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Contingencies and Commitments

12 Months Ended

Dec. 31, 2019

Contingencies and Commitments [Abstract]

50.

Contingencies and Commitments

(1)

Ongoing litigations and claims related with contingent liabilities and contingent assets as of December 31, 2018 and 2019 are as follows:


	2018				2019
	Number of cases		Claim amount		Number of cases		Claim amount
	In millions of won
As the defendant		570	￦	673,882		586	￦	697,835
As the plaintiff		174		793,491		199		707,287

As of December 31, 2019, among the litigations mentioned above, there are ongoing litigations of KHNP, a subsidiary of KEPCO, against KEPCO Engineering & Construction Company, Inc., a subsidiary of KEPCO, as a co-defendant (one case amounting to ￦65,927 million).

A group of plaintiffs (consisting of 2,167 individuals) filed a lawsuit against NSSC (Nuclear Safety and Security Commission) 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, 2019. Also, Greenpeace and others filed an administrative litigation against NSSC requesting cancelation of the construction permit of Shin-Kori unit 5 and 6 in September 12, 2016 and lost the lawsuit in February 14, 2019. They appealed the case in March 18, 2019. The Company joined these litigations as a stakeholder after obtaining permission from the Court.

As of December 31, 2019, in connection with Shin-Hanul unit 3 & 4, the Company has received communications from a vendor for costs incurred for the preliminary work of the main equipment and associated compensation due to the discontinuation of the construction. The Company does not believe that it has a present obligation to this vendor, and that it is probable that the Company will prevail if a lawsuit is filed against the Company. In addition, the Company cannot reliably estimate the potential economic outflow related to the obligation as of December 31, 2019.

The long-term service contract between Gyeonggi Green Energy Co., Ltd. (Gyeonggi Green Energy) and its fuel cell supplier expired during the year ended December 31, 2018. Gyeonggi Green Energy had been in negotiations to renew the contract as the creditors requested, and, as a result, Gyeonggi Green Energy renewed the long-term service contract with fuel cell supplier on August 30, 2019. Accordingly, the Company has obtained approval from the creditors for long-term service contracts with the fuel cell supplier.

The Company is the defendant against a number of claims. The following is potentially significant ongoing claims pertaining to the Company:

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 benefit outflow is probable on the ongoing and the expected lawsuit. For this reason, the Company recognized ￦28,579 million of other provision in relation to the lawsuit as of December 31, 2019.

In addition to the abovementioned significant ongoing claims, there are 15 arbitration cases pertaining to the Company as of December 31, 2019 and the significant arbitration cases for the year ended December 31, 2019 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

In 2016, Hyundai E&C, GS Engineering & Construction Corp. and Hansol SeenTec Co., Ltd. filed an arbitration against the Company to the Korea Commercial Arbitration Board in relation to the request for additional construction costs. As described in Note 26.(2), the Company recognized the litigation provisions of ￦204,787 million in relation to this arbitration case and made the payment according to the results of this arbitration during the year ended December 31, 2018.

③

In 2016, Halla Corporation filed an arbitration against the Company to the Korea Commercial Arbitration Board in relation to the request for additional construction costs and the Company filed an 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 ￦19,754 million as a provision for the best estimate of the expenditure required to fulfill its obligations in relation to this arbitration as of December 31, 2019. After the reporting period, the Company has recognized reversal of the provision amounting to ￦19,754 million according to the settlement from the authority.

④

The Company has filed for arbitration against IL KWANG E&C Co., Ltd. to the Korea Commercial Arbitration Board, in relation to damage claims received as of December 31, 2019.

⑤

In relation to the electric power IT modernization project in Kerala, India, Enzen, a subcontractor, filed an arbitration against the Company to the Indian Council of Arbitration due to disagreements in the contract, but the Company has not recognized any provision because the amount and timing of economic benefit outflow cannot be reasonably estimated.

(2)

Guarantees of payments and commitments provided to other companies as of December 31, 2018 and 2019 are as follows:

①

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.

②

The Company has provided PT. Perusahaan Listrik Negara performance guarantee up to USD 2,293 thousand and investment guarantee up to USD 43,500 thousand to Mizuho bank and others 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.

