investor presentation april 2006 korea western power co., ltd

Investor PresentationInvestor Presentation

April 2006April 2006

Korea Western Power Co., Ltd.Korea Western Power Co., Ltd.

22

DisclaimerDisclaimer

This presentation material has been prepared by Korea Western Power Co., Ltd. (“KOWEPO” or the “Company”) solely for information use during its presentation. The information contained in these materials has not been independently verified. No representation or warranty, expressed or implied, is made as to, and no reliance should be placed on, the fairness, accuracy, completeness or correctness of the information or opinions contained herein. It is not the intention to provide, and you may not rely on these materials as providing, a complete or comprehensive analysis of the Company’s financial or trading position or prospects. The information and opinions in these materials are provided as at the date of this presentation and are subject to change without notice. None of the Company nor any of its respective affiliates, advisors or representatives shall have any liability whatsoever (in negligence or otherwise) for any loss howsoever arising from any use of these materials.

Financial data in this presentation is given on a non-consolidated basis and financial statement data (where applicable) is prepared under Korean generally accepted accounting principles.

This presentation contains certain forward-looking statements with respect to the financial condition, results of operations and business of the Company and certain of the plans and objectives of the management of the Company. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results or performance of the Company to be materially different from any future results or performance expressed or implied by such forward-looking statements. Such forward-looking statements were based on numerous assumptions regarding the Company’s present and future business strategies and the political and economic environment in which the Company will operate in the future. We caution you not to place undue reliance on the forward-looking statements, which speak as of the date of this presentation. We are not under any obligation to update these forward-looking statements

33

Investment HighlightsInvestment Highlights

High correlation between electricity demand growth and Korean GDP growth

Cost Based Pool System expected to continue

Pricing structure allows Gencos to fully pass fuel cost to KEPCO

Six Gencos account for over 90% of Korean power consumption

Stable revenue and cash flows

Strong debt servicing ability

Solid capital structure to support capital expenditure

Maintaining sound credit worthiness

Additional capacity as required by the Basic Plan supports credit profile

Diversified and secured sources of key raw materials

Highly sophisticated and experienced management

Prospering Economy & Solid

Sovereign Credit

Favorable Industry

Conditions & Regulatory

Environment

Strong Operations & Experienced Management

Solid Financials &

Robust Capital Structure

Strong and sustainable economic growth

Strong external liquidity position, dynamic & diverse export sector

Sound financial markets & improving financial sector

Eased political tension with North Korea through diplomatic means

Positive credit rating momentum

KEPCO : Korea Electric Power Corp.GENCO : Generation Company

44

Strong Mitigating Factors to Credit Concerns Strong Mitigating Factors to Credit Concerns

Capex Capex requirement to requirement to fund capacity fund capacity

expansion expansion

Strong debt servicing ability due to stable, recurring revenue and cash flows

Strong balance sheet to support business expansion

Increasing revenue led by stable growth of electricity demand

Favorable terms of financing from the Government-funded loans

BBusiness risk usiness risk under the under the

deregulation plan deregulation plan

Delay of the privatization plan of Gencos

KOWEPO is one of the best performers among Korean thermal Gencos

Performance expected to be further enhanced once the new generating units at Taean

and Cheongsong become operational

Ability to fully pass fuel cost to KEPCO under the current cost based pool system Exposure to high Exposure to high

raw material raw material costscosts

Good operating track record of power plants with low historical incidents and diligent plant maintenance

Continuing investment on maintenance to improve reliability of generation facilities

Exposure to Exposure to potential potential

generation unit generation unit breakdown breakdown

55

1. Company Overview

2. Prospering Economy and Solid Sovereign Credit

3. Power Industry and Regulatory Environment

4. Operations

5. Financial Management

6. Concluding Remarks

66

Introduction to KOWEPOIntroduction to KOWEPO

Inception April 2, 2001 (Spun off from KEPCO)

Credit Ratings A2 (stable) / A- (stable) vs. Korea sovereign A3 / A

Generation Capacity 8,880 MW (Operation: 7,280 MW, Construction: 1,600 MW)

Total Assets 2005: KRW 3,262 bn (USD 3.22 bn) 2004: KRW 2,976 bn (USD 2.85 bn)

Ownership 100% owned by KEPCO (54% owned by Korean Gov’t)

Total Revenue 2005: KRW 2,227 bn (USD 2.20 bn) 2004: KRW 2,058 bn (USD 1.97 bn)

Net Income 2005: KRW 180.6 bn (USD 178.3 mln)2004: KRW 161.0 bn (USD 154.2 mln)

