December 22, 2010

Summary:
Korea East-West Power Co. Ltd.
Primary Credit Analyst:
Sangyun Han, Hong Kong (852) 2533-3526; sangyun_han@standardandpoors.com
Secondary Contact:
JaeMin Kwon, CFA, Hong Kong (852) 2533-3539; jaemin_kwon@standardandpoors.com

Table Of Contents
Rationale
Outlook

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Summary:
Korea East-West Power Co. Ltd.
Credit Rating: A/Stable/--

Rationale
The long-term corporate credit rating on Korea East-West Power Co. Ltd. (KEWP) is equalized with the rating on
Korea Electric Power Corp. (KEPCO; A/Stable/A-1), which wholly owns KEWP. The rating on KEWP also reflects
its importance to the national electricity supply and the remote prospect of it being privatized. Constraining factors
include lack of transparency in the government of the Republic of Korea's electricity price setting, deterioration in
KEWP's financial profile, and its exposure to fuel price volatility.

The equalized rating with KEPCO reflects, for the most part, our opinion that KEWP's creditworthiness, as well as
that of the other five electric power-generating companies (GENCOs) in Korea, correlates highly with that of
KEPCO--through business integration, the way electricity prices are set, and KEPCO's 100% ownership of KEWP.
KEWP is strongly dependent on KEPCO, to which it sells all of its electricity. Another important factor is that
frequent changes in recent years to the way wholesale electricity tariffs are set have brought the creditworthiness of
KEPCO and Korean GENCOs into line with each other. Through these changes, we believe the government has
tried to achieve financial equilibrium between KEPCO and its GENCO subsidiaries--and among the GENCOs—and
to realize its key objectives of stable electricity supply and competitive prices.

In addition, the final rating on KEWP, through equalization of the rating with KEPCO, indirectly reflects the
likelihood of extraordinary government support. This is based on our opinion that the likelihood of the Korean
government providing timely and sufficient extraordinary support to KEPCO in the event of financial distress is
"extremely high."

Since the six Korean GENCOs were spun off from KEPCO in 2001, there have been discussions about privatizing
them. However, the current administration has put the privatization plan on hold, and, instead, discussions are
underway about reconsolidating the GENCOs back into KEPCO. Although it is still uncertain when and how the
Korean government would restructure Korea's electric power industry and the KEPCO group, we believe the risk of
privatization is significantly lower at this time.

In our view, KEWP plays a key role in the nation's electricity supply, considering that the company is responsible for
11.9%% of supply and that the national supply reserve margin was 7.9% in 2009. KEWP had a combined capacity
of 9,504 megawatts as of 2009 and is one of six GENCOs, all of which KEPCO wholly owns. In 2009, the six
GENCOs collectively accounted for 95.8% of Korea's national power supply.

However, lack of transparency in the system for setting electricity prices remains a risk factor. In 2008, for example,
inflation concerns forced the Korean government to hold retail electricity tariffs at relatively low levels in response
to significant hikes in oil and coal prices. Wholesale tariffs—KEWP's sales prices to KEPCO--were also negatively
affected. We believe it is possible that negative regulatory pressure may affect the company again if electricity tariffs
are set as a means of policy and not in line with commercial interests.

The company's large capital investment is another constraining factor. We expect the company to increase annual

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 Summary: Korea East-West Power Co. Ltd.

capital expenditures to an average of nearly Korean won (KRW) 600 billion between 2010 and 2012, compared
with an average of almost KRW200 billion between 2007 and 2009. We consider this increase in capital investment
to be the result of additional negative regulatory pressure, since it is based on the government's fourth basic plan for
long-term electricity demand and supply.

Liquidity
KEWP has adequate liquidity. As of Sept. 30, 2010, on a parent-only basis, the company had KRW311 billion in
debt due to mature within a year, compared with KRW45 billion in cash and investments and KRW120 billion in
unused credit. KEWP's debt seems manageable, given its good access to domestic and foreign financial institutions,
as a key KEPCO subsidiary. Also, the company's estimated capital expenditure of KRW500 billion in 2010 is within
the KRW687 billion we estimate the company will generate in cash from operations.

Outlook
The stable outlook reflects the outlook on KEPCO, given that KEWP's rating is equalized with that of its parent
company. As such, the rating on KEWP would be lowered if those on KEPCO were lowered. Similarly, the rating
would be raised if those on KEPCO were raised.

In our view, any potential reconsolidation of KEPCO and the GENCOs would not affect the rating on KEWP, as its
rating is already currently equalized to its parent. However, if the link between KEWP and KEPCO were to weaken,
through some unlikely scenario, the rating on KEWP may diverge from the rating on KEPCO and, more likely than
not, we would lower it from the current level.

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