Fitch: Tariff concerns for Korea utilities

Fitch Ratings said it published an inaugural report on the South Korean electric and gas utility sector, noting that there were no significant developments in South Korea's energy sector restructuring in 2007.

The law implementing the restructuring of the industry will expire in 2009, and the agency said it expects the new South Korean administration's stance on reform of these sectors will be a key topic in the year ahead.

Fitch said a key issue facing the South Korean utilities continues to be the effectiveness of the tariff mechanism. For Korea Electric Power Corp. (rated A with stable view), the government's non-adherence to the electricity tariff formula and the uncertainty about the timing and frequency of adjustments continue to be a credit negative, the agency said, as this limits the company's ability to pass on increases in fuel prices to the customers and squeezes its profitability.

Meanwhile, the agency said it expects the government to ease regulations in gas tariff settings for Korea Gas Corp. (Kogas, rated A with stable view) in 2008 so that it can use investment income from exploration and production projects and ease the financing burden arising from planned annual investment for those projects, the agency said.

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