(KRW/USD FX rate : 1013.00 as of 30th Dec. 2005, 1043.80 as of 31st Dec. 2004)

77

Power Generation PortfolioPower Generation Portfolio

Classification Taean Pyeongtaek T/P Pyeongtaek C/C Seoincheon Samrangjin (Cheongsong)

Generation Units 6 (2) 4 5 16 2 (2)

Fuel type Bituminous BC Oil LNG LNG Pumped Storage (Pumped Storage)

Capacity (MW) 3,000 (1,000) 1,400 480 1,800 600 (600)

Total Capacity (MW) 7,280 (1,600)

Location of Power PlantsLocation of Power Plants

With our nationwide footprint, KOWEPO has unique strategic importance to KoreaWith our nationwide footprint, KOWEPO has unique strategic importance to Korea

Generation PortfolioGeneration Portfolio

SeoincheonLNG

PyeongtaekBC Oil / LNG

TaeanCoal

SamrangjinPumped Storage

Metropolitan area Major industrial / chemical complex

Cheongsong(Under construction)

Seoincheon Samrangjin

Taean Plant Pyeongtaek Plant Cheongsong Plant

( ) under construction

88

Management PhilosophyManagement Philosophy

Vision

2007 Goals

Management Policy (3C)

7 Key Strategies

Great Work Place

Employees

The Leader of Generation Companies in 21st century

Brand No. 1 Clean Genco

Business

Revenue: 2.5 trillion

Growth

Top 5 Most Preferred Company

Corp. Image

Realization of ethical management

Reinforcement of core competencies

Implementation of harmonious management

• Aim for Value-oriented management

• Maximize core competencies

• Create future growth engine

• Enhance organization dynamics

• Satisfy employees’ needs

• Establish clean brand image

• Enhance social contribution

CLEAN COMPETITIVE COMPANION

Well respected company preferred by the young generation

99

1. Company Overview



4. Operations


6. Investment Summary

1010

Strong External Liquidity PositionStrong External Liquidity Position

Continuing Current Account Surplus

Falling External Debt (as a % of GDP)

Increasing Foreign Reserves

FX Reserves / Short-Term Debt

Source : GEIC

96.2 102.8121.4

155.4

199.1 210.4

0

50

100

150

200

250

2000 2001 2002 2003 2004 2005

12.3

8.05.4

12.0

28.2

16.6

0

5

10

15

20

25

30

2000 2001 2002 2003 2004 2005

2.52.6

1.9

3.1

3.5

3.2

1.5

2.0

2.5

3.0

3.5

4.0

2000 2001 2002 2003 2004 2005

3127

25 2623 23

0

10

20

30

40

2000 2001 2002 2003 2004 2005

USD billion USD billion

Times (%)

Source : MOFE

1111

Dynamic & Diverse Export SectorDynamic & Diverse Export Sector

Export Breakdown by Country 2005

Increasing Exports & Imports

Export Breakdown by Commodity 2005

Source: CEIC

Source: MOFE

USD billion

176151 163

197

258289

159138 149

175

220

256

0

50

100

150

200

250

300

350

2000 2001 2002 2003 2004 2005

Export Import

1212

Solid Economy with Positive Rating Momentum Solid Economy with Positive Rating Momentum

Potential for Further Upgrades Recent Rating Agency Actions

Moody’s S&P Fitch

Effective Mar ’02 Jul ’05 Oct ’05

Rating A3 A A+

Outlook Stable Stable Stable

•Strong external liquidity position

•Dynamic export sector, resilient growth,

strong medium-term growth prospects

Korea Ratings History by Major Rating Agencies

AA+

AA-

A

BBB+

BBB-

BB

B+

B-

Aa1

Aa3

A2

Baa1

Baa3

Ba2

B1

B3

S&P (LHS) Moody's (RHS) Fitch (LHS)

1313

1. Company Overview



4. Operations



1414

Constant Growth in Power ConsumptionConstant Growth in Power Consumption

Source: “Statistics of Electric Power in Korea”, KEPCO / Bank of Korea

10.80%

14.72%

-3.64%

-6.90%

10.04%

6.50%6.30%

11.82%10.72%11.42%

7.60%8.04%

5.44%

11.76%

4.00%4.70%3.80%

9.20%7.00%

4.70%

8.50%

6.10%

9.50%8.50%

7.00%

3.10%

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Pow

er

cons

um

ptio

n (

GW

h)

