Form 6-K

 

 

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

 

FORM 6-K

 

 

REPORT OF FOREIGN PRIVATE ISSUER

Pursuant to Rule 13a-16 or 15d-16 of

the Securities Exchange Act of 1934

For the Month of April 2008

 

 

KOREA ELECTRIC POWER CORPORATION

(Translation of registrant’s name into English)

 

 

167, Samseong-dong, Gangnam-gu, Seoul 135-791, Korea

(Address of principal executive offices)

 

 

Indicate by check mark whether the registrant files or will

file annual reports under cover of Form 20-F or Form 40-F.

Form 20-F      X            Form 40-F              

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):              

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):              

Indicate by check mark whether the registrant by furnishing the

information contained in this form is also thereby furnishing the

information to the Commission pursuant to Rule 12g3-2(b) under the

Securities Exchange Act of 1934.

Yes                      No      X    

If “Yes” is marked, indicate below the file number assigned to the

registrant in connection with Rule 12g3-2(b): 82-            .

 

 

 


This Report of Foreign Private Issuer on Form 6-K is deemed filed for all purposes under the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended, including by reference in the Registration Statement on Form F-3 (Registration No. 33-99550) and the Registration Statement on Form F-3 (Registration No. 333-9180).


KOREA ELECTRIC POWER CORPORATION

NON-CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2007

AND INDEPENDENT AUDITORS’ REPORT


Independent Auditors’ Report

English Translation of a Report Originally Issued in Korean

To the Shareholders and Board of Directors of

Korea Electric Power Corporation:

We have audited the accompanying non-consolidated balance sheet of Korea Electric Power Corporation (the “Company”) as of December 31, 2007, the related non-consolidated statements of income, appropriation of retained earnings, statements of cash flows and changes in shareholders’ equity for the year ended December 31, 2007, all expressed in Korean Won. These non-consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these non-consolidated financial statements based on our audit. We did not audit the financial statements of Korea South-East Power Co., Ltd., Korea Midland Power Co., Ltd., Korea Western Power Co., Ltd. and Korea Southern Power Co., Ltd., which statements reflect 14.7 percent of the total assets as of December 31, 2007 and 36.2 percent of income before income tax expenses for the year ended December 31, 2007. Those statements were audited by other auditors whose reports have been furnished to us, and our opinion, in so far as it relates to the amounts included for those companies, is based solely on the reports of the other auditors. The accompanying non-consolidated balance sheet of the company as of December 31, 2006 and the related non-consolidated statements of income, appropriations of retained earnings and cash flows for the year then ended, which are presented for comparative purposes, were audited by other auditors whose report, dated January 31, 2007, expressed an unqualified opinion on those statements.

We conducted our audit in accordance with auditing standards generally accepted in the Republic of Korea. Those standards require that we plan and perform the audit to obtain reasonable assurance as to whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit and the report of the other auditors provide a reasonable basis for our opinion.

In our opinion, based on our audit and the reports of the other auditors, the financial statements referred to above present fairly, in all material respects, the financial position of Korea Electric Power Corporation as of December 31, 2007, and the results of its operations, the changes in its retained earnings and shareholders’ equity, and its cash flows for the year then ended in conformity with the Korea Electric Power Corporation Act, the Accounting Regulations for Public Enterprise & Associate Government Agency and accounting principles generally accepted in the Republic of Korea.


Our audit also comprehended the translation of Korean Won amounts into U.S. dollar amounts and, in our opinion, such translation has been made in conformity with the basis in Note 2. Such U.S. dollar amounts are presented solely for the convenience of readers outside of Korea.

Accounting principles and audit standards and their application in practice vary among countries. The accompanying non-consolidated financial statements are not intended to present the financial position, results of operations, cash flows and changes in shareholders’ equity in accordance with accounting principles and practices generally accepted in countries other than the Republic of Korea. In addition, the procedures and practices utilized in the Republic of Korea to audit such financial statements may differ from those generally accepted and applied in other countries. Accordingly, this report and the accompanying non-consolidated financial statements are for use by those knowledgeable about Korean accounting procedures and audit standards and their application in practice.

February 11, 2008

Notice to Readers

This report is effective as of February 11, 2008, the auditors’ report date. Certain subsequent events or circumstances may have occurred between the auditors’ report date and the time the auditors’ report is read. Such events or circumstances could significantly affect the accompanying non-consolidated financial statements and may result in modifications to the auditors’ report.


KOREA ELECTRIC POWER CORPORATION

NON-CONSOLIDATED BALANCE SHEETS

AS OF DECEMBER 31, 2007 AND 2006

 

     Korean Won     Translation into
U.S. Dollars (Note 2)
 
     2006     2007     2007  
     (In millions)     (In thousands)  
Assets       

Property, plant and equipment (Notes 3 and 5):

   (Won) 46,072,258     (Won) 49,295,683     $ 52,542,829  

Less: accumulated depreciation

     (12,556,783 )     (14,415,883 )     (15,365,469 )

Less: construction grants

     (4,086,751 )     (6,126,776 )     (6,530,351 )
                        
     29,428,725       28,753,024       30,647,009  

Construction in-progress

     2,122,773       2,265,117       2,414,322  
                        

Net property, plant and equipment

     31,551,498       31,018,141       33,061,331  
                        

Investments and other assets:

      

Investment securities (Notes 6 and 7)

     27,644,238       28,956,430       30,863,814  

Long-term other accounts receivable, less allowance for doubtful accounts of nil in 2006 and (Won)13,066 million in 2007 (Notes 3, 21 and 30)

     44       1,293,500       1,378,704  

Long-term loans (Note 8)

     195,413       212,199       226,177  

Intangible assets (Note 4)

     214,141       208,295       222,016  

Other non-current assets (Notes 9 and 21)

     262,153       264,373       281,787  
                        

Total non-current assets

     28,315,989       30,934,797       32,972,498  
                        

Current assets:

      

Cash and cash equivalents (Notes 10 and 21)

     129,225       189,346       201,819  

Trade receivables, less allowance for doubtful accounts of (Won)48,559 million in 2006 and (Won)52,406 million in 2007 (Notes 21 and 30)

     2,249,045       2,469,559       2,632,231  

Other accounts receivable, less allowance for doubtful accounts of (Won)5,724 million in 2006 and (Won)7,182 million in 2007 (Notes 21 and 30)

     264,305       447,450       476,923  

Short-term financial instruments (Note 11)

     25,000       —         —    

Currency swaps (Note 25)

     479,879       —         —    

Currency forwards (Note 25)

     64       —         —    

Inventories (Note 12)

     178,099       225,435       240,285  

Deferred income tax assets, net (Note 28)

     251,413       251,762       268,346  

Other current assets (Notes 13)

     91,684       106,101       113,089  
                        

Total current assets

     3,668,714       3,689,653       3,932,693  
                        

Total assets

   (Won) 63,536,201     (Won) 65,642,591     $ 69,966,522  
                        

(Continued)


KOREA ELECTRIC POWER CORPORATION

NON-CONSOLIDATED BALANCE SHEETS (CONTINUED)

AS OF DECEMBER 31, 2007 AND 2006

 

 

     Korean Won     Translation into
U.S. Dollars (Note 2)
 
     2006     2007     2007  
     (In millions)     (In thousands)  

Liabilities and Shareholders’ Equity

      

Stockholders’ equity:

      

Common stock of (Won)5,000 par value Authorized— 1,200,000,000 shares Issued and outstanding— 641,567,712 shares in 2007 and 2006 (Note 14)

   (Won) 3,207,839     (Won) 3,207,839     $ 3,419,142  

Capital surplus (Notes 3 and 14)

     14,518,843       14,513,011       15,468,995  

Capital adjustments (Note 15)

     (796,980 )     (741,825 )     (790,689 )

Accumulated other comprehensive income (Notes 16 and 35)

     38,892       122,543       130,615  

Retained earnings:

      

Appropriated (Note 17)

     23,922,207       25,372,349       27,043,645  

Before appropriations

     2,071,223       1,556,815       1,659,364  
                        

Total shareholders’ equity

     42,962,024       44,030,732       46,931,072  
                        

Long-term liabilities:

      

Long-term debt, net (Notes 20 and 30)

     10,230,839       10,648,983       11,350,440  

Accrual for retirement and severance benefits, net (Note 22)

     557,887       689,800       735,238  

Reserve for self insurance (Note 23)

     103,942       109,273       116,471  

Other provisions (Note 23)

     50,641       242,219       258,174  

Currency and interest rate swaps (Note 25)

     —         —         —    

Deferred income tax liabilities, net (Note 28)

     2,435,310       2,513,867       2,679,457  

Other long-term liabilities (Note 31)

     338,421       423,844       451,763  
                        

Total long-term liabilities

     13,717,040       14,627,986       15,591,543  
                        

Current liabilities:

      

Trade payables (Note 30)

     1,776,592       2,098,630       2,236,868  

Other accounts payable (Notes 21 and 30)

     421,832       309,592       329,986  

Short-term borrowings (Note 19)

     200,000       489,999       522,276  

Current portion of long-term debt, net (Note 20)

     3,363,742       3,479,974       3,709,203  

Income tax payable

     423,120       —         —    

Other current liabilities (Note 24)

     671,851       605,678       645,574  
                        

Total current liabilities

     6,857,137       6,983,873       7,443,907  
                        

Total liabilities

     20,574,177       21,611,859       23,035,450  
                        

Commitments and contingencies (Note 31)

      

Total shareholders’ equity and liabilities

   (Won) 63,536,201     (Won) 65,642,591     $ 69,966,522  
                        

See accompanying notes to non-consolidated financial statements


KOREA ELECTRIC POWER CORPORATION

NON-CONSOLIDATED STATEMENTS OF INCOME

FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006

 

     Korean Won     Translation into
U.S. Dollars (Note 2)
 
     2006     2007     2007  
     (In millions)     (In thousands)  

OPERATING REVENUES:

      

Sale of electricity (Note 30)

   (Won) 26,900,604     (Won) 28,953,328     $ 30,860,508  

Other operating revenues (Note 30)

     78,429       30,557       32,569  
                        
     26,979,033       28,983,885       30,893,077  
                        

OPERATING EXPENSES (Notes 30):

      

Power generation, transmission and distribution costs (Note 26)

     4,112,928       4,609,631       4,913,271  

Purchased power

     20,347,128       22,724,191       24,221,052  

Other operating costs

     85,611       43,657       46,533  

Selling and administrative expenses (Note 27)

     1,201,775       1,224,706       1,305,378  
                        
     25,747,442       28,602,185       30,486,234  
                        

OPERATING INCOME

     1,231,591       381,700       406,843  
                        

OTHER INCOME (EXPENSES):

      

Interest income

     15,702       82,447       87,878  

Interest expense (Note 30)

     (544,328 )     (602,489 )     (642,176 )

Gain on foreign currency transactions and translation, net

     236,336       (76,919 )     (81,986 )

Donations

     (105,687 )     (73,997 )     (78,871 )

Rental income

     138,294       154,567       164,748  

Equity income of affiliates, net (Note 7)

     1,589,394       1,765,939       1,882,263  

Gain on disposal of property, plant and equipment, net

     6,784       16,117       17,179  

Valuation loss on currency and interest rate swaps, net (Note 24)

     (26,466 )     2,594       2,765  

Other, net

     82,318       247,780       264,102  
                        
     1,392,347       1,516,039       1,615,902  
                        

INCOME BEFORE INCOME TAX

     2,623,938       1,897,739       2,022,745  

INCOME TAX EXPENSE (Note 28)

     553,395       340,924       363,381  
                        

NET INCOME

   (Won) 2,070,543     (Won) 1,556,815     $ 1,659,364  
                        

BASIC EARNINGS PER SHARE (Note 29)

   (Won) 3,245     (Won) 2,504     $ 2.70  
                        

DILUTED EARNINGS PER SHARE (Note 29)

   (Won) 3,153     (Won) 2,461     $ 2.66  
                        

See accompanying notes to non-consolidated financial statements.


