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Contingencies and Commitments
 12 Months Ended
Dec. 31, 2017
Contingencies and Commitments [Abstract]  
Contingencies and Commitments
50. Contingencies and Commitments

 

(1) Ongoing litigations related with contingent liabilities and contingent assets as of December 31, 2016 and 2017 are as follows:

 

     2016      2017  
     Number
of cases		      Claim
amount		      Number
of cases		      Claim
amount		  
     In millions of won  

As the defendant

      675      ￦ 636,433        565      ￦ 477,719  

As the plaintiff

      193        489,605        185        690,934  

As of December 31, 2017, among the litigations mentioned above, there are ongoing litigations of Korea Hydro & Nuclear Power Co., Ltd. (“KHNP”), a subsidiary of KEPCO, against KEPCO Engineering & Construction Company, Inc., a subsidiary of KEPCO, as a co-defendant (one case amounting to ￦62,744million).

A group of plaintiffs (consisting 2,167 individuals) filed a lawsuit against NSSC regarding NSSC’s approval on May 18, 2015 of extending the operation of Wolsong Unit 1 nuclear power plant. The appeal was ongoing as of December 31, 2017. Also, Greenpeace and others filed an administrative litigation against NSSC requesting cancelation of the construction permit of Shin-Kori Unit 5 and 6 it was ongoing as of December 31, 2017. The Company joined these litigations as a stakeholder with the permission of the Court.

The book value of property, plant and equipment and provision for decommissioning costs of Wolsong Unit 1 nuclear power plant is ￦607,967 million and ￦642,015 million, respectively, as of December 31, 2017. If the continuance of operation of Wolsong Unit 1 nuclear power plant is annulled, significant losses may be incurred in connection with the property, plant and equipment of Wolsong Unit 1. In addition, the amount of provision may increase significantly, and the timing of actual cash outflows may be accelerated.

The Company suspended the construction of Shin-Kori Unit 5 and 6 starting from July 24, 2017 to October 24, 2017, which is the public debate period regarding whether to continue the construction for Shin-Kori Unit 5 and 6, and is in the process of reviewing the appropriateness of the additional costs requested by the suppliers that occurred during that period. The Company believes that the possibility of economic outflow is probable and recognized ￦77,261 million of provision as described in note 26.(2).

As of December 31, 2017, the Company has suspended the construction design of Shin-Hanwool Unit 3 and 4. The construction contract amount and the outstanding balance are described in note 49.(1), and the carrying amount of Shin-Hanwool Unit 3 and 4 is ￦159,008 million as of December 31, 2017.

The Company is the defendant against a number of claims. The followings are potentially significant claims pertaining to the Company.

 

  ①

Hyundai Engineering & Construction Co., Ltd.(“Hyundai E&C”), SK Engineering & Construction Co., Ltd. and GS Engineering & Construction Co., Ltd. filed a lawsuit for increase in contract bill (formerly, amounted to ￦1,000 million) against KHNP in September 2013, in relation to the design changes on the plant construction of Shin-Hanwool 1 & 2. Hyundai Engineering & Construction Co., Ltd. and two other companies increased the contract bill to ￦133,426 million in October 2014, ￦204,040 million in November 2015, and ￦204,564 million in January 2017, respectively, and submitted an application to demand extra contract payments due to the design changes. KHNP has paid ￦217,724 million of the claim amounts in full upon the first ruling in November 2016 and recognized the amount as addition to construction-in-progress accordingly.

 

  ② In December 2013, the Supreme Court of Korea ruled that regular bonuses also fall under the category of ordinary wages on the condition that those bonuses are paid regularly and uniformly. Also, the Supreme Court ruled that employees are entitled to retroactively demand certain wages based on the new ordinary wages that include regular bonuses as additional wages. However, the request may be limited to the extent of the principle of good faith.

The Company believes that the possibility of economic outflow is probable on the ongoing and the expected lawsuit. For this reason, the Company recognized ￦56,052 million of other provision in relation to the lawsuit as of December 31, 2017.

Except these significant ongoing claims, there are 10 arbitration cases pertaining to the Company as of December 31, 2017 and the significant arbitration cases are as follows:

 

  ① KEPCO and KEPCO KDN Co., Ltd., a subsidiary of KEPCO, have been accused of breach of contract in relation to ERP software, which is provided by SAP Korea Ltd. The litigation was filed in the International Chamber of Commerce International Court of Arbitration but the Company has not recognized any provision because the probability of economic benefit outflow is remote and the related amount cannot be reliably estimated.

