KOREA ELECTRIC POWER CORPORATION

Kwak, Jin-Eob

Standing Auditor

Hwang, Suk-Hee

Non-Standing Auditor

Yang, Seung-Sook

Non-Standing Auditor

20-F 1 u99888e20vf.htm KOREA ELECTRIC POWER CORPORATION KOREA ELECTRIC POWER CORPORATION

As filed with the Securities and Exchange Commission on June 30, 2005

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 20-F


(Mark One)
o		REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

þ		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

		For the fiscal year ended December 31, 2004

OR

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

		For the transition period from to

Commission File Number: -

KOREA ELECTRIC POWER CORPORATION

(Exact name of registrant as specified in its charter)


N/A		The Republic of Korea
(Translation of registrant’s name into English)		(Jurisdiction of incorporation or organization)

167 SAMSEONG-DONG, GANGNAM-GU, SEOUL 135-791, KOREA

(Address of principal executive offices)

Securities registered or to be registered pursuant to Section 12(b) of the Act:


Title of each class:		Name of each exchange on which registered:

Common stock, par value Won 5,000 per share*		New York Stock Exchange
American depositary shares, each representing one-half of share of common stock		New York Stock Exchange


*	Not for trading, but only in connection with the listing of American depositary shares on the New York Stock Exchange, pursuant to the requirements of the Securities and Exchange Commission.

Securities registered or to be registered pursuant to Section 12(g) of the Act:

None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

7³/4% Debentures due April 1, 2013

Twenty Year 7.40% Amortizing Debentures, due April 1, 2016

One Hundred Year 7.95% Zero-to-Full Debentures, due April 1, 2096

6% Debentures due December 1, 2026

7% Debentures due February 1, 2027

6³/4% Debentures due August 1, 2027

4.25% Notes due September 12, 2007

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the last full fiscal year covered by this Annual Report:

640,748,573 shares of common stock, par value of Won 5,000 per share

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days:

Yes þ No o

Indicate by check mark which financial statement item the registrant has elected to follow:

Item 17 o Item 18 þ

TABLE OF CONTENTS


		Page

CERTAIN DEFINED TERMS			3
FORWARD-LOOKING STATEMENTS			3
PART I			4
ITEM 1.	IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS		4
ITEM 2.	OFFER STATISTICS AND EXPECTED TIMETABLE		4
ITEM 3.	KEY INFORMATION		4
	Selected Financial Data		4
	Risk Factors		7
ITEM 4.	INFORMATION ON THE COMPANY		13
	History And Development		13
	Business Overview		17
	Property, Plants and Equipment		46
ITEM 5.	OPERATING AND FINANCIAL REVIEW AND PROSPECTS		46
	Operating Results		46
	Liquidity And Capital Resources		53
	Research And Development, Patents And Licenses, Etc.		62
	Trend Information		62
ITEM 6.	DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES		62
	Directors And Senior Management		62
	Employees		66
	Corporate Governance		67
ITEM 7.	MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS		69
	Major Shareholders		69
	Related Party Transactions		69
ITEM 8.	FINANCIAL INFORMATION		70
	Consolidated Statements And Other Financial Information		70
ITEM 9.	THE OFFER AND LISTING		71
ITEM 10.	ADDITIONAL INFORMATION		78
	Articles of Incorporation		78
	Exchange Controls		83
	Taxation		88
	Documents On Display		97
ITEM 11.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		97
ITEM 12.	DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES		103
PART II			103
ITEM 13.	DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES		103
ITEM 14.	MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS		103
ITEM 15.	CONTROLS AND PROCEDURES		103
ITEM 16A.	AUDIT COMMITTEE FINANCIAL EXPERT		104
ITEM 16B.	CODE OF ETHICS		104
ITEM 16C.	PRINCIPAL ACCOUNTANT FEES AND SERVICES		104


		Page

ITEM 16D.	EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEE		105
ITEM 16E.	PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS		105
PART III			105
ITEM 17.	FINANCIAL STATEMENTS		105
ITEM 18.	FINANCIAL STATEMENTS		105
ITEM 19.	EXHIBITS		106
EX-1.1 ARTICLES OF INCORPORATION
EX-12.1 CERT OF CEO PURSUANT TO RULE 13A-14(A)
EX-12.2 CERT OF CFO PURSUANT TO RULE 13A-14(A)
EX-13.1 CERT OF CEO PURSUANT TO RULE 13A-14(B)
EX-13.2 CERT OF CFO PURSUANT TO RULE 13A-14(B)
EX-15.1 CONSENT OF KPMG SAMJONG ACCOUNTING CORP
EX-15.2 CONSENT OF DELOITTE HANAANJIN LLC
EX-15.3 CONSENT OF KPMG SAMJONG ACCOUNTING CORP
EX-15.4 CONSENT OF AHN KWON & CO
EX-15.5 CONSENT OF DELOITTE HANAANJIN LLC
EX-15.6 CONSENT OF ERNST & YOUNG HAN YOUNG
EX-15.7 CONSENT OF DELOITTE HANAANJIN LLC
EX-15.8 CONSENT OF DELOITTE HANAANJIN LLC
EX-15.9 CONSENT OF AHN KWON & CO.
EX-15.10 CONSENT OF DELOITTE HANAANJIN LLC

CERTAIN DEFINED TERMS

All references to “Korea” or the “Republic” in this report are references to The Republic of Korea. All references to the “Government” in this report are references to the government of the Republic. All references to “we”, “us”, the “Company” or “KEPCO” in this report are references to Korea Electric Power Corporation and, as the context may require, its subsidiaries. All references to “tons” are to metric tons, equal to 1,000 kilograms, or 2,204.6 pounds. Any discrepancies in any table between totals and the sums of the amounts listed are due to rounding. All references to “Korean GAAP” in this report are references to the generally accepted accounting principles in Korea, and all references to “U.S. GAAP” are references to the generally accepted accounting principles in the United States.

FORWARD-LOOKING STATEMENTS

This Annual Report on Form 20-F includes future expectations, projections or “forward-looking statements” (as defined in Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934). The words “believe”, “expect”, “anticipate”, “estimate” and similar words identify forward-looking statements. In addition, all statements other than statements of historical facts included in this report are forward-looking statements. Although we believe that the expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such expectations will prove to have been correct. “Cautionary Statements”, or important factors that could cause actual results to differ materially from our expectations, are disclosed in this report. All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the Cautionary Statements.

PART I


ITEM 1.	*IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS*

Not applicable.


ITEM 2.	*OFFER STATISTICS AND EXPECTED TIMETABLE*

Not applicable.


ITEM 3.	*KEY INFORMATION*

SELECTED FINANCIAL DATA

The following table sets forth the selected financial data. The selected consolidated financial data in the table have been derived from our consolidated financial statements for each of the years in the five-year period ended December 31, 2004. The consolidated financial statements for the years ended December 31, 2002 and 2003 have been audited by Deloitte HanaAnjin LLC, a member firm of Deloitte Touche Tohmatsu. Deloitte HanaAnjin LLC are Korean independent certified public accountants. The consolidated financial statements for the year ended December 31, 2004 have been audited by KPMG Samjong Accounting Corp., a Korean corporation which is a member of KPMG International, a Swiss cooperative, our current independent registered public accounting firm. KPMG Samjong Accounting Corp. are Korean independent certified public accountants. The selected consolidated financial data should be read in conjunction with our consolidated financial statements and Notes thereto as of December 31, 2000, 2001, 2002, 2003 and 2004 and for each of the years in the five-year period ended December 31, 2004.

Our financial statements are prepared in accordance with the Korea Electric Power Corporation Act, the accounting regulations for Government-invested enterprises and Korean GAAP, which differ in certain significant respects from U.S. GAAP. See Item 5 “Operating and Financial Review and Prospects — Liquidity and Capital Resources — Reconciliation to U.S. GAAP” and Note 32 of the notes to our consolidated financial statements.

Consolidated Statement of Earnings Data


		Year Ended December 31,

		2000		2001		2002		2003		2004		2004

		(Won in billion and US$ in million, except per share data)
Amounts in Accordance with Korean GAAP(1):
Operating revenues		W	18,708	W	20,225	W	21,366	W	22,775	W	23,956		$23,143
Operating expenses			15,238		16,236		16,319		17,551		19,488		18,827
Operating income			3,470		3,989		5,047		5,224		4,467		4,316
Income before income taxes and minority interest			2,205		2,932		5,171		4,110		4,700		4,540
Income taxes			721		1,293		2,104		1,763		1,795		1,734
Net income			1,483		1,635		3,048		2,323		2,883		2,785
Earnings per share
	Basic		2,320		2,559		4,770		3,686		4,576		4.42
	Diluted		2,319		2,559		4,770		3,677		4,510		4.36
Earnings per ADS
	Basic		1,160		1,280		2,385		1,843		2,288		2.21
	Diluted		1,160		1,280		2,385		1,839		2,255		2.18
Dividends per share held by public			600		550		800		1,050		1,150		1.11
Dividends per share held by Government			450		550		800		1,050		1,150		1.11


		Year Ended December 31,

		2000		2001		2002		2003		2004		2004

		(Won in billion and US$ in million, except per share data)
Amounts in Accordance with U.S. GAAP(3):
Operating revenue		W	18,983	W	20,256	W	21,373	W	22,781	W	23,995	W	23,182
Operating income			5,595		5,835		6,514		4,985		4,815		4,652
Net income			2,796		3,287		3,573		4,552		3,535		3,415
Earnings per share
	Basic		4,376		5,144		5,591		7,221		5,612		5.42
	Diluted		4,340		5,144		5,591		7,204		5,529		5.34
Earnings per ADS
	Basic		2,170		2,572		2,796		3,611		2,806		2.71
	Diluted		2,188		2,572		2,796		3,602		2,765		2.67
Other Data:
Ratio of earnings to fixed charges(2):
Korean GAAP			1.9		2.5		4.2		4.1		4.6		4.6
U.S. GAAP(3)			2.5		3.6		4.8		6.0		5.0		5.0

Consolidated Balance Sheet Data


	As of December 31,

	2000			2001			2002			2003			2004			2004

	(Won in billion, US$ in million)
Amounts in Accordance with Korean GAAP:
Net working capital deficit(4)	W	(5,695	)	W	(3,561	)	W	(5,192	)	W	(4,056	)	W	(2,291	)		$(2,214	)
Net utility plant in service		48,450			49,440			53,527			51,820			55,809			53,917
Construction in progress		10,653			11,154			7,777			9,551			7,517			7,262
Total assets		65,920			70,562			70,512			71,727			73,654			71,156
Total stockholders’ equity		32,059			33,182			35,562			37,782			40,602			39,225
Capital stock		3,201			3,201			3,201			3,204			3,204			3,095
Long-term debt		20,460			22,089			17,671			15,814			15,073			14,562
Other liabilities-long term liabilities		4,148			6,005			7,173			7,992			9,719			9,390
Amounts in Accordance with U.S. GAAP:
Total assets		57,404			62,591			62,297			65,380			65,310			63,096
Total stockholders’ equity		21,437			24,162			27,291			31,163			33,747			32,603


(1)	See Item 5 “Operating and Financial Review and Prospects — Operating Results” for discussion of certain changes in Korean GAAP.

(2)	For purposes of computing ratios of earnings to fixed charges, earnings consist of earnings before income tax and fixed charges. Fixed charges consist of interest expense (including capitalized interest) and amortization of bond discount and issue expenses.

(3)	For discussion of significant difference between the application of Korean GAAP and U.S. GAAP, see Item 5 “Operating and Financial Review and Prospects — Liquidity and Capital Resources — Reconciliation to U.S. GAAP” and Note 32 of the notes to our consolidated financial statements.

(4)	Net working capital means current assets minus current liabilities.

Currency Translations and Exchange Rates

In this report, unless otherwise indicated, all references to “Won” or “W” are to the currency of the Republic, and all references to “U.S. Dollars”, “Dollars”, “$”, “U.S.$” or “US$” are to the currency of the United States of America. Unless otherwise indicated, all translations from Won to Dollars were made at W1,035.10 to US$1.00, which was the noon buying rate in The City of New York for cable transfers in Won per US$1.00 as certified for customs purposes by the Federal Reserve Bank of New York (the “Noon Buying Rate”) on December 31, 2004. On June 24, 2005, the Noon Buying Rate was W1,013.50 to US$1.00. No representation is made that the Won or U.S. Dollar amounts referred to in this report could have been or could be converted into Dollars or Won, as the case may be, at any particular rate or at all.

The following table sets forth, for the periods and dates indicated, certain information concerning the Noon Buying Rate in Won per US$1.00.


Year Ended December 31,		At End of Period		Average(1)		High		Low

		(Won per US$1.00)
2000			1,267.00		1,130.90		1,267.00		1,105.50
2001			1,313.50		1,292.00		1,369.00		1,234.00
2002			1,186.30		1,250.40		1,332.00		1,160.60
2003			1,192.00		1,192.10		1,262.00		1,146.00
2004			1,035.10		1,139.30		1,195.10		1,035.10
2005 (through June 24)			1,013.50		1,014.80		1,058.00		997.00
	January		1,026.90		1,038.00		1,058.00		1,024.00
	February		1,000.90		1,023.10		1,044.00		1,000.90
	March		1,015.40		1,007.80		1,023.90		997.50
	April		997.00		1,010.10		1,019.00		997.00
	May		1,005.00		1,001.80		1,009.00		997.00
	June (through June 24)		1,013.50		1,009.60		1,016.00		1,003.00


(1)	The average of the Noon Buying Rates over the relevant period.

RISK FACTORS

Our business and operations are subject to various risks, many of which are beyond our control. If any of the risks described below actually occurs, our business, financial condition or results of operations could be seriously harmed.

Risks Relating to KEPCO


	*The Government’s Plan for restructuring the electricity industry in Korea (the “Restructuring Plan”) may have a material adverse effect on us.*

On January 21, 1999, the Ministry of Commerce, Industry and Energy (the “MOCIE”) announced the Restructuring Plan for the electricity industry in Korea. For a detailed description of the Restructuring Plan, see Item 4 “Information on the Company — Business Overview — Restructuring of the Electricity Industry in Korea”.

The Government promulgated the Law on Promotion of Restructuring of Electricity Industry (the “Restructuring Law”) and amended the Electricity Business Law on December 23, 2000, which allowed us to implement the Restructuring Plan. Pursuant to the Restructuring Law:


	•	on April 2, 2001, the Government established the Korea Power Exchange to deal with the sale of electricity and to work out regulations governing the electricity industry to allow for electricity distribution through a competitive bidding process;

	•	on April 2, 2001, the Government established a competitive bidding pool system for the sale and purchase of electricity; and

	•	on April 27, 2001, the Government established the Korean Electricity Commission to regulate the restructured Korean electricity industry and to ensure fair competition.

On February 23, 2001, our board of directors approved a new plan to split our non-nuclear and non-hydroelectric generating capacity into five wholly owned generation subsidiaries and our nuclear and hydroelectric generating capacity into a separate wholly-owned generation subsidiary. On March 16, 2001, our shareholders approved the plan to establish the generation subsidiaries and the allocation of our assets and liabilities to such generation subsidiaries, effective as of April 2, 2001.

In September 2003, a Joint Study Group on Reforming Electricity Distribution Network was established under the Tripartite Commission to propose a methodology of introducing distribution competition within the industry. Members of the Tripartite Commission include, among others, representatives from the Government and the labor union. In June 2004, based on the conclusion published by this Joint Study Group, the Tripartite Commission issued a resolution which recommended halting the plan to form and privatize the distribution subsidiaries. Instead, this resolution recommended the creation of independent business divisions within KEPCO, namely, Strategy Business Units, each with more autonomy and independence, to introduce internal competition among the business divisions and improve efficiency. This resolution was adopted by the MOCIE on June 17, 2004. Accordingly, we have been conducting research in preparation of implementing the new revised plan, which we expect to be completed in early 2006. Failure to successfully implement the revised plan could have an adverse effect on our business, results of operations and financial condition.

The Restructuring Plan still contemplates that we eventually dispose of our interests in our generation subsidiaries (excluding our nuclear and hydroelectric power generation subsidiary). In April 2002, the MOCIE released the basic privatization plan for five of our generation subsidiaries, excluding our nuclear and hydroelectric power generation subsidiary. In 2002, we commenced the sale of Korea South-East Power Co., Ltd. (“KOSEPCO”). According to the original privatization plan, the process of selling KOSEPCO was either to sell its management control or conduct an initial public offering. Due to market conditions, the process of selling KOSEPCO has tentatively been delayed. The aggregate foreign ownership of our generation subsidiaries will be limited to 30% of total power generation capacity in Korea. We cannot assure you as to the timing or the extent to which our divestiture will occur. In addition, it is possible that Korean law relating to anti-competitive practices as existing at that time may affect the manner in which we conduct our business through such subsidiaries.


	*Increase in fuel prices will adversely affect our results of operations and profitability.*

Fuel costs constituted 27.6% and 33.9% of our operating revenues and operating expenses, respectively, for the year ended December 31, 2004. Our generation subsidiaries purchase substantially all of the fuel that they use (except for anthracite coal) from a small number of suppliers outside Korea at prices determined in part by prevailing market prices in currencies other than Won. In addition, our generation subsidiaries purchase a significant portion of their fuel requirements under contracts with limited quantity and duration. Pursuant to the terms of our long-term supply contracts, prices are adjusted annually in light of market conditions. See Item 4 “Information on the Company — Business Overview — Fuel”. Most of the bituminous coal requirements are imported from China, Australia, Indonesia, Canada, Russia and the United States under long-term contracts. Approximately 38%, 26% and 25% of the annual bituminous coal requirements of our generation subsidiaries in 2004 were imported from Australia, Indonesia and China, respectively. Approximately 77.1% of the combined bituminous coal requirements of our generation subsidiaries are purchased under long-term contracts and 22.9% purchased on the spot market. Recently, due to increase in domestic demand in China and elsewhere in the world, the prices of bituminous coal have soared. As a result of this price increase and the effects of rising shipping cost for bituminous coal, our generation subsidiaries will be unable to secure their respective bituminous coal supply at prices comparable to those of prior periods. In addition, any significant interruption or delay in the supply of fuel, bituminous coal in particular, from any of the suppliers could cause our generation subsidiaries to purchase fuel on the spot market at prices higher than contracted, resulting in an increase in our fuel cost. In addition, there have been recent increases in oil prices, resulting in higher fuel cost. In May 2005, the price of oil (Dubai) exceeded US$44 per barrel as compared to an average of US$33.67 per barrel in 2004. Because the Government regulates the rates we charge for electricity we sell (see Item 4 “Information on the Company — Business Overview — Rates”), our ability to pass on such cost increases to our customers is limited. We estimate that the recent increase in fuel prices has had a material adverse effect on our results of operations and profitability in 2005 to date. We expect fuel prices to remain high throughout 2005. Accordingly, we expect our operating income and net income may be adversely impacted.


	*The impact of Won depreciation may have a material adverse effect on us.*

The depreciation of Won against the U.S. dollar or the Japanese Yen in the past had a material effect on the cost of servicing our foreign currency debt and the cost of our purchases of fuel materials and equipment from overseas sources. As of December 31, 2004, approximately 27% of our debt was denominated in foreign currencies, principally in Dollars and Yen. The prices for substantially all of the fuel materials and a significant portion of the equipment we purchase are stated in currencies other than Won, generally in Dollars. Since substantially all of our revenues are denominated in Won, we must generally obtain foreign currencies through foreign-currency denominated financings or through the conversion of Won to effect such purchases or service such debt. As a result, any significant depreciation of the Won against the Dollar or other foreign currencies will adversely impact us.


	*Labor unrest may materially and adversely affect our operations.*

As of December 31, 2004, approximately 62.1% of the employees of our generation subsidiaries were members of the Korean Power Plant Industry Union. The Restructuring Plan and the privatization plan for our non-nuclear generation subsidiaries have generated labor unrest. Labor unions to which our employees belong have voiced their opposition to the Restructuring Plan from its very inception. In particular, the prospect of privatizing some of our core assets has raised concerns among some of our employees. On February 25, 2002, employees belonging to labor unions of our five non-nuclear generation subsidiaries commenced a six-week strike to protest the Government’s plans to privatize our five non-nuclear generation subsidiaries. The Korean Confederation of Trade Unions (“KCTU”), the second-largest governing body of labor unions in Korea with over 600,000 members, negotiated with the Government on behalf of the labor unions. After prolonged negotiations with the Government, KCTU directed the labor unions of our five non-nuclear generation subsidiaries to end their strike on April 2, 2002. We cannot assure you that a large-scale strike will not occur again in the future, or that any such labor unrest will be satisfactorily resolved. Such labor unrest may adversely affect our results of

operations, including by severely disrupting the power supply as well as substantially hindering the implementation of the Restructuring Plan.


	*Inherent in the operation of nuclear power generation facilities are numerous hazards risks, any of which could result in a material loss of revenues or increased expenses.*

Through Korea Hydro & Nuclear Power Co., Ltd. (“KHNP”), our wholly-owned nuclear subsidiary, we currently operate 19 nuclear-fuel generating units. The operation of nuclear power plants is subject to certain hazards, including environmental hazards such as leaks, ruptures and discharge of toxic and radioactive substances and materials. These hazards can cause personal injuries or loss of life, severe damage to or destruction of property and natural resources, pollution or other environmental damage, clean-up responsibilities, regulatory investigation and penalties and suspension of operations. Nuclear power has a stable and low cost structure that forms the base load and is the largest source of Korea’s electricity supply accounting for 38.2% of electricity generated in Korea in 2004. Due to significantly lower fuel costs as compared with conventional power plants, our nuclear power plants are in general operated at full capacity with only routine shutdowns for check-up and overhaul consisting of 30 to 40 days. In December 2003, in response to concerns of potential exposure to radioactive materials arising from a release incident, we shut down Younggwang-5, one of our nuclear power plants for assessment, inspection and overhaul. This nuclear power plant resumed its operations on April 28, 2004. In November 2003, we shut down Younggwang-6, another of our nuclear power plants for planned overhaul, during which a mechanical problem was discovered giving rise to concerns as to its safety. After the overhaul, this nuclear power plant resumed its operations on April 6, 2004. The breakdown, failure or suspension of operation of a nuclear unit could result in a material loss of revenues, increase in fuel costs from alternative power sources and/or additional costs to repair, which could have a material adverse impact on our financial conditions and results of operation.


	*Opposition to the construction and operation of nuclear-fuel generating units may have adverse effect on us.*

In 2004, 38.2% of the electricity generated in Korea was generated by nuclear generating units. In recent years, we have encountered increasing opposition in the Republic to the construction and operation of nuclear generating units. Although the Government and we have undertaken various community development programs to address concerns of residents of areas near nuclear units, community opposition to the construction and operation of nuclear units could result in construction delay or relocation of planned nuclear units which could have a material adverse impact on us. See Item 4 “Information on the Company — Business Overview — Power Generation — KHNP”, “Business Overview — Environment and Community Programs” and “Business Overview — Insurance”.


	*Insurance coverage may not be sufficient.*

Risks of substantial liability arise from the operation of nuclear-fueled generating units and from the use and handling of nuclear fuel and possible radioactive emissions associated with such nuclear fuel. While KHNP carries insurance for its generation units and is the beneficiary of a certain Government indemnity with respect to such risks, the amounts and coverage thereof are limited and do not cover all types or amounts of loss which could arise in connection with the ownership and operation of nuclear plants, and material financial consequences could result from a significant accident.

Our non-nuclear generation subsidiaries carry insurance covering key assets and equipments located at their respective power plants against certain risks, including fire, construction-in-progress, imported fuel and procurement in transit and directors’ and officers’ liability. These insurance and indemnity, however, cover only a portion of the assets that our generation subsidiaries own and operate and do not cover all types or amounts of loss that could arise in connection with the ownership and operation of these power plants. In addition, unlike KHNP or us, our non-nuclear generation subsidiaries are not permitted to self-insure, and accordingly have not self-insured, against risks of their uninsured assets or business. Accordingly, material and adverse financial consequences could result from a significant accident.

Because we and our non-nuclear generation subsidiaries do not carry insurance against terrorist attacks, in the event of an act of terrorism, the coverage amount for their properties may not be enough. See Item 4 “Information on the Company — Business Overview — Insurance”.


	*We anticipate that we need to incur additional indebtedness, which may be substantial, for future capital expenditures.*

We anticipate that additional indebtedness, which may be substantial, will be required through the years in order to refinance existing debt and to make capital expenditures for construction of generation plants and other facilities. We expect that certain portion of our long-term debt will need to be raised through foreign currency borrowings and in international capital markets. It is possible that the cost at which such financing may be provided may not be acceptable to us.


	*We may not be able to raise equity capital in the future without the participation of the Government.*

The Korea Electric Power Corporation Act (the “KEPCO Act”) requires that the Government, directly or pursuant to The Korea Development Bank Act (the “KDB Act”), through The Korea Development Bank (a statutory banking institution wholly-owned by the Government), own at least 51% of our capital stock. As of March 31, 2005, Government, directly or through The Korea Development Bank (“KDB”), owned 54% of our issued capital. Accordingly, without changes in the existing Korean law, it will be difficult or impossible for us to undertake any equity financing in the future (other than sales of treasury stock) without the participation of the Government.

Risks Relating to Korea and the Global Economy


	*Adverse developments in Korea could adversely affect us.*

Beginning in late 1997, Korea experienced a significant financial and economic downturn which resulted in, among other things, a significant increase in the number and size of Korean companies filing for corporate reorganization and protection from their creditors. Although it is believed that the country’s economy has recovered to a certain extent, there can be no assurance that the recovery will continue or that Korea’s economy will not experience any adverse developments in the future. In addition, as recently acknowledged by the Korean government, the Korean economy has been experiencing a recession which had and is expected to continue to have a material impact on our operations.

Adverse economic developments in the Republic have had, and may have in the future, a significant impact on us. In general, the rate of growth in electricity demand in Korea has shown a proportionate positive correlation to the rate of growth in the overall economy, reflected in such measures as GDP. As a consequence of adverse economic conditions in Korea, the rate of growth in demand for electricity declined significantly in late 1997 and during 1998. Total demand for electricity increased by 11.8% in 2000 as compared to 1999, by 7.6% in 2001 as compared to 2000, by 8.0% in 2002 as compared to 2001, by 5.4% in 2003 as compared to 2002, and by 6.3% in 2004 as compared to 2003.

Developments that could hinder the Republic’s economy include the following:


	•	social and labor unrest resulting from lay-offs, increasing unemployment and lower levels of income;

	•	a decrease in tax revenues and a substantial increase in the Government’s expenditures for unemployment compensation and other social programs that together are expected to lead to an increased Government budget deficit;

	•	volatility in commodity prices (including oil prices), foreign currency reserve levels, exchange rates, interest rates and the stock market;

	•	increased reliance on exports to service foreign currency debts, which could cause friction with the Republic’s trading partners;


	•	the current financial problems of certain former and current companies of Korean conglomerates, or chaebols, as well as companies which conduct business with those chaebols, or the failure of restructuring of chaebols, and their potential impact on the Republic’s financial sector;

	•	political uncertainty or increasing strife among or within political parties in Korea;

	•	continued adverse developments in the economies of countries to which the Republic exports goods and services (such as the United States and Japan), or in emerging market economies in Asia or elsewhere; and

	•	a deterioration in economic or diplomatic relations between the Republic and its trading partners or allies, including such deterioration resulting from trade disputes or disagreements in foreign policy.


	*Tensions with North Korea could have an adverse effect on us.*

Relations between Korea and the Democratic People’s Republic of Korea (“North Korea”) have been tense over most of Korea’s history. The level of tension between Korea and North Korea has fluctuated and may increase or change abruptly as a result of current and future events, including ongoing contacts at the highest levels of the governments of Korea and North Korea and increasing hostility between North Korea and the United States. This level of tension has increased recently as a result of public announcements that North Korea had developed and was in possession of nuclear weapons and that it may be planning an underground nuclear test. It also announced its indefinite withdrawal from further six-party talks which members include Korea, North Korea, the United States, China, Japan, and Russia. Representatives of Korea, the United States, China, Japan and Russia are currently making collaborative efforts to resume the six-party talks, however, future prospects for the six-party talks appear uncertain. Any further increase in tensions, resulting for example from a break-down in contacts or an outbreak in military hostilities, could hurt our business, results of operations and financial condition and could lead to a decline in the price of our common stock and our American depositary shares.


	*Unemployment and labor unrest in Korea may adversely affect our operations.*

The economic downturn in Korea in 1997 and 1998 and the increase in the number of corporate reorganizations and bankruptcies thereafter caused layoffs and increasing unemployment in Korea, and a similar economic downturn in the future could lead to further layoffs. These factors could lead to social unrest and substantially increase government expenditures for unemployment compensation and other costs for social programs. During 1998 and 1999, there were large-scale protests and labor strikes in Korea. According to statistics from the Bank of Korea, the unemployment rate generally decreased from 4.1% as of December 31, 2000 to 3.1% as of December 31, 2002, but increased to 3.6% as of December 31, 2003 and to 3.7% as of December 31, 2004. A continued increase in unemployment or labor unrest in Korea could adversely affect our operations and the financial conditions of Korean companies in general, depressing the price of securities on the Stock Market Division of the Korea Exchange (the “Korea Exchange”) and the value of the Won relative to other currencies. These developments would likely have an adverse effect on our financial condition and results of operations.


	*Financial instability in Korea and other countries, particularly emerging market countries, could adversely affect on us.*

The Korean market and the Korean economy are influenced by economic and market conditions in other countries, including emerging market countries. Financial turmoil in Asia and elsewhere in the world in recent years has adversely affected the Korean economy. Although economic conditions are different in each country, investors’ reactions to developments in one country, such as Argentina or Brazil, can have adverse effects on the securities of companies in other countries, including Korea. A loss of investor confidence in the financial systems of emerging and other markets may cause increased volatility in Korean financial markets. We cannot assure you that financial events of the type that occurred in emerging markets in Asia in 1997 and 1998 will not happen again or will not have an adverse effect on our business.

Other Risks


	*We are jointly and severally liable for certain debt of our generation subsidiaries.*

Under the relevant provisions of the Korean Commercial Code, we and each of our generation subsidiaries remain jointly and severally liable for all of our liabilities existing prior to the corporate split on April 2, 2001 and all liabilities that we transferred to generation subsidiaries unless such joint and several liability has been successfully eliminated through consents of creditors of affected debt, including consent by resolutions at bondholders’ meetings, which resolutions are approved by the court. In order to facilitate the privatization of our generation subsidiaries, we eliminated the joint and several liabilities among us and our generation subsidiaries through the consent process described in Item 4. “Information on the Company — History and Development — Recent Developments — Debt Restructuring”. As a result, as of April 30, 2005, our generation subsidiaries were released from the joint and several liability for our debts (except for W265.1 billion of loans from KDB for which we and our generation subsidiaries remained jointly and severally liable) existing prior to the corporate split on April 2, 2001 which were not transferred to our generation subsidiaries and the creditors of such debts no longer have direct claims as to the assets of our generation subsidiaries. The remaining obligations rank equally with our other unsecured debt, including the Notes.


	*Our consolidated financial statements are prepared in accordance with Korean GAAP, which differ materially from U.S. GAAP.*

Our consolidated financial statements are prepared in accordance with accounting regulations applicable to Government-invested companies and Korean GAAP, which differ in certain significant respects from U.S. GAAP. See Item 5 “Operating and Financial Review and Prospects — Liquidity and Capital Resources — Reconciliation to U.S. GAAP”.

Korean GAAP and U.S. GAAP differ, among other ways, in respect of the following issues:


	•	treatment of asset revaluation;

	•	treatment of foreign exchange translation gains and losses; and

	•	the establishment of a regulatory asset and liability to offset the impact of foreign exchange translation losses and gains on our income statement, deferred income taxes and reserves for self-insurance.

See Item 5 “Operating and Financial Review and Prospects — Liquidity and Capital Resources — Reconciliation to U.S. GAAP” and Note 32 of the notes to our consolidated financial statements included elsewhere herein.


	*We are generally subject to Korean corporate governance and disclosure standards, which differ in significant respects from those in other countries.*

Companies in Korea, including us, are subject to corporate governance standards applicable to Korean public companies which differ in many respects from standards applicable in other countries, including the United States. As a reporting company registered with the SEC and listed on the NYSE, we are, and in the future will be, subject to certain corporate governance standards as mandated by the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”). However, foreign private issuers, including us, are exempt from certain corporate governance standards required to be complied with under the Sarbanes-Oxley Act or under the rules of the NYSE. There may also be less publicly available information about Korean companies, such as us, than is regularly made available by public or non-public companies in other countries. Such differences in corporate governance standards and less public information could result in less than satisfactory corporate governance practices or disclosure to investors in certain countries.


ITEM 4.	*INFORMATION ON THE COMPANY*

HISTORY AND DEVELOPMENT

General Information

Korea Electric Power Corporation was established by the Government on December 31, 1981 as the successor to Korea Electric Company and, until 1989, was wholly owned by the Government. Our registered office is located at 167 Samseong-Dong, Gangnam-Gu, Seoul, Korea, and our telephone number is 82-2-3456-4264.

In 1989, the Government sold 21% of our common stock as part of a planned partial privatization. Such partial privatization was one of several sales by the Government of shares of Government-owned companies undertaken. In 1994, we sold 1.2% of our shares in a global offering. In 1995, we sold 1.1% of our shares in another global offering. From November 1997 to February 1998 the Government injected capital into KDB, The Export-Import Bank of Korea, Korea First Bank and Seoul Bank with our shares to support those financial institutions. In March 1999, the Government sold 5% of our shares in a global offering. As a result, as of December 31, 2000, the Government owned, directly or indirectly, 54% of our issued common stock (including treasury stock). On June 20, 2001, the Government transferred 127,086,334 shares of our common stock held by it, which represents 19.85% of our outstanding capital, to KDB, and on April 30, 2004, the Government transferred 34,511,869 shares of our common stock, which represents 5.39% of our outstanding capital, to KDB to strengthen its capital base. On December 30, 2004, the Government sold 19,592,000 shares (or 3.06% of total outstanding shares) of us to Korea Development Bank (“KDB”), which is wholly-owned by the Government, through the over-the-counter market at Won 27,100 per share. As a result, the Government’s direct ownership in us has decreased to 23.97% from 27.03% and KDB’s direct ownership in us has increased to 29.99% from 26.93%. As a result of such transfer, the Government and KDB own 23.97% and 29.99%, respectively, of the outstanding shares of our common stock as of the end of April 2004. See the table setting forth certain information relating to certain owners of our capital stock as of April 14, 2005 in Item 7 “Major Shareholders and Related Party Transactions — Major Shareholders”.

The KEPCO Act requires that the Government, directly or pursuant to the KDB Act, through KDB, own at least 51% of our capital. Direct or indirect ownership of more than 50% of our outstanding common stock enables the Government to control the approval of certain corporate matters which require a stockholders’ resolution, including approval of dividends. The Government’s and KDB’s rights as holders of our common stock are exercised by the MOCIE based on the Government’s ownership of our common stock and a proxy to be received from KDB in consultation with the Ministry of Finance and Economy (“MOFE”).

We operate under the general supervision of the MOCIE. The MOCIE, in consultation with the MOFE, has responsibility for approving the electric power rates we charge after review by the Korean Electricity Commission. See “— Business Overview — Rates”. We furnish reports to officials of the MOCIE, the MOFE and other Government agencies and regularly consult with such officials on matters relating to our business and affairs. See “— Business Overview — Regulation”.

Pursuant to our articles of incorporation, our directors are classified into two categories: standing directors and non-standing directors. The number of standing directors shall be not more than seven, including the president (who is our Chairman and CEO), and the non-standing directors shall be not more than eight. In any case, the number of standing directors may not exceed the number of non-standing directors. The standing directors other than our president shall be appointed by the MOCIE upon the motion of our president with the approval at the general meeting of our shareholders. The non-standing directors shall be appointed from among specialists in the private sector with knowledge of business management by the Minister of Planning and Budget of the Republic upon the motion of our president. Our president shall be appointed by the president of the Republic upon the motion of the MOCIE after shareholders’ approval following the nomination by a president nomination committee which is composed of the non-standing directors and other members from the private sector appointed by the board of directors. The president serves as our chief executive officer and represents us

and administers our day-to-day business in all matters not specifically designated as responsibilities of the board of directors.

In June 2005, we amended our articles of incorporation, among others, to comply with the general exemptions provided under the audit committee requirements of the Sarbanes-Oxley Act, embodied in Rule 10A-3 of the Exchange Act. Pursuant to our amended articles of incorporation, we will have three auditors, consisting of one standing auditor and two non-standing auditors. The standing auditor is appointed by the President of the Republic upon the motion of the Minister of Planning and Budget of the Republic following a resolution at the general meeting of our shareholders. The non-standing auditors are appointed by the President of the Republic upon the motion of the Minister of Planning and Budget of the Republic. Each of our auditors is severally responsible for performance of its duties required under the Commercial Code of Korea and other applicable laws of Korea. In addition, these auditors will perform the roles and responsibilities required of an audit committee under the Sarbanes-Oxley Act through a board of auditors consisting of all of these auditors. The auditors may attend board meetings but are not our directors and do not have the right to vote at board meetings. See Item 6 “Directors, Senior Management and Employees — Directors and Senior Management — Board of Auditors”.

We play an important role in the implementation of the Government’s national energy policy, which is established in consultation with us. As an entity formed to serve public policy goals of the Government, we seek to maintain an overall level of profitability which allows us to strengthen our equity base in order to support the growth in our business. Our electricity rates are established pursuant to procedures that take into account, among other things, our needs to recover the costs of operations, to make capital investments and to provide a fair return to our security holders. See “— Business Overview — Rates”.

Recent Developments


	*Debt Restructuring*

Pursuant to the Restructuring Plan for the electricity industry in Korea (as described in “— Restructuring of the Electricity Industry in Korea” below), in February 2001, our board of directors approved a plan to split the assets and liabilities associated with our generating capacity into six wholly-owned subsidiaries. We implemented the plan effective as of April 2, 2001. Under the relevant provisions of the Korean Commercial Code, we remain jointly and severally liable for all liabilities we transferred to our generation subsidiaries, and each generation subsidiary is jointly and severally liable for all of our liabilities existing prior to the corporate split and all liabilities that we transferred to other generation subsidiaries.

In order to facilitate the privatization of the non-nuclear and non-hydroelectric generation subsidiaries, we took actions to eliminate the joint and several liabilities among us and our generation subsidiaries so that the generation subsidiaries will not be liable for our debt and debt of other generation subsidiaries. Under Korean law, the elimination of this joint and several liability requires consent of creditors of affected debt, including consent of a specified percentage of each series of the outstanding debt securities that were sold in the United States, Europe, Asia and Korea. On November 14, 2002, we commenced solicitations of consents and proxies from the holders of our debentures and notes listed below under the heading Yankee and Global Bonds (the “Yankee and Global Bonds”) and under the heading Eurobonds (the “Eurobonds” and, together with the Yankee and Global Bonds, the “Bonds”).


Yankee and Global Bonds		Eurobonds

US$1,350mm 6.375% Notes due 2003		JPY2,560mm 2.75% Notes due 2004
US$300mm 8.25% Notes due 2005		US$21mm FRNs due 2004
US$350mm 7.75% Debentures due 2013		JPY5,000mm 2.50% Notes due 2004
US$70.64mm 6.00% Debentures due 2026		JPY5,000mm 2.92% Notes due 2004
US$300mm 7.00% Debentures due 2027		€25.183mm 5.75% Notes due 2004
US$200mm 6.75% Debentures due 2027		US$55mm 7.11% Notes due 2004
US$139,842mm 7.40% Amortizing Debentures due 2016		US$50mm FRNs due 2004
US$52,559mm 7.95% Zero-to-Full Debentures due 2096		JPY30,000mm 2.10% Notes due 2005
		US$96.5mm FRNs due 2005
		US$95mm 7.05% Notes due 2007
		GBP24.467mm 8.50% Notes due 2007

The solicitations related to proposed amendments to the agreements under which our debt securities were issued and to waivers of certain rights under the Korean Commercial Code. In consideration for the amendments and waivers, and upon the satisfaction or waiver of all closing conditions, the KDB agreed to issue full, unconditional and irrevocable guarantees (the “KDB Guarantees”) in respect of the Bonds if the amendments and waivers with respect to such issue become effective. The waivers were intended to eliminate the joint and several liability of the generation subsidiaries on the Bonds and facilitate the eventual divestiture or sale of the generation subsidiaries pursuant to the Restructuring Plan. The joint and several liabilities arose as a matter of law under the Korean Commercial Code in connection with our creation of the generation subsidiaries and transfer of our assets to them. The debt obligations covered by the KDB Guarantees are denominated in several currencies and have final maturities ranging from 2003 to 2027, except that one series of debt securities matures in 2096.

In February 2003, we completed the solicitation of consents and proxies for the Yankee and Global Bonds and KDB Guarantees were given accordingly. In April 2003, we announced the successful completion of the closing conditions relating to the Eurobonds and KDB Guarantees were given accordingly. In February 2004, we successfully completed the solicitation of consents and proxies for our Yen-denominated bonds offered in Japan (the “Samurai Bonds”) and KDB Guarantees were given accordingly. In March 2003, we completed the solicitation of consents for our domestic bonds and we obtained the court’s approval for the elimination of joint and several liability on condition that KDB Guarantees be given. As a result of subsequent developments relating to the Restructuring Plan, the process of obtaining and giving the KDB Guarantees was suspended. In March 2005, however, substantially all of the domestic bonds subject to joint and several liability were redeemed at maturity except for W265.1 billion of loans from KDB outstanding as of April 30, 2005 for which we and all of our generation subsidiaries remained jointly and severally liable. See Item 3 “Key Information — Risk Factors — Other Risks — We are jointly and severally liable for certain debt of our generation subsidiaries”.


	*Suspension of the Restructuring Plan*

the labor union. In June 2004, based on the conclusion published by this Joint Study Group, the Tripartite Commission issued a resolution which recommended halting the plan to form and privatize the distribution subsidiaries. Instead, this resolution recommended the creation of independent business divisions within KEPCO, namely Strategic Business Units, each with more autonomy and independence, to introduce internal competition among the business divisions and improve efficiency. This resolution was adopted by the MOCIE on June 17, 2004. Accordingly, we have been conducting research in preparation of implementing the new revised plan, which we expect to be completed in early 2006.


	*Management Reform*

We are currently undertaking management reforms to improve our business through a change in management ethics and philosophy and management structure. We established the Management Reformation Office in August 2004 under the direct control of our President to lead this reform. In connection with this reform, we are planning to introduce internal competition by establishing a Strategic Business Unit system and to implement Enterprise Resource Planning.


	*Government’s Policy to Move Headquarters of Government-invested Enterprises*

The Korean government has recently announced its policy to move the headquarters of government-invested enterprises, including us, out of the Seoul metropolitan area to other provinces in Korea. While we intend to comply with this policy if implemented, nothing has been finalized at this time. There can be no assurance that we will not experience any disruptions in our operations, including opposition from our labor union. See Item 3 “Key Information — Risk Factors — Risks Relating to KEPCO — Labor unrest may materially and adversely affect our operations”.


	*Electricity Supply to Industrial Complex in Kaesong, North Korea*

In March 2005, we began providing electricity to the industrial complex located in Kaesong, North Korea which was established pursuant to an agreement made during the summit meeting of the two Koreas in June 2000. The Kaesong complex is the largest economic project between the two Koreas and is designed to combine the Republic’s capital and entrepreneurial expertise with the cheap labor of North Korea. The size of this industrial complex is expected to be increased in a number of phases with the first phase of development measuring 3.3 million square-meters, which will ultimately be increased to 66 million square-meters. To date, 15 companies of the Republic have been authorized to set up facilities in a pilot zone measuring 92,500 square-meters. In May 2004, we were selected as electricity supplier for the phase one development by the Ministry of Reunification. In December 2004, a memorandum of understanding between the two Koreas for electricity supply was reached, enabling us to design, build and operate all of the electricity supply facilities in and connecting to the Kaesong complex. We currently supply electricity to the pilot zone through a newly-installed 22.9 kilovolt distribution network. We expect to supply approximately 70-100 megawatts of electricity in the first phase of development and plan to build a 154 kilovolt transmission line connecting to the Kaesong complex. No assurance can be given that we will not experience any material losses from this project as a result of, among other things, project suspension or failure of the project as a result of a breakdown in the relationship between the Republic an North Korea as a consequence of North Korea’s nuclear ambitions. See Item 3 “Key Information — Risk Factors — Risks Relating to KEPCO — Tensions with North Korea could have an adverse effect on us”.

Capital Expenditures

This table below sets forth for each year in the three-year period ending December 31, 2004, the amounts of capital expenditures (including capitalized interest) for the construction of generating, transmission and distribution facilities:


2002		2003		2004

(In billions of Won)
W	6,653	W	6,782	W	6,287

For the expected completion dates of generating facilities, see “— Business Overview — Capital Investment Program”.

BUSINESS OVERVIEW

Introduction

We are an integrated electric utility company and the only company engaged in the transmission and distribution of electricity in Korea. Through our six consolidated generation subsidiaries, we also generate substantially all of the electricity produced in Korea. As of December 31, 2004, we and our generation subsidiaries owned approximately 89.9% of the total electricity generating capacity in Korea (excluding plants generating electricity primarily for private or emergency use). In 2004, we sold 312 billion kilowatt-hours of electricity. Of the 342 billion kilowatt-hours of electricity we generated or purchased in 2004, 39.1% was generated by our nuclear and hydroelectric power generation subsidiary.

For the year ended December 31, 2004, we had consolidated operating revenues of W23,956 billion (US$23,143 million) and consolidated net income of W2,883 billion (US$2,785 million) and for the year ended December 31, 2003, we had consolidated operating revenues of W22,775 billion and consolidated net income of W2,323 billion. Our operating revenues increased primarily as a result of a 6.3% increase in kilowatt hours of electricity sold in 2004. The increase in electricity sold was primarily attributable to a 5.3% increase in kilowatt hours of electricity sold to the industrial sector, a 9.5% increase in kilowatt hours of electricity sold to the commercial sector and a 4.9% increase in kilowatt hours of electricity sold to the residential sector. See Item 5 “Operating and Financial Review and Prospects — Operating Results”.

Demand for electricity in the Republic grew at a compounded average rate of 7.8% per annum for the five years ended December 31, 2004 compared to real gross domestic product GDP compounded growth rates of approximately 5.4% for the same period according to The Bank of Korea. The GDP growth rate was 4.6% for 2004 as compared to 3.1% in 2003. Total demand for electricity in Korea during 2004 increased by 6.3% as compared to 2003.

Historically, we have made substantial expenditures for construction of generation plants and other facilities to meet increased demand for electric power. Subject to the Government’s restructuring plan as discussed in “Business — Restructuring of the Electricity Industry in Korea”, we (including our generation and distribution subsidiaries) plan to continue to make substantial expenditures to expand and enhance our generating, transmission and distribution system in the future. See Item 5 “Operating and Financial Review and Prospects — Liquidity and Capital Resources — Capital Requirements”.

The Korea electricity industry traces its origins to the establishment of the first electric utility company in Korea in 1898. On July 1, 1961, the Korean electric utility industry was reorganized by the merger of Korea Electric Power Company, Seoul Electric Company and South Korea Electric Company, thereby forming Korea Electric Company. From 1976 to 1981, the Government acquired the private minority shareholdings in Korea Electric Company. After the Government had acquired all of the outstanding shares of Korea Electric Company, Korea Electric Company dissolved and we were incorporated in 1981, assuming the assets and liabilities of Korea Electric Company. We ceased to be wholly-owned by the Government in 1989 when the Government sold 21.0% of its common stock. As of April 14, 2005, the Government owned 53.96% (including indirect holdings by KDB, which is 100% owned by the Government) of our issued and outstanding common stock.

Prior to the corporate reorganization effected on April 2, 2001, which created six generation subsidiaries wholly-owned by us, we were the principal electricity generation company in Korea. We continue to be the principal electricity transmission and distribution company in Korea, subject to the implementation of the Restructuring Plan (as described herein).

Restructuring of the Electricity Industry in Korea

On January 21, 1999, the MOCIE published the Restructuring Plan. The overall objectives of the Restructuring Plan are to:


	•	introduce competition and thereby increase efficiency in the Korean electricity industry;

	•	ensure a long-term, inexpensive and stable electricity supply; and

	•	promote consumer convenience through the expansion of consumer choice.

The KEPCO Act requires that the Government own at least 51% of our capital. Direct or indirect ownership of more than 50% of our outstanding common stock enables the Government to control the approval of certain corporate matters which require a stockholders’ resolution, including approval of dividends. The Government’s and KDB’s rights as holders of our common stock are exercised by the MOCIE in consultation with the Ministry of Finance and Economy (“MOFE”). The Government currently has no plan to cease to own directly or indirectly at least 51% of our outstanding common stock.

The following is a description of the Restructuring Plan and the Government’s position relating to the Restructuring Plan as of the date of this report.


	*Phase I*

During Phase I, which was the preparation stage for Phase II and ran from January 1, 1999 until April 2, 2001, we continued to be the principal electricity generator, with a few independent power producers (the “IPPs”) supplying electricity to us pursuant to existing power purchase agreements (the “PPAs”). On February 23, 2001, our board of directors approved a plan to split our non-nuclear and non-hydroelectric generating capacity into the following five separate wholly-owned generation subsidiaries, each with its own management structure, assets and liabilities: Korea Midland Power Co., Ltd. (“KOMIPO”), Korea South-East Power Co., Ltd (“KOSEPCO”), Korea Western Power Co., Ltd. (“KOWEPO”), Korea Southern Power Co., Ltd. (“KOSPO”), and Korea East-West Power Co., Ltd. (“EWP”). Our hydroelectric and nuclear generating capacity was transferred into a separate wholly-owned generation subsidiary, Korea Hydro & Nuclear Power Co., Ltd. (“KHNP”). On March 16, 2001, our shareholders approved the plan to establish the generation subsidiaries effective as of April 2, 2001.

The Government’s objectives in dividing the power generation capacity into separate generation subsidiaries were principally to:


	•	introduce competition and thereby increase efficiency in the electricity generation industry in Korea; and

	•	ensure the stable supply of electricity in Korea.

Following the implementation of Phase I, we have retained our monopoly position with respect to transmission and distribution of electricity in Korea.

While our ownership percentage of the non-nuclear and non-hydroelectric generation subsidiaries will depend on the ultimate form of the Restructuring Plan approved by the Government, we plan to continue to retain 100% ownership of KHNP, distribution and the transmission business.


	*Phase II*

Phase II, which is the current phase, began on April 2, 2001. In Phase II, the Government has introduced a competitive bidding or bidding pool system under which we purchase power from the generation subsidiaries and other companies for transmission and distribution to customers. Such competitive bidding or bidding pool system was established on April 2, 2001 and is a cost-based pool system (the “CBP”) (as described below).

Pursuant to the Electricity Business Law amended on December 23, 2000, the Government established the Korea Power Exchange (“KPX”) on April 2, 2001 to deal with the sale of electricity and work out regulations governing the electricity market to allow for electricity distribution via a competitive bidding process. The Government also established the Korea Electricity Commission (the “KOREC”) on April 27, 2001 to regulate the

restructured Korean electricity industry and to ensure fair competition. As part of this process, the KPX established the Electricity Market Rules relating to the operation of the bidding pool system. To amend the Electricity Market Rules, the KPX shall obtain approval from the MOCIE and any amendment must be reviewed by the KOREC, prior to approval by the MOCIE.

The KOREC’s main functions involve implementing of necessary standards and measures for electricity market operation and reviewing of matters relating to licensing companies in the Korean electricity industry. The KOREC also acts as an arbitrator in disputes involving utility rates and companies in the Korean electricity industry and consumers and investigates illegal or deceptive activities of Korean electricity market participants.


	The Pool System

Under the pool system, each generation company, including our generation subsidiaries, participates in a competitive bidding process operated by the KPX. Under the current CBP, each generation company, including our generation subsidiaries, submits its variable costs to the KPX on a monthly basis and also submits available capacity to the KPX one day prior to the date of trading. The submitted costs are divided into two categories: base load units and non-base load units, in order to promote fair competition as base load and non-base load units have different cost structures. Base load plants utilize coal and nuclear fuel materials and non-base load plants utilize other materials including oil and LNG or alternative sources such as hydro power. The final pool price for each of these categories is determined by the KPX.

CBP comprises two prices, namely, system marginal price (“SMP”) and base load marginal price (“BLMP”), which are determined by variable costs of the most expensive non-base load unit(s) and base load unit(s), respectively, from which electricity is dispatched for the trading period. Non-base load capacity payment (“Non-Base Load CP”) and base load capacity payment (“Base Load CP”) represent fixed costs of non-base load units and base load units, respectively, and are settled separately from the CBP.

One uniform pool price for each category is determined every hour as the SMP and the BLMP by merit order (as described below).

Merit order is a power dispatch order system determined and used by the KPX. The KPX determines the allocation of power supplied by generation companies. This determination is primarily dependent on variable cost and other various factors, including the proximity of a generation company to the geographical area to which power is being supplied network and fuel constraints and amount of power loss during transmission and distribution.

Consumers purchase power from us at prices based upon our purchase price plus transmission and distribution fees and other fees which are set by the KOREC. The KOREC’s prime objective is ensuring transparency and preventing anti-competitive practices in the bidding process to maximize the benefits of competition to consumers.


	Privatization of Non-nuclear Generation Subsidiaries

In April 2002, the MOCIE released the basic privatization plan for five of our generation subsidiaries, excluding our nuclear and hydroelectric power generation subsidiary. In 2002, we commenced the sale of KOSEPCO. According to the original privatization plan, the process of selling KOSEPCO was either to sell its management control or conduct an initial public offering. Due to market conditions, the process of selling KOSEPCO has tentatively been delayed. The aggregate foreign ownership of our generation subsidiaries will be limited to 30% of total power generation capacity in Korea. In consultation with us, the Government will determine the size of the ownership interest to be sold and the timing of sales, with a view to encouraging competition, assuring adequate electricity supply and debt service capability.


	Resolution of the Tripartite Commission and the Recent MOCIE Announcement

the labor union. In June 2004, based on the conclusion published by this Joint Study Group, the Tripartite Commission issued a resolution which recommended halting the plan to form and privatize the distribution subsidiaries. Instead, this resolution recommended the creation of independent business divisions within KEPCO, each with more autonomy and independence, to introduce internal competition among the business divisions and improve efficiency. This resolution was adopted by the MOCIE on June 17, 2004. Accordingly, we have been conducting research in preparation of implementing the new revised plan, which we expect to be completed in early 2006.

Power Generation

The electricity generating systems of our generation subsidiaries as of December 31, 2004 comprised a total of 340 generating units, including nuclear, thermal, hydro and internal combustion units, which as of December 31, 2004 had an aggregate installed generating capacity of 53,907 megawatts. Our thermal units produce electricity using steam turbine generators and include units fired by coal and oil. Internal combustion units are diesel-fired gas turbine and combined cycle units. Combined cycle units consist of either LNG-fired combined cycle units or oil-fired combined cycle units. In addition to the generating facilities that our generation subsidiaries own, we purchase power output of several generating plants not owned by our generation subsidiaries.

The table below sets forth as of and for the year ended December 31, 2004, the number of units, installed capacity and the average capacity factor for each type of generating facility that our generation subsidiaries own.


			Number		Installed		Average Capacity
			of Units		Capacity(1)		Factor(2)

					(Megawatts)		(Percent)
KEPCO facilities:
Nuclear				19		16,716		91.4

Thermal:
	Coal			38		17,465		88.2
	Oil			19		4,309		42.7
	LNG			6		1,538		5.4

		Total thermal		63		23,311		73.7

Internal combustion				126		252		29.6
Combined cycle				87		10,785		50.5

Hydro				41		2,837		12.2

Wind				4		6		—

		Total KEPCO facilities		340		53,907		70.8


(1)	Installed capacity represents the level of output that may be sustained continuously without significant risk of damage to plant and equipment.

(2)	Average capacity factor represents the total number of kilowatt hours of electricity generated in the period divided by the total number of kilowatt hours that would have been generated assuming continuous operation of generating units at installed capacity expressed as a percentage.

The useful life of units of each type without substantial renovation is approximately as follows: nuclear and thermal, over 30 years; internal combustion, over 25 years; hydroelectric, over 50 years. Substantial renovation can extend the useful life of thermal units by up to 20 years.

We attempt to achieve efficient use of generating resources and diversification of generating capacity by fuel types. We have in the past relied principally upon oil-fired thermal generating units for electricity generation. Since the oil shock in 1974, however, Korea’s power development plans have emphasized the construction of nuclear generating units. While nuclear units are more expensive to construct than other units of comparable

capacity, nuclear fuel is less expensive than fossil fuels producing comparable amounts of energy. However, efficient operation of nuclear units requires that such plants be run continuously at relatively constant energy output levels. As it is impractical to store large quantities of electric energy, we seek to maintain nuclear power production capacity at a level approximating a level at which demand is continuous within Korea. For production at times when demand exceeds the level of continuous demand, we rely on units fired by fossil fuel and hydroelectric units, which can be started and shut down more efficiently than nuclear units. Bituminous coal is currently the cheapest thermal fuel per kilowatt-hour of electricity produced, and therefore we have sought to maximize the use of bituminous coal for generation needs above the continuous demand level, except for meeting surges in demand requiring rapid startup and shutdown. Thermal units fired by LNG, hydroelectric units and gas turbine internal combustion units are the most efficient types of units for rapid startup and shutdown, and therefore we have used such units principally to meet short-term surges in demand. We have increasingly used LNG-fired units and bituminous coal-fired units rather than anthracite coal-fired units to reduce the environmental impact of our generating operations. Anthracite coal is also a less efficient fuel source than bituminous coal.

Our generation subsidiaries have constructed and recommissioned thermal and internal combustion units in order to help meet power demand. Subject to market conditions, our generation subsidiaries plan to add additional thermal and internal combustion units in future periods for this purpose. Such units may be completed more quickly than new nuclear units.

The table below sets forth for each of the five years ended December 31, 2004 the amount of electricity generated by facilities linked to our grid system, and the amount of power used or lost in connection with transmission and distribution.


													% of 2004
													Gross
			2000		2001		2002		2003		2004		Generation(1)

			(Million kilowatt hours and percent)
Electricity generated at generation subsidiaries:
Nuclear				108,964		112,133		119,103		129,671		130,715		38.2
Thermal:
	Coal			99,428		112,257		119,665		121,931		128,547		37.6
	Oil			18,888		21,622		17,493		16,664		16,084		4.7
	LNG			1,632		1,557		1,771		1,674		733		0.7

		Total thermal		119,948		135,437		138,929		140,269		145,364		42.5
Internal combustion				24,734		23,914		30,888		33,445		407		0.1
Combined cycle				—		—		—		—		47,652		13.9

Hydro				3,196		2,915		3,262		3,479		3,042		0.9

Wind				—		—		—		—		11		—

		Total generation		256,842		274,398		292,182		306,866		327,191		95.6
Electricity purchased from others:
Thermal				7,144		9,589		12,242		12,178		12,137		3.5
Hydro				2,414		1,236		2,049		3,408		2,820		0.8

		Total purchased		9,558		10,825		14,291		15,586		14,957		4.4
Gross generation				266,400		285,224		306,474		322,452		342,148		100.0
Auxiliary use(2)				12,328		12,980		13,728		14,226		15,268		4.5
Pumping storage(3)				2,118		2,401		2,688		2,581		1,994		0.6

Total net generation(4)				251,953		269,842		290,058		305,645		324,886		95.0

Transmission and distribution losses				11,871		12,140		12,994		13,593		14,490		4.5	(5)


(1)	Unless otherwise indicated, the percentages are based on gross generation.

(2)	Auxiliary use represents electricity consumed by generating units in the course of generation.

(3)	Pumping storage represents electricity consumed during low demand periods in order to store water which will be utilized to generate hydroelectric power during peak demand periods.

(4)	Total net generation is gross generation subtracted by auxiliary use and pumping storage.

(5)	Total transmission and distribution losses divided by total net generation.

The table below sets forth our total capacity at the end of each period (including units generating electricity primarily for sale to us) and peak and average load in each period for each of the five years ended December 31, 2004.


	2000		2001		2002		2003		2004

	(Megawatts)
Total capacity		48,451		50,859		53,801		56,053		59,961
Peak load		41,007		43,125		45,773		47,385		51,264
Average load		30,328		32,560		34,986		36,810		39,058


	*KHNP*

We commenced nuclear power generation activities in 1978 when our first nuclear generating unit, Kori-1, began commercial operations. On April 2, 2001, we transferred all of our nuclear and hydroelectric power generation assets and liabilities to KHNP.

Currently, KHNP owns and operates 19 nuclear generating units at four power plant complexes in Korea, located in Kori, Wolsong, Yonggwang and Ulchin, and 27 hydroelectric generating units.

