Government Moves to Expand KEPCO and K-water Capital for Power and Water Infrastructure; Tax Probe Launched into 50 'Emperor Residence' Companies

This capital expansion is intended to manage the state-owned enterprises' debt ratios through direct government capital contributions and to improve their financial soundness.

Following the Russia-Ukraine war, soaring raw material prices and accumulated losses severely worsened KEPCO's financial soundness.

The government's capital expansion is therefore viewed as an essential step to improve KEPCO's financial structure and secure room for future infrastructure investment.

KEPCO had been barred from issuing corporate bonds exceeding twice the sum of its capital and reserves under the KEPCO Act. However, because of its financial deterioration, the previous government amended the act, and a temporary measure is now in effect that expands the bond issuance ceiling up to five times until the end of 2027.

Although this temporary measure lets KEPCO solve its immediate funding problem, critics point out that continued bond issuance may become difficult without fundamental improvement in its financial structure.

Because KEPCO bonds are regarded as relatively safe investments given their public nature, growing issuance could draw market money toward the public sector, forcing private firms to offer higher interest rates to raise capital.

During the Lego Land crisis, KEPCO bond yields once soared into the 6% range. However, recent government credit enhancement is expected to somewhat ease such a spike.

The government's capital expansion is also expected to help reduce the likelihood of a crowding-out effect by improving KEPCO's financial situation.

The government is reviewing the introduction of a system to manage the power usage efficiency of data centers. The core metric is PUE (Power Usage Effectiveness), calculated by dividing a data center's total power consumption by the power consumed by its IT equipment. A lower PUE value means higher power usage efficiency.

China is currently strengthening efficiency management for ultra-large data centers, and Germany has mandated a PUE of 1.3 or below for existing data centers by 2030, so overseas power efficiency systems are already being actively introduced.

A PUE of 1 means power is used perfectly with no loss at all, and 1.2 or below is a standard requiring considerable efficiency gains.

Advanced countries such as the United States have also already adopted data center efficiency standards in an effort to reduce power waste.

Aggressively pursuing power efficiency in data centers could yield substantial energy savings. According to a recent report from the Korea Energy Economics Institute, active efficiency improvements through 2060 could save the power output of two to three large nuclear reactors.

This is drawing attention as an important option that could reduce the burden of building new power plants and contribute to achieving carbon neutrality goals.

Reducing the heat generated by IT equipment itself, such as memory and GPUs, can cut the power needed for cooling.

Power can also be managed efficiently by using ESS to store energy when demand is low and draw on the stored energy when demand is high. Technology that reuses waste heat from data centers can also help reduce power consumption.

The move is interpreted as an effort to resolve disputes over core technology with Westinghouse, which could constrain overseas exports of Korean-designed reactors, and to strengthen export competitiveness.

The Ministry of Trade, Industry and Energy has officially denied the report, but related talk continues to circulate among nuclear industry insiders. Because Westinghouse has a partnership with the US government, there is also speculation that a conditional stake acquisition could be possible with US government approval.

Westinghouse is reportedly structured with many shareholders, making it difficult for any single country or company to monopolize its equity.

The National Tax Service conducted a comprehensive review of more than 2,600 high-priced corporate residences with official assessed values exceeding 900 million won. Of these, roughly 1,100 homes (42%) were found to be lived in and privately used by owning families.

The NTS prioritized 50 companies with the largest suspected tax evasion and launched tax investigations, and the suspected evaded amount identified so far is reported to be in the range of 1.9 trillion won.

When owning families use corporate housing as if it were their personal home, or evade taxes through it, the problem is serious. If a company buys a home and books related costs, it can receive a corporate tax reduction.

In addition, owning families avoid personal income tax on their use of the homes, and book maintenance and other costs as corporate expenses, which in effect uses national tax revenue to grow the owners' assets.

As so many high-priced corporate homes were found, the NTS strongly suspects private use and tax evasion by owning families and has launched large-scale tax investigations.

Among these is a case in which owning families used a home in Hannam-dong, Seoul, worth around 20 billion won, purchased under a corporate name.

This raises strong suspicions of clear tax evasion through private use of corporate funds, and the NTS is closely examining these types of violations.

The first is 'residential use,' in which owning families' personal living costs are booked as company expenses. The second is 'vacation home use,' in which personal leisure costs are passed on to the company.

The third is 'real estate speculation,' in which corporate ownership is used to reduce the number of homes held to get around regulations or avoid capital gains taxes. The NTS is investigating violations across these various types.

There are also allegations of real estate speculation using corporate names. The suspicion is that individuals who held several homes transferred some of them to a corporation so that they appeared to own only one home, in order to claim the single-home capital gains tax exemption.

Cases have also been identified in which individuals are suspected of not paying capital gains tax amounting to 2 billion won through this method. Using corporate names to dodge personal tax burdens is drawing intensive NTS scrutiny.

Authorities judge that people who need quick cash are likely to buy gift cards with credit cards and then convert them to cash.

Such behavior can lead to card payment defaults and losses for card companies, and it carries the risk of misuse of others' cards or of liability shifting to department stores when defaults occur.

Financial authorities have recommended restricting gift card purchases with personal credit cards to reduce these risks.

Unlike personal credit cards, corporate cards and debit cards are permitted for department store gift card payments. Because corporate cards are issued to and used by businesses, they are judged not to be aimed at the kind of quick-cash conversion that personal gift card loan schemes involve.

Debit card payments withdraw money from the account balance immediately, so unlike credit cards there is no risk of default. Those who need quick cash are likely to have no money in their debit accounts, so they are judged less likely to attempt gift card loan schemes, and payment is therefore allowed.