As the government moves to finance part of the national power grid construction through a public fund, concerns are rising that chronic project delays could undermine the initiative. Privatization controversies are also expected to be unavoidable. However, experts suggest that if Korea Electric Power Corp. (KEPCO) (015760.KS) diversifies its financing methods and reduces issuance of KEPCO bonds, it could lower its financial burden and contribute to stabilizing the bond market.
According to relevant ministries on the 18th, the Ministry of Climate, Energy and Environment plans to finalize a public fund scheme for power grid construction alongside the 12th Basic Plan for Electricity Supply and Demand by the end of next year. President Lee Jae-myung reiterated at the ministry's business briefing on the 17th, following a Cabinet meeting on the 16th, that "if KEPCO, which has significant debt, cannot afford the transmission grid costs, we could create a public fund that guarantees certain returns and provides investment opportunities to citizens." Based on the 11th Basic Plan for Electricity Supply and Demand finalized in February this year, the cost of domestic power grid construction through 2038 is estimated to reach 113 trillion won ($79 billion).
Project Delays Pose Greatest Risk
The biggest weakness of the transmission grid fund concept is that public acceptance of projects remains low, causing delays nationwide. As projects drag on, costs increase exponentially, making realistic profit distribution difficult.
According to data KEPCO submitted to the office of Rep. Park Jeong of the Democratic Party of Korea, 30 of the 54 transmission and substation facility construction projects included in the 11th Basic Plan—55%—have been delayed or are expected to be delayed from original schedules. Delay factors included lack of community acceptance, prolonged permitting procedures, and difficulty securing sites—issues not easily resolved in the short term. A project to transmit electricity produced on the East Coast to the Seoul metropolitan area has been delayed more than eight years since construction began in 2019. This means transmission grids funded by the public fund also face the constant risk of revenue generation being delayed by years if similar holdups occur.
Reducing KEPCO Bonds but Government-Guaranteed Debt May Surge
Critics point out that the public fund is unlikely to be a cure-all for both transmission grid financing and KEPCO debt simultaneously. Designing a fund that guarantees principal while paying returns to citizens would inevitably require government backing. "Theoretically, the fund would need to offer higher interest rates than KEPCO bonds to sell, which would require credit enhancement through government guarantees," an investment banking industry official said. "This could result in a structure where national quasi-debt increases further."
However, some analysts suggest this idea is not bad for absorbing the surge in Treasury bonds and public institution bond issuances expected from next year. The government has announced deficit-covering bonds alone will reach 110 trillion won next year, with additional bond issuances for the National Growth Fund also pending.
Climate and Energy Minister Kim Seong-hwan said, "After calculating the final total amount needed for transmission grid construction, we can design a public fund system allowing citizens to participate in the portion exceeding what KEPCO can handle."
BTL Method May Help Avoid Privatization Concerns
Privatization controversies arising during fund creation also pose challenges. Minister Kim drew a line, saying, "This is about whether KEPCO directly procures the financing needed for construction or opens a path for public participation, so it has nothing to do with privatization." However, in this case, the fund would inevitably become the entity owning the transmission grid infrastructure assets. Just as tolls on privately funded expressways are higher than regular expressways, there is also the possibility that operators (funds) could raise grid usage fees to maximize returns on specific transmission lines.
Financial authorities are also discussing proceeding with transmission grid projects through the Build-Transfer-Lease (BTL) method. Using BTL, where the private sector builds facilities and transfers ownership to the government, could largely quell privatization concerns. Market observers suggest that if state-run policy banks lead with commercial banks, insurers, and pension funds joining, the projects could maintain public interest while accelerating progress. A government official said, "Since policy banks have experience conducting various project financing deals, forming public-private project groups centered on policy banks is also possible."