The table below sets forth as of and for the year ended December 31, 2004, the number of units, installed capacity and the average capacity factor for the two types of generating facility.


				Installed		Average Capacity
		Number of Units		Capacity(1)		Factor(2)

				(Megawatts)		(Percent)
Nuclear			19		16,716		91.4
Hydroelectric			27		534		31.7

	Total		46		17,250


(1)	Installed capacity represents the level of output that may be sustained continuously without significant risk of damage to plant and equipment.

(2)	Average capacity factor represents the total number of kilowatt hours of electricity generated in the period divided by the total number of kilowatt hours that would have been generated assuming continuous operation of generating units at installed capacity expressed as a percentage.

In April 2005, another nuclear generating unit, Ulchin-6, commenced its operations. We are currently building two additional nuclear generating units, each with a 1,000-megawatt capacity at the Shin Kori site and we expect to complete these units in 2010 and 2011, respectively. In addition, we are planning to receive permission to build four additional nuclear units (Shin Kori Nos. 3 and 4 and Shin Wolsong Nos. 1 and 2).


	Nuclear

The table below sets forth certain information with respect to the nuclear generating units KHNP owned as of December 31, 2004.

Reactor

Turbine and

Commencement

Installed

Unit

Type(1)

Design(2)

Generation(3)

of Operations

Capacity

(Megawatts)

Kori-1

PWR

GEC

1978

587

Kori-2

PWR

GEC

1983

650

Kori-3

PWR

GEC

1985

950

Kori-4

PWR

GEC

1986

950

Wolsong-1

PHWR

AECL

1983

679

Wolsong-2

PHWR

AECL, H

H, GE

1997

700

Wolsong-3

PHWR

AECL, H

H, GE

1998

700

Wolsong-4

PHWR

AECL, H

H, GE

1999

700

Yonggwang-1

PWR

1986

950

Yonggwang-2

PWR

1987

950

Yonggwang-3

PWR

H, CE

H, GE

1995

1,000

Yonggwang-4

PWR

H, CE

H, GE

1996

1,000

Yonggwang-5

PWR

D, CE

D, GE

2002

1,000

Yonggwang-6

PWR

D, CE

D, GE

2002

1,000

Ulchin-1

PWR

1988

950

Ulchin-2

PWR

1989

950

Ulchin-3

PWR

H, CE

H, GE

1998

1,000

Ulchin-4

PWR

H, CE

H, GE

1999

1,000

Ulchin-5

PWR

D, CE

D, GE

2004

1,000

Total nuclear(4)

—

16,716


(1)	PWR means pressurized light water reactor; PHWR means pressurized heavy water reactor.

(2)	W means Westinghouse Electric Company (U.S.A); AECL means Atomic Energy Canada Limited (Canada); F means Framatome (France); H means HANJUNG; CE means Combustion Engineering (U.S.A); D means Doosan Heavy Industries.

(3)	GEC means General Electric Company (UK); P means Parsons (Canada and UK); W means Westinghouse Electric Company (U.S.A); A means Alsthom (France); H means HANJUNG; GE means General Electric (U.S.A); D means Doosan Heavy Industries.

(4)	Does not include Ulchin-6, which commenced its operations in April 2005 with installed capacity of 1,000-megawatt capacity.

The table below sets forth certain information for 2004 with respect to each nuclear generating unit KHNP owned. In 2004, the fuel cost was W6.50 per kilowatt hour.


		Average Capacity			Average Fuel
Unit		Factor			Cost Per Kwh

		(Percent)			(Won)
Kori-1			94.8	%	W	5.73
Kori-2			101.9			7.66
Kori-3			91.6			6.58
Kori-4			92.0			6.06
Wolsong-1			90.3			8.07
Wolsong-2			94.9			7.62
Wolsong-3			96.4			7.69
Wolsong-4			97.4			8.04
Yonggwang-1			90.1			6.01
Yonggwang-2			90.5			6.11
Yonggwang-3			91.8			5.90
Yonggwang-4			91.5			6.72
Yonggwang-5			66.9			6.05
Yonggwang-6			76.6			5.90
Ulchin-1			93.1			5.86
Ulchin-2			91.3			5.79
Ulchin-3			94.8			5.63
Ulchin-4			103.3			4.88
Ulchin-5			102.8			10.05

	Total nuclear		91.4	%	W	6.50

The average capacity factor of all of our nuclear units in aggregate has been maintained at 87.3% or more in each year since 1995.

Under extended cycle operations, nuclear units can be run continuously for periods longer than the conventional 12-month period between shutdowns for refueling and maintenance. This operational strategy of extended cycle has been adopted by all of our PWR units since 1987 and will spread to newly commenced units. Average shutdown periods for routine fuel replacement and maintenance varied from 30 to 40 days.

KHNP’s nuclear units experienced an average of 0.6 unplanned shutdowns per unit for the year ended December 31, 2004. In the ordinary course of operation, KHNP’s nuclear units routinely experienced damage and wear and tear and were repaired during routine shutdown periods or during unplanned temporary suspensions of operations. No significant damage has occurred in any of KHNP’s nuclear reactors and no significant nuclear exposure or release incidents have occurred at any of KHNP’s nuclear facilities since the first nuclear plant commenced operations in 1978. See Item 3 “Key Information — Risk Factors — Risks Relating to KEPCO — Inherent in the operation of nuclear power generation facilities are numerous hazards risks, any of which could result in a material loss of revenues or increased expenses”.


	Hydroelectric

The table below sets forth as of and for the year ended December 31, 2004 certain information regarding each hydroelectric plant.


							Average Capacity
							Factor for the
							Twelve Months Ended
Name (Number of Plants)	Classification		Year Built		Installed Capacity		December 31, 2004

					(Megawatts)		(Percent)
Hwacheon(4)		Dam waterway		1944		108.00		26.3
Chuncheon(2)		Dam		1965		57.60		28.8
Euiam(2)		Dam		1967		45.00		42.5
Cheongpyung(3)		Dam		1943		79.60		42.1
Paldang(4)		Dam		1973		120.00		43.8
Seomjingang(3)		Basin deviation		1945		34.80		44.7
Boseonggang(2)		Basin deviation		1937		4.50		50.0
Kwoesan(2)		Dam		1957		2.60		45.7
Anheung(3)		Dam waterway		1978		0.48		42.8
Kangreung(2)		Basin deviation		1991		82.00		—

Total hydroelectric						534.58		31.7

The Government-owned Korea Water Resources Corporation assumes full control of multi-purpose dams, while KHNP maintains the dams used for power generation. Existing hydroelectric power plants have exploited most of the water resources in the Republic available for commercially viable hydroelectric power generation. Consequently, KHNP expects that no new major hydroelectric power plants will be built in the foreseeable future. Due to its relatively high cost of generation, hydroelectric power generation is reserved for peak periods.


	*KOSEPCO*

As of December 31, 2004, KOSEPCO had 12 thermal units, including ten coal-fired units with aggregate installed capacity of 5,165 megawatts and two oil-fired units with aggregate installed capacity of 528.6 megawatts. KOSEPCO also had combined cycle and internal combustion units with aggregate installed capacity of 900 megawatts and pumped storage units with aggregate installed capacity of 600.4 megawatts. KOSEPCO had a total installed capacity of 7,194 megawatts.

The table below sets forth as of and for the year ended December 31, 2004, for each plant location, the weighted average age, installed capacity, average capacity factor and average fuel cost of the thermal units KOSEPCO owned based upon the net amount of electricity generated.


			Weighted				Average
			Average Age		Installed		Capacity		Average Fuel
			of Units		Capacity		Factor		Cost per Kwh

			(Years)		(Megawatts)		(Percent)
Bituminous:
	Samchunpo #1, 2, 3, 4, 5, 6			13		3,240		86.6	W	20.98
	Yong Hung #1, 2			0.3		1,600		59.7		11.61
Anthracite:
	Yongdong #1, 2			28		325		55.3		59.38
Oil-fired:
	Yosu #1, 2			28		529		47.1		63.46

		Total thermal		11.5		5,694		77.1	W	25.22

The table below sets forth as of and for the year ended December 31, 2004, for each plant location, the weighted average age, installed capacity, average capacity factor, and average fuel cost of the combined cycle and internal combustion units and pumped storage units KOSEPCO owned based upon the net amount of electricity generated.

Weighted

Average

Average Age

Installed

Capacity

Average Fuel

of Units

Capacity

Factor

Cost per Kwh

(Years)

(Megawatts)

(Percent)

Combined cycle and Internal Combustion:

Bundang GT #1, 2, 3, 4, 5, 6, 7, 8 / ST #1, 2

900

46.7

78.01

Pumped storage(1):

Muju #1, 2

600

8.8

34.55


(1)	During periods of low energy usage, these pumped storage stations use electricity from other generating plants to pump water from lower to higher elevations to be available for increased production during periods of peak energy usage or to supplement production in case of unplanned shutdowns at other generating plants.


	*KOMIPO*

As of December 31, 2004, KOMIPO had 17 thermal units, including eight coal-fired units with aggregate installed capacity of 3,400 megawatts, three oil-fired units with aggregate installed capacity of 160 megawatts and six LNG-fired units with aggregate installed capacity of 1,537.5 megawatts, constituting a total installed capacity of 5,097.5 megawatts for its thermal units. KOMIPO also had 13 combined cycle and internal combustion units with aggregate installed capacity of 1,855 megawatts.

The table below sets forth as of and for the year ended December 31, 2004, for each plant location, the weighted average age, installed capacity, average capacity factor and average fuel cost of the thermal units KOMIPO owned based upon the net amount of electricity generated.


			Weighted				Average
			Average Age		Installed		Capacity		Average Fuel
			of Units		Capacity		Factor		Cost per Kwh

			(Years)		(Megawatts)		(Percent)
Bituminous:
	Boryeong #1, 2, 3, 4, 5, 6			14.4		3,000		93.6	W	21.96
Anthracite:
	Seocheon #1, 2			21.4		400		55.7		59.71
Oil-fired:
	Jeju #1, 2, 3			5.5		160		78.7		68.41
LNG-fired:
	Seoul #4, 5			35.0		388		17.6		107.82
	Incheon #1, 2, 3, 4			28.9		1,150		1.3		102.72

		Total thermal		19.5		5,098		63.6	W	28.40

The table below sets forth as of and for the year ended December 31, 2004, for each plant location, the weighted average age, installed capacity, average capacity factor and average fuel cost of the combined cycle and internal combustion units KOMIPO owned.

Weighted

Average

Average Age

Installed

Capacity

Average Fuel

of Units

Capacity

Factor

Cost per Kwh

(Years)

(Megawatts)

(Percent)

Combined cycle and internal combustion:

Boryeong Combined Cycle G/ T #1, 2, 3, 4, 5, 6, 7, 8, S/T #1, 2, 3, 4

5.5

1,800

45.2

61.37

Jeju G/T #3...

27.6

0.7

312.67

Total combined cycle and internal combustion

6.2

1,855

43.9

61.50


	*KOWEPO*

As of December 31, 2004, KOWEPO had ten thermal units, including six coal-fired units with aggregate installed capacity of 3,000 megawatts and four oil-fired units with aggregate installed capacity of 1,400 megawatts, constituting a total installed capacity of 4,400 megawatts for its thermal units. KOWEPO also had 21 combined cycle units with aggregate installed capacity of 2,280 megawatts and two pumped storage units with aggregate installed capacity of 600 megawatts.

The table below sets forth as of and for the year ended December 31, 2004 for each plant location, the weighted average age, installed capacity, average capacity factor and average fuel costs of the thermal units KOWEPO owned based upon the net amount of electricity generated.

Weighted

Average

Average Age

Installed

Capacity

Average Fuel

of Units

Capacity

Factor

Cost per Kwh

(Years)

(Megawatts)

(Percent)

Bituminous:

Taean #1, 2, 3, 4, 5, 6

6.6

3,000

74.0

21.32

Oil-fired:

Pyeongtaek #1, 2, 3, 4

23.1

1,400

28.1

65.97

Total thermal

11.8

4,400

73.0

26.84

The table below sets forth as of and for the year ended December 31, 2004, for each plant location, the weighted average age, installed capacity, average capacity factor and average fuel cost of the combined cycle units KOWEPO owned based upon the net amount of electricity generated.


			Weighted				Average
			Average Age		Installed		Capacity		Average Fuel
			of Units		Capacity		Factor		Cost per Kwh

			(Years)		(Megawatts)		(Percent)
Combined cycle:
	Pyeongtaek combined cycle			11.8		480		14.6	W	70.00
	West Incheon combined cycle			12.5		1,800		53.8		62.77

		Total combined cycle		12.4		2,280		45.6	W	63.25

Pumped storage:
	Samryangjin #1			19.1		300		9.9
	Samryangjin #2			19.0		300		6.9

		Total pumped storage		19.1		600		8.4	W	35.21


	*KOSPO*

As of December 31, 2004, KOSPO had ten thermal units, including six coal-fired units with aggregate installed capacity of 3,000 megawatts and four oil-fired units with aggregate installed capacity of 420 megawatts, constituting a total installed capacity of 3,420 megawatts for its thermal units. KOSPO also had 27 combined cycle and four internal combustion units with aggregate installed capacity of 3,745 megawatts and two pumped storage units with aggregate installed capacity of 400 megawatts and four wind power units with aggregate installed capacity of 6 megawatts.

The table below sets forth as of and for the year ended December 31, 2004 for each plant location, the weighted average age, installed capacity, average capacity factor and average fuel cost of the thermal units KOSPO owned based upon the net amount of electricity generated.


			Weighted				Average
			Average Age		Installed		Capacity		Average Fuel
			of Units		Capacity		Factor		Cost per Kwh

			(Years)		(Megawatts)		(Percent)
Bituminous:
	Hadong #1, 2, 3, 4, 5, 6			6.0		3,000		91.9	W	23.57
Oil-fired:
	Youngnam #1, 2			33.2		400		51.2		47.10
	Nam Jeju #1, 2			25.0		20		60.8		92.13

		Total thermal		9.3		3,420		87.2	W	25.42

The table below sets forth as of and for the year ended December 31, 2004, for each plant location, the weighted average age, installed capacity, average capacity factor and average fuel cost of the combined cycle and internal combustion units and pumped storage units and wind power units KOSPO owns based upon the net amount of electricity generated.


			Weighted				Average
			Average Age		Installed		Capacity		Average Fuel
			of Units		Capacity		Factor		Cost per Kwh

			(Years)		(Megawatts)		(Percent)
Combined cycle and internal combustion:
	Shin Incheon combined cycle #3, 4			8.3		1,800		74.6	W	60.49
	Busan combined cycle #1, 2			1.3		1,800		65.0		57.59
	Hallim combined cycle			8.6		105		11.1		166.26
	Nam Jeju internal combustion			13.8		40		80.3		60.13

		Total combined cycle and internal combustion		5.1		3,745		67.8	W	59.70

Cheongpyeong Pumped storage				25.2		400		1.8	W	46.73
Hankyung Wind				0.9		6		23.9		5.16


	*EWP*

As of December 31, 2004 EWP had 14 thermal units, including eight coal-fired units with aggregate installed capacity of 2,900 megawatts and six oil-fired units with aggregate installed capacity of 1,800 megawatts, constituting a total installed capacity of 4,700 megawatts for its thermal units. EWP also had 17 combined cycle and internal combustion units with aggregate installed capacity of 2,100 megawatts and two pumping storage units with aggregate installed capacity of 700 megawatts.

The table below sets forth as of and for the year ended December 31, 2004, for each plant location, the weighted average age, installed capacity, average capacity factor and average fuel cost of the thermal units EWP owns based upon the net amount of electricity generated.


			Weighted				Average
			Average Age		Installed		Capacity		Average Fuel
			of Units		Capacity		Factor		Cost per Kwh

			(Years)		(Megawatts)		(Percent)
Bituminous:
	Dangjin #1, 2, 3, 4			4.6		2,000		92.6	W	21.19
	Honam #1, 2			30.7		500		85.9		29.82
Anthracite:
	Donghae #1, 2			5.8		400		64.0		25.47
Oil-fired:
	Ulsan #1, 2, 3, 4, 5, 6			28.7		1,800		47.1		59.25

		Total thermal		18.8		4,700		72.0	W	32.03

The table below sets forth as of and for the year ended December 31, 2004, for each plant location, the weighted average age, installed capacity, average capacity factor and average fuel cost of the combined cycle and internal combustion units and pumping storage units EWP owned.


			Weighted				Average
			Average Age		Installed		Capacity		Average Fuel
			of Units		Capacity		Factor		Cost per Kwh

			(Years)		(Megawatts)		(Percent)
Combined cycle and internal combustion:
	Ulsan combined cycle			8.2		1,200		22.6	W	63.62
	Ilsan combined cycle			10.8		900		42.3		74.82

		Total combined cycle and internal combustion		9.4		2,100		31.0	W	70.17

Pumped storage:
	Sancheong #1, 2			3.2		700		9.4	W	33.55

The high average age of the oil-fired thermal units owned by our generation subsidiaries is attributable to our historic reliance on oil-fired thermal units as our primary means of electricity generation. Since the mid-1970’s we have diversified our fuel sources and constructed fewer oil-fired thermal units than units of other types.


	*Power Plant Remodeling and Recommissioning*

We have in the past and our generation subsidiaries will continue to supplement our power generation capacity through remodeling or recommissioning our thermal units. The recommissioning included installation of anti-pollution devices, modification of control systems and overall rehabilitation of existing equipment.

Power Plant Remodeling

Power Plant

Capacity

Completed, in Year

Purpose

Company

Seoincheon GT #1,7,8

225MW*3

2004

Efficiency Improvement

KOWEPO

Yeosoo #2

328.6MW

2004

Efficiency Improvement

KOSEPCO

Power Plant Recommissioning

Power Plant

Capacity

Completed, in Year

Extension

Company

Honam #1

250MW

1998

13 years

EWP

Honam #2

250MW

1999

13 years

EWP


	*Purchased Power*

We purchased electricity generated by our six generation subsidiaries and some of the independent power producers through KPX since April 2, 2001. The power trading results for the year ended December 31, 2004 through KPX are as follows:


	Power Trading Results


	For the Year Ended December 31, 2004

					Percentage
					of Total				Percentage of
	Items		Volume		Volume		Sales to KEPCO		Total Sales		Unit Price

			(Gigawatt hours)				(In billions of Won)				(Won/kwh)
Generation Companies		KHNP		126,609		39.8		5,075		32.2		40.08
		KOMIPO		34,010		10.7		1,895		12.0		55.71
		KOSEPCO		35,367		11.1		1,653		10.5		46.75
		KOWEPO		36,440		11.5		2,047		13.0		56.16
		KOSPO		46,694		14.7		2,738		17.4		58.64
		EWP		34,247		10.8		2,014		12.8		58.79
		Others		4,695		1.4		326		2.1		69.34

		Total		318,062		100.0		15,747		100.0		49.51

Energy Sources		Nuclear		125,142		39.3		4,984		31.7		39.83
		Bituminous coal		117,644		37.0		4,940		31.4		41.99
		Anthracite coal		5,247		1.6		276		1.8		52.66
		Oil		17,770		5.6		1,430		9.1		80.48
		LNG		965		0.3		151		1.0		156.19
		Combined cycle		46,643		14.7		3,596		22.8		77.10
		Hydro		2,382		0.7		148		0.9		62.06
		Pumped storage		1,527		0.5		179		1.1		116.97
		Others		742		0.3		43		0.2		58.35

		Total		318,062		100.0		15,747		100.0		49.51

Load		Base load		247,577		77.8		10,174		64.6		41.10
		Non-base load		70,485		22.2		5,573		35.4		79.06

		Total		318,062		100.0		15,747		100.0		49.51


	Cost-Based Pool System

We purchase electricity generated by our six generating subsidiaries and some of the independent power producers without PPAs through the KPX, which was established in April 2001, under CBP. Under the current CBP, power plants are separated into two groups, one comprising base load plants (nuclear and coal energy sources) and the other comprising non-base load plants (oil, LNG and hydro energy sources). Along with other generation companies, KHNP submits details of its production costs, which are used to determine SMP, BLMP, Non-Base Load CP and Base Load CP, to KPX. Non-Base Load CP and Base Load CP representing fixed costs of non-base load units and base load units, respectively, are settled separately from the CBP. SMP and BLMP used to calculate prices are based on the highest variable costs among the plants in operation by merit order submitted to the power pool. For details of the pool system, see “— Restructuring of the Electricity Industry in Korea — Phase II”.

In 2004, the average settlement price of BLMP was W19.17/kWh. For the same period, the average settlement price of SMP was W55.97/kWh. The Base Load CP and Non-Base Load CP for 2004 were W20.49/kWh and W7.17/kWh, respectively.


	Power purchased from Independent Power Producers with PPA

We also purchased an aggregate of 10.5 billion kilowatt hours of electricity generated by independent power producers under existing power purchase agreements in 2004. We purchased the entire power output of a privately-owned combined cycle unit, a number of hydroelectric units owned by the Government-owned Korea Water Resources Corporation and certain other small hydroelectric and other units owned by private business, with an aggregate capacity of 4,400 megawatts as of December 31, 2004.

Transmission and Distribution

We are currently the only company engaged in the transmission and distribution of electricity in the Republic. As of December 31, 2004, we had in operation 615 substations with an installed transformer capacity of 193,700 megavolt-amperes.

As of December 31, 2004, the transmission system comprised approximately 28,409 circuit kilometers of lines of 765 kilovolts and others including High Voltage Direct Current (“HVDC”). As of December 31, 2004, our distribution system comprised of 78,559 MVA of transformer capacity and 7.3 million units of support with a total line length of 380,363 circuit kilometers.

In recent years, we have invested heavily in our transmission and distribution systems to expand capacity and to increase efficiency. Current projects include increasing transmission capability for the existing transmission lines. We achieved a transmission and distribution loss factor of 4.46% in 2004.

As we anticipate making substantial additions to our generating capacity in the near term, we will need to make significant investments in expanding our transmission and distribution facilities. We will need to make additional capital expenditures to improve existing facilities, strengthen our nationwide power grids and increase the proportion of underground distribution lines.

Some of the facilities we own and use in our distribution system employ rights of way and other concessions granted by authorities in the municipalities and at other local areas where the facilities are located. These concessions have generally been renewed at expiration.

Fuel


	*Nuclear*

All uranium ore concentrates, conversion and enrichment services are imported from sources outside Korea (including the United States, United Kingdom, France, Russia, South Africa, Canada and Australia) and are paid for with currencies other than Won, primarily in U.S. dollars.

In order to ensure stable supply, KHNP enters into long-term and medium-term contracts with various suppliers, and supplements such supplies with purchases of fuels on spot markets.

In 2004, KHNP purchased 100%, or 2,746 tons, of its uranium concentrates requirement under long-term supply contracts with suppliers in Australia, Canada, France, the United Kingdom, South Africa and the United States. Under the long-term supply contracts, the purchase prices of uranium concentrates are adjusted annually based on base price and spot market price prevailing at the time of actual delivery. Non-Korean suppliers provide the conversion and enrichment of uranium concentrates and Korean suppliers provide fabrication of fuel assemblies. Contract prices for processing of uranium are adjusted annually in accordance with the general rate of inflation with exceptions for certain fixed contract prices. KHNP intends to obtain its uranium requirements in the future, in part, through purchases under long-term and medium-term contracts and, in part, through spot market purchases.


	*Coal*

As of December 31, 2004, 30.3% of our total installed generating capacity (not including capacity of others) was represented by plants burning bituminous coal and 2.1% of such generating capacity was represented by plants burning anthracite coal.

For the year ended December 31, 2004, our generation subsidiaries purchased 46.6 million tons of bituminous coal. Most of our bituminous coal requirements are imported from China, Australia, Indonesia, Canada, Russia and the United States, with approximately 77.1% purchased under long-term contracts and 22.9% purchased on the spot market. Certain of our long-term contracts relate to specific generating plants and extend through the end of the projected useful lives of the specific plants, subject in some cases to periodic renewal. Pursuant to the terms of our long-term supply contracts, prices are adjusted annually in light of market conditions. The average cost of bituminous coal per ton purchased under such contracts was approximately W55,222 in 2004. Recently, due to increase in domestic demand in China and elsewhere in the world, the prices of bituminous coal have soared. Combined with the effects of rising shipping cost for bituminous coal, our generation subsidiaries will be unable to secure their respective bituminous coal supply at prices comparable to those of prior periods. See Item 3 “Key Information — Risk Factors — Risks Relating to KEPCO — Increase in fuel prices will adversely affect our results of operations and profitability”.

For the year ended December 31, 2004, our generation subsidiaries purchased 2.3 million tons of anthracite coal. Our generation subsidiaries purchase our anthracite coal requirements in Korea under long-term contracts with Korea Coal Corporation which is wholly-owned by the Government and the Korea Coal Mines Cooperative. The prices for anthracite coal under such contracts are set by the Government. The average cost of anthracite coal per ton purchased under such contracts was approximately W79,420 in 2004.


	*Oil*

Our generation subsidiaries purchased approximately 27.2 million barrels of fuel oil (including gasoline for internal combustion) in 2004. We acquired approximately 40.5% of this fuel oil through competitive open bidding among five Korean refiners for three-month terms of supply. We purchased the remainder through international open bidding (including local refineries and traders) for individual cargoes. Purchase prices are based on the spot market in Singapore. The average cost per barrel was approximately W38,561 in 2004.


	*LNG*

For the year ended December 31, 2004, we purchased approximately 7.0 million tons of LNG from Korea Gas Corporation (“KGC”), a Korean corporation of which we own 24.5%. We entered into a 20-year LNG supply contract (the “LNG Contract”) with KGC which will expire in November 2006. Under the terms of the LNG Contract, our annual minimum purchase quantity is determined by our negotiations with KGC, subject to the Government’s approval, and may be adjusted through negotiations between the parties. Our generation subsidiaries are under a “take-or-pay” obligation to KGC to the extent of our annual minimum purchase quantity. The annual purchase price for LNG is determined by our negotiation with KGC, subject to approval by the MOCIE. KGC imports LNG primarily from Indonesia, Malaysia, Qatar, Oman, Brunei and Australia and supplies LNG to us and other Korean gas companies. We believe quantities of LNG provided under such contract will be adequate for our generation subsidiaries’ needs for the next several years. The average cost per ton of LNG under such contract was approximately W430,392 in 2004.


	*Hydroelectric*

The availability of water for hydroelectric power depends on rainfall and competing uses for available water supplies, including domestic and industrial consumption, agriculture and irrigation. Pumping storage enabled us to increase available supplies of water for use during periods of peak demand.

Sales and Customers

Our results of operations, sales in particular, are dependent upon demand for electricity in Korea and the rates we charge for the electricity we sell.

Demand for electricity in the Republic grew at a compounded average rate of 7.8% per annum for the five years ended December 31, 2004. According to The Bank of Korea, real GDP compounded growth rates was approximately 5.4% for the same period. The GDP growth rate was 4.6% for 2004 as compared to 3.1% in 2003.

The rapid growth in Korea’s economy since the early 1960’s has resulted in substantial growth in the demand for electricity. While the world-wide economic recession of the early 1980’s slowed economic growth in Korea, in the latter half of the 1980’s, the Republic’s economy resumed its rapid growth, leading to substantial increases in demand for electricity. The slow economic growth in Korea in the early 1990’s resulted in a slight decline in the growth of demand for electricity. However, consumption levels, particularly during periods of peak demand, continue to press the limits of available supply. Total demand for electricity in 2001 increased by 7.6% as compared to 2000. The total demand for electricity in 2002 increased by 8.0% as compared to 2001, the total demand in 2003 increased by 5.4% as compared to 2002, and the total demand in 2004 increased by 6.3% as compared to 2003. The table below sets forth, for the periods indicated, the annual rate of growth in Korea’s gross domestic product (“GDP”) and the annual rate of growth in electricity demand (measured in total annual electricity consumption).


	2000		2001		2002		2003		2004

Growth in GDP (at 2000 constant prices)		8.5%		3.8%		7.0%		3.1%		4.6%
Growth in electricity consumption		11.8%		7.6%		8.0%		5.4%		6.3%

Electricity demand in the Republic varies within each year for a variety of reasons other than general growth in demand. Electricity demand tends to be higher during daylight hours due to commercial and industrial activity and electrical appliance use during such periods. Due to air conditioner use, electricity demand is higher during the summer than during any other season. Variations in weather conditions may also cause significant variations in electricity demand.


	*Demand by Class of Customers*

The table below sets forth the consumption of electric power by usage by class of customers for the periods indicated.


												% of Total
		2000		2001		2002		2003		2004		2004

				(Gigawatt hours)								(Percent)
Industrial			132,260		135,791		144,454		150,387		158,337		50.7%
Commercial			70,173		82,729		91,719		98,640		105,144		29.7%
Residential			37,102		39,211		42,278		44,572		48,615		19.6%

	Total		239,535		257,731		278,451		293,599		312,096		100.0%

Demand during the first quarter of 2005 increased by 5.7% to 84,772 million kilowatt hours as compared to the corresponding period in 2004.

Industry is the largest user of electricity in Korea. While demand from the industrial sector (including the agricultural sector) has increased steadily as a result of economic expansion in the Republic, it has gradually declined as a percentage of total demand from 58.0% of total demand in 1997 to 50.7% in 2004. Demand from the industrial sector (including the agricultural sector) increased by 5.3% to 158,337 million kilowatt hours in 2004 as compared to 2003.

Demand from the commercial sector has increased in recent years, both in absolute terms and as a percentage of total demand. The rapid expansion of the service sector of the Korean economy has resulted in increased office building construction, office automation and use of air conditioners. Growth in the commercial sector is also attributable to the construction industry and the expansion of the leisure and distribution industries.

Demand from the commercial sector increased by 6.6% to 105,143 million kilowatt hours in 2004 as compared to 2003.

In 2004, we serviced about 11 million households, or almost all of the households in the Republic. Continuing increase in demand from the residential sector is due primarily to increases in population and increased use of air conditioners and other electrical appliances. Demand from the residential sector increased by 9.1% to 48,615 million kilowatt hours in 2004 as compared to 2003.


	*Demand Management*

Our ability to provide an adequate supply of electricity is principally measured by the facility capacity reserve ratio and the supply capability reserve ratio. The facility capacity reserve ratio represents the difference between peak usage during a year and installed capacity as of the time of such peak usage expressed as a percentage of such installed capacity. The supply capability reserve ratio represents the difference between peak usage in a year and average available capacity as of the time of such peak usage expressed as a percentage of such peak usage. The following table sets forth our facility capacity reserve and supply capability reserve ratios for the periods indicated.


	2000		2001		2002		2003		2004

	(Percent)
Facility reserve ratio		16.8		15.1		15.3		18.4		15.3
Supply reserve ratio		12.4		12.9		13.9		17.1		12.2

While we provide for the growing demand for electricity in Korea primarily by continuously expanding our generating capacity through the addition of new generating facilities, we have also implemented several programs designed to control electricity demand, especially during peak periods. Principal measures are time-of use rate schedules mostly for large-scale customers and a progressive rate structure for residential use of electricity. Other measures include incentives from a public benefit fund for peak load reduction by adjusting vacation or repair schedules and for average load reduction during summer peak hours as well as Government encouragement of measures in building construction (such as use of ice-storage air conditioners) to reduce electricity use and the provision of loans on favorable terms by Government-controlled financial institutions for energy conservation projects with recommendations of the Korea Energy Management Corporation.

Rates

The Electricity Business Law and the Price Stabilization Act of 1975, as amended (together, the “Rate Laws”), prescribe the procedures for the approval and establishment of rates charged for the electricity we sell. We submit our recommendations for revisions of rates or changes in the rate structure to the MOCIE. The recommendations are reviewed and, upon consultation with the Electricity Rates Expert Committee of the MOCIE and the MOFE, a final determination is made by the MOCIE. Under the Electricity Business Law, the recommendations must be reviewed by the KOREC, which was established as a regulatory agency under the amended law, prior to final determination by the MOCIE. On January 1, 2003, as part of a plan to improve the rate structure, the MOCIE adjusted the rates among the various types of consumers. As a result of this rate adjustment, industrial rates increased by 2.5%. On the other hand, residential and commercial rates decreased by 2.2% and 2.0%, respectively. On March 1, 2004, the MOCIE revised our rate schedule, which resulted in a 1.5% reduction of rates. Residential, commercial and educational rates decreased by 2.8%, 3.5% and 3.0%, respectively. Industrial rates were frozen at previous levels despite our request for an increase.

As contemplated by the Rate Laws, electricity rates are established at levels intended to permit us to recover our operating costs attributable to our basic electricity generation, transmission and distribution operations and to provide a fair investment return on capital employed in those operations. For the purposes of rate approval, operating costs are the sum of:


	•	operating expenses plus

	•	adjusted income taxes.

Fair investment return is equal to the rate base times a fair rate of return. The rate base is equal to the sum of:


	•	net utility plant in service (equal to utility plant minus accumulated depreciation minus revaluation reserve) plus

	•	working capital for two months (equal to 2/12 of operating expenses other than depreciation expenses and any other non-cash expenses) plus

	•	construction in progress using equity fund.

The amounts used for the variables in the rates are those projected by us for the periods to be covered by the rate approval. There is no provision for prior period adjustments to compensate us.

For the purpose of determining fair investment return, the rate base is divided into two components proportionate to our total stockholders’ equity and our total debt. The fair rate of return permitted in relation to the debt component of the rate base is set at a level designed to approximate our anticipated interest cost on long-term debt for the periods covered by the rate approval. The approved fair rate of return on the debt component of the rate base is 5.3%. The fair rate of return permitted in relation to the equity component of the rate base is set at a level equal to the expected rate of return on investment calculated using a formula provided in the new standards. The approved fair rate of return on the equity component of the rate is 7.53%.

The Rate Laws do not contemplate any determination of the reasonableness of operating expenses or any other items (other than the level of fair investment return) for the purposes of the rate calculation. However, the Government exercises substantial control over our budgeting and other financial and operating decisions.

In addition to the calculations described above, a variety of other factors are considered in setting overall rate levels. These other factors include consumer welfare, our projected capital requirements, the effect of electricity rates on inflation in the Republic and the effect of rates on demand for electricity.

In the latter half of the 1980s, our actual rate of return on equity generally exceeded the rate of return on equity assumed for the purposes of rate approvals principally as a result of declining fuel costs and higher than anticipated growth in demand. As a consequence, we implemented rate reductions averaging 7.6% in 1987, 7.6% in 1988, 7.0% in 1989 and 3.7% in 1990. However, primarily because of changes in fuel prices and growth in capital investment, and in order to encourage conservation of electricity and to secure internal cash for capital expenditures, rates were increased by an average of 4.9% in June 1991, 6.0% in February 1992, 4.2% in May 1995. More recently, in order to compensate for the Won depreciation which caused our fuel expenditure to increase, rates were increased by 5.9% in July 1997, 6.1% in January 1998, 5.3% in November 1999 and 4.0% in November 2000 across the board. From 1997 through 2003, our actual rate of return on invested capital generally was below the rate of return assumed for the purpose of rate approvals.

Our rate schedule is organized by types of use: principally industrial, commercial, residential, educational and agricultural. The rates charged for electricity vary among the different classes of consumers.

Rates also vary depending upon the voltage used, the season, the time of day, the option of rate selected by the user and, in the residential sector, the amount of electricity used per household, as well as other factors. Beginning with the first six months of 1995, we adjusted seasonal rate variations by removing the month of June from the summer period when peak rates are in effect and increasing the rates for the months of October, November, December, January, February and March to correspond more closely to peak demand variations.

Our current rate schedule, which was last revised as of March 1, 2004 is summarized below by type of consumer:

Industrial. The basic charge varies from W4,020 per kilowatt to W5,070 per kilowatt depending on the type of contract, the voltage used and the option of rate. Energy usage charge varies from W28.00 per kilowatt hour to W118.60 per kilowatt hour depending on the type of contract, the voltage used, the season, the time of day and the option of rate.

Commercial. The basic charge varies from W5,170 per kilowatt to W6,130 per kilowatt depending on the type of contract, the voltage used and the option of rate. Energy usage charge varies from W36.00 per kilowatt

hour to W148.10 per kilowatt hour depending on the type of contract, the voltage used, the season, the time of day and the option of rate.

Residential. Residential rates include a basic charge ranging from W370 for electricity usage of less than 100 kilowatt hours to W11,440 for electricity usage in excess of 500 kilowatt hours. Residential rates also include an energy usage charge ranging from W52.00 to W606.80 per kilowatt hour for electricity usage depending on the amount of usage and voltage.

Educational. The basic charge varies from W4,830 per kilowatt to W5,870 per kilowatt depending on the voltage used and the option of rate. Energy usage charge varies from W50.90 per kilowatt hour to W86.20 per kilowatt hour depending on the voltage used, the season and the option of rate.

Agricultural. The basic charge varies from W340 per kilowatt to W1,060 per kilowatt depending on the type of usage. The energy usage charge varies from W20.40 per kilowatt-hour to W36.10 per kilowatt hour depending on the type of usage.

Effective June 1, 2002, the MOCIE adjusted the progressive rates for residential electricity usage. Such progressive rates for residential electricity usage originally started in 1974 following the oil crisis of 1973 as a way of inducing reasonable and economical usage of electricity and energy. Seven different rates are progressively imposed according to the average amount of electricity used. When average residential electricity rates increased 3.3% in November 2000, rates for electricity usage below 300 kilowatt hours did not increase, but the progressive rates were further strengthened by a 20% increase for electricity usage between 301 kilowatt hours and 400 kilowatt hours and by a 40% increase for electricity usage over 400 kilowatt hours. As a result of ever increasing electricity usage of the average household, however, the previous base amount for the application of progressive rates, 300 kilowatt hours, has been raised to 400 kilowatt hours. In addition, residential high-voltage rates have also been established, taking into account the gap between the costs of high-voltage and low-voltage electricity. Finally, the MOCIE established the Electric Power Industry Basis Fund to enable the Government to take over public service aspects of our business as part of the implementation of the Restructuring Plan. Electricity charge and charge for the Electric Power Industry Basis Fund are separately billed.

On January 1, 2003, as part of a plan to improve the tariff structure, the MOCIE adjusted the rates among the various types of consumers. As a result of this rate adjustment, industrial rates increased by 2.5%. On the other hand, residential and commercial rates decreased by 2.2% and 2.0%, respectively.

On March 1, 2004, the MOCIE further revised our rate schedule, which resulted in a 1.5% reduction in rates. Residential, commercial and educational rates decreased by 2.8%, 3.5% and 3.0%, respectively. Industrial rates were frozen at previous levels despite our request for an increase.

Power Development Strategy

The Government released the second of Long-Term Electricity Supply and Demand Basic Plan (the “Second Basic Plan”) on December 2004. The Second Basic Plan will serve as a guideline for stable medium and long term supply of electric power and will not be spearheaded by the Government but will instead be led by generation companies

The objectives of the Second Basic Plan include, among other things, (1) introducing a competitive market mechanism in the electricity market, (2) establishing an information-based plan to increase generating capacity, (3) ensuring participation from specialists in related areas of expertise, and (4) establishing a sustainable plan that considers the efficient consumption of electricity and ensures continuity with the first basic plan.

The Basic Plan is subject to change depending upon a variety of factors, including demand growth projections, availability and cost of financing, changes in fuel prices and availability of fuel, ability to acquire necessary plant sites, environmental considerations, community opposition and other factors.

Capital Investment Program

The table below sets forth for each year in the three-year period ended December 31, 2004, the amounts of capital expenditures (including capitalized interest) for the construction of generating, transmission and distribution facilities:


2002		2003		2004

(In billions of Won)
	W6,653		W6,782		W6,287

In accordance with the objectives of the Basic Plan, our generation subsidiaries currently intend to add new installed capacity of 20,750 megawatts during the period from 2005 to 2016 by constructing or expanding the capacity of 9 nuclear units, 1 LNG-fired combined cycle internal combustion units, 14 coal-fired units, two oil-fired units and eight hydroelectric units and others. According to the Plan, the total capacity of all generating facilities in 2016 will be 74,660 megawatts, of which nuclear power plants will contribute 36.6%, coal-fired plants 32.9%, LNG combined plants 16.9%, oil-fired plants 6.5% and hydroelectric and other plants 7.1%.

The table below sets forth information as to the currently estimated date of completion and installed capacity of new or expanded generating units to be completed by our generation subsidiaries according to the Basic Plan in each year through the year 2008.


Year	Number of Units		Type of Units	Total Installed Capacity

	(Megawatts)
2005		1	LNG-fired combined cycle		450.0
		1	Nuclear		1,000.0
		1	Coal-fired		500.0
2006		1	Coal-fired		500.0
		6	Pumped storage hydroelectric		1,600.0
		1	Oil-fired		100.0
2007		3	Coal-fired		1,500.0
		1	Oil-fired		100.0
2008		5	Coal-fired		2,800.0

In the years between 2009 and 2016, our generation subsidiaries plan to complete eight nuclear units with an aggregate installed capacity of 9,600 megawatts, four coal-fired units with an aggregate installed capacity of 1,800 megawatts and two pumped storage hydroelectric units with an aggregate installed capacity of 800 megawatts.

As part of our capital investment program, we also intend to add additional cable transmission lines and to continue to replace above-ground lines with underground cables in densely populated areas. In addition, we plan to improve the existing transmission and distribution systems.

The actual number and capacity of generation units and transmission and distribution facilities we and our generation subsidiaries construct and the timing of such construction will depend upon a variety of factors, including demand growth projections, availability and cost of financing, changes in fuel prices and availability of fuel, ability to acquire necessary plant sites, environmental considerations, community opposition and other factors.

The table below sets forth for the years from 2005 to 2008, the budgeted amounts of capital expenditures (including capitalized interest) for the construction of generation and transmission and distribution facilities pursuant to our generation subsidiaries’ and our capital investment program. The budgeted amounts may vary from the actual amounts of our generation subsidiaries’ capital expenditures for a variety of reasons, including the implementation of the Restructuring Plan, changes in the number of units to be constructed and the timing of such construction, changes in rates of exchange between the Won and foreign currencies, changes in interest rates and other factors.


			2005		2006		2007		2008		Total

			(In billions of Won)
Generation:
	Nuclear		W	2,204	W	2,242	W	3,060	W	3,412	W	10,918
	Thermal			2,499		2,899		2,236		1,415		9,049

		Sub-total		4,703		5,141		5,296		4,827		19,967
Transmission and Distribution:
	Transmission			1,515		2,332		2,350		2,356		8,553
	Distribution			1,706		1,962		2,092		2,226		7,986
	Others			396		431		449		491		1,767

		Sub-total		3,617		4,725		4,891		5,073		18,306

Total			W	8,320	W	9,866	W	10,187	W	9,900	W	38,273

Environment and Community Programs

The Environment Policy Basic Act of 1990 (as amended) and other related legislation and regulations (the “Environment Acts”), which are principally administered by the Ministry of Environment, regulate atmospheric emissions, wastewater, noise and other emissions from our thermal, hydro and internal combustion power units. We believe that our existing units are currently in compliance with in all material respects of the requirements of the Environment Acts.

Atmospheric emissions from generating plants burning fossil fuels include, among other things, sulphur dioxide, nitrogen oxide and particulates. The Environment Acts establish emissions standards relating to, among other things, sulfur dioxide, nitrogen oxide and particulates. Such standards have become more stringent from January 1999 to reduce the amount of permitted emissions.

The table below sets forth the number of emission control equipment installed to coal-fired power plants by our generation subsidiaries as of December 31, 2004.


	KOSEPCO		KOMIPO		KOWEPO		KOSPO		EWP

Flue Gas Desulphurisation System		10		6		10		8		7
Selective Non-Catalytic Reduction System		—		0		—		1		2
Selective Catalytic Reduction System		4		4		—		5		3
Electrostatic Precipitation System		12		11		10		13		14
Low NO ₍₂₎Combustion System		16		16		14		16		4

In order to comply with the current and expected standards that will be in place in the future, we intend to continue to install additional emissions control equipment. The installation of such emissions control equipment may also result in increased operating costs. The actual costs of installation and operation of such equipment will depend upon a variety of factors, including, among other things, modifications to emissions limits and the amount of power such equipment will consume.

There has been opposition in the Republic to the construction and operation of nuclear generating units. The Act for Supporting the Communities Surrounding Power Plants addresses neighboring community concerns about generating units. Pursuant to this Act, KHNP undertook various activities to address concerns of residents

of areas near nuclear units. KHNP has also dedicated a portion of its total revenues from electricity sales to community development programs, including educational, income-assistance and other programs. As a result of the amendment of the Act for Supporting the Communities Surrounding Power Plants in December 2000, however, the Government took over such public service aspects of its business. Despite these activities, community opposition to the construction and operation of nuclear units could result in a change in construction plans for nuclear units and have a material adverse effect on us.

Prior to the construction of a generating unit, KHNP performs an environmental impact assessment which is designed to evaluate public hazards, damage to the environment and concerns of local residents. A report reflecting this evaluation and proposed measures to address the problems identified must be submitted to and approved by the Ministry of Environment prior to construction of the unit. KHNP is then required to implement the measures reflected in the approved report.


	*Nuclear Safety*

KHNP has adopted nuclear safety as its top priority and continuously focuses on ensuring the safe and reliable operation of nuclear power plants. KHNP has been also focusing on enhancing corporate ethics and transparency in the operation of their plants.

KHNP adopted its corporate code of ethics in September 2002 and declared its strong commitment to continuously enhance nuclear safety, develop new technologies, and improve transparency. In December 2003, KHNP also established the “Statement of Safety Policy for Nuclear Power Plants” to ensure the highest level of the safety. Furthermore, KHNP has invested about 4% to 5% of total sales into research and development for the enhancement of nuclear safety and operational performance.

KHNP has developed diverse and comprehensive programs to monitor and ensure the safety level of nuclear power plants. To verify nuclear safety and identify the potential for safety improvements through comprehensive and systematic approaches, KHNP has been performing Periodic Safety Reviews (“PSRs”) for all operating units. PSRs have been completed for Kori units 1, 2, 3, 4 and Wolsong unit 1. PSRs for Yonggwang 1, 2, 3 and 4 are also in progress and will be finished in June 2005, in the case of Younggwang 1 and 2, and March 2006, in the case of Younggwang 3 and 4. Additionally, KHNP has conducted Probabilistic Safety Assessments (“PSAs”) for all units except Ulchin units 1 and 2 which are currently in progress and scheduled to be completed in December 2005.

KHNP developed the Risk Monitoring System (“RIMS”) for Kori units 3 and 4 on June 2003 and is also developing systems for other nuclear power plants. It is expected that the RIMS will be very helpful for ensuring safety through the identification of risk increments due to changes in operating conditions during maintenance or equipment failures. In addition, the Severe Accident Management Guidelines (“SAMGs”) for operating nuclear power plants, except with respect to Ulchin units 1 and 2 and PHWR units, were developed and are currently being used to manage and mitigate the unlikely event of severe accidents. SAMGs for Ulchin units 1 and 2 and PHWR units are currently under development. KHNP will also enhance nuclear safety using the risk-informed approach based on PSA results. In addition, KHNP performs various safety related activities, such as Quality Assurance Audits, KHNP Nuclear Review Board reviews, KHNP operational safety review team reviews composed of external operating experts, surveillance tests and along with certain other approaches. KHNP is also actively cooperating with international nuclear organizations to enhance nuclear safety. In particular, KHNP invites international safety review teams such as the WANO Peer Review Team, the IAEA Operational Safety Assessment Review Team and the INPO Technical Exchange Visit Team to verify nuclear safety as third party observers. KHNP also shares and exchanges operating experiences and information with such parties for the enhancement of nuclear safety.

KHNP established systematically-organized training programs for its plant operators to maintain their operators capabilities for handling various situations including transient and abnormal conditions. To improve equipment reliability, KHNP has also reinforced the system engineering functions at nuclear sites by improving plants organization.

KHNP has sent over 30 engineers to U.S. and Canadian stations to benchmark their engineering programs and systems to enhance engineering capabilities. Through relevant safety or integrity assessments in a proactive manner, KHNP has been implementing plant modifications and replacing major equipment. For example, alternate emergency diesel generators for common use at Kori units 1, 2, 3 and 4, Ulchin units 1 and 2 and Yonggwang units 1 and 2 will be installed in the near future to protect the plants from station blackouts.

KHNP has also been allocating substantial resources to maintain equipment reliability and to improve overall nuclear safety and operational performance.

Since the operational reforms and upgrades in nuclear facilities beginning in 1992, the average level of radiation dose per unit has continuously decreased to reach 0.69 man-Sv in 2004 which was lower than the global average of 1.02 man-Sv/year according to World Association of Nuclear Operations Performance Indicator Report.

Low and Intermediate Level Wastes (“LILW”) and spent fuels are stored in temporary storage facilities at four nuclear sites. The temporary facilities for LILW of Ulchin, Wolsong, Yonggwang, Kori will reach their full capacity in 2008, 2009, 2012 and 2014, respectively.

For temporary storage facilities of spent fuels, KHNP is pursuing projects to augment the storage capacity by installing high density racks in spent fuel pools, construction of dry storage facilities and transportation of the spent fuels between units within a plant. Accordingly, the storage capacity for spent fuel in each nuclear site will be increased to accommodate all spent fuel produced by 2016. According to the Korean Atomic Energy Committee’s Resolution in December 2004, the site selection for a LILW disposal facility is in progress and completion of construction is scheduled to be completed by 2008. The policy on spent fuel management will be decided in the future and based on national consensus through further discussions.

On March 31, 2005, the Korean National Assembly passed a bill that specifies enhancement of the transparency of the site selection process and financial support for the local government that hosts the site for the LILW disposal facility.

All of the KHNP’s nuclear power plants are in compliance with the standards of the International Atomic Energy Agency and safety standards and requirements under national laws and ordinances. Based on the Ministry of Science and Technology’s determination regarding safety conditions, operation of nuclear power plants can be suspended.

Since submission of our annual report in 2004, there have been no significant safety related events or accidents in KHNP’s nuclear power plants that would have a material adverse effect on us.

Decommissioning

Decommissioning of a nuclear power unit is the process whereby it is shut down at the end of its economic life, the fuel is removed and it is eventually dismantled. KHNP has adopted an immediate dismantling strategy under which dismantling would take five to ten years to commence after unit closure. Kori-1 unit, the first nuclear power plant, commenced its operation in 1978 and it is expected to cease operation by 2008. KHNP is currently reviewing a number of options, including a plan to extend its operation. The decommissioning of this first nuclear unit is not expected to commence in the near future.

KHNP retains financial responsibility for decommissioning its units. KHNP has accumulated the decommissioning cost as in house liability since 1983. The estimated decommissioning costs of nuclear facilities based on a 1992 engineering study supplemented by management analysis and the expected decommissioning dates of its nuclear power plants. During 2003, KHNP obtained a new engineering study and updated its estimate of the expected decommissioning dates for its nuclear power plants. KHNP estimates its liability for decommissioning cost based on engineering studies provided by third parties and apply the amount prospectively. During 2004, KHNP obtained new engineering studies provided by other third parties. As a result, the new study in 2004 revised certain essential factors such as timing of cash outflows. In addition, through the adoption of Statement of Korea Accounting Standards, or SKAS, No. 17 “Provision and Contingent Liability & Asset”, other factors such as discount rate and inflation rate were also revised accordingly. For the accounting treatment of decommission-

ing costs, see Item 5 “Operating and Financial Review and Prospects — Operating Results — Critical Accounting Policies — Decommissioning Costs”.

Research and Development

We maintain a research and development program concentrated on developing self-reliant core technology and leading national technology advancement program in the electric power business.

In order to achieve the goal of bringing our electric technologies up to international standards by the first half of the 21st century, we have adopted the “Electric Technology Development Plan toward 2010” which is expected to be modified in the near future to reflect the “2015 Mid- and Long-term Strategic Management Plan” that we announced in May of 2005. This strategic plan is being implemented across all areas of our in-house research and development program. In addition, we and our six generation subsidiaries have made a Technology Road-Map to develop technologies in the area of thermal and nuclear generation.

The basic goal of our research and development program for the year 2004 was obtaining the highest electric power technology to enable us to become a global electric power leader. To promote research and development for enhancing economical efficiency and to provide a reliable supply of electric power, we invested, as of December 31, 2004, W137 billion in research and development, W8 billion in technological development and W68 billion in building up infrastructure for the education of human resources and the development of computer equipment.

In the field of hydroelectric and thermal power, our research and development efforts are primarily focused on developing the power technologies required for the efficient operation of thermal power plants such as our “Development of Advanced Thermal Power Plant” project using Ultra-Super Critical (USC) Technology. We also put much emphasis on enhancing plant maintenance, which has proven to be of great importance in maintaining a competitive edge in this field, through accurate damage analysis, environment-friendly inspections and various other protective and optimization measures.

In the field of nuclear power, our research and development efforts are primarily focused on developing technology for enhancing the safety and economy of nuclear plants, such as our “Life Time Management for Nuclear Power Plant” project. Our research and development objective for this field is to obtain the technologies necessary to perform reactor/plant safety analysis, radiation control and radioactive waste reduction and seismic monitoring and analysis.

KHNP’s corporate vision and long-term plan is called “KHNP Vision 2020”. In order to achieve a goal for “KHNP Vision 2020” in the field of technology development. KHNP established the “Mid- and Long-term Technology Development Plan” to strategically implement research and development. KHNP is primarily focused on development of technology for enhancing the safety and economy of nuclear power plants (NPPs).

In 2003, KHNP invested approximately W12 billion in R&D, W42 billion for the education of human resources and the development of computer equipment and W140 billion to the “Nuclear R&D fund” which is paid to the Ministry of Science and Technology in accordance with related law. In 2004, KHNP invested approximately W31 billion in R&D, W30 billion for the education of human resources and the development of computer equipment and W156 billion to the “Nuclear R&D fund”.

In the field of electric power systems, our research and development efforts have been focused on developing the required technologies and providing the technical support for the stable and reliable operation of power systems, such as “Development of Smart Transmission System Technology”. We have developed technologies for an efficient distribution system, preventive maintenance for substations, system automation, power utilization and power line communication.

Concurrently with carrying on the electric power business, we are committed to developing environment-friendly technologies and are focused on developing technologies for environmental protection and new sources of energy.

We invested approximately W196 billion in 2001, W155 billion in 2002, W178 billion in 2003, and W213 billion in 2004 on research and development. We had approximately 572 employees engaged in research and development activities as of December 31, 2004.

In addition, we have been cooperating closely with many foreign electric utilities and research institutes on a diverse range of projects.

The Government has launched several long-term research and development projects to achieve a self-reliant capability in the field of power generation. We are taking a leading role in this national research and development program which includes the “Korean Next Generation Nuclear Power Plant”, “Flue Gas Desulfurization and Denitrification”, “Integrated Gasification Combined Cycle Technologies” and “Molten Carbonate Fuel Cell” development projects.

As a result of our research over the past three years, the number of applications we have filed for intellectual property rights and grants has increased in quantity and quality. More than 600 applications were presented in Korea and abroad from 2002 through 2004.

We also try to market the technologies we have developed by identifying key items that had market potential in light of intellectual property, overseas market condition and cost-efficiency issues. We are continuously upgrading our R&D programs to emphasize low-cost, high-efficiency research by restructuring our R&D organization and reallocating and reassigning research personnel.

Other Activities

In January 2000, we established a telecommunication company, Powercomm, for purposes of (i) disposing of our non-core business and (ii) ensuring fair usage and competition through the efficient use of our telecommunication network. We have transferred approximately W713 billion of our fiberoptic network assets as well as approximately W36 billion of cash to Powercomm. As Powercomm has obtained a telecommunications license from the Government, it is capable of operating its telecommunication business independently. In July 2000 we sold 10.5% of our equity interest in Powercomm and in December 2002 we further sold approximately 45.5% of our equity interest, including our management right in Powercomm for W819 billion and in April 2003 we sold a further 1,299,000 shares of Powercomm, representing 0.87% of Powercomm’s total issued and outstanding shares of common stock to Powercomm’s employee stock ownership association. Following such sales, our current ownership interest in Powercomm is 43.1%. Depending on market conditions, we expect to dispose of our remaining equity interest in Powercomm in domestic and foreign markets. See “— Proposed Sale by Us of Certain Power Plants and Equity Interests”.

Based on our operational experience and the full range of services, power plant construction, specialized engineering and maintenance services that we and our subsidiaries offer, we have been pursuing international power-related projects in overseas markets including the Philippines, China and the Middle-East. Currently, we are executing two major power projects, (i) a 650-megawatt oil-fired power plant in Malaya, the Philippines that we have been working on since June 1998 and (ii) a 1,200-megawatt Ilijan Combined-Cycle Power Plant project, which is a ‘Build, Operate & Transfer’ project, that we were awarded by the National Power Corporation in the Philippines through an international bid in November 1997, and which was commissioned in June 2002. The project cost of the latter project was US$710 million, for which project finance on a limited recourse basis has been provided. In addition, we were recently awarded a 100-megawatt coal-fired power plant, another ‘Build, Own & Operate’ project, in Wuzhi, China and the project construction is in progress to be completed in October, 2006. We are also carrying out a power transmission and distribution service in Libya. In addition, KEPCO is considering participating in energy resources development programs abroad to secure stable supply of fuel materials.

The Korean Peninsula Energy Development Organization (“KEDO”) selected us as their prime contractor in March 1996 to build two units of pressurized light-water nuclear reactors with total capacity of 2,000 megawatts in North Korea. Preliminary work for the contract, which commenced in August 1997, was completed on February 2, 2000. We entered into a subcontract agreement with KEDO on December 15, 1999. Pursuant to the contract which became effective as of February 3, 2000, we commenced full-scale construction of the two

pressurized light-water reactors which is scheduled to be completed within 116 months of commencement. KEDO, members of which include Korea, the United States, the European Union and Japan, etc. is responsible for financing the approximately US$4.6 billion project.

The KEDO project, due to heightened tension in the international arena by such factors as the announcement of reactivation of North Korea’s nuclear facilities construction process, was suspended for a one-year period running from December 1, 2003 to November 30, 2004 initially. In addition, the suspension of the construction has been extended for another year, starting from December 1, 2004 to November 30, 2005. We, having inherited the light-water reactor project, are bound by contract for the period of suspension to take steps to prevent deterioration of the quality of our construction facilities or loss of profit, as well as to prepare for prompt resumption of project activities. Accordingly, we are doing our best to maintain the high quality and safety of our construction facilities, despite the fact that the project is in a dormant state, in order to optimize performance in case of a resumption of the project.

Currently, the business and revenues of these activities are not in the aggregate material to us.

Insurance

We maintain casualty and liability insurance against risks related to our business to the extent we consider appropriate and otherwise self-insure against such risks. We carry insurance covering key assets and equipment against certain risks, construction-in-progress, procurement in transit and directors’ and officers’ liability. These insurance and indemnity, however, cover only a portion of the assets that our generation subsidiaries own and operate and do not cover all types or amounts of loss that could arise in connection with the ownership and operation of these assets.

Risks of substantial liability arise from the operation of nuclear-fueled generating units and from the use and handling of nuclear fuel and possible radioactive emissions associated with such nuclear fuel. KHNP maintains property and liability insurance against risks of its business to the extent it considers appropriate and otherwise self-insure against such risks. KHNP carries insurance for its generation units against certain risks, including property damage, nuclear fuel transportation and liability insurance for personal injury and property damage. KHNP is also the beneficiary of a Government indemnity with respect to such risks. Under the Nuclear Damage Compensation Act of 1969, as amended, KHNP is liable only up to 300 million Special Drawing Rights (“SDRs”, approximately US$496 million, at the rate of 1 SDR = US$1.48516 as posted on the Internet homepage of the International Monetary Fund on May 27, 2005) per single accident; provided that such limitation will not apply where KHNP intentionally caused the harm or knowingly failed to prevent the harm from occurring. KHNP will receive the Government’s support, subject to the approval of the National Assembly, if (i) the damages exceed the insurance coverage amount of W50 billion and (ii) the Government deems such support to be necessary for the purposes of protecting damaged persons and supporting the development of nuclear energy business. The amount of Government’s support to KHNP for such qualifying nuclear incident would be 300 million SDRs, or the limit of KHNP’s liability, minus the coverage amount of up to W50 billion as determined by the National Assembly. KHNP also carries insurance against terrorism with the insurance coverage being up to US$300 million on property and W50 billion on liability. The amounts and coverage of these insurance and indemnity are limited and do not cover all types or amounts of loss which could arise in connection with the ownership and operation of nuclear plants, and material and adverse financial consequences could result from a significant accident.

Other than KHNP, neither we nor our generation subsidiaries carry any insurance against terrorist attacks specifically.

See Item 3 “Key Information — Risk Factors — Risks Relating to KEPCO — Insurance coverage may not be sufficient”.

