Korea Electric Power Corp (KEP) 2005 Q3 法說會逐字稿

Good evening ladies and gentlemen. I am presenting you with Korea Electric Power Corporation and I would like to thank you very much for attending this IR conference despite your very busy schedules.

It is a pleasure for me to greet you once again since we last met. The last Investor's Analyst Meeting took place a year ago in October and it is a pleasure for me to host this event once again, to explain to you what we have been doing the past year.

KEPCO are producers and suppliers of a major commodity, electricity, which is an engine of international growth and a necessity of mankind, has been striving to contribute to the economic development of Korea through continuous management, innovation and customer-oriented management and to be appreciated and loved by the Korean population. In order to overcome issues related to slowing electricity demand growth and high oil prices and ensure a sustainable growth, internally we have reinforced our environment for growth such as securing a sound financial structure and externally we are actively pursuing overseas business opportunities, looking for new opportunities of growth.

Furthermore, as a result of unreserved effort we were able to establish an ethical management structure and KEPCO Social Contribution Team has been established to extend our affection and assistance to the marginalized members of the society.

Also, we have forged a strong co-operation relation with the small and medium-sized enterprises so they can actually benefit from stronger support initiatives through our differentiated strategy. As a result, as a Government Invested enterprise we rank Number One for six consecutive years and this year we were number one in -- as the Government Invested Enterprise Assessment undertaken by the Korean Government. And this year we are also honored to receive the Presidential Award at the National Productivity Innovation Contest. The world-renowned credit rating agency, Moody's, rated KEPCO higher than either Sovereign or [Lee King].

This achievement had an impact on the share prices as well. At this time last year KEPCO's shares were traded at below KRW20,000 level. With a sound financial structure and enhanced credibility about KEPCO's sustainable growth they are traded today at mid-KRW30,000 level, an increase of more than 50%. However, we will not be complacent with this result and we will do our very best to achieve our objective of becoming the world's best global utility company in the world, we intend to attain this goal.

The management of KEPCO, including myself, is totally aware of the fact that KEPCO is seen, evaluated and scrutinized by market players like you. And as a listed company our management performance and perspectives, our growth perspectives are reflected in the share prices of our company and this is reflected by today's investors presentation. The IR Conference is intended to design -- intended and designed to listen to your opinion and comments regarding our performance and strategy and to reflect them in our management practice.

We will listen attentively to your opinions and reflect today's input in our corporate management practice so that we can maximize the shareholder value of KEPCO.

Information is a major asset to the players of the financial market. We have the obligation and responsibility, as a listed company, to provide such information rapidly and accurately. In this respect we have prepared a very brief presentation for you. In trying to communicate a lot of content in a relatively short period of time I am sure that there may be some points that need more explanation. If you have any questions or require any additional comments, please do not hesitate to contact our IR Department anytime.

We promise that we will have and hold frequent meetings like this with investors so that we can communicate what we are doing as often as possible, and I would like to conclude with this. Thank you very much for your attention.

Thank you very much. Next we'd like to provide you with an overview of KEPCO through this short video. [video replay - Korean]

Thank you very much, I hope you enjoyed that video. Now I'd like to ask our Treasurer, Mr. Kwon Joon Ki to deliver the KEPCO investor presentation. The presentation is based on the forecasts and therefore it is based on various assumptions. This may be a little bit different from the actual results and also the numbers and figures presented here are actually tentative results from KEPCO individually, and therefore there may be differences according to the -- compared to the consolidated results and these have not been audited by the third parties. So for additional information we will make an opportunity to meet with you or talk with you separately.

Good evening ladies and gentlemen. I am the Treasurer of KEPCO. Today's presentation includes the following areas, overview, business and operation, financial profile and others. This is the order in which I will proceed with my presentation.

First of all let me talk to you about the overview of KEPCO. First of all, KEPCO is the largest non-financial company in asset size in Korea. Based on our consolidated financial statement as of end of 2004 total assets were KRW73.7 trillion, total revenue KRW23.9 trillion and market capitalization as of the end of September, 2005, KRW22.8 trillion. KEPCO has a generating capacity of 55,453 megawatts and provides 96% of total electricity power through its six Gencos. KEPCO is also responsible solely for transmitting and distributing electricity throughout the country.