KOREA ELECTRIC POWER CORPORATION

NON-CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006

 

     Korean Won     Translation into
U.S. Dollars (Note 2)
 
     2006     2007     2007  
     (In millions)     (In thousands)  

CASH FLOWS FROM OPERATING ACTIVITIES:

    

Net income

   (Won) 2,070,543     (Won) 1,556,815     $ 1,659,364  

Adjustments to reconcile net income to net cash provided by operating activities:

      

Depreciation and amortization

     1,825,733       1,891,759       2,016,370  

Property, plant and equipment removal cost

     229,417       294,734       314,148  

Provision for severance and retirement benefits

     128,803       159,266       169,757  

Bad debt expense

     21,814       18,854       20,096  

Interest expense

     13,731       32,341       34,471  

Gain on foreign currency translation, net

     (197,115 )     57,783       61,589  

Equity income of affiliates, net

     (824,255 )     (1,017,030 )     (1,084,023 )

Gain on disposal of property, plant and equipment, net

     (6,784 )     (16,117 )     (17,179 )

Gain on disposal of investments

     (17 )     (13,021 )     (13,878 )

Contribution to self-insurance

     6,906       7,191       7,665  

Contribution to other provisions

     53,708       33,454       35,657  

Valuation loss (gain) on currency and interest rate swaps, net

     26,466       (2,594 )     (2,765 )

Transaction loss (gain) on currency and interest rate swaps, net

     8,747       (9,592 )     (10,223 )

Gain on retirement of bonds

     (2,329 )     —         —    

Others

     4,661       (145,211 )     (154,775 )
                        
     1,289,486       1,291,817       1,376,910  
                        

Changes in assets and liabilities:

      

Increase in trade receivables

     (229,496 )     (239,386 )     (255,155 )

Increase in other accounts receivable

     (3,037 )     (4,060 )     (4,327 )

Decrease (Increase) in inventories

     (17,232 )     35,340       37,668  

Increase in deferred income tax assets

     (43,553 )     (348 )     (371 )

Increase in other current assets

     (119,069 )     (42,270 )     (45,054 )

Increase (Decrease) in trade payables

     (327,269 )     322,037       343,250  

Increase (Decrease) in other accounts payable

     63,803       (112,240 )     (119,633 )

Increase (Decrease) in income tax payable

     317,024       (437,741 )     (466,575 )

Increase (Decrease) in other current liabilities

     (58,106 )     62,923       67,067  

Increase in deferred income tax liabilities

     136,118       186,430       198,711  

Decrease in other long-term liabilities

     (12,138 )     (8,664 )     (9,236 )

Payment of severance and retirement benefits, net

     (20,862 )     (29,768 )     (31,729 )

Increase in severance insurance deposits

     (475 )     (850 )     (906 )

Payment of self-insurance

     (1,582 )     (1,860 )     (1,982 )

Provision for other estimated liabilities

     (1,337 )     (29,248 )     (31,175 )
                        
     (317,211 )     (299,705 )     (319,447 )
                        

Net cash provided by operating activities

     3,042,818       2,548,927       2,716,827  
                        

(Continued)


KOREA ELECTRIC POWER CORPORATION

NON-CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006

 

     Korean Won     Translation into
U.S. Dollars (Note 2)
 
     2006     2007     2007  
     (In millions)     (In thousands)  

CASH FLOWS FROM INVESTING ACTIVITIES:

      

Proceeds from disposal of property, plant and equipment

   (Won) 25,491     (Won) 24,351     $ 25,955  

Additions to property, plant and equipment

     (3,657,394 )     (4,030,212 )     (4,295,685 )

Receipt of construction grants

     796,994       1,042,175       1,110,824  

Proceeds from disposal of investment securities

     33       145,239       154,806  

Acquisition of investment securities

     (35,664 )     (311,776 )     (332,313 )

Collection of loans

     23,474       29,630       31,582  

Increase in long-term loans

     (40,210 )     (46,215 )     (49,259 )

Acquisition of intangible assets

     (33,366 )     (33,772 )     (35,997 )

Proceeds from short-term financial instruments

     38,000       25,000       26,647  

Additions to short-term financial instruments

     (25,000 )     —         —    

Settlement under currency and interest rate swap contracts

     (51,574 )     485,429       517,405  

Other, net

     (16,467 )     313       334  
                        

Net cash used in investing activities

     (2,975,683 )     (2,669,838 )     (2,845,701 )
                        

CASH FLOWS FROM FINANCING ACTIVITIES:

      

Proceeds from short-term borrowings

     129,000       282,953       301,591  

Proceeds from long-term debt

     3,725,919       3,829,716       4,081,983  

Proceeds from disposal of corporation own stock fund

     —         58,988       62,873  

Repayment of long-term debt

     (2,529,532 )     (3,369,407 )     (3,591,353 )

Acquisition of treasury stock

     (740,949 )     —         —    

Dividends paid

     (730,858 )     (621,218 )     (662,138 )

Other, net

     (3 )     —         —    
                        

Net cash provided by (used in) financing activities

     (146,423 )     181,032       192,956  
                        

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (Note 32)

     (79,288 )     60,121       64,082  

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD

     208,513       129,225       137,737  
                        

CASH AND CASH EQUIVALENTS, END OF PERIOD

   (Won) 129,225     (Won) 189,346     $ 201,819  
                        

See accompanying notes to non-consolidated financial statements.


KOREA ELECTRIC POWER CORPORATION

NON-CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2007

 

     Korean Won (In millions)  
     Capital stock    Capital surplus     Capital
adjustments
    Accumulated
other
comprehensive
income
    Retained
earnings
    Total  

Beginning of January 1, 2007

   (Won) 3,207,839    (Won) 14,518,843     (Won) (796,980 )   (Won) 38,892     (Won) 25,993,431     (Won) 42,962,024  

Exercise of conversion right

     —        (9,903 )     —         —         —         (9,903 )

Treasury stock exchange of exchangeable bond

        12,876       —         —         —         12,876  

Changes in treasury stock

     —        —         55,155       —         —         55,156  

Gain on disposal of treasury stock

     —        9,873       —         —         —         9,873  

Loss on valuation of available-for-sale securities, net

     —        —         —         (3,668 )     —         (3,668 )

Equity gain of affiliates

     —        —         —         64,444       —         64,444  

Equity loss of affiliates

     —        —         —         54,604       —         54,604  

Directly charged tax effect

     —        (18,678 )     —         (31,729 )     —         (50,407 )

Net income

     —        —         —         —         1,556,815       1,556,815  

Dividends declared

     —        —         —         —         (621,082 )     (621,082 )
                                               

Balance at December 31, 2007

   (Won) 3,207,839    (Won) 14,513,011     (Won) (741,825 )   (Won) 122,543     (Won) 26,929,164     (Won) 44,030,732  
                                               

Translation into U.S. Dollars (In thousands) (Note 2)

   $ 3,419,142    $ 15,468,995     $ (790,689 )   $ 130,615     $ 28,703,009     $ 46,931,072  
                                               

See accompanying notes to non-consolidated financial statements.


KOREA ELECTRIC POWER CORPORATION

NON- CONSOLIDATED STATEMENT OF APPROPRIATION OF RETAINED EARNINGS

Years ended December 31, 2007 and 2006

Date of Appropriation for 2007: February 29, 2008

Date of Appropriation for 2006: March 26, 2007

 

     Korean Won    Translation into
U.S. Dollars(Note 2)
     2006    2007    2007
     (In millions)    (In thousands)

Unappropriated retained earnings:

        

Balance at beginning of year

   (Won) —      (Won) —      $ —  

Change in retained earnings due to cumulative effect of accounting change

     —        —        —  

Change in retained earnings of affiliated companies due to cumulative effect of accounting changes

     680      —        —  

Net income

     2,070,543      1,556,815      1,659,364
                    

Balance at end of year before appropriation

     2,071,223      1,556,815      1,659,364
                    
           —  

Appropriation of retained earnings:

           —  

Legal reserve

     —        —        —  

Reserve for investment in social overhead capital

     60,000      —        —  

Reserve for research and human resource development

     60,000      —        —  

Reserve for business expansion

     1,330,141      1,089,851      1,161,640

Dividends – 15% on par value at 750 Won per share in 2007 and 20% on par value at 1,000 Won per share in 2006

     621,082      466,964      497,724
                    
     2,071,223      1,556,815      1,659,364
                    

Unappropriated retained earnings to be carried over to subsequent year

   (Won) —      (Won) —      $ —  
                    

See accompanying notes to non-consolidated financial statements.


KOREA ELECTRIC POWER CORPORATION

NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2007 AND 2006

 

1. GENERAL

Korea Electric Power Corporation (the “Company” or “KEPCO”) was incorporated on January 1, 1982 in accordance with the Korea Electric Power Corporation Act (the “KEPCO Act”) to engage in the generation, transmission and distribution of electricity and development of electric power resources in the Republic of Korea. The Company was given the status of a government-invested enterprise on December 31, 1983 following the enactment of the Government-Invested Enterprise Management Basic Act. The Company’s stock was listed on the Korea Stock Exchange on August 10, 1989 and the Company listed its Depository Receipts (DR) on the New York Stock Exchange on October 27, 1994.

As of December 31, 2007, the Government of the Republic of Korea, Korea Development Bank (“KDB”), which is wholly owned by the Korean Government and foreign investors held 21.12%, 29.95% and 27.47%, respectively, of the Company’s shares.

In accordance with the restructuring plan by the Ministry of Commerce, Industry and Energy (MOCIE) on January 21, 1999, the Company spun off its power generation division on April 2, 2001, resulting in the establishment of six power generation subsidiaries. In order to promote the internal competition, the Company organized SBU (Strategy Business Unit) on September 25, 2006 and had been operating it.

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The Company maintains its accounting records in Korean Won and prepares statutory non-consolidated financial statements in the Korean language (Hangul) in conformity with the KEPCO Act, Accounting Regulations for Public Enterprise·Associate Government Agency, which have been approved by the Korean Ministry of Finance and Economy and, in the absence of specialized accounting regulations for utility companies, and the accounting principles generally accepted in the Republic of Korea. Certain accounting principles applied by the Company that conform with financial accounting standards and accounting principles in the Republic of Korea may not conform with generally accepted accounting principles in other countries. Accordingly, these non-consolidated financial statements are intended solely for use by only those who are informed in Korean accounting principles and practices, KEPCO Act and Accounting Regulations for Public Enterprise & Associate Government Agency.

The accompanying non-consolidated financial statements have been condensed, restructured and translated into English (with certain expanded descriptions) from the Korean language non-consolidated financial statements.

The Company’s 2007 financial statements to be presented to the shareholders’ meeting were approved at the board of director meeting on February 11, 2008.

The accompanying financial statements are stated in Korean Won, the currency of the country in which the Company is incorporated and operates. The translation of Korean Won amounts into U.S. dollar amounts is included solely for the convenience of the readers outside of the Republic of Korea and has been made at the rate of (Won)938.20 to US$1.00 at December 31, 2007, the Base Rate announced by Seoul Money Brokerage Service, Ltd. Such translations should not be construed as representations that the Korean Won amounts could be converted at that or any other rate.

Certain information included in the Korean language non-consolidated financial statements, but not required for a fair presentation of the Company’s financial position, results of operations, cash flows or changes in shareholders’ equity is not presented in the accompanying non-consolidated financial statements

Significant accounting policies followed by the Company in preparing the accompanying non-consolidated financial statements are summarized as follows:


Adoption of Newly Effective Statements of Korea Accounting Standards

The Korea Accounting Standards Board (“KASB”) has published a series of Statements of Korea Accounting Standards (“SKAS”), which replace the existing financial accounting standards, established by the Korean Financial and Supervisory Board. The Company prepared its financial statements as of December 31, 2007 in accordance with Financial Accounting Standards and SKAS in the Republic of Korea.

The Company newly adopted SKAS No. 11-”Discontinuing Operations”, No. 21-”Preparation and Presentation of Financial Statements”, No. 22-”Share-based Payment”, No. 23-”Earning per Share”, No. 24-”Preparation and Presentation of Financial Statements (Financial Industry)” and No. 25-”Consolidation Financial Statements”, effective from January 1, 2007.

Pursuant to adoption of SKAS No. 21, statement of changes in shareholders’ equity was prepared only for the year ended December 31, 2007 in accordance with the transitional provision of the above SKAS. Also, certain amounts and accounts of prior year’s financial statements are reclassified to conform to the current period’s presentation. This reclassification does not affect the net loss and net assets of the prior year.

Property, Plant and Equipment

Property, plant and equipment are stated at cost, except in the case of revaluation made in accordance with the KEPCO Act and the Assets Revaluation Law of Korea. Significant additions or improvements extending useful lives of assets are capitalized. However, normal maintenance and repairs are charged to expense as incurred.

The Company capitalizes interest costs and other financial charges on borrowing associated with the manufacture, purchase, or construction of property, plant and equipment, incurred prior to completing the acquisition, as part of the cost of such assets. The calculation of capitalized interest includes exchange differences arising from foreign borrowings to the extent that they are regarded as an adjustment to interest costs, which is limited to the extent of interest cost calculated by the weighted average interest rate of local currency borrowings.

Depreciation is computed by the declining-balance method (straight-line method for buildings and structures) using rates based on the estimated useful lives as follows:

 

     Estimated useful lives (years)

Buildings

   8, 15, 30

Structures

   8, 15, 30

Machinery

   16

Ships

   9

Vehicles

   4

Others

   4

Construction grants are initially recorded and presented in the accompanying non-consolidated financial statements as deductions from the assets acquired under such grants and are offset against depreciation expense during the estimated useful lives of the related assets.