③

The Company has provided MUFG Bank, Ltd. (MUFG) (formerly, the Bank of Tokyo Mitsubishi UFJ. Ltd. (BTMU)) borrowing guarantee up to USD 41,258 thousand 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.

④

The Company has provided the Export-Import Bank of Korea, BNP Paribas and ING Bank guarantee of mutual investment of USD 2,192 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.

⑤

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.

⑥

The Company provides the DekaBank with an investment guarantee of EUR 13,800 thousand to Stavro Vind AB, to enter into a loan contract for the Sweden Wind Power (Stavro) construction operation project.

⑦

The Company is obligated to complete the construction of the waste oil refining for power generation business of Next energy Co.,Ltd. (contract amount : ￦14,700 million) as a construction company. The Company is liable to compensate to financial institution agents for the liquidated damages in case of incompletion of the construction. Also, the Company has made performance guarantee agreement with Next energy Co.,Ltd. after the completion of the construction, which obliges the Company to provide supplemental funding if the amount of power generated or the operation time of the power plant does not reach the agreed level. The Company expected outflow of resources is probable due to guarantee of completing the construction. Hence, the Company recognized revenue over time after deducting ￦5,244 million as the variable consideration for the contract amount of the project.

(3)

Credit lines provided by financial institutions as of December 31, 2019 are as follows:


Commitments	Financial institutions	Currency	Limited amount		Used amount
		In millions of won and thousands of foreign currencies
Commitments on Bank-overdraft	Nonghyup Bank and others	KRW		1,825,500		373,219
Commitments on Bank-daylight overdraft	Nonghyup Bank and others	KRW		280,000		—
Limit amount available for CP	Hana Bank and others	KRW		1,250,000		1,150,000
Limit amount available for card	Hana Bank and others	KRW		51,904		6,686
	Banco de Oro	PHP		5,000		3,000
Loan limit	Kookmin Bank and others	KRW		1,050,503		685,429
Loan limit	DBS Bank and others	USD		2,492,700		14,400
Certification of payment on payables from foreign country	Nonghyup Bank	USD		4,680		3,892
Certification of payment on L/C	Shinhan Bank	KRW		7,749		—
	Shinhan Bank and others	USD		1,051,334		171,975
	Societe Generale	MYR		2,500		2,500
Certification of Performance guarantee on contract	Seoul Guarantee Insurance and others	KRW		84,011		66,892
	First Abu Dhabi Bank and others	USD		596,862		465,093
	Korea Development Bank and others	JPY		637,495		637,495
	Hana Bank and others	EUR		4,158		4,158
	Hana Bank and others	INR		191,883		191,883
	Hana Bank	CAD		464		464
	Shinhan Bank	ZAR		55,730		55,730
Certification of bidding	Hana Bank	USD		10,000		197
Advance payment bond, Warranty bond, Retention bond and others	Seoul Guarantee Insurance	KRW		44,047		44,047
	Export-Import Bank of Korea and others	USD		714,654		649,402
	Hana Bank	SAR		86,508		86,508
	SMBC Bank	QAR		15,000		15,000
Others	Nonghyup Bank and others	KRW		537,064		47,638
	Export-Import Bank of Korea and others	USD		1,562,194		1,315,378
	Shinhan Bank	JPY		381,210		381,210
	Standard Chartered	AED		50		50
Inclusive credit	Hana Bank	KRW		8,000		772
	Hana Bank and others	USD		30,975		17,502
	Shinhan Bank	INR		92,348		92,348
Trade finance	BNP Paribas and others	USD		700,000		—

(4)

As of December 31, 2019, 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

Mira Power Limited

International Finance

Corporation and

others

Property, plant and

equipment and others

USD

275,600

Collateral for borrowings(*1)

Tamra Offshore Wind Power Co., Ltd.

Kyobo Life Insurance Co., Ltd. and others

Property, plant and

equipment and others

KRW

171,600

Collateral for borrowings(*2)

SE Green Energy Co., Ltd.

DB Insurance Co., Ltd. and others

Property, plant and

equipment and others

KRW

149,500

Collateral for borrowings(*2)

Gyeonggi Green Energy Co., Ltd.

Korea

Development

Bank and others

Cash and cash

equivalents

KRW

327,080

Collateral for borrowings(*2)

Commerce and Industry Energy Co., Ltd.

