(2)	Financial risk management

The Company is exposed to various risks related to its financial instruments, such as, market risk (currency risk, interest rate risk, price risk), credit risk. The Company monitors and manages the financial risks relating to the operations of the Company through internal risk reports which analyze exposures by degree and magnitude of risks. The Company uses derivative financial instruments to hedge certain risk exposures. The Company’s overall financial risk management strategy remains consistent with the prior year.

(i)

Credit risk

Credit risk is the risk of finance loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises primarily from the sales activities, securities and derivatives. In addition, credit risk exposure may exist within financial guarantees and unused line of credits. As these financial institutions the Company makes transactions with are reputable financial institutions, the credit risk from them are considered limited. The Company decides credit transaction limits based on evaluation of client’s credit, through information obtained from the credit bureau and disclosed financial position at committing contracts.

①

Credit risk management

Electricity sales, the main operations of the Company are the necessity for daily life and industrial activities of Korean nationals and have importance as one of the national key industries. The Company dominates the domestic market supplying electricity to customers. The Company is not exposed to significant credit risk as customers of the Company are diverse and are from various industries and areas. The Company uses publicly available information and its own internal data related to trade receivables, to rate its major customers and to measure the credit risk that a counter party will default on a contractual obligation. For the incurred but not recognized loss, it is measured considering overdue period.

②

Impairment and allowance account

In accordance with the Company policies, individual material financial assets are assessed on a regular basis, trade receivables that are assessed not to be impaired individually are, in addition, assessed for impairment on a collective basis. Value of the acquired collateral (including the confirmation of feasibility) and estimated collectable amounts are included in this assessment.

Allowance for bad debts assessed on a collective basis are recognized for (i) the group of assets which individually are not material and (ii) incurred but not recognized losses that are assessed using statistical methods, judgment and past experience.

Book values of the financial assets represent the maximum exposed amounts of the credit risk. Details of the Company’s level of maximum exposure to credit risk as of December 31, 2020 and 2021 are as follows:


		2020		2021

		In millions of won
Cash and cash equivalents	￦		2,029,584		2,635,238
Financial assets at fair value through profit or loss(*1)			1,808,404		932,736
Derivative assets (trading)			110,764		443,027
Financial assets at fair value through other comprehensive income (debt securities)			—		491
Financial assets at amortized cost			14,422		25,273
Loans			790,162		909,071
Long-term/short-term financial instruments			2,062,103		1,728,508
Derivative assets (applying hedge accounting)			55,649		204,756
Trade and other receivables			9,780,039		10,029,276
Financial guarantee contracts(*2)			3,224,696		3,718,015

(*1)

Equity investments held by the Company are excluded.

(*2)

Maximum exposure associated with the financial guarantee contracts is the maximum amounts of the obligation.

As of the reporting date, there are no financial assets and non-financial assets that were acquired through the exercise of the right of collateralized assets and reinforcement of credit arrangement.

(ii)

Market risk

Market risk is the risk that the Company’s fair values of the financial instruments or future cash flows are affected by the changes in the market. Market risk consists of interest rate risk,

foreign

currency risk and other price risk.

(iii)

Sensitivity analysis

Significant assets and liabilities with uncertainties in underlying assumptions

①

Defined benefit obligation

A sensitivity analysis of defined benefit obligation assuming a 1% increase and decrease movements in the actuarial valuation assumptions as of December 31, 2020 and 2021 are as follows:


			2020						2021
Type	Accounts		1% Increase			1% Decrease			1% Increase			1% Decrease

			In millions of won
Future salary increases	Increase (decrease) in defined benefit obligation	￦		488,087			(425,708	)		466,832			(407,554	)
Discount rate	Increase (decrease) in defined benefit obligation			(443,527	)		524,856			(422,290	)		499,571

Changes of employee benefits assuming a 1% increase and decrease movements in discount rate on plan asset for the years ended December 31, 2020 and 2021 are ￦20,960 million and ￦25,649 million, respectively.

