Cecilia Oh – Senior Manager, IR Chang-Keun Shin – VP, Treasury Department

[Foreign Language – Korean] [Interpreted] Good morning and good evening. First of all, thank you all for joining this conference call, and now we will begin the conference of the fiscal year 2012 second quarter earnings results by KEPCO. This conference will start with a presentation, followed by a brief Q&A session. (Operator instructions). Now we shall commence the presentation on the fiscal year 2012 second quarter earnings results by KEPCO.

[Foreign Language – Korean] [Interpreted] Good afternoon, this is Cecilia Oh, Senior Manager of KEPCO's IR team. On behalf of KEPCO, I'd like to thank you all for participating in today's conference call. [Foreign Language – Korean] [Interpreted] I will begin with a brief presentation on our earnings results, which will be followed by a Q&A session. Today’s call will be preceded in both Korean and English. [Foreign Language – Korean] [Interpreted] Please note that the financial information to be disclosed today is on a preliminary, unaudited, unconsolidated basis in accordance with IFRS. Any comparison will be on a year-on-year basis between the second quarter of 2011 and 2012. Business, strategies, plans, financial estimates, and other forward-looking statements included in today’s call will be made based on our current expectations and plans. Please be noted that such statements may involve certain risks and uncertainties. [Foreign Language – Korean] [Interpreted] Now let me begin with an overview of our earnings results, first in Korean and repeated in English. [Foreign Language – Korean] [Interpreted] Now we will provide the overview in English starting with the operating income. In the second quarter of 2012, KEPCO reported a net operating loss of KRW1.96 trillion, the amount of loss of which increased KRW1.76 trillion compared to operating loss of KRW798 billion in 2011. Deterioration in operating gloss was mainly due to increases in operating expenses, such as fuel cost and power purchase cost, which were not fully offset by increases in operating revenues from increase in power sales revenues due to tariff hikes, and increases in power sales volume. Taking a closer look, operating revenues increase 16.4% to KRW10.6 trillion, power sales revenue increased 16.7% totaling in KRW9.9 trillion. This increase was attributable mainly to 10.5% increase in unit tariff, 2.6% growth in power sales, driven by increase in demand from the industrial sector, as well as recognition of account receivables related to the fuel cost adjustment system. Moving on to main operating costs, COGS, selling and administrative expenses went up 25.9% to KRW12.7 trillion. Fuel costs accounted for the major reason of the jump which went up 30.1% to KRW6.3 trillion, primarily due to 2.3% increase in power generation volume, affected by increased power demand and 2.1% and 29.3% hike in unit cost of fuel costs such as coal and LNG respectively. Meanwhile, purchased power cost surged 95.5% to KRW2.9 trillion. Such rise is attributable to 35.6% increase in unit cost of purchased power and 17.7% hike in purchased power volume due to rising power demand. Now let me explain KEPCO’s financial income and expenses in the non-operating segment. Our net financial loss stood at KRW492 billion in the second quarter of 2012, which slightly improved compared to KRW511 billion loss in 2011. This was mainly a result of increases in net FX related gain including translation and transaction related gain and increases in financial derivate gain. The interest expense was up 3.8% to KRW575 billion. Due to increased amount of pretax loss in 2012, income tax expense increased minus KRW374 billion from minus KRW223 billion in 2011 to minus KRW597 billion in 2012. As a result of the foregoing, we recorded consolidated net loss of KRW1.78 trillion in 2012, the amount of loss increased by KRW698 billion, from net loss of KRW1.09 trillion in 2011. This concludes the overview of KEPCO’s earnings results for the second quarter of 2012. [Foreign Language – Korean] [Interpreted] Now let me move on to the Q&A session. I'm joined with KEPCO's IR committee members in charge of finance, tariff, et cetera. We are prepared to take any questions. [Foreign Language – Korean] [Interpreted] Since we will proceed in both Korean and English, all the questions will be translated. So please ensure your questions and answers are brief. [Foreign Language – Korean] [Interpreted] Please begin.

[Foreign Language – Korean] [Interpreted] Please begin. Now Q&A session will begin. (Operator instructions)

[Foreign Language – Korean] [Interpreted] The first question will be given by (inaudible). Please go ahead sir.