Major maintenance and repair expenditure that increases the value of assets or increase the estimated useful life of assets are recorded as an increase of the book value, while ordinary expenditure that maintains normal operating condition is recorded as expense incurred.

Tangible assets are evaluated at each balance sheet date to determine whether there is any objective evidence of impairment loss. If future economic benefits can be less than carrying amount and the present value of expected future cash flows is less than the carrying amount, the company considers recognition of an impairment loss. The amount of impairment loss is measured as the difference between the recoverable amount and the carrying amount.

Intangibles Assets

Intangible assets, which consist of computer software, industrial rights, land rights and others, are stated at cost less accumulated amortization and impairment losses. Such intangible assets are amortized using the straight-line method (decline-balance method for other purchased computer software) over a reasonable period, from 4 years to 20 years, based on the nature of the asset.


     Estimated useful lives (years)

Software

   5

Industrial right

   10

Land right

   10

Others

   4~20

Due to a significant adverse change in the extent or manner its being used, or a significant decrease in the market price of intangibles asset, if it’s future economic benefits are less than its carrying amount significantly, and the sum of the undiscounted cash flows expected to result from its use and eventual disposition is less than its carrying amount, the company considers recognition of an impairment loss.

Investment Securities Other than those Accounted for Using the Equity Method

Classification of Securities

At acquisition, the Company classifies securities into one of the three categories: trading, held-to-maturity or available-for-sale. Trading securities are those that were acquired principally to generate profits from short-term fluctuations in prices. Held-to-maturity securities are those with fixed and determinable payments and fixed maturity that an enterprise has the positive intent and ability to hold to maturity. Available-for-sale securities are those not classified either as held-to-maturity or trading securities. Trading securities are classified as short-term investment securities, whereas held-to-maturity and available-for-sale securities are classified as long-term investment securities, except for those whose maturity dates or whose likelihood of being disposed of are within one year from the balance sheet date, which are classified as short-term investment securities.

Valuation of Securities

Securities are recognized initially at cost (determined by the moving average method for equity securities and by the specific identification for debt securities), which includes the market value of the consideration given and incidental expenses. If the market price of the consideration given is not available, the market prices of the securities purchased are used as the basis for measurement. If neither the market prices of the consideration given nor those of the acquired securities are available, the acquisition cost is measured at the best estimates of its fair value.

After initial recognition, held-to-maturity securities are valued at amortized cost. The difference between their acquisition costs and face vales (commonly referred to as “discounts” or “premiums” on debt securities) is amortized over the remaining term of the securities by applying the effective interest method and added to or subtracted from the acquisition costs and interest income of the remaining period.

Trading securities are valued at fair value, with unrealized gains or losses included in current operations. Available-for-sale securities are also valued at fair value, with unrealized gains or losses included in accumulated other comprehensive income (loss), until the securities are sold or if the securities are determined to be impaired and the lump-sum cumulative amount of accumulated other comprehensive income (loss) is reflected in current operations. For those securities that are traded in an active market (marketable securities), fair values refer to the quoted market prices, which are measured as the closing price at the balance sheet date. The fair values of non-marketable debt securities are measured at the discounted future cash flows by using the discount rate that appropriately reflects the credit rating of the issuing entity assessed by a publicly reliable independent credit rating agency. If application of such measurement method is not feasible, estimates of the fair values may be made using a reasonable valuation model or quoted market prices of similar debt securities issued by entities conducting similar business in similar industries.

Securities are evaluated at each balance sheet date to determine whether there is any objective evidence of impairment loss. When any such evidence exists, unless there is a clear counter-evidence that recognition of impairment is unnecessary, the Company estimates the recoverable amount of the impaired security and recognizes any impairment loss in current operations. The amount of impairment loss of the held-to-maturity security or non-marketable equity security is measured as the difference between the recoverable amount and the carrying amount.

The recoverable amount of held-to maturity security is the present value of expected future cash flows discounted at the securities’ original effective interest rate. For available-for-sale debt or equity security stated at fair value, the amount of impairment loss to be recognized in the current period is determined by subtracting the amount of impairment loss of debt or equity security already recognized in prior period from the amount of amortized cost in excess of the recoverable amount for debt security or the amount of the acquisition cost in excess of the fair value for equity security. For non-marketable equity securities accounted for at acquisition costs, the impairment loss is equal to the difference between the recoverable amount and the carrying amount.


If the realizable value subsequently recovers, in case of a security stated at fair value, the increase in value is recorded in current operations, up to the amount of the previously recognized impairment loss, while for the security stated at amortized cost or acquisition cost, the increase in value is recorded in current operation, so that its recovered value does not exceed what its amortized cost would be as of the recovery date if there had been no impairment loss.

Reclassification of Securities

When transfers of securities between categories are needed because of changes in an entity’s intention and ability to hold those securities, such transfer is accounted for as follows: trading securities cannot be reclassified into available-for-sale and held-to- maturity securities, and vice versa, except when certain trading securities lose their marketability. Available-for-sale securities and held-to-maturity securities can be reclassified into each other after fair value recognition. When held-to-maturity security is reclassified into available-for-sale security, the difference between the book value and fair value is reported in accumulated other comprehensive income. Whereas, in case available-for-sale security is reclassified into held-to-maturity securities, the difference is reported in accumulated other comprehensive income and amortized over the remaining term of the securities using the effective interest method.

Investment Securities Using the Equity Method

For investments in companies, whether or not publicly held, under the Company’s significant influence, the Company utilizes the equity method of accounting. Significant influence is generally deemed to exist if the Company can exercise influence over the operating and financial policies of an investee. The ability to exercise that influence may be indicated in several ways, such as the Company’s representation on its board of directors, the Company’s participation in its policy making processes, material transactions with the investee, interchange of managerial personnel, or technological dependency. Also, if the Company owns directly or indirectly 20% or more of the voting stock of an investee, the Company generally presumes that the investee is under significant influence. The change in the Company’s share of an investee’s net equity resulting from a change in an investee’s net equity is reflected in current operations, retained earnings, and accumulated other comprehensive income in accordance with the causes of the change which consist of the investee’s net income (loss), changes in retained earnings and changes in capital surplus and accumulated other comprehensive income.

Under the equity method of accounting, the Company’s initial investment is recorded at cost and is subsequently increased to reflect the Company’s share of the investee income and reduced to reflect the Company’s share of the investee losses or dividends received. The Company does not record its share of losses of an affiliate when such losses would make the Company’s investment in such entity less than zero unless the Company has guaranteed obligations of the investee or is otherwise committed to provide additional financial support.

Any excess in the Company’s acquisition cost over the Company’s share of the net fair value of the investee’s identifiable net assets is considered as goodwill and amortized by the straight-line method over the estimated useful life. The amortization of such goodwill is recorded against the equity income (losses) of affiliates. When events or circumstances indicate that carrying amount may not be recoverable, the Company reviews goodwill for any impairment.

Under the equity method of accounting, unrealized gains and losses on transactions with an investee are eliminated to the extent of the Company’s interest in the investee. However, unrealized gains and losses from a down-stream transaction with a subsidiary are eliminated in their entirety.

Assets and liabilities of foreign-based companies accounted for using the equity method are translated at the current rate of exchange at the balance sheet date while profit and loss items in the statement of income are translated at the average rate and the capital account at the historical rate. The translation gains and losses arising from collective translation of the foreign currency financial statements of foreign-based companies are offset and the balance is recognized as accumulated other comprehensive income.

Cash and Cash Equivalents

The Company considers short-term financial instruments with maturities of three months or less at the acquisition date to be cash equivalents.


Financial Instruments

Short-term financial instruments are instruments managed by financial institutions which are held for short-term cash management purposes, maturing within one year, including time deposits, installment savings deposits. Long-term financial instruments are financial instruments not included in current assets.

Allowance for Doubtful Accounts

The allowance for doubtful accounts is estimated based on an analysis of individual accounts and past experience of collection.

Inventories

Inventories are stated at the lower of cost or net realizable value, cost being determined using the weighted-average method for raw materials, moving-average method for supplies and specific-identification method for other inventories. The Company maintains perpetual inventory records, which are adjusted through physical counts.

Convertible Bonds

When issuing convertible bonds, the values of the conversion rights are recognized separately. Considerations for conversion rights are measured by deducting the present value of ordinary or straight debt securities from the gross proceeds of the convertible bonds received at the date of issuance. The amortization of the premium and conversion right adjustment is recorded as a component of interest expense.

Discount (Premium) on Debentures

Discount (premium) on debentures issued, which represents the difference between the face value and issuance price of debentures, is amortized using the effective interest method over the life of the debentures. The amount amortized is included in interest expense.

Retirement and Severance Benefits

Employees and directors who have been with the Company for more than one year are entitled to lump-sum payments based on current salary rates and length of service when they leave the Company. The Company’s estimated liability under the plan which would be payable if all employees left on the balance sheet date is accrued in the accompanying non-consolidated balance sheets. A portion of the liability is covered by an employee’s severance benefits trusts where the employees have a vested interest in the deposit with the insurance company in trust. The deposit for severance benefits held in trusts is, therefore, reflected in the accompanying non-consolidated balance sheets as a reduction of the liability for retirement and severance benefits.

Through March 1999, under the National Pension Scheme of Korea, the Company transferred a certain portion of retirement allowances for employees to the National Pension Fund. The amount transferred reduces the retirement and severance benefit amount payable to employees when they leave the Company and is accordingly reflected in the accompanying non-consolidated financial statements as a reduction of the retirement and severance benefit liability. However, due to the new regulation effective April 1999, such transfers to the National Pension Fund are no longer required.

Reserve for Self-Insurance

In accordance with the Accounting Regulations for Public Enterprise Associate Government Agency, the Company provides a self-insurance reserve for loss from accident and liability to third parties that may arise in connection with the Company’s non-insured facilities. The self-insurance reserve is recorded until the amount meets a certain percentage of non-insured buildings and machinery. Payments made to settle applicable claims are charged to this reserve.


Foreign Currency Translation

Monetary assets and liabilities denominated in foreign currencies are translated into Korean Won at the balance sheet date, with the resulting gains and losses recognized in current results of operations. Monetary assets and liabilities denominated in foreign currencies are translated into Korean Won at (Won)938.20 to US$1.00, the rate of exchange at December 31, 2007 that is permitted by the Financial Accounting Standards. Non-monetary assets and liabilities denominated in foreign currencies, which are stated at historical cost, are translated into Korean Won at the foreign exchange rate ruling at the date of the transaction.

Foreign currency assets and liabilities of foreign-based operations and companies accounted for using the equity method are translated at current rate of exchange at the balance sheet date while profit and loss items in the statement of income are translated at average rate and capital account at historical rate. The translation gains and losses arising from collective translation of the foreign currency financial statements of foreign-based operations are offset and the balance is accumulated as accumulated other comprehensive income.

Derivatives

Derivative instruments are initially recognized at fair value on the date on which a derivative contract is entered into and are subsequently remeasured at their fair value. Changes in the fair value of derivative instruments are recognized immediately in current operations.

Provisions, Contingent Assets and Contingent Liabilities

Provisions are recognized when all of the following are met: (1) an entity has a present obligation as a result of a past event, (2) it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and (3) a reliable estimate can be made of the amount of the obligation. Where the effect to the time value of money is material, a provision is recorded at the present value of the expenditures expected to be required to settle the obligation.

Revenue Recognition

The Company recognizes revenue from the sale of electric power based on meter readings made on a monthly basis. Revenue other than sale of electric power is recognized when the Company’s revenue-earning activities have been substantially completed, the amount of revenue can be measured reliably, and it is probable that the economic benefits associated with the transaction will flow to the Company.

Income Tax

Income tax on income or loss for the period consists of the corporate income tax and resident tax surcharges currently payable, and the changes in deferred income tax assets and liabilities during the period.

Deferred tax is provided using the asset and liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The amount of deferred tax provided is based on the expected manner in which the carrying amount of assets and liabilities will be realized or settled, using tax rates enacted or substantially enacted at the balance sheet date.

Use of Estimates

The preparation of financial statements in accordance with accounting principles generally accepted in the Republic of Korea requires management to make estimates and assumptions that affect the amounts reported in the financial statements and related notes to financial statements. Actual results could differ from those estimates.


Prior Period Financial Statements’ Reclassification of Accounts

According to SKAS No.21-”Preparation and presentation of Financial Statements”, the Company restated financial statements as of December 31, 2006, which has no effect on the net assets, income before income tax and net income.

 

3. PROPERTY, PLANT AND EQUIPMENT

 

  (a) Asset Revaluation

The Company revalued its property, plant and equipment in accordance with the KEPCO Act and the Asset Revaluation Law (the latest revaluation date was on January 1, 1999), and recorded a revaluation gain of (Won)12,552,973 million as a reserve for asset revaluation, as a component of capital surplus.

