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Korea Western Power Co., Ltd. Presentation to Investors November 2003 Agenda I. Korean Economic Environment II. Power Industry Overview III. Power Industry Restructuring Update IV. Overview of Western Power V. Financial Overview VI. Summary 2 I. Korean Economic Environment Strong Prospects for Growth The Korean economy is one of the strongest performing economies in Asia External and domestic demand is recovering sharply after a short-lived slowdown The Korean economy is expected to rebound in 4Q03, with GDP forecasted to increase 5.0 % in 2004 Asia GDP Growth Korea GDP Growth Forecast 10.0% World Bank 8.0% 3.00% in 2003 5.10% in 2004 6.0% 4.0% Asian Development Bank 3.10% in 2003 Korea Development Institute 2.60% in 2003 5.00% in 2004 2002 China KOREA Thailand India Malaysia Singapore Indonesia Taiwan 0.0% Hong Kong 2.0% 4.80% in 2004 1H03 Source: Bloomberg 4 Recognition of Success Korea has demonstrated robust economic recovery and commitment to corporate restructuring to emerge successfully from the Asian economic crisis, resulting in credit rating upgrades between 3–5 times by the international credit rating agencies Moody’s: A3 S&P: A- Rating A1 Rating Rating AA- AAA+ A ABBB+ BBB BBBBB+ B- A+ A3 ABaa2 BBB Baa3 BBBBB+ Ba1 8/97 B+ 12/97 2/99 3/02 Fitch: A 8/97 10/97 12/97 2/98 11/99 9/02 3/97 7/98 12/99 4/01 9/02 Korea’s single-A sovereign rating affirms the nation's successful restructuring efforts and significant recovery from financial crisis. 5 I. Power Industry Overview Nationwide Power Consumption Historically, power consumption has grown faster than Korean GDP Steady increase in electricity consumption in recent years driven largely by strong industrial demand Korean GDP and Domestic Power Consumption (1992–2002) 20.0% 14.7% 250,000 10.4% 11.4% 10.8% 11.8% 10.0% 200,000 150,000 7.6% 10.9% 5.4% 5.5% 8.3% 8.9% 8.0% 6.3% 5.0% 3.1% -5.0% -6.7% 0 1993 1994 1995 1996 Power consumption 1997 1998 Consumption growth rate 5.0% 0.0% -3.6% 50,000 1992 10.0% 9.3% 6.8% 100,000 Source: 15.0% 10.7% 11.8% Growth rate Power consumption (GWh) 300,000 -10.0% 1999 2000 2001 2002 GDP growth rate Statistics of Electric Power in Korea, KEPCO, Bank of Korea 7 Domestic Consumption Outlook Power consumption will continue to adhere to the rising trend for 2003 and beyond The consistent growth in electricity demand will provide additional room for KOWEPO to grow its profitability Projected Domestic Power Demand (2002A–2012F) 400,000 Unit: GWh 350,000 288,591 300,000 299,983 311,056 321,184 330,593 339,452 347,675 355,324 362,922 370,248 271,009 250,000 200,000 150,000 2002A 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Source: Electricity Supply & Demand Long-Term Basic Plan (2002), MOCIE 8 Reserve Margin Reserve margin is expected to increase steadily to 25% levels, peak demand and ending capacity with projected CAGR of 3.9 % and 4.8% respectively Projected Domestic Power Demand and Supply (2001A–2010F) (MW) 80,000 40% 70,000 35% 60,000 30% 50,000 25% 40,000 20% 30,000 15% 20,000 10% 10,000 5% 0 0% 2001A 2002A 2003F 2004F Peak Demand 2005F 2006F Ending Capacity 2007F 2008F 2009F 2010F Reserve Margin Source: The 1st Basic Plan of Long-Term Electricity Supply & Demand 9 III. Power Industry Restructuring Update Industry Restructuring Objectives Increase Operational & Managerial Efficiency of the Korean Power Industry Introduce Tariff Reforms Intended to “Gradually” Liberalize Electricity Prices in the Interest of Ensuring a Stable Power Generation Environment Promote Consumer Convenience through the Expansion of Consumer Choice by Creating the Framework for a Competitive Open Electricity Market Ensure Long-term, Inexpensive and Stable Electricity Supply in Korea Develop a Competitive Generation and Distribution Market in Korea “The Korean Government will Reform the Power Sector in a Way that Supports the Gencos’ Financial Profiles, and Establishes a Competitive Regime” - Moody’s 11 Industry Restructuring Schedule N G G Generation G G N G G G G KPX KPX Transmission Transmission Transmission Distribution Distribution Phase I Preparation Phase II Generation Competition D D Phase III Wholesale Competition D D D D Phase IV Retail Competition Under Review 1999 Announcement of Industry Restructuring Plan 2000 Passage of Restructuring