[Foreign Language – Korean] [Interpreted] So I have two questions. This question is, what is the amount of account receivable you have accumulated until the second quarter of this year. Second question is, what is the time lag between the actual fuel cost and the market price of a spot commodity.

[Foreign Language – Korean] [Interpreted] So in the second quarter that is from the April to June of this year, the cumulative account receivable from the cost system is KRW618.5 billion. [Foreign Language – Korean] [Interpreted] Next is, answering your second question. Chang-Keun Shin: [Foreign Language – Korean] [Interpreted] My name is Chang-Keun Shin from (inaudible). To answer your second question, I will base my number on the purchase unit price of the cumulus core for the first half of this year which is at $120.47. This level is mix of long term and short term purchase price is significantly different from international stock price but generally we can safely say that there is about $2 to $4 gap.

[Foreign Language – Korean] [Interpreted] The following question is by (inaudible) Securities. Please go ahead madam.

[Foreign Language – Korean] [Interpreted] I have three questions, first question, looking at the oil price in April it seems to go down (inaudible) why is KEPCO's oil prices at similar levels with the first quarter numbers. Second question, although you are implementing the fuel adjustments target system, your next target is multisite already. So if LNG and oil (inaudible) materially, you will not be able to cover that loss because this mix target is fixed. Is there any potential possibility that this mixed target of fuel will be changed and third question is on the nuclear power plant of Shin-Wolsong and Shin-Kori. Shin-Wolsong (inaudible) next year in generally in June with the first nuclear power plant in Shin-Wolsong and Shin-Kori successfully opened this year. So my question is, is there any possibility of delays in the next power out of these nuclear power plants. Chang-Keun Shin: [Foreign Language – Korean] [Interpreted] To answer your first question on the oil price, aviator here because of the Evan crises. The oil prices at March 14, was at its peak (inaudible) at $124.22 per barrel and recently it is true that oil price has gone down rapidly because of the economic price coming from European region. So your question was why the oil price at the same level between the first quarter and the second quarter and the reason is because the plant or the drop in prices is still at a very minimal level.

[Foreign Language – Korean] [Interpreted] Chang-Keun Shin: [Foreign Language – Korean] [Interpreted] To answer your question on the fuel cost tariff adjustment system and (inaudible) is that or fuel mix is defined by the forecast by KP and that forecast is maintained for the following one year. Because of that we cannot reflect to June any fuel mix on our cash adjustment system. We can reflect the price change. So it's not like the gas where we divide the total cost with the total volume.

[Foreign Language – Korean] [Interpreted] And your first question about the establishment of nuclear power plant of Shin-Wolsong Unit 2 which is 1000 megawatt in capacity. That will be launched in January of next year and Shin-Kori Unit 3 is 1400 megawatt in capacity is planned to open by September by next year. So the schedule timeline is set that way and after today there is no region or issue for us to delay that launch. [Foreign Language – Korean] [Interpreted] And to your first question, we do buy from the spot market that there is this issue of delivery and storage so there is typically one two three months in timeline.

[Foreign Language – Korean] [Interpreted] (Operator Instructions). [Foreign Language – Korean] [Interpreted] The following question is by (inaudible) Securities. Please go ahead sir.

[Foreign Language – Korean] [Interpreted] I have three questions. First question is on (inaudible) developing the sixth power plant and what is the CapEx plan for KEPCO going forward that it could be reflected in that sixth plant. And second question, I belief the performance in the second quarter was very much influenced by the purchased price of KEPCO and the private sector is announcing that they would build more generation from in the private sector. So having to fit this, what is your forecast for the power purchase cost going forward. Third question is on the nuclear power plant utilization rate. The utilization rate in the second quarter grows about 84% but with the launch of nuclear power plant, what is your forecast for the nuclear power plant utilization?