 

  (b) Officially Declared Value of Land

The officially declared value of land at December 31, 2007, as announced by the Ministry of Construction and Transportation, is as follows:

 

     Won (In millions)

Purpose

   Book value    Declared value

Land - transmission and distribution sites and other

   (Won) 3,432,623    (Won) 5,640,631
             

The officially declared value of land, which is used for government purposes, is not intended to represent fair value.

 

  (c) Changes in Property, Plant and Equipment

Changes in property, plant and equipment for the year ended December 31, 2006 are as follows:

 

     Won (In millions)  
           2006  
     Book value as
of January 1,
2006
    Acquisitions     Disposals     Depreciation     Others     Book value as
of December 31,
2006
 

Land

   (Won) 3,359,398     (Won) 2,053     (Won) (14,553 )   (Won) —       (Won) 46,240     (Won) 3,393,138  

Buildings

     1,936,420       83       (1,490 )     (117,989 )     109,692       1,926,716  

Structures

     22,372,354       12,604       —         (998,744 )     1,977,316       23,363,530  

Machinery

     4,566,636       8,805       (3,309 )     (857,942 )     1,040,681       4,754,871  

Vehicles

     19,143       8,283       (53 )     (12,293 )     4,424       19,504  

Ships

     1,220       —         (6 )     (345 )     —         869  

Others

     54,294       15,020       (2 )     (33,924 )     21,460       56,848  

Construction in-progress

     2,118,540       3,610,546       —         —         (3,606,313 )     2,122,773  

Construction grants(*)

     (3,640,966 )     (796,994 )     —         265,175       86,034       (4,086,751 )
                                                
   (Won) 30,787,039     (Won) 2,860,400     (Won) (19,413 )   (Won) (1,756,062 )   (Won) (320,466 )   (Won) 31,551,498  
                                                

 

  (*) In compliance with the Rules on Power Transmitting Facilities announced by MOCIE, the Company imposes construction costs and maintenance costs of power transmitting facilities to actual users, the Company’s six power generation subsidiaries. The Company recorded the amount to be received from the Company’s six power generation subsidiaries as long-term other accounts receivable.


Changes in property, plant and equipment for the year ended December 31, 2007 are as follows:

 

     Won (In millions)  
     2007  
     Book value as
of January 1,
2007
    Acquisitions     Disposals     Depreciation     Others     Book value
As of December 31,
2007
 

Land

   (Won) 3,393,138     (Won) 191     (Won) (5,872 )   (Won) —       (Won) 45,166     (Won) 3,432,623  

Buildings

     1,926,716       —         (1,353 )     (158,710 )     142,710       1,909,363  

Structures

     23,363,530       135       —         (1,030,019 )     1,939,312       24,272,958  

Machinery

     4,754,871       8,938       (674 )     (928,392 )     1,152,445       4,987,188  

Vehicles

     19,504       —         —         (11,815 )     11,128       18,817  

Ships

     869       —         (5 )     (268 )     814       1,410  

Others

     56,848       219,223       (4 )     (37,144 )     18,518       257,441  

Construction in-progress

     2,122,773       4,002,272       —         —         (3,859,928 )     2,265,117  

Construction grants(*)

     (4,086,751 )     (1,042,175 )     —         343,941       (1,341,791 )     (6,126,776 )
                                                
   (Won) 31,551,498     (Won) 3,188,584     (Won) (7,908 )   (Won) (1,822,407 )   (Won) (1,891,626 )   (Won) 31,018,141  
                                                

 

  (d) Capitalized Interest

For the year ended December 31, 2006 and 2007, the amount of capitalized interest was (Won)74,579 million and (Won)71,998 million, respectively. The net foreign currency transactions and translation gains excluded from the calculation of capitalized interest amounted to (Won)135,479 million and (Won)(55,089) million, respectively, for the year ended December 31, 2006 and 2007, respectively.

The impact on the Company’s financial position as of and for the year ended December 31, 2007 if interest and other borrowing costs were expensed instead of being capitalized is as follows

 

     Won (In millions)
     Construction
in-progress
   Total assets     Interest
expense
   Income before
income tax

Capitalized

   (Won) 1,821,548    (Won) 65,642,591     (Won) 602,489    (Won) 1,897,739

Expensed

     1,749,550      65,570,593       674,487      1,825,741
                            
   (Won) 71,998    (Won) (71,998 )   (Won) 71,998    (Won) 71,998
                            

 

4. INTANGIBLE ASSETS

Changes in intangible assets for the year ended December 31, 2006 are as follows:

 

     Won (In millions)
     2006
     Book value
as of
January 1,
2006
   Acquisitions    Amortization     Others     Book value
as of
December 31,
2006

Computer software

   (Won) 167,879    (Won) —      (Won) (67,514 )   (Won) 26,808     (Won) 127,173

Others

     67,161      33,366      (2,157 )     (11,402 )     86,968
                                    
   (Won) 235,040    (Won) 33,366    (Won) (69,671 )   (Won) 15,406     (Won) 214,141
                                    


Changes in intangible assets for the year ended December 31, 2007 are as follows:

 

     Won (In millions)
     2007
     Book value
as of
January 1, 2007
   Acquisitions    Amortization     Others     Book value
as of December 31,
2007

Computer software

   (Won) 127,173    (Won) 141    (Won) (57,101 )   (Won) 59,380     (Won) 129,593

Others

     86,968      33,631      (12,251 )     (29,646 )     78,702
                                    
   (Won) 214,141    (Won) 33,772    (Won) (69,352 )   (Won) 29,734     (Won) 208,295
                                    

In addition, the Company expensed research and development costs amounting to (Won)185,087 million and (Won)216,051 million for the year ended December 31, 2006 and 2007, respectively.

 

5. INSURED ASSETS

Insured assets as of December 31, 2007 are as follows (Won in millions):

 

Insured assets

  

Insurance type

   Insured value   

Insurer

Buildings and machinery    Fire insurance    (Won)662,456   

Samsung Insurance Co., Ltd. and others

Buildings    General insurance    173,577   

Hanwha Non-life Insurance Co., Ltd. and others

Construction in-progress    Construction insurance    32,688   

Daehan Fire & Marine Insurance Co., Ltd. and others

          
      (Won)868,721   
          

In addition, as of December 31, 2007, the Company carries marine cargo insurance for inventories, damage insurance for its light water nuclear reactor construction in North Korea, general group insurance for vehicles and others.

 

6. INVESTMENT SECURITIES OTHER THAN THOSE UNDER THE EQUITY METHOD

 

  (a) Investment securities other than those under the equity method as of December 31, 2006 are summarized as follows:

 

     Won (In millions)
     2006
     Ownership
(%)
   Acquisition
cost
   Unrealized
holding gains
   Fair
value
   Book
value

Available-for-sale:

              

Equity securities:

              

Energy Savings Investment Cooperatives (*2)

   25.0~48.5    (Won) 5,000    (Won) —      (Won) —      (Won) 5,000

Korea Power Exchange (*2, *3)

   50.0      63,920      —        —        63,920

Hwan Young Steel Co., Ltd. (*4)

   0.1      1,091      —        —        96

Equity securities in treasury stock fund (*5)

   —        11,713      3,668      15,381      15,381

KNOC Nigerian East Oil Co., Ltd. (*6)

   15.0      12      —        —        12

KNOC Nigerian West Oil Co., Ltd. (*6)

   15.0      12      —        —        12

Dolphin Property Ltd. (*6)

   15.0      12      —        —        12

Others

   5.6~10.0      6,200      —        —        6,201
                              
        87,960      3,668      15,381      90,634
                              


     Won (In millions)
     2006
     Ownership
(%)
   Acquisition
cost
   Unrealized
holding gains
   Fair
value
   Book
value

Held-to-maturity:

              

Government bonds

        23      —        23      23
                              

Total

      (Won) 87,983    (Won) 3,668    (Won) 15,404    (Won) 90,657
                              

 

  (b) Investment securities other than those under the equity method as of December 31, 2007 are summarized as follows:

 

     Won (In millions)
     2007
     Ownership
(%)
   Acquisition
cost
   Unrealized
holding gains
   Fair
value(*1)
   Book
value

Available-for-sale:

              

Equity securities:

              

Energy Savings Investment Cooperatives (*2)

   48.0    (Won) 2,400    (Won) —      (Won) —      (Won) 2,400

Korea Power Exchange (*2, *3)

   50.0      63,920      —           63,920

Hwan Young Steel Co., Ltd. (*4)

   0.1      1,091      —           96

KNOC Nigerian East Oil Co., Ltd. (*6)

   15.0      12      —           12

KNOC Nigerian West Oil Co., Ltd. (*6)

   15.0      12      —           12

Dolphin Property Ltd. (*6)

   15.0      12      —           12

KEPCO Australia Pty Ltd. (*2)

   100.0      6,877      —           6,877

KEPCO Canada Energy Ltd.

   12.5      823      —           823

KEPCO Nigeria Ltd. (*2)

   100.0      76      —           76

Others

   0.6~10.0      6,287      —        —        6,424
                              
        81,510      —        —        80,652
                              

Held-to-maturity:

              

Government bonds

        23      —        23      23
                              

Total

      (Won) 81,533    (Won) —      (Won) 23    (Won) 80,675
                              

 

  (*1) These available-for-sales non-marketable equity securities are stated at cost due to the lack of information to determining fair value.
  (*2) As described in Note 2, investment in affiliates in which the Company owns 20% or more of the voting stock should be stated at an amount as determined using equity method of accounting. However, as allowed per SKAS No. 8 if the difference between the equity method and cost is considered to be immaterial, the Company can record the investment within available-for-sale securities at cost.
  (*3) Korea Power Exchange operates under certain regulations as a government affiliated organization, electric power market managerial regulations, and the Electricity Enterprises Act. Moreover, when the purpose of establishment and articles of incorporation of Korea Power Exchange are considered, the Company does not appear to have significant influence and thus recorded the investment within available-for-sale securities at cost.
  (*4)

The recoverable amount of the investment in Hwan Young Steel Co., Ltd. was considered to be less than the carrying amount and an impaired loss of \1,244 million was recognized before prior year. Additionally, there was a reduction in capital stock of Hwan Young Steel Co., Ltd. for which the Company received cash in the amount of \23 million in prior year.


  (*5) In order to stabilize the price of the Company’s common stock in the market, the Company established a treasury stock fund (the Fund) composed of treasury stock and other equity securities in December 1992. As of December 31, 2006 gains on the valuation of the Fund is recorded in capital adjustments, amounted to \2,659 million, net of tax. In 2007 the Company disposed all of the Fund and recorded the amount of \13,021 million as gains on disposition of investments.
  (*6) The Company invested in oversees oil development industry with a consortium of Korean companies (the “Korean Consortium”) consisting of the Company, Korea National Oil Corporation and Daewoo Shipbuilding & Marine Engineering Co., Ltd. The Korean Consortium, owning 60% equity interest in the joint venture incorporated with English Equator and Nigeria, invested in KNOC Nigerian East 323, KNOC Nigerian West 321 and Dolphin Property Ltd.

 

7. INVESTMENT SECURITIES USING THE EQUITY METHOD

 

  (a) Investment securities in affiliated companies accounted for using the equity method as of December 31, 2006 and 2007 are as follows:

 

     Won (In millions)
     2006

Affiliate

   Ownership
(%)
   Acquisition
cost
   Proportionate
Net asset value
   Book value

Listed:

           

Korea Gas Corporation (*1, *2)

   24.5    (Won) 94,500    (Won) 860,213    (Won) 860,213

Unlisted:

           

Korea Hydro & Nuclear Power Co., Ltd.

   100.0      9,364,799      13,250,521      13,251,529

Korea South-East Power Co., Ltd.

   100.0      1,232,004      2,033,526      2,034,810

Korea Midland Power Co., Ltd.

   100.0      1,325,891      2,424,516      2,425,990

Korea Western Power Co., Ltd.

   100.0      1,442,638      2,301,747      2,303,488
           

Korea Southern Power Co., Ltd.

   100.0      1,797,378      2,390,139      2,392,156
           

Korea East-West Power Co., Ltd.