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

Gro

wth

ra

te

Pow er consumption Pow er Consumption Grow th Rate (Gross) GDP grow th rate

CAGR of 8.3% (1993-2005)

Historical Domestic Power Consumption vs. GDP/Power Consumption Growth RateHistorical Domestic Power Consumption vs. GDP/Power Consumption Growth Rate

Power consumption has continued to rise on the back of strong economic growthPower consumption has continued to rise on the back of strong economic growth

1515

10.4%

2.8%

7.0%6.2%

7.3%

14.9%

16.4%

12.4%12.9%

13.9%

17.1%

12.2%11.3%

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

Total Supply Peak demand Reserve margin

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Reserve Margin AnalysisReserve Margin Analysis

Source: Statistics of Electric Power in Korea, KEPCO, 2005

Adequate Reserve Margins are Required to Sustain Economic Growth in the FutureAdequate Reserve Margins are Required to Sustain Economic Growth in the Future

MW

1616

Power Industry Restructuring ProcessPower Industry Restructuring Process

19991999 20002000 2002200220012001 20032003 20042004 20052005 20072007 2008200820062006 20092009

MOCIE is reconsidering its planned industry restructuring and has decided to MOCIE is reconsidering its planned industry restructuring and has decided to halt the distribution sector’s separation planhalt the distribution sector’s separation plan

• MOCIE announces restructuring plan for power industry

• Incorporation of generation companies

• Cost based pool bidding mechanism

• Expiration of vesting contracts

• Retail competition

• Introduction of vesting contracts for gencos

• Spin off distribution sector from KEPCO

• Wholesale competition

• Initiation of KOSEP privatization • Plan to separate KEPCO’s

distribution sector is halted

• Determined that discos will operate as independent divisions within KEPCO

• IPO of KOSEP is delayed

• Implementation of TWBP(Two Way Bidding Pool) is suspended HOLD

HOLD

HOLD

HOLD

The power industry restructuring plan has faced some obstacles, The power industry restructuring plan has faced some obstacles, and the implementation of future plans has been suspended and the implementation of future plans has been suspended

MOCIE : Ministry of Commerce, Industry and EnergyKOSEP : Korea South East Power Company

1717

Power Price Determination SystemPower Price Determination System

Price determination process for each market is different :

Base load market : CP(Capacity Payment) + BLMP(Base Load Marginal Price)

Non-base load market : CP + SMP(System Marginal Price)

Korea generation market is adopting CBP(Cost Based Pool) system Electric power market is divided into two different segments : Base load market and

Non-base load market

Base Load Market Non-Base Load Market

Nuclear and Coal Power Plant

CBP system secures KOWEPO’s profits from rises in raw material and generation costs

LNG, Oil and Hydro Power Plant

1818

Cost Based Pool SystemCost Based Pool System

Base Load Price : CP + BLMP

Capacity Payment BLMP• CP includes construction cost

and operation cost of standard coal-fired power plants

• CP is reimbursed to Gencos by KEPCO regardless of the operation

Nuclear

Coal

Oil / LNG

Base Load

Power Demand

Price Capacity

Non-BaseLoad

• In case fuel price/kWh is at or above KRW 18.95

- Fuel costs incurred by each generators are fully compensated

• In case fuel price/kWh is below KRW 18.95

- Fuel cost is set at the highest fuel cost among generators which is to be dispatched

Capacity Payment SMP• CP includes construction cost

and operation cost of peak-load power plants

• CP is reimbursed to Gencos by KEPCO regardless of the operation

• Fuel cost is set at the highest fuel cost among generators which is to be dispatched

Non-Base Load Price : CP + SMP

1919

1. Company Overview



4. Operations



2020

Operation OverviewOperation Overview Base load, intermediate load and peak load account for 41%, 19% and 40%

respectively in terms of generation capacity 90% of capacity is located in or near the Seoul and Gyeonggi metropolitan areas

Seoul and Gyunggi metropolitan areas comprises approx. 40% of total national demand

TaeanPyeongtaek

Gunsan

Cheongsong(Under Construction)

CoalLNGBC Oil

Pumped Storage

Seoincheon

Samrangjin

Seoul & Gyunggi Metropolitan Areas

Generation Capacity by Type of Plant (2005) Location of Plant Complex

PyeongtaekC/C (480 MW)

Seoincheon C/C(1,800 MW)

Samrangjin P/S (600 MW)

CheongsongP/S (600 MW)

3,480MW

Pyeongtaek T/P(1,400 MW)

1,400MW Taean T/P(3,000 MW)