For the first time in Korea, KEPCO received a rating that is higher than the Sovereign rating. We have received the A-2 rating, in May of this year KEPCO received an A-2 rating from Moody's and (indiscernible) KEPCO had the same rating as the Sovereign rating, which is A (indiscernible).

Next, let's move on to business and operations of KEPCO. Each year power demand growth rate exceeded growth rate of GDP. We expect the power demand to grow by 6% this year and the electricity consumption is expected to grow over 6.1% next year and extend its growth thereafter by 3 to 4% annually through the year 2010.

Until the end of the third quarter of this year, revenue has increased by 5.7% versus the same period of last year, sales volume by 6%. The average price of electricity is KRW75.2 per kilowatt hour.

From 1984 to 2004, for 20 years, consumer price rose by 153% while tariff increase for electricity was only 4.7%. There was no tariff increase since November of 2000. We plan to gradually narrow the tariff difference among sectors and rebalance its [inherent] difference to reflect the cost of supplies. We intend to approach this issue from many different fronts so that we will achieve a reasonable tariff increase.

As for the fuel prices, the international coal and oil prices have a considerable effect on our profitability. This year where the utilization of coal price and (indiscernible) dollar exchange rate, we were able to alleviate the fuel expense burden to certain extent. However, surging crude oil prices is having an impact on the operating profit of the company.

Fuel expense increased by 6.6% during the first half of this year to reach KRW3.489 trillion. The reason why we were able to contain fuel expense during the first half of this year is thanks to the fact that we were able to decrease the costly energy consumption and we began the commercial operation of a number of reactors in Korea. We were also able to achieve cost reduction by increasing the portion of nuclear, relatively cheaper, fuel and also a 13% appreciation of the Korean won to the dollar contributed to this result.

During the first half of this year nuclear represents 43% of the generation mix and coal 38% of the generation mix. So nuclear and coal together represented more than 80% of the total generation mix of the country. But if you look at the fuel cost mix, then nuclear and coal was (indiscernible) only 44%. And we think that the current fuel prices will be maintained in the mid- to long-term, based on conservative estimates. Against this backdrop we are establishing fuel cost reduction plans including maintaining our coal and nuclear mix at more than 80% acquiring overseas mine shares to secure long-term fuel supply and direct acquisition of LNG.

Next, going on to the latest financial review of KEPCO, at the end of 2004, according to our consolidated results, our total assets was as you can see KRW40.6 trillion, with total liability accounting for 45% of the total assets. The Government controls about 54% of our shares, including the 29.9% held by Korea Development Bank, and foreign investors own 29.3% of shares. Presently as of September 30, 2005 our interest-bearing debt totaled KRW18.4 trillion and out of this foreign currency debt was about 21%, totaling KRW3.8 trillion. And among this, 54% consists of U.S. dollar-denominated debt and 37% of Japanese yen-denominated debt, and 9% other currencies.

For the debt profile, currently most of our debt is maturing in four years. However, with the development of domestic capital market allowing five-year and longer-term financing and also considering that we can tap into the international capital market we will be able to lengthen the overall duration of our debt. As for debt-currency mix we are taking into account the advice and recommendation of the external experts and for its risk management commission, and we have identified our target mix and we are focusing our efforts to achieve that level. As for the floating and fixed mixture of our debt, fixed is taking up 57% and floating debt takes up 43%.

Recently, for the last four years, our sales revenue had shown steady growth at an annual rate of about 6%. And the total sales revenue records about 5%, however, due to rising fuel price and growth of operating profit becoming slowed down, as well as FX fluctuations impacting FX gain, the net profit compared to the previous year is at around relatively similar levels. There has been some fluctuations in the net profit, meanwhile cash flow exceeded investment demand allowing us to record positive cash flow from 2001.

Going on to the third quarter results, these are the financial results of KEPCO non-consolidated. First of all for revenue compared to the previous year there has been a 5.9% increase in sales, so the sales revenue recorded KRW18.892 trillion, a KRW1.47 trillion increase versus the same period of last year. And also our power purchase expense grew to KRW13.397 trillion and depreciation rose about 10% to reach KRW1.352 trillion due to acquisition of additional distribution facility.