   100.0      2,322,905      2,567,155      2,568,814
           

Korea Power Engineering Co., Ltd. (*1)

   97.9      4,991      204,903      41,114

KEPCO KPS (formerly Korea Plant Service) (*1)

   100.0      6,000      340,459      304,587

KEPCO Nuclear Fuel Co., Ltd. (*1)

   96.4      89,757      190,457      167,849

Korea Electric Power Industrial Development, Ltd. (*1)

   49.0      7,987      48,238      48,238

Korea Electric Power Data Network Co., Ltd. (*1)

   100.0      64,000      175,357      143,321

Powercomm Corporation (*1)

   43.1      323,470      382,036      382,036

Korea District Heating Co. (*1)

   26.1      5,660      184,074      184,074

KEPCO International Hong Kong Ltd. (*1, *3)

   100.0      15,102      242,060      242,060

KEPCO International Philippines Inc. (*1, *3)

   100.0      104,832      159,809      159,809

KEPCO China International Ltd. (*1, *4)

   100.0      18,852      15,504      15,504

KEPCO Gansu International Ltd. (*1, *5)

   100.0      7,145      5,820      5,820

KEPCO Philippines Holdings Inc. (*1, *6)

   100.0      202      2,634      2,634

KEPCO Asia International Ltd. (*1)

   58.0      864      815      815

KEPCO Lebanon SARL (*1)

   100.0      292      658      658

KEPCO Neimenggu International Ltd. (*1, *7)

   100.0      18,095      18,062      18,062
                       
      (Won) 18,247,364    (Won) 27,798,703    (Won) 27,553,581
                       


     Won (In millions)
     2007

Affiliate

   Ownership
(%)
   Acquisition
cost
   Proportionate
Net asset value
   Book value

Listed:

           

Korea Gas Corporation (*1, *2)

   24.5    (Won) 94,500    (Won) 938,136    (Won) 938,136

KEPCO KPS (formerly Korea Plant Service) (*1, *2, *9)

   80.0      4,800      298,499      286,767

Unlisted:

           

Korea Hydro & Nuclear Power Co., Ltd.

   100.0      9,364,799      13,645,050      13,650,396

Korea South-East Power Co., Ltd.

   100.0      1,232,004      2,089,672      2,096,559

Korea Midland Power Co., Ltd.

   100.0      1,325,891      2,572,152      2,574,532

Korea Western Power Co., Ltd.

   100.0      1,442,638      2,426,218      2,429,546

Korea Southern Power Co., Ltd.

   100.0      1,797,378      2,555,950      2,559,675

Korea East-West Power Co., Ltd.

   100.0      2,322,905      2,585,443      2,590,231

Korea Power Engineering Co., Ltd. (*1)

   97.9      4,991      218,483      26,895

KEPCO Nuclear Fuel Co., Ltd. (*1)

   96.4      89,757      202,665      179,435

Korea Electric Power Industrial Development, Ltd. (*1)

   49.0      7,987      29,379      29,379

Korea Electric Power Data Network Co., Ltd. (*1)

   100.0      64,000      193,904      169,185

Powercomm Corporation (*1)

   43.1      323,470      393,043      393,043

Korea District Heating Co. (*1)

   26.1      5,660      187,502      187,502

KEPCO International Hong Kong Ltd. (*1, *3)

   100.0      15,102      261,455      261,455

KEPCO International Philippines Inc. (*1, *3)

   100.0      104,832      162,243      162,243

KEPCO China International Ltd. (*1, *4)

   100.0      18,852      9,317      9,317

KEPCO Gansu International Ltd. (*1, *5)

   100.0      7,168      7,552      7,552

KEPCO Philippines Holdings Inc. (*1, *6)

   100.0      202      5,104      5,104

KEPCO Asia International Ltd. (*1)

   58.0      1,122      1,079      1,079

KEPCO Lebanon SARL (*1)

   100.0      292      1,547      1,547

KEPCO Neimenggu International Ltd. (*1, *7)

   100.0      60,950      64,160      64,160

KEPCO Shanxi International Ltd. (*1, *8)

   100.0      253,039      244,392      244,392

KEPCO Energy Resource Nigeria Ltd. (*1, *8)

   30.0      7,824      7,625      7,625
                       
      (Won) 18,550,163    (Won) 29,100,570    (Won) 28,875,755
                       

 

  (*1) The Company used unaudited financial results of the above affiliated companies when applying the equity method of accounting. In subsequent periods, the Company adjusts the difference between the unaudited and audited results. Historically, the differences have been immaterial.
  (*2) The quoted market value (based on closing Korea Stock Exchange Price) of Korea Gas Corporation and KEPCO KPS as of December 31, 2007 was (Won)1,224,720 million, (Won)778,680 million in 2006, and 232,560 million.
  (*3) As KEPCO International Hong Kong Ltd. owns 100.0% of KEPCO Philippines Corporation (“KEPHILCO”) and KEPCO International Philippines Inc. owns 51.0% of KEPCO Ilijan Corporation (“KEILCO”). The Company accounts for the equity income from KEPCO International Hong Kong Ltd. and KEPCO International Philippines Inc., including the changes in the net equity of KEPHILCO and KEILCO.

Under the project agreement between the National Power Corporation of Philippines and KEPCO, the cooperation period of KEPHILCO and KEILCO is for 15 years commencing September 15, 1995 and 20 years commencing June 5, 2002, respectively. At the end of the agreement period, the power plant


complex will be transferred to the National Power Corporation of Philippines free of any liens or encumbrances and without payment of compensation. KEPCO Ilijan Corporation’s investment securities under the equity method held by KEPCO International Philippines Inc. were pledged as collateral to Japan Bank of International Corporation and others.

  (*4) As KEPCO China International Ltd. owns 77.0% of the shares of Jiaosuo KEPCO Power Co., Ltd., the Company accounts for the equity income from KEPCO China International Ltd. including the changes in the net equity of Jiaosuo KEPCO Power Co., Ltd.
  (*5) As KEPCO Gansu International Ltd. owns 40.0% of the shares of Gansu Datang Yumen Wind Power Co., Ltd., the Company accounts for the equity income from KEPCO Gansu International Ltd. including the changes in the net equity of Gansu Datang Yumen Wind Power Co., Ltd.
  (*6) As KEPCO Philippines Holdings Inc. owns 40.0% of the shares of Salcon Power Corporation, the Company accounts for the equity income from KEPCO Philippines Holdings Inc. including the changes in the net equity of Salcon Power Corporation.
  (*7) As KEPCO Neimenggu International Ltd. owns 40.0% of the shares of Datang Chifeng Renewable Co., Ltd., the Company accounts for the equity income from KEPCO Neimenggu International Ltd. including the changes in the net equity of Datang Chifeng Renewable Co., Ltd.
  (*8) In 2007, the Company acquired the shares of KEPCO Shanxi International Ltd. to cooperate for the construction and operation of facilities, which are used for electric power generation and a coal mine in Shanxi province, China. Additionally, the Company acquired the shares of KEPCO Energy Resource Nigeria Limited. to cooperate for the new business of Egbin power plant boiler restoration in Nigeria.
  (*9) In 2007, the Company disposed 20.0% of the shares of Korea Plant Service, and recorded the amount of (Won)59,143 million (including tax effect (Won)16,264 million), as unrealized equity gain of affiliates in accumulated other comprehensive income account (Note 16).

 

  (b) The Company eliminated unrealized gains arising from transactions with its affiliates and bad debt expense for receivables from its subsidiaries for the year ended December 31, 2006 and 2007 were as follows:

 

     Won (In millions)  
     2006  

Affiliate

   Property,
plant and
equipment
    Intangible
assets
    Trade
receivables
    Allowance
for
doubtful
accounts
   Total  

Korea Hydro & Nuclear Power Co., Ltd.

   (Won) (1,889 )   (Won) —       (Won) —       (Won) 2,897    (Won) 1,008  

Korea South-East Power Co., Ltd.

     —         —         —         1,284      1,284  

Korea Midland Power Co., Ltd.

     —         —         —         1,474      1,474  

Korea Western Power Co., Ltd.

     —         —         —         1,741      1,741  

Korea Southern Power Co., Ltd.

     —         —         —         2,017      2,017  

Korea East-West Power Co., Ltd.

     —         —         —         1,659      1,659  

Korea Power Engineering Co., Ltd.

     (163,789 )     —         —         —        (163,789 )

KEPCO KPS (form

     —         —         (36,596 )     724      (35,872 )

KEPCO Nuclear Fuel Co., Ltd.

     (22,609 )     —         —         1      (22,608 )

Korea Electric Power Data Network Co., Ltd.

     (13,827 )     (18,463 )       254      (32,036 )
                                       
   (Won) (202,114 )   (Won) (18,463 )   (Won) (36,596 )   (Won) 12,051    (Won) (245,122 )
                                       


     Won (In millions)  
     2007  

Affiliate

   Property,
plant and
equipment
    Intangible
assets
    Trade
receivables
    Allowance
for
doubtful
accounts
   Total  

Korea Hydro & Nuclear Power Co., Ltd.

   (Won) (1,889 )   (Won) —       (Won) —       (Won) 7,236    (Won) 5,347  

Korea South-East Power Co., Ltd.

     —         —         —         6,887      6,887  

Korea Midland Power Co., Ltd.

     —         —         —         2,381      2,381  

Korea Western Power Co., Ltd.

     —         —         —         3,328      3,328  

Korea Southern Power Co., Ltd.

     —         —         —         3,724      3,724  

Korea East-West Power Co., Ltd.

     —         —         —         4,787      4,787  

Korea Power Engineering Co., Ltd.

     (191,602 )     —         —         14      (191,588 )

KEPCO KPS (formerly Korea Plant Service)

     —         —         (12,199 )     466      (11,733 )

KEPCO Nuclear Fuel Co., Ltd.

     (23,232 )     —         —         2      (23,230 )

Korea Electric Power Data Network Co., Ltd.

     (13,324 )     (11,670 )     —         275      (24,719 )
                                       
   (Won) (230,047 )   (Won) (11,670 )   (Won) (12,199 )   (Won) 29,100    (Won) (224,816 )
                                       

 

  (c) Changes in investments in affiliated companies under the equity method for the year ended December 31, 2006 and 2007 were as follows:

 

     Won (In millions)
     2006

Affiliate

   Book value
as of
January 1,
2006
   Equity
income
(loss)
    Other
comprehensive
income
    Others (*)     Book value
as of
December 31,
2006

Korea Gas Corporation

   (Won) 819,100    (Won) 60,356     (Won) 4,949     (Won) (24,192 )   (Won) 860,213

Korea Hydro & Nuclear Power Co., Ltd.

     12,956,002      772,949       6,429       (483,851 )     13,251,529

Korea South-East Power Co., Ltd.

     1,985,715      77,470       5,893       (34,268 )     2,034,810

Korea Midland Power Co., Ltd.

     2,332,511      168,109       (7,026 )     (67,604 )     2,425,990

Korea Western Power Co., Ltd.

     2,199,988      159,509       1,015       (57,024 )     2,303,488

Korea Southern Power Co., Ltd.

     2,220,258      207,387       299       (35,788 )     2,392,156

Korea East-West Power Co., Ltd.

     2,572,239      45,489       (13,563 )     (35,351 )     2,568,814

Korea Power Engineering Co., Inc.

     55,602      (12,471 )     —         (2,017 )     41,114

KEPCO KPS (formerly Korea Plant Service)

     285,715      34,272       —         (15,400 )     304,587

KEPCO Nuclear Fuel Co., Ltd.

     158,105      11,132       —         (1,388 )     167,849

Korea Electric Power Industrial Development, Ltd.

     24,525      29,103       —         (5,390 )     48,238

Korea Electric Power Data Network Co., Ltd.

     120,121      25,218       (140 )     (1,878 )     143,321

LG Powercomm

     407,666      (24,991 )     8       (647 )     382,036

Korea District Heating Co.

     176,173      7,257       985       (341 )     184,074

KEPCO International Hong Kong Ltd.

     220,183      6,086       15,791       —         242,060

KEPCO International Philippines Inc.

     156,814      21,297       (12,951 )     (5,351 )     159,809

KEPCO China International Ltd.

     9,786      (1,528 )     (555 )     7,801       15,504

KEPCO Gansu International Ltd.

     2,733      (7 )     (1,318 )     4,412       5,820

KEPCO Philippines Holdings Inc.

     202      2,394       38       —         2,634

KEPCO Aisa International Ltd.

     —        (17 )     (32 )     864       815

KEPCO Lebanon SARL

     —        390       (24 )     292       658

KEPCO Neimenggu International Ltd.

     —        (10 )     (23 )     18,095       18,062
                                     
   (Won) 26,703,438    (Won) 1,589,394     (Won) (225 )   (Won) (739,026 )   (Won) 27,553,581
                                     


     Won (In millions)
     2007

Affiliate

   Book value
as of
January 1,
2007
   Equity
income
(loss)
    Other
comprehensive
income
    Others ( *)     Book value
as of
December 31,
2007

Korea Gas Corporation

   (Won) 860,213    (Won) 90,741     (Won) 7,972     (Won) (20,790 )   (Won) 938,136

KEPCO KPS (formerly Korea Plant Service)

     304,587      72,041       —         (89,861 )     286,767

Korea Hydro & Nuclear Power Co., Ltd.

     13,251,529      788,799       —         (389,932 )     13,650,396

Korea South-East Power Co., Ltd.