Affiliated Companies

We have four principal affiliates (companies in which we hold at least 20% and not more than 50% of the share capital) whose accounts are not required to be included in our consolidated financial statements. See Note 6

of the notes to our consolidated financial statements. The table below sets forth for each of the principal affiliates the name and year of incorporation, our percentage holding and their principal activities as of December 31, 2004.


	Year of
	Incorporation		Ownership		Principal Activities

			(Percent)
KGC		1983		24.5	Sales of liquefied natural gas
Korea District Heating Co. Ltd.		1985		26.1	Provision of heat
YTN(1)		1993		21.4	Broadcasting
Powercomm Corporation		2000		43.1	Communication line leasing
Korea Electric Power Industrial Development Co., Ltd.		1990		49.0	Disposal of power-plant ash and electric meter reading


(1)	KEPCO Data Network Co., Ltd., a wholly-owned subsidiary of KEPCO, owns the 21.4% equity interest in YTN.

Competition

We are currently the only holder of the required license for transmission and distribution of electricity in the Republic and have no competitors in these areas. Therefore, our principal competition is currently from alternative power and heating sources. The power generation industry is in the process of liberalization, beginning with the establishment of our power generation subsidiaries in April 2001, in accordance with the Restructuring Plan.

In the residential market, consumers may use natural gas, oil and coal for space and water heating and cooking. However, currently there is no practical substitute for electricity for lighting and for many household appliances.

In the commercial market, electricity is the dominant energy source for lighting, office equipment and air conditioning. In other uses such as space and water heating, natural gas and, to a lesser extent, oil provide competitive alternatives to electricity.

In the industrial market, currently there is no practical substitute for electricity in a number of applications including lighting and power for many types of industrial machinery and processes. For other uses, such as space and water heating, electricity competes with oil and natural gas and potentially with gas-fired combined heating and power plants.

Regulation

We are a statutory juridical corporation established under the KEPCO Act for the purpose of ensuring “stabilization of the supply and demand of electric power, and further contributing toward the sound development of the national economy through expediting development of electric power resources and carrying out proper and effective operation of the electricity business”. The KEPCO Act contemplates that we will engage in the following activities:


	•	development of electric power resources;

	•	the generation, transmission, transformation, distribution of electricity and other related business;

	•	related investment, research and technology development;

	•	business incidental to the foregoing; and

	•	any other business activities entrusted to us by the Government.

The KEPCO Act currently requires that our profits be applied in the following order of priority:


	•	first, to make up any accumulated deficit;

	•	second, to set aside as a legal reserve 20% or more of profits until the accumulated reserve reaches one-half of our capital;

	•	third, to pay dividends to stockholders;

	•	fourth, to set aside a reserve for expansion of our business;

	•	fifth, to set aside a voluntary reserve for the equalization of dividends; and

	•	sixth, to carry forward surplus profit.

According to our consolidated financial results as of December 31, 2004, the legal reserve was W1,602 billion, the reserve for business expansion was W12,438 billion and the reserve for investment of social overhead capital was W5,092 billion.

We are under the supervision of the MOCIE, which has principal responsibility with respect to director and management appointments and rate approval.

Because the Government partially owns our capital stock, the Government’s Board of Audit and Inspection may audit our books.

The Electricity Business Act requires that licenses be obtained in relation to the generation, transmission and distribution and sale of electricity, with limited exceptions. We possess a license authorizing us to generate, transmit, distribute and sell electricity. Several other companies have received a license solely for power generation. See “— Power Generation — Purchased Power”. Each of our six generation subsidiaries possesses an electricity generation license. No entity other than us has a license for the transmission or distribution of electricity. The Electricity Business Act also governs the formulation and approval of electricity rates in Korea. See “— Rates”.

Our operations are subject to various laws and regulations relating to environmental protection and safety. See “— Environment and Community Programs”.

Proposed Sale by Us of Certain Power Plants and Equity Interests

The Government has announced a plan to privatize Government-invested companies to increase their efficiency and to induce foreign investment in Korea. Pursuant to such plan, we sold 28.8% of the total outstanding common stock of Doosan Heavy Industries & Construction Co., Ltd., formerly HANJUNG, in 2000 and the remaining equity interest in 2001. We intend to sell all or part of our 26.1% equity interest in Korea District Heating Co., Ltd. and our 24.5% equity interest in KGC at an appropriate time in the future. See “— Affiliated Companies”. In August 2000, we completed the sale of two LNG cogeneration power plants at Anyang and Puchon, Korea, each with an installed capacity of 450 megawatts, to LG Power Company Limited, which was established by a consortium of companies, including the LG-Caltex Oil Corporation, LG-Caltex Gas Corporation, Ltd., Kukdong City Gas Co., Ltd. and Texaco Power and Gasification Global Inc. See “— Power Generation”. The sale of these two power plants was pursued independently of the Government’s restructuring plan as described below but is paving the way for the privatization of the district heating industry in Korea. We also sold all our equity interests in several Korean telecommunications companies in 1999. In March 2003, as part of our privatization plan we sold 51% of our total equity interest in, which represented in effect control of, Korea Electric Power Industrial Development Co., Ltd. for W64.7 billion. In July 2000, we sold 15,757,000 shares of Powercomm, our wholly-owned telecommunications subsidiary, representing approximately 10.5% of Powercomm’s total issued and outstanding shares of common stock. In December 2002 we sold 68,250,000 shares of Powercomm, representing approximately 45.5% of Powercomm’s total issued and outstanding shares of common stock and in April 2003 we sold 1,299,000 shares of Powercomm, representing 0.87% of Powercomm’s total issued and outstanding shares of common stock to Powercomm’s employee stock ownership association. Following such sales, our current ownership interest in Powercomm is 43.1%. In November 2003, we issued in the international capital markets US$250 million in principal amount of

exchangeable bonds with a 5-year maturity, exchangeable into Powercomm shares that we own. The number of Powercomm shares to be delivered upon exercise of the exchange right by the holders of these exchangeable bonds depends on the exchange price to be determined as 120% of the future initial public offering price of Powercomm shares. Powercomm is not required to complete a qualifying public offering, which means the first listing on the Korea Exchange, the New York Stock Exchange or the NASDAQ meeting certain requirements, prior to the maturity of these exchangeable bonds. In addition, we do not guarantee the qualifying public offering of Powercomm. We are planning to sell down our remaining interest in Powercomm.

The completion of our plans, however, is subject to, among other considerations, Government policies relating to us and market conditions. The assets proposed for sale and the related sales and earnings do not, in the aggregate, constitute a material part of our assets or results of operations.

PROPERTY, PLANTS AND EQUIPMENT

Our property consists mainly of power generation, transmission and distribution equipment and facilities in Korea. See “— Business Overview — Power Generation”, “— Transmission and Distribution” and “— Capital Investment Program”. In addition, we own our corporate headquarters building complex at 167 Samseong-dong, Gangnam-gu, Seoul 135-791, Korea. The Korean government has recently announced its policy to move the headquarters of government-invested enterprises, including us, out of the Seoul metropolitan area to other provinces in Korea. See “— History and Development — Recent Developments”. As of December 31, 2004, the net book value of our property was W63,326 billion. No significant amount of our properties are leased.


ITEM 5.	*OPERATING AND FINANCIAL REVIEW AND PROSPECTS*

You should read the following discussion together with our consolidated financial statements and the related notes which appear elsewhere in this report. We expect that the implementation of the Restructuring Plan will over time materially change the environment in which we operate and, accordingly, our historic performance may not be indicative of our future results of operations and capital requirements and resources. See Item 4 “Information on the Company — Business Overview — Restructuring of the Electricity Industry in Korea” and Item 3 “Key Information — Risk Factors — Risks Relating to KEPCO — The Government’s Plan for Restructuring the Electricity Industry in Korea (the “Restructuring Plan”) may have a material adverse effect on us”.

OPERATING RESULTS

Overview

For the years ended December 31, 2002, 2003 and 2004, we had consolidated operating revenues of W21,366 billion, W22,775 billion and W23,956 billion (US$23,143 million), principally from the sale of electricity. As we have a monopoly over the Korean electricity industry, our business is heavily regulated by the Government in terms of the rates we charge to our customers for the electricity we sell. However, our business requires high level of capital expenditures and is subject to a number of variable factors, including demand for electricity in Korea and fluctuation in costs, such as fuel prices which are determined in part by reference to currencies other than the Won.


	*Demand for Electricity and Rates*

Our results of operations, sales in particular, are dependent upon demand for electricity in Korea and the rates we charge for the electricity we sell.

Demand for electricity in the Republic grew at a compounded average rate of 7.8% per annum for the five years ended December 31, 2004. According to The Bank of Korea, real gross domestic product (“GDP”)

compounded growth rates was approximately 5.4% for the same period. The GDP growth rate was 4.6% for 2004 as compared to 3.1% in 2003. Demand for electricity may be broken down by class of customers as follows:


	•	The industrial sector is currently the largest user of electricity in Korea. While demand from the industrial sector (including the agricultural sector) has increased steadily as a result of economic expansion in Korea, it has gradually declined as a percentage of total demand from 58.0% of total demand in 1997 to 50.7% in 2004. In addition, demand from the industrial sector (including the agricultural sector) increased by 5.3% to 158,337 million kilowatt hours in 2004 as compared to 2003.

	•	The commercial sector currently accounts for 33.7% of electricity consumed in Korea. Demand from the commercial sector has increased in recent years, both in absolute terms and as a percentage of total demand. The commercial sector has shown the highest rate of growth in demand since 1980. Demand from the commercial sector increased by 6.6% to 105,143 million kilowatt hours in 2004 as compared to 2003.

	•	Demand from the residential sector increased by 9.1% to 48,615 million kilowatt hours in 2004 as compared to 2003.

The rapid growth in Korea’s economy since the early 1960’s has resulted in substantial growth in the demand for electricity. While the world-wide economic recession of the early 1980’s slowed economic growth in Korea, in the latter half of the 1980’s, the Republic’s economy resumed its rapid growth, leading to substantial increases in demand for electricity. The slow economic growth in Korea in the early 1990’s resulted in a slight decline in the growth of demand for electricity. However, consumption levels, particularly during periods of peak demand, continue to press the limits of available supply. Total demand for electricity in 2002 increased by 8.0% as compared to 2001, the total demand in 2003 increased by 5.4% as compared to 2002, and the total demand in 2004 increased by 6.3% as compared to 2003. The table below sets forth, for the periods indicated, the annual rate of growth in Korea’s gross domestic product (“GDP”) and the annual rate of growth in electricity demand (measured in total annual electricity consumption).


	2000			2001			2002			2003			2004

Growth in GDP (at 2000 constant prices)		8.5	%		3.8	%		7.0	%		3.1	%		4.6	%(1)
Growth in electricity consumption		11.8	%		7.6	%		8.0	%		5.4	%		6.3	%


(1)	Preliminary.

For additional discussions of demand by class of customers, see Item 4 “Business Overview — Sales and Customers — Demand by Class of Customer”. We anticipate that demand for electricity will continue to increase in 2005.

The Rate Laws (as defined in “Business — Sales and Customers — Rates”) prescribe the procedures for the approval and establishment of rates charged for the electricity we sell. We submit our recommendations for revisions of rates or changes in the rate structure to the MOCIE. The recommendations are reviewed and, upon consultation with the Electricity Rates Expert Committee of the MOCIE and the MOFE, a final determination is made by the MOCIE. Under the recently amended Electricity Business Law, the recommendations must be reviewed by the Korean Electricity Commission, which was established as a regulatory agency under the amended law, prior to final determination by the MOCIE. On January 1, 2003, as part of a plan to improve the rate structure, the MOCIE adjusted the rates among the various types of consumers. As a result of this rate adjustment, industrial rates increased by 2.5%. On the other hand, residential and commercial rates decreased by 2.2% and 2.0%, respectively. On March 1, 2004, the MOCIE revised our rate schedule, which resulted in a 1.5% reduction of rates. Residential, commercial and educational rates decreased by 2.8%, 3.5% and 3.0%, respectively. Industry rates were frozen at previous levels despite our request for an increase. See “Business — Sales and Customers — Rates”.


	*Increase in Fuel Cost*

Our results of operations are affected by the cost of producing electricity which is subject to a variety of factors including in particular the cost of fuel.

Fuel costs constituted 27.6%, 33.9% and 27.0% of our operating revenues and operating expenses, respectively, for the year ended December 31, 2004, 2003 and 2002. Our generation subsidiaries purchase substantially all of the fuel that they use (except for anthracite coal) from a small number of suppliers outside Korea at prices determined in part by prevailing market prices in currencies other than Won. In addition, our generation subsidiaries purchase a significant portion of their fuel requirements under contracts with limited quantity and duration. Pursuant to the terms of our long-term supply contracts, prices are adjusted annually in light of market conditions. See “Business — Fuel”.

Uranium accounted for 40.8% of our fuel requirements in 2002, 42.3% in 2003 and 40.0% in 2004. Coal accounted for 41.0% of our fuel requirements in 2002, 39.7% in 2003 and 39.3% in 2004. Oil (including diesel for internal combustion) accounted for 6.1% of our fuel requirements in 2002, 5.6% in 2003 and 5.0% in 2004. Liquefied natural gas (“LNG”) accounted for 11.1% of our fuel requirements in 2002, 11.3% in 2003 and 14.8% in 2004. These fuel requirements are measured in each case by the amount of electricity generated and does not include electricity purchased from others. In order to ensure stable supplies of fuel materials, our generation subsidiaries enter into long-term and medium-term contracts with various suppliers, and supplement such supplies with purchases of fuel materials on spot markets. Substantially all of the fuel materials we utilize other than anthracite coal are purchased directly or indirectly from sources outside Korea and are paid for with currencies other than Won.

Recently, due to increase in domestic demand in China and elsewhere in the world, the prices of bituminous coal have soared. See “Business — Fuel”. Approximately 77.1% of the combined bituminous coal requirements of our generation subsidiaries are purchased under long-term contracts and 22.9% purchased on the spot market. The average “free on board” Newcastle coal price index in 2004 was US$52.3 per ton. In March 2005, “free on board” Newcastle coal price index was US$51.9 per ton. If bituminous coal price continues to be at its current level or higher, our generation subsidiaries will be unable to secure their respective bituminous coal supply at prices comparable to those of prior periods. In addition, any significant interruption or delay in the supply of fuel, bituminous coal in particular, from any of the suppliers could cause our generation subsidiaries to purchase fuel on the spot market at prices higher than contracted, resulting in an increase in our fuel cost. In addition, there have been recent increases in crude oil prices, that may lead to an increase in the price of commodity oil that we use, thereby resulting in higher fuel cost. Because the Government regulates the rates we charge for electricity we sell as described in “— Demand for Electricity and Rates” above, our ability to pass on such cost increases to our customers is limited. We estimate that the recent increase in fuel prices has had a material adverse effect on our results of operations and profitability in 2005 to date. We expect fuel prices to remain at record high levels throughout 2005. Accordingly, we expect our operating income and net income may decrease significantly in 2005 and beyond compared to prior periods. See “Risk Factors — Risks Relating to Our Business — Recent increase in fuel prices will adversely affect our results of operations and profitability”.

Nuclear power has a stable and low cost structure that forms the base load of Korea’s electricity supply. Due to significantly lower fuel costs as compared with conventional power plants, our nuclear power plants are in general operated at full capacity with only routine shutdowns for check-up and overhaul consisting of 40 to 50 days. In December 2003, in response to concerns of potential exposure to radioactive materials arising from a release incident, we shut down Younggwang-5, one of our nuclear power plants for assessment, inspection and overhaul. This nuclear power plant resumed its operations in April 2004. In November 2003, we shut down Younggwang-6, another of our nuclear power plants for planned overhaul, during which a mechanical problem was discovered giving rise to concerns as to its safety. After the overhaul, this nuclear power plant resumed its operations on April 6, 2004. We made up for the shortage in electricity generation resulting from stoppages of these nuclear power plants with power generated by our coal-fired power plants. Because coal-fired power plants carry higher fuel costs, our fuel cost increased further in 2004 as compared to 2003 as a result of the foregoing.


	*Depreciation of the Won against the U.S. dollar or the Japanese Yen*

Due to adverse economic conditions and reduced liquidity, the value of the Won in relation to the U.S. Dollar and other major foreign currencies declined substantially in 1997 but generally rose in 1998, 1999, 2000, 2001 and 2003 with the exception of a modest decline in 2002 and 2004. For fluctuations in exchange rates, see Item 3 “Key Information — Selected Financial Data — Currency Translations and Exchange Rates”. Such depreciation had a material effect on the cost of servicing our foreign currency debt and the cost of our purchases of fuel materials and equipment from overseas sources. As of December 31, 2004, approximately 27% of our debt was denominated in foreign currencies, principally in Dollars and Yen. The prices for substantially all of the fuel materials and a significant portion of the equipment we purchase are stated in currencies other than Won, generally in Dollars. Since substantially all of our revenues are denominated in Won, we must generally obtain foreign currencies through foreign-currency denominated financings or through the conversion of Won to affect such purchases or service such debt. As a result, any significant depreciation of the Won against the Dollar or other foreign currencies will result in foreign exchange transaction or translation losses and adversely impact our financial condition and results of operations. See “Risk Factors — The Impact of Won depreciation may have a material adverse effect on us.”

Recent Accounting Changes

In October 2004, Korea Accounting Standard Board issued SKAS No. 17 “Provision and Contingent Liability & Asset”. In January 2005, we decided to early adopt SKAS No. 17. Under this standard, we retrospectively adjusted the liability for decommissioning costs at the estimated fair value using discounted cash flows to settle the asset retirement obligations of dismantlement of the nuclear power plants, spent fuel and radioactive waste and the same amount was recognized as a utility asset. Due to the adoption of this standard, we re-measured the liability for decommissioning costs and reflected the cumulative effect of an accounting change up to prior year into the beginning balance of retained earnings. This accounting change, which was recorded as of January 1, 2004, resulted in an increase in its utility plant, net of W1,504 billion, liability for decommissioning costs of W556 billion, deferred income tax liabilities of W261 billion and retained earnings of W687 billion, respectively. As allowed by this standard, the 2003 financial statements were not restated. For the year ended December 31, 2004, net income increased by W108 billion applying this new standard.

Critical Accounting Policies


	*Regulatory Accounting*

Under US GAAP, SFAS No. 71 — “Accounting for the Effects of Certain Types of Regulation” — differs in certain respects from the application of GAAP by non-regulated businesses. We are required to recognize regulatory liabilities or regulatory assets on the consolidated financial statements by a corresponding charge or credit to operations to match revenues and expenses under the regulations for the establishment of electric rates. If, as a result of deregulation, we no longer meet the criteria for application of SFAS No. 71, the elimination of the regulatory assets and liabilities are charged or credited to current operations.

Regulatory assets and liabilities are established based on the current regulation and rate-making process. Accordingly, these assets and liabilities may be significantly changed due to the potential future deregulation or changes in the rate-making process.


	*Decommissioning Costs*

We record the fair value of estimated decommissioning costs as a liability in the period in which we incur a legal obligation associated with retirement of long-lived assets that result from acquisition, construction, development, and/or normal use of the assets. We would also record a corresponding asset that is depreciated over the life of the asset. Accretion expense consists of period-to-period changes in the liability for decommissioning costs resulting from the passage of time and revisions to either the timing or the amount of the original estimate of undiscounted cash flows. Depreciation and accretion expenses are included in cost of electric power in the accompanying consolidated statements of income.

The decommissioning cost estimates are based on engineering studies and the expected decommissioning dates of the nuclear power plants. Actual decommissioning costs are expected to vary from these estimates because of changes in assumed dates of decommissioning, regulatory requirements, technology, costs of labor, materials and equipment. Based on the above, we believe that the accounting estimate related to decommissioning costs is a critical accounting policy.

Under Korean GAAP, up until December 31, 2003, we recorded a liability for the estimated decommissioning costs of nuclear facilities based on engineering studies and the expected decommissioning dates of the nuclear power plant. Additions to the liability were in amounts such that the current costs would be fully accrued for at estimated dates of decommissioning on a straight-line basis.

During 2004, we early adopted SKAS No. 17, “Provision and Contingent Liability & Asset”. Under this standard, we record the fair value of the liabilities for decommissioning costs as a liability in the period in which we incur a legal obligation associated with retirement of long-lived assets that result from acquisition, construction, development, and/or normal use of the assets. We would also record a corresponding asset that is depreciated over the life of the asset. Accretion expense consists of period-to-period changes in the liability for decommissioning costs resulting from the passage of time and revisions to either the timing or the amount of the original estimate of undiscounted cash flows. Depreciation and accretion expenses are included in cost of electric power in the accompanying consolidated statements of income.

As of December 31, 2003 and 2004, we have recorded a liability of W5,091 billion and W6,259 billion, respectively, as the cost of dismantling and decontaminating existing nuclear power plants. During 2003, we updated our engineering study on the estimated decommissioning costs of our nuclear facilities and applied the amount prospectively. As a result of this change in estimate, the provision for decommissioning costs increased by W72,888 million for the year ended December 31, 2003 under Korean GAAP. In addition, during 2004, the Company updated the 2003 study and estimates for its liability for decommissioning costs based on new engineering studies (the “2004 study”) provided by other third parties. Major revisions to the 2003 study were increases in dismantling cost per power plant, cask maintenance costs for spent fuel and maintenance cost after closedown of interim storage and operating costs for radioactive wastes. In addition, the 2004 study revised the timing of cash outflows. As required by SKAS No. 17, the change in accounting included the revised factors from the 2004 study since these factors were the Company’s best estimates at the time the Company elected to early adopt SKAS No. 17. With the adoption of SKAS No. 17, the Company re-measured the liability for decommissioning costs and reflected the cumulative effect of a change in accounting including the effect of the change in estimate up to prior year into the beginning balance of retained earnings.

Under U.S. GAAP, we adopted SFAS No. 143, “Accounting for Asset Retirement Obligations” on January 1, 2003. Under this Statement, the fair value of liabilities for an asset retirement obligations for all existing long-lived assets is to be recognized in the period in which they are incurred if a reasonable estimate of fair value can be made. The corresponding amount is capitalized as part of carrying amount of the long-lived asset and expensed using a systematic and rational method over the asset’s useful life.

In addition, as a result of change in estimate based on engineering study during 2003, the liability for decommissioning costs and the related net asset increased by W732 billion and W851 billion respectively, for the year ended December 31, 2003. As a result of this change in estimate, under U.S. GAAP, net income increased by W119 billion for the ear ended December 31, 2003. In addition, as described above, during 2004 we updated the 2003 study. Under U.S. GAAP, since we already adopted SFAS No. 143 in 2003, the impact from the 2004 study is considered as a change in estimate. As a result of this change in estimate, under U.S. GAAP, the liability for decommissioning costs and the related net asset decreased by W633 billion and W1,078 billion, respectively, for the year ended December 31, 2004. Also, net income decreased by W455 billion for the year ended December 31, 2004.

Deferred Tax Assets

In assessing the realizability of the deferred tax assets, our management considers whether it is probable that a portion or all of the deferred tax assets will not be realized. The ultimate realization of our deferred tax assets is dependent on whether we are able to generate future taxable income in specific tax jurisdictions during the

periods in which temporary differences become deductible. Our management has scheduled the expected future reversals of the temporary differences and projected future taxable income in making this assessment. Based on these factors, our management believes that it is probable that we will realize the benefits of these temporary differences as of December 31, 2004. However, the amount of deferred tax assets may be different if we do not realize estimated future taxable income during the carry forward periods as originally expected.

We recognize deferred tax assets and liabilities based on the differences between the financial statement carrying amounts and the tax bases of assets and liabilities at each separate taxpaying entity. Under Korean GAAP, a deferred tax asset is recognized only when its realization is probable under and an appropriate write-down of a previously recognized deferred tax asset is deducted directly from the deferred tax asset. Under U.S. GAAP, a deferred tax asset is recognized for temporary difference that will result in deductible amounts in future years and for carry forwards and a valuation allowance is recognized, if based on the weight of available evidence, it is more likely than not than some portion or all of the deferred tax asset will not be realized.


	*Impairment of Long-lived Assets*

Long-lived assets generally consist of property, plant and equipment and intangible assets. We review the long-lived assets for impairment whenever events or changes in circumstances indicate, in management’s judgment, that the carrying amount of such assets may not be recoverable. These computations utilize judgments and assumptions inherent in management’s estimate of undiscounted future cash flows to determine recoverability of an asset. If management’s assumptions about these assets change as a result of events or circumstances, and management believes the assets may have declined in value, then we may record impairment charges, resulting in lower profits. Management uses its best estimate in making these evaluations and considers various factors, including the future prices of energy, fuel costs and operating costs. However, actual market prices and operating costs could vary from those used in the impairment evaluations, and the impact of such variations could be material.

Results of Operations


	*2004 Compared to 2003*

In 2004, our revenues from the sale of electric power, the principal component of our operating revenues, increased by 6.9% to W23,347 billion (US$22,555 million) from W21,834 billion in 2003, reflecting primarily a 6.3% increase in kilowatt hours of electricity sold in 2004. The increase in electricity sold was primarily attributable to a 5.3% increase in kilowatt hours of electricity sold to the industrial sector, a 9.5% increase in kilowatt hours of electricity sold to the commercial sector and a 4.9% increase in kilowatt hours of electricity sold to the residential sector.

Operating expenses increased by 11.0% to W19,488 billion (US$18,827 million) in 2004 as compared to W17,551 billion in 2003. Of the operating expenses, our power generation, transmission, and distribution expenses, a principal component of our operating expenses, increased by 14.9% to W16,534 billion (US$15,973 million) in 2004 from W14,392 billion in 2003 primarily due to a 36.1% increase in fuel costs from W4,849 billion in 2003 to W6,599 billion (US$6,375 million) in 2004 as a result of increase in unit fuel cost and increased power generation.

Our selling and administrative expenses increased by 4.7% to W1,294 billion (US$1,250 million) in 2004 from W1,236 billion in 2003. We believe that such increase was primarily attributable to a 12.7% increase in labor expense from W438 billion in 2003 to W493 billion (US$477 million) in 2004 and a 47.3% increase in expenses for employee benefits from W56 billion in 2003 to W83 billion (US$80 million) in 2004, which more than offset a 23.2% decrease in depreciation and amortization from W54 billion in 2003 to W41 billion (US$40 million) in 2004 and a 29.2% decrease in maintenance expense from W27 billion in 2003 to W19 billion (US$18 million) in 2004.

As a result of these changes, our operating income for 2004 decreased by 14.5% to W4,467 billion (US$4,316 million) as compared to W5,224 billion in 2003.

Our net non-operating results showed a gain of W232 billion (US$224 million) in 2004 as compared to a loss of W1,114 billion in 2003. Foreign currency transaction and translation gains amounted to W866 billion (US$837 million) in 2004 as compared to losses of W207 billion in 2003 primarily as a result of Won appreciation against U.S. dollar in 2004. Interest expense decreased by 11.1% from W830 billion in 2003 to W738 billion (US$713 million) in 2004 due primarily to a decrease in interest rates. The aforementioned factors more than offset the increase of net valuation loss on currency and interest rate swaps by 182% to W169 billion in 2004 (US$164 million) as compared to W93 billion in 2003.

Our effective tax rate of 38.2% is higher than the Korean statutory tax rate of 29.7% due to recognition of deferred income tax liabilities related to equity income of affiliates. Equity income of consolidated subsidiaries is eliminated in the consolidated financial statements. However, the deferred tax liabilities are maintained without elimination because they are taxes to be paid by individual companies based on Korean (stand-alone) tax basis. In December 2003, the Government lowered the statutory tax rate from 29.7% to 27.5%, which change became effective on January 1, 2005. The tax effect arising from change in tax rate was recorded in 2003.

As a result of the above factors, our net income increased by 24.1% to W2,883 billion (US$2,785 million) in 2004 as compared to W2,323 billion in 2003.


	*2003 Compared to 2002*

In 2003, our revenues from the sale of electric power, the principal component of our operating revenues, increased by 7.0% to W21,834 billion from W20,406 billion in 2002, reflecting primarily a 5.4% increase in kilowatt hours of electricity sold in 2003 which was offset in part by a decrease in electricity rate as of March 1, 2003. The increase in electricity sold was primarily attributable to a 4.4% increase in kilowatt hours of electricity sold to the industrial sector, a 7.3% increase in kilowatt hours of electricity sold to the commercial sector and a 6.8% increase in kilowatt hours of electricity sold to the residential sector.

Operating expenses increased by 7.5% to W17,551 billion in 2003 as compared to W16,319 billion in 2002. Of the operating expenses, our power generation, transmission, and distribution expenses, a principal component of our operating expenses, increased by 7.4% to W14,392 billion in 2003 from W13,405 billion in 2002 primarily due to a 10.0% increase in fuel costs as a result of increase in unit fuel cost and increased sale of electricity as well as a 13.0% increase in labor costs. On the other hand, expense for purchased power increased by 14.6% to W1,384 billion in 2003 from W1,207 billion in 2002 as a result of a 11.3% increase in kilowatt hours of power purchased for resale.

Our selling and administrative expenses increased 6.5% to W1,236 billion in 2003 from W1,161 billion in 2002. We believe that such increase was primarily attributable to a 6.9% increase in labor expense from W410 billion in 2002 to W438 billion in 2003 and a 10.7% increase in sales commission expenses, which include fees paid for meter readings and billing, from W253 billion in 2002 to W280 billion in 2003, which more than offset a 5.3% decrease in depreciation from W57 billion in 2002 to W54 billion in 2003 and a 14.2% decrease in other commission expense from W127 billion in 2002 to W109 billion in 2003. As a result of these changes, our operating income for 2003 increased by 3.5% to W5,223 billion as compared to W5,047 billion in 2002.

Our net non-operating results showed a loss of W1,114 billion in 2003 as compared to a gain of W124 billion in 2002. Foreign exchange transaction and translation losses amounted to W207 billion in 2003 as compared to gains of W512 billion in 2002 primarily as a result of only a slight depreciation of the U.S. dollar against the Won in 2003 as compared to a more substantial depreciation of the U.S. dollar against the Won in 2002 and an appreciation of the Japanese Yen against the Won in 2003. Gain on disposal of investments decreased by 89.6% from W433 billion in 2002 to W45 billion due to the lack of material asset sale in 2003. Valuation loss on currency and interest rate swaps amounted to W94 billion in 2003 as compared to gains of W64 billion in 2002. The aforementioned factors more than offset a decreased in the interest expense by 18.4% from W1,016 billion in 2002 to W830 billion in 2003 due primarily to a decrease in interest rates.

Our effective tax rate of 42.9% is higher than the Korean statutory tax rate of 29.7% due to recognition of deferred income tax liabilities related to equity income of affiliates. Equity income of consolidated subsidiaries is eliminated in the consolidated financial statements. However, the deferred tax liabilities are maintained without

elimination because they are the taxes to be paid by individual companies based on Korean (stand-alone) tax basis. In December 2003, the Government lowered the statutory tax rate from 29.7% to 27.5%, which change became effective on January 1, 2005. The tax effect arising from change in tax rate was recorded in 2003.

As a result of the above factors, our net income decreased by 23.8% to W2,323 billion in 2003 as compared to W3,048 billion in 2002.

LIQUIDITY AND CAPITAL RESOURCES

We expect that our capital requirements, capital resources and liquidity position may change in the course of implementing the Restructuring Plan. As of December 31, 2004, the Company has been conducting research in preparation of implementing the revised Restructuring Plan, which the Company expects to be completed in early 2006. See Item 4 “Information on the Company — Business Overview — Restructuring of the Electricity Industry in Korea” and Item 3 “Key Information — Risk Factors — Risks Relating to KEPCO — The Government’s Plan for Restructuring the Electricity Industry in Korea (the “Restructuring Plan”) may have a material adverse effect on us”.

Capital Requirements

We have traditionally met our working capital and other capital requirements primarily from net cash provided by operating activities, sales of debt securities, borrowings from financial institutions and construction grants. Net cash provided by operating activities was W8,800 billion in 2002, W8,318 billion in 2003, and W8,150 billion (US$7,874 million) in 2004. Total long-term debt as of December 31, 2004 (including the current portion and discount on debentures on and excluding premium on debentures) was W19,300 billion (US$18,646 million), of which W12,488 billion (US$12,065 million) was denominated in Won and the equivalent of W6,812 billion (US$6,581 million) was denominated in foreign currencies, primarily U.S. dollars. Construction grants received were W627 billion in 2002, W618 billion in 2003, and W624 billion (US$603 billion) in 2004.

The implementation of the Restructuring Plan and the current economic environment may result in a material change in our capital investment program. However, we expect our working capital and other capital requirements (including those of our generation subsidiaries) to continue to increase as a result of our capital investment program. The capital investment program continues to contemplate the construction of a large number of generating units and a significant expansion of our transmission and distribution systems. The construction of new generating units requires significant investments over extended periods before commencement of operations.

We anticipate that capital expenditures will be the most significant use of our funds for the next several years. Our total capital expenditures were W6.7 trillion in 2002, W6.8 trillion in 2003, W6.3 trillion in 2004 (US$6.1 billion) and under current plans, are estimated to be approximately W7.7 trillion in 2005 and approximately W9.3 trillion in 2006.

In addition to funding requirements relating to our capital investment program, payments of principal and interest on indebtedness will require considerable resources. The scheduled maturities of our outstanding long-term debt as of December 31, 2004 in the years ending December 31, 2005 to 2009 and thereafter are set forth in the table below:

Total

2005

2006

2007

2008

2009 and thereafter

(In billions of Won)

W19,388

4,228

3,233

4,168

3,585

4,174

We have incurred interest charges (including capitalized interest) of W1,608 billion in 2002, W1,333 billion in 2003, and W1,292 billion (US$1,248 million) in 2004. We anticipate that interest charges will increase in future years because of, among other factors, anticipated increases in our long-term debt. See “— Capital Resources” below. The weighted average rate of interest on our debt was 6.13% for the year ended December 31, 2002, 5.78% for the year ended December 31, 2003, and 4.61% for the year ended December 31, 2004.

We paid dividends on our common stock of W330 billion in 2002, W512 billion in 2003, and W674 billion (US$651 million) in 2004. We will pay dividends to holders of our common stock as of December 31, 2004, including the Government, of W724 billion during 2005. The Government holds shares of the same class of common stock as public stockholders. Our articles of incorporation authorize the Government and us to determine the amount of dividends paid to the Government taking into consideration various factors, including our liquidity and capital needs. Accordingly, in the past, we have typically paid dividends to the Government at rates lower than those declared to public stockholders. However, our policy, which is effective for the financial year ended December 31, 2002 and going forward, is to pay dividends to the Government at a rate equal to the dividends paid to public stockholders.

Capital Resources

In order to meet our future working capital and other capital requirements, we intend to continue to rely primarily upon net cash provided by operating activities, sales of debt securities, borrowings from financial institutions and construction grants. As of December 31, 2004, our long-term debt, excluding the current portion thereof, as a percentage of stockholders’ equity was 37.1%. We incurred W3,383 billion of long-term debt in 2002, W5,378 billion in 2003, and W5,173 billion (US$4,999 million) in 2004. As of December 31, 2004, the current portion of long-term debt was W4,228 billion (US$4,084 million) as compared to W6,626 billion (US$6,401 million) as of December 31, 2003. As of December 31, 2004, we had W414 billion (US$400 million) of short-term borrowings as compared to W210 billion as of December 31, 2003. See Notes 16 of the notes to our consolidated financial statements.

Subject to the implementation of our capital expenditure plan and the sale of our interests in our generation subsidiaries and other subsidiaries, our long-term debt may increase or decrease in future years. Until recently, a substantial portion of our long-term debt was raised through foreign currency borrowings. However, in order to reduce the impact of foreign exchange rate fluctuations on our results of operations, we have recently been reducing and plan to continue to reduce the proportion of our debt which is denominated in foreign currencies by, among other methods, borrowing more in the Korean market where interest rates have recently declined substantially. Our foreign currency denominated long-term debt decreased from W8,073 billion as of December 31, 2003 to W6,812 billion (US$6,581 million) as of December 31, 2004. We also intend to continue to reduce the proportion of our foreign currency debt which is denominated in U.S. Dollars.

Our ability to incur long-term debt in the future is subject to a variety of uncertainties including, among other things, the implementation of the Restructuring Plan and the amount of capital that other Korean entities may seek to raise in capital markets. Economic, political and other conditions in the Republic may also affect investor demand for our securities and those of other Korean entities. In addition, our ability to incur debt will also be affected by the Government’s policies relating to foreign currency borrowings, the liquidity of the Korean capital markets and our operating results and financial condition. Due to the adverse developments in Korea, however, the price at which such financing may be available may not be acceptable to us.

We may raise capital from time to time through the issuance of equity securities. However, there are certain restrictions on our ability to issue equity, including limitations on shareholdings by foreigners. In addition, without changes in the existing KEPCO Act which requires that the Government, directly or pursuant to the KDB Act, through KDB, own at least 51% of our capital stock, it will be difficult or impossible for us to undertake any equity financing other than sales of treasury stock without the participation of the Government. Due to adverse economic developments in Korea, however, the share price at which such financing may be available may not be acceptable to us. See Item 3 “Key Information — Risk Factors — Risks Relating to Korea and the Global Economy — Adverse developments in Korea could adversely affect us”.

Our total stockholders’ equity increased from W36,073 billion as of December 31, 2002 to W40,602 billion (US$39,225 million) as of December 31, 2004.

Liquidity

Substantially all of our revenues are denominated in Won. However, as of December 31, 2004, 35.3% of our long-term debt (including the current portion thereof) was denominated in currencies other than Won. We have incurred such foreign currency debt in the past principally due to the limited availability and high cost of Won-

denominated financing in the Republic. Although we intend to continue to raise certain amounts of capital through long-term foreign currency debt, we have recently been reducing, and plan to continue to reduce, the portion of our debt which is denominated in foreign currencies.

We enter into currency swap and other hedging arrangements with respect to our debt denominated in foreign currencies only to a limited extent due primarily to the limited size of the Korean market for such derivative arrangements. Such instruments include combined currency and interest rate swap agreements, interest rate swaps, and foreign exchange agreements. We do not enter into derivative financial instruments in order to hedge market risk resulting from fluctuations in fuel costs. Our policy is to hold or issue derivative financial instruments for hedging purposes only. Our derivative financial instruments are entered into with major financial institutions, thereby minimizing the risk of credit loss. See Note 23 of the notes to our consolidated financial statements. Due to the considerable amount of our long-term debt denominated in foreign currencies, changes in foreign currency exchange rates significantly affect our liquidity because of the effect of such changes on the amount of funds required for us to make interest and principal payments on foreign currency-denominated debt.

In addition to the impact of foreign exchange rates on us arising from foreign currency-denominated borrowings, fluctuations in foreign exchange rates may also affect our liquidity as we obtain substantially all of our fuel materials, other than anthracite coal, directly or indirectly from sources outside Korea and the prices for such fuel materials are based on prices stated in, and in many cases are paid for in, currencies other than Won.

Our liquidity is also substantially affected by our construction expenditures and fuel purchases. Construction in progress decreased from W9,551 billion as of December 31, 2003 to W7,517 billion (US$7,262 million) as of December 31, 2004. Fuel expense represented 22.2% and 28.3% of revenues from sale of electric power in 2003 and 2004, respectively.

We had a working capital deficit (current liabilities minus current assets) of W4,056 billion as of December 31, 2003 and W2,291 billion (US$2,214 million) as of December 31, 2004. We have traditionally operated with a working capital deficit. In recent periods, our trade payables and other accounts payable have been significant in amount as we have met a portion of our working capital needs through deferred payment of certain types of accounts. We contemplate that we will continue to maintain substantial working capital deficits in the future.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements as of December 31, 2004.

Contractual Obligations and Commercial Commitments

The following summarizes certain of our contractual obligations as of December 31, 2004, and the effect such obligations are expected to have on liquidity and cash flow in future periods.

Payments Due by Period

Less than

After

Contractual Obligations(1)

Total

1 Year

1 - 3 Years

4 - 5 Years

5 Years

(In billions of Won)

Long-Term Debt

19,388

4,228

7,401

5,575

2,184


(1)	We entered into capital lease agreements with Korea Development Leasing Corporation and others for certain computer systems. Remaining annual payments under capital and operating lease agreements as of December 31, 2004 were immaterial.

For a description of our commercial commitments and contingent liabilities, see Notes 29 and 30 of the notes to our consolidated financial statements.

We entered into a turnkey contract with a construction company in China to construct a combined heat and power plant in China. Under the contract, the construction period is from January 2005 to December 2006 and the contract amount is Renminbi 483 million (US$59 million), which will be paid per the percentage of completion.

We did not have any unconditional purchase obligations as of December 31, 2004. Other long-term contractual obligations include long-term contracts to purchase fuel, including LNG, oil, bituminous coal and anthracite coal. These contracts generally have terms of three months to one year and provide for periodic price adjustments to then-market prices.

We and our six power generation subsidiaries including Korea Hydro & Nuclear Power Co., Ltd. are jointly and severally liable for outstanding debt as of December 31, 2004 assumed by each of these subsidiaries at the time of their spin-off on April 2, 2001 under the Commercial Code of the Republic. As of December 31, 2004, we were jointly and severally liable for the debt of our six power generation subsidiaries amounting to W1,102 billion and the six power generation subsidiaries were jointly and severally liable for the debts of KEPCO amounting to W328 billion. In March 2005, however, substantially all of the domestic bonds subject to joint and several liability were redeemed at maturity except for W265.1 billion of loans from KDB outstanding as of April 30, 2005 for which we and all of our generation subsidiaries remained jointly and severally liable. See Item 3 “Key Information — Risk Factors — Other Risks — We are jointly and severally liable for certain debt of our generation subsidiaries”. In addition, KDB, one of our major shareholders, has provided guarantees in respect of certain of KEPCO’s foreign currency debt.

We provide debt guarantees to our foreign subsidiaries, including KEPCO Ilijan Co., in an amount not exceeding US$254 million.

Payment guarantee and short-term credit facilities from financial instruments as of December 31, 2004 were as follows:


	*(i) Payment guarantee*


Description	Financial Institutions	Credit Lines

		(In billions of Won or
		millions of US$)
Payment of import letter of credits	Various banks		US$1,690
Payment of customs duties	Korea Development Bank	W	4
Payment of overdraft	National Agricultural Cooperative Federation and others	W	580


	*(ii) Overdraft and Others*


Description	Financial Institutions	Credit Lines

		(In billions of Won or
		millions of US$)
Overdraft	BNP Paribas and others		US$60
	National Agricultural Cooperative Federation and others	W	2,134
Discount on promissory note	Hana Bank and others	W	14
Other	Hana Bank and others	W	7

We provided a promissory note of W2 billion to Hyundai Heavy Industry, Co., Ltd. as a guarantee for performance of contract. In the event we fail to perform, we may be required to fund the promissory note, which will be repayable.

On December 15, 1999, we entered into a subcontract arrangement with KEDO to construct two 1,000-megawatt class pressurized light-water reactor units in North Korea. The contract amount is US$4,182 million and is subject to adjustment to cover any changes in the cost level. These construction projects have been temporarily suspended from December 1, 2003 due to political uncertainties surrounding the Korean peninsula. We have received cash advances from other parties, which consist of other current liability amounting to W110 billion and other long-term liability amount to W380 billion as of December 31, 2004.

We entered into a PPA with LG Energy Co., Ltd. and other independent power producers for power purchases in accordance with the Electricity Business Act of Korea and power purchased from these companies amounted to W1,141 billion, W1,055 billion and W1,020 billion for the years ended December 31, 2002, 2003 and 2004, respectively.

We did not have any other credit lines and guarantee commitments provided to any third parties as of December 31, 2004.

As of December 31, 2004, we were engaged in 294 lawsuits as a defendant and 46 lawsuits as a plaintiff. As of the same date, the total amount of damages claimed against us was W282 billion and the total amount claimed by us was W16 billion. The outcome of these lawsuits cannot presently be determined. Our management believes that the final results from these lawsuits will not have a material adverse effect on our liquidity, financial position or results of operation. For a description of our legal proceedings, see Item 8. “Financial Information — Legal Proceedings”.

Inflation

The effects of inflation in the Republic on our financial condition and results of operations are reflected primarily in construction costs as well as in labor expenses. Inflation in the Republic has not had a significant impact on our results of operations in recent years. It is possible that inflation in the future may have an adverse effect on our financial condition or results of operations.

Reconciliation to U.S. GAAP

The following table sets forth the effects of the significant adjustments to net income and stockholders’ equity which would be required if U.S. GAAP were to be applied to our financial statements instead of Korean GAAP:


		Year Ended December 31,

		2002			2003			2004			2004

		(In millions of Won and thousands of US$, except per share data)
Net income under Korean GAAP		W	3,048,105		W	2,323,425		W	2,882,522			$2,784,776
Adjustments:
Operating income:
	Asset revaluation		511,787			449,971			391,618			378,338
	Special depreciation		(24,246	)		(21,033	)		(18,370	)		(17,747	)
	Regulated operations		175,783			170,925			7,955			7,685
	Capitalized foreign currency translation		164,037			246,531			200,811			194,002
	Reversal of eliminated profit on transactions with subsidiaries and affiliates		(44,772	)		(17,083	)		37,282			36,018
	Asset retirement obligation		—			454,589			(108,522	)		(104,842	)
	Reserve for self-insurance		5,465			6,400			6,274			6,061
Other income (expenses):
	Asset revaluation		130,210			117,795			58,974			56,974
	Capitalized foreign currency translation		43,633			(20,589	)		44,115			42,619
	Reserve for self-insurance		(1,172	)		(1,010	)		(848	)		(819	)
	Convertible bonds		—			1,344			24,298			23,474
Cumulative effect of accounting change — Asset retirement obligation			—			1,775,306			—			—
Income tax expenses — Deferred income taxes			(436,040	)		(934,648	)		8,435			8,149

Net income as adjusted under U.S. GAAP		W	3,572,790		W	4,551,923		W	3,534,544			$3,414,688


		As of December 31,

		2003			2004			2004

		(In millions of Won and thousands of US$)
Stockholders’ equity under Korean GAAP		W	37,781,936		W	40,602,282		$	39,225,468
Adjustments:
Utility plant
	Asset revaluation		(8,355,176	)		(7,924,482	)		(7,655,765	)
	Capitalized asset retirement cost		1,751,755			(1,022,249	)		(987,585	)
	Special depreciation		38,272			19,902			19,227
	Capitalized foreign currency translation		(2,016,721	)		(1,771,795	)		(1,711,714	)
	Reversal of eliminated profit on transactions with subsidiaries and affiliates		103,371			140,653			135,883
Investment securities:
	Asset revaluation		(121,977	)		(102,079	)		(98,618	)
Deferred income taxes			2,252,961			2,316,502			2,237,950
Liabilities:
	Asset retirement obligation		478,140			2,915,538			2,121,088
	Regulated operation		(665,962	)		(658,007	)		(635,694	)
	Reserve for self-insurance		87,926			93,352			90,186
	Convertible bonds		(43,828	)		(19,530	)		(18,868	)
Minority interests			(127,569	)		(123,099	)		(118,925	)

Stockholders’ equity under U.S. GAAP		W	31,163,128		W	33,746,988		$	32,602,633

Note 32 of the notes to our consolidated financial statements provides a description of the principal differences between Korean GAAP and U.S. GAAP as they relate to us.

The material differences between Korean GAAP and U.S. GAAP as applied to our consolidated statements of income relate to:

Asset Revaluation and Depreciation

Under Korean GAAP, property, plant and equipment are stated at cost, except for those assets that are stated at their appraised values in accordance with the KEPCO Act and Assets Revaluation Law of Korea. In connection with the revaluation, a new basis for depreciation is established. Asset revaluation is not permitted after January 1, 2001.

Under U.S. GAAP, property, plant and equipment must be stated at cost less accumulated depreciation and impairment. The revaluation of property, plant and equipment and the resulting depreciation of revalued amounts are not included in consolidated financial statements prepared in accordance with U.S. GAAP. When revalued assets are sold, revaluation surplus related to those assets under Korean GAAP would be reflected in income as additional gain on sale of property, plant and equipment under U.S. GAAP.

Accounting for Regulation

US GAAP, pursuant to SFAS No. 71 — “Accounting for the Effects of Certain Types of Regulation” — differs in certain respects from the application of U.S. GAAP by non-regulated businesses. As a result, a regulated utility is required to defer the recognition of costs (a regulatory asset) or recognize obligations (a regulatory liability) if it is probable that, through the rate-making process, there will be a corresponding increase or decrease in future rates.

The Government approves the rates that we charge to our customers. Our utility rates are designed to recover our reasonable costs plus a fair investment return. However, on April 2, 2001, six power generation

subsidiaries were established in accordance with the Restructuring Plan. Since the power generation subsidiaries’ rates are determined by a competitive system in the market, they no longer meet the criteria for application of SFAS No. 71. Accordingly, since 2001, only our power transmission and distribution divisions have been subject to the criteria for the application of SFAS No. 71.

We recognize a regulatory liability or regulatory asset in our consolidated financial statements by a charge or credit to operations to match revenues and expenses under the regulations for the establishment of electric rates. These assets or liabilities relate to the adjustments for capitalized foreign currency translation, reserve for self-insurance and deferred income taxes.

In June 2001, the MOCIE announced the revised guidelines for utility rate setting, stating that non-operating expenses should be excluded from reasonable costs while income tax expense (including deferred income taxes), instead of income tax payables, should be included for rate-making purposes. As a result of this guideline change and the deregulation of the power generation subsidiaries, only the deferred income taxes caused by the difference between Korean GAAP and U.S. GAAP are subject to SFAS No. 71, to the extent that tax benefits or obligation will affect future allowable costs for rate making purpose.

The regulated assets resulting from capitalized foreign currency translation are anticipated to be recovered over weighted-averaged useful life of property, plant and equipment.

Regulatory assets and liabilities are established based on the current regulations and rate-making process. Accordingly, these assets and liabilities may be significantly changed due to the potential future deregulation or changes in the rate-making process.

Liabilities for Decommissioning Costs


	*2002*

Under Korean GAAP, prior to January 1, 2003, we accrued for estimated decommissioning costs of nuclear facilities based on engineering studies and the expected decommissioning dates of the nuclear power plant. Annual additions to the reserve were in amounts such that the expected costs would be fully accrued for at the estimated dates of decommissioning on a straight-line basis.

Under U.S. GAAP, prior to January 1, 2003, accounting for liabilities for decommissioning costs was substantially the same as Korean GAAP.

2003

Under Korean GAAP, effective January 1, 2003, we adopted SKAS No. 5 “Tangible Assets.” Under this standard, we would record the fair value of the liabilities for decommissioning costs as a liability in the period in which we incur a legal obligation associated with the retirement of tangible long-lived assets. However, this standard was only applicable to new plants (with an associated asset retirement liability) put into service after January 1, 2003. For plant’s put into service before January 1, 2003, SKAS No. 5 did not apply and the previous Korean GAAP (as described under 2002) was required. Since we did not place into service any assets with liabilities for decommissioning costs during 2003, SKAS No. 5 had no impact on the 2003 consolidated financial statements.

Under U.S. GAAP, effective January 1, 2003, we adopted Statement of Financial Accounting Standards (“SFAS”) No. 143 “Accounting for Asset Retirement Costs” Under SFAS No. 143, we are required to recognize an estimated liability for legal obligations associated with the retirement of tangible long-lived assets. We measure the liability at fair value when incurred and capitalize a corresponding amount as part of the book value of the related long-lived assets. The increase in the capitalized cost is included in determining depreciation expense over the estimated useful life of these assets. Since the fair value of the liabilities for decommissioning costs is determined using a present value approach, accretion of the liability due to the passage of time is recognized each period as expense until the settlement of the liability. SFAS No. 143 applies to all existing long-lived assets including those acquired before January 1, 2003. As a result of the adoption of SFAS No. 143, we recognized a pre-tax gain as a cumulative effect of accounting change of W1,775 billion on January 1, 2003. In

addition, for the year ended December 31, 2003, we recorded accretion expense and depreciation expense under U.S. GAAP while reversing the provision for decommissioning costs recorded under Korean GAAP.


	*2004*

In October 2004, Korea Accounting Standard Board issued Statement of Korea Accounting Standards (“SKAS”) No. 17 “Provision and Contingent Liability & Asset”. In January 2005, we decided to early adopt SKAS No. 17. Under this standard, we retrospectively adjusted the liability for decommissioning costs at the estimated fair value using discounted cash flows (also based on engineering studies and the expected decommissioning dates) to settle the liabilities for decommissioning costs and the same amount was recognized as an utility asset. Under SKAS No. 17, the discount rate was set at the date of adoption and should be applied in all future periods. In addition, any new plants would use the discount rate in effect at the time of its commencement. Accretion expense consists of period-to-period changes in the liability for decommissioning costs resulting from the passage of time and revisions to either the timing or the amount of the original estimate of undiscounted cash flows. In addition, as required by SKAS No. 17, the cumulative effect of a change in accounting included any changes in estimate that took place during 2004. Due to the adoption of this standard, we re-measured the liability for decommissioning costs as of January 1, 2004 and reflected the cumulative effect of a change in accounting up to prior year into current year retained earnings.

Under U.S. GAAP, we continue to apply SFAS No. 143 during 2004.

As of and for the year ended December 31, 2004, Korean GAAP and U.S. GAAP for recording the liabilities for decommissioning costs are substantially the same except for the following:


	•	Under U.S. GAAP, the discount rate for existing decommissioning liabilities was set when we adopted SFAS No. 143 (6.94% as of January 1, 2003). Under Korean GAAP, the discount rate for existing decommissioning liabilities was set when we adopted SKAS No. 17 (4.36% as of December 2004).

	•	Under U.S. GAAP, any changes that result in upward revisions to the undiscounted estimated cash flows shall be treated as a new liability and discounted at the then current discount rate. Any downward revisions to the undiscounted estimated cash flows will result in a reduction of the liability for decommissioning costs and shall be reduced from the recorded discounted liability at the rate that was used at the time the obligation was originally recorded. Under Korean GAAP, regardless of upward or downward revisions to the undiscounted estimated cash flows, the historical discount rate will be applied in all future periods.

	•	Under U.S. GAAP, revisions to either the timing or the amount of the original estimate of the undiscounted cash flows is reflected within current year accretion expense or adjustment to the asset retirement cost as a change in estimate. Under Korean GAAP, as required by SKAS No. 17, the cumulative effect of the change in accounting included any changes in estimate that took place during 2004. Accordingly, the 2004 accretion expense under Korean GAAP does not include the change in estimate impact that is recorded within accretion expense under U.S. GAAP.

Significant Changes in U.S. GAAP

In December 2004, the FASB issued FASB Statement No. 151, “Inventory Costs”, which clarifies the accounting for abnormal amounts of idle facility expense, freight, handling cost, and wasted material (spoilage). Under this Statement, such items will be recognized as current-period charges. In addition, the Statement requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. This Statement will be effective for us for inventory costs incurred on or after January 1, 2006. We believe that the adoption of this statement will not have a significant impact on our financial position or operating results.

In March 2005, FASB issued FIN No. 47 (“FIN 47”) “Accounting for Conditional Asset Retirement Obligations — an interpretation of FASB Statement No. 143.” FIN 47 provides guidance relating to the identification of and financial reporting for legal obligations to perform an asset retirement activity. FIN 47 requires recognition of a liability for the fair value of a conditional asset retirement obligation when incurred if

the liability’s fair value can be reasonably estimated. FIN 47 is effective for fiscal years ending after December 15, 2005. Based on our preliminary assessment, we do not believe that the adoption of FIN 47 will have a material impact on our results of operations or financial position.

Other

Our operations are materially affected by the policies and actions of the Government. See Item 4 “Information on the Company — Business Overview — Regulation”.

RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES, ETC.

See Item 4 “Information on the Company — Business Overview — Research and Development”.

TREND INFORMATION

Trends, uncertainties and events which could have a material impact on our sales, operating revenues and liquidity and capital resources are discussed above in “— Operating Results” and “— Liquidity and Capital Resources”.


ITEM 6.	*DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES*

DIRECTORS AND SENIOR MANAGEMENT

Board of Directors

Under the KEPCO Act and our articles of incorporation, our management is vested in the board of directors, which consists of not more than fifteen directors, including the president.

The directors are classified into two categories: standing directors and non-standing directors. The number of standing directors shall be not more than seven, including our president, and the non-standing directors shall be not more than eight. In any case, the number of standing directors may not exceed the number of non-standing directors. The standing directors other than our president shall be appointed by the MOCIE upon the motion of our president with the approval at the general meeting of our shareholders. Our standing directors also presently constitute our executive officers. The non-standing directors shall be appointed from among specialists in the private sector with knowledge of business management by the Minister of Planning and Budget of the Republic upon the motion of our president. Our president shall be appointed by the President of the Republic upon the motion of the MOCIE following the approval at the general meeting of our shareholders after the nomination by a president nomination committee which is composed of the non-standing directors and other members from the private sector appointed by the board of directors. Our president serves as our chief executive officer and represents us and administers our day-to-day business in all matters not specifically designated as responsibilities of the board.

The names, titles, and outside occupations, if any, of the directors as of June 29, 2005 and the respective years in which they took office are set forth below.


Name	Age		Title	Outside Occupation	Position Held Since

Han, Joon-Ho		(58)	President, Chairman & CEO, Standing Director	None	March 25, 2004
Chung, Tay-Ho		(56)	Standing Director	None	September 1, 2004
Lee, Hi-Taek		(56)	Chief Financial Officer, Standing Director	None	August 11, 2003
Kwon, Oh-Hyung		(54)	Standing Director	None	June 13, 2005
Kim, Young-Man		(55)	Standing Director	None	August 11, 2003
Byun, Gang		(56)	Standing Director	None	September 1, 2004
Yoon, Meng-Hyun		(55)	Standing Director	None	August 11, 2003
Chang, Sang-Hyon		(68)	Non-Standing Director	None	July 18, 2002
Moon, Chung-Sook		(49)	Non-Standing Director	Professor, Sookmyung Women’s University	March 28, 2003
Lee, Seog-Yeon		(49)	Non-Standing Director	Lawyer	August 9, 2003
Park, Chung-Boo		(63)	Non-Standing Director	Chairman, Sungto Accounting Corporation	September 8, 2004
Shin, Jae-Hyun		(58)	Non-Standing Director	Lawyer, Kim & Chang Law Firm	September 8, 2004
Kang, Eung-Seon		(55)	Non-Standing Director	Visiting Professor, Korea University	April 22, 2005
Kim, Ju-Sub		(54)	Non-Standing Director	Professor extraordinary, Yeungnam University	April 22, 2005
Kwon, Oh-Sung		(43)	Non-Standing Director	President of O’gye Farm	April 22, 2005

Han, Joon-Ho has served as our President, Chairman & Chief Executive Officer since March 25, 2004. Mr. Han received a B.A. in law from Seoul National University and a Ph.D. in public administration from Kyunghee University. He previously served as the Chairman of the Presidential Commission on Small and Medium Enterprises.

Chung, Tay-Ho has been a Standing Director since September 1, 2004. Mr. Chung currently serves as the Executive Vice President and previously served as the Senior Vice President of the Transmission Division. He received a B.S. in electrical engineering from Seoul National University and a Ph.D. in electrical engineering from the University of Wisconsin.

Lee, Hi-Taek has been our Chief Financial Officer and Standing Director since August 11, 2003. Mr. Lee currently serves as the Senior Vice President of the Planning & Restructuring Division and previously served as the general manager of the Company’s Central Education Institute. Mr. Lee received a B.A. in sociology from Seoul National University.

Kwon, Oh-Hyung has been a Standing Director since June 13, 2005. Mr. Kwon currently serves as the Senior Vice President of the General Affairs Division and previously served as the general manager of the Transmission and Substation Department. He received an M.S. in electrical engineering from Yonsei University.

Kim, Young-Man has been a Standing Director since August 11, 2003. Mr. Kim currently serves as the Senior Vice President of the Marketing and Service Division and previously served as the general manager of the Company’s Business Supporting Department. Mr. Kim received a B.A. in business administration from International University and an M.B.A. from Hanyang University.

Byun, Gang has been a Standing Director since September 1, 2004. Mr. Byun currently serves as the Senior Vice President of the Transmission Division and previously served as the general manager of the Transmission and Substation Department. Mr. Byun received a B.S. in electrical engineering from Chosun University.

Yoon, Meng-Hyun has been a Standing Director since August 11, 2003. Mr. Yoon currently serves as the Senior Vice President of the Overseas & KEDO Project Division and previously served as the general manager of the Korea Electric Power Research Institute. Mr. Yoon received a B.S. in nuclear power engineering from Seoul National University and a Ph.D. in nucleonics from the university of California.

Chang, Sang-Hyon has been a Non-Standing Director since July 18, 2002. Mr. Chang previously served as a senior advisor to Onse Telecom. He received a LL.B. from Sungkyunkwan University.