4,000MW

Taean T/P (1,000 MW)

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

Base Load Intermediate Load Peak Load

In Operation Under Construction

Note: T/P denotes “Thermal Power Plant”, C/C denotes “Combined Cycle”, P/S denotes “Pumped Storage”

2121

KHNP 40.6%

KOWEPO 10.4%

EWP 9.9%KOSPO 12.8%

KOMIPO 10.4%

KOSEP 11.7%Others 4.2%

Market Share (FY 2005)Market Share (FY 2005)

Others 10.4%

KOWEPO11.7%

KOSEP 11.6%

KOMIPO12.0%

KOSPO 12.2%EWP 12.8%

KHNP 29.3%

Generation Capacity Electricity Sales

Total Generation Capacity62,257 MW

Total Electricity Sales349,276 GWh

2222

40.2 40.2

40.8 40.8

35

37

39

41

43

2002 2003 2004 2005

%

Strong Operational Efficiency (FY 2005)Strong Operational Efficiency (FY 2005)

59.0 59.7 59.1 59.2

40

45

50

55

60

65

2002 2003 2004 2005

%

Thermal Efficiency Utilization Rate

Thermal Efficiency Utilization Rate

40.8

38.9

40.8

43.1

39.4

35

37

39

41

43

45

KOWEPO KOSEP KOMIPO KOSPO EWP

%

59.2

68.3

59.4

70.1

53.3

35

40

45

50

55

60

65

70

75


%

2323

Long-Term Supply ContractsLong-Term Supply ContractsBituminous

Supplier Country Contract Amount (1,000 ton/year)

Terms

BHP-Billiton -Bayswater

Australia 500 ‘ 95.1 - ‘ 07.12

Centennial Australia 500 ‘ 04.6 - ‘ 07.6

Xstrata-NCA Australia 1,100 ‘ 01.4 - ‘ 06.3

RIO Tinto – Blair Athol Australia 500 ‘ 02.9 - ‘ 06.3

Ensham Australia 500 ‘ 04.1 - ‘ 08.12

Peabody Australia 240 ‘ 05.1 - ‘ 07.12

Australia - Sub-total 3,340 (48%)

SCIEGC China 1,000 ‘ 99.4 - ‘ 06.3

CCIEC China 500 ’ 96.1 - ‘ 06.3

SHENHUA China 960 ‘ 01.7 - ‘ 07.6

China - Sub-total 2,460 (35%)

Indominco Indonesia 500 ‘ 03.10 - ‘ 06.12

Kideco Indonesia 300 ‘ 04.1 - ‘ 05.12

ABK Indonesia 200 ‘ 04.10 - ‘ 07.12

Tanito Harum Indonesia 200 ‘ 05.1 - ‘ 07.12

Indonesia - Sub-total 1,200 (17%)

7,000 (100%)

Fuel Oil

Type Supplier Contract amount Terms

B.C oil (Sulfa 2.5%) GS Caltex 187,000 ㎘ ‘ 06. 1 – 6

Kerosene for boiler GS Caltex 2,837 ㎘ ‘ 06. 1 – 6

LNG

Supplier Contract amount (1,000 ton/year)

Terms

LNG KOGAS 1,267‘ 86 ～ ‘ 06

(20year)

KOWEPO enters into long-term supply contracts to:

Control the costs of bituminous coal, oil and LNG amid the rising prices

Assure an adequate supply of the raw materials for a smooth operation

Short- term, 20%

Long- term, 80%

Note: Long-Term Supply Contracts as of YE2005

Bituminous Coal Contracts

2424

1. Company Overview



4. Operations



2525

Capital Structure (FY 2005) Capital Structure (FY 2005)

Assets

KRW 3,262 billion – Fixed Assets/Total Assets Ratio : 88.6%

KRW 1,064 billion– Liability-to-Equity Ratio : 48.4%

KRW 2,198 billion– Stake is Wholly Owned by KEPCO

EBIT : KRW 256 billion - Net Income : KRW 181 billion

Liabilities

Shareholders’ Equity

Profitability

KRW 2,227 billion

Revenue

Capital Structure

3,1823,038 2,976

3,262

2,1982,0601,988

1,730

1,064916

1,050

1,452

0

500

1,000

1,500

2,000

2,500

3,000

3,500

2002 2003 2004 2005

Total assets Total shareholders' equity Total liabilities

KRW billion

2626

Financial Performance (FY 2005) Financial Performance (FY 2005)