Due to the above-mentioned reasons operating profit reached KRW1.811 trillion, a decrease of about 18% compared to the previous year. Net profit was reduced due to reduced operating profit, as well as reduced FX gains. Net profit was reduced to reach KRW2.587 trillion.

Concerning capital expenditure, in order to prepare for increase in electricity demand of around 5% we need to increase about 2,000 megawatt generation capacity and transmission and distribution facilities every year. This year an investment of about KRW7.7 trillion and an annual investment of around KRW9 trillion is being planned.

The operating profit for the year is greatly being influenced by fuel price and FX rates and so it reached 12%, net profit reached 12%. ROE is showing a gradual increase, and borrowing ratio and average debt cost is also being improved, enhancing the financial soundness of KEPCO.

Lastly, I'd like to go into the overseas initiatives of KEPCO as well as the restructuring of the industry. For globalization as well as opening up of the electricity industry, KEPCO is proactively responding by engaging in overseas initiatives. In terms of our overseas business our major principles and strategies include acquiring appropriate risk versus return, composing a sound portfolio based on analysis of risk and return and use of project financing for investment risk minimization. The current overseas projects include the rehabilitation and operation of Malaya coal fired plant in the Philippines as well as other initiatives in China, Myanmar and Libya. We are also participating in an overseas resource development project.

Now I'd like to introduce to you an update on the industry restructuring. The Government's initial plan for industry restructuring has called for the separation of six Gencos and we are currently pursuing the privatization and sale of Kosep. The sale of Kosep is currently being delayed due to the fact that the price quoted by the market is below our target. Also, the Government announced in June of last year that it has scrapped the plan of separating distribution assets from KEPCO. So we are pursuing the introduction of separate distribution business units for internal competition.

Concerning sales of non-core assets, so far we have successfully completed sales of our equity investment in Kepid and Powercom as well as other equity investments. We will continue with the sale of such non-core assets. In the case of Kosep we will pursue a sale as soon as we can see an appropriate price. Sales also of the management rights will be pursued after configuring comprehensively the overall market environment, investor trends and other conditions. In the case of Powercom we will link to the exchangeable bonds issued in 2003, the sale of the remaining equity in the form of a public sale or trade sale.

This concludes the investor presentation. Thank you very much for your attention.

Thank you very much; we will now open the Q&A session with the Presidency of the company. I'm sure that you were able to communicate with our IR Department staff today. This is a rare opportunity where you -- we have the President, CEO, CFO and Treasurer attending this IR Conference at the same time. If you [Break in audio] please do not hesitate to do so.

If you wish to ask a question please raise your hand and we will bring you a microphone. Before you ask your question please identify yourself, give us your name and the company that you belong to. I would like to entertain the first question.

There are many questions that we are receiving from possible investors. So outside of the U.S. market where you're already listed, do you have any plans to either list on the Japanese or the European Stock Exchanges additionally?

As you are all aware, KEPCO shares have been listed in the form of [DR] in the New York Stock Exchange. Currently outside of the New York Stock Exchange we don't have any plans as of yet to list anywhere else. I would like to entertain the second question.

I'm from Korea Investment Securities; my name is Hee-Do Yun. I have a question with regards to electricity. The chair of KEPCO is trying to pursue a -- has pursued plans for hikes very aggressively, but it has not been affected. And there were very high expectations of this coming true. But this did not really come true and we think that the stakeholders mostly -- they mostly had a different opinion. That is the position that we have of this outcome. Can the President give us a more detailed background as to the result of this aborted price hike initiative?

And also do you have -- I understand that you also are still trying to pursue this price hike next year and what would be the point next year in which you would see a price hike?

How should I respond to this, should I respond to this one-on-one, would it be more appropriate to answer to that question first?

If there are any additional questions with regards to the price hike or the tariff increase I would like to entertain all questions at once if you have any other questions related to the tariff increase?

I am from [Samsung] Investment. I would like to ask about the tariff rebalancing. For the past three years you have gone through a tariff rebalancing trying to reduce the gap between the industrial and commercial, residential use, but this year you did not adopt this strategy anymore, so are -- have you abandoned this?