Moon, Chung-Sook has been a Non-Standing Director since March 28, 2003. Ms. Moon is currently a professor of consumer economics at Sookmyung Women’s University. She received a B.A. in home management from Sookmyung Women’s University, an M.A. in family economics in Sookmyung Women’s University and a Ph.D. in consumer economics from Kansas State University. Ms. Moon was a member of the Committee for Korean Regulatory Reform.

Lee, Seog-Yeon has been a Non-Standing Director since August 9, 2003. Mr. Lee currently serves as the Chairperson of the Anti-Corruption Committee under the Board of Audit & Inspection in Korea. Mr. Lee received a Ph.D. from the law school at Seoul National University.

Park, Chung-Boo has been a Non-Standing Director since September 8, 2004. Mr. Park is currently the Chairman of Sungto Accounting Corporation. He received a B.A. in economics from Seoul National University and an M.A. in Economics from State University of Tennessee.

Shin, Jae-Hyun has been a Non-standing Director since September 8, 2004. Mr. Shin is a lawyer at Kim & Chang. He received a LL.B. from Seoul National University and an M.A. in Law from New York University.

Kang, Eung-Seon has been a Non-Standing Director since April 22, 2005. Mr. Kang is a visiting professor at Korea University. He received a B.A. in economics from Seoul National University and an M.A. in economics from the University of Hawaii.

Kim, Ju-Sub has been a Non-Standing Director since April 22, 2005. Mr. Kim is a professor extraordinary at Yeungnam University. He received a B.A. in business administration from Yeungnam University and an M.A. in public administration from the University of Wisconsin.

Kwon, Oh-Sung has been a Non-Standing Director since April 22, 2005. Mr. Kwon currently manages the O’gye farm in Gyeongsangnam-do. He received a B.A. and an M.A. in agriculture from Kyungpook National University.

The presence at board meetings of a majority of the board members constitutes a voting quorum and resolutions can be passed by a majority of the board members.

Our president may be removed by the President of the Republic following a shareholders’ resolution with the consents of a president nomination committee as moved by the MOCIE. In addition, the Minister of Planning and Budget may recommend removal of our president if the results of operations are poor. The standing directors, in the order contemplated by internal regulations, assist the president and act for the president when the president is unable to act.

The business address of our directors is 167 Samseong-Dong, Gangnam-Gu, Seoul, Korea.

Board of Auditors

In June 2005, we amended our articles of incorporation, among others, to comply with the general exemptions provided under the audit committee requirements of the Sarbanes-Oxley Act, embodied in Rule 10A-3 of the Exchange Act. Pursuant to our amended articles of incorporation, we will have three auditors, consisting of one standing auditor and two non-standing auditors. The standing auditor is appointed by the President of the Republic upon the motion of the Minister of Planning and Budget of the Republic following a resolution at the general meeting of our shareholders. The non-standing auditors are appointed by the President of the Republic upon the motion of the Minister of Planning and Budget of the Republic. Each of our auditors is severally responsible for performance of its duties required under the Commercial Code of Korea and other applicable laws of Korea. In addition, these auditors will perform the roles and responsibilities required of an audit committee under the Sarbanes-Oxley Act through a board of auditors consisting of all of these auditors. The auditors may attend board meetings but are not our directors and do not have the right to vote at board meetings. We have selected nominees for our standing auditor and non-standing auditor positions and are awaiting their official appointment, which is expected shortly after the filing of this report.

The names and titles of our board of and for nominees are set forth below.

Kwak, Jin-Eob is our Standing Auditor nominee. He received a B.A. in politics and diplomacy from Korea University and an M.A. in economics from Yonsei University. Mr. Kwak previously served as the Deputy Commissioner of National Tax Service.

Hwang, Suk-Hee is our Non-Standing Auditor nominee. Mr. Hwang previously served as the president of Woori Credit Card Company. He received a B.A. in business administration from Korea University.

Yang, Seoung-Sook is our Non-Standing Auditor nominee. Ms. Yang previously served as the principal of Armed Forces Nursing Academy. She received a B.A. in nursing from Chonnam National University and an M.S. in nursing administration from Hanyang University.

Board Practices

The terms of office of our directors (including the president) and the auditors are three years.

As required by applicable law in the Republic, our board does not maintain an audit committee or a remuneration committee. See “— Corporate Governance” below. However, we maintain a board of auditors, which is independent of our board or our management, to perform the roles and responsibilities required of an audit committee under the Sarbanes-Oxley Act, including the supervision of the financial and accounting audit by the registered independent public accountants.

The president’s management contract provides for benefits upon termination of his employment. The president is only eligible for termination benefits after more than one year of continuous service. For each year’s employment with us, the payment amount for termination benefits is equal to the average value of compensation for one month.

The terms for termination benefits for standing directors and the standing auditor are determined in accordance with our internal regulations for executive compensation. Standing directors and the standing auditor are only eligible for benefits upon termination of employment or death following one year of continuous service.

Compensation of Directors and Supervisors

For the year ended December 31, 2004, the aggregate amount of remuneration paid and accrued to the directors and executive officers (including the statutory auditors) as a group, was W1,198 million. The aggregate

amount we set aside or accrued during the year ended December 31, 2004 to provide retirement and severance benefits for our directors and executive officers, including our statutory auditors, was W23 million.

Share Ownership

None of our directors and members of our administrative, supervisory or management bodies owns more than 0.1% of our common stock.

EMPLOYEES

As of December 31, 2004, we had 32,557 regular employees, including the employees of our generation subsidiaries, almost all of whom are employed within the Republic. Approximately 8.2% of our regular and non-regular employees (including employees of generation subsidiaries) are employed at our head office in Seoul.

The following table sets forth the number of and other information relating to our employees, not including directors or senior management, as of December 31, 2004.


			KEPCO			KHNP			KOSEPCO			KOMIPO			KOWEPO			EWP			KOSPO			Total

Regular Employees
	Administrative			4,675			610			193			187			172			190			185			6,212
	Service technicians			9,453			5,271			1,208			1,692			1,203			1,523			1,350			21,859
	Skilled laborers			3,945			192			76			107			67			52			47			4,486

		Sub-total		18,073			6,073			1,477			1,986			1,442			1,765			1,582			32,557
Non-regular Employees				2,128			931			196			—			159			159			179			3,593

	Total			20,201			7,004			1,673			1,986			1,601			1,924			1,761			36,150

Head Office Employee				1,131			768			187			266			215			189			215			2,971
	% of total			5.6	%		11.0	%		11.2	%		13.4	%		13.4	%		9.8	%		12.2	%		8.2	%
Member labor				15,387			4,237			1,063			1,317			1,000			1,158			1,136			25,298
	% of total			76.2	%		60.5	%		63.5	%		66.3	%		62.5	%		60.2	%		64.5	%		70.0	%

KEPCO and each of our generation subsidiaries have separate labor unions. Approximately 70.0% of our employees in the aggregate are members of these labor unions, each of which negotiates a collective bargaining agreement for its members each year. Pursuant to applicable Korean law, an employee-employer cooperation committee, which is composed of eight representatives of management and eight representatives of labor, is required to be, and has been, established at KEPCO and at each of our generation subsidiaries. The committee meets periodically to discuss various labor issues. Since our formation in 1981, our businesses have not been interrupted by any work stoppages or strikes until early 2002. Although our relations with our employees have been good, we have experienced labor unrest as a result of changes in our businesses according to the Restructuring Plan. We faced opposition from labor in late 2000 in connection with the Restructuring Plan. However, we experienced no significant difficulties with labor in the transfer of employees in our power generation division to the newly established generation subsidiaries on or prior to April 2, 2001 in line with the Restructuring Plan. As of April 2, 2001, we had transferred 14,492 employees to our generation subsidiaries, as a result of which we had 15,036 employees as of such date. Early in 2002, employees belonging to our five non-nuclear generation subsidiaries went on strike for six weeks to protest the Government’s decision to privatize such non-nuclear generation subsidiaries. See Item 3 “Key Information — Risk Factors — Risks Relating to KEPCO — The Government’s Plan for Restructuring the Electricity Industry in Korea (the “Restructuring Plan”) may have a material adverse effect on us”. However, we did not experience any interruption of our businesses because non-union employees kept the non-nuclear generation facilities running. We cannot assure that we will not have any work stoppages or strikes or other labor problems in the future.

CORPORATE GOVERNANCE

We complied throughout the year with the corporate governance provisions of the KEPCO Act, Government-Invested Enterprise Management Basic Act, Commercial Code of Korea, Securities and Exchange Act of Korea and the Listing Rules of the Korea Exchange. We, like all other companies in Korea, must comply with the corporate governance provisions of the Commercial Code of Korea, except to the extent the KEPCO Act and the Government-Invested Enterprise Management Basic Act governs. In addition, as a listed company, we are subject to the Securities and Exchange Act of Korea, unless the Securities and Exchange Act of Korea otherwise provides.

Differences in Korean/ New York Stock Exchange corporate governance practices

In November 2003, the U.S. Securities and Exchange Commission approved new corporate governance rules of the New York Stock Exchange (“NYSE”) for listed companies. Under these new rules, as a NYSE-listed foreign private issuer, we must disclose any significant ways in which its corporate governance practices differ from those followed by U.S. companies under NYSE listing standards. We believe the following to be the significant differences between our corporate governance practices and NYSE corporate governance rules applicable to U.S. companies.

U.S. companies listed on the NYSE are required to adopt and disclose corporate governance guidelines. The listing rules of the Korea Exchange require each company, at the time of its initial listing, to disclose information related to its corporate governance, such as its board of directors, internal audit, shareholder voting, and remuneration of officers and directors. The Korea Exchange, among other things, will review the corporate governance practices of the company in determining whether to approve such company for listing.

Under the NYSE listing rules applicable to U.S. companies, independent directors must comprise a majority of the board of directors. No director qualifies as “independent” unless the board of directors affirmatively determines that the director has no material relationship with the listed company (either directly or as a partner, shareholder or officer of an organization that has a relationship with the company). The NYSE rules include detailed tests for determining director independence. Under the Government-Invested Enterprise Management Basic Act, more than one-half of our directors must be non-standing directors. The Securities and Exchange Act of Korea deems a non-standing director nominated pursuant to the Government-Invested Enterprise Management Basic Act as an “outside” or “non-executive” director. Under the Government-Invested Enterprise Management Basic Act, a non-standing director is appointed by the Minister of Planning and Budget of the Republic upon the motion of our president and the resolution by the Government-Invested Enterprise Management Committee.

Under the NYSE listing standards, companies are required to have an audit committee, with at least three members, composed entirely of independent directors. The audit committee must be directly responsible for the appointment, compensation, retention and oversight of the work of the public accountant. Under the Government-Invested Enterprise Management Basic Act and the Securities and Exchange Act of Korea, we are required to maintain statutory auditors in lieu of an audit committee. The Government-Invested Enterprise Management Basic Act and government regulations require that the statutory auditors be separate from and independent of our board of directors and our management. Consistent with the application of these legal requirements, in June 2005, we amended our articles of incorporation, among others, to comply with the general exemptions provided under the audit committee requirements of the Sarbanes-Oxley Act, embodied in Rule 10A-3 of the Exchange Act and established a board of auditors, consisting of one standing auditor and two non-standing auditors. We have selected nominees for these positions, pending their official appointment by the President of the Republic, all of whom we believe will meet the criteria of statutory auditors. Our board of auditors will oversee our financial reporting, business and legal compliance separately from the audit by the independent public accountants. Beginning in the second half of 2005, our board of auditors will perform the roles and responsibilities required of an audit committee under the Sarbanes-Oxley Act, including the supervision of the audit by the independent registered public accountants.

Under the NYSE listing standards, companies are required to have a nominating/ corporate governance committee, composed entirely of independent directors. In addition to identifying individuals qualified to become board members, this committee must develop and recommend to the board a set of corporate governance principles. Under the Government-Invested Enterprise Management Basic Act, we are required to have a CEO

nominating committee which consists of non-standing directors and ad hoc members appointed by our Board of Directors. Our standing directors and executives cannot become members of the nominating committee. There is no requirement to establish a corporate governance committee under applicable Korean law.

Pursuant to the NYSE listing standards, non-management directors must meet on a regular basis without management present and independent directors must meet separately at least once per year. No such requirement currently exists under applicable Korean law.

The NYSE listing standards require U.S. companies to adopt a code of business conduct and ethics for directors, officers and employees, and promptly disclose any waivers of the code for directors or executive officers. Pursuant to the requirements of the Sarbanes-Oxley Act, we have adopted a Code of Ethics applicable to our Chairman & Chief Executive Officer and all other directors and executive officers including the Chief Financial Officer and the Chief Accounting Officer, which is available on www.kepco.co.kr.

Lastly, a chief executive officer of a U.S. company listed on the NYSE must annually certify that he or she is not aware of any violation by the company of NYSE corporate governance standards. In accordance with NYSE listing rules applicable to foreign private issuers, we are not required to provide the NYSE with this annual compliance certification. However, in accordance with rules applicable to both U.S. companies and foreign private issuers, we are required to promptly notify the NYSE in writing after any executive officer becomes aware of any material non-compliance with the NYSE corporate governance standards applicable to us. Beginning in 2005, foreign private issuers, including us, are required to submit to the NYSE an annual written affirmation relating to compliance with Section 303A.06 and 303A.11 of the NYSE listed company manual, which are the NYSE corporate governance standards applicable to foreign private issuers. All written affirmations must be executed in the form provided by the NYSE, without modification. In 2005, each foreign private issuer listed on the NYSE must submit to the NYSE an initial annual written affirmation no later than 30 days after July 31, 2005 (or August 30, 2005). In subsequent years, the annual written affirmation must be submitted within 30 days of the foreign private issuer’s filing of its annual report of Form 20-F with the SEC.


ITEM 7.	*MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS*

MAJOR SHAREHOLDERS

The following table sets forth certain information relating to certain owners of our capital stock as of April 14, 2005, the date we last closed our shareholders’ registry:


				Percentage of
Title of Class	Identity of Person or Group	Shares Owned		Class(1)

Common stock	Government(2)		345,761,554		54.0	%
	Resolution & Finance Corporation		32,405,109		5.1
	National Pension Corporation		20,481,315		3.2
	KEPCO (held in the form of treasury)		11,033,050		1.7
	Employee Stock Ownership Association		—		—
	Directors and executive officers as a group		—		—
	Public(3)		231,067,545		36.1

Total			640,748,573		100.0	%


(1)	Percentages are based on issued shares of common stock (including treasury stock).

(2)	Includes indirect holdings by the Republic through KDB of 192,159,940 shares (30.0%). The Government currently owns 100% of KDB.

(3)	Includes 197,239,701 shares of common stock, representing 30.8% of shares of issued common stock (including treasury stock) held by non-Koreans, including in the form of American depositary shares.

RELATED PARTY TRANSACTIONS

We from time to time have engaged in a variety of transactions with our affiliates. Our policy on transactions with affiliates is that these transactions will be conducted on terms substantially as favorable to us as we could obtain at the time in a comparable arm’s-length transaction with a person other than an affiliate.

For the purchase of electricity from the independent power producers and our generation subsidiaries, see Item 4 “Information on the Company — Business Overview — Purchased Power”.

In 2003, we issued 647,697 shares with par value W5,000 to the Government in return for certain fixed assets related to power distribution. These fixed assets were recorded based on the fair value of the common stock at the date of the transaction. The value of these shares were recorded as common stock of W3,238 million and paid-in capital in excess of par value of W11,425 million.

As of December 31, 2004, the balance of short-term borrowings and long-term borrowings from KDB, one of our major shareholders, amounted to W5,024 billion and the related interest expense amounted to approximately W218 billion for the year ended December 31, 2004. As of December 31, 2004 and for the year then-ended, the balance of long-term borrowings from The Export-Import Bank of Korea amounted to W171 billion and the related interest expense amounted to approximately W7 billion. In addition, as of December 31, 2004 and for the year then-ended, the balance of long-term borrowings from the Government amounted to W50 billion and the related interest expense amounted to approximately W2 billion.

KDB has provided a repayment guarantee amounting to W2,550 billion for some of our foreign currency debentures, which existed at the time of spin-off, but not redeemed as of December 31, 2004.

On behalf of our affiliates, KEPCO International Hong Kong Ltd., KEPCO Philippines Corp. and KEPCO Ilijan Corp., we have provided payment guarantees of US$113 million and JPY7 billion, US$172 million and US$254 million as of December 31, 2002, 2003 and 2004, respectively, to KDB and other banks.


ITEM 8.	*FINANCIAL INFORMATION*

CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION

Our Consolidated Financial Statements are set forth under Item 18 “Financial Statements”.

Legal Proceedings

As of April 30, 2005, we and our generating subsidiaries were a defendant in 296 different court proceedings. As of that date, those proceedings included claims against us amounting in the aggregate of W224 billion. While we are unable to predict the ultimate disposition of these claims, the ultimate disposition of these claims will not, in the opinion of management, have a material adverse effect on us.

Our generation subsidiaries currently and from time to time are involved in lawsuits incidental to the conduct of their business. Most of such lawsuits are based on the claim that the construction and operation of the electric generation units owned by our generation subsidiaries in the neighborhood caused impairment of fish farms. Our generation subsidiaries normally pay compensation to and for the benefit of the members of the fisheries association near our power plant complex for expected losses and damages arising from the construction and operation of its power plant in the neighborhood in advance prior to the commencement of the construction and operation. Despite such compensation paid by us, a claim may still be filed against our generation subsidiaries challenging the compensation paid by us. We do not believe such claims or proceedings, individually or in the aggregate, have had and will have a material adverse effect on us and our generation subsidiaries. However, we cannot assure you that this will be the case in the future, given the possibility that we may become subject to more litigation and lawsuits arising from changes in the environmental laws and regulations applicable to us and our generation subsidiaries and people’s growing demand for more compensation

Dividend Policy

See Item 10 “Additional Information — Articles of Incorporation — Description of Capital Stock — Dividend Rights”. For a description of the tax consequences of dividends paid to our shareholders, see Item 10 “Additional Information — Taxation — Korean Taxes — Shares or ADSs — Dividends or the Shares of Common Stock or ADSs” and Item 10 “Additional Information — Taxation — U.S. Federal Income Tax Consideration for U.S. Persons — Tax Consequences with respect to Common Stock and ADRs — Distributions or Common Stock or ADRs”.


ITEM 9.	*THE OFFER AND LISTING*

Notes

Our 4.25% Notes due 2007 (the “4.25% Notes”), 7³/4% Debentures due April 1, 2013 (the “7³/4% Debentures”), 6³/8% Notes due December 1, 2003 (the “6³/8% Notes”), Twenty Year 7.40% Amortizing Debentures, due April 1, 2016 (the “7.40% Debentures”), One Hundred Year 7.95% Zero-To-Full Debentures, due April 1, 2096 (the “7.95% Debentures”), 6% Debentures due December 1, 2026, (the “6% Debentures”), 7% Debentures due February 1, 2027 (the “7% Debentures”), 6³/4% Debentures due August 1, 2027 (the “6³/4% Debentures”) and together with the 4.25% Notes, the 7³/4% Debentures, the 6³/8% Notes, the 7.40% Debentures, the 7.95% Debentures, the 6% Debentures, the 7% Debentures and the 6³/4% Debentures, the “Registered Debt Securities”) are traded principally in the over-the counter market. Sales prices for the Registered Debt Securities are not regularly reported on any United States securities exchange or other United States securities quotation service. The 6³/8% Notes are registered on the Luxembourg, Hong Kong and Singapore stock exchanges, but we do not believe that such stock exchanges are the principal market for the 6³/8% Notes. The 4.25% Notes and the 8¹/4% Notes are registered on the Luxembourg Stock Exchange, but we do not believe that such stock exchange is the principal market for the 4.25% Notes and the 8¹/4% Notes.

Common Stock and ADSs

The principal trading market for our common stock is the Korea Exchange. Our common stock is also listed on the New York Stock Exchange in the form of ADSs. The ADSs have been issued by JPMorgan Chase Bank as depositary and are listed on the New York Stock Exchange under the symbol “KEP”. The ADS ratio is one ADS representing one-half of one share of our common stock. As of April 14, 2005, the date we last closed our shareholders’ registry, 142,867,390 ADSs representing 71,433,695 shares of our common stock were outstanding.

The Korea Exchange

The Korea Stock Exchange began its operations in 1956. On January 27, 2005, the Korea Exchange was established pursuant to the Korea Exchange Act through the consolidation of the Korea Stock Exchange, the Korea Futures Exchange, the KOSDAQ Stock Market, Inc., or KOSDAQ, and the KOSDAQ Committee within the Korea Securities Dealers Association, which was in charge of the management of the KOSDAQ. The Stock Market Division of the Korea Exchange, formerly the Korea Stock Exchange, has a single trading floor located in Seoul. The Korea Exchange is a limited liability company, the shares of which are held by (i) securities companies and futures companies that were the members of the Korea Stock Exchange or the Korea Futures Exchange and (ii) the stockholders of the KOSDAQ.

As of June 24, 2005, the aggregate market value of equity securities listed on the Stock Market Division of the Korea Exchange was approximately W466 trillion. The average daily trading volume of equity securities for 2004 was approximately 373 million shares with an average transaction value of W2.2 trillion.

The Korea Exchange has the power in some circumstances to suspend trading in the shares of a given company or to de-list a security. The Korea Exchange also restricts share price movements. All listed companies are required to file accounting reports annually, semiannually and quarterly and to release immediately all information that may affect trading in a security.

The Government has in the past exerted, and continues to exert, substantial influence over many aspects of the private sector business community which can have the intention or effect of depressing or boosting the market. In the past, the Government has informally both encouraged and restricted the declaration and payment of dividends, induced mergers to reduce what it considers excess capacity in a particular industry and induced private companies to offer publicly their securities.

The Korea Exchange publishes the Korea Composite Stock Price Index, or KOSPI, every thirty seconds, which is an index of all equity securities listed on the Stock Market Division of the Korea Exchange. On January 1, 1983, the method of computing KOSPI was changed from the Dow Jones method to the aggregate value method. In the new method, the market capitalizations of all listed companies are aggregated, subject to

certain adjustments, and this aggregate is expressed as a percentage of the aggregate market capitalization of all listed companies as of the base date, January 4, 1980.

Movements in KOSPI are set out in the following.


	Opening		High		Low		Closing

1980		100.00		119.36		100.00		106.87
1981		97.95		165.95		93.14		131.37
1982		123.60		134.49		106.00		127.31
1983		122.52		134.46		115.59		121.21
1984		116.73		142.46		114.37		142.46
1985		139.53		163.37		131.40		163.37
1986		161.40		279.67		153.85		272.61
1987		264.82		525.11		264.82		525.11
1988		532.04		922.56		527.89		907.20
1989		919.61		1,007.77		844.75		909.72
1990		908.59		928.82		566.27		696.11
1991		679.75		763.10		586.51		610.92
1992		624.23		691.48		459.07		678.44
1993		697.41		874.10		605.93		866.18
1994		879.32		1,138.75		855.37		1,027.37
1995		1,013.57		1,016.77		847.09		882.94
1996		888.85		986.84		651.22		651.22
1997		653.79		792.29		350.68		376.31
1998		385.49		579.86		280.00		562.46
1999		587.57		1,028.07		498.42		1,028.07
2000		1,059.04		1,059.04		500.60		504.62
2001		520.95		704.50		468.76		504.62
2002		698.00		937.61		584.04		627.55
2003		635.17		822.16		515.24		810.71
2004		821.26		936.06		719.59		895.92
2005 (through June 27)		893.71		1,022.79		870.84		991.11

Source: The Korea Exchange

Shares are quoted “ex-dividend” on the first trading day of the relevant company’s accounting period; since the calendar year is the accounting period for the majority of listed companies, this may account for the drop in KOSPI between its closing level at the end of one calendar year and its opening level at the beginning of the following calendar year.

With certain exceptions, principally to take account of a share being quoted “ex-dividend” and “ex-rights”, permitted upward and downward movements in share prices of any category of shares on any day are limited under the rules of the Korea Exchange to 15% of the previous day’s closing price of the shares, rounded down as set out below:


Previous Day’s Closing Price (Won)	Rounded Down to (Won)

less than 5,000	W	5
5,000 to less than 10,000		10
10,000 to less than 50,000		50
50,000 to less than 100,000		100
100,000 to less than 500,000		500
500,000 or more		1,000

As a consequence, if a particular closing price is the same as the price set by the fluctuation limit, the closing price may not reflect the price at which persons would have been prepared, or would be prepared to continue, if so permitted, to buy and sell shares. Orders are executed on an auction system with priority rules to deal with competing bids and offers.

Due to deregulation of restrictions on brokerage commission rates, the brokerage commission rate on equity securities transactions may be determined by the parties, subject to commission schedules being filed with the Korea Exchange by the securities companies.

In addition, a securities transaction tax will generally be imposed on the transfer of shares or certain securities representing rights to subscribe for shares. A special agricultural and fishery tax of 0.15% of the sales prices will also be imposed on transfer of these shares and securities on the Korea Exchange. See “Taxation — Korean Taxation”.

The number of companies listed on the Stock Market Division of the Korea Exchange, the corresponding total market capitalization at the end of the periods indicated and the average daily trading volume for those periods are set forth in the following table:


			Total Market Capitalization				Average Daily Trading Volume, Value
	Number of
	Listed		(Millions of		(Thousands of		Thousands of		(Millions of		(Thousands of
Year	Companies		Won)		Dollars)(1)		Shares		Won)		Dollars)(1)

1980		352		2,526,553		3,828,691		5,654		3,897		5,905
1981		343		2,959,057		4,224,207		10,565		8,708		12,433
1982		334		3,000,494		4,407,711		9,704		6,667		8,904
1983		328		3,489,654		4,386,743		9,325		5,941		7,468
1984		336		5,148,460		6,222,456		14,847		10,642		12,862
1985		342		6,570,404		7,380,818		18,925		12,315		13,834
1986		355		11,994,233		13,924,115		31,755		32,870		38,159
1987		389		26,172,174		33,033,162		20,353		70,185		88,584
1988		502		64,543,685		94,348,318		10,367		198,364		289,963
1989		626		95,476,774		140,489,660		11,757		280,967		414,431
1990		669		79,019,676		110,301,055		10,866		183,692		256,500
1991		686		73,117,833		96,182,364		14,022		214,263		281,850
1992		688		84,711,982		107,502,515		24,028		308,246		391,175
1993		693		112,665,260		139,419,948		35,130		574,048		676,954
1994		699		151,217,231		191,729,721		36,862		776,257		984,223
1995		721		141,151,399		182,201,367		26,130		487,762		629,614
1996		760		117,369,988		139,031,021		26,571		486,834		575,733
1997		776		70,988,897		50,161,742		41,525		555,759		392,707
1998		748		137,798,451		114,090,455		97,716		660,429		471,432
1999		725		349,503,966		305,137,040		278,551		3,481,620		3,039,654
2000		704		188,041,490		148,393,204		306,154		2,602,159		2,053,796
2001		589		255,850,070		192,934,221		473,241		1,947,420		1,506,236
2002		683		258,680,756		215,445,465		857,245		3,041,598		2,533,820
2003		684		355,360,626		298,121,331		542,010		2,216,636		2,402,661
2004		683		412,588,139		398,597,371		372,895		2,232,109		2,156,419
2005 (through June 27)		679		450,819,009		417,662,973		401,822		2,411,368		2,441,028

Source: The Korea Exchange

Note:


(1)	Converted at the Concentration Base Rate of The Bank of Korea or the Market Average Exchange Rate, as the case may be, at the end of the periods indicated.

The Korean securities markets are principally regulated by the FSC and the Securities and Exchange Act. The Securities and Exchange Act was amended fundamentally numerous times in recent years to broaden the scope and improve the effectiveness of official supervision of the securities markets. As amended, the Securities and Exchange Act imposes restrictions on insider trading and price manipulation, requires specified information to be made available by listed companies to investors and establishes rules regarding margin trading, proxy solicitation, takeover bids, acquisition of treasury shares and reporting requirements for shareholders holding substantial interests.

Further Opening of the Korean Securities Market

A stock index futures market was opened on May 3, 1996 and a stock index option market was opened on July 7, 1997, in each case at the Futures Market Division of the Korea Exchange. Remittance and repatriation of

funds in connection with investment in stock index futures and options are subject to regulations similar to those that govern remittance and repatriation in the context of foreign portfolio investment in Korean stocks.

In addition, open new option markets for seven individual stocks (Samsung Electronics, SK Telecom, KT, KEPCO, POSCO, Kookmin Bank and Hyundai Motor Company) was opened on January 28, 2002 at the Futures Market Division of the Korea Exchange. Under the applicable regulation, non-Koreans are permitted to invest in such options for individual stocks subject to the same procedural requirements as those currently applicable to the investment in stock or stock index futures and options at the Korea Exchange.

Starting from May 1, 1996, foreign investors were permitted to invest in warrants representing the right to subscribe for shares of a company listed on the Korea Exchange, subject to certain investment limitations. A foreign investor may not acquire such warrants with respect to shares of a class of a company for which the ceiling on aggregate investment by foreigners has been reached or exceeded.

As of December 30, 1997, foreign investors were permitted to invest in all types of corporate bonds, bonds issued by national or local governments and bonds issued in accordance with certain special laws without being subject to any aggregate or individual investment ceiling. The FSC sets forth procedural requirements for such investments. The Government announced on February 8, 1998 its plans for the liberalization of the money market with respect to investment in money market instruments by foreigners in 1998. According to the plan, foreigners have been permitted to invest in money market instruments issued by corporations, including commercial paper, starting February 16, 1998 with no restrictions as to the amount. Starting May 25, 1998, foreigners have been permitted to invest in certificates of deposit and repurchase agreements.

Currently, foreigners are permitted to invest in securities including shares of all Korean companies which are not listed on the Korea Exchange and in bonds which are not listed.

Protection of Customer’s Interest in Case of Insolvency of Securities Companies

Under Korean law, the relationship between a customer and a securities company in connection with a securities sell or buy order is deemed to be consignment and the securities acquired by a consignment agent (i.e., the securities company) through such sell or buy order are regarded as belonging to the customer in so far as the customer and the consignment agent’s creditors are concerned. Therefore, in the event of a bankruptcy or reorganization procedure involving a securities company, the customer of the securities company is entitled to the proceeds of the securities sold by the securities company. In addition, the Securities and Exchange Act recognizes the ownership of a customer in securities held by a securities company in such customer’s account.

When a customer places a sell order with a securities company which is not a member of the Korea Exchange and this securities company places a sell order with another securities company which is a member of the Korea Exchange, the customer is still entitled to the proceeds of the securities sold received by the non-member company from the member company regardless of the bankruptcy or reorganization of the non-member company.

Likewise, when a customer places a buy order with a non-member company and the non-member company places a buy order with a member company, the customer has the legal right to the securities received by the non-member company from the member company because the purchased securities are regarded as belonging to the customer in so far as the customer and the non-member company’s creditors are concerned.

Under the Securities and Exchange Act, the Korea Exchange is obliged to indemnify any loss or damage incurred by a counterparty as a result of a breach by its members. If a securities company which is a member of the Korea Exchange breaches its obligation in connection with a buy order, the Korea Exchange is obliged to pay the purchase price on behalf of the breaching member.

As the cash deposited with a securities company is regarded as belonging to the securities company, which is liable to return the same at the request of its customer, the customer cannot take back deposited cash from the securities company if a bankruptcy or reorganization procedure is instituted against the securities company and, therefore, can suffer from loss or damage as a result. However, the Depositor Protection Act provides that Korean Deposit Insurance Corporation will, upon the request of the investors, pay investors up to W50 million per

depositor per financial institution in case of the securities company’s bankruptcy, liquidation, cancellation of securities business license or other insolvency events (collectively, the “Insolvency Events”). The premiums related to this insurance are paid by securities companies. Pursuant to the Securities and Exchange Act, as amended, securities companies are required to deposit the cash received from its customers to the extent the amount is not covered by the Depositor Protection Act with the Korea Securities Finance Corporation, a special entity established pursuant to the Securities and Exchange Act. Set-off or attachment of cash deposits by securities companies with the Korea Securities Finance Corporation is prohibited. In addition, in the event of an occurrence of an Insolvency Event to the securities company, the cash so deposited shall be withdrawn and paid to the customer senior to other creditors of the securities company.

Market Price Information


	*Common Stock*

Shares of our common stock are listed on the Stock Market Division of the Korea Exchange.

The table below shows the high and low trading prices on the Stock Market Division of the Korea Exchange for our common stock since January 1, 2000.


			Price

Period			High		Low

			(In Won)
2000				36,800		22,900
2001				26,850		18,600
2002
	First Quarter			26,400		20,900
	Second Quarter			25,700		21,300
	Third Quarter			23,200		19,800
	Fourth Quarter			21,000		17,600
2003
	First Quarter			18,750		17,100
	Second Quarter			20,550		17,550
	Third Quarter			22,250		17,900
	Fourth Quarter			25,400		21,000
2004
	First Quarter			22,500		20,000
	Second Quarter			20,400		18,350
	Third Quarter			22,400		18,400
	Fourth Quarter			27,550		21,300
2005
	First Quarter
		January		28,550		25,500
		February		28,150		26,500
		March		28,150		25,900
	Second Quarter (through June 24)
		April		29,250		26,250
		May		29,300		26,600
		June (through June 24)		33,550		28,900


	*ADSs*

The table below shows the high and low trading prices on the New York Stock Exchange for the outstanding ADSs since January 1, 2000. Each ADS represents one-half of one share of our common stock.


			Price

Period			High		Low

			(In US$)
2000				18.81		9.88
2001				11.31		7.59
2002
	First Quarter			10.81		8.98
	Second Quarter			11.69		9.99
	Third Quarter			10.92		9.06
	Fourth Quarter			9.68		8.21
2003
	First Quarter			8.84		7.69
	Second Quarter			9.57		7.89
	Third Quarter			10.67		8.54
	Fourth Quarter			11.62		10.11
2004
	First Quarter			11.23		9.76
	Second Quarter			10.64		8.77
	Third Quarter			10.96		8.97
	Fourth Quarter			13.88		10.51
2005
	First Quarter
		January		13.81		12.44
		February		14.36		13.60
		March		14.88		13.16
	Second Quarter (through June 24)
		April		14.80		13.46
		May		14.95		13.78
		June (through June 24)		16.88		14.90


ITEM 10.	*ADDITIONAL INFORMATION*

ARTICLES OF INCORPORATION

Set forth below is information relating to our capital stock, including brief summaries of material provisions of our articles of incorporation, the KEPCO Act, the Korean Securities and Exchange Act of 1962, as amended (the “Securities and Exchange Act”), the Korean Commercial Code, and certain related laws of Korea, all as currently in effect. The following summaries are qualified in their entirety by reference to our articles of incorporation and the applicable provisions of the KEPCO Act, the Securities and Exchange Act, the Korean Commercial Code and certain related laws of Korea.

Objects and Purposes

We are a statutory juridical corporation established under the KEPCO Act for the purpose of ensuring “stabilization of the supply and demand of electric power, and further contributing toward the sound development of the national economy through expediting development of electric power resources and carrying out proper and effective operation of the electricity business”. The KEPCO Act and our articles of incorporation contemplate that we will engage in the following activities:


	•	Development of electric power resources;

	•	Generation, transmission, transformation and distribution of electricity and other related business activities;

	•	Related investment, research and technology development;

	•	Business incidental to the foregoing; and

	•	Any other activities entrusted by the Government.

Our registered name is “Hankook Chollryuk Kongsa” in Korean, and in English “Korea Electric Power Corporation”. Our registration number in the commercial registry office is 114671-0001456.

Directors

Under the KEPCO Act and our articles of incorporation, our board of directors consists of our president, standing directors and non-standing directors. A majority of the board members constitutes a voting quorum, and resolutions will be passed by a majority of the board members. Directors who have an interest in certain agenda proposed to the board may not vote on such issues.

The standards of remuneration for our officers, including directors, shall be determined by a resolution of the board of directors. The remuneration standards for the president and standing directors shall reflect the management results of our operation and the standards for the president shall contain the contents of the agreement between the president and us. Directors who have an interest may not participate in the meeting of the board of directors for determining the remuneration for officers.

Share Capital

Currently, our authorized share capital is 1,200,000,000 shares, which consists of shares of Common Stock (“Common Shares”) and shares of non-voting preferred stock, par value W5,000 per share (“Non-Voting Shares,” and together with the Common Shares, “Shares”). Under our articles of incorporation, we are authorized to issue up to 150,000,000 Non-Voting Shares. As of April 15, 2005, 640,748,573 Common Shares were issued and no Non-Voting Shares have been issued. As of April 15, 2005, we held 11,033,050 shares of Common Stock as treasury stock. All of the issued and outstanding Common Shares are fully-paid and non-assessable, and are in registered form. Share certificates are issued in denominations of 1, 5, 10, 50, 100, 500, 1,000 and 10,000 shares.

Description of Capital Stock


	*Dividend Rights*

Under the KEPCO Act, we are authorized to pay preferential dividends on the Shares held by the public shareholders compared to those held by the Government. Dividends to the public shareholders are distributed in proportion to the number of shares of the relevant class of capital stock owned by each public shareholder following approval by the shareholders at a general meeting of shareholders. KDB may receive dividends in proportion to the numbers of our shares held by KDB. Under the Korean Commercial Code and our articles of incorporation, we will pay full annual dividends on newly issued shares.

Under our articles of incorporation, holders of Non-Voting Shares (of which there are currently none) are entitled to receive an amount not less than 8% of their par value as determined by a resolution of the board of directors at the time of their issuance. However, if the dividends for Common Shares exceed the dividends for Non-Voting Shares, the holders of Non-Voting Shares will be entitled to participate in the distribution of such excess amount with the holders of Common Shares at an equal rate.

We declare our dividend annually at the annual general meeting of shareholders which is held within three months after the end of the fiscal year. The annual dividend is paid to the shareholders of record as of the end of the fiscal year preceding the annual shareholders’ meeting shortly after the annual shareholders’ meeting. Annual dividends may be distributed either in cash or in Shares. However, a dividend of Shares must be distributed at par value and, if the market price of the Shares is less than their par value, dividends in Shares may not exceed one-half of the annual dividend.

Under the Korean Commercial Code and our articles of incorporation, we do not have an obligation to pay any annual dividend unclaimed for five years from the payment date.

The KEPCO Act provides that we shall not pay an annual dividend unless we have made up any accumulated deficit and set aside as a legal reserve an amount equal to 20% or more of our net profit until our accumulated reserve reaches one-half of our stated capital.


	*Distribution of Free Shares*

In addition to dividends in the form of shares to be paid out of retained or current earnings, the Korean Commercial Code permits us to distribute to our shareholders an amount transferred from our capital surplus or legal reserve to stated capital in the form of free shares.


	*Voting Rights*

Holders of Common Shares are entitled to one vote for each Common Share, except that voting rights with respect to any Common Shares held by us or by a corporate shareholder, more than one-tenth of whose outstanding capital stock is directly or indirectly owned by us, may not be exercised. Any person (with certain exceptions) who holds more than 3% of our issued and outstanding Shares cannot exercise voting rights with respect to the Shares in excess of this 3% limit. See “— Limitation on Shareholdings”. Pursuant to the Korean Commercial Code and the Securities and Exchange Act, cumulative voting is permissible in relation to the appointment of directors. Under the Korean Commercial Code and the Securities and Exchange Act, a cumulative vote can be requested by the shareholders of a corporation representing more than 1% of the total voting shares of such corporation if the relevant shareholders’ meeting is intended to elect more than two seats of the board of directors and the request for cumulative voting is made to the management of the corporation in writing at least seven days in advance of the shareholders’ meeting. Under this new voting method, each shareholder will have multiple voting rights corresponding to the number of directors to be appointed in such voting and may exercise all such voting rights to elect one director. Shareholders are entitled to vote cumulatively unless the articles of incorporation expressly prohibit cumulative voting. Our current articles of incorporation do not prohibit cumulative voting. Except as otherwise provided by law or our articles of incorporation, a resolution can be adopted at a general meeting of shareholders by affirmative majority vote of the voting Shares of the shareholders present or represented at a meeting, which must also represent at least one-fourth of the voting Shares then issued and outstanding. The holders of Non-Voting Shares (other than Enfranchised Non-Voting Shares) are not entitled

to vote on any resolution or to receive notice of any general meeting of shareholders unless the agenda of the meeting includes consideration of a resolution on which such holders are entitled to vote. If we are unable to pay any dividend to holders of Non-Voting Shares as provided in our articles of incorporation, the holders of Non-Voting Shares will become enfranchised and will be entitled to exercise voting rights until such dividends are paid. The holders of Enfranchised Non-Voting Shares have the same rights as holders of Common Shares to request, receive notice of, attend and vote at a general meeting of shareholders. Pursuant to the KEPCO Act and our articles of incorporation, the appointment of standing directors, the president and statutory auditor are subject to shareholder approval.

Under the Korean Commercial Code and the Securities and Exchange Act, for the purpose of electing our statutory auditor, a shareholder (together with certain related persons) holding more than 3% of the total Shares having voting rights may not exercise voting rights with respect to Shares in excess of such 3% limit.

The Korean Commercial Code provides that the approval by the holders of at least two-thirds of those Shares having voting rights present or represented at a meeting, where such Shares also represent at least one-third of the total issued and outstanding Shares having voting rights, is required in order to, among other things:


	•	amend our articles of incorporation;

	•	remove a director or our statutory auditor;

	•	effect any dissolution, merger or consolidation of us;

	•	transfer the whole or any significant part of our business;

	•	effect the acquisition by us of all of the business of any other company; or

	•	issue any new Shares at a price lower than their par value.

Under our articles of incorporation, an approval by the MOCIE is required in order to amend the articles of incorporation. Any change to our authorized share capital requires an amendment to our articles of incorporation.

In addition, in the case of amendments to our articles of incorporation or any merger or consolidation of us or in certain other cases which affect the rights or interests of the Non-Voting Shares a resolution must be adopted by a meeting of the holders of Non-Voting Shares approving such event. This resolution may be adopted if approval is obtained from holders of at least two-thirds of those Non-Voting Shares present or represented at such meeting and such Non-Voting Shares also represent at least one-third of our total issued and outstanding Non-Voting Shares.

A shareholder may exercise his voting rights by proxy. The proxy shall present the power of attorney prior to the start of the general meeting of shareholders. Under the Securities and Exchange Act and our articles of incorporation, no one other than us may solicit a proxy from shareholders.

Subject to the provisions of the Deposit Agreement, holders of ADRs are entitled to instruct the Depositary, whose agent is the record holder of the underlying Common Shares, how to exercise voting rights relating to those underlying Common Shares. See “Description of American Depositary Shares — Voting of the Underlying Deposited Securities”.


	*Preemptive Rights and Issuance of Additional Shares*

Authorized but unissued shares may be issued at such times and, unless otherwise provided in the Korean Commercial Code, upon such terms as our Board of Directors may determine. The new shares must be offered on uniform terms to all our shareholders who have preemptive rights and who are listed on the shareholders’ register as of the record date. Subject to the limitations described under “Limitation on Shareholdings” below and with certain other exceptions, all our shareholders are entitled to subscribe for any newly issued Shares in proportion to their existing shareholdings. Under the Korean Commercial Code, we may vary, without shareholder approval, the terms of such preemptive rights for different classes of shares. Public notice of the preemptive rights to new shares and their transferability must be given not less than two weeks (excluding the period during which the

shareholders’ register is closed) prior to the record date. Our Board of Directors may determine how to distribute shares for which preemptive rights have not been exercised or where fractions of shares occur.

Our articles of incorporation provide that new Shares that are (1) publicly offered pursuant to the Securities and Exchange Act, (2) issued to members of our employee stock ownership association, (3) represented by depositary receipts or (4) issued through offering to public investors may be issued pursuant to a resolution of the Board of Directors to persons other than existing shareholders, who in such circumstances will not have preemptive rights.

We may issue convertible bonds or bonds with warrants each up to an aggregate principal amount of W2,000 billion and W1,000 billion, respectively, to persons other than existing shareholders. However, the aggregate principal amount of convertible bonds and bonds with warrants so issued to persons other than existing shareholders may not exceed W2,000 billion.

Under the Securities and Exchange Act and our articles of incorporation, members of our employee stock ownership association, whether or not they are our shareholders, have a preemptive right, subject to certain exceptions, to subscribe for up to 20% of any Shares publicly offered pursuant to the Securities and Exchange Act. This right is exercisable only to the extent that the total number of Shares so acquired and held by members of our employee stock ownership association does not exceed 20% of the total number of Shares then outstanding.


	*Liquidation Rights*

In the event of our liquidation, the assets remaining after payment of all debts, liquidation expenses and taxes will be distributed among shareholders in proportion to the number of Shares held. Holders of Non-Voting Shares have no preference in liquidation.


	*Rights of Dissenting Shareholders*

In certain limited circumstances (including, without limitation, the transfer of the whole or any significant part of our business or the merger, or consolidation upon a split-off of us with another company), dissenting holders of Shares have the right to require us to purchase their Shares. To exercise such right, shareholders must submit a written notice of their intention to dissent to us prior to the general meeting of shareholders or the class meeting of holders of Non-Voting Shares, as the case may be. Within 20 days (the “Request Period”) after the date on which the relevant resolution is passed at such meeting, such dissenting shareholders must request us in writing to purchase their Shares. We are obligated to purchase the Shares of dissenting shareholders within one (1) month after the expiration of the Request Period. If we cannot agree on a price through negotiation, the purchase price will be the average of (1) the weighted average of the daily share price on the Korea Exchange for a two-month period before the date of adoption of the relevant Board resolution, (2) the weighted average of the daily share price on the Korea Exchange for the one month period before such date and (3) the weighted average of the daily share price on the Korea Exchange for the one week period before such date. However, the FSC may adjust this price if we or at least 30% of the Shares we are obligated to purchase do not accept such purchase price. Holders of ADSs will not be able to exercise dissenter’s rights unless they have withdrawn the underlying Common Stock and become our direct shareholders.

Transfer of Shares

Under the Korean Commercial Code, the transfer of Shares is effected by delivery of share certificates but, in order to assert shareholders’ rights against us, the transferee must have his name and address registered on our register of shareholders. For this purpose, shareholders are required to file one’s name, address and seal with our transfer agent. Under our articles of incorporation, non-resident shareholders must appoint an agent authorized to receive notices on its behalf in Korea and file a mailing address in Korea. These requirements do not apply to the holders of ADRs. Under current Korean regulations, Korean securities companies and banks in Korea (including licensed branches of non-Korean securities companies and banks), future trading companies, the Korea Securities Depository, internationally recognized foreign custodians and asset management companies are authorized to act as agents and provide related services for foreign shareholders. Our transfer agent is the Kookmin Bank, located

at 9-1, Namdaemun-ro, 2-ga, Chung-ku, Seoul, Korea. Certain foreign exchange controls and securities regulations apply to the transfer of Shares by non-residents or non-Koreans. See Item 9 “The Offer and Listing”.

Acquisition of Our Own Shares

We generally may not acquire our own Shares except in certain limited circumstances, including, without limitation, a reduction in capital. Under the Korean Commercial Code, except in case of a reduction in capital, any Shares acquired by us must be sold or otherwise transferred to a third party within a reasonable time. In general, our 50% or more owned-subsidiaries are not permitted to acquire Shares.

In addition, we may acquire the Shares through purchase on the Korea Exchange or through a tender-offer. We may also acquire interests in our own Shares through agreements with trust companies, securities investment trust companies and securities investment companies. The aggregate purchase price for the Shares may not exceed the total amount available of dividends at the end of the preceding fiscal year, subject to certain procedural requirements.

General Meeting of Shareholders

The ordinary general meeting of our shareholders is held within three months after the end of each fiscal year and, subject to board resolution or court approval, an extraordinary general meeting of our shareholders may be held as necessary or at the request of shareholders holding an aggregate of 1.5% or more of our outstanding Common Shares for at least six months. Under the Korean Commercial Code, an extraordinary general meeting of shareholders may be convened at the request of our statutory auditor, subject to a board resolution or court approval. Holders of Non-Voting Shares may only request a general meeting of shareholders once the Non-Voting Shares have become enfranchised as described under “Voting Rights” above (referred to as “Enfranchised Non-Voting Shares”). Written notices setting forth the date, place and agenda of the meeting must be given to shareholders at least two weeks prior to the date of the general meeting of shareholders. However, pursuant to the Securities and Exchange Act and our articles of incorporation, with respect to holders of less than 1% of the total number of issued and outstanding Shares which are entitled to vote, notice may be given by placing at least two public notices at least two weeks in advance of the meeting in at least two daily newspapers published in Seoul. Currently, we use The Seoul Shinmun and The Maeil Kyungje (The Economics Daily) published in Seoul for this purpose. Shareholders not on the shareholders’ register as of the record date are not entitled to receive notice of the general meeting of shareholders or attend or vote at such meeting. Holders of Enfranchised Non-Voting Shares on the shareholders’ register as of the record date are entitled to receive notice of, and to attend and vote at, the general meetings. Otherwise, holders of Non-Voting Shares are not entitled to receive notice of general meetings of shareholders or vote at such meetings but may attend such meetings.

The general meeting of shareholders is held in Seoul.

Register of Shareholders and Record Dates

Our transfer agent, Kookmin Bank, maintains the register of our shareholders at its office in Seoul, Korea. It registers transfers of Shares on the register of shareholders upon presentation of the Share certificates.

The record date for annual dividends is December 31. For the purpose of determining the holders of Shares entitled to annual dividends, the register of shareholders may be closed for the period following December 31 and ending on the next following ordinary general meeting of shareholders. Further, the Korean Commercial Code and our articles of incorporation permit us upon at least two weeks’ public notice to set a record date and/or close the register of shareholders for not more than three months for the purpose of determining the shareholders entitled to certain rights pertaining to the Shares. The trading of Shares and the delivery of certificates in respect of them may continue while the register of shareholders is closed.

Annual Report

At least one week prior to the annual general meeting of shareholders, our annual report and audited non-consolidated financial statements must be made available for inspection at our principal office and at all branch

offices. Copies of annual reports, the audited non-consolidated financial statements and any resolutions adopted at the general meeting of shareholders will be available to our shareholders.

Under the Securities and Exchange Act, we must file with the FSC and the Korea Exchange an annual report within 90 days after the end of our fiscal year, a half-year report within 45 days after the end of the first six months of our fiscal year and quarterly reports within 45 days after the end of the first three months and nine months of our fiscal year. Copies of these reports are available for public inspection at the FSC and the Korea Exchange.

Limitation on Shareholdings

No person other than the Government, our employee stock ownership association and persons who obtain an approval from the FSC may hold for its account more than 3% of our total issued and outstanding Shares. In calculating shareholdings for this purpose, shares held by your spouse and your certain relatives or by your certain affiliates (such spouses, relatives and affiliates are together referred to as “Affiliated Holders”) are deemed to be held by you. If you hold Shares in violation of this 3% limit, you are not entitled to exercise the voting rights or preemptive rights of the Shares in excess of such 3% limit and the FSC may order you to take necessary corrective action. In addition, the KEPCO Act currently requires that the Government, directly or through KDB, own not less than 51% of our capital. For other restrictions on shareholdings, see Item 9 “The Offer and Listing”.

Change of Control

The KEPCO Act requires that the Government, directly or pursuant to the KDB Act, through KDB, own not less than 51% of our capital.

Disclosure of Share Ownership

Under the Securities and Exchange Act, any person who directly or beneficially owns shares, whether in the form of shares or ADSs, certificates representing the rights to subscribe for common shares and equity-related debt securities including convertible bonds and bonds with warrants (collectively, the “Equity Securities”) together with the Equity Securities beneficially owned by certain related persons or by any person acting in concert with the person accounts for 5% or more of the total outstanding Equity Securities is required to report the status of the holdings to the FSC and the Korea Exchange within five business days after reaching the 5% ownership interest. In addition, any change in the purpose of holding such ownership interest or a change in the ownership interest subsequent to the report which equals or exceeds 1% of the total outstanding Equity Securities is required to be reported to the FSC and the Korea Exchange within five business days from the date of the change.

Violation of these reporting requirements may subject a person to criminal sanctions such as fines or imprisonment and may result in a loss of voting rights with respect to the ownership of Equity Securities exceeding 5%. Furthermore, the FSC may issue an order to dispose of non-reported Equity Securities.

EXCHANGE CONTROLS

General

The Foreign Exchange Transaction Act and the Presidential Decree and regulations under that Act and Decree (collectively the “Foreign Exchange Transaction Laws”) regulate investment in Korean securities by non-residents and issuance of securities outside Korea by Korean companies. Under the Foreign Exchange Transaction Laws, non-residents may invest in Korean securities only to the extent specifically allowed by these laws or otherwise permitted by the Ministry of Finance and Economy. The FSC has also adopted, pursuant to its authority under the Korean Securities and Exchange Act, regulations that restrict investment by foreigners in Korean securities and regulate issuance of securities outside Korea by Korean companies.

Under the Foreign Exchange Transaction Laws, (1) if the Government deems that it is inevitable due to the outbreak of natural calamities, wars, conflict of arms or grave and sudden changes in domestic or foreign economic circumstances or other situations equivalent thereto, the Ministry of Finance and Economy may temporarily suspend payment, receipt or the whole or part of transactions to which the Foreign Exchange Transaction Laws apply, or impose an obligation to safe-keep, deposit or sell means of payment in or to certain Korean governmental agencies or financial institutions; and (2) if the Government deems that international balance of payments and international finance are confronted or are likely to be confronted with serious difficulty or the movement of capital between Korea and abroad brings or is likely to bring on serious obstacles in carrying out currency policies, exchange rate policies and other macroeconomic policies, the Ministry of Finance and Economy may take measures to require any person who intends to perform capital transactions to obtain permission or to require any person who performs capital transactions to deposit part of the means of payment acquired in such transactions in certain Korean governmental agencies or financial institutions, in each case subject to certain limitations thereunder.

Government Review of Issuances of Debt Securities and ADSs and Report for Payments

In order for us to issue debt securities of any series, maturity of which is one year or more, outside of the Republic, we are required to file a report with our designated foreign exchange bank or the MOFE on the issuance of such debt securities, depending on the issuance amount. Furthermore, in order for us to make payments of principal of or interest on the debt securities of any series and other amounts as provided in an indenture and such debt securities, we are required to present relevant documents to the designated foreign exchange bank at the time of each actual payment. The purpose of such presentation is to ensure that the actual remittance is consistent with the terms of the transaction reported to our designated foreign exchange bank or the MOFE.

In order for us to offer for purchase shares of our common stock held in treasury in the form of ADSs or issue shares of our common stock represented by the ADSs, we are required to file a prior report of such offer or issuance with our designated foreign exchange bank or the MOFE, depending on the offering amount. No further Korean governmental approval is necessary for the initial offering and issuance of the ADSs.

In order for a depositary to acquire any existing shares of our common stock from holders of these shares of common stock (other than from us) for the purpose of issuance of depositary receipts representing these shares of common stock, the depositary would be required to obtain our consent for the number of shares to be deposited in any given proposed deposit which exceeds the difference between (1) the aggregate number of shares deposited by us or with our consent for the issuance of ADRs (including deposits in connection with the initial and all subsequent offerings of ADRs and stock dividends or other distributions related to these ADRs) and (2) the number of shares on deposit with the depositary at the time of such proposed deposit. The depositary would also be required to file a written report to the Governor of the FSS after the acquisition of the shares of common stock. We may not grant this consent for the deposit of shares of our common stock in the future, if our consent is required. Therefore, a holder of ADRs who surrenders ADRs and withdraws shares of our common stock may not be permitted subsequently to deposit such shares and obtain ADRs.


	*Reporting Requirements for Holders of Substantial Interests*

If any person whose direct beneficial ownership of (1) shares having voting rights (whether in the form of shares or ADSs), (2) certificates representing the right to subscribe for shares and (3) certain equity-related debt securities such as convertible bonds and bonds with warrants (collectively, the “Equity Securities”), together with the Equity Securities beneficially owned by certain related persons or by any person acting in concert with such person, accounts for 5% or more of the aggregate of the total outstanding shares having voting rights and those other Equity Securities which are owned by such person, then such person is required to report the status of his holdings to the FSC and the Korea Exchange within five business days after reaching the 5% ownership interest. Moreover, any change in the purpose of holding such ownership interest or change in the ownership interest subsequent to such report which equals or exceeds 1% of the total outstanding shares having voting rights and those other Equity Securities which are owned by such person is required to be reported to the FSC and the Korea Exchange within five business days from the date of such change.

Violation of these reporting requirements may subject a person to criminal sanctions such as fines or imprisonment and may result in loss of voting rights with respect to the ownership of Equity Securities exceeding 5%. Furthermore, the FSC may issue an order to dispose of such non-reported Equity Securities.


	*Restrictions Applicable to ADSs*

No Korean governmental approval is necessary for the sale and purchase of ADSs in the secondary market outside Korea or for the withdrawal of shares of our common stock underlying ADSs and the delivery inside Korea of the withdrawn shares. However, a foreigner who intends to acquire shares must obtain an Investment Registration Card from the FSS as described below. The acquisition of shares by a foreigner must be reported by the foreigner or his standing proxy in Korea immediately to the Governor of the FSS.

Persons who have acquired shares of our common stock as a result of the withdrawal of shares of common stock underlying the ADSs may exercise their preemptive rights for new shares, participate in free distributions and receive dividends on shares of our common stock without any further governmental approval.


	*Restrictions Applicable to Common Stock*

Under the Foreign Exchange Transaction Laws and FSC regulations (together, the “Investment Rules”), foreigners are permitted to invest, subject to certain exceptions and procedural requirements, in all shares of Korean companies unless prohibited by specific laws. Foreign investors may trade shares listed on the Korea Exchange only through the Korea Exchange except for certain limited circumstances. These circumstances include, among others, (1) odd-lot trading of shares, (2) acquisition of shares (“Converted Shares”) by exercise of warrant, conversion right under convertible bonds, exchange right under exchangeable bonds or withdrawal right under depositary receipts issued outside of Korea by a Korean company, (3) acquisition of shares as a result of inheritance, donation, bequest or exercise of shareholders’ rights (including preemptive rights or rights to participate in free distributions and receive dividends) and (4) over-the-counter transactions between foreigners of a class of shares for which a ceiling on aggregate acquisition by foreigners (as explained below) exists and has been reached or exceeded. For over-the-counter transactions of shares listed on the Korea Exchange outside the Korea Exchange between foreigners of a class of shares for which a ceiling on aggregate acquisition by foreigners exists and has been reached or exceeded a securities company licensed in Korea must act as an intermediary. Odd-lot trading of shares listed on the Korea Exchange outside the Korea Exchange must involve a licensed securities company in Korea as the other party. Foreign investors are prohibited from engaging in margin transactions with respect to shares subject to a ceiling on acquisition by foreigners.

The Investment Rules require a foreign investor who wishes to invest in shares on the Korea Exchange (including Converted Shares) to register its identity with the FSS prior to making any such investment. However, such registration requirement does not apply to foreign investors who acquire Converted Shares with the intention of selling them within three months from the date they were acquired. Upon registration, the FSS will issue to the foreign investor an Investment Registration Card which must be presented each time the foreign investor opens a brokerage account with a securities company. Foreigners eligible to obtain an Investment Registration Card include any foreign nationals who are individuals (with residence abroad for six months or more), foreign governments, foreign municipal authorities, foreign public institutions, international financial institutions or similar international organizations, corporations incorporated under foreign laws and any person in any additional category designated by the Decree of the Minister of Finance and Economy under the Securities and Exchange Act. All Korean branches of a foreign corporation as a group are treated as a separate foreigner from the head office of the foreign corporation. However, a foreign branch of a Korean securities company, a foreign corporation or a depositary issuing depositary receipts may obtain one or more Investment Registration Cards in its name in certain circumstances as described in the relevant regulations.

Upon a foreign investor’s purchase of shares through the Korea Exchange, no separate report by the investor is required because the Investment Registration Card system is designed to control and oversee foreign investment through a computer system. However, a foreign investor’s acquisition or sale of shares outside the Korea Exchange (as discussed above) must be reported by the foreign investor or his standing proxy to the Governor of the FSS at the time of each acquisition or sale. However, a foreign investor must ensure that any

acquisition or sale by it of shares outside the Korea Exchange in the case of trades in connection with a tender offer, odd-lot trading of shares or trades of a class of shares for which the aggregate foreign ownership limit has been reached or exceeded, is reported to the Governor of the FSS by the securities company engaged to facilitate such transaction. A foreign investor may appoint one or more standing proxies from among the Korea Securities Depository, internationally recognized foreign custodians, asset management companies, futures trading companies, foreign exchange banks (including domestic branches of foreign banks), and securities companies (including domestic branches of foreign securities companies) which will exercise shareholders’ rights or perform any matters related to the foregoing activities if the foreign investor does not perform these activities himself. However, a foreign investor may be exempted from complying with these standing proxy rules with the approval of the Governor of the FSS in cases deemed inevitable by reason of conflict between the laws of Korea and those of the home country of the foreign investor.

