KEPCO Korea company will Profit 11.5 Billion in Ilihan Cebu, Philippines Power Plant

President Benigno Aquino (left) of the Philippines shakes hands with Korea Electric Power Corp. CEO Kim Ssang-su at the ceremony marking the completion of a power plant in Cebu on June 27. (Yonhap News)

Power plants, resource development complement KEPCO’s business model

Korea Electric Power Corp.’s rapidly expanding overseas portfolio is fueling the company’s growth and its drive to become one of the top five players in the world’s power industry.

Earlier this year, the company announced a set of long-term plans under which it aims to raise its annual sales to 85 trillion won ($80.5 billion) by 2020 to become one of the industry’s five largest players.

Of the 85 trillion won target set for 2020, the company has allocated 26 trillion won or about 30.6 percent to overseas operations.

While the company has a way to go to reach the target, recent developments have shown KEPCO’s potential in the global energy and engineering market.

Aided by winning the nuclear power plant contract from the United Arab Emirates, KEPCO saw its overseas-generated sales more than double last year.

In 2009, KEPCO’s overseas-generated revenues came in at 564 billion won, which jumped to more than 1.56 trillion won last year.

Even excluding the 601.4 billion won generated from the UAE deal, KEPCO’s overseas revenues for 2010 came in nearly 400 billion won higher than that of 2009.

While the UAE deal, the first case of Korea’s nuclear power technology being exported, was the biggest overseas deal for KEPCO, the company has been operating outside of Korea for some time.

Faced with a limited domestic market, KEPCO has been looking to overseas markets to offset the diminishing growth potential of the country’s electricity market since the early 1990s. According to KEPCO’s projections, Korea’s electricity demand will grow much more slowly than the rest of the world. KEPCO estimates that Korea’s electricity demand will grow at between 3 and 4 percent in the coming years.

KEPCO’s first break outside of Korea came in 1995, when it beat back rivals from Japan and Hong Kong to win a project updating and operating a power plant in the Philippines. The company then went on to build a gas-fueled power station in the Southeast Asian country.

Through such projects, KEPCO was able to expand and consolidate its presence in the Philippines and the combined capacity of plants the company operates currently stands at 2,050 megawatts. The figure, which is equivalent to 15 percent of that country’s total output capacity, makes KEPCO the fourth-largest independent power producer in the Southeast Asian nation.

The company’s operations in the Philippines have also proved to be highly profitable, with the power plant in Ilihan, Cebu, expected to bringing in net profits of more than 286 billion won by the end of the project. The company is contracted to run the facility, which cost 104.9 billion won to create, until June 2022.

However, operations in the Philippines are only a part of a larger portfolio.

The company is currently operating or building 12 power plants in six countries with a combined capacity of 4,800 megawatts.

One of the latest overseas projects KEPCO won is the contract for building and operating a combined cycle power plant in Mexico.

The $420 million project was awarded to KEPCO, in consortium with Samsung C&T, and Techint of Mexico, last year.

“By winning the contract in the Mexican market, which has traditionally been divided among Japanese and Spanish concerns, proved that KEPCO has competitiveness on the international market,” a KEPCO official said. The project will see the consortium build and operate the facility until May 2038.

“The project is also meaningful in that it is our first business in Latin America, and laying the foundations for entering a new market.”

China is another large overseas base for KEPCO, which operates one of the largest wind power businesses in that country.

According to the company, its wind power operations in China offer profitability as well as carbon credits. As of Dec., 13 of KEPCO’s related projects in China had been given U.N. recognition as clean development mechanisms, and including carbon credits that will be generated from wind power plants under construction, it will secure about 1.2 million tons of carbon credits every year through its China projects.

While KEPCO’s main business is power generation, the company has not limited to itself to building and operating power plants and related facilities in expanding overseas.

Along with such areas, KEPCO has been focusing on developing natural resources.

“Through overseas resource development business, the company is not only able to secure stable supply of fuel, but also generate profits and hedge against fluctuations in fuel prices, which in turn contributes to keeping electricity prices down,” a KEPCO official said. So far, the company has invested in 10 resource projects in four nations including Australia and Indonesia.