 

  ② Hyundai Samsung Joint Venture (HSJV), one of the subcontractors of the Company, filed an arbitration against the Company at the London Court of International Arbitration (LCIA) in 2016 due to disagreements in UAE nuclear power plant construction project, but the Company has not recognized any losses because the probability of economic benefit outflow is remote and the related amount cannot be reasonably estimated.

 

  ③ In prior years, Hyundai E&C, GS Engineering & Construction Corp., and Hansol SeenTec Co., Ltd. filed on arbitration against the Company to the Korea Commercial Arbitration Board in relation to the request for additional construction costs but the Company has not recognized any provision because the probability of economic benefit outflow is remote and the related amount cannot be reliably estimated.

 

  ④ In prior years, Halla Corporation filed on arbitration against the Company to the Korea Commercial Arbitration Board in relation to the request for additional construction costs and the Company filed on arbitration against Halla Corporation to the Korea Commercial Arbitration Board in relation to the request for a penalty payment for the delayed construction work. The Company has recognized ￦4,916 million of provision for the best estimate of the expenditure required to fulfill its obligations in relation to this arbitration as of December 31, 2017.

 

(2) Guarantees of borrowings provided to other companies as of December 31, 2016 and 2017 are as follows:

 

  ① In order to secure its status as a shareholder of Navanakorn Electric Co., Ltd., the Company has signed a fund supplement contract. According to the contract, in case Navanakorn Electric Co., Ltd. does not have sufficient funds for its operation or repayment of borrowings, the Company bears a payment obligation in proportion to its ownership.

 

  ②

The Company has outstanding borrowings with a limit of USD 275,600 thousand from its creditors such as International Finance Corporation. Regarding the borrowing contract, the Company has guaranteed capital contribution of USD 69,808 thousand and additional contribution up to USD 19,000 thousand for contingencies, if any. Moreover, for one of the electricity purchasers, Central Power Purchasing Agency Guarantee Ltd., the Company has provided payment guarantee up to USD 2,777 thousand, in case of construction delay or insufficient contract volume after commencement of the construction.

 

  ③ The Company has provided PT. Perusahaan Listrik Negara performance guarantee up to USD 2,293 thousand and Mizuho bank and others investment guarantee up to USD 43,500 thousand in proportion to its ownership in the electricity purchase contract with PT. Cirebon Energi Prasarana in relation to the second electric power generation business in Cirebon, Indonesia.

 

  ④ The Company has provided the Bank of Tokyo Mitsubishi UFJ (BTMU) borrowing guarantee up to USD 41,258 thousand in proportion to its ownership in the equity bridge loan guarantee with PT. Cirebon Energi Prasarana in relation to the second electric power generation business in Cirebon, Indonesia.

 

  ⑤ The Company has provided the Export-Import Bank of Korea, BNP Paribas and ING Bank guarantee of mutual investment of USD 2,440 thousand, which is equivalent to the ownership interest of PT BS Energy and PT Nusantara Hydro Alam, in order to guarantee the expenses related to hydroelectric power business of Tanggamus, Indonesia.

 

  ⑥ The Company has provided the Export-Import Bank of Korea and SMBC guarantee of mutual investment of USD 401 thousand, which is equivalent to the ownership interest of PT Mega Power Mandiri, in order to guarantee the expenses related to hydroelectric power business of PT Wampu Electric Power, an associate of the Company.

 

  ⑦ The Company has provided Samsung C&T Corporation bidding guarantee up to USD 793 thousand to participate in the bidding of the Sri Lanka combined cycle project.

 

(3) Credit lines provided by financial institutions as of December 31, 2017 are as follows:

 

Commitments

  

Financial institutions

   Currency   Limited amount     Exercised amount  
        In millions of won and thousands of foreign
currencies		  

Commitments on bank-overdraft

   Nonghyup Bank and others   KRW     1,555,000       68,859  

Commitments on bank-daylight overdraft

   Nonghyup Bank   KRW     280,000       —    

Limit amount available for CP

   Shinhan Bank and others   KRW     1,100,000       —    

Limit amount available for card

   KEB Hana Bank and others   KRW     46,733       2,775  
  Banco de Oro   PHP     5,000       5,000  

Loan limit

   Kookmin Bank and others   KRW     895,500       425,411  
  BNP Paribas and others   USD     1,910,700       20,000  

Certification of payment on L/C

   Woori Bank and others   USD     1,029,604       233,166  

Certification of performance guarantee on contract

   KEB Hana Bank   EUR     1,958       1,958  
  KEB Hana Bank and others   INR     230,515       230,515  
 

Korea Development Bank

and others

   JPY     620,000       620,000  
 

Seoul Guarantee Insurance

and others

   KRW     104,248       104,248  
  Bank of Kathmandu   NPR     32,633       32,633  
  KEB Hana Bank   SAR     102,186       87,991  
  Standard Chartered and others   USD     753,652       696,806  
  KEB Hana Bank   CAD     168       168  