②

Provisions

Changes in provisions due to movements in underlying assumptions as of December 31, 2020 and 2021 are as follows:


Type	Accounts	2020			2021
PCBs	Inflation rate		1.06	%		1.37	%
	Discount rate		1.83	%		1.88	%
Nuclear plants	Inflation rate		1.07	%		1.41	%
	Discount rate		2.20	%		2.20	%
Spent fuel	Inflation rate		2.93	%		2.93	%
	Discount rate		4.49	%		4.49	%

A sensitivity analysis of provisions assuming a 0.1% increase and decrease movements in the underlying assumptions as of December 31, 2020 and 2021 are as follows:


			2020						2021
Type	Accounts		0.1% Increase			0.1% Decrease			0.1% Increase			0.1% Decrease

			In millions of won
Discount rate	PCBs	￦		(292	)		293			(222	)		223
	Nuclear plants			(326,926	)		336,928			(369,540	)		381,026
	Spent fuel			(51,558	)		53,571			(51,430	)		53,438
Inflation rate	PCBs			295			(294	)		224			(224	)
	Nuclear plants			357,676			(347,450	)		403,420			(391,754	)
	Spent fuel			54,345			(52,375	)		54,210			(52,245	)

Management judgment effected by uncertainties in underlying assumptions

①

Foreign currency risk

The Company undertakes transactions denominated in foreign currencies; consequently, exposures to exchange rate fluctuations arise. The carrying amounts of the Company’s foreign currency denominated monetary assets and monetary liabilities as of December 31, 2020 and 2021 are as follows:


	Assets				Liabilities
Type	2020		2021		2020		2021

	In thousands of foreign currencies
AED		39,678		6,481		31,594		31,637
AUD		133		3,733		707,538		926,960
BDT		93,442		50,145		—		577
BWP		890		939		—		—
EGP		—		—		948		595
CAD		247		582		1,840		2,266
CHF		—		—		500,406		500,230
CZK		—		—		2,033		386
EUR		310		1,809		121,069		42,981
GBP		—		—		43		—
HKD		—		—		1,651,839		1,651,665
IDR		342,496		768,731		555,241		995,510
INR		1,231,895		1,715,900		155,134		342,833
JOD		1,673		1,852		—		118
JPY		825,269		697,747		484,585		153,383
KZT		1,510		1,510		—		—
MGA		5,645,349		4,262,857		—		475,807
MMK		11,032		210,335		—		—
MYR		—		1,964		—		—
PHP		191,122		164,167		104,161		104,245
PKR		371,328		200,844		12,222		74,423
SAR		2,178		2,615		—		—
SEK		—		—		449,824		449,167
USD		1,445,522		1,381,441		12,234,563		12,023,085
UYU		78,265		90,930		1,585		3,097
VND		672,563		952,135		—		262,372
ZAR		303		31,971		—		—

A sensitivity analysis on the Company’s income for the period assuming a 10% increase and decrease in currency exchange rates as of December 31, 2020 and 2021 are as follows:


		2020					2021
Type		10% Increase			10% Decrease		10% Increase			10% Decrease

		In millions of won
Increase (decrease) of profit before income tax	￦		(1,336,821	)		1,336,821		(1,439,185	)		1,439,185
Increase (decrease) of equity(*)			(1,336,821	)		1,336,821		(1,439,185	)		1,439,185

(*)

The effect on the shareholders’ equity excluding the impact of income taxes.

The sensitivity analysis above is conducted for monetary assets and liabilities denominated in foreign currencies other than functional currency, without consideration of hedge effect of related derivatives, as of December 31, 2020 and 2021.

To manage its foreign currency risk related to foreign currency denominated receivables and payables, the Company has a policy to enter into currency forward agreements. In addition, to manage its foreign currency risk related to foreign currency denominated expected sales transactions and purchase transactions, the Company enters into currency forward agreements.