Certificates evidencing shares of Korean companies must be kept in custody with an eligible custodian in Korea. Only foreign exchange banks (including domestic branches of foreign banks), securities companies (including domestic branches of foreign securities companies), asset management companies, futures trading companies, internationally recognized foreign custodians and the Korea Securities Depository are eligible to be a custodian of shares for a non-resident or foreign investor. A foreign investor must ensure that his custodian deposits his shares with the Korea Securities Depository. However, a foreign investor may be exempted from complying with this deposit requirement with the approval of the Governor of the FSS in circumstances where compliance is made impracticable, including cases where such compliance would contravene the laws of the home country of the foreign investor.

Under the Investment Rules, with certain exceptions, a foreign investor may acquire shares of a Korean company without being subject to any single or aggregate foreign investment ceiling. However, certain designated public corporations are subject to a 40% ceiling on acquisitions of shares by foreigners in the aggregate and a ceiling on acquisitions of shares by a single foreign investor provided in the articles of incorporation of such corporations. Of the Korean companies listed on the Korea Exchange, we are so designated. The FSC may increase or decrease these percentages if it deems it necessary for the public interest, protection of investors or industrial policy. Generally, the ownership of Converted Shares constitutes foreign ownership for purposes of such aggregate foreign ownership limit. However, the acquisition of Converted Shares is one of the exceptions under which foreign investors may acquire shares of designated corporations in excess of the 40% ceiling.

In addition to the aggregate foreign investment ceiling set by the FSC under authority of the Securities and Exchange Act, our Articles of Incorporation set a 3% ceiling on acquisition by a single investor (whether domestic or foreign) of the shares of our common stock. Any person (with certain exceptions) who holds more than 3% of our issued and outstanding Shares cannot exercise voting rights with respect to the Shares in excess of this 3% limit.

The ceiling on aggregate investment by foreigners applicable to us may be exceeded in certain limited circumstances, including as a result of acquisition of:


	•	shares by a depositary issuing depositary receipts representing such shares (whether newly issued shares or outstanding shares);

	•	Converted Shares;

	•	shares from the exercise of shareholders’ rights; or

	•	shares by gift, inheritance or bequest.

A foreigner who has acquired shares in excess of any ceiling described above may not exercise his voting rights with respect to the shares exceeding such limit and the FSC may take necessary corrective action against him pursuant to the Securities and Exchange Act.

Under the Foreign Exchange Transaction Laws, a foreign investor who intends to acquire shares must designate a foreign exchange bank at which he must open a foreign currency account and a Won account exclusively for stock investments (“Foreign Currency Account” and “Won Account”, respectively). No approval is required for remittance into Korea and deposit of foreign currency funds in the Foreign Currency Account.

Foreign currency funds may be transferred from the Foreign Currency Account at the time required to place a deposit for, or settle the purchase price of, a stock purchase transaction to a Won account opened at a securities company. Funds in the Foreign Currency Account may be remitted abroad without any governmental approval.

Dividends on shares of our common stock are paid in Won. No governmental approval is required for foreign investors to receive dividends on, or the Won proceeds of the sale of, any shares to be paid, received and retained in Korea. Dividends paid on, and the Won proceeds of the sale of, any shares held by a non-resident of Korea must be deposited either in a Won account with the investor’s securities company or his Won Account. Funds in the investor’s Won Account may be transferred to his Foreign Currency Account or withdrawn for local living expenses up to certain limitations. Funds in the Won Account may also be used for future investment in shares or for payment of the subscription price of new shares obtained through the exercise of preemptive rights.

Securities companies and asset management companies are allowed to open foreign currency accounts with foreign exchange banks exclusively for accommodating foreign investors’ stock investments in Korea. Through these accounts, these securities companies and asset management companies may enter into foreign exchange transactions on a limited basis, such as conversion of foreign currency funds and Won funds, either as a counterparty to or on behalf of foreign investors without the foreign investors having to open their own accounts with foreign exchange banks.

TAXATION

Korean Taxes

The following summary describes the material Korean tax consequences of ownership of the Registered Debt Securities and ADSs. Persons considering the purchase of the Registered Debt Securities or ADSs should consult their own tax advisors with regard to the application of the Korean income tax laws to their particular situations as well as any tax consequences arising under the laws of any other taxing jurisdiction. Reference is also made to a tax treaty between the Republic and the United States entitled “Convention Between the Government of The Republic of Korea and the Government of the United States of America for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income and the Encouragement of International Trade and Investment,” signed on June 4, 1976 and entered into force on October 20, 1979 (“U.S.-Korea Tax Treaty”).

The following summary of Korean tax considerations applies to you so long as you are not:


	•	a resident of Korea;

	•	a corporation organized under Korean law; or

	•	engaged in a trade or business in Korea through a permanent establishment or a fixed base to which the relevant income is attributable or with which the relevant income is effectively connected.


	*Notes*


	Taxation of Interest

Under current Korean tax laws, when we make payments of interest to you on the notes, no amount will be withheld from such payments for, or on account of, any income taxes of any kind imposed, levied, withheld or assessed by Korea or any political subdivision or taxing authority thereof or therein.


	Taxation of Capital Gains

Under specific exemptions granted under Korean tax law, you will not be subject to any Korean income or withholding taxes in connection with the capital gains from sale, exchange or other disposition of a note, if (i) you transfer the note to another non-resident (other than to such transferee’s permanent establishment in Korea) and (ii) you transfer the note to resident or non-resident of Korea (regardless whether the transferee’s have a permanent establishment in Korea) by virtue of the Special Tax Treatment Control Law of Korea (the “STTCL”), provided that the issuance of the note outside Korea is deemed to be an overseas issuance under the STTCL. If you sell or otherwise dispose of a note through other ways than those mentioned above, any gain realized on the transaction will be taxable at ordinary Korean withholding tax rates (the lesser of, subject to the production of satisfactory evidence of the acquisition cost of, and certain direct transaction costs attributable to the disposal of, the relevant notes, 27.5% of the net gain or 11% of the gross sale proceeds), unless an exemption is available under an applicable income tax treaty. See the discussion under “— Tax Treaties” below in Shares or ADSs for an additional explanation on treaty benefits.


	Inheritance Tax and Gift Tax

If you die while you are the holder of a note, the subsequent transfer of the notes by way of succession will be subject to Korean inheritance tax. Similarly, if you transfer a note as a gift, the donee will be subject to Korean gift tax and you may be required to pay the gift tax if the donee fails to do so.

At present, Korea has not entered into any tax treaty relating to inheritance or gift taxes.


	*Shares or ADSs*


	Dividends on the Shares of Common Stock or ADSs

We will deduct Korean withholding tax from dividends paid to you at a rate of 27.5%. If you are a qualified resident in a country that has entered into a tax treaty with Korea, you may qualify for a reduced rate of Korean withholding tax. See the discussion under “Tax Treaties” below for an additional explanation on treaty benefits.

In order to obtain the benefits of a reduced withholding tax rate under a tax treaty, you must submit to us, prior to the dividend payment date, such evidence of tax residence as may be required by the Korean tax authorities. Evidence of tax residence may be submitted to us through the ADS depositary. If we distribute to you free shares representing a transfer of certain capital reserves or asset revaluation reserves into paid-in capital, that distribution may be subject to Korean tax.


	Taxation of Capital Gains

As a general rule, capital gains earned by non-residents upon the transfer of the common shares or ADSs would be subject to Korean withholding tax at a rate equal to the lesser of (i) 11% of the gross proceeds realized or (ii) 27.5% of the net realized gain (subject to the production of satisfactory evidence of the acquisition costs and certain direct transaction costs arising out of the transfer of such common shares or ADSs), unless such non-resident is exempt from Korean income taxation under an applicable Korean tax treaty into which Korea has entered with the non-resident’s country of tax residence. Please see the discussion under “Tax Treaties” below for an additional explanation on treaty benefits. Even if you do not qualify for any exemption under a tax treaty, you will not be subject to the foregoing withholding tax on capital gains if you qualify for the relevant Korean domestic tax law exemptions discussed in the following paragraphs.

With respect to shares of our common stock, you will not be subject to Korean income taxation on capital gains realized upon the transfer of such shares through the Korea Exchange if you (i) have no permanent establishment in Korea and (ii) did not own or have not owned (together with any shares owned by any entity which you have a certain special relationship with and possibly including the shares represented by the ADSs) 25% or more of our total issued and outstanding shares at any time during the calendar year in which the sale occurs and during the five calendar years prior to the calendar year in which the sale occurs.

With respect to ADSs, there are uncertainties as to whether they should be viewed as securities separate from the shares of common stock underlying such ADSs or as the underlying shares themselves for capital gains tax purposes, as discussed in a more detail in the following paragraph. However, in either case, you will be eligible for exemptions for capital gains available under Korean domestic tax law (in addition to the exemption afforded under income tax treaties) if certain conditions discussed below are satisfied.

Under a tax ruling issued by the Korean tax authority in 1995 (the “1995 tax ruling”), ADSs are treated as securities separate from the underlying shares represented by such ADSs and, based on such ruling, (i) capital gains earned by you from the transfer of ADSs to another non-resident (other than to such transferee’s permanent establishment in Korea) will not be subject to Korean income taxation and (ii) capital gains earned by you (regardless whether you have a permanent establishment in Korea) from the transfer of ADSs outside Korea will be exempt from Korean income taxation by virtue of the Special Tax Treatment Control Law of Korea (the “STTCL”), provided that the issuance of the ADSs is deemed to be an overseas issuance under the STTCL. However, according to a recent tax ruling issued in 2004 by the Korean tax authority regarding the securities transaction tax (the “2004 tax ruling”), depositary receipts constitute share certificates the transfer of which is subject to the securities transaction tax. Even though the 2004 tax ruling addresses the securities transaction tax and not the income tax on capital gains, it gives rise to a question as to whether depositary shares (such as ADSs) should be viewed as the underlying shares for capital gains tax purposes. In that case, exemptions afforded under Korean domestic tax law to capital gains from transfer of ADSs based on the treatment of ADSs as securities separate from the underlying shares would no longer apply (including those referred to in the 1995 tax ruling), but, instead, exemptions for capital gains from transfer of the underlying shares would apply. Under such an exemption relevant to this case, capital gains from transfer of ADSs would be exempt from Korean income tax under the STTCL if (i) the ADSs are listed on the securities market overseas that is similar to the Korea Exchange and (ii) the transfer of ADSs is made through such securities market. We believe that New York Stock Exchange would satisfy the condition (i) above.

If you are subject to tax on capital gains with respect to the sale of ADSs, or of shares of common stock which you acquired as a result of a withdrawal, the purchaser or, in the case of the sale of shares of common stock on the Korea Exchange or through a licensed securities company in Korea, the licensed securities company, is required to withhold Korean tax from the sales price in an amount equal to 11% (including resident surtax) of

the gross realization proceeds and to make payment of these amounts to the Korean tax authority, unless you establish your entitlement to an exemption under an applicable tax treaty or domestic tax law or produce satisfactory evidence of your acquisition cost and transaction costs for the shares of common stock or the ADSs. To obtain the benefit of an exemption from tax pursuant to a tax treaty, you must submit to the purchaser or the securities company, or through the ADS depositary, as the case may be, prior to or at the time of payment, such evidence of your tax residence as the Korean tax authorities may require in support of your claim for treaty benefits. Please see the discussion under “— Tax Treaties” below for an additional explanation on claiming treaty benefits.


	Tax Treaties

Korea has entered into a number of income tax treaties with other countries (including the United States), which would reduce or exempt Korean withholding tax on dividends on, and capital gains on transfer of, shares of our common stock or ADSs. For example, under the Korea-United States income tax treaty, reduced rates of Korean withholding tax of 16.5% or 11.0% (respectively, including resident surtax, depending on your shareholding ratio) on dividends and an exemption from Korean withholding tax on capital gains are available to residents of the United States that are beneficial owners of the relevant dividend income or capital gains. However, under Article 17 (Investment of Holding Companies) of the Korea-United States income tax treaty, such reduced rates and exemption do not apply if (i) you are a United States corporation, (ii) by reason of any special measures, the tax imposed on you by the United States with respect to such dividends or capital gains is substantially less than the tax generally imposed by the United States on corporate profits, and (iii) 25% or more of your capital is held of record or is otherwise determined, after consultation between competent authorities of the United States and Korea, to be owned directly or indirectly by one or more persons who are not individual residents of the United States. Also, under Article 16 (Capital Gains) of the Korea-United States income tax treaty, the exemption on capital gains does not apply if you are an individual, and (a) you maintain a fixed base in Korea for a period or periods aggregating 183 days or more during the taxable year and your ADSs or shares of common stock giving rise to capital gains are effectively connected with such fixed base or (b) you are present in Korea for a period or periods of 183 days or more during the taxable year.

You should inquire for yourself whether you are entitled to the benefit of an income tax treaty with Korea. It is the responsibility of the party claiming the benefits of an income tax treaty in respect of dividend payments or capital gains to submit to us, the purchaser or the securities company, as applicable, a certificate as to his tax residence. In the absence of sufficient proof, we, the purchaser or the securities company, as applicable, must withhold tax at the normal rates. Further, effective from July 1, 2002, in order for you to obtain the benefit of a tax exemption on certain Korean source income (e.g., dividends and capital gains) under an applicable tax treaty, Korean tax law requires you (or your agent) to submit the application for tax exemption along with a certificate of your tax residency issued by a competent authority of your country of tax residence, subject to certain exceptions. Such application should be submitted to the relevant district tax office by the ninth day of the month following the date of the first payment of such income.


	Inheritance Tax and Gift Tax

If you die while holding an ADS or donate an ADS, it is unclear whether, for Korean inheritance and gift tax purposes, you will be treated as the owner of the shares of common stock underlying the ADSs. If the tax authority’s interpretation of treating depositary receipts as the underlying share certificates under the 2004 tax ruling applies in the context of inheritance and gift taxes as well, you may be treated as the owner of the shares of common stock, your heir or the donee (or in certain circumstances, you as the donor) will be subject to Korean inheritance or gift tax presently at the rate of 10% to 50%; provided that the value of the ADSs or shares of common stock is greater than a specified amount.

If you die while holding a share of common stock or donate a share of common stock, your heir or donee (or in certain circumstances, you as the donor) will be subject to Korean inheritance or gift tax at the same rate as indicated above.

At present, Korea has not entered into any tax treaty relating to inheritance or gift taxes.


	Securities Transaction Tax

If you transfer share of common stock on the Korea Exchange, you will be subject to securities transaction tax at the rate of 0.15% and an agriculture and fishery special surtax at the rate of 0.15% of the sale price of the shares of common stock. If your transfer of the shares of common stock is not made on the Korea Exchange, subject to certain exceptions you will be subject to securities transaction tax at the rate of 0.5% and will not be subject to an agriculture and fishery special surtax.

With respect to transfer of ADRs, the 2004 tax ruling has been issued by the Korean tax authority to the effect that depositary receipts (which the ADRs fall under) constitute share certificates subject to the securities transaction tax; provided that, under the Securities Transaction Tax Law, the transfer of depositary receipts listed on the New York Stock Exchange or the Nasdaq National Market is exempt from the securities transaction tax. Based on the 2004 tax ruling and the relevant provisions of the Securities Transaction Tax Law, once the ADSs are listed on the New York Stock Exchange, your transfer of ADRs should not be subject to the securities transaction tax. According to tax rulings issued by the Korean tax authorities in 2000 and 2002, foreign stockholders are not subject to securities transaction tax upon the deposit of underlying stock and receipt of depositary shares or upon the surrender of depositary shares and withdrawal of the originally deposited underlying stock, but there remained uncertainties as to whether holders of ADRs other than initial holders will not be subject to securities transaction tax when they withdraw shares of common stock upon surrendering the ADRs. However, the holding of the 2004 tax ruling referred to above seems to view the ADRs as the underlying shares of common stock at least for the purpose of the securities transaction tax and, though not specifically stated, could be read to imply that the securities transaction tax should not apply to the deposit of shares of common stock in exchange of ADRs or withdrawal of shares of common stock upon surrender of the ADRs regardless of whether the holder is the initial holder because the transfer of ADRs by the initial holder to the subsequent holder would have already been subject to securities transaction tax under such tax ruling.

In principle, the securities transaction tax, if applicable, must be paid by the transferor of the shares or rights. When the transfer is effected through a securities settlement company, such settlement company is generally required to withhold and pay the tax to the tax authorities. When such transfer is made through a securities company only, such securities company is required to withhold and pay the tax. Where the transfer is effected by a non-resident without a permanent establishment in Korea, other than through a securities settlement company or a securities company, the transferee is required to withhold the securities transaction tax.

U.S. Federal Income and Estate Tax Considerations for U.S. Persons

The following is a summary of certain U.S. Federal income and estate tax consequences for beneficial owners of the Registered Debt Securities, common stock and ADRs that are “U.S. Persons” under the Internal Revenue Code (the “Code”). Under the Code, you are a “U.S. Person” if you are any of the following for U.S. Federal income tax purposes:


	•	an individual citizen or resident of the United States;

	•	a corporation, or other entity treated as a corporation for U.S. Federal income tax purposes, created or organized in or under the laws of the United States, any state thereof or the District of Columbia;

	•	an estate the income of which is subject to U.S. Federal income taxation regardless of its source; or

	•	a trust if (1) it is subject to the primary supervision of a court within the United States and one or more United States persons have the authority to control all substantial decisions of the trust, or (2) it has a valid election in effect under applicable United States Treasury regulations to be treated as a United States person.

This summary is based on current law, which is subject to change (perhaps retroactively), is for general purposes only and should not be considered tax advice. This summary does not represent a detailed description of the federal income and estate tax consequences to you in light of your particular circumstances. The discussion set forth below is applicable to you if (i) you are a resident of the United States for purposes of the current income tax treaty between the United States and Korea (the “Treaty”), (ii) your Registered Debt Securities,

common stock and ADRs are not, for purposes of the Treaty, effectively connected with a permanent establishment in Korea and (iii) you otherwise qualify for the full benefits of the Treaty. Except where noted, it deals only with Registered Debt Securities, common stock or ADRs held as capital assets, and it does not represent a detailed description of the U.S. Federal income and estate tax consequences applicable to you if you are subject to special treatment under the U.S. Federal income tax laws (including if you are a dealer in securities or currencies, a financial institution, a regulated investment company, a real estate investment trust, an insurance company, a tax exempt organization, a person holding the Registered Debt Securities, common stock and ADRs as part of a hedging, integrated or conversion transaction, constructive sale or straddle, a person owning 10% or more of our voting stock, a trader in securities that elects to use a mark-to-market method of accounting for your securities holdings, a person liable for the alternative minimum tax, an investor in a pass-through entity, or a U.S. Person whose “functional currency” is not the U.S. Dollar). We cannot assure you that a change in law will not alter significantly the tax considerations that we describe in this summary.

If a partnership holds the Registered Debt Securities, common stock or ADRs, the tax treatment of a partner will generally depend upon the status of the partner and the activities of the partnership. If you are a partner of a partnership holding our Registered Debt Securities, common stock, or ADRs, you should consult your tax advisor.

Because of the 100 year maturity of the One Hundred Year 7.95% Zero-to-Full Debentures, due April 1, 2096 (the “ZTF Debentures”), it is not certain whether the ZTF Debentures will be treated as debt for U.S. Federal income tax purposes. The discussion below assumes that the ZTF Debentures (as well as the other Registered Debt Securities) will be treated as debt, except that a summary of the consequences to you if the ZTF Debentures were not treated as debt is provided under “ZTF Debentures Treated as Equity,” below.

The discussion of the tax consequences of ownership of common stock and ADRs below, is based, in part, upon representations made by the Depositary to the Company and assumes that the Deposit Agreement, and all other related agreements, will be performed in accordance with their terms.

You should consult your own tax advisor concerning the particular U.S. Federal income and estate tax consequences to you of the ownership of the Registered Debt Securities, as well as the consequences to you arising under the laws of any other taxing jurisdiction.


	*Tax Consequences with respect to Registered Debt Securities Generally*


	Payments

Except as provided below with regard to original issue discount on the ZTF Debentures, interest payments on a Registered Debt Security will generally be taxable to you as ordinary income at the time it is paid or accrued in accordance with your method of accounting for tax purposes. Principal payments on an amortizing Registered Debt Security generally will constitute a tax-free return of capital to you.

Although interest payments to you are currently exempt from Korean taxation, if the Korean law providing for the exemption is repealed, then, in addition to interest payments on the Registered Debt Securities and original issue discount (as defined below) on the ZTF Debentures, you will be required to include in income any additional amounts and any Korean tax withheld from interest payments notwithstanding that you in fact did not receive such withheld tax. You may be entitled to deduct or credit such Korean tax (up to the Treaty rate), subject to applicable limitations in the Code. Your election to deduct or credit foreign taxes will apply to all of your foreign taxes for a particular taxable year. Interest income on a Registered Debt Security (including additional amounts and any Korean taxes withheld in respect thereof) and original issue discount on a ZTF Debenture generally will constitute foreign source income and generally will be considered “passive” income for purposes of computing the foreign tax credit (unless Korean withholding is imposed at a rate of 5% or more, in which case, for taxable years beginning before January 1, 2007, such amounts generally will be considered “high withholding tax interest” for purposes of computing the foreign tax credit). Recently enacted legislation may deny a foreign tax credit for Korean taxes imposed with respect to the notes where you do not meet a minimum holding period requirement during which you are not protected from risk of loss. The rules governing the foreign tax credit are

complex. Investors are urged to consult their tax advisors regarding the availability of the foreign tax credit under their particular circumstances.


	Original Issue Discount

The ZTF Debentures were issued with original issue discount (“OID”) for U.S. Federal income tax purposes equal to the difference between (i) the sum of all scheduled amounts payable on the ZTF Debentures (including the interest payable on such ZTF Debentures) and (ii) the “issue price” of the ZTF Debenture. The “issue price” of each ZTF Debenture is the first price at which a substantial amount of the ZTF Debentures were sold to the public (other than to an underwriter, broker, placement agent or wholesaler). If you hold ZTF Debentures, then you generally must include OID in gross income in advance of the receipt of cash attributable to that income, regardless of your method of accounting. However, you generally will not be required to include separately in income cash payments received on the ZTF Debentures, even if denominated as interest.

The amount of OID includible in income by the initial holder of a ZTF Debenture is the sum of the “daily portions” of OID with respect to the ZTF Debenture for each day during the taxable year or portion of the taxable year in which such holder held such ZTF Debenture (“accrued OID”) (for a discussion relevant to subsequent purchasers, see “— Market Discount” and “— Bond Premium”, below). The daily portion is determined by allocating to each day in any “accrual period” a pro rata portion of the OID allocable to that accrual period. The “accrual period” for a ZTF Debenture may be of any length and may vary in length over the term of the ZTF Debenture, provided that each accrual period is no longer than one year and each scheduled payment of principal or interest occurs on the first day or the final day of an accrual period. The amount of OID allocable to any accrual period is an amount equal to the product of the ZTF Debenture’s adjusted issue price at the beginning of such accrual period and its yield to maturity (determined on the basis of compounding at the close of each accrual period and properly adjusted for the length of the accrual period) less the aggregate of all qualified stated interest allocable to the accrual period. The “adjusted issue price” of a ZTF Debenture at the beginning of any accrual period is equal to its issue price increased by the accrued OID for each prior accrual period (for subsequent purchasers, determined without regard to the amortization of any acquisition or bond premium, as described below) and reduced by any payments made on such ZTF Debenture (other than payment of qualified stated interest) on or before the first day of the accrual period. OID allocable to a final accrual period is the difference between the amount payable at maturity (other than payment of qualified stated interest) and the adjusted issue price at the beginning of the final accrual period. Special rules will apply for calculating OID for an initial short accrual period. Under these rules, you will have to include in income increasingly greater amounts of OID in successive accrual periods. We are required to provide information returns stating the amount of OID accrued on ZTF Debentures held of record by persons other than corporations and other exempt holders.

As discussed above, although interest payments to you are currently exempt from Korean taxation, if the Korean law providing for the exemption is repealed, then Korean withholding tax may be imposed at times that differ from the times at which you are required to include interest or OID in income for U.S. Federal income tax purposes and this disparity may limit the amount of foreign tax credit available.


	Market Discount

If you purchase a Registered Debt Security other than a ZTF Debenture for an amount that is less than its stated redemption price at maturity, or, in the case of a ZTF Debenture, its adjusted issue price, the amount of the difference will be treated as “market discount” for U.S. Federal income tax purposes, unless that difference is less than a specified de minimis amount. Under the market discount rules, you will be required to treat any payment, other than qualified stated interest (as defined in the Code), on, or any gain on the sale, exchange, retirement or other disposition of, a Registered Debt Security as ordinary income to the extent of the market discount that you have not previously included in income and are treated as having accrued on the Registered Debt Security at the time of its payment or disposition. In addition, you may be required to defer, until the maturity of the Registered Debt Security or its earlier disposition in a taxable transaction, the deduction of all or a portion of the interest expense on any indebtedness attributable to the Registered Debt Security.

Any market discount will be considered to accrue ratably during the period from the date of acquisition to the maturity date of the Registered Debt Security, unless you elect to accrue on a constant interest method. Your election to accrue market discount on a constant interest method is to be made for the taxable year in which you acquired the Registered Debt Security, applies only to that Registered Debt Security and cannot be revoked. You may elect to include market discount in income currently as it accrues, on either a ratable or constant interest method, in which case the rule described above regarding deferral of interest deductions will not apply. Your election to include market discount in income currently, once made, applies to all market discount obligations acquired by you on or after the first taxable year to which your election applies and may not be revoked without the consent of the IRS. You should consult your own tax advisor before making this election.


	Bond Premium

If you purchase a ZTF Debenture for an amount that is greater than its adjusted issue price but equal to or less than the sum of all amounts payable on the ZTF Debenture after the purchase date other than payments of qualified stated interest (as defined in the Code), you will be considered to have purchased that ZTF Debenture at an “acquisition premium.” Under the acquisition premium rules, the amount of OID that you must include in gross income with respect to a ZTF Debenture for any taxable year will be reduced by the portion of the acquisition premium properly allocable to that year.

If you purchase a Registered Debt Security for an amount in excess of the sum of all amounts payable on the Registered Debt Security after the purchase date other than qualified stated interest, you will be considered to have purchased the Registered Debt Security at a “premium” and, if such Registered Debt Security is a ZTF Debenture, you will not be required to include any OID in income. You generally may elect to amortize the premium over the remaining term of the Registered Debt Security on a constant yield method as an offset to interest when includible in income under your regular accounting method. Special rules limit amortization of premium in the case of convertible Registered Debt Securities. In the case of instruments that provide for alternative payment schedules, bond premium is calculated by assuming that (a) you will exercise or not exercise options in a manner that maximizes your yield, and (b) we will exercise or not exercise options in a manner that minimizes your yield (except that we will be assumed to exercise call options in a manner that maximizes your yield). If you do not elect to amortize bond premium, that premium will decrease the gain or increase the loss you would otherwise recognize on disposition of a Registered Debt Security. Your election to amortize premium on a constant yield method will also apply to all debt obligations held or subsequently acquired by you on or after the first day of the first taxable year to which the election applies. You may not revoke the election without the consent of the IRS. You should consult your own tax advisor before making this election.


	Sale, Exchange and Retirement of Registered Debt Securities

When you sell, exchange or retire a Registered Debt Security, you will recognize gain or loss equal to the difference between the amount you receive (not including an amount equal to any accrued interest you have not included in income, which will be taxable as ordinary income) and your adjusted tax basis in the Registered Debt Security. Your tax basis in a Registered Debt Security other than a ZTF Debenture will generally be your cost of obtaining the Registered Debt Security increased by any market discount included in income and reduced by payments of principal you receive and any bond premium that you elect to amortize. Your adjusted tax basis in a ZTF Debenture will, in general, be your cost therefore, increased by any market discount and OID previously included in income and reduced by any cash payments on the ZTF Debentures and any bond premium that you elect to amortize. Your gain or loss realized on selling, exchanging or retiring a Registered Debt Security will generally be treated as United States source income. Your gain or loss will be capital gain or loss and will be long-term capital gain or loss if, at the time of the sale, exchange or retirement of a Registered Debt Security, you have held the Registered Debt Security for more than one year. If you are an individual and the Registered Debt Security being sold, exchanged or retired is a capital asset that you held for more than one year, you may be eligible for reduced rates of taxation on any capital gain recognized. Your ability to deduct capital losses is subject to limitations.


	ZTF Debentures Treated as Equity

If the ZTF Debentures were treated as equity for U.S. Federal income tax purposes, amounts deemed paid with respect to the ZTF Debentures would be deemed dividends for U.S. Federal income tax purposes to the extent paid out of our current or accumulated earnings and profits (as determined for U.S. Federal income tax purposes).

You would include the amounts deemed paid by us on the ZTF Debentures (before reduction for Korean withholding tax, if any) as ordinary income when actually or constructively paid by the Company. Section 305 of the Code, which would apply to the ZTF Debentures if they were treated as equity for U.S. Federal income tax purposes, requires current accrual of dividends under principles similar to the accrual of OID. Amounts treated as dividends will not be eligible for the dividends-received deduction generally allowed to U.S. Corporations.


	*Tax Consequences with respect to Common Stock and ADRs*

In general for U.S. Federal income tax purposes, holders of ADRs will be treated as the owners of the underlying common stock that are represented by such ADRs. However, the U.S. Treasury has expressed concerns that parties involved in transactions in which depositary shares are pre-released may be taking actions that are inconsistent with the claiming of foreign tax credits by the holders of ADRs. Accordingly, the analysis of creditability of Korean taxes described below could be affected by future actions that may be taken by the U.S. Treasury. Deposits or withdrawals of common stock by holders for ADRs will not be subject to U.S. Federal income tax.


	Distributions on Common Stock or ADRs

The gross amount of distributions (other than certain distributions of common stock or rights to subscribe for common stock) to holders of common stock or ADRs (including amounts withheld in respect of Korean withholding taxes) will be treated as dividend income to such holders, to the extent paid out of our current or accumulated earnings and profits, as determined under U.S. Federal income tax principles. Such income (including withheld taxes) will be includable in the gross income of a holder as ordinary income on the day actively or constructively received by the holder, in the case of common stock, or by the Depositary, in the case of ADRs. Such dividends will not be eligible for the dividends received deduction allowed to corporations under the Code.

With respect to non-corporate U.S. holders, certain dividends paid by a qualified foreign corporation and received by such holders before January 1, 2009 may be subject to reduced rates of taxation. A qualified foreign corporation includes a foreign corporation that is eligible for the benefits of an income tax treaty with the United States, if such treaty contains an exchange of information provision and the United States Treasury Department had determined that the treaty is satisfactory for purposes of the legislation. The United States Treasury Department has determined that the current income tax treaty between the United States and Korea, which contains an exchange of information provision, is (in the absence of additional guidance) satisfactory for these purposes. In addition, the Company believes it is eligible for the benefits of the United States-Korean income tax treaty. However, a foreign corporation is also treated as a qualified foreign corporation with respect to dividends paid by that corporation on shares (or ADRs backed by such shares) that are readily tradable on an established securities market in the United States. Our shares will generally not be considered readily tradable for these purposes. United States Treasury Department guidance indicates that our ADRs, which are listed on the New York Stock Exchange, are readily tradable on an established securities market in the United States. There can be no assurance that our ADRs will be considered readily tradable on an established securities market in later years. Non-corporate U.S. holders that do not meet a minimum holding period requirement during which they are not protected from a risk of loss or that elect to treat the dividend income as “investment income” pursuant to section 163(d)(4) of the Code will not be eligible for the reduced rates of taxation. In addition, the rate reduction will not apply to dividends if the recipient of a dividend is obligated to make related payments with respect to positions in substantially similar or related property. This disallowance applies even if the minimum holding period has been met. Holders should consult their own tax advisors regarding the application of the foregoing rules to their particular circumstances.

The amount of any dividend paid in Won will equal the United States dollar value of the Won received calculated by reference to the exchange rate in effect on the date the dividend is received by the holder, in the case of common stock, or by the Depositary, in the case of ADRs, regardless of whether the Won are converted into U.S. Dollars. If the Won received as a dividend is not converted into U.S. Dollars on the date of receipt, a holder will have a basis in the Won equal to its U.S. Dollar value on the date of receipt. Any gain or loss realized on a subsequent conversion or other disposition of the Won will be treated as ordinary income or loss. The amount of any distribution of property other than cash will be the fair market value of such property on the date of distribution.

The maximum rate of withholding tax on dividends paid to you pursuant to the Treaty is 15 percent. You will be required to properly demonstrate to the company and the Korean tax authorities your entitlement to the reduced rate of withholding under the Treaty. Subject to certain conditions and limitations, Korean withholding taxes (up to the Treaty rate) will be treated as foreign taxes eligible for credit against your U.S. Federal income tax liability. For purposes of calculating the foreign tax credit, dividends paid on the common stock or ADRs will be treated as income from sources outside the United States and will generally constitute “passive income”. Further, in certain circumstances, if you have held common stock or ADRs for less than a specified minimum period during which you are not protected from risk of loss, or are obligated to make payments related to the dividends, you will not be allowed a foreign tax credit for foreign taxes imposed on dividends paid on common stock or ADRs. The rules governing the foreign tax credit are complex. Investors are urged to consult their tax advisors regarding the availability of the foreign tax credit under their particular circumstances including the possible adverse impact on creditability to the extent you are entitled to a refund of any Korean tax withheld or a reduced rate of withholding.

To the extent that the amount of any distribution exceeds our current and accumulated earnings and profits for a taxable year, the distribution will first be treated as a tax-free return of capital, causing a reduction in the adjusted basis of the common stock or ADRs (thereby increasing the amount of gain, or decreasing the amount of loss, to be recognized by the investor on a subsequent disposition of the common stock or ADRs), and the balance in excess of adjusted basis will be taxed as capital gain recognized on a sale or exchange of property. Consequently, such distributions in excess of our current and accumulated earnings and profits would not give rise to foreign source income and you would not be able to use the foreign tax credit arising from any Korean withholding tax imposed on such distribution unless such credit can be applied (subject to applicable limitations) against U.S. tax due on other foreign source income in the appropriate category for foreign tax credit purposes.

Distributions of common stock or rights to subscribe for common stock that are received as part of a pro rata distribution to all of our shareholders generally may not be subject to U.S. Federal income tax. Consequently such distributions will not give rise to foreign source income and you will not be able to use the foreign tax credit arising from any Korean withholding tax unless such credit can be applied (subject to applicable limitations) against U.S. tax due on other income derived from foreign sources. The basis of the new common stock or rights so received will be determined by allocating your basis in the old common stock between the old common stock and the new common stock or rights received, based on their relative fair market value on the date of distribution. However, the basis of the rights will be zero if (i) the fair market of the rights is less than 15 percent of the fair market value of the old common stock the time of distribution, unless the taxpayer elects to determine the basis of the old common stock and of the rights by allocating between the old common stock and the new common stock the adjusted basis of the old common stock or (ii) the rights are not exercised and thus expire.


	Sale, Exchange or Other Disposition of ADRs or Common Stock

Upon the sale, exchange or other disposition of ADRs or common stock, you generally will recognize capital gain or loss equal to the difference between the amount realized upon the sale, exchange or other disposition and your adjusted tax basis in the ADRs or common stock. The capital gain or loss will be long-term capital gain or loss if at the time of sale, exchange or other disposition, the ADRs or common stock have been held by you for more than one year. Under current law, long-term capital gains of individuals are, under certain circumstances, taxed at lower rates than items of ordinary income. The deductibility of capital losses is subject to limitations. Any gain or loss recognized by you will generally be treated as U.S. source gain or loss.

You should note that any Korean securities transaction tax will not be treated as a creditable foreign tax for U.S. Federal income tax purposes, although you may be entitled to deduct such taxes, subject to applicable limitations under the Code.


	*Estate and Gift Taxation*

As discussed above in “— Korean Taxes — Notes — Inheritance Tax and Gift Tax” and “Korean Taxes — Shares or ADRs — Inheritance Tax and Gift Tax,” Korea may impose an inheritance tax on your heir who receives Registered Debt Securities and ADRs and will impose an inheritance tax on an heir who receives common stock. The amount of any inheritance tax paid to Korea may be eligible for credit against the amount of U.S. Federal estate tax imposed on your estate. Prospective purchasers should consult their personal tax advisors to determine whether and to what extent they may be entitled to such credit. Korea also imposes a gift tax on the donation of any property located within Korea. The Korean gift tax generally will not be treated as a creditable foreign tax for United States tax purposes.


	*Information Reporting and Backup Withholding*

In general, information reporting requirements will apply to principal, interest, OID and premium payments on Registered Debt Securities and dividend payments in respect of the common stock or ADRs or the proceeds received on the sale, exchange, or redemption of the Registered Debt Securities, common stock or ADRs paid within the United States (and in certain cases, outside of the United States) to holders other than certain exempt recipients (such as corporations), and a backup withholding may apply to such amounts if you fail to provide an accurate taxpayer identification number or to report interest and dividends required to be shown on your U.S. Federal income tax returns. The amount of any backup withholding from a payment to you will be allowed as a credit against your U.S. Federal income tax liability.

DOCUMENTS ON DISPLAY

We have filed this annual report on Form 20-F, including exhibits, with the SEC. As allowed by the SEC, in Item 19 of this annual report, we incorporate by reference certain information we filed with the SEC. This means that we can disclose important information to you by referring you to another document filed separately with the SEC. The information incorporated by reference is considered to be part of this annual report. You may inspect and copy this annual report, including exhibits, and documents that are incorporated by reference in this annual report at the Public Reference Room maintained by the SEC at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the Public Reference Room. Any filings we make electronically will be available to the public over the Internet at the SEC’s web site at http://www.sec.gov.


ITEM 11.	*QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK*

Our primary market risk exposures are to fluctuations in exchange rates, interest rates and fuel prices. We are exposed to foreign exchange risk related to foreign currency denominated liabilities. As of December 31, 2004, approximately 27% of our debt was denominated in foreign currencies, principally in U.S. dollars and Yen. However, substantially all of our revenues are denominated in Won. As a result, changes in exchange rates, particularly between the Won and the U.S. dollar, significantly affect us due to our significant amounts of foreign currency denominated debt and the effect of such changes on the amount of funds required by us to make interest and principal payments on such debt. In order to reduce the impact of foreign exchange rate fluctuations on our results of operations, we have recently been reducing and plan to continue to reduce the proportion of our debt which is denominated in foreign currencies and the proportion of its foreign currency debt which is denominated in U.S. dollars.

We are also exposed to foreign exchange risk related to our purchases of fuels since we obtain substantially all of our fuel materials (other than anthracite coal) directly or indirectly from sources outside Korea. Prices for such fuel materials are quoted based on prices stated in, and in many cases are paid for in, currencies other than Won. In 2004, fuel costs represented 28.3% of our revenue from the sale of electric power.

We are exposed to interest rate risk due to significant amounts of debt. Upward fluctuations in interest rates increase the cost of additional debt and the interest cost of outstanding floating rate borrowings. A substantial portion of our borrowings from domestic sources have interest rates which are determined in reference to the rate offered on domestic bonds issued by KDB with a maturity of one year.

We are also exposed to fluctuations in prices of fuel materials. In 2004, uranium accounted for 40.0% of our fuel requirements, coal accounted for 39.3%, oil (including diesel for internal combustion) accounted for 5.0% and LNG accounted for 14.8%. In 2003, measured on the same basis, uranium accounted for 42.3% of our fuel requirements, coal accounted for 41.0%, oil accounted for 5.6% and LNG accounted for 11.3%, measured in each case by the amount of electricity we generated.

For additional discussions of our market risks, see Item 3 “Key Information — Risk Factors” and Item 5 “Operating and Financial Review and Properties — Liquidity and Capital Resources — Liquidity”.

We have entered into the various swap contracts to hedge risks involving exchange rate foreign currency debts. Details of currency swap contracts and swaption contracts outstanding as of December 31, 2004 are as follows:


					Contract Amounts in				Contract Interest Rate
					Millions				per Annum
	Contract		Settlement
	Year		Year		Pay		Receive		Pay(%)	Receive(%)

The Sumitomo Bank Ltd.		1995		2005		US$ 286		JPY 27,000	7.68		4.15
Mizuho Co., Ltd. (formerly The Fuji Bank, Ltd.)		1995		2005		US$ 149		JPY 14,425	6M Libor+0.155		3.40
Canadian Imperial Bank of Commerce		1996		2006		US$ 97		JPY 10,000	6M Libor+0.13		3.80
JPMorgan Chase Bank		1996		2006		US$ 200		JPY 21,000	6M Libor+0.14		4.00
JPMorgan Chase Bank & Deutsche Bank (1, 3)		2002		2007		JPY 76,700		US$ 650	1.18		4.25
Barclays Bank PLC, London		2002		2007		JPY 30,400		US$ 250	1.04		3M Libor+0.75
ABN AMRO (*4)		2002		2008		KRW 181,500		US$ 150	5.95		4.625
Deutsche Bank(*2)		2003		2013		KRW 178,350		US$ 150	CD+3.3		7.75
UBS(*2)		2003		2013		KRW 148,625		US$ 125	CD+3.3		7.75
Credit Suisse First Boston(*2)		2003		2013		KRW 89,175		US$ 75	CD+3.3		7.75
ABN AMRO & Deutsche Bank(*5)		2003		2008		KRW 185,550		US$ 150	5.30		4.25
JPMorgan Chase Bank & Deutsche Bank		2003		2008		JPY 23,770		US$ 200	1.28		4.25
Credit Suisse First Boston		2003		2013		KRW 177,720		US$ 150	5.12		4.75
JPMorgan Chase Bank & Credit Suisse First Boston		2004		2011		KRW 172,800		US$ 150	Within 3 years: 4.875 After 3 years: 4.875-(10.9- JPY/KRW Spot rate)		4.95
Barclays Bank PLC, London(*6)		2004		2014		KRW 106,200		US$ 100	4.5+(JPY/KRW- 11.020)		5.125
Credit Suisse First Boston(*6)		2004		2014		KRW 106,200		US$ 100	4.5+(JPY/KRW- 11.020)		5.125
UBS(*6)		2004		2014		KRW 106,200		US$ 100	4.5+(JPY/KRW- 11.020)		5.125
Barclays Bank PLC, London		2004		2014		KRW 172,875		US$ 150	5.10		5.75
Barclays Bank PLC, London		2004		2011		US$ 120		KRW 138,252	4.85		4.875
BNP PARIBAS		2004		2011		US$ 15		KRW 17,282	4.85		4.875
Hana Bank		2004		2011		US$ 15		KRW 17,282	4.85		4.875
Credit Suisse First Boston		2004		2011		US$ 100		KRW 115,210	4.85		4.875


(*1)	If the Republic of Korea declares default on its debts, the Company is entitled to receive Korean government bonds instead of cash. Valuation for these embedded derivatives is reflected in the valuation of the currency swap.

(*2)	The Company exercised a call option in addition to these swaps with FX rate of W1,056.7 in December 2004, which the Company could exchange each W5,945 million with the amounts of US$5,000,000 multiplied by Spot FX rate (KRW/ US$).

(*3)	The Company pays JPY 7,670 million which is 10% of the contract amount every March and September and will receive US$650 million in September 2007.

(*4)	The swaption has an interest pay rate of CD+0.5% and an interest receive rate of 5.95%, of which an exercise date is January 2006.


(*5)	The swaption has an interest pay rate of CD+0.15% and an interest receive rate of 5.30%, of which an exercise date is January 2006.

(*6)	The Company has purchased a reset option in addition to these swaps under which the Company can reset each W10,620 million to the amounts of US$10,000,000 multiplied by spot FX rate (KRW/ US$) until December 10, 2005 and the valuation for this reset option is considered in the valuation of the swaps.

Under these currency swap contracts and swaption contracts, we recognized a valuation gain of W33 billion and a valuation loss of W322 billion in 2004.

We have entered into the various swap contracts to hedge risks involving interest rate of foreign currency debts. Details of interest rate contracts outstanding as of December 31, 2004 are as follows:

Contract Interest Rate per Annum

Notional Amount

in Millions

Pay(%)

Receive(%)

Term

JPMorgan Chase Bank

US$ 149

6.91

Libor+0.155

1995-2005

Deutsche Bank

US$ 100

Max (6.074-Libor, 0

)

Max (Libor-6.074, 0)

1998-2007

Deutsche Bank

US$ 100

Max (Libor-6.074,0

)

Max (6.074-Libor, 0)

1998-2007

Deutsche Bank

KRW 178,350

5+2 x (JPY/W-11.03

)

CD+3.3

2003-2013

UBS

KRW 148,625

5+2 x (JPY/W-11.03

)

CD+3.3

2003-2013

Credit Suisse First Boston

KRW 89,175

5+2 x (JPY/W-11.03

)

CD+3.3

2003-2013

Credit Suisse First Boston

KRW 50,000

6.89

(5Y CMT-CD) x 2+4.3

2002-2007

Credit Suisse First Boston

KRW 50,000

6.89

7.30

2002-2007

JPMorgan Chase Bank

KRW 50,000

CD-0.3

3 years: 7.75
3 years: 14.65-CD

2003-2008

Deutsche Bank

KRW 50,000

4.98

CD-0.3

2003-2005

Credit Suisse First Boston

KRW 30,000

6.09

1 year: 7.25
2 years: (5Y CMT- CD) x 5+1.5

2003-2005

Citibank

KRW 60,000

CD-0.3

7.65/2.50(*)

2002-2005

Deutsche Bank

KRW 20,000

CD-0.31

7.65/2.50(*)

2002-2005

Deutsche Bank

KRW 40,000

CD-0.37

7.65/2.50(*)

2002-2005

Kookmin Bank

KRW 20,000

5.995

CD-0.325

2002-2005

Deutsche Bank

KRW 100,000

5.995

CD-0.325

2002-2005

(*) If CD rate is equal or lower than 6.75%, then 7.65% will be applied, otherwise, 2.50% will be applied.

Under these interest rate swap contracts, we recognized a valuation gain of W121 billion and a valuation loss of W1 billion in 2004.

100

The following table summarizes the carrying amounts, fair values, principal cash flows by maturity date and weighed-average interest rates of our short-term and long-term liabilities as of December 31, 2004 which are sensitive to exchange rates and/or interest rates. The information is presented in Won, which is our reporting currency.


			Maturities

			December 31, 2004

			2005			2006			2007			2008			2009			Thereafter			Total			Fair Value

			(In Won millions except rates)
Local currency:
	Fixed rate			1,479,341			1,000,358			1,370,269			990,209			1,180,194			130,259			6,150,630			6,405,119
	Average weighted rate(1)			4.92	%		4.98	%		4.87	%		4.79	%		4.95	%		4.90	%		4.94	%		—
	Variable rate			1,580,533			1,724,369			1,419,896			1,263,707			577,961			66,031			6,632,497			6,430,157
	Average weighted rate(1)			4.38	%		4.42	%		4.47	%		5.21	%		5.62	%		4.16	%		4.53	%		—

		Sub-total		3,059,874			2,724,727			2,790,165			2,253,916			1,758,155			196,290			12,783,127			12,835,276

Foreign currency:
	Fixed rate			1,178,164			141,856			1,338,834			1,320,267			231,880			1,289,269			5,500,270			5,595,602
	Average weighted rate(1)			3.56	%		3.58	%		4.63	%		6.29	%		5.97	%		5.47	%		4.58	%		—
	Variable rate			403,728			366,580			38,273			10,438			—			698,737			1,517,756			1,489,696
	Average weighted rate(1)			3.70	%		4.09	%		4.16	%		4.17	%		4.17	%		4.17	%		4.04	%		—

		Sub-total		1,581,892			508,436			1,377,107			1,330,705			231,880			1,988,006			7,018,026			7,085,298

Total				4,641,766			3,233,163			4,167,272			3,584,621			1,990,035			2,184,296			19,801,153			19,920,574

Note:


(1)	Weighted average rates of the portfolio at the period end.

The following analysis sets forth the sensitivity of our non-consolidated net income before income taxes (our “Pre-tax Income”) to changes in exchange rates, interest rates and fuel costs. For purposes of this section, we and the generation subsidiaries will be deemed one entity. The range of changes in such risk categories represents our view of the changes that are reasonably possible over a one-year period, although it is difficult to predict such changes as a result of adverse economic developments in Korea. See Item 3 “Key Information — Risk Factors — Risks Relating to Korea — Adverse developments in Korea would have adverse effects on us”. The following discussion only addresses material market risks faced by us and does not discuss other risks which we face in the normal course of business, including country risk, credit risk and legal risk. All calculations are made under Korean GAAP.

The following modeling assumptions were made in the following sensitivity analysis:

(1) For any one year period, the Won/ U.S. Dollar exchange rate at the beginning of such period was assumed to be W1,043.8 to US$1.00, which was the market exchange rate as of December 31, 2004. For the purpose of calculating realized foreign exchange transaction losses, a selected change in the exchange rate was assumed to be the change in the average exchange rate for a one-year period;

(2) The amount of foreign currency debt to be incurred by us in 2005 and 2006 was assumed to be US$300 million (or the equivalent amount thereof in other foreign currency) for each year. We assumed all such debt to be in U.S. Dollars with a maturity of over two years and payable at maturity, to be incurred by us evenly throughout a given one-year period and further assumed that 40.7% of our debt in 2005 and 2006 would carry floating interest rates consistent with our interest rate portfolio as of December 31, 2004; and

101

(3) For any one-year period, we used prices of fuel materials in our budget for 2005 as the beginning fuel prices. In measuring sensitivity to changes in fuel prices, our anticipated fuel consumption for 2005 and 2006 was used.

If the Won depreciates against the U.S. Dollar by 10% and all other variables are held constant from their levels as of December 31, 2004, we estimate that our unrealized foreign exchange translation losses will increase by W354 billion in 2005, and by W324 billion in 2006. Under Korean GAAP, such unrealized translation losses are to be credited or charged to current operations. However, realized and unrealized foreign exchange translation losses during construction period on debt incurred for construction of utility plant are permitted to be capitalized under Korean GAAP. Under U.S. GAAP, all such foreign exchange translation losses are included in the results of operations for the current period unless offset by the establishment of a regulatory asset. See Item 5 “Operating and Financial Review and Prospects — Liquidity and Capital Resources — Reconciliation to U.S. GAAP” and Note 32 of the notes to our consolidated financial statements.

In addition, if the Won depreciates against the U.S. Dollar by 10% and all other variables are held constant from their levels as of December 31, 2004, we estimate that our Pre-tax Income will decrease by W145 billion in 2005 and by W61 billion in 2006, as a result of increased realized foreign exchange transaction losses (not reflecting the fact that a portion of such transaction losses on debt incurred for construction of utility plant may be capitalized under Korean GAAP); by W22 billion in 2005 and by W17 billion in 2006, as a result of increased interest expenses; and by W585 billion in 2005 and by W618 billion in 2006, as a result of increased fuel expenses.

If the foreign and domestic interest rates increase by 1% point and all other variables are held constant from their levels as of December 31, 2004, we estimate that our Pre-tax Income will decrease by W77 billion in 2005 and by W83 billion in 2006 (not reflecting the fact that a portion of such interest may be capitalized under Korean GAAP). The above analysis considers the effects of such interest rate increase on short-term and long-term borrowings and does not reflect the positive impact on our Pre-tax Income of increased interest rates on our interest-bearing assets, if any.

If the fuel prices of uranium, anthracite and bituminous coal, oil and LNG rise by 10% and all other variables are held constant at their levels as of December 31, 2004, we estimate that our Pre-tax Income will decrease by W721 billion in 2005 and by W762 billion in 2006.

For comparative purposes, we also made the following modeling assumptions in June 2004 for the 2004 and 2005 sensitivity analysis that follows these assumptions:


	(1) For any one year period, the Won/ U.S. Dollar exchange rate at the beginning of such period was assumed to be W1,197.80 to US$1.00, which was the market exchange rate as of December 31, 2003. For the purpose of calculating realized foreign exchange transaction losses, a selected change in the exchange rate was assumed to be the change in the average exchange rate for a one year period;

	(2) The amount of foreign currency debt to be incurred by us in 2004 and 2005 was assumed to be US$900 million (or the equivalent amount thereof in other foreign currency) for each year. We assumed all such debt to be in U.S. Dollars with a fixed interest rate, maturity of over two years and payable at maturity, to be incurred by us evenly throughout a given one year period; and

	(3) For any one-year period, we used prices of fuel materials in our budget for 2004 as the beginning fuel prices. In measuring sensitivity to changes in fuel prices, our anticipated fuel consumption for 2004 and 2005 was used.

If the Won depreciates against the U.S. Dollar by 10% and all other variables are held constant from their levels as of December 31, 2003, we estimate that our unrealized foreign exchange translation losses will increase by W517 billion in 2004, and by W469 billion in 2005. Under Korean GAAP, such unrealized translation losses are to be credited or charged to current operations. However, realized and unrealized foreign exchange translation losses during construction period on debt incurred for construction of utility plant are permitted to be capitalized under Korean GAAP. Under U.S. GAAP, all such foreign exchange translation losses are included in the results of operations for the current period unless offset by the establishment of a regulatory asset. See Item 5

102

“Operating and Financial Review and Prospects — Liquidity and Capital Resources — Reconciliation to U.S. GAAP” and Note 24 of the notes to our consolidated financial statements.

In addition, if the Won depreciates against the U.S. Dollar by 10% and all other variables are held constant from their levels as of December 31, 2003, we estimate that our Pre-tax Income will decrease by W148 billion in 2004 and by W156 billion in 2005, as a result of increased realized foreign exchange transaction losses (not reflecting the fact that a portion of such transaction losses on debt incurred for construction of utility plant may be capitalized under Korean GAAP); by W30 billion in 2004 and by W28 billion in 2005, as a result of increased interest expenses; and by W529 billion in 2004 and by W562 billion in 2005, as a result of increased fuel expenses.

If the foreign and domestic interest rates increase by 1% point and all other variables are held constant from their levels as of December 31, 2003, we estimate that our Pre-tax Income will decrease by W100 billion in 2004 and by W95 billion in 2005 (not reflecting the fact that a portion of such interest may be capitalized under Korean GAAP). The above analysis considers the effects of such interest rate increase on short-term and long-term borrowings and does not reflect the positive impact on our Pre-tax Income of increased interest rates on our interest-bearing assets, if any.

If the fuel prices of uranium, anthracite and bituminous coal, oil and LNG rise by 10% and all other variables are held constant at their levels as of December 31, 2003, we estimate that our Pre-tax Income will decrease by W549 billion in 2004 and by W582 billion in 2005.

The above discussion and the estimated amounts generated from the sensitivity analyses referred to above include “forward-looking statements”, which assume for analytical purposes that certain market conditions may occur. Accordingly, such forward-looking statements should not be considered projections by us of future events or losses.


ITEM 12.	*DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES*

Not applicable.

PART II


ITEM 13.	*DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES*

Not applicable.


ITEM 14.	*MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS*

For certain modifications to the rights of our debt securities, see Item 4 “Information on the Company — History and Development — Recent Developments — Debt Restructuring”. Disclosure on use of proceeds are not applicable.


ITEM 15.	*CONTROLS AND PROCEDURES*

We had developed with the assistance of a third party advisory firm, an evaluation system which is based on a suitable, recognized control framework (including the Committee of Sponsoring Organization of the Treadyway Commission framework) to enable our management to evaluate the effectiveness of our internal control over financial reporting (as defined under Rules 13a-15(c) and 15d-15(c) under the Securities Exchange Act of 1934) by March 31, 2005. This evaluation system would be periodically operated to identify deficiencies and weaknesses, if any, in our internal control over financial reporting, and, to the extent any significant deficiencies or material weaknesses are identified, we plan to take corrective actions, as appropriate.

An evaluation was carried out under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our

103

disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, or the Exchange Act) as of December 31, 2004.

A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. As such, disclosure controls and procedures or systems for internal control over financial reporting may not prevent all errors and all fraud. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and any design may not succeed in achieving its stated goals under all potential future conditions; over time, control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

Based upon the evaluation referred to above, our Chief Executive Officer and Chief Financial Officer concluded, subject to the limitations noted above, that the design and operation of our disclosure controls and procedures as of December 31, 2004 were effective to provide reasonable assurance that information required to be disclosed in the reports we file and submit under the Exchange Act is recorded, processed, summarized and reported as and when required.

There were no significant changes in our internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation.


ITEM 16A.	*AUDIT COMMITTEE FINANCIAL EXPERT*


ITEM 16B.	*CODE OF ETHICS*

Pursuant to the requirements of the Sarbanes-Oxley Act, we have adopted a Code of Ethics applicable to our Chairman & Chief Executive Officer and all other directors and executive officers including the Chief Financial Officer and the Chief Accounting Officer, which is available on www.kepco.co.kr.


ITEM 16C.	*PRINCIPAL ACCOUNTANT FEES AND SERVICES*

The following table sets forth the aggregate fees billed for each of the years ended December 31, 2003 and 2004 for professional services rendered by Deloitte HanaAnjin LLC, a member firm of Deloitte Touche Tohmatsu, and by KPMG Samjong Accounting Corp., a member firm of KPMG International, a Swiss

104

cooperative, respectively, our principal accountant, depending on the various types of services and a brief description of the nature of such services.


		Aggregate fees billed
		during the Year
		Ended December 31,

Type of services		2003		2004		Nature of services

		(In millions of Won)
Audit Fees		W	1,137	W	954	Audit service for KEPCO and its subsidiaries.
Audit-Related Fees			22		—	Accounting advisory service.
Tax Fees			20		78	Tax return and consulting advisory service.
All Other Fees			—		—	All other services which do not meet the three categories above.

	Total	W	1,179	W	1,032

United States law and regulations in effect since May 6, 2003 generally require all engagements of the principal accountants be pre-approved by an independent audit committee or, if no such committee exists with respect to an issuer, by the entire board of directors. We have adopted the following policies and procedures for consideration and approval of requests to engage our principal accountants to perform audit and non-audit services. Engagement requests of audit and non-audit services for us and our subsidiaries must in the first instance be submitted to our Treasury Department subject to reporting to our Chief Financial Officer. If the request relates to services that would impair the independence of our principal accountants, the request must be rejected. If the engagement request relates to audit and permitted non-audit services, it must be forwarded to our Board of Directors for consideration.

Additionally, United States law and regulations in effect since May 6, 2003 permit the pre-approval requirement to be waived with respect to engagements for non-audit services aggregating no more than five percent of the total amount of revenues we paid to our principal accountants, if such engagements were not recognized by us at the time of engagement and were promptly brought to the attention of our Board of Directors or a designated member thereof and approved prior to the completion of the audit.


ITEM 16D.	*EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEE*

Not applicable.


ITEM 16E.	*PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS*

Neither we nor any “affiliated purchaser,” as defined in Rule 10b-18(a)(3) of the Exchange Act, purchased any of our equity securities during the period covered by this annual report.

PART III


ITEM 17.	*FINANCIAL STATEMENTS*

We have responded to Item 18 in lieu of responding to this item.


ITEM 18.	*FINANCIAL STATEMENTS*

Reference is made to Item 19 “Exhibits” for a list of all financial statements and schedules filed as part of this annual report.

