Jung-in Kim – General Manager, IR Jong-Hyun Park – Assistant Manager, IR

Cathy Chan – Citigroup Geoffrey Boyd – CLSA Vincent Chow – Morgan Stanley Shannon – Merrill Lynch

Good morning and good evening. First of all, thank you all for joining this conference call. And now we’ll begin the conference of the fiscal year 2011 second quarter earnings results by KEPCO. This conference will start with a presentation followed by Q&A session. (Operator Instructions) Now we shall commence the presentation on the fiscal year 2011 second quarter earnings results by KEPCO. Jung-in Kim: Good afternoon everyone. My name is Jung-in Kim, General Manager of KEPCO’s IR team. It’s a pleasure to have this opportunity to announce KEPCO’s earnings results for the first half of 2011. On behalf of KEPCO, I’d like to thank you all for participating in this conference call today. Today’s call we will begin with a brief presentation on our earnings results after which an opportunity for Q&A will follow. Please note that the financial information that we disclosed today is on a preliminary and consolidated basis. At this time, Jong-Hyun Park, Assistant Manager of KEPCO’s IR team will provide you with our formal view of our earnings results. Jong-Hyun Park: Hello everyone, my name is Jong-Hyun Park and I am going to briefly run through the first half financial results starting with operating income. In the first half of 2011, KEPCO recorded a net operating loss of KRW1.3 trillion, a year-on-year increase of KRW1.1 trillion compared to the net operating loss of KRW178 billion recorded in the same period last year. Despite the increase in power sales revenue, growth on (inaudible) in August 2010 as well as an increase in the volume of power sales, KEPCO’s net operating loss for the first half of 2011 was primarily due to increased fuel costs and power purchase costs which went up 18.5% and 44.8% respectively compared to the first half of 2010. Taking a closer look, operating revenues rose 12% to KRW19.9 trillion. Power sales revenue, the principal component of our operating revenues went up by 10.1% totaling KRW18.8 trillion. This increase is attributed mainly to the over average tariff increase of 3.5% in August 2010, as well as 6.7% growth in power sales volume, which was closed by a substantial growth in demand for electric heating and increased demand flow on the industrial sector. Operating expenses witnessed a 17.9% rise in the first half of 2011 compared to the same period last year, recording KRW21.6 trillion. Our total operating expenses, fuels costs increased 18.5% year-on-year to KRW10.8 trillion in the first half of 2011. The rise in fuel costs can be attributed to a 3.3% increase in power generation due to rising power demand and a 14.8% jump in unit cost of fuel such as coal and LNG. At this time, I will explain KEPCO’s financial income and expenses. The compared net financial loss for the first half of 2011 was KRW757 billion, a decrease of 25.4% compared to the KRW1.1 trillion net loss in the first half of 2010. The major reason for this improvement is the stronger Won. Net equity income of KEPCO affiliates totaled KRW166 billion on increase of a KRW78 billion over the KRW88 billion recorded in the first half of 2010. This is primarily attributable to a significant rise in net income from our overseas affiliates which recovered from a KRW15 billion net loss in the first half of 2010, to record KRW39 billion in net income in the first half of 2011. To illustrate [ph] that one I have just explained are on overall debt loss of KRW1.2 trillion for the first half of 2011 which compared to a net loss of KRW1.1 trillion for the first half of last year. This concludes my overview of KEPCO’s earnings results for the first half of 2011. The question and answer part of today’s call will be handled by Jung-in Kim, General Manger of KEPCO’s IR Team. Jung-in Kim: This is Jung-in Kim again. Today I am joined by KEPCO’s IR committee members in-charge of finance, tariffs and overseas businesses. At this time we are looking forward to any questions that you may have. Please go ahead.

Now Q&A session will begin. (Operator Instructions) The first question will be given by Cathy Chan from Citigroup. Please go ahead madam. Cathy Chan – Citigroup: Good afternoon management. This is Cathy from Citigroup, Hong Kong. I will have a few questions want to know more from you. The first question is about the overseas business. What was the revenue for KEPCO since first half 2011 from which is generated from the overseas business, and as the overseas business revenue, what is the amount generated from the UAE project?