There is an economic relationship between the hedged item and the hedging instrument as the terms of cross-currency swap agreement is consistent with the terms of expected transaction (repayment of foreign debt securities and others). The hedging ratio is 1:1 as the risk of cross-currency swap agreement matches the hedged instrument. As of December 31, 2021, the hedging instrument (cross-currency swap) hedges the risk of the hedged item (repayment of foreign debt securities and others).

②

Interest rate risk

The Company is exposed to interest rate risk due to its borrowing with floating interest rates. A 1% increase or decrease is used when reporting interest rate risk internally to key management personnel and represents management’s assessment of the reasonably possible change in interest rates.

The Company’s borrowings and debt securities with floating interest rates as of December 31, 2020 and 2021 are as follows:


Type		2020		2021

		In millions of won
Short-term borrowings	￦		171,518		391,897
Long-term borrowings			2,191,322		2,405,244
Debt securities			250,968		257,667

	￦		2,613,808		3,054,808

A sensitivity analysis on the Company’s long-term borrowings and debt securities assuming a 1% increase and decrease in interest rates, without consideration of hedge effect of related derivatives for the years ended December 31, 2020 and 2021 are as follows:


		2020					2021
Type		1% Increase			1% Decrease		1% Increase			1% Decrease

		In millions of won
Increase (decrease) of profit before income tax	￦		(26,138	)		26,138		(30,548	)		30,548
Increase (decrease) of shareholder’s equity(*)			(26,138	)		26,138		(30,548	)		30,548

(*)

The effect on the shareholders’ equity excluding the impact of income taxes.

The Company manages its interest rate risk by having a balanced portfolio of fixed and variable rate loans and borrowings. To manage this, the Company enters into interest rate swaps, in which it agrees to exchange, at specified intervals, the difference between fixed and variable rate interest amounts calculated by reference to an agreed-upon notional principal amount. The above analysis measures the interest rate risk before reflecting the hedge effect by related derivatives.

③

Electricity rates risk

Following the approval of the Ministry of Trade, Industry and Energy (MOTIE) on December 17, 2020, the Company has adopted a new pricing system, “the cost pass-through tariff system”, beginning January 1, 2021. Under the cost pass-through system, the electricity rates are not predetermined at fixed rates but change upon approval by the MOTIE under Electric Utility Act of the Republic of Korea.

The Company is exposed to electricity rates risk due to changes in government regulations and policies on national power supply schemes and electricity billing rates, in consideration of the national economy.

A sensitivity analysis on the Company’s income for the period assuming a 1% increase and decrease in price of electricity for the years ended December 31, 2020 and 2021 is as follows:


		2020					2021
Type		1% Increase		1% Decrease			1% Increase		1% Decrease

		In millions of won
Increase (decrease) of profit before income tax	￦		557,310		(557,310	)		572,102		(572,102	)
Increase (decrease) of shareholder’s equity(*)			557,310		(557,310	)		572,102		(572,102	)

(*)

The effect on the equity excluding the impact of income taxes.

(iv)

Liquidity risk

The Company has established an appropriate liquidity risk management framework for the management of the Company’s short, medium and long-term funding and liquidity management requirements. The Company manages liquidity risk by continuously monitoring forecasted and actual cash flows, and by matching the maturity profiles of financial assets and liabilities.

In addition, the Company has established credit lines on its trade financing and bank overdrafts, and through payment guarantees it has received, it maintains an adequate credit (borrowing) line. In addition, the Company has the ability to utilize excess cash or long-term borrowings for major construction investments.