[Foreign Language – Korean] [Interpreted] So the nuclear power plant utilization rate in the second quarter was 84%. In our OpEx for the third quarter and the fourth quarter is at 83.9% and 82.1% respectively. The Shin-Kori Unit 2 and Shin-Wolsong Unit 1 was launched in July 20 and July 30 respectively and began its commercial operation. But (inaudible) unit 3 and (inaudible) Unit 4 nuclear power plant will be up maintenance and because that trans maintenance for (inaudible) and for Unit 4 were even grow up. So the utilization is to be remained at low level. [Foreign Language – Korean] [Interpreted] On the sixth power supply and demand plant for KEPCO, that is to be released by end of December, so it's rather early for us to disclose that for the official disclosure. To answer your second question, you probably heard the IPPs or the private power providers get into the coal and nuclear fired power generation business and for IPPs for power plant we have decide to apply adjusted co-efficient for these power plants. So that will serve as a way to curb down the power purchase price for KEPCO. Having said that, we don't know how much of the business intent that are far by the private sector and the government will accept. We don't know whether they accept all of it or not. So it's safe for us to forecast the long term purchase portion for our powers going forward.

[Foreign Language – Korean] [Interpreted] Currently prior participants are holding out their question. The following question will be given by (inaudible) from Morgan Stanley. Please go ahead sir.

[Foreign Language – Korean] [Interpreted] My question is, you have just mentioned that there is about a 1, 2 there is time lag between the price between the stock market and your purchase price. Would that time lag apply identically to LNG and coal? Chang-Keun Shin: [Foreign Language – Korean] [Interpreted] For LNG we buy 100% from coal gas under our long term supply plan. So our price is linked to coal gas purchase price and their purchase price is linked to the oil price and there is typically about 1.5 to 2 months' time lag. [Foreign Language – Korean] [Interpreted] For the tourist call that are typically have long term supply contract and short term contract. For long-term contract is typically three months' time lag and for a spot contract or short term contract, we order fortunately on a two to three months basis. So the time lag is also two to three months.

[Foreign Language – Korean] [Interpreted] The following question is by (inaudible) by KB Investment Securities. Please go ahead sir.

[Foreign Language – Korean] [Interpreted] So I have two questions. The first question is on the fuel cost adjusted cash system. It seems that the base timeline has been changed from in March, April and May to calculate your fuel cost and to my calculation, the expected fuel cost unit price would be 371, is that right? Second question, in the second quarter your account receivable outstanding is negative KRW1.4 trillion. What is your forecast for the end of this year in account receivable. And I have one prior going question, maybe I have missed your comment but you mentioned that you are planning to apply adjusted co-efficient for private core IPP providers when do get appointed by the government and I am sure that that core efficient will be lower than one that you applied to subsidiaries, is that right? Chang-Keun Shin: [Foreign Language – Korean] [Interpreted] To answer your first question of the fuel costs, fuel costs are we use until the end of last year which was the most recent one was KRW351 and the changed fuel cost based on March, April and May is increased to KRW389 which is up by 11%. [Foreign Language – Korean] [Interpreted] To answer your second question, initial forecast for the account receivables at the end of this year was at KRW2.4 trillion but the change in fuel costs we have anticipated that additional KRW1.3 trillion will be added to that account receivable. [Foreign Language – Korean] [Interpreted] I am sorry one adjustment, a KRW1.3 trillion would not be added, but KRW1.3 will be reduced. For the full year the account receivable will be added to the revenues will be KRW1.3. Our expectation was KRW2.4 trillion but they are down to KRW1.3 trillion. [Foreign Language – Korean] [Interpreted] So STS Power and (inaudible) Power has filed for a coal fired power generation for 2014 and 2015. And that plan was included as part of the fifth power supply plan under KEPCO and in last May there was the power market regulation treaty that was held and they decided to apply adjustment coefficient to the IPP. The objective applied is coefficient is to stabilize power price. How much will be stabilized or how much coefficient will be applied is now under consulting project and the result of that consulting project will be available by the end of this year. we don't know at this point as whether to that coefficient level will be lower than our six subsidiaries or higher.

[Foreign Language – Korean] [Interpreted] The following question is by (inaudible) Securities. Please go ahead sir.