IBK and others

Land, buildings,

structures and

machinery and others

KRW

110,500

Collateral for borrowings(*2)

KOSPO Youngnam Power Co., Ltd.

Shinhan Bank

and others

Cash and cash

equivalents

KRW

396,120

Collateral for borrowings(*2)

Gyeongju Wind Power Co., Ltd.

Samsung Fire &

Marine Insurance

Co., Ltd. and

Others

Property, plant and

equipment and others

KRW

110,240

Collateral for borrowings (*2)

Korea Offshore Wind Power Co., Ltd.

Woori Bank and

Others

Utility plant and others

KRW

293,400

Collateral for borrowings(*2)

Qatrana Electric Power Company

The Islamic

Development

Bank and others

Finance lease receivable

and property, plant and equipment and others

JOD

236,570

Collateral for borrowings(*1)

KST Electric Power Company

The Export—Import

Bank of Korea and

others

Finance lease receivable

and property, plant and equipment and others

USD

401,277

Collateral for debt securities(*1)

(*1)	This is based on the amount of loan commitment limit.

(*2)	As of December 31, 2019, the Company has established guarantees for pledge for transfer of rights of long-term borrowings, pledge for insurance claims, pledge for shares, etc.

The Company has ￦1,197 million of project loans from Korea Energy Agency as of December 31, 2019. The Company has provided a blank check as a repayment guarantee.

(5)

The Company temporarily suspended operations of the Gangneung hydroelectric generating plant, with a carrying amount of ￦75,634 million as of December 31, 2019, to improve the quality of water used in generating electricity. The expenses related to the suspension of operations of ￦49 million and depreciation on the idle assets of ￦6,542 million are recorded in other expenses for the year ended December 31, 2019. Regarding the improvement of water quality, the results of damages compensation for the local residents cannot be reasonably estimated, and the Company is in negotiations with Gangneung City and related stakeholders to restart the Gangneung hydroelectric generating plant as of December 31, 2019.

(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, 2019. The book value of facility is ￦16,611 million and the amount of trade receivables related to the companies residing in Gaeseong industrial complex is ￦2,911 million. The outcome of this event cannot be reasonably estimated as of December 31, 2019.

(7)

In connection with the electric power IT modernization project in Kerala, India, negotiations are underway due to disagreements in the contract regarding the existence and the scope of a warranty obligation. However, the Company has not recognized any provision because the amount and timing of economic benefit outflow cannot be reasonably estimated as of December 31, 2019.

51.

Business Combination

(1)

The details of business combinations that occurred for the year ended December 31, 2019 are as follows:


Company	Key operation activities	Date of merger		Transfer price
	In millions of won
Eumseong Natural Gas Power Co., Ltd.	Power generation		2019.12.23		225,758

Eumseong Natural Gas Power Co., Ltd. was established in August 2019 by spin-off from Dangjin Eco Power Co., Ltd., and obtained the license for LNG combined power generation under the 8th Basic Plan for Long-Term Electricity Supply and Demand. Korea East-West Power Co., Ltd., a subsidiary of the Company, acquired 100% of its interest in Eumseong Natural Gas Power Co., Ltd. for stable power supply and profit generation through diversification of power sources, and merged with Eumseong Natural Gas Power Co., Ltd. on December 23, 2019.

(2)

Details of the transfer price at fair value given by the acquirer of the business combination for the year ended December 31, 2019 are as follows:


Type		Amounts
		In millions of won
Cash and cash equivalents	￦		156,700
Other trade payables			10,000
Fair value of the shares owned before the acquisition			59,058

	￦		225,758

(3)

The fair values of assets and liabilities acquired through the business combination at the acquisition date for the year ended December 31, 2019 are as follows:


Type		Amounts
		In millions of won
Fair value of the identifiable assets	￦
Current assets
Cash and cash equivalents			2,389
Trade and other receivables			55
Non-current assets
Property, plant and equipment			54
Intangible assets			172,434
Other assets			60
Fair value of the identifiable liabilities
Current liabilities
Borrowings			(2,900	)
Non-current liabilities
Deferred tax liabilities			(41,729	)

	￦		130,363