Certification of bidding

   SMBC and others   USD     60,000       10,230  
  ABSA and others   ZAR     55,730       55,730  

Advance payment bond, Warranty bond, Retention bond and others

   KEB Hana Bank   INR     157,830       157,830  
 

Export-Import Bank of Korea and

others

   USD     3,850,534       753,025  

Others

   Nonghyup Bank and others   KRW     451,521       15,037  
  KEB Hana Bank and others   USD     1,063,670       758,536  

Inclusive credit

   Shinhan Bank   INR     47,489       47,489  
  KEB Hana Bank   KRW     258,000       117,398  
  Shinhan Bank and others   USD     32,125       16,155  

Trade finance

   BNP Paribas and others   USD     800,000       —    

 

(4) As of December 31, 2017, the blank check and assets provided as collaterals or pledges to financial institutions by the Company are follows:

 

Guarantor

   

Guarantee

   

Type of guarantee

   

Currency

    Amount     

Description

     In millions of won and thousands of foreign currencies

Korea East-West Power Co., Ltd.

   

Korea Development

Bank and others

   

Shareholdings of

Gyeongju Wind Power

Co., Ltd.

    KRW      15,958      Collateral for borrowings

Korea Midland Power Co.,Ltd.

    IBK and others   

Shareholdings of

Commerce and

Industry Energy Co.,

Ltd.

    KRW      13,605      Collateral for borrowings

Korea Southern Power Co., Ltd.

   

Shinhan Bank

and others

   

Shareholdings of

KOSPO Youngnam

Power Co., Ltd.

    KRW      40,000      Collateral for borrowings

Korea South-East Power Co., Ltd.

   

International Finance Corporation

and others

   

Shareholdings of

Mira Power Limited

    KRW      44,192      Collateral for borrowings

Korea Hydro & Nuclear Power Co., Ltd.

   

Korea

Development

Bank and others

   

Shareholdings of

Gyeonggi Green

Energy Co., Ltd.

    KRW      47,000      Collateral for borrowings

Gyeonggi Green Energy Co., Ltd.

   

Korea

Development

Bank and others

   

Factory estate and

others

    KRW      327,080     

Collateral for borrowings

(*)

Commerce and Industry Energy Co., Ltd.

    IBK and others   

Land, buildings,

structures and

machinery and others

 

Cash and cash equivalents

   

KRW

 

 

 

KRW

     

 

 110,500

 

11,642

  

 

 

    Collateral for borrowings

Gyeongju Wind Power Co., Ltd.

   

SK Securities Co.,

Ltd. and others

   

Property, plant and

equipment and others

    KRW      97,980      Collateral for borrowings
      Existing or expected trade receivables    KRW      4,800     
      Cash and cash equivalents    KRW      8,769     

KOSPO Youngnam

Power Co., Ltd.

   

Shinhan Bank

and others

   

Bank deposit and

insurance claim

    KRW      396,120      Collateral for borrowings

Qatrana Electric Power Company

   

The Islamic

Development

Bank and others

   

Finance Lease receivable

and property, plant and equipment and others

    JOD      188,580      Collateral for borrowings

KST Electric Power Company

    Scotiabank Inverlat, S.A   

Finance Lease receivable

and others

    USD      289,026      Collateral for borrowings

 

(*) The Company was provided with shares of Gyeonggi Green Energy Co., Ltd., one of its subsidiaries, from the investors as collateral related to long-term borrowings. Additionally, pledge for shares, pledge for transfer of rights of long-term borrowings, pledge for insurance claims and other pledges were established.

The Company has ￦1,197 million of project loans from Korea Resource Corporation as of December 31, 2017. The Company has provided a blank check as repayment guarantee.

 

(5) The Company temporarily suspended operations of the Gangneung hydroelectric generating plant, with a carrying amount of ￦88,447 million as of December 31, 2017, to improve the quality of water used in generating electricity. The expenses related to the suspension of operations of ￦137 million and depreciation on the utility plant of ￦6,644 million are recorded in other expenses for the year ended December 31, 2017.

 

(6) Due to the Korean government’s announcement of suspension of operation in the Gaeseong Industrial District, it is uncertain if the Company can exercise the property rights for the Company’s facility in the Gaeseong Industrial District as of December 31, 2017. The book value of facility is ￦18,724 million and the amount of trade receivables related to the companies residing in Gaeseong industrial complex is ￦2,911 million. The Company has entered into an insurance agreement covering up to ￦7,000 million with the Export-Import Bank of Korea related to Gaeseong industrial complex. The ultimate outcome of this event cannot be reasonably estimated.