     2,034,810      89,032       (1,066 )     (26,217 )     2,096,559

Korea Midland Power Co., Ltd.

     2,425,990      193,480       8,870       (53,808 )     2,574,532

Korea Western Power Co., Ltd.

     2,303,488      176,366       943       (51,251 )     2,429,546

Korea Southern Power Co., Ltd.

     2,392,156      228,106       5,866       (66,453 )     2,559,675

Korea East-West Power Co., Ltd.

     2,568,814      36,920       2,080       (17,583 )     2,590,231

Korea Power Engineering Co., Inc.

     41,114      (10,514 )     —         (3,705 )     26,895

KEPCO Nuclear Fuel Co., Ltd.

     167,849      13,899       —         (2,313 )     179,435

Korea Electric Power Industrial Development, Ltd.

     48,238      6,142       (11 )     (24,990 )     29,379

Korea Electric Power Data Network Co., Ltd.

     143,321      28,012       51       (2,199 )     169,185

LG Powercomm

     382,036      11,007       —         —         393,043

Korea District Heating Co.

     184,074      4,839       (992 )     (419 )     187,502

KEPCO International Hong Kong Ltd.

     242,060      17,185       32,282       (30,072 )     261,455

KEPCO International Philippines Inc.

     159,809      27,666       1,837       (27,069 )     162,243

KEPCO China International Ltd.

     15,504      (6,920 )     733       —         9,317

KEPCO Gansu International Ltd.

     5,820      (29 )     1,738       23       7,552

KEPCO Philippines Holdings Inc.

     2,634      (552 )     4,029       (1,007 )     5,104

KEPCO Aisa International Ltd.

     815      (2 )     7       259       1,079

KEPCO Lebanon SARL

     658      877       12       —         1,547

KEPCO Neimenggu International Ltd.

     18,062      1,032       2,211       42,855       64,160

KEPCO Shanxi International Ltd.

     —        (1,301 )     (7,346 )     253,039       244,392

KEPCO Energy Resource Nigeria Ltd.

     —        (887 )     688       7,824       7,625
                                     
   (Won) 27,553,581    (Won) 1,765,939     (Won) 59,904     (Won) (503,669 )   (Won) 28,875,755
                                     

 

  (*) Others represent dividends from the affiliates, additions to the investments and disposal of the investments.


  (d) Total assets, total liabilities, sales and net income (loss) of affiliated companies as of or for the year ended December 31, 2007 are as follows:

 

     Won (In millions)  

Affiliate

   Total assets    Total
Liabilities
   Sales    Net income
(loss)
 

Korea Hydro & Nuclear Power Co., Ltd.

   (Won) 23,470,417    (Won) 9,825,367    (Won) 5,508,342    (Won) 784,461  

Korea South-East Power Co., Ltd.

     4,993,029      2,903,356      2,230,287      83,429  

Korea Midland Power Co., Ltd.

     4,277,797      1,705,645      2,826,668      192,574  

Korea Western Power Co., Ltd.

     3,885,134      1,458,915      3,069,137      174,779  

Korea Southern Power Co., Ltd.

     4,129,754      1,573,803      3,727,257      226,398  

Korea East-West Power Co., Ltd.

     4,734,751      2,149,308      2,892,228      33,828  

Korea Power Engineering Co., Inc.

     366,016      142,937      308,833      17,649  

KEPCO KPS (formerly Korea Plant Service)

     497,020      123,896      681,395      63,765  

KEPCO Nuclear Fuel Co., Ltd.

     309,141      98,812      110,891      18,018  

Korea Electric Power Industrial Development, Ltd.

     118,587      58,492      202,717      12,732  

Korea Electric Power Data Network Co., Ltd.

     316,578      122,674      371,634      20,695  

LG Powercomm

     1,663,383      752,070      1,109,618      25,522  

Korea Gas Corporation

     12,576,842      8,740,682      14,264,791      364,050  

Korea District Heating Co.

     1,998,662      1,279,503      686,212      14,964  

KEPCO International Hong Kong Ltd.

     261,548      93      18,387      17,186  

KEPCO International Philippines Inc.

     162,429      187      25,313      27,666  

KEPCO China International Ltd.

     10,417      1,101      —        (6,920 )

KEPCO Gansu International Ltd.

     7,557      6      —        (30 )

KEPCO Philippines Holdings Inc.

     52,644      26,678      1,724      (552 )

KEPCO Asia International Ltd.

     1,814      —        —        (4 )

KEPCO Lebanon SARL

     8,629      7,081      11,231      903  

KEPCO Neimenggu International Ltd.

     64,174      14      —        1,032  

KEPCO Shanxi International Ltd.

     413,268      168,876      —        (1,301 )

KEPCO Energy Resource Nigeria Ltd.

     28,600      3,183      —        (2,957 )

 

8. LOANS TO EMPLOYEES

The Company has provided housing and tuition loans to employees as of December 31, 2006 and 2007 as follows:

 

     Won (In millions)
     2006    2007

Current portion of long-term loans (Note 13)

   (Won) 13,921    (Won) 13,039

Long-term loans

     195,413      212,199
             
   (Won) 209,334    (Won) 225,238
             

 

9. OTHER NON-CURRENT ASSETS

Other non-current assets as of December 31, 2006 and 2007 are summarized as follows:

 

     Won (In millions)
     2006    2007

Deposits

   (Won) 73,323    (Won) 75,128

Transfered equipments from KEDO

     94,088      93,971

Others

     94,742      95,274
             
   (Won) 262,153    (Won) 264,373
             


10. CASH AND CASH EQUIVALENTS

Cash and cash equivalents as of December 31, 2006 and 2007 are summarized as follows:

 

     Won (In millions)
     2006    2007

Cash on hand

   (Won) 1,497    (Won) 1,624

Passbook accounts (*)

     127,728      187,722
             
   (Won)  129,225    (Won)  189,346
             

 

(*) Passbook accounts restricted in use for expenditures for certain business purposes are (Won)75,514 million and (Won)75,023 million as of December 31, 2006 and 2007, respectively.

 

11. SHORT-TERM FINANCIAL INSTRUMENTS

Short-term financial instruments as of December 31, 2006 and 2007 are summarized as follows:

 

     Won (In millions)
     2006    2007

Repurchase agreements

   (Won)  25,000    (Won)  —  
             

 

12. INVENTORIES

Inventories as of December 31, 2006 and 2007 are summarized as follows:

 

     Won (In millions)
     2006    2007

Raw materials

   (Won) 5,817    (Won) 5,226

Supplies

     169,799      217,215

Other

     2,483      2,994
             
   (Won)  178,099    (Won)  225,435
             

 

13. OTHER CURRENT ASSETS

Other current assets as of December 31, 2006 and 2007 are summarized as follows:

 

     Won (In millions)
     2006    2007

Current portion of long-term loans

   (Won) 13,921    (Won) 13,718

Accrued income

     9,630      6,693

Advanced payments

     2,435      2,339

Prepaid expenses

     6,255      4,639

Prepaid income taxes

     —        19,232

Other current assets

     59,443      59,480
             
   (Won)  91,684    (Won)  106,101
             

 

14. COMMON STOCK AND SURPLUS

 

  (a) Common Stock

The Company has authorized 1,200,000,000 shares of (Won)5,000 par value, of which 641,567,712 shares are issued and outstanding as of December 31, 2007.


  (b) Capital Surplus

Capital surplus as of December 31, 2006 and 2007 are as follows:

 

     Won (In millions)
     2006    2007

Paid-in capital in excess of par value

   (Won) 835,139    (Won) 835,139

Reserves for asset revaluation

     12,552,973      12,552,973

Others

     1,130,731      1,124,899
             
   (Won)  14,518,843    (Won)  14,513,011
             

The Company revalued its property, plant and equipment in accordance with the KEPCO Act and the then Asset Revaluation Law, and recorded a revaluation gain of (Won)12,552,973 million as a reserve for asset revaluation. The reserve for asset revaluation may be credited to paid-in capital or offset against any accumulated deficit by resolution of the shareholders.

 

15. CAPITAL ADJUSTMENTS

The Company has treasury stock amounting to (Won)796,980 million (treasury stock 19,284,016 shares and treasury stock funds 1,201,950 shares) and (Won)741,825 million (18,948,627 shares) as of December 31, 2006 and 2007, respectively.

 

16. ACCUMULATED OTHER COMPREHENSIVE INCOME

Accumulated other comprehensive income as of December 31, 2006 and 2007 are as follows:

 

     Won (In millions)  
     2006     2007  

Gain on valuation of available-for-sale securities, net

    
   (Won) 2,659     (Won) —    

Unrealized equity gain of affiliates

     139,710       186,432  

Unrealized equity loss of affiliates

     (103,477 )     (63,889 )
                
   (Won) 38,892     (Won)  122,543  
                

 

17. APPROPRIATED RETAINED EARNINGS

Appropriated retained earnings as of December 31, 2006 and 2007 are summarized as follows:

 

     Won (In millions)
     2006    2007

Involuntary:

     

Legal reserve

   (Won) 1,603,919    (Won) 1,603,919

Voluntary:

     

Reserve for investment on social overhead capital

     5,217,449      5,277,449

Reserve for research and human development

     270,000      330,000

Reserve for business rationalization

     31,900      31,900

Reserve for business expansion

     16,588,939      17,919,081

Reserve for dividend equalization

     210,000      210,000
             
     22,318,288      23,768,430
   (Won)  23,922,207    (Won)  25,372,349
             


The KEPCO Act requires the Company to appropriate a legal reserve equal to at least 20 percent of net income for each accounting period until the reserve equals 50 percent of the common stock. The legal reserve is not available for cash dividends; however, this reserve may be credited to paid-in capital (a component of capital surplus) or offset against accumulated deficit by the resolution of the shareholders.

The reserve for the investment on social overhead capital and the reserve for research and human development are appropriated by the Company to avail qualified tax credits to reduce corporate tax liabilities. These reserves are not available for cash dividends for a certain period defined in the Special Tax Treatment Control Law.

Until December 10, 2002 under the Special Tax Treatment Control Law, investment tax credit was allowed for certain investments. The Company was, however, required to appropriate from retained earnings the amount of tax benefits received and transfer such amount into a reserve for business rationalization. Effective December 11, 2002, the Company is no longer required to establish a reserve for business rationalization despite tax benefits received for certain investments and, consequently, the existing balance is now regarded as a voluntary reserve.

The reserve for dividend equalization, which is considered a voluntary reserve, is appropriated by the Company to reduce fluctuation of dividend rates for the purpose of stabilizing the Company’s stock price and credit rating.

 

18. DIVIDENDS

Details of dividends for the years ended December 31, 2006 and 2007 were as follows:

 

     Won (millions)  
     2006     2007  

Outstanding shares of common stock

     621,081,746       621,619,085  

Par value per share in Won

   (Won) 5,000     (Won) 5,000  

Dividend rate

     20.0 %     15.0 %

Dividend per share in Won

     1,000       750  

Dividend amount

   (Won) 621,082     (Won) 466,964  

Net income

     2,070,543       1,556,815  

Dividends as a percentage of net income

     30.0 %     30.0 %

Dividends per share in Won

   (Won) 1,000     (Won) 750  

Price per share in Won

     42,400       39,650  

Dividend yield

     2.4 %     1.9 %

 

19. SHORT-TERM BORROWINGS

Short-term borrowings as of December 31, 2006 and 2007 are as follows:

 

              Won (In millions)

Lender

   Type    Annual interest rate
(%)
  2006    2007

Local currency:

          

Woori Bank and Others

   CP    variable   (Won) 200,000    (Won) 290,000

SMBC

   Loan    3M Libor + 0.436%     —        199,999
                  
        (Won) 200,000    (Won) 489,999
                  

The Company entered into short-term credit facilities with four banks including Woori Bank with total commitment up to (Won)1,530,000 million.