“In particular, the stakes in the Indonesian coal producer Bayan Resources acquired for 615.8 billion won last year, is now valued at 1.9 trillion won, bringing significant profits for the company.”

In addition to fueling its growth, the company says that its overseas expansion drive is also bringing benefits for other local firms.

“In the case of the Mexico contract, the project involves other companies such as Samsung C&T contributing to job creation in the private sector,” the company said.

“The construction of the recently completed power plant in Cebu, Philippines, was undertaken by Doosan Heavy Industries resulting in exporting of construction services worth $150 million.”

http://www.koreaherald.com/business/Detail.jsp?newsMLId=20110720000717

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$3.7 Billion Olympic bullet Train for South Korea' Set to Reverse Construction Slump

South Korea’s hosting of the 2018 Olympics is triggering an $8.4 billion building boom that will expand the nation’s high-speed rail network and create a winter- sports destination targeting millions of Chinese tourists.

Organizers will spend $3.7 billion on a train running from the central city of Wonju to host cities Pyeongchang and Gangneung in the east. Another $1.4 billion is earmarked for six athletics venues, accommodations and media facilities, according to International Olympic Committee documents.

Those plans may benefit the largest Korean construction companies, which are grappling with weak home sales and tightening credit. Hyundai Engineering & Construction Co., the largest builder; Samsung C&T Corp. (000830), the second-biggest; and Hyundai Rotem Co., the nation’s biggest maker of train cars, all expressed interest in bidding for Olympic contracts.

“The domestic construction industry has been going through hard times in recent years because of the slump in the housing market,” said Byun Sung Jin, an analyst at Mirae Asset Securities Co. in Seoul. “It will not only breathe some life into the region but also to the entire nation.”

Revenue from the Olympics may help builders fund new projects after banks pared lending for real-estate developments by 26 percent in the three years through 2010 on concerns about bad loans, according to data from the Financial Supervisory Service, the financial regulator.

$60 Billion Benefits

The average price for new homes fell 8.9 percent last year, the biggest decline since 2002, Byun said. The economy is likely to expand 4.3 percent this year, down from an earlier estimate of 4.5 percent, the central bank said July 15.

Hyundai Engineering has gained 2.3 percent, compared with a 0.75 percent decline in the benchmark Kospi Index, since South Korea was awarded the games July 7. Samsung C&T has gained 9.7 percent and Doosan Heavy Industries & Construction Co. 5.3 percent in the same period.

The 2018 Olympics will generate 21.1 trillion ($19.8 billion) directly for Asia’s fourth-largest economy, with another 43.8 trillion won in investment, tourism and branding coming in the decade after, said Park Tae Il, a senior research fellow at Hyundai Research Institute in Seoul.

Other cities have struggled with the aftermath of hosting the Olympics, prompting an IOC study. Vancouver, site of the 2010 winter games, reduced prices on condominiums in the former athletes’ village by an average of 30 percent to spur flagging sales, the Canadian Press reported in February.

Avoiding White Elephants

Beijing, host of the 2008 summer games, built a shopping mall and underground tunnel near its Olympic stadium to help cover operating costs, the state-run China Daily newspaper reported last year.

“The government will have to be prudent in what projects they spend on so they don’t gather dust after the games are over,” Byun said. “We’ve seen that happen before and I’m pretty sure that is on the top of the list of things the government doesn’t want to repeat.”

South Korea was chosen over Munich and Annecy, France, in its third try for the winter games. The nation previously hosted the 1988 Summer Olympics in Seoul.

Most athletic events -- including skiing and bobsledding -- will be in Pyeongchang, about 130 kilometers (80 miles) east of Seoul in the Taebaek mountains. Skating and hockey competitions will be held further northeast in Gangneung on the east coast.

High-Speed ‘Catalyst’

More than $1.4 billion was spent preparing Pyeongchang for unsuccessful bids for the 2010 and 2014 winter games. Seven venues were built, and two of them -- for curling and snowboarding -- need upgrades for the 2018 Olympics.