What would be the ultimate gap between the industrial and the residential tariff gap per kilowatt hour?

I'm from Samsung Securities, my name is Chung. Concerning the tariff, it was mentioned that the cumulative tariff structure that you have in place is going to be reduced in the future. I believe -- my question is whether this will be linked to the possible price hike or is it simply going to be pursued in terms of lowering the prices for the residential use only?

Are there any additional questions for the tariff increase related area? If not we would like to ask our CEO to respond.

My name is Eul Lee from Woori Securities, yes, from Woori Investment Securities. For the last year or so I believe that there has been some rationalization effort within KEPCO in terms of the tariff setting structure. So I would like to ask you for some detailed information about how that kind of effort took place?

Yes, allow me to respond to the questions that I've received so far. From the Korea Investment Trust the question was, the tariff adjustment was going to be pursued but it was abandoned in August. It is true, we have gone through lengthy discussions with Mosi as well as the Ministry of Finance & Economy. I believe that everyone was well aware of the necessity due to the fuel cost increase as well as the necessity for us to invest in other areas.

In terms of the justification I think everyone was in agreement. However, at the point in time when we wanted to have the price hike, which was at around August 15 or 16, we had the first-half results being announced and during that time the net profit was KRW1.57 trillion which was about KRW100 billion higher than the profits of the first half of last year.

Now given the fact that we had relatively high profit rate and at the same time because the domestic economy was still going through various difficulties, the Government put forward a major proposal to provide 200 kilowatts of electricity to North Korea. So we had a lot of compounded elements that allowed the Government to decide that this was not the right time for a price hike and that is why that plan was abandoned.

We still don't know as of yet when the next price hike is going to be introduced. We are continuously discussing with the Government. As you saw on our slides and as you saw previously in our presentations as well, we have not had a significant price hike for the last 20 years. So the tariff has been maintained for a long time and additionally we have continuously had rising demands. And we have continuously maintained reserve rates of about 18% despite the peak seasons of the hot summers.

We have continuously made investments at around 7 trillion to KRW8 trillion. At the right time we have been able to implement these investments in capacity so we were able to respond. And we need to continue to do that. Demand for electricity continuously increases at around 4 to 5% every year.

However, for electricity facilities or capacity for nuclear power plants or other types of plants you need at least ten years of time for thermal as well as for nuclear power plants. You have this stepped kind of a development, not a linear development, so we have to prepare in advance.

From Samsung Investment Trust, you mentioned about the tariff structure, is it being re adjusted continuously? Yes, we are still working on that plan however, that is not going to be re adjusted overnight because the Energy & Economic Institute, as well as Mosi and us, we are continuously working on the same issue of establishing a tariff system that is based on kilowatt.

If I may introduce to you what we are doing rather easily, if we were to introduce a system where we simply sell, and price by the amount that we sell that would be the simplest. However, if you look at the tariffs between the various regions around the nation, we cannot differentiate. We need to have the same standardized tariff for all regions around the nation. That is our limitation right now.

By 2009 we have established a near- to long-term plan to have a restructuring of the tariff structure and the gap between the industrial and the residential prices, I believe that was another question that was put forward.

There was a quite specific question but we don't have a specific figure as of yet. But for purposes in each of the segments we do have the major plan to make certain that there is no differentiation in the future.

Samsung Securities, the person from Samsung Securities I think mentioned about the accumulative price structure that we have right now. Currently we have seven step-type of accumulated price structure but it has been reduced to six-step. In the future we plan to eliminate this system as well. So that is going to be eliminated as well, so that in the future it will become more and more straightforward where it will be a kilowatt-based system in the long run.

From Woori Investment Securities, you mentioned about how we have already done some tariff system readjustments. We are always focusing on the appropriate level of RORB, and based on the return, the rate of return, we are always focusing on at around the 6% level. That is what we have been discussing with the Government continuously for the last several years. At every point in time when we need to make a certain decision we go through discussions with the Government and that's how we make decisions. Are there any additional questions concerning tariffs?

I suppose that answered all the questions with regard to tariff. So if you have other questions related to other subjects I would like to address them now.