[Foreign Language – Korean] [Interpreted] The first question was on your (inaudible) and there is some gap in the actual performance between the official disclosures with the actual or the earnings call. and for the second quarter the gap of KRW450 billion between the disclosure and what has been announced and how can we reduce the gap or try to reduce the gap when we make earnings forecast, we get some ideas. Second question is that your account receivable that you have anticipated for end was KRW4.1 trillion but you have reduced that forecast level to KRW1.3 trillion. With the fuel cost related price increase of KRW389, I think sometime in October there may be some pressure or there may be some factors to even decrease the sale cost or tariff cost. So having said that, what is the cost that we're offsetting accounts receivables for accounts payables and how does that cost us work? Chang-Keun Shin: [Foreign Language – Korean] [Interpreted] So on the first half of this year, the account receivables from the sale cost adjustment past system was KRW1.2 trillion. There has been past change in August 6th of this year and the revenue from that adjustment for July and August 6th is about KRW300 billion and from September to October we will be generating some revenue again and in November and in December, we will have another round of application of the sale cost adjustment tariff and that will somewhat offset account receivables to date and if the net cash, we believe that we will be generating KRW1.3 trillion in revenue from the sales cost adjusted tariff system.

[Foreign Language – Korean] [Interpreted] On our accounting process offset account receivables, put the account payable on our books rather we would deduct that from our receivables and then deduct it from account receivables. Chang-Keun Shin: [Foreign Language – Korean] [Interpreted] So you asked about the difference between the power sales from our metered statement versus our consolidated basis. For the previous one we add all our approved being actuals and reflect our fuel cost adjustment cash system and also we try to forecast unmetered power consumption based on accrued basis. That's the first set of numbers that we released and apart from that, we also have consolidated basis where we adjust the numbers based on internal transaction, internal transaction from water pumping (inaudible) KEPCO's subsidiary companies. That why after consolidation basis, the number is changed. Chang-Keun Shin: [Foreign Language – Korean] [Interpreted] We regret to say that because we set to our balance sheet on a quarterly basis, we are not able to offer that adjusted metering result on a monthly basis because it is only a quarterly basis we reflect this internal transaction and also the numbers after the accrued numbers forecasted based on accrued basis.

[Foreign Language – Korean] [Interpreted] Can you give us two different set of numbers for the one adjusted with accrued basis, accrued accounting basis and one that is based on the metering basis? Chang-Keun Shin: [Foreign Language – Korean] [Interpreted] So if you refer to the presentation we had in earnings conference call there is a line item on the sale cost of account receivables and revenue forecasted and also adjusted on a consolidated basis. If you look at the line items, you're able to separate those two numbers.

[Foreign Language – Korean] [Interpreted] The following question is by (inaudible) from JPMorgan. Please go ahead sir.

[Foreign Language – Korean] [Interpreted] So my first question is, you have given us a guideline on the nuclear power plant utilization rate for the third and fourth quarter. What is your forecast for the next year and when do you anticipate that the utilization rate will recover to the previous level which is at 90 to 95%. Second question, you have achieved this tariff increase and there is also talks of increasing tax once again by the end of this year. The (inaudible) or commitment by the management's team or has there been any bias from the government or some exchange of intent from the government on this count?

[Foreign Language – Korean] [Interpreted] On your first question on the forecast for the nuclear power utilization rate for 2013, we're sorry to say but we don't have the number with us at the moment. We will get back to you with that later. Chang-Keun Shin: [Foreign Language – Korean] [Interpreted] On the tariff system, after the increase of tax by 4.9%, we still have over 10% increases remaining for us. So we also anticipate that this winter will be a difficult season for us again. So we do need to manage demand signaling that demand to our high price and we need to also, that's why we believe this account management is necessary in the future and that's why we want to rigorously manage demand based on seasonal factor and also under time line factor.

[Foreign Language – Korean] [Interpreted] The following question will be given by (inaudible) from Citibank. Please go ahead sir.

I have three questions. The first question is regarding the LNG unit cost. In the second quarter, the LNG unit cost was up about 14% compared to a debt in the first quarter. So that increment was high then, there can maybe this guidance almost a reason for the sharp increase in LNG unit cost in the second quarter and what's the management expectation for the LNG unit cost in third and fourth quarter this year. That's question number one. Question number two is that, for the power generation from nuclear power point, there was 14.8% of your total output in the second quarter. As we have two nuclear power plant, each 1,000 megawatt to start operating in second half this year. so what's the expectation for this percentage in third quarter and fourth quarter. And the last question is that I would like to confirm the account receivable under the actual mechanism. By the end of the first half of this year, what's the outstanding KRW1.4 trillion and for the second half this year, the management guide an increment of KRW300 billion so that by the end of this year, the outstanding will be KRW1.7 trillion. I would like to confirm this three number. Thank you.