The expected maturities for non-derivative financial liabilities as of December 31, 2020 and 2021 in detail are as follows:


		2020
Type		Less than 1 year		1~2 Years		2~5 Years		More than 5 years		Total

		In millions of won
Borrowings and debt securities	￦		12,413,346		10,919,041		24,778,020		34,215,888		82,326,295
Finance lease liabilities			614,442		569,161		1,564,377		2,461,557		5,209,537
Trade and other payables			5,679,856		373,907		894,903		1,167,171		8,115,837
Financial guarantee contracts(*)			926,244		348,860		26,230		1,923,362		3,224,696

	￦		19,633,888		12,210,969		27,263,530		39,767,978		98,876,365


		2021
Type		Less than 1 year		1~2 Years		2~5 Years		More than 5 years		Total

		In millions of won
Borrowings and debt securities	￦		15,833,589		11,229,657		28,663,693		36,223,543		91,950,482
Lease liabilities			620,121		636,724		1,521,421		2,150,722		4,928,988
Trade and other payables			7,569,869		777,017		725,231		667,304		9,739,421
Financial guarantee contracts(*)			435,729		—		3,105,599		176,687		3,718,015

	￦		24,459,308		12,643,398		34,015,944		39,218,256		110,336,906

(*)

This represents the total guarantee amounts associated with the financial guarantee contracts. Financial guarantee liabilities which are recognized as of December 31, 2020 and 2021 are ￦66,354 million and ￦80,841 million, respectively.

The following table shows the details of maturities of non-derivative financial liabilities as of December 31, 2020 and 2021. This table, based on the undiscounted cash flows of the non-derivative financial liabilities including estimated interests, has been prepared based on the respective liabilities’ earliest maturity date.

The expected maturities for non-derivative financial assets as of December 31, 2020 and 2021 in detail are as follows:


		2020
Type		Less than 1 year		1~5 Years		More than 5 years		Other (*)		Total

		In millions of won
Cash and cash equivalents	￦		2,029,584		—		—		—		2,029,584
Financial assets at fair value through other comprehensive income			—		—		—		358,559		358,559
Financial assets at amortized cost			13,149		1,265		8		—		14,422
Loans			78,805		385,571		325,212		31,506		821,094
Long-term/short-term financial instruments			1,483,482		252,349		386		325,886		2,062,103
Financial assets at fair value through profit or loss			1,196,101		—		2,690		682,591		1,881,382
Trade and other receivables			7,920,005		1,160,400		704,494		—		9,784,899

	￦		12,721,126		1,799,585		1,032,790		1,398,542		16,952,043


		2021
Type		Less than 1 year		1~5 Years		More than 5 years		Other (*)		Total

		In millions of won
Cash and cash equivalents	￦		2,635,238		—		—		—		2,635,238
Financial assets at fair value through other comprehensive income			—		—		—		435,107		435,107
Financial assets at amortized cost			15,422		9,840		11		—		25,273
Loans			88,396		443,146		407,584		—		939,126
Long-term/short-term financial instruments			1,278,014		171,636		286		278,572		1,728,508
Financial assets at fair value through profit or loss			360,833		346		3,130		668,555		1,032,864
Trade and other receivables			8,123,455		1,233,703		679,048		—		10,036,206

	￦		12,501,358		1,858,671		1,090,059		1,382,234		16,832,322

(*)

The maturities cannot be presently determined.

Derivative liabilities classified by maturity periods which from reporting date to maturity dates as per the contracts as of December 31, 2020 and 2021 are as follows:


		2020
Type		Less than 1 year			1~2 Years			2~5 Years			More than 5 years			Total

		In millions of won
Net settlement
—Trading	￦		—			—			—			—			—
Gross settlement
—Trading			(12,777	)		(22,827	)		(118,704	)		(4,380	)		(158,688	)
—Hedging			(37,858	)		(39,528	)		(75,450	)		(55,208	)		(208,044	)

	￦		(50,635	)		(62,355	)		(194,154	)		(59,588	)		(366,732	)