[Foreign Language – Korean] The revenue coming from the overseas business for the first half of 2011 is KRW602.7 billion. [Foreign Language – Korean] And among that, the UAE project took up KRW413.3 billion. Cathy Chan – Citigroup: Okay, thanks a lot. And my second question is could you explain more about the fuel cost pass-through mechanism which has been implemented from the 1st of July 2011, for example what is the expected impact on the mechanism for this year or the coming years and also if you can explain more about for example the when the fuel price be high in this mechanism or the frequency to be reviewed by government for this mechanism?

I am sorry, could you repeat the second half of your question once again. We had some very weak audio coming through. Cathy Chan – Citigroup: Okay. The second half of my question is actually just want to know more about the fuel cost mechanism for example, what is the benchmark really cost being applied, do you expect the fuel price being up high, and how frequent will the government review the mechanism?

Okay. Thank you. [Foreign Language – Korean] Currently for the year of 2011, we do not believe that there will be a lot of short-term impacts that will be visible coming from the new system of the fuel cost pass-through system, because it really had come into effect from July 1st, the actual application we’ll be seeing from August, and that only gives us about five months within this year where we may see any impact that arrives this, but additionally at the current status the government is actually suspending the system due to management of the inflation of the customer price index right now. So we do not believe that there will be any short-term visible results or impacts from this new system. However on the long-term once again, I would need to remind you that the system in place has been adopted in order to cover for fluctuations that may arrive for the fuel costs and any losses that can be due to that. And therefore we do not believe that there will be any big impact in the long-term either. [Foreign Language – Korean] As for your question regarding what benchmark was applied. We have actually adopted the case of Japan which has a relatively similar supply and demand status for electricity as well as fuel, and we have also taken into consideration as a benchmark the fuel cost pass-through system which has been applied for the gas area. [Foreign Language – Korean] And the standard fuel costs that had been applied for this new system is coal, LNG, the input price which is actually the standard for LNG and coal had been applied for this system. [Foreign Language – Korean] As far the government review of the system. The government will review the system depending on any different situations that may arise in the future. So if the situational conditions change drastically, then the government will review the system. As far the approval of the system to be implemented, that takes place every month. So there will be monthly decisions made by the government. Cathy Chan – Citigroup: Thank you. And I have two more questions that I would like to ask the management. The first one, is in the previous time the company has announced a closed discussion plan [ph] of KRW1.1 trillion in 2011, I would like to know what is the status now? Can you just update on the first half result, and to see the operating – other operating events have a slight increment of 2% this year. So I would like to know what is the status of the closed discussion plan now?

[Foreign Language – Korean] Yes, allow me to answer your question regarding the cost reductions. The cost – among the cost items that have been budgeted, outside of those items that are relatively difficult for us to include directly such as fuel costs and depreciation related costs, outside of those areas, the other items have been included in our plan to reduce costs, and that cost reduction is what I think you have been referring to. So the 2011 target was KRW500 billion of reduction from KEPCO side and KRW600 billion of reduction from the GENCO. So that is the KRW1.1 trillion plan that we have put in place that you have made reference to in your question. And we have – we are pursuing that objective and that target. Cathy Chan – Citigroup: Okay, thank you. And my last question is that, what is the expected fuel cost for full-year 2011? I know management has given an estimate on the expected fuel costs in first quarter conference call. I just want to see if there is any change from the management estimate up to now? Thank you.

[Foreign Language – Korean] Yes, indeed the fuel cost forecast have been adjusted compared to what we announced back in the first quarter conference call, because of the fact that the coal cost and LNG cost had been increased, we have adjusted those domestic [ph] portion to our forecast. So we finally give you the comparison of the new forecast versus what we announced at the first quarter conference call, it is as follows. The first quarter – at the first quarter we announced that the fuel cost forecast for total year of 2011 would be KRW19.96 trillion, however the adjusted forecast that we have for the first half is KRW21.78 trillion. And in the first quarter, what we announced as a forecast was an increase of 4.9% of fuel cost compared to the previous year but after the first half, we have adjusted that to 14.7% increase versus the last year. Cathy Chan – Citigroup: Okay, thanks a lot.