105


ITEM 19.	*EXHIBITS*


(a)	Financial Statements filed as part of this annual report

The following financial statements and related schedules, together with the reports of independent accountants thereon, are filed as part of this annual report:


	Page

Index to Financial Statements		F-1
Report of Independent Registered Public Accounting Firm KPMG Samjong Accounting Corp., a member firm of KPMG International		F-2
Report of Independent Registered Public Accounting Firm Deloitte HanaAnjin LLC, a member firm of Deloitte Touche Tohmatsu (as former Independent Pubic Accountants of Korea Electric Power Corporation)		F-3
Report of Independent Registered Public Accounting Firm KPMG Samjong Accounting Corp., a member firm of KPMG International (Korea Hydro & Nuclear Power Co., Ltd.)		F-5
Report of Independent Auditors Ahn Kwon & Co. (Korea South-East Power Co., Ltd.)		F-6
Report of Independent Registered Public Accounting Firm Deloitte HanaAnjin LLC, a member firm of Deloitte Touche Tohmatsu (Korea Southern Power Co., Ltd.)		F-7
Report of Independent Registered Public Accounting Firm Ernst & Young Han Young, formerly Young Wha Corporation, a member firm of Ernst & Young Global (as former Independent Auditors of Korea Midland Power Co., Ltd.)		F-8
Report of Independent Registered Public Accounting Firm Deloitte HanaAnjin LLC, a member firm of Deloitte Touche Tohmatsu (Korea Midland Power Co., Ltd.)		F-9
Report of Independent Registered Public Accounting Firm Deloitte HanaAnjin LLC, a member firm of Deloitte Touche Tohmatsu (as former Independent Pubic Accountants of Korea Western Power Co., Ltd.)		F-10
Report of Independent Auditors Ahn Kwon & Co. (as former Independent Auditors of Korea East-West Power Co., Ltd.)		F-11
Report of Independent Registered Public Accounting Firm Deloitte HanaAnjin LLC, a member firm of Deloitte Touche Tohmatsu (as former Independent Pubic Accountants of Korea East-West Power Co., Ltd.)		F-12
Consolidated balance sheets as of December 31, 2003 and 2004		F-13
Consolidated statements of income for the years ended December 31, 2002, 2003 and 2004		F-15
Consolidated statements of stockholders’ equity for the years ended December 31, 2002, 2003 and 2004		F-16
Consolidated statements of cash flows for the years ended December 31, 2002, 2003 and 2004		F-18
Notes to the consolidated financial statements		F-20


(b)	Exhibits filed as part of this annual report


1	.1	Articles of Incorporation (in English)*
2	.1	Form of Deposit Agreement**
12	.1	Certifications of our Chief Executive Officer required by Rule 13a-14(a) of the Exchange Act (Certifications under Section 302 of the Sarbanes-Oxley Act of 2002)
12	.2	Certifications of our Chief Financial Officer required by Rule 13a-14(a) of the Exchange Act (Certifications under Section 302 of the Sarbanes-Oxley Act of 2002)
13	.1	Certifications of our Chief Executive Officer required by Rule 13a-14(b) and Section 1350 of Chapter 63 of the United States Code (18 U.S.C. 1350) (Certifications under Section 906 of the Sarbanes-Oxley Act of 2002)

106


13	.2	Certifications of our Chief Financial Officer required by Rule 13a-14(b) and Section 1350 of Chapter 63 of the United States Code (18 U.S.C. 1350) (Certifications under Section 906 of the Sarbanes-Oxley Act of 2002)
15	.1	Consent of KPMG Samjong Accounting Corp., a member firm of KPMG International
15	.2	Consent of Deloitte HanaAnjin LLC, a member firm of Deloitte Touche Tohmatsu
15	.3	Consent of KPMG Samjong Accounting Corp., a member firm of KPMG International (Korea Hydro & Nuclear Power Co., Ltd.)
15	.4	Consent of Ahn Kwon & Co. (Korea South-East Power Co., Ltd.)
15	.5	Consent of Deloitte HanaAnjin LLC, a member firm of Deloitte Touche Tohmatsu (Korea Southern Power Co., Ltd.)
15	.6	Consent of Ernst & Young Han Young, formerly Young Wha Corporation, a member firm of Ernst & Young Global (Korea Midland Power Co., Ltd.)
15	.7	Consent of Deloitte HanaAnjin LLC, a member firm of Deloitte Touche Tohmatsu (Korea Midland Power Co., Ltd.)
15	.8	Consent of Deloitte HanaAnjin LLC, a member firm of Deloitte Touche Tohmatsu (Korea Western Power Co., Ltd.)
15	.9	Consent of Ahn Kwon & Co. (Korea East-West Power Co., Ltd.)
15	.10	Consent of Deloitte HanaAnjin LLC, a member firm of Deloitte Touche Tohmatsu (Korea East-West Power Co., Ltd.)
15	.11	The Korea Electric Power Corporation Act (in English)***
15	.12	Enforcement Decree of the Korea Electric Power Corporation Act (in Korean and English)****
15	.13	Government-Invested Enterprise Management Basic Act of 1983, as amended (in Korean and English)****
15	.14	Enforcement Decree of the Government-Invested Enterprise Management Basic Act of 1983, as amended (in Korean and English)****


*	A fair and accurate translation from Korean to English.

**	Incorporated by reference to the Registrant’s Registration Statement on Form F-6 with respect to the ADSs, registered under Registration No. 33-84612.

***	Incorporated by reference to the Registrant’s Annual Report on Form 20-F for the fiscal year ended December 31, 2002.

****	Incorporated by reference to the Registrant’s Registration Statement on Form F-3 filed on March 8, 2000, registered under Registration No. 333-9180.

107

SIGNATURES

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.


	KOREA ELECTRIC POWER CORPORATION


	By:	/s/ Joon-Ho Han



	Name: Joon-Ho Han
	Title: Chairman & Chief Executive Officer

Date: June 30, 2005

108

INDEX TO FINANCIAL STATEMENTS


	Page

Index to Financial Statements		F-1
Report of Independent Registered Public Accounting Firm KPMG Samjong Accounting Corp., a member firm of KPMG International		F-2
Report of Independent Registered Public Accounting Firm Deloitte HanaAnjin LLC, a member firm of Deloitte Touche Tohmatsu (as former Independent Pubic Accountants of Korea Electric Power Corporation)		F-3
Report of Independent Registered Public Accounting Firm KPMG Samjong Accounting Corp., a member firm of KPMG International (Korea Hydro & Nuclear Power Co., Ltd.)		F-5
Report of Independent Auditors Ahn Kwon & Co. (Korea South-East Power Co., Ltd.)		F-6
Report of Independent Registered Public Accounting Firm Deloitte HanaAnjin LLC, a member firm of Deloitte Touche Tohmatsu (Korea Southern Power Co., Ltd.)		F-7
Report of Independent Auditors Registered Public Accounting Firm Ernst & Young Han Young, formerly Young Wha Corporation, a member firm of Ernst & Young Global (as former Independent Auditors of Korea Midland Power Co., Ltd.)		F-8
Report of Independent Registered Public Accounting Firm Deloitte HanaAnjin LLC, a member firm of Deloitte Touche Tohmatsu (Korea Midland Power Co., Ltd.)		F-9
Report of Independent Registered Public Accounting Firm Deloitte HanaAnjin LLC, a member firm of Deloitte Touche Tohmatsu (as former Independent Pubic Accountants of Korea Western Power Co., Ltd.)		F-10
Report of Independent Auditors Ahn Kwon & Co. (as former Independent Auditors of Korea East-West Power Co., Ltd.)		F-11
Report of Independent Registered Public Accounting Firm Deloitte HanaAnjin LLC, a member firm of Deloitte Touche Tohmatsu (as former Independent Pubic Accountants of Korea East-West Power Co., Ltd.)		F-12
Consolidated balance sheets as of December 31, 2003 and 2004		F-13
Consolidated statements of income for the years ended December 31, 2002, 2003 and 2004		F-15
Consolidated statements of stockholders’ equity for the years ended December 31, 2002, 2003 and 2004		F-16
Consolidated statements of cash flows for the years ended December 31, 2002, 2003 and 2004		F-18
Notes to the consolidated financial statements		F-20

F-1

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders

Korea Electric Power Corporation:

We have audited the accompanying consolidated balance sheet of Korea Electric Power Corporation and subsidiaries as of December 31, 2004, and the related consolidated statements of income, stockholders’ equity and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We did not audit the financial statements of certain consolidated companies which financial statements reflect total assets constituting 13.1% and total operating expenses constituting 28.6% (after elimination of intercompany transactions) of the related consolidated totals for 2004. These financial statements were audited by other auditors whose reports have been furnished to us, and our report, insofar as it relates to the amounts included of those consolidated companies, is based solely on the reports of other auditors.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, based on our audit and the reports of other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Korea Electric Power Corporation and subsidiaries as of December 31, 2004, and the results of their operations and their cash flows for the year then ended in conformity with the Korea Electric Power Corporation Act, the Accounting Regulations for Government Invested Enterprises and accounting principles generally accepted in the Republic of Korea.

As more fully discussed in notes 1, 20 and 28 to the consolidated financial statements, the Company changed its method of accounting for decommissioning costs in 2004.

Accounting principles generally accepted in the Republic of Korea vary in certain significant respects from U.S. generally accepted accounting principles. Information relating to the nature and effect of such differences is presented in note 32 to the consolidated financial statements.

The accompanying consolidated financial statements as of and for the year ended December 31, 2004 have been translated into United States dollars solely for the convenience of the reader. We have audited the translation and, in our opinion, the consolidated financial statements expressed in Korean Won have been translated into dollars on the basis set forth in note 2 to the consolidated financial statements.

KPMG Samjong Accounting Corp.

Seoul, Korea

May 16, 2005

F-2

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and Board of Directors of

Korea Electric Power Corporation:

We have audited the accompanying consolidated balance sheets of Korea Electric Power Corporation and its subsidiaries (collectively referred to as the “Company”) as of December 31, 2002 and 2003, and the related consolidated statements of income, stockholders’ equity and cash flows for the years ended December 31, 2001, 2002 and 2003 (not presented separately herein). These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the 2001 financial statements of Korea Hydro & Nuclear Power Co., Ltd., Korea South-East Power Co., Ltd., Korea Midland Power Co., Ltd. and Korea East-West Power Co., Ltd., which statements reflect 42.1 percent of the total consolidated assets as of December 31, 2001 and 33.8 percent of the consolidated revenue for the year then ended. We did not audit the 2002 financial statements of Korea Hydro & Nuclear Power Co., Ltd. and Korea Midland Power Co., Ltd., which statements reflect 31.6 percent of the consolidated assets as of December 31, 2002 and 29.2 percent of the consolidated revenue for the year then ended. We did not audit the 2003 financial statements of Korea Hydro & Nuclear Power Co., Ltd., which statements reflect 28.2 percent of the consolidated assets as of December 31, 2003 and 22.3 percent of the consolidated revenue for the year then ended. Those statements were audited by other auditors whose reports have been furnished to us, and our opinion, insofar as it relates to amounts included for those entities, is based solely on the reports of the other auditors.

In our opinion, based on our audits and the reports of the other auditors, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2002 and 2003, and the consolidated results of its operations, changes in its stockholders’ equity and its cash flows for years ended December 31, 2001, 2002 and 2003 in conformity with the financial accounting standards in the Republic of Korea (see Note 2).

Our audits also comprehend the translation of the Korean won amounts into U.S. dollar amounts and, in our opinion, such translation has been made in conformity with the basis stated in Note 2 to the accompanying consolidated financial statements. Such U.S. dollar amounts are presented solely for the convenience of readers outside of the Republic of Korea.

As discussed in Note 1, Korea Electric Power Corporation spun off its power generation business division on April 2, 2001, in accordance with the approval of the stockholders on March 16, 2001, which resulted in the establishment of six new power generation subsidiaries, Korea Hydro & Nuclear Power Co., Ltd., Korea South-East Power Co., Ltd., Korea Midland Power Co., Ltd., Korea Western Power Co., Ltd., Korea Southern Power Co., Ltd., and Korea East-West Power Co., Ltd. As of April 2, 2001, their combined assets and liabilities were W35,131,773 million and W17,646,157 million, respectively.

As discussed in Note 1, the Company is considering the gradual privatization of its power generation subsidiaries and distribution business, in accordance with the restructuring plan, dated January 21, 1999, of the electricity industry in the Republic of Korea announced by the Ministry of Commerce, Industry and Energy (“Restructuring Plan”). This Restructuring Plan, which is intended to introduce a competitive system in the electricity industry, is expected to affect the determination of utility rates, result in changes in management structure, related laws and regulations, and affect electricity supply and demand policy.

As discussed in Note 2, in 2003, the Company adopted Statements of Korea Accounting Standards (“SKAS”) No. 2, 3, 4, 5, 6, 7, 8 and 9, which are effective from January 1, 2003. Those statements provide accounting and reporting standards for the interim financial reporting, intangible assets, revenue recognition,

F-3

tangible assets, events occurring after the balance sheet date, capitalization of financing costs, investment in securities and convertible securities. The prior year financial statements, which are presented for comparative purposes, were restated to conform to the provisions of those standards. As a result of the adoption of SKAS No. 6 — “Events Occurring after the Balance Sheet Date”, stockholders’ equity increased and current liabilities decreased by W511,350 million as of December 31, 2002.

Accounting practices used by the Company in preparing the accompanying consolidated financial statements conform with generally accepted accounting principles in the Republic of Korea, but do not conform with accounting principles generally accepted in the United States of America. A description of the significant differences and the reconciliation of net income and stockholders’ equity to U.S. generally accepted accounting principles are set forth in Note 22.

Deloitte HanaAnjin LLC

Seoul, Korea

May 21, 2004

F-4

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholder

Korea Hydro & Nuclear Power Co., Ltd.:

We have audited the accompanying balance sheet of Korea Hydro & Nuclear Power Co., Ltd. (the “Company”) as of December 31, 2003, and the related statements of income and retained earnings and cash flows for the years ended December 31, 2003 and 2002. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the Auditing Standards, as established by the Financial Supervisory Commission of the Republic of Korea, and the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2003 and the results of its operations and its cash flows for the years ended December 31, 2003 and 2002 in accordance with the Financial Accounting Standards, as established by the Financial Supervisory Commission of the Republic of Korea.

The accompanying financial statements as of and for the year ended December 31, 2003 have been translated into United States dollars solely for the convenience of the reader. We have audited the translation and, in our opinion, the financial statements expressed in Korean Won have been translated into dollars on the basis set forth in note 3 to the financial statements.

KPMG Samjong Accounting Corp.

Seoul, Korea

March 26, 2004

F-5

REPORT OF INDEPENDENT AUDITORS

To the Board of Directors and Shareholder of

Korea South-East Power Co., Ltd.

We have audited the accompanying balance sheets of Korea South-East Power Co., Ltd. (the “Company”) as of December 31, 2004 and 2003 and the related statements of income, appropriations of retained earnings and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2004 and 2003 and the results of its operations, the appropriations of its retained earnings and its cash flows for the years then ended, in conformity with financial accounting standards generally accepted in the Republic of Korea.

Our audits also comprehended the translation of the Korean won amounts into U.S. dollar amounts and in our opinion, such translation has been made in conformity with the basis stated in Note 2. Such U.S. dollar amounts are presented solely for the convenience of readers outside of Korea.

As discussed in Note 12, most of Company’s sales have been recognized through transactions with its parent, KEPCO. Sales to KEPCO are W1,675,947 million and W1,510,381 million for the years ended December 31, 2004 and 2003, respectively, and the related trade receivables from KEPCO are W163,300 million and W126,402 million as of December 31, 2004 and 2003, respectively.

As discussed in Note 23, the Company is in the process of privatization pursuant to the Ministry of Commerce, Industry and Energy’s Restructuring Plan of the Electric Power Industry. As part of the privatization plan, the Company plans to have a portion of its common stock publicly traded to the extent not to affect the current management rights. Accordingly, the Company amended its Articles of Incorporation and issued new shares for no consideration in October 2003. In addition, a preliminary screening review by the Korea Stock Exchange was completed in December 2003. However, due to negative market conditions, on June 8, 2004, the Company requested that the Korea Stock Exchange delay the stock listing and retrieved the stock on deposit, which was held by the Korea Securities Depository for the purpose of listing the Company’s shares. The Company intends to reopen its stock listing process when the overall stock market situation and other surrounding conditions are appropriate.

As discussed in Note 19, the Company is involved in 25 lawsuits filed against the Company by Sam-Chun-Po Fishery Cooperative and others claiming damages totaling W85,603 million. The ultimate outcome of the lawsuits cannot be determined as of December 31, 2004.

As discussed in Note 2, the Company has adopted Statements of Korea Accounting Standards (“SKAS”) No. 2 through No. 9 for the year ended December 31, 2003 and adopted SKAS No. 10, No. 12 and No. 13 for the year ended December 31, 2004.

Accounting principles generally accepted in the Republic of Korea vary in certain significant respects from accounting principles generally accepted in the United States of America. Application of accounting principles generally accepted in the United States of America would have affected the results of operations for the years ended December 31, 2004 and 2003, and stockholders’ equity as of December 31, 2004 and 2003, to the extent summarized in Note 27 to the financial statements.

Ahn Kwon & Co.

Seoul, Korea

March 9, 2005

F-6

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholder and Board of Directors of

Korea Southern Power Co., Ltd.

We have audited the accompanying balance sheets of Korea Southern Power Co., Ltd. (the “Company”) as of December 31, 2003 and 2004, and the related statements of income, appropriations of retained earnings and cash flows for the years ended December 31, 2003 and 2004 (not presented separately herein), all expressed in Korean Won. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2003 and 2004, and the results of its operations, changes in its retained earnings and its cash flows for the years then ended in conformity with the financial accounting standards in the Republic of Korea (see Note 2).

The translated amounts in the accompanying financial statements have been translated into U.S. dollars, solely for the convenience of the reader, on the basis set forth in Note 2.

As discussed in Note 15, sales and purchases to and from related parties, including Korea Electric Power Corporation and Korea Gas Corporation, amounted to W2,012,271 million and W666,313 million, respectively, for the year ended December 31, 2003 and W2,713,913 million and W1,280,091 million, respectively, for the year ended December 31, 2004. Related receivables and payables amounted to W180,214 million and W96,642 million, respectively, as of December 31, 2003 and W228,562 million and W152,091 million, respectively, as of December 31, 2004.

As discussed in Note 2, in 2004, the Company adopted Statements of Korean Accounting Standards (“SKAS”) No. 10, 12 and 13, which are effective from January 1, 2004. Those statements provide accounting and reporting standards for inventories, construction contracts and troubled debt restructurings.

Accounting practices used by the Company in preparing the accompanying financial statements conform with generally accepted accounting principles in the Republic of Korea, but do not conform with accounting principles generally accepted in the United States of America. The description of the significant differences and the reconciliation of net income and stockholder’s equity to U.S. generally accepted accounting principles are set forth in Note 19 to the financial statements.

Deloitte HanaAnjin LLC

Seoul, Korea

April 19, 2005

F-7

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholder of

Korea Midland Power Co., Ltd.

We have audited the statements of income, appropriations of unappropriated retained earnings and cash flows of Korea Midland Power Co., Ltd. (the “Company”) for the year ended December 31, 2002 (not presented separately herein). These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with auditing standards generally accepted in the Republic of Korea and the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financing reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above, present fairly, in all material respects, the appropriations of unappropriated retained earnings of Korea Midland Power Co., Ltd at December 31, 2002 and the results of its operations and its cash flows for the year ended December 31, 2002 in conformity with accounting principles generally accepted in the Republic of Korea, which differ in certain respects from U.S generally accepted accounting principles (see note 32 to the consolidated financial statements).

Ernst & Young Han Young

Seoul, Korea

April 4, 2003

F-8

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholder and Board of Directors of

Korea Midland Power Co., Ltd.

We have audited the accompanying balance sheets of Korea Midland Power Co., Ltd. (the “Company”) as of December 31, 2003 and 2004, and the related statements of income, appropriations of retained earnings and cash flows for the years then ended (not presented separately herein), all expressed in Korean Won. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Korea Midland Power Co., Ltd. as of December 31, 2003 and 2004, and the result of its operations, changes in its retained earnings and its cash flows for the years then ended, in conformity with Financial Accounting Standards in the Republic of Korea (see Note 2).

The translated amounts in the accompanying financial statements have been translated into U.S. dollars, solely for the convenience of the reader, on the basis set forth in Note 2.

As discussed in Note 18, sales and purchases to and from related parties, including Korea Electric Power Corporation, amounted to W1,801,649 million and W427,610 million, respectively, for the year ended December 31, 2003, and W1,915,133 million and W582,205 million, respectively, for the year ended December 31, 2004. Related receivables and payables amount to W158,297 million and W61,089 million, respectively, as of December 31, 2003, and W158,656 million and W63,950 million, respectively, as of December 31, 2004.

Deloitte HanaAnjin LLC

Seoul, Korea

January 28, 2005

F-9

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholder and Board of Directors of

Korea Western Power Co., Ltd.

We have audited the accompanying balance sheets of Korea Western Power Co., Ltd. (the “Company”) as of December 31, 2002 and 2003, and the related statements of income, appropriations of retained earnings and cash flows for the years ended December 31, 2002 and 2003 (not presented separately herein), all expressed in Korean Won. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

In our opinion, based on our audits, the financial statements referred to above present fairly, in all material respects, the financial positions of the Company as of December 31, 2002 and 2003, and the results of its operations, changes in its retained earnings and its cash flows for the years ended December 31, 2002 and 2003 in conformity with the financial accounting standards as established by the Financial Supervisory Commission of the Republic of Korea (see Note 2).

The translated amounts in the accompanying financial statements have been translated into U.S. dollars, solely for the convenience of the reader, on the basis set forth in Note 2.

As discussed in Note 2 to the financial statements, in 2003, the Company adopted Statements of Korea Accounting Standards (“SKAS”) No. 2, 3, 4, 5, 6, 7, 8 and 9, which are effective from January 1, 2003. Those statements provide accounting and reporting standards for the interim financial reporting, intangible assets, revenue recognition, tangible assets, events occurring after the balance sheet date, capitalization of financing cost, investments in securities and convertible securities. The prior year financial statements, which are presented for comparative purposes, were restated to conform to the provisions of those standards. As a result of the adoption of SKAS No. 6 — “Events Occurring After the Balance Sheet Date”, shareholder’s equity increased and current liabilities decreased by W44,000 million as of December 31, 2002.

As discussed in Note 15 to the financial statements, sales and purchases to and from related parties, including Korea Electric Power Corporation, amounted to W2,039,143 million and W526,003 million, respectively, for the year ended December 31, 2002 and W2,150,905 million and W519,754 million, respectively, for the year ended December 31, 2003. Related receivables and payables amount to W181,021 million and W55,357 million, respectively, as of December 31, 2002 and W169,045 million and W58,942 million, respectively as of December 31, 2003.

Deloitte HanaAnjin LLC

Seoul, Korea

January 30, 2004

F-10

REPORT OF INDEPENDENT AUDITORS

To the Board of Directors and Shareholder of

Korea East-West Power Co., Ltd.

We have audited the accompanying balance sheets of Korea East-West Power Co., Ltd. (the “Company”) as of December 31, 2002 and 2001 and the related statements of operations, appropriations of retained earnings (disposition of deficit) and cash flows for the year ended December 31, 2002 and the period from April 2, 2001 (inception) to December 31, 2001. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2002 and 2001 and the results of its operations, appropriations of its retained earnings (disposition of its deficit) and its cash flows for the year ended December 31, 2002 and the period from April 2, 2001 (inception) to December 31, 2001, in conformity with financial accounting standards generally accepted in the Republic of Korea .

As discussed in Note 15, on April 2, 2001, the Company was established as a subsidiary of Korea Electric Power Corporation (“ KEPCO”) through transfers of certain of KEPCO’s power generation-related assets and liabilities pursuant to the Restructuring Plan of the Electric Power Industry in the Republic of Korea.

As discussed in Note 9, most of the Company’s sales have been recognized through transactions with its parent, KEPCO. Sales to KEPCO are W1,845,326 million and W1,379,068 million for the year ended December 31, 2002 and the period from April 2, 2001 to December 31, 2001, respectively. The related trade receivables from KEPCO are W142,016 million and W167,887 million and the trade payables and other liabilities to KEPCO are W56,312 million and W23,065 million as of December 31, 2002 and 2001, respectively.

Accounting principles generally accepted in the Republic of Korea vary in certain significant respects from accounting principles generally accepted in the United States of America. Application of accounting principles generally accepted in the United States of America would have affected the results of operations for the year ended December 31, 2002 and the period from April 2, 2001 (inception) to December 31, 2001, and stockholders’ equity as of December 31, 2002 and 2001, to the extent summarized in Note 22 to the financial statements.

Ahn Kwon & Co.

Seoul, Korea

March 27, 2003

F-11

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholder and Board of Directors of

Korea East-West Power Co., Ltd.

We have audited the accompanying balance sheet of Korea East-West Power Co., Ltd. (the “Company”) as of December 31, 2003 and the related statements of income, appropriations of retained earnings and cash flows for the year then ended (not presented separately herein), all expressed in Korean Won. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit. The balance sheet of the Company as of December 31, 2002 and the related statements of income, appropriation of retained earnings and cash flows for the year then ended were audited by Ahn-kwon & Co., whose report dated January 25, 2003, expressed an unqualified opinion on those statements.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the 2003 financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2003, and the result of its operations, changes in its retained earnings and its cash flows for the year then ended, in conformity with financial accounting standards as established by the Financial Supervisory Commission of Republic of Korea (see Note 2).

The translated amounts in the accompanying financial statements have been translated into U.S. dollars, solely for the convenience of the reader, on the basis set forth in Note 2.

As discussed in Note 2 to the financial statements, in 2003, the Company adopted Statements of Korea Accounting Standards (“SKAS”) No. 2, 3, 4, 5, 6, 7, 8 and 9, which are effective from January 1, 2003. Those statements provide accounting and reporting standards for the interim financial statements, intangible assets, revenue recognition, tangible assets, events occurring after the balance sheet date, capitalization of financing cost, investments in securities and convertible securities. The prior year financial statements, which are presented for comparative purposes, were restated to conform to the provisions of those standards. As a result of the adoption of SKAS No. 6 — “Events Occurring After the Balance Sheet Date”, shareholder’s equity increased and current liabilities decreased by W30,740 million as of December 31, 2002.

As discussed in Note 19 to the financial statements, sales and purchases to and from related parties, including Korea Electric Power Corporation, amounted to W1,876,239 million and W393,587 million, respectively, for the year ended December 31, 2002 and W1,912,679 million and W384,644 million, respectively, for the year ended December 31, 2003. Related receivables and payables amount to W170,400 million and W99,232 million, respectively, as of December 31, 2002 and W150,832 million and W46,930 million, respectively, as of December 31, 2003.

Deloitte HanaAnjin LLC

Seoul, Korea

January 30, 2004

F-12

Korea Electric Power Corporation and Subsidiaries

Consolidated Balance Sheets

December 31, 2003 and 2004


									U.S. Dollars
			Won						(Note 2)

			2003			2004			2004

			(In millions of Korean Won and in thousands of
			U.S. dollars)
ASSETS
Property, plant and equipment (notes 1, 3, 5, 17 and 31):			W	71,454,684			83,000,316		$	80,185,795
	Less: accumulated depreciation			(16,875,523	)		(24,008,733	)		(23,194,602	)
	Less: construction grants			(2,758,789	)		(3,182,366	)		(3,074,454	)

				51,820,372			55,809,217			53,916,739
	Construction in-progress			9,550,651			7,516,932			7,262,035

				61,371,023			63,326,149			61,178,774

Investments and others:
	Long-term investment securities (note 6)			1,529,120			1,545,512			1,493,104
	Long-term loans (note 7)			287,139			322,889			311,940
	Long-term other accounts receivable, less discount on present value of W35,576 in 2003 and nil in 2004 and allowance for doubtful accounts of W16,013 in 2003 and nil in 2004 (note 21)			214,044			88			85
	Deferred income tax assets			1,352,449			1,307,650			1,263,308
	Currency and interest rate swaps (note 23)			131,429			314,755			304,082
	Intangible assets (note 4)			515,993			611,958			591,207
	Other non-current assets (notes 8 and 18)			242,094			256,571			247,870

				4,272,268			4,359,423			4,211,596

Current assets:
	Cash and cash equivalents (notes 9 and 18)			2,050,636			1,669,497			1,612,885
	Trade receivables, less allowance for doubtful accounts of W33,732 in 2003 and W38,660 in 2004 (notes 18 and 29)			1,605,355			1,705,741			1,647,900
	Other accounts receivable, less allowance for doubtful accounts of W14,521 in 2003 and W22,721 in 2004 and discount on present value of nil in 2003 and W14,125 in 2004 (notes 18, 21 and 29)			458,360			494,347			477,584
	Short-term investment securities (note 6)			161,596			52,168			50,399
	Short-term financial instruments (note 18)			119,000			158,968			153,577
	Inventories (notes 5 and 10)			1,447,998			1,708,031			1,650,112
	Other current assets (notes 7, 11 and 18)			241,036			179,361			173,279

				6,083,981			5,968,113			5,765,736

		Total assets	W	71,727,272			73,653,685		$	71,156,106

See accompanying notes to consolidated financial statements.

F-13

Korea Electric Power Corporation and Subsidiaries

Consolidated Balance Sheets — (Continued)

December 31, 2003 and 2004


										U.S. dollars
				Won						(Note 2)

				2003			2004			2004

				(In millions of Korean Won and in thousands of
				U.S. dollars, except share data)
LIABILITIES AND STOCKHOLDERS’ EQUITY
Stockholders’ equity:
	Preferred stock of W 5,000 par value
		Authorized — 150,000,000 shares
		Issued — none		W	—			—			—
	Common stock of W 5,000 par value
		Authorized — 1,050,000,000 shares
		Issued and outstanding — 640,748,573 shares in 2003 and 2004 (note 12)			3,203,743			3,203,743		$	3,095,105
	Capital surplus (notes 3 and 12)				14,544,520			14,543,916			14,050,735
	Retained earnings:
		Appropriated (note 13)			17,899,939			19,554,340			18,891,257
		Unappropriated			2,331,549			3,585,495			3,463,912
	Capital adjustments including treasury stock of 101,713,050 shares in 2003 and 11,048,050 shares in 2004 (note 14)				(325,384	)		(408,311	)		(394,465	)
	Minority interest in consolidated subsidiaries				127,569			123,099			118,924

			Total stockholders’ equity		37,781,936			40,602,282			39,225,468

Long-term liabilities:
	Long-term borrowings (notes 17 and 29)				15,813,509			15,072,766			14,561,652
	Accrual for retirement and severance benefits, net (note 19)				635,049			886,367			856,311
	Liability for decommissioning costs (note 20)				5,091,070			6,259,369			6,047,115
	Reserve for self-insurance				87,926			93,352			90,186
	Currency and interest rate swaps (note 23)				215,100			366,508			354,080
	Deferred income tax liabilities				1,446,570			1,667,842			1,611,286
	Other long-term liabilities				515,839			445,731			430,616

					23,805,063			24,791,935			23,951,246

Current liabilities:
	Trade payables (notes 18 and 29)				755,248			759,411			733,660
	Other accounts payable (notes 18 and 29)				870,919			848,199			819,437
	Short-term borrowings (notes 16 and 17)				210,169			413,609			399,584
	Current portion of long-term debt (note 17)				6,625,916			4,227,710			4,084,349
	Income tax payable				809,479			1,105,515			1,068,027
	Accrued expenses (note 18)				317,868			256,218			247,530
	Dividends payable (note 15)				2,324			2,501			2,416
	Other current liabilities (notes 18 and 22)				548,350			646,305			624,389

					10,140,273			8,259,468			7,979,392

			Total liabilities		33,945,336			33,051,403			31,930,638

Commitments and contingencies (note 30)
			Total stockholders’ equity and liabilities	W	71,727,272			73,653,685		$	71,156,106

See accompanying notes to consolidated financial statements.

F-14

Korea Electric Power Corporation and Subsidiaries

Consolidated Statements of Income

For the years ended December 31, 2002, 2003 and 2004


											U.S. Dollars
		Won									(Note 2)

		2002			2003			2004			2004

		(In millions of Korean Won and in thousands of U.S. dollars,
		except earnings per share)
Operating revenues:
	Sale of electricity (note 29)	W	20,406,404			21,834,288			23,346,910		$	22,555,222
	Other operating revenues		959,271			940,306			608,752			588,109

			21,365,675			22,774,594			23,955,662			23,143,331

Operating expenses (notes 24, 25 and 29):
	Power generation, transmission and distribution costs		13,405,043			14,391,644			16,533,729			15,973,074
	Purchased power		1,207,381			1,383,818			1,411,131			1,363,280
	Other operating costs		545,867			539,104			249,206			240,755
	Selling and administrative expenses		1,160,601			1,236,230			1,294,122			1,250,239

			16,318,892			17,550,796			19,488,188			18,827,348

Operating income			5,046,783			5,223,798			4,467,474			4,315,983
Other income (expense):
	Interest income (note 31)		90,929			99,897			89,221			86,196
	Interest expense (note 31)		(1,016,422	)		(829,743	)		(737,839	)		(712,819	)
	Gain (loss) on foreign currency transactions and translation, net		511,950			(206,572	)		866,191			836,819
	Donations		(121,379	)		(185,805	)		(151,982	)		(146,828	)
	Equity income of affiliates (notes 6 and 31)		94,853			96,866			130,595			126,167
	Gain on disposal of investments, net		433,151			45,244			16,585			16,023
	Loss on disposal of property, plant and equipment, net		(10,991	)		(14,918	)		(11,186	)		(10,807	)
	Valuation gain (loss) on currency and interest rate swaps, net (note 23)		64,008			(93,490	)		(169,241	)		(163,502	)
	Other, net		77,976			(25,388	)		199,971			193,188

			124,075			(1,113,909	)		232,315			224,437

Ordinary income			5,170,858			4,109,889			4,699,789			4,540,420
Income taxes (note 26)			(2,103,792	)		(1,763,271	)		(1,795,170	)		(1,734,296	)

Income before minority interest			3,067,066			2,346,618			2,904,619			2,806,124
Minority interest in net income of consolidated subsidiaries			(18,961	)		(23,193	)		(22,097	)		(21,348	)

Net income			3,048,105			2,323,425			2,882,522			2,784,776

Earnings per share (note 29)
	Basic	W	4,770			3,686			4,576		$	4.42
	Diluted		4,770			3,677			4,510			4.36

Earnings per ADS
	Basic	W	2,385			1,843			2,288		$	2.21
	Diluted		2,385			1,839			2,255			2.18

See accompanying notes to consolidated financial statements.

F-15

Korea Electric Power Corporation and Subsidiaries

Consolidated Statements of Stockholders’ Equity

For the years ended December 31, 2002, 2003 and 2004


	Won

	Common		Capital			Retained			Capital			Minority
	Stock		Surplus			Earnings			Adjustments			Interests			Total

	(In millions of Korean Won and in thousands of U.S. dollars)
Balances at January 1, 2002	W	3,200,504		14,905,237			15,298,791			(43,465	)		172,059			33,533,126
Net income		—		—			3,048,105			—			—			3,048,105
Dividends declared		—		—			(351,432	)		—			—			(351,432	)
Loss on disposal of treasury stock		—		(310	)		—			—			—			(310	)
Gain on disposal of subsidiary’s common stock		—		(423,949	)		423,949			—			—			—
Changes in minority interests		—		—			—			—			19,620			19,620
Changes in equity interests		—		2,143			—			(2,143	)		—			—
Changes in treasury stock		—		—			—			7,940			—			7,940
Changes in unrealized losses on available-for-sale securities		—		—			—			(19,050	)		—			(19,050	)
Changes in unrealized losses on investments in affiliates		—		—			—			(51,607	)		—			(51,607	)
Changes in translation adjustments of foreign subsidiaries		—		—			—			(30,854	)		—			(30,854	)
Disposal of subsidiary’s common stock		—		—			—			982			(83,606	)		(82,624	)
Other		—		—			—			224			—			224

Balances at December 31, 2002		3,200,504		14,483,121			18,419,413			(137,973	)		108,073			36,073,138

Net income		—		—			2,323,425			—			—			2,323,425
Dividends declared		—		—			(511,350	)		—			—			(511,350	)
Issuance of common stock for non-cash assets		3,239		11,425			—			—			—			14,664
Gain on disposal of treasury stock		—		5,604			—			—			—			5,604
Issuance of convertible bond		—		45,171			—			—			—			45,171
Changes in minority interests		—		—			—			—			19,496			19,496
Changes in treasury stock		—		—			—			(178,710	)		—			(178,710	)
Changes in unrealized losses on available-for-sale securities		—		—			—			4,820			—			4,820
Changes in unrealized losses on investments in affiliates		—		—			—			4,519			—			4,519
Changes in translation adjustments of foreign subsidiaries		—		—			—			(14,968	)		—			(14,968	)
Changes in losses on valuation of derivatives		—		—			—			(3,072	)		—			(3,072	)
Other		—		(801	)		—			—			—			(801	)

Balances at December 31, 2003	W	3,203,743		14,544,520			20,231,488			(325,384	)		127,569			37,781,936

See accompanying notes to consolidated financial statements.

F-16

Korea Electric Power Corporation and Subsidiaries

Consolidated Statements of Stockholders’ Equity

For the years ended December 31, 2002, 2003 and 2004


	Won

	Common		Capital			Retained			Capital			Minority
	Stock		Surplus			Earnings			Adjustments			Interests			Total

	(In millions of Korean Won and in thousands of U.S. dollars)
Balances at January 1, 2004	W	3,203,743		14,544,520			20,231,488			(325,384	)		127,569			37,781,936
Net income		—		—			2,882,522			—			—			2,882,522
Dividends declared		—		—			(661,537	)		—			—			(661,537	)
Cumulative effect of accounting change (note 28)		—		—			687,362			—			—			687,362
Change in capital surplus		—		(5	)		—			—			—			(5	)
Loss on disposal of treasury stock		—		(599	)		—			—			—			(599	)
Changes in treasury stock		—		—			—			(12,881	)		—			(12,881	)
Changes in unrealized losses on available-for-sale securities		—		—			—			1,140			—			1,140
Changes in unrealized losses on investments in affiliates		—		—			—			3,111			—			3,111
Changes in translation adjustments of foreign subsidiaries		—		—			—			(49,592	)		—			(49,592	)
Changes in losses on valuation of derivatives		—		—			—			(24,705	)		—			(24,705	)
Changes in minority interests		—		—			—			—			(4,470	)		(4,470	)

Balances at December 31, 2004	W	3,203,743		14,543,916			23,139,835			(408,311	)		123,099			40,602,282


	U.S. Dollars (Note 2)

	Common		Capital			Retained			Capital			Minority
	Stock		Surplus			Earnings			Adjustments			Interests			Total

Balances at January 1, 2004	$	3,095,105		14,051,319			19,545,443			(314,350	)		123,243			36,500,760
Net income		—		—			2,784,776			—			—			2,784,776
Dividends declared		—		—			(639,104	)		—			—			(639,104	)
Cumulative effect of accounting change (note 28)		—		—			664,054			—			—			664,054
Change in capital surplus		—		(5	)		—			—			—			(5	)
Loss on disposal of treasury stock		—		(579	)		—			—			—			(579	)
Changes in treasury stock		—		—			—			(12,445	)		—			(12,445	)
Changes in unrealized losses on available-for-sale securities		—		—			—			1,101			—			1,101
Changes in unrealized losses on investments in affiliates		—		—			—			3,006			—			3,006
Changes in translation adjustments of foreign subsidiaries		—		—			—			(47,910	)		—			(47,910	)
Changes in losses on valuation of derivatives		—		—			—			(23,867	)		—			(23,867	)
Changes in minority interests		—		—			—			—			(4,319	)		(4,319	)

Balances at December 31, 2004	$	3,095,105		14,050,735			22,355,169			(394,465	)		118,924			39,225,468

See accompanying notes to consolidated financial statements.

F-17

Korea Electric Power Corporation and Subsidiaries

Consolidated Statements of Cash Flows

For the years ended December 31, 2002, 2003 and 2004


													U.S. Dollars
				Won									(Note 2)

				2002			2003			2004			2004

				(In millions of Korean Won and in thousands of U.S. dollars)
Cash flows from operating activities:
	Net income			W	3,048,105			2,323,425			2,882,522		$	2,784,776
	Adjustments to reconcile net income to net cash provided by operating activities:
		Depreciation and amortization			4,906,138			5,088,736			5,448,647			5,263,885
		Property, plant and equipment removal cost			256,010			245,974			199,137			192,384
		Provision for severance and retirement benefits			202,763			219,762			296,978			286,908
		Provision for decommissioning costs			583,372			698,400			257,295			248,570
		Bad debt expense			8,602			23,178			19,982			19,304
		Interest expense, net			17,192			21,273			2,931			2,832
		Loss (gain) on foreign currency translation, net			(424,791	)		221,104			(749,387	)		(723,975	)
		Equity income of affiliates			(94,853	)		(96,866	)		(130,595	)		(126,167	)
		Gain on disposal of investments, net			(433,151	)		(45,244	)		(16,585	)		(16,023	)
		Loss on disposal of property, plant and equipment, net			10,991			14,918			11,186			10,807
		Deferred income tax expense (benefit), net			220,937			8,232			(26,666	)		(25,762	)
		Valuation loss (gain) on currency and interest rate swaps			(64,008	)		93,490			169,241			163,502
		Changes in assets and liabilities:
			Trade receivables		(68,932	)		(88,735	)		(133,346	)		(128,824	)
			Other accounts receivable		(42,383	)		85,007			221,697			214,179
			Inventories		(7,128	)		(43,715	)		(561,951	)		(542,895	)
			Other current assets		(22,222	)		(155,248	)		(3,934	)		(3,801	)
			Trade payables		44,799			(3,611	)		8,909			8,607
			Other accounts payable		90,129			(65,492	)		58,014			56,047
			Income tax payable		700,762			(459,232	)		293,374			283,426
			Accrued expenses		(47,472	)		59,882			(50,244	)		(48,540	)
			Other current liabilities		(171,855	)		(1,258	)		195,550			188,919
			Other long-term liabilities		62,990			137,370			(153,229	)		(148,033	)
			Payment of severance and retirement benefits		(15,826	)		(15,084	)		(18,974	)		(18,331	)
			Payment of decommissioning costs		(13,841	)		(25,264	)		(67,012	)		(64,740	)
			Payment of self-insurance		(1,171	)		(1,011	)		(848	)		(819	)
			Other, net		55,330			78,052			(2,665	)		(2,575	)

		Net cash provided by operating activities		W	8,800,487			8,318,043			8,150,027		$	7,873,661

See accompanying notes to consolidated financial statements.

F-18

Korea Electric Power Corporation and Subsidiaries

Consolidated Statements of Cash Flows — (Continued)

For the years ended December 31, 2002, 2003 and 2004


												U.S. Dollars
			Won									(Note 2)

			2002			2003			2004			2004

			(In millions of Korean Won and in thousands of U.S. dollars)
Cash flows from investing activities:
	Proceeds from disposal of property, plant and equipment		W	106,821			42,515			21,475		$	20,747
	Receipt of construction grants			626,566			618,092			624,213			603,046
	Proceeds from disposal of investment securities			430,455			116,229			350,210			338,334
	Proceeds from long-term loans			183,915			87,683			15,585			15,056
	Proceeds from other non-current assets			161,644			150,982			289,032			279,231
	Proceeds from short-term financial instruments			437,434			356,151			166,231			160,594
	Proceeds from short-term loans			11,651			45,251			21,988			21,242
	Payment of long-term loans			(153,391	)		(219,881	)		(93,738	)		(90,559	)
	Additions to property, plant and equipment			(6,653,066	)		(6,781,993	)		(6,286,531	)		(6,073,356	)
	Acquisition of investment securities			(26,171	)		(102,368	)		(118,454	)		(114,845	)
	Acquisition of intangible assets			(45,783	)		(26,039	)		(43,426	)		(41,953	)
	Payment of other non-current assets			(260,175	)		(165,247	)		(310,738	)		(300,201	)
	Payment of short-term financial instruments			(190,972	)		(337,299	)		(206,199	)		(199,207	)
	Payment of short-term loans			(1,134	)		(22,888	)		(1,697	)		(1,639	)
	Acquisition of short-term investment securities			(20,003	)		(134,204	)		(422	)		—

		Net cash used in investing activities		(5,392,209	)		(6,373,016	)		(5,572,471	)		(5,383,510	)

Cash flows from financing activities:
	Proceeds from long-term debt			3,382,873			5,378,021			5,173,324			4,997,898
	Repayment of long-term debt			(6,543,327	)		(6,421,240	)		(7,443,946	)		(7,191,524	)
	Proceeds from (repayment of) short-term borrowings, net			(149,147	)		50,229			215,998			208,674
	Acquisition of treasury stock			—			(180,120	)		—			—
	Dividends paid			(329,659	)		(511,577	)		(673,626	)		(650,783	)
	Other, net			(30,389	)		(180,427	)		(199,644	)		(192,874	)

		Net cash used in financing activities		(3,669,649	)		(1,865,114	)		(2,927,894	)		(2,828,609	)

Increase (decrease) in cash and cash equivalents from changes in consolidated subsidiaries				(1,731	)		(19,806	)		857			828
Effect of exchange rate changes on cash and cash equivalents				(43,372	)		(6,951	)		(31,658	)		(30,584	)
Decrease (increase) in cash and cash equivalents				(306,474	)		53,156			(381,139	)		(368,214	)
Cash and cash equivalents, at beginning of the period				2,303,954			1,997,480			2,050,636			1,981,099

Cash and cash equivalents, at end of the period			W	1,997,480			2,050,636			1,669,497		$	1,612,885

See accompanying notes to consolidated financial statements.

F-19

Korea Electric Power Corporation and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2003 and 2004


(1)	Summary of Significant Accounting Policies and Basis of Presenting Consolidated Financial Statements


*(a)*	*Organization and Description of Business*

Korea Electric Power Corporation (the “Company”) was incorporated on January 1, 1982 in accordance with the Korea Electric Power Corporation Act (the “KEPCO Act”) to engage in the generation, transmission and distribution of electricity and development of electric power resources in the Republic of Korea. The Company was given a status of government-invested enterprise on December 31, 1983 following the enactment of the Government-Invested Enterprise Management Basic Act. The Company’s stock was listed on the Korea Stock Exchange on August 10, 1989 and the Company listed its Depository Receipts (DR) on the New York Stock Exchange on October 27, 1994.

As of December 31, 2004, the Government of the Republic of Korea, Korea Development Bank, which is wholly owned by the Korean Government, and foreign investors hold 23.97%, 29.99% and 30.10%, respectively, of the Company’s shares.

In accordance with the restructuring plan by the Ministry of Commerce, Industry and Energy on January 21, 1999, the Company spun off its power generation division on April 2, 2001, resulting in the establishment of six new power generation subsidiaries. The Company has been contemplating the gradual privatization of the Company’s power generation subsidiaries and distribution business. The privatization of power generation subsidiaries may result in change in pricing of electric power, operation organization, related regulations and general policies for supply and demand of energy.

In addition, the Company was also planning to privatize its distribution business. However, the privatization of the Company’s distribution business was discontinued according to the recommendation of the Korea Tripartite Commission on June 30, 2004.


*(b)*	*Basis of Presenting Consolidated Financial Statements*

The Company maintains its accounting records in Korean Won and prepares the consolidated financial statements in the Korean language (Hangul) in conformity with the Korea Electric Power Corporation Act (“KEPCO Act”), the Accounting Regulations for Government Invested Enterprises, which have been approved by the Korean Ministry of Finance and Economy and, in the absence of specialized accounting regulations for utility companies, the accounting principles generally accepted in the Republic of Korea. Certain accounting principles applied by the Company that conform with financial accounting standards and accounting principles in the Republic of Korea may not conform with generally accepted accounting principles in other countries. Accordingly, these consolidated financial statements are intended for use only by those who are informed about Korean accounting principles and practices, KEPCO Act and Accounting Regulations for Government Invested Enterprises. The accompanying financial statements have been condensed, restructured and translated into English (with certain expanded descriptions) from the Korean language consolidated financial statements.

Certain information included in the Korean language consolidated financial statements, but not required for a fair presentation of the Company’s financial position, results of operations or cash flows, is not presented in the accompanying consolidated financial statements.

Effective January 1, 2004, the Company adopted Statements of Korea Accounting Standards No. 10, 12 and 13. The adoption of these standards did not have a significant impact on the accompanying consolidated financial statements. In addition, the Company early adopted Statement of Korea Accounting Standards No. 17 as described in notes 1(f), 1(w), 20 and 28.


*(c)*	*Principles of Consolidation*

The consolidated financial statements include the Company’s accounts and its controlled subsidiaries (collectively referred to as the “Company”) as of December 31, 2003 and 2004. Controlled subsidiaries include

F-20

Korea Electric Power Corporation and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

majority-owned entities by either the Company or controlled subsidiaries and other entities where the Company or its controlled subsidiary owns more than 30% of total outstanding common stock and is the largest shareholder.

The Company’s investments and equity accounts of subsidiaries subject to consolidation were eliminated at the dates the Company obtained control of the subsidiaries. Any difference between the cost of acquisition and the book value of the subsidiary is recorded as either goodwill or negative goodwill. Goodwill is amortized using the straight-line method within twenty years from the year the acquisition occurred. Negative goodwill is recovered, within the limit of the aggregate fair values of identifiable non-monetary assets, using the straight-line method over weighted-average years of depreciable assets and the amounts in excess of the limit are charged to current operations and presented as extraordinary gain at the acquisition date.

Intercompany receivables and payables including trade receivables and trade payables are eliminated in consolidation. Profits and losses on intercompany sales of products, property or other assets are eliminated in the consolidated financial statements based on the gross profit or loss recognized. For sales from the Company to subsidiaries (downstream sales), the full amount of intercompany gain or loss is eliminated from the consolidated income. For upstream sales, the elimination is allocated proportionately to consolidated income and minority interests. Details of unrealized income eliminated as of December 31, 2004 are summarized as follows:


	Consolidated		Minority
Account	Income		Income		Total

	Won (millions)
Property, plant and equipment	W	180,804		6,028		186,832
Intangible assets		6,693		—		6,693

	W	187,497		6,028		193,525

F-21

Korea Electric Power Corporation and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)


*(d)*	*Consolidated Subsidiaries*


			Ownership
			Percentage (%)
	Year of
Subsidiaries	Establishment		2003		2004		Primary Business

Korea Hydro & Nuclear Power Co., Ltd.(*1)		2001		100.0		100.0		Power generation
Korea South-East Power Co., Ltd.(*1)		2001		100.0		100.0		Power generation
Korea Midland Power Co., Ltd.(*1)		2001		100.0		100.0		Power generation
Korea Western Power Co., Ltd.(*1)		2001		100.0		100.0		Power generation
Korea Southern Power Co., Ltd.(*1)		2001		100.0		100.0		Power generation
Korea East-West Power Co., Ltd.(*1)		2001		100.0		100.0		Power generation
Korea Power Engineering Co., Ltd.		1977		97.9		97.9		Engineering for utility plant
Korea Plant Services & Engineering Co., Ltd.		1984		100.0		100.0		Utility plant maintenance
KEPCO Nuclear Fuel Co., Ltd.		1982		96.4		96.4		Nuclear fuel
Korea Electric Power Data Network Co., Ltd.		1992		100.0		100.0		Information services
KEPCO International Hong Kong Ltd.		1995		100.0		100.0		Holding Company
KEPCO International Philippines Inc.		2000		100.0		100.0		Holding Company
KEPCO Philippines Corporation(*2)		1995		100.0		100.0	Utility plant rehabilitation and operation (Subsidiary of KEPCO International Hong Kong Ltd.)
KEPCO Ilijan Corporation(*2)		1997		51.0		51.0	Construction and operation of utility plant (Subsidiary of KEPCO International Philippines Inc.)
KEPCO China International Ltd.(*3)		2004		—		100.0		Holding Company
Jiaozuo KEPCO Power Company Ltd.(*3)		2004		—		80.2	Construction and operation of utility plant (Subsidiary of KEPCO China International Ltd.)


(*1)	Six new power generation subsidiaries were established on April 2, 2001 by the spin-off of the Company’s power generation division in accordance with the Restructuring Plan.

(*2)	Under the project agreement between the National Power Corporation of Philippines and the Company, the cooperation period of KEPCO Philippines Co. and KEPCO Ilijan Co. is for 15 years commencing September 15, 1995, and 20 years commencing June 5, 2002, respectively. At the end of the cooperation period, the power plant complex will be transferred to National Power Corporation of Philippines free of any liens or encumbrances and without payment of compensation.

(*3)	KEPCO China International Ltd. and Jiaozuo KEPCO Power Company Ltd. were newly formed subsidiaries in 2004.

F-22

Korea Electric Power Corporation and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

(i) The power generation subsidiaries are primarily engaged in the sale of electricity to the Company through the Korea Power Exchange. Details of those subsidiaries are as follows:


Name of the Subsidiaries		Major Power Plant

Korea Hydro & Nuclear Power Co., Ltd. (KHNP)		Hydroelectric power plant and nuclear power plant in Gori
Korea South-East Power Co., Ltd. (KOSEPCO)		Thermoelectric power plant in Samchonpo
Korea Midland Power Co., Ltd. (KOMIPO)		Thermoelectric power plant in Boryung
Korea Western Power Co., Ltd. (KOWEPCO)		Thermoelectric power plant in Tae-an
Korea Southern Power Co., Ltd. (KOSPO)		Thermoelectric power plant in Hadong
Korea East-West Power Co., Ltd. (KEWESPO)		Thermoelectric power plant in Dangjin

(ii) Details of the spin-off


	•	The Company spun off its power generation business as stipulated by the Commercial Code of the Republic of Korea.

	•	Registration date of the spin off: April 2, 2001

	•	Date of resolution of stockholders: March 16, 2001

	•	Date of resolution of Board of Directors: February 24, 2001

(iii)Assets and liabilities of the spun off divisions


	•	Assets and liabilities of the spun off divisions as of April 2, 2001


	KHNP		KOSEPCO		KOMIPO		KOWEPCO		KOSPO		KEWESPO		Total

	Won (millions)
Assets	W	18,791,413		2,490,720		2,662,209		2,904,046		3,627,985		4,655,400		35,131,773
Liabilities		9,426,614		1,258,716		1,336,317		1,461,408		1,830,607		2,332,495		17,646,157

Net assets	W	9,364,799		1,232,004		1,325,892		1,442,638		1,797,378		2,322,905		17,485,616


	•	Assets and liabilities of the spun off divisions as of December 31, 2000


	KHNP		KOSEPCO		KOMIPO		KOWEPCO		KOSPO		KEWESPO		Total

	Won (millions)
Assets	W	17,433,479		2,688,953		2,209,503		2,943,194		3,507,340		4,696,226		33,478,695
Liabilities		9,231,779		1,469,853		1,234,789		1,542,594		1,819,240		2,463,526		17,761,781

Net assets	W	8,201,700		1,219,100		974,714		1,400,600		1,688,100		2,232,700		15,716,914


	•	Result of operations of the spun off divisions (From January 1, 2001 to April 1, 2001)


	KHNP		KOSEPCO		KOMIPO		KOWEPCO		KOSPO		KEWESPO		Total

	Won (millions)
Net sales	W	1,097,586		410,195		345,771		406,931		413,058		481,710		3,155,251
Cost of goods sold		875,074		360,346		280,101		380,139		401,384		460,825		2,757,869

Gross profit	W	222,512		49,849		65,670		26,792		11,674		20,885		397,382

F-23

Korea Electric Power Corporation and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)


*(e)*	*Affiliates accounted for using the equity method*


			Ownership
			Percentage (%)
	Year of
Affiliate	Establishment		2003		2004		Primary Business

Korea Gas Corporation		1983		24.5		24.5	Sales of liquefied natural gas
Korea District Heating Co., Ltd.		1985		26.1		26.1	Providing of heating
Powercomm Corporation		2000		43.1		43.1	Communication line leasing
Korea Electric Power Industrial Development Co., Ltd.		1990		49.0		49.0	Disposal of power-plant ash and electric meter reading
YTN		1993		21.4		21.4	Broadcasting


*(f)*	*Property, Plant and Equipment*

Property, plant and equipment are stated at cost, except in the case of revaluation made in accordance with the KEPCO Act and the Assets Revaluation Law of Korea. Plant and equipment under capital leases are stated at an amount equal to the lower of their fair value or the present value of minimum lease payments at inception of lease. Significant additions or improvements extending useful lives of assets are capitalized. However, normal maintenance and repairs are charged to expense as incurred.

The Company capitalizes interest cost and other financial charges on borrowing associated with the manufacture, purchase, or construction of property, plant and equipment, incurred prior to completing the acquisition, as part of the cost of such assets. The calculation of capitalized interest includes exchange differences arising from foreign borrowings to the extent that they are regarded as an adjustment to interest costs, which is limited to the extent of interest cost calculated by the weighted average interest rate of local currency borrowings. For the period ended December 31, 2003 and 2004, the amounts of capitalized interest were W 524,101 million and W313,548 million, respectively. The foreign currency transactions and translation gains excluded from the calculation of capitalized interest amounted to W5,102 million and W240,389 million, respectively, for the years ended December 31, 2003 and 2004. In addition, the foreign currency losses added to the calculation of capitalized interest amounted to W25,691 million and nil for years ended December 31, 2003 and 2004.

The impact on the Company’s financial position as of and for the year ended December 31, 2004, if the interest and other borrowing costs were expensed instead of being capitalized, is as follows.


	Construction		Total		Interest			Income Before
	In-Progress		Assets		Expense			Income Taxes

	Won (millions)
Capitalized	W	7,516,932		73,653,685		737,839			4,699,789
Expensed		7,203,384		73,340,137		1,051,387			4,386,241

	W	313,548		313,548		(313,548	)		313,548

Depreciation is computed by the declining-balance method (straight-line method for buildings and structures, unit-of-production method and straight-line method for nuclear fuel) using rates based on the

F-24

Korea Electric Power Corporation and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

estimated useful lives described in the Korean Corporate Income Tax Law and as permitted under the Accounting Regulations for Government Invested Enterprises as follows:


	Estimated Useful
	Life

Buildings		8 - 40
Structures		8 - 30
Machinery		5 - 16
Vehicles		4 - 5
Loaded heavy water		30
Capitalized asset retirement cost of nuclear power plant		30 - 40
Others		4 - 9

Effective January 1, 2003, the Company adopted SKAS No. 5 “Tangible Assets.” Under this standard, the Company recorded the fair value of the liabilities for decommissioning costs as a liability in the period in which the Company incurs a legal obligation associated with the retirement of tangible long-lived assets that result from the acquisition, construction, development and/or normal use of the assets. This standard was applicable to any new plants from January 1, 2003. However, this standard did not have any impact on the 2003 financial statements because there were no new utility plants in 2003.

As it relates to decommissioning costs, all existing plants as of December 31, 2003 were accounted for under the previous method (note 2 (w)). However, as described in note 2 (w), in 2004, the Company early adopted SKAS No. 17 and retrospectively adjusted the liability for decommissioning costs at the estimated fair value using discounted cash flows to settle the asset retirement obligations of dismantlement of the nuclear power plants, spent fuel and radioactive waste. In addition, the corresponding asset (calculated at the net book value amount as of January 1, 2004) related to all existing plants was recognized as a utility asset. The Company subsequently depreciates the capitalized asset retirement costs using the straight-line and units-of-production depreciation method.

The Company records the following funds and materials, which relate to the construction of transmission and distribution facilities as construction grants:


	•	Grants from the government or public institutions

	•	Funds, construction materials or other items contributed by customers

Construction grants are initially recorded and presented in the accompanying consolidated financial statements as deductions from the assets acquired under such grants and are offset against depreciation expense during the estimated useful lives of the related assets. The Company received W611,862 million and W 617,366 million of construction grants, and offset W123,862 million and W145,310 million against depreciation expense, and W 50,349 million and W 48,479 million against removal cost of property, plant and equipment for the years ended December 31, 2003 and 2004, respectively.


*(g)*	*Asset Impairment*

When the book value of an asset exceeds the recoverable value of the asset due to obsolescence, physical damage or sharp decline in market value, and the amount is material, the impaired asset is recorded at the estimated recoverable value with the resulting impairment loss is charged to current operations. When the recoverable value exceeds the adjusted book value of the assets in the following year, the recoveries of previously recognized losses are recognized as gain in subsequent periods until the net realizable value equals the book value of the assets before the loss is recognized.

The Company evaluates the long-lived assets for impairment when events or changes in circumstances indicate, in management’s judgment, that the carrying value of such assets may not be recoverable. These computations utilize judgments and assumptions inherent in management’s estimate of undiscounted future cash

F-25

Korea Electric Power Corporation and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

flows to determine recoverability of an asset. If management’s assumptions about these assets change as a result of events or circumstances, and management believes the assets may have declined in value, then the Company may record impairment charges, resulting in lower profits. Management uses its best estimate in making these evaluations and considers various factors, including the future prices of energy, fuel costs and operating costs. However, actual market prices and operating costs could vary from those used in the impairment evaluations, and the impact of such variations could be material.


*(h)*	*Leases*

Lease agreements that include a bargain purchase option, result in the transfer of ownership by the end of the lease term, have a term equal to at least 75 percent of the estimated economic life of the leased property or where the present value of the minimum lease payments at the beginning of the lease term equals or exceeds 90 percent of the fair value of the leased property are accounted for as a financing or capital lease. All other leases are accounted for as operating leases. Assets and liabilities related to financial leases are recorded as property and equipment and long-term debt, respectively, and the related interest is calculated using the effective interest rate method. In respect to operating leases, the future minimum lease payments are expensed on a straight-line basis over the lease term while contingent rentals are expensed as incurred.


*(i)*	*Investment Securities*

Securities are recognized initially at cost determined using the weighted average method. The cost includes the market value of the consideration given and incidental expenses. If the market price of the consideration given is not available, the market prices of the securities purchased are used as the basis for measurement. If neither the market prices of the consideration given nor those of the acquired securities are available, the acquisition cost is measured at the best estimates of its fair value.

