TOKYO�A committee of South Korea's Ministry of Commerce, Industry, and Energy (MCIE) has unveiled a preliminary framework for a competitive power industry, but at a much slower pace than originally planned. Unlike previous proposals, which aimed to sell off the assets of state-run Korea Electric Power Corp. (KEPCO) through competitive bidding by 2002, the ministry now seeks to divide the firm into five subsidiaries and list one of the units on the Korea Stock Exchange as a litmus test for further privatization.
The government will split KEPCO's 42 thermal and hydroelectric power plants into five companies, and then sell off the most profitable one. No details are available about how the assets will be split. It is thought, however, that each company will be valued at $2.5-4 billion.
Efforts to privatize KEPCO have been stalled until now because of lawmakers who are afraid of losing crucial votes amid unprecedented strikes by unionized workers at KEPCO in response to the privatization measure.
The plan calls for 30% of the chosen subsidiary's shares to be put up for public offering, while 20% will be allotted to its workers and the remaining 50% sold off through competitive bidding. The government says it aims to complete the sale of the remaining subsidiaries by 2009. After assessing the results of the first stage sell-off, the government will decide later whether to sell off the remaining four subsidiaries through public offering or through competitive bidding.
MCIE says that it will not limit participation by foreigners during the first round of privatization, but it will push to cap total foreign investment in all KEPCO generation facilities at 30%. Under the proposal, foreign companies will be able to gain management control of two of the five KEPCO subsidiaries.
MCIE plans to limit the country's major business groups from participating in the privatization plan, allowing only those conglomerates that have met government standards on reducing their debt-to-equity ratios, implementing consolidated balance sheets, and reducing cross-subsidiary debt guarantees.
KEPCO's debts total 33.8 trillion won, while its total assets amount to 64.1 trillion won. By 2008, the company projects its debt-to-equity ratio to rise to 253% from the current 111.5%, according to MCIE.