20. LONG-TERM DEBT

Long-term borrowings as of December 31, 2006 and 2007 are as follows:

 

  (a) Long-term Borrowings

 

                        Won (In millions)  

Lender

   Type    Maturity      Annual interest
rate (%)
     2006     2007  

Local Currency:

             

Korea Development Bank

   Industrial
facility
   2007~2012      5.04~6.28      (Won)  4,634,375     (Won)  4,652,500  

Nong Hyup

   Industrial
facility
   2011      5.01        150,000       121,875  

Mizuho Corporate Bank

   Industrial
facility
   2009      4.82~5.21        650,000       650,000  

Korea Exchange Bank

   Industrial
facility
   2010      5.57~5.81        —         300,000  

Korea Resources Corporation

   overseas
business
   2022      3.25        —         4,971  

Others

   Industrial
facility
   2007 ~2042    0.5 ~2      34,572       57,421  
                         
            (Won) 5,468,947     (Won) 5,786,767  
                         

Foreign Currency:

             

Korea National Oil Corporation

   Oil

production

   2021 ~2022    3 year treasury
notes - 3.00
 
 
     6,787       7,945  
                         
              5,475,734       5,794,712  

Less: Current portion

           (1,352,884 )     (1,469,502 )
                         

Long-term borrowing, net

         (Won) 4,122,850     (Won) 4,325,210  
                         

 

  (b) Debentures

 

              Won (In millions)  

Type

   Maturity   Annual interest
rate (%)
   2006     2007  

Local currency (Electricity bonds)

      
   2007   4.11~4.31    (Won) 885,000     (Won) —    
   2008   3.43~5.29      1,810,000       1,950,000  
   2009   3.61~5.4      1,150,000       1,310,000  
   2010   4.14~6.57      490,000       1,440,000  
   2011   4.98~5.08      140,000       140,000  
   2012   4.77~6.7      —         910,000  
   2013   4.90      120,000       120,000  
                     
          4,595,000       5,870,000  
                     

Foreign currency

      
   2007   0.51~7.05      1,125,948       —    
   2008 (*)   2.00      58,880       59,425  
   2010   3.31      305,560       345,315  
   2013   7.75      325,360       328,370  
   2026   6.00      65,486       66,091  
   2027   6.75~7.00      296,930       295,267  
   2034   5.13      278,880       281,460  
   2096   8.28      173,899       174,295  
                     
          2,630,943       1,550,223  
                     
          7,225,943       7,420,223  
                     

Less: Current portion, net of discount of (Won)1,292 million in 2006 and (Won)1,448 million in 2007

     (2,009,149 )     (2,010,859 )

Discount on debentures issued

     (10,606 )     (13,094 )
                     

Debentures, net

        (Won) 5,201,990     (Won) 5,400,468  
                     


 

(*) In 2003, the Company issued foreign debentures to KEPCO Cayman Company Limited for US$250 million and the right to exchange the debentures into shares of Powercomm Corporation held by the Company. KEPCO Cayman Company Limited issued foreign debentures of US$250 million under substantially similar terms and conditions as the debentures issued by the Company to KEPCO Cayman Company Limited, the details of which are as follows:

 

  - Maturity date: November 26, 2008

 

  - Exchangeable upon Qualifying Public Offering (QPO): QPO means the first listing on the Korea Stock Exchange, New York Stock Exchange or National Association of Securities Dealers Automated Quotations (NASDAQ) meeting certain requirements. Powercomm Corporation is not required to complete a QPO prior to the maturity of the debentures. The Company does not guarantee the QPO of Powercomm Corporation.

 

  - Shares to be exchanged: Powercomm Corporation’s shares or Deposit Receipt (DR)

 

 

-

Exchangeable period: From 10th day after the listing of Powercomm Corporation to 10th day before its maturity

 

  - Exchange price: 120% of lower amount of market price on the listing day or weighted average price for 10 days after its listing.

 

  - Early redemption: When certain conditions are met or after 3 years from the issuing, outstanding debentures are redeemable at the guaranteed return of 2.88% (102.74% of issuance amount)

 

  - Repayment at the maturity: Repayment will be made with the guaranteed return of 3.68% (109.13% of issuance amounts).

Also, the Company is providing payment guarantees for the foreign currency debentures issued by KEPCO Cayman Company Limited. The Company has unconditionally and irrevocably guaranteed full and timely repayment of principal and interest of the debentures.

The Company received early redemption claim of US$191.96 million (76.78% of issuance amount), on November 27, 2006 and the Company paid US$197.22 million based on the guaranteed return of 2.88% (102.74% of issuance amount).

 

  (c) Exchangeable Bonds

 

          Won (In millions)  

Description

   Annual interest rate (%)    2006     2007  

Overseas exchangeable bonds (*1)

   0.00    (Won) 10,642     (Won) 1,343  

Overseas exchangeable bonds (*2)

   0.00      485,682       485,682  

Overseas exchangeable bonds (*2)

   0.00      555,114       555,114  
                   
        1,051,438       1,042,139  
                   

Less: Current portion, net of premium of nil million in 2006 and (Won)18 in 2007 and net of conversion right adjustment of nil million in 2006 and (Won)38 in 2007

        (1,323 )     —    
                   

Plus: Premium on debentures issued

        314    

Less: Discount on debentures issued

        (80,822 )     (65,601 )

Conversion right adjustment

        (64,931 )     (51,928 )
                   

Exchangeable bonds, net

      (Won) 905,999     (Won) 923,305  
                   

 

(*1) On November 4, 2003, the Company issued overseas exchangeable bonds of JPY 25,935,061,000. The details of the bonds were as follows:

 

  - Maturity date: November 4, 2008

 

  - Exchange period: From December 15, 2003 to 10th day prior to its maturity.

 

  - Shares to be exchanged: Common stock of the Company or its equivalent Deposit Receipt (DR).

 

  - Exchange price: W30,000 per share

 

  - In accordance with Article 17 “Issuance of Convertible Bonds” and Article 11 “Calculation of Dividend for New Shares” of the Articles of Incorporation of the Company, distribution of dividends on new shares resulting from conversion of exchangeable bonds is deemed to have been issued at the end of the immediately preceding fiscal year.


During 2005, the bondholders converted JPY14,438,543,500 into 344,704 shares of common stock and 10,444,768 shares of DR (equivalent to 5,222,384 shares of common stock). During 2006, exchangeable bonds of JPY10,501,022,500 were converted into 745,309 shares of common stock and 6,607,174 shares of DR (equivalent to 3,303,587 shares of common stock). During the first half of 2007, exchangeable bonds of JPY869,850,000 were converted into 335,389 shares of common stock As of December 31, 2007, the remaining number of common stock to be converted is 48,445 shares if the conversion right is exercised.

 

(*2) On November 21, 2006, the Company issued overseas exchangeable bonds of JPY61,345,128,000 and EUR463,320,780 with a discount value (JPY60,810,000,000 and EUR401,700,000). The main issuing terms of the bonds are as follows.

 

  - Maturity date: November 23, 2011

 

  - Amount to be paid at maturity: JPY61,345,128,000 and EUR463,320,780

 

  - Exchange period: From January 4, 2007 to 10th day prior to its maturity.

 

  - Shares to be exchanged: Common stock of the Company or its equivalent DR

 

  - Exchange price: (Won)51,000 per share

 

  - Put option: Bondholders have a put option that they can exercise for JPY61,132,293,000 and EUR437,612,000 on November 23, 2009.

 

  (d) Foreign currency debts as of December 31, 2006 and 2007 are as follows:

 

     2006    2007
     Foreign currency
(In thousands)
   Won equivalent
(In millions)
   Foreign currency
(In thousands)
   Won equivalent
(In millions)

Short-term borrowings

     —        —      JPY 24,000,000    (Won) 199,999
                   

Long-term borrowings

   US$ 7,301    (Won) 6,787    US$ 8,469      7,945
                   

Debentures

   US$ 2,285,270      2,124,387    US$ 1,284,277      1,204,908
   JPY 20,000,000      156,366    JPY —        —  
   EUR 250,000      305,560    EUR 250,000      345,315
   GBP 24,467      44,630    GBP —        —  
                   
        2,630,943         1,550,223
                   

Exchangeable bonds

   JPY 62,340,623      496,324    JPY 61,470,773      487,025
   EUR 463,321      555,114    EUR 463,321      555,114
                   
        1,051,438         1,042,139
                   
      (Won) 3,689,168       (Won) 2,800,306
                   

 

  (e) Aggregate maturities of the Company’s long-term debt as of December 31, 2007 are as follows:

 

     Won (In millions)

Period ended
December 31

   Local
currency
borrowings
   Foreign
currency
borrowings
   Electricity
bonds
   Foreign
debentures
   Exchangeable
bonds
   Total

2008

   (Won) 1,469,502      —      (Won) 1,950,000    (Won) 60,597    (Won) 1,343    (Won) 3,481,442

2009

     2,140,725      —        1,310,000      1,118      1,040,796      4,492,639

2010

     1,328,303      —        1,440,000      346,359      —        3,114,662

2011

     633,082      —        140,000      953      —        774,035

2012

     164,583      —        910,000      835      —        1,075,418

Thereafter

     50,572      7,946      120,000      1,140,361      —        1,318,879
                                         
   (Won) 5,786,767    (Won) 7,946    (Won) 5,870,000    (Won) 1,550,223    (Won) 1,042,139    (Won) 14,257,075
                                         


21. ASSETS AND LIABILITIES DENOMINATED IN FOREIGN CURRENCIES

Major assets and liabilities, except mentioned in Note 19(d), denominated in foreign currencies as of December 31, 2006 and 2007 are as follows:

 

     2006    2007
     Foreign currency
(In thousands)
   Won
equivalent
(In millions)
   Foreign currency
(In thousands)
   Won
equivalent
(In millions)

Cash and cash equivalents

   US$ 625    (Won) 581    US$ 498    (Won) 467

Trade receivables

   US$ 1,607      1,494    US$ 1,751      1,643

Short-term Loans

   US$ —        —      US$ 705      661

Long-term other accounts receivables

   US$ —        —      US$ 1,174      1,100

Other non-current assets

   US$ 125      117    US$ 213      200
   JPY 14,091      110    JPY 13,428      112
   EUR 20      25    EUR 22      30
                   
      (Won) 2,327       (Won) 4,213
                   

Other accounts payable

   US$ 83    (Won) 77    US$ 482    (Won) 452
                   

 

22. RETIREMENT AND SEVERANCE BENEFITS

Changes in retirement and severance benefits for the year ended December 31, 2006 and 2007 are summarized as follows:

 

     Won (In millions)  
     2006     2007  

Estimated severance accrual at beginning of year

   (Won) 549,415     (Won) 657,355  

Provision for retirement and severance benefits

     128,802       162,531  

Payments

     (20,862 )     (29,770 )
                

Estimated severance accrual at end of year

     657,355       790,116  

Less: Deposit for severance benefit insurance

     (99,375 )     (100,225 )

Transfer to National Pension Fund

     (93 )     (91 )
                

Net balance at end of year

   (Won) 557,887     (Won) 689,800  
                

The Company entered into severance benefit trust arrangements with Samsung Life Insurance Co., Ltd. and other insurance companies, for which the deposits account for 12.68% and 15.12% of the total retirement and severance benefits as of December 31, 2007 and 2006, respectively. Severance benefit insurance deposit payable to employees in trust at insurance companies amounting to (Won)100,225 million and (Won)99,375 million as of December 31, 2007 and 2006, respectively, are presented as a deduction from the accrual for retirement and severance benefits.

 

23. OTHER PROVISIONS

 

  (a) Changes in reserve for self insurance for the year ended December 31, 2006 and 2007 are as follows.

 

     Won (In millions)  
     2006     2007  

Balance at beginning of year

   (Won) 98,618     (Won) 103,942  

Accretion of provisions

     6,906       7,191  

Payment of provisions

     (1,582 )     (1,860 )

Balance at end of year

   (Won) 103,942     (Won) 109,273  
                


  (b) Changes in other provisions for the year ended December 31, 2006 and 2007 are as follows

 

     Won (In millions)  
     2006  
     Provision for
Transformer
   Provision for
Litigation
    Total  

Balance at beginning of year

   (Won) —      (Won) 50,689     (Won) 50,689  

Accretion of provisions

     —        53,708       53,708  

Payment

     —        (1,337 )     (1,337 )

Return of provisions

     —        (2,311 )     (2,311 )

Others

     —        (50,108 )     (50,108 )
                       

Balance at end of year

   (Won) —      (Won) 50,641     (Won) 50,641  
                       
     Won (In millions)  
     2007  
     Provision for
Transformer(*)
   Provision for
Litigation
    Total  

Balance at beginning of year

   (Won) —      (Won) 50,641     (Won) 50,641  

Accretion of provisions

     21,938      11,516       33,454  

Liability incurred

     200,547      —         200,547  

Payment

     —        (29,248 )     (29,248 )

Return of provisions

     —        (1,321 )     (2,311 )

Others

     —        (11,854 )     (11,854 )
                       

Balance at end of year

   (Won) 222,485    (Won) 19,734     (Won) 242,219  
                       

 

(*) In accordance with Persistent Organic Pollutants Management Act, the Company incur a legal obligation associated with retirement of transformer, related to the expense of inspection and disposal. The Company capitalizes a corresponding amount as part of the book value of the related utility.

 

24. OTHER CURRENT LIABILITIES

Other current liabilities as of December 31, 2006 and 2007 are summarized as follows:

 

     Won (In millions)
     2006    2007

Advances received

   (Won) 106,624    (Won) 578

Withholdings

     126,743      158,728

Unearned revenue

     60,951      58,613

Accrued expenses

     146,551      144,019

Dividends payable

     3,075      2,595

Currency swaps

     3,783      —  

Others

     224,124      241,145
             
   (Won) 671,851    (Won) 605,678
             


25. DERIVATIVE INSTRUMENTS TRANSACTIONS

The Company has entered into various swap contracts to hedge risks involving foreign currency exchange rate and interest rate of long-term debentures. However, the Company does not apply hedge accounting and these contracts are recorded at the fair value with subsequent changes in fair value recorded in current income.