		2021
Type		Less than 1 year			1~2 Years			2~5 Years			More than 5 years			Total

		In millions of won
Net settlement
—Trading	￦		—			—			—			—			—
Gross settlement
—Trading			(6,628	)		(4,954	)		(33,635	)		(2,291	)		(47,508	)
—Hedging			(2,555	)		(638	)		(1,914	)		(23,704	)		(28,811	)

	￦		(9,183	)		(5,592	)		(35,549	)		(25,995	)		(76,319	)

Derivative assets classified by maturity periods which from reporting date to maturity dates as per the contracts as of December 31, 2020 and 2021 are as follows:


		2020
Type		Less than 1 year		1~2 Years		2~5 Years		More than 5 years		Total

		In millions of won
Net settlement
—Trading	￦		—		—		—		—		—
Gross settlement
—Trading			18,332		1,529		45,237		52,163		117,261
—Hedging			11,191		—		41,206		3,252		55,649

	￦		29,523		1,529		86,443		55,415		172,910


		2021
Type		Less than 1 year		1~2 Years		2~5 Years		More than 5 years		Total

		In millions of won
Net settlement
—Trading	￦		—		—		—		—		—
Gross settlement
—Trading			93,554		54,617		202,663		105,856		456,690
—Hedging			33,564		65,198		102,760		3,235		204,757

	￦		127,118		119,815		305,423		109,091		661,447

(3)	Fair value risk

The fair value of the Company’s actively-traded financial instruments (i.e., FVTPL, FVOCI, etc.) is based on the traded market-price as of the reporting period end. The fair value of the Company’s financial assets is the amount which the asset could be exchanged for or the amount a liability could be settled for.

The fair values of financial instruments where no active market exists or where quoted prices are not otherwise available are determined by using valuation techniques. Valuation techniques include using recent arm’s length market transactions between knowledgeable, willing parties, if available, reference to the current fair value of another instrument that is substantially the same, discounted cash flow analysis and option pricing models. If there is a valuation technique commonly used by market participants to price the instrument and that technique has been demonstrated to provide reliable estimates of prices obtained in actual market transactions, the Company uses that technique.

For trade receivables and payables, the Company considers the carrying value net of impairment as fair value. While for disclosure purposes, the fair value of financial liabilities is estimated by discounting the future contractual cash flows based on current market interest rates applied to similar financial instruments.

(i)

Fair value and book value of financial assets and liabilities as of December 31, 2020 and 2021 are as follows:


		2020				2021
Type		Book value		Fair value		Book value		Fair value

		In millions of won
Assets recognized at fair value
Financial assets at fair value through other comprehensive income	￦		358,559		358,559		435,107		435,107
Derivative assets (trading)			110,764		110,764		443,027		443,027
Derivative assets (applying hedge accounting)			55,649		55,649		204,756		204,756
Financial assets at fair value through profit or loss			1,881,382		1,881,382		1,032,864		1,032,864

	￦		2,406,354		2,406,354		2,115,754		2,115,754

Assets carried at amortized cost
Financial assets at amortized cost	￦		14,422		14,422		25,273		25,273
Loans and receivables			790,162		790,162		909,071		909,071
Trade and other receivables			9,780,039		9,780,039		10,029,276		10,029,276
Long-term financial instruments			578,621		578,621		450,494		450,494
Short-term financial instruments			1,483,482		1,483,482		1,278,014		1,278,014
Cash and cash equivalents			2,029,584		2,029,584		2,635,238		2,635,238

	￦		14,676,310		14,676,310		15,327,366		15,327,366

Liabilities recognized at fair value
Derivative liabilities (trading)	￦		157,926		157,926		56,256		56,256
Derivative liabilities (applying hedge accounting)			207,193		207,193		21,775		21,775

	￦		365,119		365,119		78,031		78,031

Liabilities carried at amortized cost
Secured borrowings	￦		63,614		63,614		176,358		176,358
Unsecured bond			64,607,401		68,839,316		73,881,671		69,803,043
Lease liabilities			4,621,096		4,621,096		4,410,503		4,410,503
Unsecured borrowings			4,808,206		5,513,242		6,471,484		5,938,613
Trade and other payables(*)			8,115,837		8,115,837		9,739,421		9,739,421
Bank overdraft			245,360		245,360		—		—

	￦		82,461,514		87,398,465		94,679,437		90,067,938

(*)

Excludes lease liabilities.