2,012.62,134.4 2,057.7

2,227.0

0

500

1,000

1,500

2,000

2,500

2002 2003 2004 2005

230.7252.9

161.0180.6

0

100

200

300

2002 2003 2004 2005

83.9

52.8

44.548.4

39.5

28.224.2 25.2

0

30

60

90

2002 2003 2004 2005

Liability/equity Debt/capital

5.8

9.2 9.6

14.6

7.4

11.6 11.1

16.4

0

5

10

15

20

2002 2003 2004 2005

EBITDA/interest Funds from operation / interest

Revenue

KRW billion

Net Income

Times

CoverageLeverage

KRW billionKRW billion

2727

73.5

25.2

39.0

19.0

29.9

37.4

61.2

78.7

48.4

40.8

0

30

60

90


Liability/equity Debt/capital

2,175.32,244.62,227.02,095.4

2,847.1

0

500

1,000

1,500

2,000

2,500

3,000


KRW billion

138.5

185.9

221.3

255.7

291.7

0

50

100

150

200

250

300

350


102.4

216.8

180.6

105.8 107.2

0

50

100

150

200

250


Strong Competitive Position (FY 2005)Strong Competitive Position (FY 2005)Revenue EBIT Net Income

KRW billion KRW billion

6.4

13.0

11.510.6

6.5

0

5

10

15


7.8

15.916.4

9.610.5

0

5

10

15

20


EBIT Margin EBITDA Int. Coverage LeverageTimes% %

2828

CAPEX RequirementsCAPEX Requirements

Capital Expenditure ScheduleCapital Expenditure Schedule

59

407

105

7

106

102

105 94

3 27

86

388

101

0

100

200

300

400

500

600

700

2006E 2007E 2008E 2009E

Cheongsong Pumped Storage #1,2 Taean Thermal Power #7,8 Facility Improvement

Taean CCT #1 Gunsan Combined Cycle (Planned)

KRW billion

574

293

503

222

2929

KRW75%

USD25%

KRW75%

USD25%

199.9

117.2

185.0

1.3

0

50

100

150

200

250

2006(E) 2007(E) 2008(E) 2009(E)

199.9

117.2

185.0

1.3

0

50

100

150

200

250

2006(E) 2007(E) 2008(E) 2009(E)

Eurobond25%

Long TermBorrowing

7%

KDBPrivate

PlacementBond11%Corporate

Bond57%

Eurobond25%

Long TermBorrowing

7%

KDBPrivate

PlacementBond11%Corporate

Bond57%

Debt Repayment Schedule

Currency DistributionType of Instrument

Total LT Debt : KRW 711.1 billion

Debt Profile and Strategy (FY 2005)Debt Profile and Strategy (FY 2005)

KRW billion

Fixed82%

FRN18%

Fixed82%

FRN18%

Floating vs Fixed

3030

Financial Management Financial Management

Adequate Adequate Committed Committed Credit LinesCredit Lines

Credit lines

• Overdraft Commitment from NACF total KRW 50 billion

• KRW credit lines provided : KRW 100 billion from Citibank, KRW 100 billion from KEB, KRW 50 billion from Woori bank

• USD credit lines provided : US$ 40 million from BNP Paribas, US$ 20 million from SC First Bank

Guarantees for letter of credit payment totaling USD 326 million from various banks

Guarantee for a credit payment related to customs duties totaling KRW 4 billion from KEB

Loans for the construction and capacity expansion of electricity facilities of KRW 13 billion at an interest rate of 4% (as of FY 2005)

Loans to support the purchase of overseas mineral resources of KRW 37 billion at an interest rate of 2.25% (as of FY 2005)

Low Interest Low Interest Loans from the Loans from the

Government Government

KOWEPO operates two committees dedicated to risk management: Risk Management Committee and FX Risk Management Committee

• Risk Management Committee oversees four areas : finance, fuel, electricity bidding and generation facilities

• FX Risk Management Committee manages FX risk exposure and determines internal FX guidelines

The committees meet on a quarterly basis to make key decisions on the issues discussed

Risk Risk ManagementManagement

3131

1. Company Overview



4. Operations



3232

Concluding RemarksConcluding Remarks

Favorable Favorable Industry Industry

Conditions & Conditions & Regulatory Regulatory

EnvironmentEnvironment

Strong Strong Operations & Operations & Experienced Experienced ManagementManagement

Solid Financials Solid Financials & Robust & Robust Capital Capital

StructureStructure

Prospering Prospering Economy & Solid Economy & Solid

Sovereign Sovereign CreditCredit

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