The centerpiece of the forthcoming plan is a 113-kilometer train connecting Wonju with Pyeongchang and Gangneung. The existing railroad bypasses Pyeongchang, so travelers from Seoul must get off at Wonju and take a bus the rest of the way.

That journey takes about two hours. The new train, which can travel at speeds up to 250 kilometers per hour, will cut that to 68 minutes, according to the IOC’s bid assessment.

Going to Gangneung will take another 12 minutes. Construction could start later this year, with completion scheduled for 2017.

“This rail line is absolutely necessary for the games,” said Lim Jong Il, deputy director of the high-speed rail division at the Ministry of Land, Transport and Maritime Affairs. “The new Wonju-Gangneung railway can act as a catalyst to expedite the national rail-line projects.”

Decade-Long Plan

South Korea has embarked on an 88 trillion-won plan this decade to extend passenger and cargo networks by 39 percent to 4,934 kilometers. About 16 trillion won is for high-speed trains, including the Olympic line and another linking Seoul with Mokpo to the south.

Existing service between Incheon Airport and Seoul will be upgraded so Olympic visitors can take one high-speed train all the way from the airport to the venues.

The government plans to move about 27 percent of the population by trains by 2020, compared with 16 percent now. The percentage of cargo moving by rail would increase to about 19 percent from the current 8 percent.

“Korea needs to build up its rail network because it will help to move not only people but cargo faster and more efficiently,” said Heu Moon Wook, an analyst at KB Investment & Securities Co. in Seoul. “Construction companies will play a big role because they will not only have to lay down the tracks but they will have to build bridges and make tunnels to go through mountainous areas.”

Targeting Chinese

Hyundai Engineering, Hyundai Rotem and Doosan Heavy, South Korea’s biggest maker of power equipment, said in e-mails they believe the Olympics will generate business for them.

“With the recent decrease in public bidding projects, we are definitely interested in the related projects,” said Sohn Soo Keun, a spokesman for Samsung C&T.

Organizers will spend $927 million on Olympic villages and broadcast centers, and $461 million on new venues -- two hockey rinks, two skating rinks, an alpine ski run and a track for the bobsled and luge, according to the bid. The venues should be ready for testing by the end of 2016, said Jeong Hong Sub, a spokesman for the Olympic bid committee.

South Korea told the IOC it wants the games to leave behind a winter-sports destination for Asian tourists. The primary target should be the Chinese, James Rooney, chief executive officer of Market Force Co. in Seoul, said on Bloomberg Television.

About 8.8 million people visited South Korea last year, including almost 1.88 million from China, according to the Korea Tourism Organization. The number of Chinese visitors may reach 3 million by 2012, according to the Ministry of Culture, Sport and Tourism.

South Korea’s tourism sector is “significantly underdeveloped” because the nation has concentrated on its “tangible goods” sectors, Rooney said. Because of the Olympics, the nation may attract as many as 50 million visitors by 2025, potentially generating $50 billion-$100 billion in annual spending, he said.

“The tourists that are going to be active in this part of the world are going to be Chinese tourists,” Rooney said. “They like to spend money.”

To contact the reporters on this story: Rose Kim in Seoul at rkim69@bloomberg.net; Kyunghee Park in Singapore at kpark3@bloomberg.net

To contact the editor responsible for this story: Brett Miller at Bmiller30@bloomberg.net

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China Complains fort Philippines Lawmakers' Touring to Disputed Islands in Spratlys

Armed Forces of the Philippines Western Command commander Lt. Gen. Juancho Sabban, right, Kalayaan municipality Mayor Eugenio Bito-onon, 2nd right, and Philippine Congressman Walden Bello, 3rd right, walk along the shores of Pagasa Island, part of the disputed Spratly group of islands, in the South China Sea located off the coast of western Philippines, July 20, 2011

Philippine lawmakers visited tiny islands the Philippines claims in the disputed South China Sea, prompting complaints from China.

Island touring of Philippines Law Makers - Hope

The four legislators, accompanied by members of the military and journalists, visited what the Philippines calls the Kalayaan, or “freedom”, islands.

