The ruling party and government announced on the 25th that they would take equity stakes in Korea Electric Power Corp. (KEPCO) (015760) and Korea Water Resources Corp., driven by concern that infrastructure investment such as semiconductor fabs cannot proceed on schedule unless electricity and water are supplied on time. Expanding transmission networks and dams requires these state-owned enterprises to lead the effort, but their current financial structures limit aggressive investment.
Under the 11th Basic Plan for Long-Term Electricity Supply and Demand, finalized last year, KEPCO must build 70 transmission lines totaling 3,855 kilometers across the country by 2038. That alone is estimated to require 72.8 trillion won ($52.5 billion). Adding the 10.2 trillion won needed to upgrade distribution networks, more than 80 trillion won must be invested over the next decade or more. Including the three mega projects such as the Honam semiconductor fab and the U-shaped high-voltage direct current (HVDC) network pledged by the Lee Jae-myung administration, infrastructure costs are set to rise further.
A senior semiconductor industry official said on the 25th that even if fabs or data centers are built, they are difficult to operate because of shortages of electricity and water, adding that speed matters more than volume.
The problem is KEPCO's financial condition. According to its first-half business report, operating profit on a consolidated basis for January through June was 4.9127 trillion won, down 16.6% from the same period a year earlier, as fuel purchase costs rose 8.8% in the wake of the Middle East conflict. As a result, KEPCO's total debt stood at 210.7 trillion won at the end of June, up more than 5 trillion won from the end of last year. Daily interest costs alone are said to reach 11.5 billion won. Although the size of the government's equity injection has not been finalized, increasing capital is expected to improve borrowing capacity. President Lee Jae-myung stressed that expanded fiscal spending must be converted into a productive fiscal strategy to reap more fruit in the future, adding that this is not the time to make the mistake of getting trapped by managing near-term fiscal figures.
Markets view the equity injection as unusual. The most recent case of government equity in KEPCO was in May 2011, when it issued about 10.6 billion won worth of new shares in exchange for taking over power supply lines for front-line military units. A KEPCO official explained that, apart from the 3 trillion won in paid-in capital that arose when KEPCO went public in 1989, there has been no case of the government making a cash equity investment in KEPCO.
The Ministry of Climate, Energy and Environment is also accelerating power grid construction to support the three projects. First, it will maximize use of existing lines to minimize the need for new transmission towers. It will make maximum use of a method that expands existing two-circuit lines to four circuits. The ministry says this can cut the need for new high-voltage transmission towers by nearly 40%. It also decided to give priority to underground installation methods where transmission towers must pass through densely populated residential areas.
The ruling party and government said Korea Water Resources Corp., which oversees water supply, is also a target for capital contributions. Korea Water Resources Corp. has covered costs by receiving government equity when carrying out projects such as the expansion of wide-area water supply systems. It has also received equity contributions to cover repayment costs for debt incurred by the past Four Major Rivers Project.
Meanwhile, the Ministry of Trade, Industry and Energy and the Ministry of Agriculture, Food and Rural Affairs on the same day submitted a total of 26 projects to the Cabinet meeting for exemption from preliminary feasibility studies, including projects needed to advance the Manufacturing AI Transformation (M.AX) and the three mega projects, which were approved. The trade ministry plans to pursue contribution projects totaling 6 trillion won between 2027 and 2030 to build infrastructure and foster industrial ecosystems for semiconductor clusters in Yongin as well as the southwestern and Chungcheong regions. The agriculture ministry received a feasibility study exemption for its "Sinbuk District Agricultural Water Supply Project Plan," which establishes a new water supply plan for farming areas that had received water from Naju Lake. The surplus Naju Lake water secured through this will be channeled to the southwestern semiconductor cluster.
