head. [This Article Newly Inserted by Presidential Decree No. 27505, Sep. 22, 2016]

Article 26 (Submission of Statements on Settlement of Accounts)

 

(1) <Deleted on October 14, 2011>.

 

(2) Every quasi-governmental institution shall submit the final statements on the settlement of accounts to the Minister of Strategy and Finance within ten days after the statements are finalized in accordance with Article 43 (2) of the Act. <Amended by Presidential Decree No. 20720, Feb. 29, 2008>

 

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Article 26-2 (Composition and Organization of Appointment Committee of Accounting Auditors)

 

(1) Members of an appointment committee for accounting auditors under Article 43-2 (1) of the Act (excluding cases where audit committee is deemed an appointment committee for accounting auditors under the same paragraph) shall be comprised of all auditors and non-standing directors of the relevant public corporation or quasi-government institution.

 

(2) The chairperson of the appointment committee for accounting auditors shall be elected from among the members who are non-standing directors of the relevant public corporation or quasi-government institution.

 

(3) The chairperson shall convene and preside over the meetings of the appointment committee for accounting auditors.

 

(4) Meetings of the appointment committee for accounting auditors shall be held with the attendance of 2/3 of the incumbent members and require the consent of a majority of the members present for resolution.

 

(5) In addition to the matters specified in paragraphs (1) through (4), matters necessary for the operations, etc. of the appointment committee for accounting auditors shall be prescribed by the Minister of Strategy and Finance.

[This Article Newly Inserted by Presidential Decree No. 22088, Mar. 26, 2010)

Article 27 (Business Performance Evaluation)

 

(1) The Minister of Strategy and Finance may commission the business performance evaluation of public corporations and quasi-governmental institutions to a specialized institution, after resolution by the management committee, if considered necessary. <Amended by Presidential Decree No. 20720, Feb. 29, 2008>

 

(2) The Minister of Strategy and Finance shall prepare a manual for the business performance evaluation no later than the beginning of each fiscal year in accordance with the criteria and method for the business performance evaluation and with the measures to be taken following such evaluation pursuant to Article 48 of the Act: provided that, with respect to a public corporation or a quasi-governmental institution newly designated under Article 6 of the Act, the manual for the business performance evaluation shall be prepared within four months after such designation. <Amended by Presidential Decree No. 20720, Feb. 29, 2008; Jul 14, 2011>

 

(3) The Minister of Strategy and Finance may take further actions, including but not limited to, deciding on the payment rate of bonus or making a suggestion or request for measures relating to personnel or budgetary matters taken pursuant to evaluation results of the review and resolution by the management committee. <Newly Inserted, Jul. 14, 2011>

Article 28 (Composition and Management of Management Evaluation Team for Public Corporations and Quasi-Governmental Institutions)

 

(1) The Minister of Strategy and Finance may organize and run the management evaluation team for public corporations and quasi-governmental institutions (hereinafter referred to as the “management evaluation team”) from time to time with the persons commissioned among the following persons under Article 48 (6) of the Act: <Amended by Presidential Decree No. 20720, Feb. 29, 2008; Jul 14, 2011>

 

  1. A professor of a college or a university who has expertise in management and business administration of public institutions;

 

  2. A person working for a government-invested research institute with a doctor’s degree or recognized as having an equivalent qualification;

 

  3. A certified public accountant, a lawyer, or a specialist in management consulting with an experience of practice for at least five years;

 

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  4. A person recognized otherwise as having good expertise and experience in management and business administration of public institutions.

 

(2) The expenses required for the management evaluation team’s execution of missions may be reimbursed within the limit of the budget.

 

(3) The management evaluation team shall be deemed to be dissolved when the missions assigned are completed.

 

(4) Necessary matters concerning the composition and management of the management evaluation team in addition to the matters prescribed by this Decree shall be prescribed by the Minister of Strategy and Finance after resolution by the management committee. <Amended by Presidential Decree No. 20720, Feb. 29, 2008; Presidential Decree No. 22088, Mar. 26, 2010>

Article 29 (Monitoring Adequacy of Supervision)

The Minister of Strategy and Finance and the head of the competent agency may monitor the adequacy of the supervision over public corporations and quasi-governmental institutions under Article 51 (4) of the Act and take measures for improvement step by step, considering the nature, peculiarities in business affairs, etc. of each institution. <Amended by Presidential Decree No. 20720, Feb. 29, 2008>

Article 29-2 (Prior Consultation on Funding or Investment)

 

(1) “In specific cases prescribed by Presidential Decree” in the proviso to Article 51-2 (1) of the Act means the case where a public corporation or a quasi-governmental institution acquires equity in another corporation pursuant to the following decisions, etc.:

 

  1. If a public institution dealing with finance makes an investment in accordance with any of the following:

 

  (a) An authorization for a rehabilitation plan granted under Article 242 of the Debtor Rehabilitation and Bankruptcy Act;

 

  (b) A resolution of the council of financial creditors on the readjustment of claims under Article 17 of the Corporate Restructuring Promotion Act;

 

  (c) A resolution on the readjustment of claims passed by the council established to discuss credit risk assessments and restricting plans, etc. of companies subject to the improvement in financial structure among the financial creditors holding claims against such companies;

 

  (d) An investment in a special purpose company, etc. to provide a guarantee for the special purpose company under Article 28-3 of the Korea Technology Finance Corporation Act or Article 23-3 of the Credit Guarantee Fund Act;

 

  (e) A guarantee-linked investment under Article 28-4 of the Korea Technology Finance Corporation Act or Article 23-4 of the Credit Guarantee Fund Act;

 

  (f) Any financing to insured financial companies under Article 38 of the Depositor Protection Act; or

 

  (g) Any provision of public funds under the Special Act on the Management of Public Funds.

 

  2. If an investment is made after prior consultation with the head of the competent agency and the Minister of Strategy and Finance is de facto performed through deliberation and resolution at a meeting operated with major officials at the minister level or higher as its members.

 

(2) If establishment of a funding or investment institution or funding or investment in other corporations requires deliberation and resolution by the board of directors of a public corporation or a quasi-governmental institution, a prior consultation under Article 51-2 of the Act shall be held before deliberation and resolution by the board of directors.

 

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(3) If a public corporation or a quasi-governmental institution holds a prior consultation in order to establish a funding or investment institution or to fund or invest in other corporations under Article 51-2 of the Act, it shall submit a plan stating the following matters to the head of the competent agency and the Minister of Strategy and Finance:

 

  1. Purpose and necessary of funding or investment;

 

  2. Scope and details of business of the company subject to funding or investment;

 

  3. Amount and timing of funding or investment;

 

  4. Annual financial plans of the company subject to funding or investment for at least 5 years;

 

  5. Details of budget support, debt guarantees, indemnification of losses, etc. for the company subject to funding or investment by the government or a public corporation; and

 

  6. Other materials requested by the head of the competent agency or the Minister of Strategy and Finance. [This Article Newly Inserted by Presidential Decree No. 27505, Sep. 22, 2016]

Article 30 (Exercise, etc. of Minority Stockholders’ Rights)

The “securities exchange prescribed by the Presidential Decree” under Article 54 of the Act means securities exchange markets described under Article 176-9 (1) of the Enforcement Decree of the Financial Investment Services and Capital Markets Act.

[This Article Newly Inserted by Presidential Decree No. 24697, Aug. 27, 2013]

Article 31 (Processing of Identification Information)

The Minister of Strategy and Finance, the heads of responsible institutions and public corporations and quasi-governmental institutions may process data which include resident registration number pursuant to Article 19-1 of the Enforcement Decrees to Personal Information Act under unavoidable circumstances in which they need to perform affairs relating to the verification of causes for disqualification of executives in public corporations and quasi-governmental institutions.

[This Article Newly Inserted by Presidential Decree No. 25532, Aug. 6, 2014]

ADDENDA <No. 25751, Nov. 19, 2014>

Article 1 (Effective Date)

This Decree shall take effect on the date of its promulgation: Provided, That the amended portions of any Presidential Decree which is revised pursuant to Article 5 of the Addenda and promulgated before this Decree takes effect, but the effective date of which has yet to come, shall take effect from the date such Presidential Decree takes effect.

Articles 2 through 4 omitted

Article 5 (Amendment of Other Decrees)

 

  (1) Omitted

 

  (2) The Enforcement Decree of the Act on the Management of Public Institutions is partially amended as follows.

 

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Article 11-1 (2) shall be as follows, and Paragraph 4 shall be newly inserted in the same Article as follows.

 

  2. Vice-Minister of Government Administration and Home Affairs

 

  4. Minister of Personnel Management

“The Ministry of Security and Public Administration” in Article 24(2) shall be changed to “The Ministry of Personnel Management”

 

  (3) through <418> omitted

ADDENDA <No. 27073, Mar. 31, 2016>

This Decree shall take effect on the date of its promulgation.

ADDENDA <No. 27505, Sep. 22, 2016>

Article 1 (Effective Date)

This Decree shall take effect on Sep. 23, 2016.

Article 2 (Application of Preliminary Feasibility Study)

Article 25-3 of the Amended Decree shall be applied from when the application for preliminary feasibility study is filed after this Decree becomes effective.

 

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