Thank you, I'm from Lehman Brothers my name is Zayong Koo. I have a question with regard to transmission to North Korea. What are the perspectives of this initiative? Yes, transmission to North Korea?

Yes, transmission to North Korea. The Government has plans to provide two million kilowatts to North Korea. But this is also linked to the light reactor project and the six-party talks, etc. But I can say that two million kilowatts of transmission is not problematic. This does not represent a problem for us. Technically speaking and also in terms of period I think it's feasible. But in terms of costs associated with this initiative the Government has to pay for this initiative.

We are listed not only in the Korean Exchange but also we are listed in the New York Stock Exchange in the U.S. So this is something that should be borne by the Government. So that KEPCO does not have to bear the financial burden of such an initiative because the two million kilowatts, why we think it is feasible is because our capacity is 60 million currently and this peak season was 54.2 million in summer. So two million is not a very big portion compared to what we can do.

They say their capacity is approximately KRW7 million, but their installations are more or less obsolete. So near Pyongyang, two million kilowatts would be their total capacity. So this will not have an impact on our reserve rates at all, and electricity consumption is not uniform all year around so it depends on the load. The load varies based on seasonality. We have the peak loads for instance during the summer season in July and August. So that's how we design our own capacity in our installations. But that's not the case for North Korea because North Korea uses a lot of electricity during their wintertime whereas we use a lot in the summertime. So two million kilowatt, even if we give them this amount, this will not affect our demand and supply at all.

And we planned for 2008 this initiative. And if North Korea is really being co-operative I think in three years' time we will be able to achieve this initiative and complete this. So we think that transmission lines three and four will be ready. And so the Government -- for the Government is ready to bear the financial burden, we are more than ready to supply them.

I have a question concerning dividends. Continuously dividends have been paid out. However, I would like to ask about any guidance or principle concerning the dividend payout policy. So it's very difficult for us to estimate what the dividend policy is going to be for 2005 and as well as for the mid to long term.

Could you explain to us about what your dividend payout policy is? And additionally I'd like to ask, adding to the comments made previously about the tariff, you mentioned about the reasons why you had to abandon the tariff hike plans because of the economic indicators for the first half as well as the fact that the profit results were relatively high, you mentioned.

However, when you look at the overview I don't think it was actually the right choice especially from the shareholders' point of view because there is the rate of return that you need to take into consideration. You cannot simply compare just the net profit rate versus the previous year. And just as the person from Samsung mentioned, the Government I believe -- what did you say? -- oh yes, by the cost for each of the segments are all different. So by the year 2009 you mentioned that the policy has been a little bit changed. So could you explain a little bit more if you have any new plans?

Yes from [Dell Securities] I think the gentlemen asked three questions. First of all concerning the dividend policy. For the dividend policy even the Government is recommending this and we also are agreeing with this. When I became CEO of KEPCO in late March of last year since then, this year we have paid out 23% for the dividend. So we want to maintain it above 20% level in order to enhance shareholder value. That is what I can mention to you first of all. 20% and above in terms of dividend policy. I believe that this is a little bit higher than bank interest rates so it should be quite attractive I believe. That is our major policy guideline.

For the tariff hike you did mention some good points, yes. When you look at it in reality at least for the operating side there has been losses, yes, that's correct. However, from your point of view, from the investor's point of view, I'm sure that you will maybe feel disappointed and we will take in that criticism. We'll accept that criticism.

But for the general media when they report results they tend to usually focus on one side of the issue rather than looking at it comprehensively such as our investors do. So currently we -- there are some elements that are pushing us to actually reduce the tariff rather than increase it. For example, in the segment such as education sector compared to the industrial usage, education sector is actually paying higher tariffs and they are really resisting the situation. And for the lower-income population, they are also wanting to have tariff decreases rather than hikes. So it's not like we have completely abandoned the possibility of tariff hikes, but we are going to have to adjust in a balanced manner and appropriately.