After initial recognition, held-to-maturity debt securities are valued at amortized cost. The difference between face value and acquisition cost is amortized over the remaining term of the security using the effective interest method. Trading securities are valued at fair value, with unrealized gains and losses reflected in current operations. Available-for-sale securities are also valued at fair value, with unrealized gains and losses reflected in capital adjustments, until the securities are sold or if the securities are determined to be impaired and the lump-sum cumulative amount of capital adjustments are reflected in current operations. However, available-for-sale equity securities that are not traded in an active market and whose fair values cannot be reliably estimated are accounted for at their acquisition cost. For those securities that are traded in an active market, fair values refers to those quoted market prices, which are measured as the closing price at the balance sheet date. The fair value of non-marketable debt securities are measured at the discounted future cash flows by using the discount rate that appropriately reflects the credit rating of issuing entity assessed by a publicly reliable independent credit rating agency. If application of such measurement method is not feasible, estimates of the fair values may be made using a reasonable valuation model or quoted market prices of similar debt securities issued by entities conducting similar business in similar industries.

On a continuous basis, the Company evaluates the cost basis of an available-for-sale security for possible impairment at the balance sheet date. Factors considered in assessing whether an indication of other-than-temporary impairment exists include: the degree of change in the ratio of market prices per share to book value per share at the date of evaluation compared to that at the date of acquisition, the financial condition and prospects of each investee company, industry conditions in which the investee company operates, the fair value of an available-for-sale security relative to the cost basis of the investment, the period of time the fair value of an available-for-sale security has been below the cost basis of the investment and other relevant factors. The Company evaluates at the balance sheet date the cost basis of a held-to-maturity security for possible impairment by taking into consideration the financial condition, business prospects and credit worthiness of the issuer.

When any such evidence exists, unless there is a clear counter-evidence that recognition of impairment is unnecessary, the Company estimates the recoverable amount of the impaired security and recognizes any

F-26

Korea Electric Power Corporation and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

impairment loss in current operations. The amount of impairment loss of the held-to-maturity security or non-marketable equity security is measured as the difference between the recoverable amount and the carrying amount. The recoverable amount of held-to maturity security is the present value of expected future cash flows discounted at the securities’ original effective interest rate. For available-for-sale debt or equity securities stated at fair value, the amount of impairment loss to be recognized in the current period is determined by subtracting the amount of impairment loss of debt or equity securities already recognized in prior period from the amount of amortized cost in excess of the recoverable amount for debt security or the amount of the acquisition cost in excess of the fair value for equity security.

For non-marketable equity security accounted for at acquisition cost, the impairment loss is equal to the difference between the recoverable amount and the carrying amount.

If the investment subsequently recovers, in case of a security stated at fair value, the increase in value is recorded in current operations, up to the amount of the previously recognized impairment loss, while for the security stated at amortized cost or acquisition cost, the increase in value is recorded in current operations, so that its recovered value does not exceed what its amortized cost would be as of the recovery date if there had been no impairment loss.

If the intent and ability to hold the securities change, transferred securities are accounted for at fair value. In case held-to-maturity securities are reclassified into available-for-sale securities, unrealized gain or loss between the book value and fair value is reported in shareholders’ equity as a capital adjustment. In case the available for sale securities are reclassified into held-to maturity securities, the unrealized gain or loss at the date of the transfer continues to be reported in shareholder’s equity as a capital adjustment, but it is amortized over the remaining term of the security using the effective interest rate method.


*(j)*	*Investment Securities under the Equity Method of Accounting*

For investments in companies, whether or not publicly held, that are not controlled, but under the Company’s significant influence, the Company utilizes the equity method of accounting. Significant influence is generally deemed to exist if the Company can exercise influence over the operating and financial policies of an investee. The ability to exercise that influence may be indicated in several ways, such as the Company’s representation on its board of directors, the Company’s participation in its policy making processes, material transactions with the investee, interchange of managerial personnel, or technological dependency. Also, if the Company owns directly or indirectly 20% or more of the voting stock of an investee and the investee is not required to be consolidated, the Company generally presumes that the investee is under significant influence. The change in the Company’s share of an investee’s net equity resulting from a change in an investee’s net equity is reflected in current operations, retained earnings, and capital adjustment in accordance with the causes of the change which consist of the investee’s net income (loss), changes in retained earnings and changes in capital surplus and capital adjustments.

Under the equity method of accounting, the Company’s initial investment is recorded at cost and is subsequently increased to reflect the Company’s share of the investee income and reduced to reflect the Company’s share of the investee losses or dividends received. Any excess in the Company’s acquisition cost over the Company’s share of the investee’s identifiable net assets is generally recorded as investor-level goodwill or other intangibles and amortized by the straight-line method over the estimated useful life. The amortization of investor-level goodwill is recorded against the equity income (losses) of affiliates. When events or circumstances indicate that carrying amount may not be recoverable, the Company reviews investor-level goodwill for impairment.

Assets and liabilities of foreign-based companies accounted for using the equity method are translated at current rate of exchange at the balance sheet date while profit and loss items in the statement of earnings are translated at average rate and capital account at historical rate. The translation gains and losses arising from

F-27

Korea Electric Power Corporation and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

collective translation of the foreign currency financial statements of foreign-based companies are offset and the balance is accumulated as capital adjustment.

Under the equity method of accounting, the Company does not record its share of losses of an affiliate when such losses would make the Company’s investment in such entity less than zero unless the Company has guaranteed obligations of the investee or is otherwise committed to provide additional financial support.


*(k)*	*Intangible Assets*

Intangible assets are stated at cost, net of accumulated amortization computed using the straight-line method over the estimated useful lives, from 4 years to 50 years, based on the nature of the assets.


*(l)*	*Cash Equivalents*

The Company considers short-term financial instruments with maturities of three months or less at the acquisition date to be cash equivalents.


*(m)*	*Financial Instruments*

Short-term financial instruments are financial instruments handled by financial institutions which are held for short-term cash management purposes or will mature within one year, including time deposits, installment savings deposits and restricted bank deposits.


*(n)*	*Allowance for Doubtful Accounts*

Allowance for doubtful accounts is estimated based on an analysis of individual accounts and past experience of collection. Smaller-balance homogeneous receivables are evaluated considering current economic conditions and trends, prior charge-off experience and delinquencies.


*(o)*	*Inventories*

Inventories are stated at the lower of cost or net realizable value, cost being determined using the weighted-average method for raw materials, moving-average method for supplies and specific-identification method for other inventories. The Company maintains perpetual inventory records, which are adjusted through physical counts at the end of each year.


*(p)*	*Valuation of Receivables and Payables at Present Value*

Receivables and payables arising from long-term cash loans/borrowings and other similar loan/borrowing transactions are stated at present value. The difference between nominal value and present value is deducted directly from the nominal value of related receivables or payables and is amortized using the effective interest method. The amount amortized is included in interest expense or interest income.


*(q)*	*Convertible Bonds*

When issuing convertible bonds or bonds with stock purchase warrants, the values of the conversion rights or stock warrants are recognized separately. Considerations for conversion rights or stock warrants shall be measured by deducting the present value of ordinary or straight debt securities from the gross proceeds of the convertible bonds or bonds with stock purchase warrants received at the date of issuance.

The value of the common shares issued pursuant to the exercise of the conversion rights shall be measured as the sum of the carrying amount, at the time of conversion, and the amount of consideration received for such rights, at the time of issuance, of those convertible bonds that are actually related to the exercise. Convertible bonds are not subject to foreign currency translation because convertible bonds are regarded as non-monetary foreign currency liabilities in accordance with Korean GAAP. When the conversion rights are exercised during an accounting period, the value of common shares issued pursuant to the exercise shall be measured based on the carrying amount of the convertible bonds determined on the actual date such rights have been exercised.

F-28

Korea Electric Power Corporation and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)


*(r)*	*Discount (Premium) on Debentures*

Discount (premium) on debenture issued, which represents the difference between the face value and issuance price of debentures, is amortized using the effective interest rate method over the life of the debentures. The amount amortized is included in interest expense.


*(s)*	*Retirement and Severance Benefits*

Employees and directors who have been with the Company for more than one year are entitled to lump-sum payments based on current rates of pay and length of service when they leave the Company. The Company’s estimated liability under the plan which would be payable if all employees left on the balance sheet date is accrued in the accompanying balance sheets.

Funding of the retirement and severance benefits are not required, however, tax deductions are limited if the liability is not funded. The Company has purchased severance insurance deposits, which meet the funding requirement for tax deduction purposes. These consist of individual severance insurance deposits, in which the beneficiary is the respective employee, with a balance of W82,771 million and W113,336 million as of December 31, 2003 and 2004, respectively, which are presented as deduction from accrual of retirement and severance benefits.

The Company and its employees each pay 4.5 percent of monthly salary to the National Pension Fund under the revised National Pension Law of Korea. Before April 1999, the Company and its employees paid 3 percent and 6 percent, respectively, of monthly pay to the Fund. The Company paid half of the employees’ 6 percent portion and is paid back at the termination of service by offsetting the receivable against the severance payments. Such receivables are presented as a deduction from accrual of retirement and severance benefits.


*(t)*	*Reserve for Self-Insurance*

In accordance with the Accounting Regulations for Government Invested Enterprises, the Company provides a self-insurance reserve for loss from accident and liability to third parties that may arise in connection with the Company’s non-insured facilities. The self-insurance reserve is recorded until the amount meets a certain percentage of non-insured buildings and machinery. Payments made to settle applicable claims are charged to this reserve.


*(u)*	*Foreign Currency Translation*

The Company and its domestic subsidiaries maintain their accounts in Korean Won. Transactions in foreign currencies are recorded in Korean Won based on the prevailing rates of exchange on the transaction date. Monetary assets and liabilities denominated in foreign currencies are translated into Korean Won at the balance sheet date, with the resulting gains and losses recognized in current results of operations. Monetary assets and liabilities denominated in foreign currencies are translated into Korean Won at W1,197.8 and W1,043.8 to US$1, the rate of exchange on December 31, 2003 and 2004 that is permitted by the Financial Accounting Standards. Non-monetary assets and liabilities denominated in foreign currencies, which are stated at historical cost, are translated into Korean Won at the foreign exchange rate ruling at the date of the transaction.

Foreign currency assets and liabilities of foreign-based operations and the Company’s overseas subsidiaries are translated at current rate of exchange at the balance sheet date while profit and loss items in the statement of income are translated at average rate and capital account at historical rate. The translation gains and losses arising from collective translation of the foreign currency financial statements of foreign-based operations and the Company’s overseas subsidiaries are offset and the balance is accumulated as a capital adjustment.


*(v)*	*Derivatives*

All derivative instruments are accounted for at fair value with the valuation gain or loss recorded as an asset or liability. If the derivative instrument is not part of a transaction qualifying as a hedge, the adjustment to fair value is reflected in current operations. The accounting for derivative transactions that are part of a qualified

F-29

Korea Electric Power Corporation and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

hedge based both on the purpose of the transaction and on meeting the specified criteria for hedge accounting differs depending on whether the transaction is a fair value hedge or a cash flow hedge. Fair value hedge accounting is applied to a derivative instrument designated as hedging the exposure to changes in the fair value of an asset or a liability or a firm commitment (hedged item) that is attributable to a particular risk. The gain or loss both on the hedging derivative instruments and on the hedged item attributable to the hedged risk is reflected in current operations. Cash flow hedge accounting is applied to a derivative instrument designated as hedging the exposure to variability in expected future cash flows of an asset or a liability or a forecasted transaction that is attributable to a particular risk.

The effective portion of gain or loss on a derivative instrument designated as a cash flow hedge is recorded as a capital adjustment and the ineffective portion is recorded in current operations.

The effective portion of gain or loss recorded as a capital adjustment is reclassified to current earnings in the same period during which the hedged forecasted transaction affects earnings. If the hedged transaction results in the acquisition of an asset or the incurrence of a liability, the gain or loss in capital adjustment is added to or deducted from the asset or the liability.


*(w)*	*Liability for Decommissioning Costs*

Prior to 2004, the Company recorded a liability for the estimated decommissioning costs of nuclear facilities based on engineering studies and the expected decommissioning dates of the nuclear power plant. Additions to the liability were in amounts such that the current costs would be fully accrued for at estimated dates of decommissioning on a straight-line basis.

In October 2004, Korea Accounting Standard Board issued Statement of Korea Accounting Standards (“SKAS”) No. 17 “Provision and Contingent Liability & Asset”. In January 2005, the Company decided to early adopt SKAS No. 17. Under this standard, the Company retrospectively adjusted the liability for decommissioning costs at the estimated fair value using discounted cash flows (also based on engineering studies and the expected decommissioning dates) to settle the liabilities for decommissioning costs and the same amount was recognized as an utility asset. Under SKAS No. 17, the discount rate was set at the date of adoption and should be applied in all future periods. In addition, any new plants would use the discount rate in effect at the time of its commencement. Accretion expense consists of period-to-period changes in the liability for decommissioning costs resulting from the passage of time and revisions to either the timing or the amount of the original estimate of undiscounted cash flows. In addition, as required by SKAS No. 17, the cumulative effect of a change in accounting included any changes in estimate that took place during 2004. Due to the adoption of this standard, the Company re-measured the liability for decommissioning costs as of January 1, 2004 and reflected the cumulative effect of a change in accounting up to prior year into current year retained earnings.


*(x)*	*Revenue Recognition*

The Company recognizes revenue from the sale of electric power based on meter readings made on a monthly basis. The Company does not accrue revenue for power sold after the meter readings but prior to the end of the accounting period. The Company recognizes revenue on long-term contracts, which are related to the construction of power plants in the Democratic People’s Republic of Korea (North Korea), based on the percentage-of-completion method. Revenue other than sale of electric power and revenue on long-term contracts is recognized when the Company’s revenue-earning activities have been substantially completed, the amount of revenue can be measured reliably, and it is probable that the economic benefits associated with the transaction will flow to the Company.


*(y)*	*Income Taxes*

The Company recognizes deferred income taxes arising from temporary differences between pretax accounting income and taxable income. Accordingly, provision for income tax expense consists of the corporate income tax and resident tax surcharges currently payable, and the changes in deferred income assets and

F-30

Korea Electric Power Corporation and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

liabilities during the period. However, deferred income tax assets are recognized only if the future tax benefits on accumulated temporary differences are realizable. The deferred income tax assets and liabilities will be charged or credited to income tax expense in the period each temporary difference reverses in the future. Deferred income taxes will be recalculated based on the enacted future tax rate in effect at each balance sheet date.

The Company assesses the likelihood that deferred tax assets will be recovered from future taxable income, and, to the extent the Company believes that recovery is not likely, such deferred tax assets are reduced by direct write-down. Estimates of future taxable income involve judgments with respect to future economic factors that are difficult to predict and are beyond management’s control. As a result, actual amounts could differ from these estimates and the amount of the deferred tax assets recognized would need to be increased or decreased accordingly.


*(z)*	*Dividends payable*

Dividends are recorded when approved by the board of director and stockholders.


*(aa)*	*Prior Period Adjustments*

Prior period adjustments resulting from other than fundamental errors are charged or credited to result of operations for the current period. Fundamental errors are defined as errors with such a significant effect on the financial statements for one or more prior periods that those financial statements can no longer be considered to have been reliable at the date of their issue. Prior period adjustments resulting from fundamental errors are charged or credited to the beginning balance of retained earnings, and the financial statements of the prior year are restated.


*(ab)*	*Earnings Per Share*

Earnings per share are computed by dividing ordinary income and net income by the weighted average number of common shares outstanding during the period.

Diluted earnings per share is computed by dividing net income, after addition for the effect of expenses related to diluted securities on net income, by the weighted average number of common shares plus the dilutive potential common shares.


*(ac)*	*Minority Interest in Consolidated Subsidiaries*

Minority interest in consolidated subsidiaries is presented as a separate component of stockholders’ equity in the consolidated balance sheets.


*(ad)*	*Use of Estimates*

The preparation of consolidated financial statements in accordance with accounting principles generally accepted in the Republic of Korea requires management to make estimates and assumptions that affect the amounts reported in the financial statements and related notes to financial statements. Significant items subject to such estimates and assumptions include the liability for decommissioning costs, deferred income taxes and impairment of long-lived assets. Actual results could differ from those estimates.


*(ae)*	*Reclassification*

During 2004, the Company changed its policy of recording fuel-in-process. Previously, fuel-in-process was recorded as a component of utility plant. During 2004, the Company concluded that fuel-in-process should be recorded as a component of inventory based on its usage within operations. As a result, the Company reclassified the prior year nuclear fuel-in-process such that utility plant was decreased and inventory was increased by W543,065 million as of December 31, 2003. This reclassification did not result in any change to reported total assets, net income or stockholder’s equity.

F-31

Korea Electric Power Corporation and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)


*(af)*	*Accounting Principles*

The subsidiaries apply different accounting methods for cost of inventory and depreciation of fixed assets and intangible assets than those of the Company. The effect of the different accounting is not considered material.


(i)	Cost of Inventory


Company	Raw Material	Supplies	Others

KEPCO	Weighted-average	Moving-average	Specific identification
Korea Hydro & Nuclear Power Co., Ltd.	Moving-average	—	Moving-average
Korea Western Power Co., Ltd.	—	Weighted-average	Weighted-average
Korea Power Engineering Co., Ltd.	—	FIFO	FIFO
Korea Plant Service & Engineering Co., Ltd.	—	FIFO	—
KEPCO Nuclear Fuel Co., Ltd.	—	Weighted-average	—
Korea Electric Power Data Network Co., Ltd.	Moving-average	—	Moving-average


(ii)	Depreciation Methods


				Computer
Company	Machinery	Vehicles	Others	Software

KEPCO	Declining- balance	Declining- balance	Declining- balance	Straight- line
Korea Hydro & Nuclear Power Co., Ltd.	—	—	—	Declining- balance
Korea Plant Service & Engineering Co., Ltd.	—	—	—	Declining- balance
KEPCO Nuclear Fuel Co., Ltd.	Straight-line	Straight-line	Straight-line	—
Korea Electric Power Data Network Co., Ltd.	Straight-line	Straight-line	Straight-line	—

F-32

Korea Electric Power Corporation and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)


*(ag)*	*Elimination of Investments and Shareholders’ Equity*

For consolidated subsidiaries and investments accounted for under the equity method, if the acquisition date is not as of the fiscal year end of the investee, the nearest fiscal year end of such investee is considered as the acquisition date in determining the amount of goodwill or negative goodwill.

The elimination entries of the Parent Company’s investments against the related investees’ shareholders’ equity are summarized as follows:


Accounts	Amount

	Won (millions)
Common stock	W	2,603,812
Capital surplus		15,487,284
Retained earnings		5,066,898
Capital adjustment		195,191

	W	23,353,185

Investments in affiliates	W	22,510,633
Consolidated capital surplus		2,192
Consolidated retained earnings		465,780
Consolidated capital adjustment		256,464
Minority interests		114,511
Other		3,605

	W	23,353,185


*(ah)*	*Application of the Statements of Korea Financial Accounting Standards*

The Korean Accounting Standards Board (“KASB”) has published a series of Statements of Korea Accounting Standards (“SKAS”), which will gradually replace the existing financial accounting standards, established by the Korea Financial Supervisory Board. SKAS No. 10, No. 12 and No. 13 were adopted by the Company as of January 1, 2004 and SKAS No. 17 “Provision and Contingent Liability & Asset” was early adopted during 2004. SKAS No. 15 “Equity Method Accounting”, and No. 16 “Income Taxes” become effective for the Company on January 1, 2005 according to the effective date set forth by each SKAS. The Company does not expect the adoption of these standards to have a material impact on its consolidated financial statements.


(2)	Basis of Translating Consolidated Financial Statements

The consolidated financial statements are expressed in Korean Won and, solely for the convenience of the reader, the consolidated financial statements as of and for the year ended December 31, 2004, have been translated into United States dollars at the rate of W1,035.1 to US$1, the noon buying rate in the City of New York for cable transfers in won as certified for customs purposes by the Federal Reserve Bank of New York as of December 31, 2004. The translation should not be construed as a representation that any or all of the amounts shown could be converted into U.S. dollars at this or any other rate.


(3)	Property, Plant and Equipment


*(a)*	*Asset revaluation*

The Company revalued its property, plant and equipment in accordance with the KEPCO Act and the Asset Revaluation Law (the latest revaluation date was January 1, 1999), and recorded a revaluation gain of W12,552,973 million as a reserve for asset revaluation, a component of capital surplus.

F-33

Korea Electric Power Corporation and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)


*(b)*	*Officially Declared Value of Land*

The officially declared value of land at December 31, 2004, as announced by the Minister of Construction and Transportation, is as follows:


Purpose	Book Value		Declared Value

	Won (millions)
Land — utility plant, transmission and distribution sites and other	W	5,678,090		5,862,469

The officially declared value, which is used for government purposes, is not intended to represent fair value.


*(c)*	*Changes in Property, Plant and Equipment*

Changes in property, plant and equipment and construction grants for the years ended December 31, 2003 and 2004 are as follows:


	2003

	Book Value
	as of						Disposal							Book Value
	January 1,						and							as of
	2003			Acquisition			*Other(1)**		Depreciation		*Others(2)**			December 31, 2003

	Won (millions)
Land	W	5,557,943			3,970			36,832		—		68,439			5,593,520
Buildings		7,514,099			7,408			100,929		494,856		292,800			7,218,522
Structures		22,720,502			1,055			357,526		876,301		2,203,388			23,691,118
Machinery		17,470,324			26,110			177,971		3,110,784		1,803,353			16,011,032
Vehicles		15,601			11,540			197		9,888		870			17,926
Nuclear fuel		1,578,172			427,417			12,927		388,949		(543,065	)		1,060,648
Others		991,826			116,001			1,125		134,581		14,274			986,395
Construction in-progress		7,776,506			6,188,492			—		—		(4,414,347	)		9,550,651
Construction grants		(2,321,219	)		(618,092	)		—		—		180,522			(2,758,789	)

	W	61,303,754			6,163,901			687,507		5,015,359		(393,766	)		61,371,023


(*1)	Other includes the property, plant and equipment of Korea Electric Power Development Co., Ltd. as a result of excluding it from consolidation.

(*2)	As described in note 1(ae) to the consolidated financial statements, during 2004, the Company changed its policy of recording fuel-in-process. Previously, fuel-in-process was recorded as a component of utility plant. During 2004, the Company concluded that fuel-in-process should be recorded as a component of inventory based on its usage within operations. As a result, the Company reclassified the prior year nuclear fuel-in-

F-34

Korea Electric Power Corporation and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)


	process such that utility plant was decreased and inventory was increased by W543,065 million as of December 31, 2003.


	2004

	Book Value
	as of													Book Value
	January 1,													as of
	2004			Acquisition			Disposal		Depreciation		*Others(2)**			December 31, 2004

	Won (millions)
Land	W	5,593,520			37,425			9,802		—		56,947			5,678,090
Buildings		7,218,522			8,087			3,419		535,762		691,972			7,379,400
Structures		23,691,118			63,236			795		991,858		2,410,183			25,171,884
Machinery		16,011,032			125,349			16,900		3,108,707		4,218,601			17,229,375
Vehicles		17,926			17,729			21		12,704		643			23,573
Nuclear fuel		1,060,648			—			—		383,528		382,135			1,059,255
Capitalized asset retirement cost		—			—			—		318,705		1,935,041			1,616,336
Others		986,395			103,890			433		141,722		(114,460	)		833,670
Construction in-progress		9,550,651			5,930,815			—		—		(7,964,534	)		7,516,932
Construction grants		(2,758,789	)		(617,366	)		—		—		193,789			(3,182,366	)

	W	61,371,023			5,669,165			31,370		5,492,986		1,810,317			63,326,149


(4)	Intangible Assets

Changes in intangible assets for the year ended December 31, 2003 are as follows:


	2003

			Book Value									Book Value
	Useful		as of									as of
	Life		January 1, 2003		Acquisition		Amortization		Others			December 31, 2003

	Won (millions)
Port facility usage right		20	W	184,235		28,744		32,844		(20,138	)		159,997
Water usage right		5, 10		138,607		—		16,799		(14	)		121,794
Dam usage right		50		6,976		—		144		—			6,832
Electricity usage right		10		11,866		22,135		5,303		—			28,698
Computer software		5		83,553		86,751		29,658		701			141,347
Others		4-40		33,965		38,549		14,196		(993	)		57,325

			W	459,202		176,179		98,944		(20,444	)		515,993

F-35

Korea Electric Power Corporation and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

Changes in intangible assets for the year ended December 31, 2004 are as follows:


	2004

			Book Value											Book Value
	Useful		as of											as of
	Life		January 1, 2004			Acquisition			Amortization		Others			December 31, 2004

	Won (millions)
Port facility usage right		20	W	159,997			12			9,192		983			151,800
Water usage right		5, 10		121,794			—			16,669		(945	)		104,180
Dam usage right		50		6,832			—			144		(1	)		6,687
Electricity usage right		10		28,698			—			6,562		26,159			48,295
Computer software		5		155,131			15,766			50,391		135,382			255,888
Others		4-40		57,325			27,648			19,588		204			65,589
Construction grants				(13,784	)		(6,847	)		—		150			(20,481	)

			W	515,993			36,579			102,546		161,932			611,958

Estimated amortization expenses for the next five years are as follows:

2005

2006

2007

2008

2009

Won (millions)

Estimated Amortization

W113,473

97,463

86,707

72,958

49,992

In addition, the Company expensed research and development cost amounting to W307,391 million, W332,017 million and W433,142 million for the years ended December 31, 2002, 2003 and 2004, respectively.


(5)	Insured Assets

Insured assets as of December 31, 2004 are as follows:


Insured Assets	Insurance Type	Insured Value

		Won
		(millions)
Buildings and machinery	Fire insurance	W	4,524,610
Buildings and machinery	Nuclear property insurance		1,576,138
Buildings, machinery and construction in progress	Construction and shipping insurance		6,624,491
Buildings	General insurance		145,200
Construction in progress	Construction insurance		50,210
Inventories and machinery	Shipping insurance		1,551,453

In addition, the Company carries compensation and responsibility insurance in relation to the operation of the nuclear power plants and gas accident, construction and other general insurance for its utility plants and inventories, damage insurance for its light water nuclear reactor construction in North Korea, general insurance for vehicles, casualty insurance for its employees and responsibility insurance for its directors.

F-36

Korea Electric Power Corporation and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)


(6)	Investment Securities

(a) Investment securities as of December 31, 2003 and 2004 are summarized as follows:


		2003		2004

		Won (millions)
Short-term investment securities
	Available-for-sale securities	W	141,585		19,086
	Held-to-maturity securities		20,011		33,082

			161,596		52,168

Long-term investment securities
	Available-for-sale securities		230,744		156,759
	Held-to-maturity securities		2,197		2,656
	Investments in affiliates		1,296,179		1,386,097

			1,529,120		1,545,512

		W	1,690,716		1,597,680

Available-for-sale securities are funds for debt securities and held-to-maturity securities are debt securities including government and municipal bonds.

(b) Long-term investments other than those under the equity method as of December 31, 2003 and 2004 are summarized as follows:


			2003

			Ownership		Acquisition		Book
			%		Cost		Value

Available-for-sale:
Equity securities:
	Securities Market Stabilization Fund			7.57	W	7,763		7,763
	Energy Savings Investment Cooperatives			25.0-48.0		5,000		5,000
	Korea Power Exchange			100.0		125,213		125,213
	Hwan Young Steel Co., Ltd.			0.14		1,364		120
	Investment securities in treasury stock fund			—		26,295		17,581
	Other equity securities			—		1,051		1,051
Debt securities						73,412		74,016

						240,098		230,744

Held-to-maturity:
	Government and municipal bonds					2,197		2,197

		Total			W	242,295		232,941

F-37

Korea Electric Power Corporation and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)


			2004

			Ownership		Acquisition		Book
			%		Cost		Value

Available-for-sale:
Equity securities:
	Energy Savings Investment Cooperatives (*3)			25.0-48.0	W	5,000		5,000
	Korea Power Exchange (*3)			100.0		128,711		128,711
	Hwan Young Steel Co., Ltd. (1,3)			0.14		1,364		120
	Investment securities in treasury stock fund (2,3)			—		12,535		9,642
	Other equity securities (*3)			—		7,835		7,835
Debt securities						5,149		5,451

						160,594		156,759

Held-to-maturity:
	Government and municipal bonds					2,656		2,656

		Total			W	163,250		159,415


(*1)	During 2002, the Company recognized an impairment loss of W1,244 million that was deemed as an other-than-temporary decline.

(*2)	The Company entered into a treasury stock fund, composed of treasury stock and other investment securities, and recorded other investment securities in available-for-sale securities. Losses on the valuation of these available-for-sale securities in the treasury stock fund, which are recorded in capital adjustments, amount to W8,714 million and W2,893 million as of December 31, 2003 and 2004, respectively.

(*3)	Available-for-sale securities other than investment securities in treasury stock fund are non-marketable equity securities and stated at cost due to the lack of information to determine the fair value.

(c) Investments in affiliated companies accounted for using the equity method as of December 31, 2003 and 2004 are as follows:


			2003

	Ownership		Acquisition		Net Asset		Book
	%		Cost		Value		Value

Listed
Korea Gas Corporation		24.5	W	94,500		740,280		740,280
Unlisted:
Korea District Heating Co., Ltd.		26.1		5,660		159,165		159,165
Powercomm Corporation		43.1		323,470		357,318		350,518
Korea Electric Power Industrial Development Co., Ltd.		49.0		7,987		22,072		22,072
YTN		21.4		59,000		24,144		24,144

			W	490,617		1,302,979		1,296,179

F-38

Korea Electric Power Corporation and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)


			2004

	Ownership		Acquisition		Net Asset		Book
	%		Cost		Value		Value

Listed
Korea Gas Corporation (*1)		24.5	W	94,500		787,842		787,842
Unlisted:
Korea District Heating Co., Ltd.		26.1		5,660		169,527		169,527
Powercomm Corporation (*2)		43.1		323,470		388,422		381,221
Korea Electric Power Industrial Development Co., Ltd.		49.0		7,987		22,853		22,853
YTN		21.4		59,000		24,654		24,654

			W	490,617		1,393,298		1,386,097


(*1)	The quoted market price (based on closing Korea Stock Exchange price) of KOGAS held by the Company as of December 31, 2004 is W629,370 million.

(*2)	As of December 31, 2004, unrealized profits of W7,201 million arisen from transactions with Powercomm Corporation were eliminated.

In 2003, the Company has disposed of a portion of its investments in Korea Electric Power Industrial Development Co., Ltd. and Powercomm Corporation, with a gain on disposal of investments of W45,214 million. In 2002, the Company has disposed of a portion of its investments in Powercomm Corporation, with a gain on disposal of W433,335 million.

(d) Changes in investments in affiliated companies under the equity method for the year ended December 31, 2003 are as follows:


	2003

			Gain on
			Valuation Using
	Book Value		the					Book Value
	as of		Equity Method on					as of
	January 1, 2003		Accounting		*Others()**			December 31, 2003

Korea Gas Corporation	W	690,705		73,329		(23,754	)		740,280
Korea District Heating Co.		147,716		13,486		(2,037	)		159,165
Powercomm Corporation		352,235		6,508		(8,225	)		350,518
Korea Electric Power Industrial Development Co., Ltd.		—		3,107		18,965			22,072
YTN		23,615		436		93			24,144

	W	1,214,271		96,866		(14,958	)		1,296,179


(*)	Others are composed of acquisition (disposal), dividends and the changes in values in equity due to the capital surplus and gain (loss) on investment securities in capital adjustments. Others for Korea Electric Power Industrial Development Co., Ltd. include the book value at the time of reclassification to equity method.

F-39

Korea Electric Power Corporation and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

Changes in investments in affiliated companies under the equity method for the year ended December 31, 2004 are as follows:


	2004

			Gain on
			Valuation Using
	Book Value		the					Book Value
	as of		Equity Method on					as of
	January 1, 2004		Accounting		*Others()**			December 31, 2004

Korea Gas Corporation	W	740,280		82,366		(34,804	)		787,842
Korea District Heating Co.		159,165		11,813		(1,451	)		169,527
Powercomm Corporation		350,518		31,398		(695	)		381,221
Korea Electric Power Industrial Development Co., Ltd.		22,072		4,701		(3,920	)		22,853
YTN		24,144		317		193			24,654

	W	1,296,179		130,595		(40,677	)		1,386,097


(*)	Others are composed of acquisition (disposal) of investment, dividends and the changes in values in equity due to the capital surplus and gain (loss) on investment securities in capital adjustments.

The Company has recorded changes in investees’ capital surplus or capital adjustments of W25,560 million and W22,449 million relating to the above affiliates as of December 31, 2003 and 2004, respectively, which have been accounted for by the Company as a capital adjustment. These capital adjustments have been recorded as unrealized losses on equity securities of affiliates within stockholders’ equity.

(e) Summarized financial information regarding affiliated companies accounted for using the equity method as of and for the years ended December 31, 2002, 2003 and 2004 is shown in the following table:


	Korea Gas Corporation						Korea District Heating Co.

	2002		2003		2004		2002		2003		2004

	Won (millions)						Won (millions)
Current assets	W	2,402,093		2,873,293		3,264,084		252,415		349,702		411,238
Other assets		6,919,256		6,784,825		6,826,366		756,941		775,744		847,922

		9,321,349		9,658,118		10,090,450		1,009,356		1,125,446		1,259,160

Current liabilities		2,279,699		2,295,394		2,720,667		103,035		98,918		86,304
Other liabilities		4,217,272		4,335,624		4,148,193		339,761		416,055		522,641

		6,496,971		6,631,018		6,868,860		442,796		514,973		608,945

Net assets		2,824,378		3,027,100		3,221,590		566,560		610,473		650,215

Net sales		7,270,976		8,195,272		9,151,327		373,331		441,234		467,765
Gross profit		778,120		777,094		797,758		104,630		95,741		85,982
Net earnings		298,329		288,318		323,057		49,185		51,725		45,389

F-40

Korea Electric Power Corporation and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)


	YTN							Powercomm Corporation

	2002			2003		2004		2002		2003		2004

	Won (millions)							Won (millions)
Current assets	W	48,889			53,296		32,683		80,928		177,392		172,075
Other assets		80,833			79,953		126,022		1,367,413		1,231,144		1,199,488

		129,722			133,249		158,705		1,448,341		1,408,536		1,371,563

Current liabilities		8,448			10,118		11,879		421,030		366,706		226,217
Other liabilities		11,069			10,421		31,779		226,692		213,350		244,748

		19,517			20,539		43,658		647,722		580,056		470,965

Net assets		110,205			112,710		115,047		800,619		828,480		900,598

Net sales		52,155			59,605		68,282		491,897		526,824		571,229
Gross profit		5,905			7,123		5,797		88,201		131,614		130,028
Net earnings (loss)		(6,005	)		2,073		1,440		23,393		30,640		73,728


	Korea Electric Power
	Industrial Development Co., Ltd.

	2002		2003		2004

	Won (millions)
Current assets	W	40,471		37,424		43,099
Other assets		69,707		68,284		66,989

		110,178		105,708		110,088

Current liabilities		19,289		13,033		16,164
Other liabilities		50,185		47,630		47,286

		69,474		60,663		63,450

Net assets		40,704		45,045		46,638

Net sales		152,079		163,676		174,324
Gross profit		17,143		22,505		19,250
Net earnings		8,099		6,340		9,593


(7)	Loans to employees

The Company has provided housing and tuition loans to employees as follows as of December 31, 2003 and 2004:


	2003		2004

	Won (millions)
Short-term loans (note 11)	W	16,284		18,590
Long-term loans		251,788		290,808

	W	268,072		309,398

F-41

Korea Electric Power Corporation and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)


(8)	Other Non-current Assets

Other non-current assets as of December 31, 2003 and 2004 are as follows:


	2003		2004

	Won (millions)
Long-term trade receivable, net	W	9,588		5,249
Deposit received		141,221		156,216
Others		91,285		95,106

	W	242,094		256,571


(9)	Restricted Cash and Cash Equivalents and Financial Instruments

There are certain amounts included in cash and cash equivalents and financial instruments, which are restricted in use for expenditures for certain business purpose as of December 31, 2004 as follows:


	Won (millions)

Cash and cash equivalents	W	94,651
Long-term financial instruments		10

	W	94,661


(10)	Inventories

Inventories as of December 31, 2003 and 2004 are summarized as follows:


	2003		2004

	Won (millions)
Raw materials	W	804,562		937,763
Supplies		519,727		607,352
Other		123,709		162,916

	W	1,447,998		1,708,031


(11)	Other Current Assets

Other current assets as of December 31, 2003 and 2004 are summarized as follows:


	2003		2004

	Won (millions)
Short-term loans to employees (note 7)	W	16,284		18,590
Accrued interest income		5,738		7,144
Advance payments		3,876		20,844
Prepaid expenses		39,143		8,505
Others		175,995		124,278

	W	241,036		179,361


(12)	Preferred Stock, Common Stock and Capital Surplus


*(a)*	*Preferred Stock*

The Company has 150,000,000 authorized shares of W5,000 par value preferred stock. As of December 31, 2004, no amounts of the preferred stock have been issued.

F-42

Korea Electric Power Corporation and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)


*(b)*	*Common Stock*

The Company has 1,050,000,000 authorized shares of W5,000 par value common stock, of which 640,748,573 shares are issued. In 2003, the Company issued 647,697 shares with par value W5,000 to the government of the Republic of Korea in return for certain fixed assets related to power distribution. Fixed assets were valued based on the fair value of the common stock on the date of the transaction. The value of these shares were recorded as common stock of W3,238 million and paid-in capital in excess of par value of W11,425 million.


*(c)*	*Capital Surplus*

Capital surplus as of December 31, 2003 and 2004 are as follows:


	2003		2004

	Won (millions)
Paid-in capital in excess of par value	W	811,301		812,730
Reserves for asset revaluation		12,552,973		12,552,973
Other capital surplus		1,180,246		1,178,213

	W	14,544,520		14,543,916

The Company revalued its property, plant and equipment in accordance with the KEPCO Act and the Asset Revaluation Law, and recorded a revaluation gain of W12,552,973 million as a reserve for asset revaluation. The reserve for asset revaluation may be credited to paid-in capital or offset against any accumulated deficit by resolution of the shareholders.


(13)	Appropriated Retained Earnings

Appropriated retained earnings as of December 31, 2003 and 2004 are summarized as follows:


		2003		2004

		Won (millions)
Involuntary:
	Legal reserve	W	1,600,252		1,601,871
Voluntary:
	Reserve for investment on social overhead capital		5,012,449		5,092,449
	Reserve for research and human development		120,000		180,000
	Reserve for business rationalization		31,900		31,900
	Reserve for business expansion		10,925,338		12,438,120
	Reserve for dividend equalization		210,000		210,000

			16,299,687		17,952,469

		W	17,899,939		19,554,340

The KEPCO Act requires the Company to appropriate a legal reserve equal to at least 20 percent of net income for each accounting period until the reserve equals 50 percent of the common stock. The legal reserve is not available for cash dividends; however, this reserve may be credited to paid-in capital or offset against accumulated deficit by the resolution of the shareholders.

Prior to 1990, according to the KEPCO Act, at least 20 percent of net income in each fiscal year was required to be established as a reserve for business expansion until such reserve equals the common stock. Beginning in 1990, no percentage was specified.

The reserve for the investment on social overhead capital and the reserve for research and human development are appropriated by the Company to avail itself of qualified tax credits to reduce corporate tax liabilities. These reserves are not available for cash dividends for a certain period defined in the Tax Incentive Control Law. As of December 31, 2004, the amounts allowed for reserve for investment on social overhead and

F-43

Korea Electric Power Corporation and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

reserve for research and human development under the Korean tax law for tax benefits are W485,233 million and W178,791 million, respectively.


(14)	Capital Adjustments

Capital adjustments as of December 31, 2003 and 2004 are as follows:


	2003			2004

	Won (millions)
Treasury stock	W	(195,379	)		(208,260	)
Gain on valuation of available-for-sale securities		5,025			344
Loss on valuation of available-for-sale securities		(8,714	)		(2,893	)
Equity loss of affiliates		(25,560	)		(22,449	)
Overseas operations translation credit		(97,939	)		(147,531	)
Loss on valuation of currency swaps		—			(26,188	)
Loss on valuation of interest rate swaps		(2,817	)		(1,334	)

	W	(325,384	)		(408,311	)

The Company has shares held as treasury stock amounting to W195,379 million (10,713,050 shares) and W208,260 million (11,048,050 shares) as of December 31, 2003 and 2004, respectively, for the purpose of stock price stabilization.


(15)	Dividends

Details of dividends for the years ended December 31, 2002, 2003 and 2004 are as follows:


	Outstanding
	Shares of		Dividend			Dividend		Total
	Common Stock		Rate			per Share		Dividend

								Won (millions)
2002:
Outstanding shares other than treasury shares		639,187,501		16	%	W	800	W	511,350
Treasury shares		913,375		—			—		—

		640,100,876						W	511,350

2003:
Outstanding shares other than treasury shares		630,035,523		21	%	W	1,050	W	661,537
Treasury shares		10,713,050		—			—		—

		640,748,573						W	661,537

2004:
Outstanding shares other than treasury shares		629,700,523		23	%	W	1,150	W	724,156
Treasury shares		11,048,050		—			—		—

		640,748,573						W	724,156

F-44

Korea Electric Power Corporation and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)


(16)	Short-term borrowings

Short-term borrowings as of December 31, 2003 and 2004 are as follows:

(a) Local currency short-term borrowings

Annual

Lender

Type

Interest Rate (%)

2003

2004

Won (millions)

National Agricultural Cooperative Federation

Overdraft

CD+1%
(4.43% at Dec. 31,
2004)

16,245

172

Woori Bank

Commercial paper

CD-0.01% (3.42% at Dec. 31, 2004)

—

150,000

Chohung Bank

Commercial paper

CD-0.01% (3.42% at Dec. 31, 2004)

—

50,000

Hana Bank

Overdraft

4.1%

30,000

—

Korea Resources Corporation

General

3.0%

7,000

53,245

207,172

(b) Foreign currency short-term borrowings


			Annual
Lender	Type		Interest Rate (%)		2003		2004

					Won (millions)
Korea Development Bank		General		2.32-2.80	W	22,681		59,735
ANZ		General		2.27-2.63		33,648		34,148
National Australia Bank		General		2.28-2.80		69,181		99,828
Other		General		1.51-2.57		31,414		12,726

					W	156,924		206,437


(17)	Long-term borrowings

Long-term borrowings as of December 31, 2003 and 2004 are as follows:

(a) Local currency long-term borrowings


				Annual
Lender		Maturity		Interest Rate (%)		2003			2004

						Won (millions)
Korea Development Bank			2005.4.5 - 2039.12.15		4.50-9.00	W	4,951,239			4,816,066
Industrial Bank of Korea			2012.9.15		4.00		—			70,000
Ministry of Commerce, Industry and Energy			2010.12.30		4.00		50,000			50,000
National Agricultural Cooperative Federation			2011.3.28		4.00		50,000			50,000
Korea Exchange Bank			2011.12.23 - 2019.5.18		3.00		6,000			8,000
Others			2006.4.30 - 2012.3.25		1.25-6.00		29,935			72,903

							5,087,174			5,066,969
	Less: Current portion						(1,254,049	)		(1,099,830	)

						W	3,833,125			3,967,139

F-45

Korea Electric Power Corporation and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

(b) Foreign currency long-term borrowings


				Annual
Lender		Maturity		Interest Rate %		2003			2004

						Won (millions)
Japan Bank of International Cooperation			—		8.28	W	260,712			205,781
Barclays International Financial Services (Ireland) Ltd.			—		6M Libor - 1.00		187,851			—
National Agricultural Cooperative Federation			2006.4.12		Libor + 1.05		12,833			6,710
Korea Development Bank			2005.1.28 - 2006.10.2		Libor + 0.30 - 1.50		283,823			46,838
Korea Development Bank			2005.1.28 - 2006.10.2		1.40		—			101,207
The Export-Import Bank of Korea			2007.8.30 - 2008.9.29		Libor + 0.70 - 1.03		202,454			170,622
Korea Exchange Bank			—		Libor + 0.15		17,090			—
Kookmin Bank			2006.5.25		Libor + 1.40		15,970			8,349
Norinchukin Bank			2005		Libor + 0.19		41,923			36,533
Nippon Life Insurance			2005		Libor + 0.19		98,226			85,597
Export Import Bank of US			2015.10.23		Govco + 0.25 - 4.48		141,219			111,466
Others			2007.6		0.00 - 5.76		1,199			8,052

							1,263,300			781,155
	Less: Current portion						(379,792	)		(236,568	)

						W	883,508			544,587

F-46

Korea Electric Power Corporation and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)


						Annual
				Maturity		Interest Rate (%)		2003			2004

								Won (millions)
Local currency debentures
	Electricity bonds				2005.1 - 2013.6.18		4.79-12.43	W	6,334,359			4,216,759
	Corporate bonds				2005.1.16 - 2009.11.29		4.32-7.75		3,039,030			3,292,237

									9,373,389			7,508,996

Foreign currency debentures
	FY-93				2013.4.1		7.75		419,230			365,330
	FY-95				2005.4.11 - 2005.9.7		3.4 - 4.15		464,634			420,009
	FY-96				2006.1.10 - 2096.4.1		3.8 - 8.278		660,547			585,511
	FY-97				2005.11.5 - 2027.8.1		6M Libor + 0.31 - 1.65		1,176,117			582,448
	FY-99				—		5.75		37,839			—
	FY-00				2005.3.15 - 2005.7.27		2.10 - 8.25		695,220			616,761
	FY-01				—		1.18 - 1.27		671,760			—
	FY-02				2007.9.12 - 2008.1.4		6M Libor + 0.75, 4.625		1,257,690			1,095,990
	FY-03(**)				2008.1.29 - 2013.12.26		1.33 - 4.75		1,149,610			1,002,435
	FY-04				2007.12.21 - 2034.4.23		4.875 - 5.125		—			1,084,688

									6,532,647			5,753,172

									15,906,036			13,262,168
		Less: Current portion							(4,987,425	)		(2,891,764	)
			Discount						(76,533	)		(68,350	)

								W	10,842,078			10,302,054


(*)	The Company has debt covenants on certain debentures, which include the following conditions:


	(i)	that require the Company to maintain a certain level of financial ratios;

	(ii)	that prohibit the Company providing all or some of its assets as collateral for debt or;

	(iii)	that limits the Company’s ability to dispose of or lease all or some assets for the specific period until the related debentures are repaid.


		As of December 31, 2004, the Company has complied with the conditions required by the debt covenants.

(**)

In 2003, the Company issued foreign debentures to KEPCO Cayman Company Limited of US$250 million and the right to exchange the debentures into shares of Powercomm Corporation held by the Company. KEPCO Cayman Limited issued foreign debentures of US$250 million under substantially similar terms and conditions as the debentures issued by the Company to KEPCO Cayman Limited, the details of which are as follows:


	-	Maturity date: November 26, 2008

	-	Exchangeable upon Qualifying Public Offering (QPO): QPO means the first listing on the Korea Stock Exchange, New York Stock Exchange or National Association of Securities Dealers Automated Quotations (NASDAQ) meeting certain requirements. Powercomm Corporation is not required to complete a QPO prior to the maturity of the debentures. The Company does not guarantee the QPO of Powercomm Corporation.

	-	Shares to be exchanged: Powercomm Corporation’s shares or Deposit Receipt (DR)


	•	Exchangeable period: From 10^th day after the listing of Powercomm Corporation to 10^th day before its maturity

F-47

Korea Electric Power Corporation and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)


	•	Exchange price: 120% of lower amount of market price on the listing day or weighted average price for 10 days after its listing.

	•	Early redemption: When certain conditions are met or after 3 years from the listing, outstanding debentures are redeemable at the guaranteed return of 2.88% (102.74% of issuance amount)

	•	Repayment at the maturity: Repayment will be made with the guaranteed return of 3.68% (109.13% of issuance amounts).

The Company has unconditionally and irrevocably guaranteed full and timely repayment of principal and interest of the notes.

(d) Exchangeable bonds


		Annual
Description		Interest Rate (%)		2003			2004

				Won (millions)
Overseas exchangeable bonds			0.00	W	277,256			277,256
	Plus: Premium on debentures issued				20,987			16,794
	Less: Conversion right adjustment				(43,817	)		(35,064	)

				W	254,426			258,986

On November 4, 2003, the Company issued overseas exchangeable bonds of JPY 28,245,468,400 with a premium value. The details of the bonds are as follows:


	•	Maturity date: November 4, 2008

	•	Amount to be paid at maturity: JPY 25,935,061,000

	•	Exchange period: From December 15, 2003 to 10th day prior to its maturity

	•	Shares to be exchanged: Common stock held by the Company or its equivalent Deposit Receipt (DR).

	•	Exchange price: W30,000 per share

	•	Put option: Bond holders have the put option that they can request redemption at JPY 26,834,000,000 on November 6, 2006.

(e) Leases

The Company entered into a capital lease agreement with Korea Development Leasing Corporation and others for certain computer systems, of which book value is W1,020 million as of December 31, 2004. Depreciation of the leased assets amounted to W2,806 million for the year ended December 31, 2004. Annual remaining payments under capital and operating lease agreements as of December 31, 2004 are immaterial.

F-48

Korea Electric Power Corporation and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

(f) Foreign currency debts, by currency, as of December 31, 2003 and 2004 are as follows:


		2003					2004

		Foreign		Won			Foreign		Won
		Currency		Equivalent			Currency		Equivalent

		Won (millions), US$, JPY, EUR, GBP and CNY(thousands)
Short-term borrowings	US$		131,012	W	156,924	US$		197,774	W	206,437

	US$		953,129		1,151,340	US$		643,701		671,895
Long-term borrowings	JPY		10,000,000		111,960	JPY		10,000,000		101,207
	CNY		—		—	CNY		63,850		8,053

					1,263,300					781,155
Debentures	US$		3,552,030		4,258,819	US$		4,094,107		4,261,819
	JPY		195,060,000		2,183,892	JPY		142,500,000		1,442,200
	EUR		25,183		37,839	EUR		—		—
	GBP		24,467		52,097	GBP		24,467		49,153

					6,532,647					5,753,172
Exchangeable bond	JPY		25,935,061		277,256	JPY		25,935,061		277,256

				W	8,230,127				W	7,018,020

(g) Aggregate maturities of the Company’s long-term debt as of December 31, 2004 are as follows:


	Local		Foreign								Capital
Year Ended	Currency		Currency		Domestic		Foreign		Exchangeable		Lease
December 31	Borrowings		Borrowings		Debentures		Debentures		Bonds		Obligations		Total

	Won (millions)
2005	W	1,099,830		236,568		1,752,872		1,138,892		—		118		4,228,280
2006		1,333,614		193,317		1,391,114		315,119		—		—		3,233,164
2007		1,165,165		85,598		1,625,010		1,291,499		—		—		4,167,272
2008		953,916		49,710		1,300,000		1,003,739		277,256		—		3,584,621
2009		438,155		39,272		1,320,000		192,608		—		—		1,990,035
Thereafter		76,289		176,690		120,000		1,811,315		—		—		2,184,294

	W	5,066,969		781,155		7,508,996		5,753,172		277,256		118		19,387,666

F-49

Korea Electric Power Corporation and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)


(18)	Assets and Liabilities Denominated in Foreign Currencies

Significant assets and liabilities of the Company (excluding foreign subsidiaries) denominated in foreign currencies other than those mentioned in note 17(f) as of December 31, 2003 and 2004 are as follows:


		2003				2004

		Foreign		Won		Foreign		Won
		Currency		Equivalent		Currency		Equivalent
		*(Thousands)()**		(Millions)		*(Thousands)()**		(Millions)

		Won (millions), US$, JPY and EUR (thousands)
Assets:
	Cash and cash equivalents	US$	5,617	W	6,728	US$	921	W	960
			JPY 653		7		JPY —		—
	Short-term financial instruments	US$	—		—	US$	688		718
	Trade receivables	US$	7,549		9,041	US$	8,676		9,057
	Other accounts receivable	US$	1,290		1,545	US$	1,841		1,922
	Other current assets	US$	—		—	US$	5,718		5,968
	Other non-current assets	US$	43		52	US$	123		128
			JPY 5,860		66		JPY 9,706		98
			EUR —		—		EUR 5		7

				W	17,439			W	18,858

Liabilities:
	Trade payables	US$	122,963		147,285	US$	157,675	W	164,619
			EUR —		—		EUR 28		40
	Other accounts payable	US$	1,510		1,809	US$	16,404		17,122
			EUR 321		483		EUR 3,792		5,396
			JPY —		—		JPY 43,400		438
	Accrued expense	US$	696		833	US$	1,923		2,007
	Other current liabilities	US$	145		173	US$	647		676
			EUR —		—		EUR 3		4

				W	150,583			W	190,302

(*) Foreign currencies other than US$, JPY and EUR are converted into US$.


(19)	Retirement and Severance Benefits

Changes in retirement and severance benefits for the years ended December 31, 2003 and 2004 are summarized as follows:


		2003			2004

		Won (millions)
Estimated severance accrual at beginning of year		W	520,891			717,917
Provision for retirement and severance benefits			219,762			300,853
Decrease arising from change in consolidated subsidiaries			(7,652	)		—
Payments			(15,084	)		(18,974	)

Estimated severance accrual at end of year			717,917			999,796
Transfer to National Pension Fund			(97	)		(93	)
Deposit for severance benefit insurance			(82,771	)		(113,336	)

	Net balance at end of year	W	635,049			886,367

F-50

Korea Electric Power Corporation and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)


(20)	Liability for Decommissioning Costs

Under the Korean Electricity Business Act (EBA) Article 94, the Company is required to record a liability for the decommissioning of nuclear facilities and disposal of radioactive waste. In addition, under the Korean Atomic Energy Act (AEA), an entity which constructs and operates a nuclear power reactor and related facilities must obtain permission from the Korean Minister of Science and Technology (MOST).

Up to 2002, the Company recorded a liability for the estimated decommissioning costs of nuclear facilities based on engineering studies and the expected decommissioning dates of the nuclear power plant. Additions to the liability were in amounts such that the current costs would be fully accrued for at estimated dates of decommissioning on a straight-line basis reflecting the inflation rate.

Effective January 1, 2003, the Company adopted SKAS No. 5 “Tangible Assets.” Under this standard, the Company records the fair value of the liabilities for decommissioning costs as a liability in the period in which the Company incurs a legal obligation associated with the retirement of tangible long-lived assets that result from the acquisition, construction, development and/or normal use of the assets. However, the adoption of this standard did not have any impact on financial statements as there were no utility plants placed into service during 2003.

During 2003, the Company obtained a new engineering study (the “2003 study”) and updated its estimate of the expected decommissioning dates of its nuclear power plants. The Company estimates its liability for decommissioning costs based on engineering studies provided by third parties and applies the amount prospectively. As a result of changes of estimates, for the year ended December 31, 2003, the liability for decommissioning costs increased by W72,888 million and operating income and net income decreased by W72,888 million and W52,844 million, respectively.

As described in note 2(w), during 2004, the Company early adopted SKAS No. 17 and retrospectively adjusted the liability for decommissioning costs at the estimated fair value using discounted cash flows to settle the asset retirement obligations of dismantlement of the nuclear power plants, spent fuel and radioactive wastes. In addition, during 2004, the Company updated the 2003 study based on new engineering studies (the “2004 study”) provided by other third parties.

As a result, the 2004 study revised certain essential factors such as timing of cash outflows. As required by SKAS No. 17, the change in accounting included the revised factors from the 2004 study since these factors were the Company’s best estimates at the time the Company elected to early adopt SKAS No. 17. With the adoption of SKAS No. 17, the Company re-measured the liability for decommissioning costs and reflected the cumulative effect of a change in accounting including the effect of the change in estimate up to prior year into the beginning balance of retained earnings.

Due to the adoption of this standard, the Company re-measured the liability for decommissioning costs as of January 1, 2004 and reflected the cumulative effect of a change in accounting up to prior year into the beginning balance of 2004 retained earnings as follows:


	As Previously
	Reported		Difference		After Adoption

	Won (millions)
Retained earnings	W	2,925,808		687,362		3,613,170
Asset retirement costs, net		—		1,504,173		1,504,173
Liability for decommissioning costs		5,091,070		556,088		5,647,158
Deferred income tax liabilities		82,621		260,723		343,344

For the year ended December 31, 2004, net income increased by W107,969 million applying this new standard. With the adoption of SKAS No. 17, the Company should disclose the proforma impact on prior year financial statements. However, the Company was not able to disclose this information due to difficulty of calculation.

F-51

Korea Electric Power Corporation and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

As of December 31, 2004, the expected decommissioning dates of Pressurized Water Reactor (PWR) and Pressurized Heavy Water Reactor (PHWR) are in the range of 2021 to 2057 and 2026 to 2042, respectively. However, the service period of the nuclear power plant is dependent upon the economy and safety of plant operation and supervision of MOST with periodic safety inspection and safety reviews.

As of December 31, 2004, the Company has recorded a liability of W6,259,369 million as the cost of dismantling and decontaminating existing nuclear power plants, consisting of dismantling costs of nuclear plant of W3,474,816 million and dismantling costs of spent fuel and radioactive waste of W2,784,553 million. Accretion expense consists of period-to-period changes in the liability for decommissioning costs resulting from the passage of time and revisions to either the timing or the amount of the original estimate of undiscounted cash flows. This cost is included in cost of electric power in the accompanying consolidated statements of income.

Changes in liability for decommissioning costs for the years ended December 31, 2003 and 2004 are summarized as follows:


			2003			2004

			Won (millions)
Balance at beginning of the year			W	4,417,934			5,091,070
	Cumulative effect of a change in accounting principle(*1)			—			556,088
	Liabilities incurred:
		Expenses(*2)		—			69,688
		Assets(*3)		—			352,239
	Accretion expense for the year			—			257,296
	Provision for decommissioning costs			698,400			—
	Payments for the year			(25,264	)		(67,012	)

Balance at end of the year			W	5,091,070			6,259,369


(*1)	As described in note 2(w) and previously in note 20, the Company recognized the cumulative effect of a change in accounting of W 556,088 million related to the adoption of SKAS No. 17.

(*2)	Expenses related to spent fuel from PHWR and radioactive wastes

(*3)	Assets related to dismantling costs of nuclear plant and spent fuel from PWR

The Company has utilized the liability for decommissioning costs in relation to seeking disposal sites and carrying out research and development on waste disposal. For the years ended December 31, 2003 and 2004, the Company spent W25,264 million and W67,012 million, respectively.


(21)	Receivables at Present Value

Present value discounts on receivables as of December 31, 2003 and 2004 are as follows:

2003

Imputed Interest

Present

Rate (%)

Period

Nominal Value

Discount

Value

Won (millions)

Long-term other accounts receivable

5.41

2002.12 - 2005.12

445,958

35,576

410,382

2004

Imputed Interest

Present

Rate (%)

Period

Nominal Value

Discount

Value

Won (millions)

Other accounts receivable — current

5.41

2002.12 - 2005.12

265,000

14,125

250,875

F-52

Korea Electric Power Corporation and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)


(22)	Other Current Liabilities

Other current liabilities as of December 31, 2003 and 2004 are as follows:


	2003		2004

	Won (millions)
Advance received	W	12,784		117,977
Withholdings		177,806		266,759
Unearned revenue		3,664		3,464
Others		354,096		258,105

	W	548,350		646,305


(23)	Derivative Instruments Transactions

The Company has entered into the various swap contracts to hedge risks involving exchange rate and interest rate of foreign currency debts.

(a) Currency swap contracts as of December 31, 2004 are as follows:


					Contract Amounts in Millions				Contract Interest Rate per Annum

	Contract		Settlement
	Year		Year		Pay		Receive		Pay (%)	Receive (%)

The Sumitomo Bank Ltd.		1995		2005	US$	286	JPY	27,000	7.68		4.15
Mizuho Co., Ltd. (formerly The Fuji Bank, Ltd.)		1995		2005	US$	149	JPY	14,425	6M Libor + 0.155		3.40
Canadian Imperial Bank of Commerce		1996		2006	US$	97	JPY	10,000	6M Libor + 0.13		3.80
JPMorgan Chase Bank		1996		2006	US$	200	JPY	21,000	6M Libor + 0.14		4.00
JPMorgan Chase Bank & Deutsche Bank (1, 3)		2002		2007	JPY	76,700	US$	650	1.18		4.25
Barclays Bank PLC, London		2002		2007	JPY	30,400	US$	250	1.04		3M Libor + 0.75
ABN AMRO (*4)		2002		2008	KRW	181,500	US$	150	5.95		4.625
Deutsche Bank(*2)		2003		2013	KRW	178,350	US$	150	CD + 3.3		7.75
UBS(*2)		2003		2013	KRW	148,625	US$	125	CD + 3.3		7.75
Credit Suisse First Boston(*2)		2003		2013	KRW	89,175	US$	75	CD + 3.3		7.75
ABN AMRO & Deutsche Bank(*5)		2003		2008	KRW	185,550	US$	150	5.30		4.25
JPMorgan Chase Bank & Deutsche Bank		2003		2008	JPY	23,770	US$	200	1.28		4.25
Credit Suisse First Boston		2003		2013	KRW	177,720	US$	150	5.12		4.75
JPMorgan Chase Bank & Credit Suisse First Boston		2004		2011	KRW	172,800	US$	150	Within 3 years: 4.875 After 3 years:		4.95
									4.875 - (10.9 - JPY/KRW Spot rate)
Barclays Bank PLC, London(*6)		2004		2014	KRW	106,200	US$	100	4.5 + (JPY/KRW - 11.020)		5.125
Credit Suisse First Boston(*6)		2004		2014	KRW	106,200	US$	100	4.5 + (JPY/KRW - 11.020)		5.125
UBS(*6)		2004		2014	KRW	106,200	US$	100	4.5 + (JPY/KRW - 11.020)		5.125
Barclays Bank PLC, London		2004		2014	KRW	172,875	US$	150	5.10		5.75
Barclays Bank PLC, London		2004		2011	US$	120	KRW	138,252	4.85		4.875
BNP PARIBAS		2004		2011	US$	15	KRW	17,282	4.85		4.875
Hana Bank		2004		2011	US$	15	KRW	17,282	4.85		4.875
Credit Suisse First Boston		2004		2011	US$	100	KRW	115,210	4.85		4.875


(*1)	If the Republic of Korea declares default on its debts, the Company is entitled to receive Korean government bonds instead of cash. Valuation for these embedded derivatives is reflected in the valuation of the currency swap.