[Foreign Language – Korean] [Interpreted] To answer your question about the power plant output. We regret to say that we don't have numbers for the third and fourth quarter of 2012. However our numbers for the first half of this year, just from January to June for our sixth GENCO was 33.6%. NOI number for 2012 is at 34% level. That's our forecast for 2013 is increased at 38%. [Foreign Language – Korean] [Interpreted] To answer your second question on the LNG unit cost for the second quarter, in the second quarter LNG unit cost has increased by 29% year-on-year and we purchased our LNG from Coal Gas and we have contract with them and that purchase price is linked to the oil price and JCC. If you look at JCC price trend, it has maintained a very high level through up until May and is at a trend of declining. [Foreign Language – Korean] [Interpreted] If you look at JCC's trend, they are about three months lagging index in terms of compare to Dubai oil pricing. So for KEPCO, we believe that the LNG unit market in the third and fourth quarter were declined and the number is currently at KRW1,080,000 per ton but in the fourth quarter we believe that would decline to KRW880,000. Chang-Keun Shin: [Foreign Language – Korean] [Interpreted] As you have heard that we believe the LNG and oil price will start declining in the second half of this year and accordingly the fuel cost adjustment tariff system will peak in October and starting declining in November and in December. So the outstanding account receivable we anticipate at the end of this year would be at KRW1.3 trillion.

I would like to confirm if by the end of this year, KRW1.3 trillion so what's the amount at the moment? Chang-Keun Shin: [Foreign Language – Korean] [Interpreted] So let me summarize that. By end of 2011, the total accumulated account receivable was KRW358.3 billion. The total accumulated account receivable during January to tune of 2012 was KRW1.50 trillion. So if you add those two numbers, it will be KRW1.4 trillion up until today. Our anticipation for the account receivable accrued during January of this year till December of this year will be KRW1.3 trillion. So the outstanding account receivable from last year which is KRW358.3 billion will still be made.

Can I confirm, by the end of June this year was 1.4 trillion and you just said that by the end of this year was 1.3. So the change in second half this year, was it minus 0.1 trillion

[Foreign Language – Korean] [Interpreted] So up until this first half of this year, the total account receivable that was added to the book was KRW1 trillion. So all you need to do for the second half of this year is to add another KRW300 billon.

Okay, so by the end of this year, it should KRW1.7 trillion.

[Foreign Language – Korean] [Interpreted] Yes, that's right.

If we have aimed high say early next year, would this amount be reduced? Chang-Keun Shin: [Foreign Language – Korean] [Interpreted] Well all the account receivable that we have accrued until today will not be changed. It is rather fixed amount. However going forward with may accumulate account payable instead and that maybe applied as a deduction.

And one number that you just mentioned regarding output from nuclear plant? Did you mentioned the 38% next year so it would be 4 percentage point high than this year 34%. I am right?

[Foreign Language – Korean] [Interpreted] Yes, that's right.

[Foreign Language – Korean] [Interpreted] The following question is by (inaudible) Securities. Please go ahead madam.

[Foreign Language – Korean] [Interpreted] The first question is, you have mentioned that (inaudible) Unit 4 is at its plant's stoppage and we'll go through maintenance and repair until the end of this year. then do you believe there will be ready to start operation in next year? what is the possibility of these two nuclear power plant being in operation early next year. Second question is on your generation volume and sales volume. If you look at the gap between the generation volume where the sales volume there is about 7% difference whereas the generation volume is higher. Typically we see this kind of gap in the fourth quarter, but it’s unusual to see this kind of huge gap in these first, second and third quarter. Why is this? Is this because of the power shortage and because there are many power generations waiting to supply? What would be the reason behind this?