 

  (a) Interest swap contracts as of December 31, 2007 are as follows:

 

     Notional amount
in millions (Won)
   Contract interest rate per
annum
    
        Pay (%)    Receive (%)    Term

Korea Exchange Bank

   (Won) 50,000    5.19%    5.57%

(3M CD+0.22%)

   2007~2010

Korea Exchange Bank

   (Won) 50,000    5.42%    5.81%

(3M CD+0.21%)

   2007~2010

Korea Exchange Bank

   (Won) 100,000    5.42%    5.58%

(3M CD+0.22%)

   2007~2010

Korea Exchange Bank

   (Won) 100,000    5.54%    5.62%

(3M CD+0.27%)

   2007~2010

 

  (b) Valuation and transaction gains and losses on swap contracts recorded as other income or expense for the year ended December 31, 2006 and 2007 are as follows:

 

     Won (In millions)  
     2006     2007  

Valuation

    

Currency swaps:

    

Gains

   (Won) 4,324     (Won) —    

Losses

     (31,727 )     —    

Currency forwards:

    

Gains

     64       —    

Losses

     (322 )     —    

Interest rate swaps:

    

Gains

     1,196       2,594  
                
   (Won) (26,465 )   (Won) 2,594  
                

Transaction

    

Derivatives:

    

Gains

   (Won) 3,905     (Won) 22,892  

Losses

     (12,652 )     (13,301 )
                
   (Won) (8,747 )   (Won) 9,591  
                

 

  (c) Interest rate swap contracts and currency swap contracts expired during 2007 were as follows:

 

Interest rate swap   Notional amount
in thousands
  Contract interest rate per annum    
    Pay (%)   Receive (%)   Term

Deutsche Bank (formerly, Bankers Trust Co.)

  US$ 100,000   Max[6.074-Libor,0]     Max[Libor-6.074,0]   1998~2007

Deutsche Bank (formerly Bankers Trust Co.)

  US$ 100,000   Max[Libor-6.074,0]     Max[6.074-Libor,0]   1998~2007
Currency swap   Contract
year
  Settlement
year
  Contract amounts
in millions
  Contract interest rate
per annum (%)
      Pay   Receive   Pay   Receive

JPMorgan Chase Bank & Deutsche Bank

    2002   2007   JPY 76,700   US$ 650   1.18   4.25

Barclays Bank PLC London

    2002   2007   JPY 30,400   US$ 250   1.04   3M Libor
+ 0.75


26. POWER, TRANSMISSION AND DISTRIBUTION COSTS

Power, transmission and distribution costs for the year ended December 31, 2006 and 2007 are as follows:

 

     Won (In millions)
     2006    2007

Material expenses:

     

Oil

   (Won) 34,659    (Won) 35,734
             

Labor expenses:

     

Salaries

     676,207      829,573

Severance and retirement benefits

     74,764      105,092
             
     750,971      934,665

Overhead expenses:

     

Employee benefits

     92,090      83,425

Rent

     26,758      35,199

Depreciation

     1,785,355      1,840,756

Maintenance

     829,939      933,952

Commission and consultation fees

     97,118      132,284

Development expense

     149,102      180,328

Property, plant and equipment removal costs

     234,257      304,617

Others

     112,679      128,671
             
     3,327,298      3,639,232
             
   (Won) 4,112,928    (Won) 4,609,631
             

 

27. SELLING AND ADMINISTRATIVE EXPENSES

Details of selling and administrative expenses for the year ended December 31, 2006 and 2007 are summarized as follows:

 

     Won (In millions)
     2006    2007

Labor

   (Won) 427,260    (Won) 448,631

Employee benefits

     72,590      53,240

Sales commission-others

     411,535      412,696

Communication fees

     27,771      29,565

Depreciation and amortization

     31,380      42,246

Rent

     13,634      13,265

Commission and consultation fees

     48,283      65,023

Maintenance

     27,173      12,461

Bad debt expense

     18,854      21,813

Others

     123,295      125,766
             
   (Won) 1,201,775    (Won) 1,224,706
             

 

28. INCOME TAX

 

  (a) The components of income tax expense for the year ended December 31, 2006 and 2007 are summarized as follows:

 

     Won (In millions)  
     2006    2007  

Current income tax expenses

   (Won) 469,468    (Won) 193,169  

Changes in deferred income tax, adjustment

     81,720      186,237  

Income taxes recorded in capital

     2,207      (38,482 )
               

Income tax expense

   (Won) 553,395    (Won) 340,924  
               


  (b) The income tax calculated using statutory tax rates differs from the income tax in the income statement for the year ended December 31, 2006 and 2007 for the following reasons:

 

     Won (In millions)  
     2006     2007  

Income tax at statutory tax rates

   (Won) 721,570     (Won) 521,865  

Tax effects of permanent differences:

    

Dividend income (*)

     (162,860 )     (138,770 )

Tax credit

     (1,204 )     (923 )

Other, net

     (4,111 )     (41,248 )
                

Income tax in the income statement

   (Won) 553,395     (Won) 340,924  
                

 

(*)    Under the Corporate Income Tax Act, a certain portion of the dividend income is not taxable. In this connection, certain portions of equity in net income of affiliates are considered permanent differences in the calculation of deferred tax assets (liabilities).

        

 

  (c) The tax effects of temporary differences that result in significant portions of the deferred income tax assets and liabilities as of December 31, 2006 and 2007 are presented below.

 

     Won (In millions)  
     2006     2007  

Deferred tax assets:

    

Loss on valuation of derivatives

   (Won) 56,493     (Won) —    

Accrual for retirement and severance benefits

     108,438       141,208  

Deferred foreign exchange translation loss

     8,099       7,340  

Accounts payable - purchase of electricity

     214,194       223,954  

Other, net

     232,859       312,158  
                
     620,083       684,660  
                

Deferred tax liabilities:

    

Gain on valuation of derivatives

     (24,851 )     (713 )

Deferred foreign exchange translation gain

     (19,200 )     (17,189 )

Reserve for social overhead capital investment

     (71,564 )     (49,197 )

Reserve for research and human resource development

     (57,347 )     (39,963 )

Equity income of affiliates

     (2,547,692 )     (2,809,485 )

Other, net

     (83,326 )     (30,218 )
                
     (2,803,980 )     (2,946,765 )
                

Net deferred tax liabilities

   (Won) (2,183,897 )   (Won) (2,262,105 )
                

Current portion

   (Won) 251,413     (Won) 251,762  
                

Non-current portion

   (Won) (2,435,310 )   (Won) (2,513,867 )
                

 


29. EARNINGS PER SHARE

Basic earnings per share for the year ended December 31, 2006 and 2007 are calculated by dividing net income by the weighted-average number of shares of common stock outstanding.

 

     Won (In millions except share data)
     2006    2007

Net income

   (Won) 2,070,543    (Won) 1,556,815

Weighted-average number of common shares outstanding

     638,002,913      621,717,622
             

Basic earnings per share in Won

   (Won) 3,245    (Won) 2,504
             

Diluted earnings per share for the year ended December 31, 2006 and 2007 are calculated by dividing net income available to common shareholders plus the effect of dilutive securities by the weighted-average number of shares of common and common equivalent shares.

 

     Won (In millions)
     2006    2007

Net income

   (Won) 2,070,543    (Won) 1,556,815

Exchangeable bond interest

     2,207      20,031
             
     2,072,750      1,576,846
             

Weighted-average number of common shares and diluted securities outstanding

     657,286,214      640,665,533
             

Diluted earnings per share in Won

   (Won) 3,153    (Won) 2,461
             

 

30. TRANSACTIONS AND BALANCES WITH RELATED COMPANIES

 

  (a) Transactions with related parties for the year ended December 31, 2006 and 2007 are as follows:

 

        Won (In millions)

Related party

  Transaction   2006   2007

Sales and other income:

     

Korea Hydro & Nuclear Power Co., Ltd.

  Sales of electricity and others   (Won) 132,246   (Won) 638,463

Korea South-East Power Co., Ltd.

      40,091     626,897

Korea Midland Power Co., Ltd.

      44,873     100,151

Korea Western Power Co., Ltd.

      44,202     212,466

Korea Southern Power Co., Ltd.

      20,657     153,930

Korea East-West Power Co., Ltd.

      53,898     337,920

Others

      109,636     81,525
             
    (Won) 445,603   (Won) 2,151,352
             

Purchases and others:

     

Korea Hydro & Nuclear Power Co., Ltd. (*)

  Purchase of electricity and others   (Won) 5,555,450   (Won) 5,513,434

Korea South-East Power Co., Ltd. (*)

      1,974,030     2,145,893

Korea Midland Power Co., Ltd. (*)

      2,483,114     2,802,392

Korea Western Power Co., Ltd. (*)

      2,417,181     3,097,047

Korea Southern Power Co., Ltd. (*)

      3,306,306     3,729,775

Korea East-West Power Co., Ltd. (*)

      2,512,554     2,867,866

Korea Power Engineering Co., Inc.

  Designing of power plant and
others
    6,504     9,038

KEPCO KPS (formerly Korea Plant Service)

  Utility plant maintenance     48,733     50,945

Korea Electric Power Data Network, Co., Ltd.

  Maintenance of computer system     135,140     279,653

Others

  Commissions for service and
others
    159,143     105,240
             
    (Won) 18,598,155   (Won) 20,601,283
             

 

(*)    The Company has purchased electricity from its power generation subsidiaries through Korea Power Exchange.

 


  (b) Receivables arising from related parties transactions as of December 31, 2006 and 2007 are as follows:

 

     Won (In millions)
     2006

Related party

   Trade receivables    Other receivables    Total

Korea Hydro & Nuclear Power Co., Ltd.

   (Won) 6,623    (Won) 3,450    (Won) 10,073

Korea South-East Power Co., Ltd.

     2,604      347      2,951

Korea Midland Power Co., Ltd.

     2,256      429      2,685

Korea Western Power Co., Ltd.

     4,021      113      4,134

Korea Southern Power Co., Ltd.

     769      719      1,488

Korea East-West Power Co., Ltd.

     1,983      1,600      3,583

Others

     2,898      18,651      21,549
                    
   (Won) 21,154    (Won) 25,309    (Won) 46,463
                    
     Won (In millions)
     2007

Related party

   Trade receivables    Other receivables    Total

Korea Hydro & Nuclear Power Co., Ltd.

   (Won) 1,585    (Won) 401,053    (Won) 402,638

Korea South-East Power Co., Ltd.

     2,793      549,284      552,077

Korea Midland Power Co., Ltd.

     3,665      39,436      43,101

Korea Western Power Co., Ltd.

     4,075      115,311      119,386

Korea Southern Power Co., Ltd.

     424      117,760      118,184

Korea East-West Power Co., Ltd.

     3,068      262,351      265,419

Others

     33      12,641      12,674
                    
   (Won) 15,643    (Won) 1,497,836    (Won) 1,513,479
                    

 

  (c) Payables arising from related parties transactions as of December 31, 2006 and 2007 are as follows:

 

     Won (In millions)
     2006

Related party

   Trade payables    Other payables    Total

Korea Hydro & Nuclear Power Co., Ltd. (*)

   (Won) 386,812    (Won) 4,255    (Won) 391,067

Korea South-East Power Co., Ltd. (*)

     172,858      1,472      174,330

Korea Midland Power Co., Ltd. (*)

     199,032      2,009      201,041

Korea Western Power Co., Ltd. (*)

     235,881      1,302      237,183

Korea Southern Power Co., Ltd. (*)

     276,381      1,397      277,778

Korea East-West Power Co., Ltd. (*)

     225,331      1,668      226,999

Korea Power Engineering Co., Inc.

     —        —        —  

KEPCO KPS (formerly Korea Plant Service)

     —        3,386      3,386

Korea Electric Power Data Network, Co., Ltd.

     —        49,142      49,142

Others

     —        14,568      14,568
                    
   (Won) 1,496,295    (Won) 79,199    (Won) 1,575,494
                    

 

(*)    The Company has purchased electricity from its power generation subsidiaries through Korea Power Exchange. The above trade payables represent the amount payable to the power generation subsidiaries.


     Won (In millions)
     2007

Related party

   Trade payables    Other payables    Total

Korea Hydro & Nuclear Power Co., Ltd. (*)

   (Won) 430,943    (Won) 3,281    (Won) 434,224

Korea South-East Power Co., Ltd. (*)

     189,252      1,614      190,866

Korea Midland Power Co., Ltd. (*)

     265,932      1,506      267,438