The following question is by Geoffrey Boyd from CLSA. Please go ahead sir. Geoffrey Boyd – CLSA: Yes, thank you for the call. Actually I think the last part of the last question was answering mine, I just wanted to hear what the fuel cost guidance was, but since you answered that one maybe I could just ask about the purchased fuel cost because you’ve been purchasing a lot more volumes this year from the IPP, so I am just wondering what do you think your full-year cost will be for purchased fuel costs?

[Foreign Language – Korean] Yes, I’d like to answer your question regarding the power purchase from the IPPs and the forecast regarding that portion. Yes, indeed that portion is increasing due to a rising demand for electricity and accordingly, the volumes that have been purchased from the IPPs have increased. And it is also refreshing to the increase that we see in the amount of facilities that have been increased by the IPPs as well. So for the total year 2011, we expect to be KRW6.7 trillion that is to say the power purchase cost is expected to be KRW6.7 trillion. Geoffrey Boyd – CLSA: And what sort of demand growth does that assume for the full-year?

[Foreign Language – Korean] Based upon the GDP growth forecast of 4.5%, we expect the demand increase to be 5.4%. Geoffrey Boyd – CLSA: Okay. And just, I mean I guess my last question is just on the maintenance cost. It’s a lot lower under IFRS than it was previously under the old system. It seems to be around KRW350 billion per quarter. I remember under the old system Korean GAAP seems to be closer to KRW500 billion per quarter. Are we going to see an increase in the fourth quarter like surprise or they’re going to stay at the current levels in the second half?

Before we go into that question, I would like to make a correction. This is the interpreter. Geoffrey Boyd – CLSA: Okay.

For the last answer the demand increase expected is 5.2% and not 5.4% as formally mentioned. So I’ll try to make that correction first. [Foreign Language – Korean] For KEPCO, non-consolidated usually the maintenance related activities are more executed in the second half of the year after the summer peak season is over. So usually in the fourth quarter, we see much more maintenance related budgets being executed and (inaudible) being conducted. So our expected amount for maintenance for the total year is at around KRW850 billion. Geoffrey Boyd – CLSA: 850?

Yes. Geoffrey Boyd – CLSA: That sounds too low. You mean for the consolidated basis or is that...

It is non-consolidated. Geoffrey Boyd – CLSA: Can we get the consolidated forecast?

[Foreign Language – Korean] For consolidated, we expect it to be around KRW1.2 trillion. Geoffrey Boyd – CLSA: Okay, thank you very much.

(Operator Instructions) The following question will be given by Vincent Chow from Morgan Stanley. Please go ahead sir. Vincent Chow – Morgan Stanley: Hi, thank you very much for the conference call. I would want to ask about accounts receivable [ph] for the fuel cost pass-through mechanism. Since that the government right now suspended – actual implementation has delayed, will KEPCO recognize the revenue first and also book the accounts receivable or just wait until the government really raise the tariff?

[Foreign Language – Korean] From the government side, they will actually make a monthly decision as to whether they will suspend for that month the fuel cost pass-through system or apply and implement the system. So based upon that decision, we will accordingly make the decision as to whether we are going to put it into the accounts receivable side which will be offset by the actual payments that are due. And that’s how we will be implementing the system. Vincent Chow – Morgan Stanley: I see, so if the government delayed the tariff hike, KEPCO will not recognize any revenue in August from their tariff pass-through mechanism, sorry, fuel cost pass-through mechanism?

[Foreign Language – Korean] Yes, to answer your question, when we have an increase in fuel costs, although the government had suspended the fuel cost pass-through system temporarily, that portion will be recorded as revenue on our accounts receivable. And the next month, when the government applies the fuel cost pass-through system then that portion will be added onto the tariff that we will get from the customers. Vincent Chow – Morgan Stanley: I see, thank you very much.