Congressman Walden Bello replaced a tattered national flag at the municipal hall of the most inhabited island.  After the half-day tour of the island, which has a population of 300 people, Bello said his group “successfully enforced Philippine sovereignty.”

“When we landed it was clearly on Philippine soil.  We felt that, when we were with the structures, with the people over there….  You know, this was a settled community.  Yes, it had military personnel but it had also a thriving civilian community, that’s largely made up of fisher folk.  So there was no doubt on our part that we were indisputably on Philippine soil, on Philippine territory,” Bello said.

Chinese claim

However, China claims sovereignty over the entire South China Sea, including the Kalayaan islands, which are part of the Spratly islands group.

Chinese officials were agitated by the group’s visit. The Chinese ambassador met with a foreign affairs official over the matter and embassy spokesman Ethan Sun says it sent the wrong signal.

“It goes against the declaration of the parties in the South China Sea and serves no purpose but to undermine peace and stability in the region and sabotage Philippines- China relationship,” Sun said.

He says China made clear to the Philippine government that it will monitor this sort of activity closely.

Bello calls China’s response to the trip “immature.”

Sultanate of Sulu Claim

“China has no right over the Spratly Islands in what it calls the South China Sea because that is part of our ancestral domain, including the marine territory around it and the waters around these islands is part of the Sulu Sea,” Majaraj Julmuner Jannaral, Sultanate information officer, quoting His Majesty Muhammad Fuad Abdulla Kiram I, the reigning Sultan of Sulu and Sabah (North Borneo).

He said historically, the proprietary rights over the Spratlys, Sabah(North Borneo), the Sulu archipelago, and Palawan and parts of Mindanao belong to the Sultanate of Sulu and (North Borneo) Sabah even long before the Spaniards came to the Philippines.

“Thus, China is violating our people’s human rights by openly and unilaterally announcing ownership of the Spratlys and the waters around it,” the Sultan said in an official statement.

Jannaral, quoting the statement, said “China may have forgotten that the sovereign political right (not the proprietary right) over the disputed area was given by the Sultan’s late father, Sultan Muhammad Esmail E. Kiram I, to President Diosdado Macapagal in 1962, and later in 1969, to President Ferdinand Marcos to recover particularly Sabah (North Borneo) from Malaysia.”

 

“My blood lineage dates back from the Mahjapahit and Shrivijaya empires, which extended from Sabah (North Borneo), the Sulu archipelago, Palawan, parts of Mindanao, the islands now known as the Spratlys, Palawan, and up to the Visayas and Manila,” the Sultan’s statement reads.

Dialog encouraged

July 20, 2011 (Wednesday), a presidential spokesman reiterated that lawmakers took the trip on their own initiative.  Press Secretary Edwin Lacierda says the administration recognizes China’s concern and hopes it will not hamper relations.

“The only thing we can assure them is that we are continuously dialoguing with them and the mere fact that the Chinese ambassador was able to speak with Under Secretary Conegos is a manifestation of the open lines of communication between the two parties,” Lacierda said.

Apart from China and the Philippines, Vietnam, Malaysia, and Brunei also claim all or part of South China Sea, which is believed to sit above deposits of natural gas and oil. China insists on bilateral talks, while the other parties want a multilateral approach.

ASEAN agreement

On Wednesday, Southeast Asian and Chinese officials meeting in Indonesia agreed on a set of non-binding guidelines for implementing the 2002 Declaration of Conduct of Parties in the South China Sea.

That could eventually lead to a binding code of conduct for handling disputes in the region. A Chinese foreign ministry official at the ASEAN meeting called the agreement an important milestone for cooperation. But the Philippines say Wednesday’s agreement has not teeth.

In recent months, the Philippines and Vietnam have complained of Chinese incursions into their waters.  The Philippines says in March Chinese sea patrols harassed an oil exploration ship operating within its 200-nautical mile exclusive economic zone.  The country says at least six other intrusions took place.

Journalists who traveled with the legislators report that island residents say they get along fine with fishermen from other claimant countries and exchange greetings with Chinese fishing crews when they cross paths.

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