Additionally you mentioned about how in the year 2007 the re adjustment according to the processes will be completed. However, what I mentioned earlier tends to show that the plan has been changed. Well if I may respond to that, already we are continuing with the re adjustments even within the industrial segment we have sub-segments of A, G, and C, and we are re adjusting that. And we will continue to do that until 2009. I think that the 2007 milestone was something like a step to the ultimate goal of 2009. Thank you.

I hope that was a sufficient answer to your question. Next we would like to entertain one last question from the floor, and we would like to give investors joining us from abroad. Yes, we have a gentleman there.

(Speaking in Korean). At the moment, earlier you said that the tariffs will be made so they are flat so that as people use more electricity -- at the moment they pay more per kilowatt-hour as they increase their consumption. You mentioned that you would move away from that and move towards a flat tariff for residential users.

The lowest tariffs are by the people who use the least which I presume would be the poor people in the society. So if you move to flat tariffs, politically it seems difficult to increase tariffs for poor people. So does that mean that your tariff for residential consumers and your plans will likely have to come down on average?

(Translating into Korean).

Well let's look at it this way. If we get the tariffs [indiscernible] between the industrial or the commercial and for agriculture use, for residential use, and even in the commercial we have cumulative from one to six and for industrial from eight to three.

For mid to long term the Korea Energy Research Institute has put out a study and they said that 2009 would be a good target year. But as was mentioned earlier during your question, if you look at the residential segment, it will be also affected by probably industrial, and agricultural will be the most affected. Probably even though they represent a smaller portion they'll be the most affected segment.

So for the agricultural purpose, the Government will probably assist, and also for the lower-income bracket populations the Ministry of Welfare & Health would also support the system to some extent. So that the tariff system rebalancing and the lower bracket, lower-income bracket people could also benefit, as well as the agricultural population of Korea. They should all come together when we think for coming up with a new tariff system.

Next I'd like to -- I believe that there's one more person in the middle who raised their hand. Yes, last question from the floor.

Yes I'm from ABN Amro. My name is [Kang]. My question is the following, the KIDC already has issued the [EBs] with the shares of KEPCO and I believe that it is maturing, nearing maturity, and I believe that there was a share overhang issue so I'd like to ask about that. And additionally do you have any additional plan for share buyback?

Yes. Concerning the issue of the KIDC owning shares I believe that they have already matured on the 11th of this month. However, the KIDC has still not decided as to what they are going to do. And we are simply waiting for their response. And once they actually put those shares onto the market the share prices could be influenced as you mentioned so we want to maintain the value for the investors. We want to protect the investors so we will discuss with the Government to make certain that we have a comprehensive measure proposed. We are thinking about the issue in advance. Please do not worry.

Any additional questions from the floor?

My name is Hwang Chan and I'm from UBS. I have two questions. First of all concerning dividends, my question is I believe that the debt ratio is less than 50%. What is your target debt ratio level because I think that we need to know that in advance in order to predict what the dividend fee is going to be more or less. And you mentioned about how the cost for transmission to North Korea is going to be borne by the Government or you're going to ask for that to be borne by the Government. But I think that there's not just the transmission cost but also the construction of the plant as well as distribution costs as well.

So does that cost include all of the T&D and construction costs as well or is it just the transmission cost?

Well, the debt ratio that you mentioned, as you see it is at 48.6%. When you look at other companies with the same level of credit rating, it is at a very low level compared to the other utility companies with similar credit ratings. What we target is that we maintain the debt ratio or the borrowing ratio at less than 50%.

Concerning your second question, it is a very good question. The transmission-related costs would include, of course, the construction of the facilities as well as the actual fees related to sending that over to North Korea. So it is those types of indirect costs as well that should be borne by the Government we believe, and that's how we're approaching discussions with the Government.

Of course, KEPCO is a Government-owned company. But at the same time we are a listed company, so we have to balance the profitability as well as the objectives of a public company for enhancing public interest. And the Government is fully aware of the fact that we cannot damage profitability. So the burden or the cost needs to be borne by the Government. That needs to be separated and segregated from our business operations and the Government is fully aware of that.

Thank you very much. We are running out of time, so if you allow I'd like to now give the opportunity to ask questions to the international investors who are overseas. We have a couple of -- Mr. David Clark from Deutsche Bank, please go ahead.