The following question is by Cathy Chan from Citigroup. Please go ahead madam. Cathy Chan, please go ahead. Cathy Chan – Citigroup: Okay. I have one more follow-up question on the fuel costs. For the new estimate of KRW21.8 trillion fuel costs for 2011, would that be possible for wider breakdown into coal, LNG, oil and nuclear? Thank you.

[Foreign Language – Korean] Because the increase in fuel cost is mostly attributable to coal and LNG, let me give you the figures for these two. For coal, we expect a usage volume to be increased by 2.7% and the unit cost to be increase by 14.1% and that is the basis for our fuel cost increase estimate of 17.2%. So 17.2% increase expected for coal. For LNG, volume increase estimated to be 7.8% increase, unit cost to be increased by 8% that is our mix. So the overall fuel cost increase for LNG is expected to be 16.4%. [Foreign Language – Korean]

Does that answer your question? Cathy Chan – Citigroup: Yes, it’s okay, thank you.

(Operator Instructions). The following question is by Shannon [ph] from Merrill Lynch. Please go ahead sir. Shannon – Merrill Lynch: I have three quick questions. When will be your fuel cost pass-through system be reinstated? And number two, I understand that the Korean government has pressure to keep inflation in check, but for the record can you please state how much electricity accounts in the CPI index and also what happens to CPI and electricity tariffs want to rise by 10%. And number three, the total debt of capital increase from KRW22 trillion at the end of 2007 to a KRW42 trillion as of second quarter of 2011, does high level of debt is striking out the most of KEPCO’s operating income. What’s the government’s outlook or plan regarding the de-leveraging of KEPCO that can make adequate money to at least carry down some of your debt going forward? Thank you.

[Foreign Language – Korean] Let me answer the first question first. As far the reinstatement of the fuel cost pass-through system. As far as we know, we expect the government to keep a close eye on checking the PPI fluctuation and by the end of the year, I believe that they will have some discussion with the related bodies in order to come up with a decision. The second question regarding the impact of electricity price on the consumer price index. If we had a 10% increase in electricity cost, we expect that to have a CPI increase impact on 0.19 percentage points. So 0.19 percentage points impact which means that the ratio applied is 19 over 1,000. [Foreign Language – Korean] As far for debt reduction from KEPCO side, of course it is most urgent that the electricity tariff becomes more realistic that would be the most visible way of allowing for debt to be reduced for KEPCO. However at the same time KEPCO is doing what it can in other areas such as reducing the costs, as we mentioned earlier, there were several cost items where we can try to reduce as much as possible and also by sales of some affiliate companies such as OMEC [ph] we expect to have about KRW1 trillion cash inflow we generated from those assets as well. So the efforts that we can take on cost reduction side and sales of assets, we are continuing to do that from KEPCO, but additionally we hope to have a more realistic electricity tariff put into place at the same time. Shannon – Merrill Lynch: Okay, just one follow-up question. Given that the matter [ph] Korea held their interest rates flat, we’re expecting I guess the inflation to sort of like increase going forward. So does that mean the fuel cost pass-through system being released down by same time sooner there is very difficult to achieve going forward? And if so how much of unbilled receivables or revenues are you expecting to your book for the entire 2011? Thank you.

[Foreign Language – Korean] As for the reinstatement of the fuel cost pass-through system, I don’t think we can give you a definite answer regarding that question, because it will all depend on the government’s decision. However from our end, we at KEPRO are doing most in order to make our operations as healthy as can be given the situation. For the second half of this year, your question about how much accounts receivable we expect to bring onto the book. Well since for the second half, the fuel costs related fluctuations we don’t believe that there will be a lot of fluctuation. So the AR that will – we will witness in the second half. We don’t expect it to be an enormous amount. Shannon – Merrill Lynch: All right, thank you.

(Operator Instructions). Jung-in Kim: All right, then. If you have no further questions, we will conclude our conference call today. If you have additional questions, or require any assistance please feel free to contact our IR at any time. Once again thank you for your interest in KEPCO and for joining in this conference call today.