F-53

Korea Electric Power Corporation and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)


(*2)	The Company exercised a call option in addition to these swaps with the foreign currency exchange rate of W1,056.7 in December 2004, which the Company could exchange each W5,945 million with the amounts of US$5,000,000 multiplied by Spot FX rate (KRW/ US$).

(*3)	The Company pays JPY 7,670 million which is 10% of the contract amount every March and September and will receive US$650 million in September 2007.

(*4)	The swaption has an interest pay rate of CD+0.5% and an interest receive rate of 5.95%, of which an exercise date is January 2006.

(*5)	The swaption has an interest pay rate of CD+0.15% and an interest receive rate of 5.30%, of which an exercise date is January 2006.

(*6)	The Company has purchased a reset option in addition to these swaps under which the Company can reset each W10,620 million to the amounts of US$10,000,000 multiplied by spot FX rate (KRW/ US$) until December 10, 2005 and the valuation for this reset option is considered in the valuation of the swaps.

(b) Interest rate swap contracts as of December 31, 2004 are as follows:

Notional

Contract Interest Rate per Annum

Amount in

Millions

Pay (%)

Receive (%)

Term

JPMorgan Chase Bank

US$

149

6.91

Libor + 0.155

1995 - 2005

Deutsche Bank

US$

100

Max (6.074-Libor, 0)

Max (Libor-6.074, 0)

1998 - 2007

Deutsche Bank

US$

100

Max (Libor-6.074,0)

Max (6.074-Libor, 0)

1998 - 2007

Deutsche Bank

KRW

178,350

5 + 2 x (JPY/W-11.03)

CD + 3.3

2003 - 2013

UBS

KRW

148,625

5 + 2 x (JPY/W-11.03)

CD + 3.3

2003 - 2013

Credit Suisse First Boston

KRW

89,175

5 + 2 x (JPY/W-11.03)

CD + 3.3

2003 - 2013

Credit Suisse First Boston

KRW

50,000

6.89

(5Y CMT-CD) x 2 + 4.3

2002 - 2007

Credit Suisse First Boston

KRW

50,000

6.89

7.30

2002 - 2007

JPMorgan Chase Bank

KRW

50,000

CD-0.3

3 years: 7.75

2003 - 2008

3 years: 14.65-CD

Deutsche Bank

KRW

50,000

4.98

CD-0.3

2003 - 2005

Credit Suisse First Boston

KRW

30,000

6.09

1 year: 7.25

2003 - 2005

2 years: (5Y CMT-CD) x 5 + 1.5

Citibank

KRW

60,000

CD-0.3

7.65/2.50(*)

2002 - 2005

Deutsche Bank

KRW

20,000

CD-0.31

7.65/2.50(*)

2002 - 2005

Deutsche Bank

KRW

40,000

CD-0.37

7.65/2.50(*)

2002 - 2005

Kookmin Bank

KRW

20,000

5.995

CD-0.325

2002 - 2005

Deutsche Bank

KRW

100,000

5.995

CD-0.325

2002 - 2005


(*)	If CD rate is equal or lower than 6.75%, then 7.65% will be applied, otherwise, 2.50% will be applied.

F-54

Korea Electric Power Corporation and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

(c) Valuation gains and losses on swap contracts recorded as other income or expense for the years ended December 31, 2002, 2003 and 2004 are as follows:


		2002			2003			2004

		Won (millions)
Currency swaps
	Gains	W	118,247			78,302			31,043
	Losses		(35,890	)		(158,995	)		(321,615	)
Interest rate swaps
	Gains		9,216			13,975			121,107
	Losses		(25,345	)		(27,374	)		(1,387	)
Swaptions
	Gains		—			602			1,611
	Losses		(2,220	)		—			—

		W	64,008			(93,490	)		(169,241	)

(d) The gains on interest swap contract of W255 million, the losses on currency and interest rate swap contract of W2,817 million and the losses on currency and interest rate swap contract of W27,522 million, classified as cash flow hedge derivatives, are reflected in a capital adjustment for the years ended December 31, 2002, 2003 and 2004, respectively.


(24)	Power Generation, Transmission and Distribution Expenses

Power generation, transmission and distribution expenses for the years ended December 31, 2002, 2003 and 2004 are as follows:


	2002		2003		2004

	Won (millions)
Fuel	W	4,405,750		4,849,387		6,598,642
Labor		1,098,389		1,241,052		1,388,117
Depreciation and amortization		4,777,277		4,921,585		5,240,211
Maintenance		1,522,221		1,587,488		1,751,060
Provision for decommissioning costs/accretion and related expenses		583,372		698,400		326,984
Research and development costs		278,691		296,348		360,762
Others		739,343		797,384		867,953

	W	13,405,043		14,391,644		16,533,729

F-55

Korea Electric Power Corporation and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)


(25)	Selling and Administrative Expenses

Details of selling and administrative expenses for the years ended December 31, 2002, 2003 and 2004 are as follows:


	2002		2003		2004

	Won (millions)
Labor	W	409,744		437,907		493,478
Employee benefits		49,343		56,116		82,637
Sales commission		253,040		280,051		298,292
Compensation for damages		2,107		716		1,021
Depreciation and amortization		57,644		53,914		41,416
Promotion		18,971		19,301		21,245
Commission-others		127,068		109,023		105,046
Bad debts		8,379		23,178		19,982
Maintenance		15,904		26,644		18,875
Others		218,401		229,380		212,130

	W	1,160,601		1,236,230		1,294,122


(26)	Income Taxes

(a) The Company is subject to a number of income taxes based on taxable income at the following normal tax rates:


Taxable Earnings	Prior to 2005			Thereafter

Up to W100 million		16.5	%		14.3	%
Over W100 million		29.7	%		27.5	%

In December 2003, the Korean government reduced the corporate income tax rate beginning in 2005. Specifically, effective from January 1, 2005, the income tax rate was reduced from 29.7% to 27.5%.

The components of income tax expense for the years ended December 31, 2002, 2003 and 2004 are summarized as follows:


	2002			2003			2004

	Won (millions)
Current income tax expense	W	928,844			577,750			943,116
Deferred income tax expense		339,634			205,870			164,877

		1,268,478			783,620			1,107,993
Income taxes of subsidiaries		835,314			979,651			687,177

Income taxes	W	2,103,792			1,763,271			1,795,170

Effective tax rate		40.7	%		42.9	%		38.2	%

The breakdown between current and deferred income tax expense for the years ended December 31, 2003 and 2004 are summarized as follows:


	2003		2004

	Won (millions)
Current income tax expense	W	1,648,156		1,791,332
Deferred income tax expense		115,115		3,838

	W	1,763,271		1,795,170

F-56

Korea Electric Power Corporation and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

(b) The provision for income taxes calculated using the normal tax rates differs from the actual provision for the year ended December 31, 2004 for the following reasons:


		Won (millions)
Provision for income taxes at normal tax rates		W	1,395,824
Tax effects of permanent differences:
	Dividend income(*)		(70,931	)
	Other		(25,839	)
Tax effects of increase in equity income of affiliates			457,384
Additional payment of prior year income tax			17,263
Other, net			21,469

Actual provision for income taxes		W	1,795,170


(*)	Under the Corporate Income Tax Act Article 18 paragraph 2, a certain portion of the dividend income is not taxable. In this connection, certain portions of equity in net income of affiliates are considered permanent differences in the calculation of deferred tax assets (liabilities).

(c) The tax effects of temporary differences that result in significant portions of the deferred income tax assets and liabilities as of December 31, 2003 and 2004 are presented below:


		2003			2004

		Won (millions)
Loss on valuation of derivatives		W	126,014			200,364
Accrual for retirement and severance benefits			98,619			137,918
Deferred foreign exchange translation loss			14,538			11,139
Liability for decommissioning costs			1,400,318			1,721,326
Accounts payable — purchase of electricity			188,913			167,132
Gain on valuation of derivatives			(86,291	)		(127,534	)
Deferred foreign exchange translation gain			(36,526	)		(27,243	)
Reserve for research and human development			(44,859	)		(54,366	)
Reserve for social overhead capital investment			(222,093	)		(228,296	)
Equity income of affiliates			(1,517,157	)		(1,979,942	)
Other			(15,597	)		(180,690	)

	Net deferred tax liabilities	W	(94,121	)		(360,192	)

(d) All but an insignificant portion of ordinary income and tax expense is from Korean sources.


(27)	Earnings Per Share

Earnings per common share are calculated by dividing net earnings by the weighted-average number of shares of common stock outstanding for the years ended December 31, 2002, 2003 and 2004 as follows:


	2002		2003		2004

	Won (millions)
Net income in million Won	W	3,048,105		2,323,425		2,882,522
Weighted-average number of common shares outstanding		639,046,001		630,372,064		629,868,023

Earnings per common share in Won	W	4,770		3,686		4,576

F-57

Korea Electric Power Corporation and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

Diluted earnings per share are calculated by dividing diluted net income by the weighted-average number of shares of common equivalent stock outstanding for the years ended December 31, 2002, 2003 and 2004 as follows:


	2002		2003		2004

	Won (millions)
Net income in million Won	W	3,048,105		2,323,425		2,882,522
Exchangeable bond interest in million Won		—		496		3,204
		3,048,105		2,323,921		2,885,726

Weighted-average number of common shares and diluted securities outstanding		639,046,001		631,933,684		639,867,870

Diluted earnings per share in Won	W	4,770		3,677		4,510


(28)	Accounting Change

In October 2004, Korea Accounting Standard Board issued Statement of Korea Accounting Standards “(SKAS”) No. 17 “Provision and Contingent Liability & Asset”. In January 2005, the Company decided to early adopt SKAS No. 17. Under this standard, the Company retrospectively adjusted the liability for decommissioning costs at the estimated fair value using discounted cash flows to settle the asset retirement obligations of dismantlement of the nuclear power plants, spent fuel and radioactive waste and the same amount was recognized as a utility asset. Due to the adoption of this standard, the Company re-measured the liability for decommissioning costs and reflected the cumulative effect of an accounting change up to prior year into the beginning balance of retained earnings. This accounting change, which was recorded as of January 1, 2004, resulted in an increase in its utility plant, net of W1,504,173 million, liability for decommissioning costs of W556,088 million, deferred income tax liabilities of W260,723 million and retained earnings of W687,362 million, respectively. As allowed by this standard, the 2003 financial statements were not restated. For the year ended December 31, 2004, net income increased by W107,969 million applying this new standard.


(29)	Transactions and Balances with Related Companies

(a) Significant transactions between the Company and related parties for the years ended December 31, 2003 and 2004 are as follows. These were eliminated in the consolidation:


Related Party		Transaction	2003		2004

			Won (millions)
Sales and other income:
	Korea Hydro & Nuclear Power Co., Ltd.	Sales of electricity and others	W	92,380		129,617
	Korea South-East Power Co., Ltd.	”		49,124		39,630
	Korea Midland Power Co., Ltd.	”		26,749		17,844
	Korea Western Power Co., Ltd.	”		34,025		37,456
	Korea Southern Power Co., Ltd.	”		18,604		16,100
	Korea East-West Power Co., Ltd.	”		35,817		28,486
	Others	”		86,327		98,015

			W	343,026		367,148

F-58

Korea Electric Power Corporation and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)


Related Party		Transaction	2003		2004

			Won (millions)
Purchases and other expenses:
	Korea Hydro & Nuclear Power Co., Ltd.(*)	Purchase of electricity and others	W	5,065,317		5,077,306
	Korea South-East Power Co., Ltd.(*)	”		1,454,157		1,654,792
	Korea Midland Power Co., Ltd.(*)	”		1,781,897		1,897,358
	Korea Western Power Co., Ltd.(*)	”		2,122,901		2,049,316
	Korea Southern Power Co., Ltd.(*)	”		2,048,591		2,738,995
	Korea East-West Power Co., Ltd.(*)	”		1,867,833		2,058,906
	Korea Power Engineering Co., Inc.	Designing of the power plant and others		40,396		12,220
	Korea Plant Service & Engineering Co., Ltd.	Utility plant maintenance		40,251		39,615
	Korea Electric Power Data Network, Co., Ltd.	Maintenance of computer system		203,074		212,053
	Others	Commissions for service and others		168,552		180,838

			W	14,792,969		15,921,399

(*)

The Company has purchased electricity from its power generation subsidiaries through Korea Power Exchange. In addition, as described in note 12(a), in 2003, the Company issued 647,697 shares with par value W5,000 to the government of the Republic of Korea in return for certain fixed assets related to power distribution. Fixed assets were valued based on the fair value of the common stock on the date of the transaction. The value of these shares were recorded as common stock of W3,238 million and paid-in capital in excess of par value of W11,425 million.

(b) Receivables arising from related parties transactions as of December 31, 2003 and 2004 are as follows:


	2003

	Trade		Other
Related Party	Receivables		Receivables		Total

	Won (millions)
Korea Hydro & Nuclear Power Co., Ltd.	W	—		319		319
Korea South-East Power Co., Ltd.		1,778		367		2,145
Korea Midland Power Co., Ltd.		1,107		2,232		3,339
Korea Western Power Co., Ltd.		1,940		248		2,188
Korea Southern Power Co., Ltd.		1,157		360		1,517
Korea East-West Power Co., Ltd.		1,978		213		2,191
Others		1,990		9,607		11,597

	W	9,950		13,346		23,296

F-59

Korea Electric Power Corporation and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)


	2004

	Trade		Other
Related Party	Receivables		Receivables		Total

	Won (millions)
Korea Hydro & Nuclear Power Co., Ltd.	W	—		7,185		7,185
Korea South-East Power Co., Ltd.		1,984		1,130		3,114
Korea Midland Power Co., Ltd.		183		9,808		9,991
Korea Western Power Co., Ltd.		2,115		114		2,229
Korea Southern Power Co., Ltd.		1,242		199		1,441
Korea East-West Power Co., Ltd.		2,306		101		2,407
Others		4,790		9,903		14,693

	W	12,620		28,440		41,060


	2003

	Trade		Other
Related Party	Receivables		Receivables		Total

	Won (millions)
Korea Hydro & Nuclear Power Co., Ltd.	W	379,121		1,954		381,075
Korea South-East Power Co., Ltd.		117,954		4,411		122,365
Korea Midland Power Co., Ltd.		145,548		9,387		154,935
Korea Western Power Co., Ltd.		167,876		140		168,016
Korea Southern Power Co., Ltd.		179,803		93		179,896
Korea East-West Power Co., Ltd.		142,776		223		142,999
Korea Power Engineering Co., Inc.		—		5,909		5,909
Korea Plant Service & Engineering Co., Ltd.		—		5,509		5,509
Korea Electric Power Data Network Co., Ltd.		—		56,334		56,334
Others		4,363		19,619		23,982

	W	1,137,441		103,579		1,241,020


	2004

	Trade		Other
Related Party	Receivables		Receivables		Total

	Won (millions)
Korea Hydro & Nuclear Power Co., Ltd.(*)	W	403,299		48		403,347
Korea South-East Power Co., Ltd.(*)		153,429		111		153,540
Korea Midland Power Co., Ltd.(*)		146,735		8,458		155,193
Korea Western Power Co., Ltd.(*)		169,362		117		169,479
Korea Southern Power Co., Ltd.(*)		227,978		84		228,062
Korea East-West Power Co., Ltd.(*)		160,231		126		160,357
Korea Power Engineering Co., Inc.		—		1,515		1,515
Korea Plant Service & Engineering Co., Ltd.		—		6,275		6,275
Korea Electric Power Data Network Co., Ltd.		—		43,845		43,845
Others		1,044		17,453		18,497

	W	1,262,078		78,032		1,340,110


(*)	The Company has purchased electricity from its power generation subsidiaries through Korea Power Exchange. The above trade payables represent the substantial amount payable to the power generation subsidiaries.

F-60

Korea Electric Power Corporation and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

(d) As discussed in notes 16 and 17, as of December 31, 2004, the balance of short-term borrowings and long-term borrowings from Korea Development Bank, one of the Company’s major shareholders, amounted to W 5,023,846 million and the related interest expense amounted to W 217,823 million for the year ended December 31, 2004. As of December 31, 2004 and for the year ended, the balance of long-term borrowings from the Export-Import Bank of Korea amounted to W170,622 million and the related interest expense amounted to W7,305 million. In addition, as of December 31, 2004 and for the year ended, the balance of long-term borrowings from the government of the Republic of Korea amounted to W 50,000 million and the related interest expense amounted to W 2,000 million.

(e) The guarantees the Company has provided for related companies as of December 31, 2004 are as follows:


				Won (Millions),
Type	Loan Type	Guaranteed Company	Financial Institutions	US$(Thousands)

Payment guarantee	Foreign currency loan	KEPCO International Hong Kong Ltd.	Nippon Life Insurance	US$	82,006
		”	Norinchukin Bank		35,000
		”	Korea Development Bank		4,636
		KEPCO International Philippines Inc.	Korea Development Bank		27,261
Other(*1)		KEPCO Ilijan Co.			105,000

				US$	253,903

Joint liability on guarantee(*2)	Spin-off of power generation subsidiaries	Six power generation subsidiaries	Korea Development Bank and others		W1,101,550


(*1)	KEPCO Ilijan Corporation, which is the subsidiary of KEPCO International Philippines Inc., is engaged in the power generation business in the Philippines and borrowed US$356 million in 2000 as project financing from Japan Bank of International Cooperation and others for that business. The Company has provided Japan Bank of International Cooperation and others with guarantees to the extent not exceeding US$72 million for performance of the power generation business of KEPCO Ilijan Corporation as well as with the partial guarantees to the extent not exceeding US$33 million for the repayment of that borrowing.

(*2)	The Company has joint and several responsibilities with the generation subsidiaries to repay those debts, which were transferred and outstanding at the time of spin-off on April 2, 2001, under the Commercial Code of the Republic of Korea. The balance of the power generation subsidiaries’ debts for which the Company has those joint and several responsibilities as of December 31, 2004 is W1,101,550 million.

(f) The guarantees provided by related companies for the Company as of December 31, 2004 are as follows:

Balance of

Guaranteed

Borrowing as of

Type

Related Party

Currency

Amounts

Type of Borrowings

December 31, 2004

Won (millions), USD, JPY and GBP (thousands)

Payment

Korea

US$

1,739,449

Foreign

US$

1,401,865

guarantee(*1)

Development

currency bond

Bank

JPY

104,212,253

”

JPY

102,500,000

GBP

30,706

”

GBP

24,467

Joint liability on

Six power

KRW

88,103

Long-term debts

KRW

88,103

guarantee(*2)

generation

KRW

240,000

Domestic debentures

KRW

240,000

subsidiaries

F-61

Korea Electric Power Corporation and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)


(*1)	Korea Development Bank has provided repayment guarantees for some of the foreign currency debentures of the Company, which existed at the time of spin-off, but not redeemed as of December 31, 2004, instead of the collective responsibilities of the power generation subsidiaries to facilitate the Restructuring Plan described in note 1(a).

(*2)	As described note in 29(d), the balance of the Company’s borrowings for which six power generation subsidiaries have the joint and several responsibilities is W328,103 million as of December 31, 2004.


(30)	Commitments and Contingencies

(a) The Company is engaged in 294 lawsuits as a defendant and 46 lawsuits as a plaintiff. The total amount claimed against the Company is W282,455 million and the total amount claimed by the Company is W16,416 million as of December 31, 2004. The outcome of these lawsuits cannot presently be determined. In the opinion of management, the ultimate results of these lawsuits will not have a material adverse effect on the Company’s financial position, results of operation or liquidity.

(b) Short-term credit facilities

Payment guarantee and short-term credit facilities from financial instruments as of December 31, 2004 are as follows:


	(i) Payment guarantee


Description	Financial Instrument	Credit Lines

		Won (millions),
		US$ (thousands)
Payment of import letter of credit	Various banks	US$	1,690,000
Payment of customs duties	Korea Development Bank	W	4,000
Payment of overdraft	National Agricultural Cooperative Federation and others	W	580,000


	(ii) Overdraft and Others


Description	Financial Instrument	Credit Lines

		Won (millions), US$ (thousands)
Overdraft	BNP PARIBAS and others	US$	60,000
	National Agricultural Cooperative Federation and others	W	2,134,000
Discount on promissory note	Hana Bank and others	W	14,000
Other	Hana Bank and others	W	7,000

The Company has provided a promissory note of W 1,771 million to Hyundai Heavy Industry, Co., Ltd. as a guarantee for performance of contract. In the event the Company fails to perform, it may be required to fund the promissory note, which will be repayable.

The Company entered into a subcontract arrangement with the Korea Peninsula Energy Development Organization (KEDO) on December 15, 1999, to construct two 1,000,000 KW-class pressurized light-water reactor units in North Korea. The contract amount is US$4,182 million and subject to adjustment to cover any changes in the price level. The construction projects have been suspended from December 1, 2003 due to the political environment surrounding the Korean peninsula. Through December 31, 2004, the Company continues to provide routine maintenance for the construction projects. The Company has received cash advances from other parties, which consist of other current liability amounting to W109,840 million and other long-term liability amounting to W379,525 million as of December 31, 2004.

The Company entered into a Power Purchase Agreement with LG Energy Co., Ltd. and other independent power producers for power purchases in accordance with the Electricity Business Act and power purchased from

F-62

Korea Electric Power Corporation and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

these companies amounted to W1,140,810 million, W1,055,081 million and W1,019,528 million for the years ended December 31, 2002, 2003 and 2004, respectively.

(31) Segment Information

The below segment information is based on the management’s disaggregation of the Company for making operating decisions. Operating segments that have similar economic characteristics and are similar in terms of the nature of their products and services, the nature of the production process, the type or class of customer, and methods of distribution have been aggregated into three reportable segments: One is a transmission and distribution segment which make transmission and sale of electricity, and the other is a power generation segment which produces electricity.

Other segments that cannot be classified into the above-mentioned two segments have been combined and disclosed in an “all other” category. All other revenues consist primarily of the revenues from the engineering and maintenance for utility plant, information services, sales of nuclear fuel, communication line leasing and others.

The Company evaluates performance of each segment based on net income. There are no revenues from transactions with a single external customer that amount to 10 percent or more of the consolidated revenues of the Company.

(a) The following table provides information for each operating segment for the years ended December 31, 2002, 2003 and 2004:


	2002

	Electric Business

	Transmission &			Power						Consolidation
	Distribution			Generation			All Other			Adjustment			Consolidated

	Won (millions)
Unaffiliated revenues	W	20,406,404			—			959,271			—			21,365,675
Intersegment revenues		309,893			13,404,975			841,006			(14,555,874	)		—

Total operating revenues		20,716,297			13,404,975			1,800,277			(14,555,874	)		21,365,675
Cost of goods sold		(17,897,871	)		(10,348,054	)		(1,481,333	)		14,568,967			(15,158,291	)
Selling and administrative expenses		(940,016	)		(153,324	)		(81,905	)		14,644			(1,160,601	)

Operating income		1,878,410			2,903,597			237,039			27,737			5,046,783

Interest income		23,710			46,982			22,233			(1,996	)		90,929
Interest expense		(627,954	)		(360,606	)		(29,858	)		1,996			(1,016,422	)
Equity income of affiliates		2,178,492			—			18,566			(2,102,205	)		94,853
Other income (expense), net		871,284			101,946			(1,622	)		(16,893	)		954,715

Earnings before income tax		4,323,942			2,691,919			246,358			(2,091,361	)		5,170,858
Income tax expense		(1,268,478	)		(792,863	)		(39,685	)		(2,766	)		(2,103,792	)

Segment earnings before minority interests	W	3,055,464			1,899,056			206,673			(2,094,127	)		3,067,066

F-63

Korea Electric Power Corporation and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)


	2003

	Electric Business

	Transmission &			Power						Consolidation
	Distribution			Generation			All Other			Adjustment			Consolidated

	Won (millions)
Unaffiliated revenues	W	21,834,288			—			940,306			—			22,774,594
Intersegment revenues		253,167			14,348,938			956,299			(15,558,404	)		—

Total operating revenues		22,087,455			14,348,938			1,896,605			(15,558,404	)		22,774,594
Cost of goods sold		(19,285,025	)		(11,138,278	)		(1,429,265	)		15,538,002			(16,314,566	)
Selling and administrative expenses		(992,116	)		(167,479	)		(90,120	)		13,485			(1,236,230	)

Operating income		1,810,314			3,043,181			377,220			(6,917	)		5,223,798

Interest income		38,780			34,585			27,663			(1,131	)		99,897
Interest expense		(583,557	)		(207,374	)		(39,488	)		676			(829,743	)
Equity income of affiliates		2,123,518			—			23,616			(2,050,268	)		96,866
Other expense, net		(291,991	)		(145,207	)		(588	)		(43,143	)		(480,929	)

Earnings before income tax		3,097,064			2,725,185			388,423			(2,100,783	)		4,109,889
Income tax expense		(783,620	)		(948,458	)		(35,865	)		4,672			(1,763,271	)

Segment earnings before minority interests	W	2,313,444			1,776,727			352,558			(2,096,111	)		2,346,618


	2004

	Electric Business

	Transmission &			Power						Consolidation
	Distribution			Generation			All Other			Adjustment			Consolidated

	Won (millions)
Unaffiliated revenues	W	23,122,854			—			832,808			—			23,955,662
Intersegment revenues		367,147			15,280,344			1,027,415			(16,674,906	)		—

Total operating revenues		23,490,001			15,280,344			1,860,223			(16,674,906	)		23,955,662
Cost of goods sold		(20,453,337	)		(13,050,735	)		(1,308,051	)		16,618,057			(18,194,066	)
Selling and administrative expenses		(1,061,048	)		(199,202	)		(89,237	)		55,365			(1,294,122	)

Operating income		1,975,616			2,030,407			462,935			(1,484	)		4,467,474

Interest income		36,079			34,867			29,985			(11,710	)		89,221
Interest expense		(562,971	)		(143,879	)		(42,699	)		11,710			(737,839	)
Equity income of affiliates		1,793,808			—			21,725			(1,684,938	)		130,595
Other income (expense), net		748,688			(1,334	)		6,411			(3,427	)		750,338

Earnings before income tax		3,991,220			1,920,061			478,357			(1,689,849	)		4,699,789
Income tax expense		(1,107,993	)		(656,862	)		(34,442	)		4,127			(1,795,170	)

Segment earnings before minority interests	W	2,883,227			1,263,199			443,915			(1,685,722	)		2,904,619

F-64

Korea Electric Power Corporation and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

(b) The following table provides asset information for each operating segment as of December 31, 2002, 2003 and 2004.:


		Electric Business

		Transmission &		Power				Consolidation
		Distribution		Generation		All Other		Adjustment			Consolidated

		Won (millions)
December 31, 2002
	Utility and non-utility plant	W	28,157,412		32,145,415		1,200,843		(199,916	)		61,303,754
	Total assets		31,792,880		36,933,338		2,604,890		(818,989	)		70,512,119
December 31, 2003
	Utility and non-utility plant	W	29,271,047		31,735,423		568,617		(204,064	)		61,371,023
	Total assets		33,723,731		37,249,382		2,664,538		(1,910,379	)		71,727,272
December 31, 2004
	Utility and non-utility plant	W	29,945,572		32,607,650		964,454		(191,527	)		63,326,149
	Total assets		34,684,148		38,285,422		2,439,468		(1,755,353	)		73,653,685


(32)	Reconciliation to United States Generally Accepted Accounting Principles

The accompanying consolidated financial statements are prepared in accordance with generally accepted accounting principles in the Republic of Korea (“Korean GAAP”) which differ in certain respects from U.S. generally accepted accounting principles. The significant differences between Korean GAAP and U.S. GAAP that affect the Company’s consolidated financial statements are described below.


*(a)*	*Asset Revaluation and Depreciation*

Under U.S. GAAP, property, plant and equipment must be stated at cost less accumulated depreciation and impairment. The revaluation of property, plant and equipment and the resulting depreciation of revalued amounts are not included in consolidated financial statements prepared in accordance with U.S. GAAP. When revalued assets are sold, revaluation surplus related to those assets under Korean GAAP would be reflected in income as additional gain on the sale of property, plant and equipment under U.S. GAAP.


*(b)*	*Special Depreciation*

Under Korean GAAP, special depreciation allowed prior to 1994, which represents accelerated depreciation of certain facilities and equipment acquired for energy saving and anti-pollution purposes, is not recognized under U.S. GAAP. The U.S. GAAP reconciliation reflects the adjustment of special depreciation to the Company’s normal depreciation method, based on the economic useful life of the asset.


*(c)*	*Accounting for Regulation*

The Government of the Republic of Korea approves the rates that the Company charges to its customers. The Company’s utility rates are designed to recover its reasonable costs plus a fair investment return. However, as discussed in Note 1(a), on April 2, 2001, six power generation subsidiaries were established in accordance with

F-65

Korea Electric Power Corporation and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

the Restructuring Plan. Since the power generation subsidiaries’ rates are determined by a competitive system in the market, they no longer meet the criteria for application of SFAS No. 71. Accordingly, since 2001, only the Company’s power transmission and distribution divisions have been subject to the criteria for the application of SFAS No. 71.

The Company recognizes a regulatory liability or regulatory asset in the consolidated financial statements by a charge or credit to operations to match revenues and expenses under the regulations for the establishment of electric rates. These assets or liabilities relate to the adjustments for capitalized foreign currency translation, reserve for self-insurance and deferred income taxes.

The following table shows the components of regulated assets and liabilities as of December 31, 2003 and 2004.


	Korean Won							Translation into
								U.S. Dollars (Note 2)
	2003			2004				2004

	(In millions)						(In thousands)

Capitalized foreign currency translation	W	972,903			900,811			$	870,265
Reserve for self-insurance		(87,926	)		(93,352	)			(90,186	)
Deferred income taxes		(1,550,939	)		(1,465,466	)			(1,415,772	)

	W	(665,962	)		(658,007	)		$	(635,693	)

In June 2001, the Ministry of Commerce, Industry and Energy announced the revised guidelines for utility rate setting, stating that non-operating expenses should be excluded from reasonable costs while income tax expense (including deferred income taxes), instead of income tax payables, should be included for rate-making purposes. As a result of this guideline change and the deregulation of the power generation subsidiaries, only the Company’s deferred income taxes caused by the difference between Korean GAAP and U.S. GAAP are subject to SFAS No. 71, to the extent that tax benefits or obligation will affect future allowable costs for rate making purpose.

The regulated assets resulting from capitalized foreign currency translation are anticipated to be recovered over weighted-averaged useful life of property, plant and equipment.


*(d)*	*Reversal of Eliminated Profit on Transactions with Subsidiaries and Affiliated Companies*

Under Korean GAAP, the Company’s share of the profit on transactions between the Company and its affiliated companies is eliminated in the preparation of the consolidated financial statements. No elimination of such profit is required in accordance with U.S. GAAP for regulated enterprises, where the sales prices is reasonable and it is probable that, through the rate making process, future revenues approximately equal to the sales price will result from the Company’s use of the utility plant. the Company meets both of these criteria, and no elimination of profit is necessary for reporting under U.S. GAAP.


*(e)*	*Foreign Currency Translation*

As discussed in Note 1(f), under Korean GAAP, the Company capitalizes certain foreign exchange transaction and translation gains and losses on borrowings associated with certain qualified assets during the construction period.

Under U.S. GAAP, all foreign exchange transaction gains and losses (referred to as either transaction or translation gains (losses) under Korean GAAP) should be included in the results of operations for the current period. Accordingly, the amounts of foreign exchange transaction and translation gains and losses included in

F-66

Korea Electric Power Corporation and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

property, plant and equipment under Korean GAAP were reversed into results of operations for the current period under U.S. GAAP.

Under Korean GAAP, convertible bonds denominated in foreign currency are regarded as non-monetary liabilities since they have equity-like characteristics, so the Company does not recognize the associated foreign currency translation gain or loss.

Under U.S. GAAP, convertible bonds denominated in foreign currency are translated at exchange rates as of the balance sheet date, and the resulting foreign currency transaction gain or loss is included in the results of operations.


*(f)*	*Deferred Income Taxes*

Under Korean GAAP, a deferred tax asset is recognized only when its realization is probable. An appropriate write-down of a previously recognized deferred tax asset is deducted directly from the deferred tax asset with a corresponding increase to income tax expense. All deferred tax accounts are classified as non-current items on the balance sheet.

In addition, under Korean GAAP, additional provisions or reversals of previously provided liabilities arising from the finalization of income tax returns, the filing of amended tax returns or examinations of prior year tax returns by tax authorities are not reported as income tax expense but instead recorded within other income (expense).

Under U.S. GAAP, a deferred tax asset is recognized for temporary differences that will result in deductible amounts in future years and for carry forwards. Deferred tax assets are not directly written down. Rather, a valuation allowance is recognized if, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax asset will not be realized. The valuation allowance is established through a charge to income tax expense. Deferred tax liabilities and assets are classified as current or non-current based on the classification of the related asset or liability for financial reporting. A deferred tax liability or asset that is not related to an asset or liability for financial reporting, including deferred tax assets related to carry forwards, shall be classified according to the expected reversal date of the temporary difference. Additional provisions or reversals of previously provided liabilities arising from the finalization of income tax returns, the filing of amended tax returns or examinations of prior year tax returns by tax authorities represent changes in estimate, and are reported as a component of income tax expense.

For U.S. GAAP purposes, the Company is required to make a deferred tax adjustment for the differences between Korean GAAP and U.S. GAAP.


*(g)*	*Liabilities for Decommissioning Costs*


	2002

Under Korean GAAP, prior to January 1, 2003, the Company accrued for estimated decommissioning costs of nuclear facilities based on engineering studies and the expected decommissioning dates of the nuclear power plant. Annual additions to the reserve were in amounts such that the expected costs would be fully accrued for at the estimated dates of decommissioning on a straight-line basis.

Under U.S. GAAP, prior to January 1, 2003, accounting for liabilities for decommissioning costs was substantially the same as Korean GAAP.


	2003

Under Korean GAAP, effective January 1, 2003, the Company adopted SKAS No. 5 “Tangible Assets.” Under this standard, the Company would record the fair value of the liabilities for decommissioning costs as a liability in the period in which the Company incurs a legal obligation associated with the retirement of tangible long-lived assets. However, this standard was only applicable to new plants (with an associated asset retirement liability) put into service after January 1, 2003. For plant’s put into service before January 1, 2003, SKAS No. 5

F-67

Korea Electric Power Corporation and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

did not apply and the previous Korean GAAP (as described under 2002) was required. Since the Company did not place into service any assets with liabilities for decommissioning costs during 2003, SKAS No. 5 had no impact on the 2003 consolidated financial statements.

Under U.S. GAAP, effective January 1, 2003, the Company adopted Statement of Financial Accounting Standard (“SFAS”) No. 143 “Accounting for Asset Retirement Costs” Under SFAS No. 143, the Company is required to recognize an estimated liability for legal obligations associated with the retirement of tangible long-lived assets. The Company measures the liability at fair value when incurred and capitalizes a corresponding amount as part of the book value of the related long-lived assets. The increase in the capitalized cost is included in determining depreciation expense over the estimated useful life of these assets. Since the fair value of the liabilities for decommissioning costs is determined using a present value approach, accretion of the liability due to the passage of time is recognized each period as expense until the settlement of the liability. SFAS No. 143 applies to all existing long-lived assets including those acquired before January 1, 2003. As a result of the adoption of SFAS No. 143, the Company recognized a pre-tax gain as a cumulative effect of accounting change of W 1,775,306 million on January 1, 2003. In addition, for the year ended December 31, 2003, the Company recorded accretion expense and depreciation expense under U.S. GAAP while reversing the provision for decommissioning costs recorded under Korean GAAP.


	2004

In October 2004, Korea Accounting Standard Board issued Statement of Korea Accounting Standards (“SKAS”) No. 17 “Provision and Contingent Liability & Asset”. In January 2005, the Company decided to early adopt SKAS No. 17. Under this standard, the Company retrospectively adjusted the liability for decommissioning costs at the estimated fair value using discounted cash flows (also based on engineering studies and the expected decommissioning dates) to settle the liabilities for decommissioning costs and the same amount was recognized as an utility asset. Under SKAS No. 17, the discount rate was set at the date of adoption and should be applied in all future periods. In addition, any new plants would use the discount rate in effect at the time of its commencement. Accretion expense consists of period-to-period changes in the liability for decommissioning costs resulting from the passage of time and revisions to either the timing or the amount of the original estimate of undiscounted cash flows. In addition, as required by SKAS No. 17, the cumulative effect of a change in accounting included any changes in estimate that took place during 2004. Due to the adoption of this standard, the Company re-measured the liability for decommissioning costs as of January 1, 2004 and reflected the cumulative effect of a change in accounting up to prior year into current year retained earnings.

Under U.S. GAAP, the Company continues to apply SFAS No. 143 during 2004.

As of and for the year ended December 31, 2004, Korean GAAP and U.S. GAAP for recording the liabilities for decommissioning costs are substantially the same except for the following:


	•	Under U.S. GAAP, the discount rate for existing decommissioning liabilities was set when the Company adopted SFAS No. 143 (6.94% as of January 1, 2003). Under Korean GAAP, the discount rate for existing decommissioning liabilities was set when the Company adopted SKAS No. 17 (4.36% as of December 2004).

	•	Under U.S. GAAP, any changes that result in upward revisions to the undiscounted estimated cash flows shall be treated as a new liability and discounted at the then current discount rate. Any downward revisions to the undiscounted estimated cash flows will result in a reduction of the liability for decommissioning costs and shall be reduced from the recorded discounted liability at the rate that was used at the time the obligation was originally recorded. Under Korean GAAP, regardless of upward or downward revisions to the undiscounted estimated cash flows, the historical discount rate will be applied in all future periods.

	•	Under U.S. GAAP, revisions to either the timing or the amount of the original estimate of the undiscounted cash flows is reflected within current year accretion expense or adjustment to the asset

F-68

Korea Electric Power Corporation and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)


		retirement cost as a change in estimate. Under Korean GAAP, as required by SKAS No. 17, the cumulative effect of the change in accounting included any changes in estimate that took place during 2004. Accordingly, the 2004 accretion expense under Korean GAAP does not include the change in estimate impact that is recorded within accretion expense under U.S. GAAP.

As explained in Note 20, under Korean GAAP, the Company has accrued W 6,259,369 million for the cost of dismantling and decontaminating existing nuclear power plants as of December 31, 2004. Under U.S. GAAP, the Company has accrued W4,063,830 million for the cost of dismantling and decontaminating existing nuclear power plants as of December 31, 2004. Substantially all of the difference between the U.S. GAAP liability and the Korean GAAP liability is due to the impact of the discount rate described in the first bullet above.

Adjustments to capitalized asset retirement costs and liabilities for decommissioning costs additionally subtracted under U.S. GAAP as of December 31, 2003 and 2004 is as follows:


	Korean Won						Translation into
							U.S. Dollars (Note 2)
	2003		2004				2004

	(In millions)					(In thousands)

Capitalized asset retirement costs, net of accumulated depreciation	W	1,751,755		(1,022,249	)		$	(987,585	)
Liabilities for decommissioning costs		478,140		2,195,538				2,121,088

	W	2,229,895		1,173,289			$	1,133,503

Details of the Company’s asset retirement costs as of December 31, 2003 and 2004 under U.S. GAAP are as follows:


		Korean Won							Translation into
									U.S. Dollars
		2003			2004				(Note 2) 2004

		(In millions)						(In thousands)

Capitalized asset retirement costs		W	2,809,612		W	1,041,612			$	1,006,291
	Less accumulated depreciation		(1,057,857	)		(447,525	)			(432,349	)

		W	1,751,755		W	594,087			$	573,942

A reconciliation of the Company’s liabilities for decommissioning costs liability (after adoption of SFAS No. 143) for the years ended December 31, 2003 and 2004 under U.S. GAAP is as follows:


		Korean Won							Translation into
									U.S. Dollars (Note 2)
		2003			2004				2004

		(In millions)						(In thousands)

Beginning of year		W	3,640,337			4,612,930			$	4,456,507
	Liabilities incurred		39,350			206,335				199,338
	Revision to estimate		732,012			(992,188	)			(958,543	)
	Accretion expense		226,494			303,765				293,464
	Payments		(25,263	)		(67,012	)			(64,740	)

End of year		W	4,612,930			4,063,830			$	3,926,026


*(h)*	*Convertible bonds*

Under Korean GAAP, the value of the conversion rights are recognized as capital surplus.

Under U.S. GAAP, per SFAS No. 133, a conversion right would not be considered a derivative since the Company is the issuer of the right. Accordingly, no portion of the proceeds from the issuance of the convertible debt securities shall be attributed to the conversion feature.

F-69

Korea Electric Power Corporation and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)


*(i)*	*Principles of Consolidation*

Under Korean GAAP, minority interests in consolidated subsidiaries is presented as a component of stockholder’s equity in the consolidated balance sheet.

Under U.S. GAAP, minority interests is presented outside of the stockholders’ equity section in the consolidated balance sheet.


*(j)*	*Reserve for self-insurance*

Under Korean GAAP, in accordance with the Accounting Regulations for Government Invested Enterprises, the Company provides a self-insurance reserve for loss from accident and liability to third parties that may arise in connection with the Company’s non-insured facilities. The self-insurance reserve is recorded until the amount meets a certain percentage of non-insured buildings and machinery.

U.S. GAAP considers loss from accidents and liability to third parties to be a contingency that is only provided for when a liability has been incurred. Contingent losses are generally recognized as a liability when probable and reasonably estimable.


*(k)*	*Comprehensive Income*

Under U.S. GAAP, comprehensive income and its components (revenues, expenses, gains and losses) for each period should be presented in accordance with SFAS No. 130 — “Reporting Comprehensive Income” while such a presentation is not required under Korean GAAP. Comprehensive income for the years ended December 31, 2002, 2003 and 2004 is summarized as follows:


		Korean Won									Translation into
											U.S. Dollars (Note 2)
		2002			2003			2004			2004

		(In millions)									(In thousands)
Net income as adjusted in accordance with U.S. GAAP		W	3,572,790			4,551,923			3,534,544		$	3,414,688
Other comprehensive income, net of tax:
	Overseas operations translation		(22,264	)		(10,522	)		(38,109	)		(36,817	)
	Unrealized gains (losses) on available for sale securities		(50,122	)		6,565			2,439			2,356
	Deferred gains (losses) on cash flow hedges		179			(2,159	)		(17,973	)		(17,364	)

Comprehensive income as adjusted in accordance with U.S. GAAP		W	3,500,583			4,545,807			3,480,901		$	3,362,863

Accumulated other comprehensive balances, net of tax:
	Overseas operations translation	W	(58,329	)		(68,851	)		(106,960	)	$	(103,333	)
	Unrealized losses on investments		(27,127	)		(20,562	)		(18,123	)		(17,508	)
	Deferred gains (losses) on cash flow hedges		179			(1,980	)		(19,953	)		(19,276	)

		W	(85,277	)		(91,393	)		(145,036	)	$	(140,117	)

F-70

Korea Electric Power Corporation and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

The amounts of tax allocated to the other comprehensive income for the years ended December 31, 2002, 2003 and 2004 are as follows:


		Korean Won										Translation into
												U.S. Dollars (Note 2)
		2002			2003			2004				2004

		(In millions)									(In thousands)

Overseas operations translation		W	9,163			4,446			11,483			$	11,094
Unrealized gains (losses) on investments			21,330			(2,774	)		(1,812	)			(1,751	)
Deferred gains (losses) on cash flow hedges			(76	)		913			6,732				6,504

	Tax allocated to the accumulated other comprehensive income	W	30,417			2,585			16,403			$	15,847


*(l)*	*Fair Value of Financial Instruments*

The following methods and assumptions were used to estimate the fair value of each class of significant financial instruments in which it is practicable to estimate that value:


	(i) Cash and cash equivalents, short term financial instruments, trade receivables, short-term borrowings, and trade payables: The carrying amount approximates fair value because of its nature or relatively short maturity.

	(ii) Investments: The fair value of investments with marketability is estimated based on quoted market prices for those or similar investments. For other investments for which there are no quoted market prices, it was not practicable to estimate the fair value of investments in unlisted companies.

	(iii) Long-term debt: The fair value of long-term debt is estimated based on the quoted market prices for the same or similar issues or on the current rates offered for debt of the same remaining maturities.

The carrying amounts and estimated fair values of the Company’s financial instruments as of December 31, 2003 and 2004 are summarized as follows (Korean Won in millions):


		2003						2004

		Carrying						Carrying
		Amount			Fair Value			Amount			Fair Value

Cash and cash equivalents		W	2,050,636		W	2,050,636		W	1,669,497		W	1,669,497
Short-term financial instruments			119,000			119,000			158,968			158,968
Trade receivables and account receivables-other			2,063,715			2,063,715			2,200,088			2,200,088
Investments:
	Practicable to estimate fair value		19,778			19,778			12,298			12,298
	Not practicable		213,163			N/A			147,117			N/A
Short-term borrowings			(210,169	)		(210,169	)		(413,609	)		(413,609	)
Trade payables and accounts payable-other			(1,626,167	)		(1,626,167	)		(1,607,610	)		(1,607,610	)
Long-term debt, including current portion			(22,536,190	)		(22,990,590	)		(19,335,895	)		(19,506,964	)
Currency and interest swaps, net			(83,671	)		(83,671	)		(51,753	)		(51,753	)
Other			(1,617	)		(1,617	)		(6	)		(6	)

F-71

Korea Electric Power Corporation and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)


*(m)*	*Benefits expected to be paid in the future*

As of December 31, 2004, the future severance benefits which are expected to be paid to the Company’s employees upon their normal retirement age are as follows:


		Korean		Translation into
		Won		U.S. Dollars (Note 2)

		(In millions)		(In thousands)
	2005	W	15,109	$	14,597
	2006		25,419		24,557
	2007		34,144		32,986
	2008		40,822		39,438
	2009		45,265		43,730
2010 - 2014			300,350		290,163

The above amounts were determined based on the employees’ current salary rates and the number of service years that will be accumulated upon their retirement date. These amounts do not include amounts that might be paid to employees that will cease working with the Company before their normal retirement age.


*(n)*	*Supplementary U.S. GAAP Disclosures*

The Company’s supplementary information for the statement of cash flows is as follows:


	Korean Won							Translation into
								U.S. Dollars (Note 2)
	2002		2003		2004			2004

	(In millions)						(In thousands)

Interest, net of capitalized portion	W	999,230		807,976		711,548		$	687,420
Income taxes		1,169,517		2,212,188		1,520,176			1,468,627


*(o)*	*Recent changes in U.S. GAAP*

In March 2005, the Financial Accounting Standards Board (“FASB”) issued FIN No. 47 (“FIN 47”) “Accounting for Conditional Asset Retirement Obligations — an interpretation of FASB Statement No. 143.” FIN 47 provides guidance relating to the identification of and financial reporting for legal obligations to perform an asset retirement activity. FIN 47 requires recognition of a liability for the fair value of a conditional liability for decommissioning cost when incurred if the liability’s fair value can be reasonably estimated. FIN 47 is effective for fiscal years ending after December 15, 2005. Based on its preliminary assessment, the Company does not believe that the adoption of FIN 47 will have a material impact on its results of operations or financial position.

In December 2004, the FASB issued FASB Statement No. 151, Inventory Costs, which clarifies the accounting for abnormal amounts of idle facility expense, freight, handling cost, and wasted material (spoilage). Under this Statement, such items will be recognized as current-period charges. In addition, the Statement requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. This Statement will be effective for the Company for inventory costs incurred on or after January 1, 2006. The Company believes that the adoption of this statement will not have significant impact on its financial position or operating results.

F-72

Korea Electric Power Corporation and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)


*(p)*	*Effect on Net Income and Stockholders’ Equity*

The effects of the significant adjustments to net income and stockholders’ equity that are required if U.S. GAAP were applied instead of Korean GAAP are summarized as follows:


			Korean Won									Translation into
												U.S. Dollars (Note 2)
			2002			2003			2004			2004

			(In millions, except per share data)									(In thousands, except per share data)
NET INCOME UNDER KOREAN GAAP			W	3,048,105			2,323,425			2,882,522		$	2,784,776
ADJUSTMENTS:
OPERATING INCOME
	Asset revaluation (note 32(a))			511,787			449,971			391,618			378,338
	Special depreciation (note 32(b))			(24,246	)		(21,033	)		(18,370	)		(17,747	)
	Regulated operations (note 32(c))			175,783			170,925			7,955			7,685
	Capitalized foreign currency translation (note 32(e))			164,037			246,531			200,811			194,002
	Reversal of eliminated profit on transactions with subsidiaries and affiliates (note 32(d))			(44,772	)		(17,083	)		37,282			36,018
	Liabilities for decommissioning costs (note 32(g))			—			454,589			(108,522	)		(104,842	)
	Reserve for self-insurance (note 32(j))			5,465			6,400			6,274			6,061
OTHER INCOME (EXPENSES)
	Asset revaluation (note 32(a))			130,210			117,795			58,974			56,974
	Capitalized foreign currency translation (note 32(e))			43,633			(20,589	)		44,115			42,619
		Reserve for self-insurance (note 32(j))		(1,172	)		(1,010	)		(848	)		(819	)
	Convertible bonds (note 32(h))			—			1,344			24,298			23,474
CUMULATIVE EFFECT OF ACCOUNTING CHANGE
	Liabilities for decommissioning costs (note 32(g))			—			1,775,306			—			—
INCOME TAX EXPENSES
	Deferred income taxes (note 32(f))			(436,040	)		(934,648	)		8,435			8,149

NET INCOME UNDER U.S. GAAP			W	3,572,790			4,551,923			3,534,544		$	3,414,688

F-73

Korea Electric Power Corporation and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)


		Korean Won						Translation into
								U.S. Dollars (Note 2)
		2003			2004			2004

		(In millions)						(In thousands)
STOCKHOLDERS’ EQUITY UNDER KOREAN GAAP		W	37,781,936			40,602,282		$	39,225,468
ADJUSTMENTS:
UTILITY PLANT
	Asset revaluation (note 32(a))		(8,355,176	)		(7,924,482	)		(7,655,765	)
	Capitalized asset retirement cost (note 32(g))		1,751,755			(1,022,249	)		(987,585	)
	Special depreciation (note 32(b))		38,272			19,902			19,227
	Capitalized foreign currency translation (note 32(e))		(2,016,721	)		(1,771,795	)		(1,711,714	)
	Reversal of eliminated profit on transactions with subsidiaries and affiliates (note 32(d))		103,371			140,653			135,883
INVESTMENT SECURITIES
	Asset revaluation (note 32(a))		(121,977	)		(102,079	)		(98,618	)
DEFERRED INCOME TAXES			2,252,961			2,316,502			2,237,950
LIABILITIES
	Liabilities for decommissioning costs (note(g))		478,140			2,195,538			2,121,088
	Regulated operation (note 32(c))		(665,962	)		(658,007	)		(635,694	)
	Reserve for self-insurance (note 32(j))		87,926			93,352			90,186
	Convertible bonds (note 32(h))		(43,828	)		(19,530	)		(18,868	)
MINORITY INTERESTS (note 32(i))			(127,569	)		(123,099	)		(118,925	)

STOCKHOLDERS’ EQUITY UNDER U.S. GAAP		W	31,163,128			33,746,988		$	32,602,633

The reconciliation of operating income from Korean GAAP to U.S. GAAP for the years ended December 31, 2002, 2003 and 2004 is as follows:


		Korean Won									Translation into
											U.S. Dollars (Note 2)
		2002			2003			2004			2004

					(In millions)						(In thousands)
Operating income under Korean GAAP		W	5,046,783			5,223,798			4,467,474		$	4,315,983
	Asset revaluation		511,787			449,971			391,618			378,338
	Special depreciation		(24,246	)		(21,033	)		(18,370	)		(17,747	)
	Regulated operation		175,783			170,925			7,955			7,685
	Capitalized foreign currency translation		164,037			246,531			200,811			194,002
	Reversal of eliminated profit on transactions with subsidiaries and affiliates		(44,772	)		(17,082	)		37,282			36,018
	Asset retirement obligation		—			454,589			(108,522	)		(104,842	)
	Reserve for self-insurance		5,465			6,400			6,274			6,061

Operating income under U.S. GAAP		W	5,834,837			6,514,099			4,984,522		$	4,815,498

F-74

Korea Electric Power Corporation and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

The reconciliation of utility plant from Korean GAAP to U.S. GAAP at December 31, 2003 and 2004 is as follows:


		Korean Won							Translation into
									U.S. Dollars (Note 2)
		2003			2004				2004

		(In millions)						(In thousands)

Utility plant, net under Korean GAAP		W	61,914,088			63,326,149			$	61,178,774
	Asset revaluation		(8,355,176	)		(7,924,482	)			(7,655,765	)
	Capitalized asset retirement cost		1,751,755			(1,022,249	)			(987,585	)
	Special depreciation		38,272			19,902				19,227
	Capitalized foreign currency translation		(2,016,721	)		(1,771,795	)			(1,711,714	)
	Reversal of eliminated profit on transactions with subsidiaries and affiliates		103,371			140,653				135,883

Utility plant, net under U.S. GAAP		W	53,435,589			52,768,178			$	50,978,820

The tax effects of temporary differences that resulted in significant portions of the deferred tax assets and liabilities at December 31, 2003 and 2004, computed under U.S. GAAP, and the description of the financial statement items that created these differences are as follows:


			Korean Won					Translation into
								U.S. Dollars (Note 2)
			2003		2004			2004

			(In millions)				(In thousands)

Deferred tax assets:
	Asset revaluation		W	2,179,523		1,980,310		$	1,913,158
	Convertible bond			12,053		5,371			5,189
	Regulated operation			183,140		180,952			174,816
	Capitalized foreign currency translation			554,598		487,244			470,722
	Decommissioning costs			1,400,318		1,721,326			1,662,956
	Others			216,384		175,126			169,188

		Total deferred tax assets		4,546,016		4,550,329			4,396,029

Deferred tax liabilities:
	Special depreciation			10,525		5,473			5,287
	Asset retirement obligation, net			613,221		322,654			311,713
	Investment in social overhead capital			222,093		260,280			251,454
	Reserve for self insurance			24,180		25,672			24,801
	Investment in subsidiaries and affiliates			1,517,157		1,979,941			1,912,802

		Total deferred tax liabilities		2,387,176		2,594,020			2,506,057

Net deferred tax asset under U.S. GAAP			W	2,158,840		1,956,309		$	1,889,972

Deferred tax liabilities under Korean GAAP				94,121		360,193			347,979

Total U.S. GAAP adjustments related to deferred income taxes			W	2,252,961		2,316,502		$	2,237,951

F-75

Korea Electric Power Corporation and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

Earnings per share for the year ended December 31, 2002, 2003 and 2004 under U.S. GAAP are as follows:


	Korean Won						Translation into
							U.S. Dollars (Note 2)
	2002		2003		2004		2004

							(In thousands,
	(In millions, except per share data)						except
							per share data)
Income before cumulative effect of a change in accounting principle under U.S. GAAP(a)	W	3,572,790		3,264,827		3,534,544	$	3,414,688
Cumulative effect of a change in accounting principle, net of tax of W488,210 million		—		1,287,096		—		—

Net income under U.S. GAAP(b)		3,572,790		4,551,923		3,534,544		3,414,688
Effect of dilutive Securities		—		496		3,204		3,095

Adjusted net income(c)	W	3,572,790		4,552,419		3,537,748	$	3,417,783

Weighted-average shares(d)		639,046,001		630,327,064		629,868,023		629,868,023
Effect dilutive securities		—		1,561,620		9,999,847		9,999,847

Adjusted weighted average shares(e)		639,046,001		631,888,684		639,867,870		639,867,870

Basic earnings per share before cumulative effect of a change in accounting principle under U.S. GAAP(a)/(d)	W	5,591		5,179		5,612	$	5.42

Basic earnings per share under U.S. GAAP(b)/(d)	W	5,591		7,221		5,612	$	5.42

Diluted earnings per share under U.S. GAAP(c)/(e)	W	5,591		7,204		5,529	$	5.34

Basic earnings per ADS before cumulative effect of a change in accounting principle under U.S. GAAP	W	2,796		2,590		2,806	$	2.71

Basic earnings per ADS under U.S. GAAP	W	2,796		3,611		2,806	$	2.71

Diluted earnings per ADS under U.S. GAAP	W	2,796		3,602		2,765	$	2.67

F-76

INDEX OF EXHIBITS


1	.1	Articles of Incorporation (in English)*
2	.1	Form of Deposit Agreement**
12	.1	Certifications of our Chief Executive Officer required by Rule 13a-14(a) of the Exchange Act (Certifications under Section 302 of the Sarbanes-Oxley Act of 2002)
12	.2	Certifications of our Chief Financial Officer required by Rule 13a-14(a) of the Exchange Act (Certifications under Section 302 of the Sarbanes-Oxley Act of 2002)
13	.1	Certifications of our Chief Executive Officer required by Rule 13a-14(b) and Section 1350 of Chapter 63 of the United States Code (18 U.S.C. 1350) (Certifications under Section 906 of the Sarbanes-Oxley Act of 2002)
13	.2	Certifications of our Chief Financial Officer required by Rule 13a-14(b) and Section 1350 of Chapter 63 of the United States Code (18 U.S.C. 1350) (Certifications under Section 906 of the Sarbanes-Oxley Act of 2002)
15	.1	Consent of KPMG Samjong Accounting Corp., a member firm of KPMG International
15	.2	Consent of Deloitte HanaAnjin LLC, a member firm of Deloitte Touche Tohmatsu
15	.3	Consent of KPMG Samjong Accounting Corp., a member firm of KPMG International (Korea Hydro & Nuclear Power Co., Ltd.)
15	.4	Consent of Ahn Kwon & Co. (Korea South-East Power Co., Ltd.)
15	.5	Consent of Deloitte HanaAnjin LLC, a member firm of Deloitte Touche Tohmatsu (Korea Southern Power Co., Ltd.)
15	.6	Consent of Ernst & Young Han Young, formerly Young Wha Corporation, a member firm of Ernst & Young Global (Korea Midland Power Co., Ltd.)
15	.7	Consent of Deloitte HanaAnjin LLC, a member firm of Deloitte Touche Tohmatsu (Korea Midland Power Co., Ltd.)
15	.8	Consent of Deloitte HanaAnjin LLC, a member firm of Deloitte Touche Tohmatsu (Korea Western Power Co., Ltd.)
15	.9	Consent of Ahn Kwon & Co. (Korea East-West Power Co., Ltd.)
15	.10	Consent of Deloitte HanaAnjin LLC, a member firm of Deloitte Touche Tohmatsu (Korea East-West Power Co., Ltd.)
15	.11	The Korea Electric Power Corporation Act (in English)***
15	.12	Enforcement Decree of the Korea Electric Power Corporation Act (in Korean and English)****
15	.13	Government-Invested Enterprise Management Basic Act of 1983, as amended (in Korean and English)****
15	.14	Enforcement Decree of the Government-Invested Enterprise Management Basic Act of 1983, as amended (in Korean and English)****


*	A fair and accurate translation from Korean to English.

**	Incorporated by reference to the Registrant’s Registration Statement on Form F-6 with respect to the ADSs, registered under Registration No. 33-84612.

***	Incorporated by reference to the Registrant’s Annual Report on Form 20-F for the fiscal year ended December 31, 2002.

****	Incorporated by reference to the Registrant’s Registration Statement on Form F-3 filed on March 8, 2000, registered under Registration No. 333-9180.

E-1