Yes thank you very much. I'd like to thank KEPCO for the presentation. Earlier on there was a comment made regarding KEPCO's hopes to directly acquire LNG and I think we all know that KEPCO earlier this year tried to do that. I was just wondering if management could provide an update on how KEPCO plans to actually win the bids for LNG and beat Cogas going forward? And then whether they might actually be bidding in the next few months for LNG import contracts?

To our subsidiary Gencos, they had actually participated, tried to participate in the direct position. But they failed. Right now we expect that around the timeframe of 2010, is that correct? 2010 there will be a three million ton acquisition once again. And at that time we will definitely pursue direct opposition once again.

In terms of the end users it is most appropriate that they acquire the LNG. However, the Cogas already has some vested interest and that's why we have been faced with those types of difficulties. And we have not had a lot of separation for this time around. However, next time when we continue with additional construction projects overseas, for overseas as well, I think that we will have a higher level of leverage that we can make use of, KEPCO as well as the Gencos subsidiaries will be at the forefront, and I'm sure that we'll be able to be quite competitive in beating in such situations, and we'll continuously pursue direct access to LNG.

Was that -- did that answer your question, Mr. David Clark?

Yes very helpful. Thank you very much.

The next question is from Citibank, [Savey Cattell]. Please go ahead.

Yes I would actually just like to ask about KEPCO's recent purchase of a stake in Nigeria along with the Korea National Oil Company. Also if management can highlight any other plans and also the total commitment in the next few years how much roughly could KEPCO be investing in oil assets overall? Thank you.

Concerning the oil development projects in Nigeria, in the end we did succeed in participating but in the beginning actually that was not our original purpose. When the bid was first opened, if KEPCO is constructing a power plant in Nigeria then we can provide that additional favor to the Korea Oil Corporation, and that's how we were involved in that project. It was not initially our objective.

For -- they in Nigeria originally wanted the establishment of the power plant more than anything else, and the minister who is in charge of energy in Nigeria has asked for this type of co-operation. So there was an MOU that was agreed upon and if the power plant is well established by KEPCO then they will give a favorable bid to the Korea Oil Corporation, and that is how that kind of a situation took place.

And as a result we, since we don't have natural resources, we have to participate in whether it be oil or gas development, natural resource development efforts, we have to be involved with that. If we make a consortium of the oil agency as well as the gas authority as well as the other organization, I think that we will have a much better result. Was that a good answer to your question? Did that answer your question?

Yes, thank you very much.

We have an additional person on the line, Edmond from JP Morgan. Please go ahead, Mr. Lee.

Thank you very much for the presentation. I have actually just two very quick questions. One, in terms of the oil price increase at the beginning of this year the company has paid -- was able to partially offset the impact from higher fuel prices by relying more on nuclear output as mentioned during the presentation. But given that there won't be any further nuclear units for completion over the next couple of years I'd just like to hear management's comments on whether there's any additional measure or mitigating measure that can be undertaken in order to offset or partially offset the negative impact from higher fuel prices?

Thank you very much that you just mentioned the high oil prices. We were able to maintain our financial status due to the fact that coal and nuclear took up a large portion of our generation capabilities as you saw in the slides. Oil actually takes up only 5 to 7% in terms of our generation proportion. So, on the whole I believe that the proportion taken up by oil is relatively low especially concerning this year [between] five and 62 units were additionally operated.

And therefore we were able to offset many of the difficulties, and [ChinKori], the new unit in Korea, has already received the permit for construction while some, although there is a new unit that is going to be constructed, Unit Five and Unit Six and there were some plans there are going to be additional construction. So once that is established I believe that we'll be able to have enough to mitigate any higher hikes in oil prices.

And for [Yung Island] and other coal, the more power plants can be utilized and we have additional plants that are going to be constructed in a more environmentally-friendly way. Did that answer your question?

Yes, yes.

We're already 20 minutes behind our original schedule. I think that it was indeed a very active Q&A session and that it's all due to the fact that you have shown a lot of interest in KEPCO. Thank you very much for your kind interest and concern.

With this we'd like to conclude the official portion of our IR Conference. However, during the dinnertime you have additional time to ask questions if necessary. We would like to go ahead and start serving.