[Foreign Language – Korean] [Interpreted] If you use our plants for the power plant maintenance (inaudible) Unit 4 is scheduled for its planned maintenance and repair until December of 2012 whereas and (inaudible) Unit 4 is schedule to be under maintenance and repair until August of 2013. Chang-Keun Shin: [Foreign Language – Korean] [Interpreted] The gap between the generation volume and the actual sales volume arises from mainly two factors. First factor being the generation lost inside of a power plant and second from the transmission lost. Typically transmission loss ratio would be 2 to 3%. But I don't have the number for the power loss ratio for power lost within the power plant generation.

[Foreign Language – Korean] [Interpreted] I have one follow-up question. First is that how do you forecast power supply going forward? How do you anticipate the power supply for the next year? do you think the power work if you would improve? Chang-Keun Shin: [Foreign Language – Korean] [Interpreted] We anticipate that the power supply until winter of 2013 will be very challenging, but afterward we will be having additional base generators. So I believe starting in summer of 2014, the situation will significantly improve.

[Foreign Language – Korean] [Interpreted] The following question is by (inaudible) Securities. Please go ahead sir.

[Foreign Language – Korean] [Interpreted] I have three questions. First question is on the fuel cost adjusted tariff system. When we first set out to implement this new system, our initial intention I believe was to give you a fair value in the invested capital, to give you a capital margin that is, but we don't see that on your financial performance. When we had this 4.9% tariff hike or increase, what was this implication of this? Is it to guarantee a fair rate of return to KEPCO or was it to merely cover the fuel costs that you're buying from the market? How do you interpret an implementation of fuel cost adjusted tariff system. And second, I believe Japan is implementing a similar system. Do you believe this fuel cost tariff system is in line with trends in other market? And third, on the fuel cost question. If the fuel cost adjusted tariff system is implemented to cover the fuel cost, what is the difference do you see now that you have this new system in place? What was the difference from before implementing it and after implementing it? Chang-Keun Shin: [Foreign Language – Korean] [Interpreted] To answer your first question, I believe it was not implemented to compensate or give us a fair rate of return on our capital in the first place. It was merely to reflect the change in fuel cost on our tariff system. [Foreign Language – Korean] [Interpreted] And you mentioned about similarities with Japan, Japan first adopted this system in 1996 and went through management in 2009. We have benchmarked Japanese case and we are similar in implementing the fuel cost adjusted tariff system. [Foreign Language – Korean] [Interpreted] When I say we are similar with Japan, we use the concept of base fuel cost and natural fuel cost with three months building average fuel cost applied to all of this concept and we apply that with two months' time lag. [Foreign Language – Korean] [Interpreted] The difference with the previous system is that in the past, we perfected this new fuel cost once we started that on our accounting book and the adjusted fuel cost was only applied in the following year. so there was typically six months to one year time lag. [Foreign Language – Korean] [Interpreted] And one key change would be that with the implementation of fuel cost adjusted tariff system we can signal the market with changing fuel price. The fuel prices reflected every two to three months and that would be receptive in the tariff. [Foreign Language – Korean] [Interpreted] Second is that we are seeing the regulation acting in two different aspects by implementing this new fuel cost adjusted tariff system. First, we are able to reflect the changing fuel costs, our cost structure on a regular basis, therefore get a fair compensation for changing fuel costs and also the remaining compensation will come from total fuel cost basis. So separating these two functions from a regulatory perspective is the impact we gained from this new system.

[Foreign Language – Korean] [Interpreted] Currently there are no participants to question. (Operator Instructions). the final question will be given by (inaudible) from UBS Securities. Please go ahead sir.

[Foreign Language – Korean] [Interpreted] You have mentioned the LNG unit price forecast for the third and fourth quarter, can you also share the unit price numbers for the (inaudible) and oil.

[Foreign Language – Korean] [Interpreted] For (inaudible), our forecast for the third and fourth quarter is at KRW117,000 and KRW111,000 respectively. [Foreign Language – Korean] [Interpreted] For oil, we anticipate the oil price to be 851 per liter in the third quarter and KRW818 per liter in the fourth quarter. [Foreign Language – Korean] [Interpreted] We will now close our second quarter earnings conference call if you have no further questions. And once again thank you for joining us today.