Bills 2001 Gencos, KPX and KEC Setup Cost-Based Electricity Pool System Introduced 2003 Commence Privatization of Gencos 2004 Introduction of Vesting Contracts Introduce PriceBased Two-Way Bidding System 2005 Establish Distribution Companies (Discos) 2009 Full Competition 12 Industry Restructuring Initiatives & Progress Privatization process has been reviewed... Cost Based Pool has been established... Introduction of Vesting Contracts is the next step... Separating distribution assets is being reviewed... Preparation for KOSEP’s IPO, instead of a sale of controlling stake to a strategic investor, has been started The privatization of the remaining gencos will be determined after an evaluation of the KOSEP privatization Electricity price is determined on a cost plus basis Intermediate step to prepare gencos for wholesale competition The proposed use of vesting contracts from 2004 onwardswill minimise price volatility in the early stages of reform Vesting contracts would result in operating cash flows remaining highly stable for at least the next 2 years The plan of separating distribution assets is under discussion Mock operation will be conducted for a certain period before actual separation in order to avoid or reduce trial and errors. 13 IV. Overview of Western Power Snapshot of Western Power Established Number of Employees April 2, 2001 1,587 Generation Capacity 7,946 MW(1) Power Plant Complex Taean, Pyeongtaek, Kunsan, Seoincheon, Samrangjin, Cheongsong(1) Total Assets (1H 2003) W 2,960 billion (US$2.5 billion)(2) Revenues (1H 2003) W 1,060 billion (US$888 million)(2) Power Sold (1H 2003) 17,751 GWh(2) Credit Rating BBB+ by S&P, Outlook: Positive (1) Includes Cheongsong #1, 2 (600MW) under construction (2) For the six months ending June 30, 2003; FX rate of W1,193.1/US$ 15 Western Power’s Management Strong management with a wealth of industry expertise Individual Position Young-Cheol Lee President & CEO Experience Young-Ki Park Executive Auditor Yoon-Tae Kim Senior Vice President General & Affairs Division Jeong-Kooc Han Senior Vice President Power Generation & Construction Division Academic Qualification Senior Vice President, Western Power Vice President, KEPCO Managing Director of Samcheonpo, Boryeong T/P Plant Division, KEPCO 35 Years of Industry Experience BS, Hanyang University PM (Project Management) Program, Soong Shil University Head of International Intellectual Property Training Institute, National Institute of Professional Administration (2000~2001) Various positions, Ministry of Trade, Industry and Energy (1989~1997) BA, Seoul National University MBA, Yonsei University Managing Director, Management Information System and Public Relation Division, KEPCO Head of Uijeongbu and Incheon Branches, KEPCO 39 Years of Industry Experience BA, Youngnam University MBA, Hanyang University Managing Director, Power Generation Dept., Western Power and Samcheonpo T/P Plant Division, KEPCO 40 Years of Industry Experience BS, Yonsei University 16 Western Power’s Plant Complex Capacity 90% of capacity is located near the Seoul and Gyeonggi metropolitan areas Generation Capacity by Type of Plant MW 3,500 3,480MW 3,000 Samrangjin P/S (600 MW) 2,500 Taean Seoincheon Seoul Metropolitan Area 1,466MW #1~6 (3,000 MW) Kunsan (66 MW) 1,500 Coal LNG BC Oil Pumped Storage Cheongsong P/S (600 MW) 3,000MW 2,000 Plant Complex Location Seoincheon Cheongsong (Under Construction) (1,800 MW) Kunsan Pyeongtaek (1,400 MW) 1,000 Pyeongtaek Taean Pyeongtaek C/C (480 MW) Samrangjin 0 Base Load Intermediate Load In Operation Notes: As of June 30, 2003 Peak Load Under Construction 17 Western Power’s Plant Complexes Taean T/P(1) Kunsan T/P Pyeongtaek T/P Seoincheon C/C Pyeongtaek C/C Samrangjin P/S Capacity (MW) 3,000 66 1,400 1,800 480 600 # of Units 6 1 4 16 5 2 Load Type Base Intermediate Intermediate Peak Peak Peak Main Fuel Bituminous Anthracite B.C. Oil LNG LNG P/S Efficiency (%) 39.64 30.27 38.02 45.38 41.67 NA Utilization (%) 87.70 69.89 38.80 44.41 31.94 9.25 Weighted Avg. Age 5.1 34.8 21.1 10.9 10.4 17.6 Note: For the six months ending June 30, 2003 (1) Additional capacity of 1,000MW will be added to Taean in the next several years 18 V. Financial Overview Western Power’s Financial Overview (1H03) Assets Liabilities Shareholders’ Equity Notes: W 2,960 billion (US$ 2.5 