(ii)

Interest rates used for determining fair value

The interest rates used to discount estimated cash flows, when applicable, are based on the government yield curve at the reporting date plus an adequate credit spread.

The discount

rates

used for calculating fair value as of December 31, 2020 and 2021 are as follows:


Type	2020		2021
Derivatives		(-) 0.73% ~ 3.08%		(-) 0.63% ~ 3.88%
Borrowings and debt securities		(-) 0.53% ~ 4.38%		(-) 0.30% ~ 4.38%
Finance lease		0.57% ~ 16.60%		0.00% ~ 16.83%

(iii)

Fair value hierarchy

The following table provides an analysis of financial instruments that are measured subsequent to initial recognition at fair value, classified as Level 1, 2 or 3, based on the degree to which the fair value is observable.

Level 1: Unadjusted quoted prices in active markets for identical assets or liabilities;

Level 2: Inputs other than quoted prices that are observable for the asset or liability either directly or indirectly; and

Level 3: Inputs that are not based on observable market data.

Fair values of financial instruments by hierarchy level as of December 31, 2020 and 2021 are as follows:


		2020
Type		Level 1		Level 2		Level 3		Total

		In millions of won
Financial assets at fair value
Financial assets at fair value through other comprehensive income	￦		194,670		—		163,889		358,559
Derivative assets			—		166,413		—		166,413
Financial assets at fair value through profit or loss			—		1,875,690		5,692		1,881,382

	￦		194,670		2,042,103		169,581		2,406,354

Financial liabilities at fair value
Derivative liabilities	￦		—		365,119		—		365,119


		2021
Type		Level 1		Level 2		Level 3		Total

		In millions of won
Financial assets at fair value
Financial assets at fair value through other comprehensive income	￦		273,826		—		161,281		435,107
Derivative assets			—		647,783		—		647,783
Financial assets at fair value through profit or loss			—		1,027,067		5,797		1,032,864

	￦		273,826		1,674,850		167,078		2,115,754

Financial liabilities at fair value
Derivative liabilities	￦		—		78,031		—		78,031

The fair value of financial assets (FVTPL and FVOCI) publicly traded is measured at the closing bid price quoted at the end of the reporting period. Meanwhile, the fair value of unquoted financial assets (FVTPL and FVOCI) is accounted for using the valuation results of external valuation services in which weighted average borrowing rates of interest of evaluated companies are used as the discount rates. The fair value of derivatives is measured using the discounted cash flow (DCM) model reflecting key input factors such as credit risks, interest rates and exchange rates.

Changes of financial assets and liabilities which are classified as level 3 for the years ended December 31, 2020 and 2021 are as follows:


		2020
		Beginning balance		Acquisitions		Reclassified category		Valuation			Disposal			Foreign currency translation and others			Ending balance
		In millions of won
Financial assets at fair value
Financial assets at fair value through profit or loss Cooperative	￦		5,156		359		—		623			(446	)		—			5,692
Financial assets at fair value through other comprehensive income
Unlisted securities			177,968		2,900		—		(23,128	)		(1	)		6,150			163,889

		2021
		Beginning balance		Acquisitions		Reclassified category		Valuation			Disposal			Foreign currency translation and others			Ending balance
		In millions of won
Financial assets at fair value
Financial assets at fair value through profit or loss Cooperative	￦		5,692		—		—		105			—			—			5,797
Financial assets at fair value through other comprehensive income
Unlisted securities			163,889		8,929		—		(12,335	)		(13	)		320			160,790
Debt securities			—		500		—		—			—			(9	)		491