billion) – Fixed Assets/Total Assets Ratio : 86.1% W 1,097.1 billion (US$ 920 million) – Debt-to-Capital Ratio : 31.6% W 1,860 billion (US$ 1.6 billion) – Stake is Wholly Owned by KEPCO Revenue W 1,060 billion (US$ 888 million) – EBIT / EBITDA : W 213/ 354 billion Profitability Net Income : W 131.8 billion (US$ 110.5 million) – Net Margin: 12.5 % For the six months ending June 30, 2003 FX rate of W1,193.1/US$ 20 Western Power’s Financial Profile Revenue & EBITDA (1H03) Leverage Ratio (FY02 & 1H03) 1,200 45% 30% Revenue EBITDA KEWESPO 20% KOSPO 0 WESTERN POWER 25% KOMIPO 200 FY02 KEWESPO 400 35% KOSPO 600 40% WESTERN POWER Total Debt to Capital 800 KOSEPCO Unit: KRW billion 1,000 KOMIPO Western Power is the most profitable Korean genco Western Power has been able to reduce its leverage in an effort to restructure unfavorable dedt with strong cash flow KOSEPCO 1H03 21 Western Power’s Key Financial Ratios Western Power has achieved improving profitability EBITDA Margin 40% 40% 40% 30% 30% 33.5% 29.1% 19.8% 20% 20% 20.2% 20% 15.7% (1) 1H03 0% FY02 0% FY01 0% 1H03 10% FY02 10% FY01 10% 11.5% 12.5% 1H03 30% Net Margin FY02 35.1% EBIT Margin 8.9% FY01 FY 01 represents the period from Apr. 2, 2001 to Dec. 31, 2001 22 Western Power’s Key Credit Statistics Western Power has healthy debt service and interest coverage ratios EBITDA Interest Coverage FFO Interest Coverage 12.0 x 12.0 x Net Debt / EBITDA 4.0 x 10.7 x 8.5 x 9.0 x 9.0 x 3.0 x 2.9 x 7.4 x 5.8 x 6.0 x 2.0 x 3.9 x (1) 1H03 0.0 x FY02 0.0 x FY01 0.0 x 1H03 1.0 x FY02 3.0 x FY01 3.0 x FY01 1.2 x 1.1 x 1H03 Annualised 5.0 x FY02 6.0 x FY 01 represents the period from Apr. 2, 2001 to Dec. 31, 2001 23 Western Power’s Capex Requirements Cheongsong plant is planned for completion in 2006, Total cost: KRW 259 billion Initiated construction of Taean project in Nov 2003, targeted for completion in 2008, Total cost: KRW 1,088 billion Projected Capital Expenditure (2003 - 2008) 800 Unit: KRW billion 718.2 600 451.5 445.2 400 200 345.7 229.8 163.6 0 2003 2004 2005 Capacity Addition 2006 2007 2008 Facility Improvement 24 Western Power’s Debt Maturity Profile Western Power is prepaying debt to further reduce leverage and smoothen cash flow Debt restructuring would be completed by December 2003 Before Restructuring (Sep 2003) After Restructuring (Dec 2003) 400 300 250.3 200 180.0 163.6 181.5 Unit: KRW billion Unit: KRW billion 400 300 215.7 100 100 186.7 200 180.0 181.5 2007 2008 65.9 38.6 15.9 0.0 0 0 2003 2004 Debenture 2005 2006 2007 2008 LT Borrowings 2003 2004 2005 Debenture 2006 LT Borrowings 25 Western Power’s Debt Profile US$ bond issuance in December 2002 diversified Western Power’s debt profile. Western Power’s target financing mix is 50% from internal retained earning and 50% from outside financing. Western Power targets to maintain a mix of 60% from domestic / 40% from international sources and, at the same time, 30% with floating / 70% with fixed rate. Type of Instrument Domestic Loan 7% Currency Distribution KEPCO Domestic Bond 23% USD 22% Type of Interest Floating 32% Eurobond 22% Corporate Bond 24% KDB Private Placement Bond 24% KRW 78% Fixed 68% Notes: As of September 2003, Before Restructuring 26 VI. Summary Western Power – Investment Highlights Key Credit Strengths of Western Power Strong Economic Fundamentals in Korea Solid economic recovery, backed by robust domestic and external demand Fourth largest FX reserves Flexible fiscal and monetary policy Single A credit ratings by international agencies Favorable Industry Conditions Economic recovery in 2004 to drive demand for electricity Favorable demandsupply outlook Industry restructuring proceeding gradually under strict supervision resulting in managed competition and improved operational efficiency Operational Strengths Strong Credit Profile High thermal efficiency and labor productivity Highly experienced management with focus on cost and risk management Strategically located plants and wellbalanced plant mix Continuous improvement in operating and financial performance Solid credit fundamentals based on profitable generation business which was the core of KEPCO Improving net margins and decreasing leverage Strong debt servicing ability Invest in the Leading Generation Company of Korea 28 Korea Western Power Co., Ltd. Presentation to Investors November 2003