Korea Electric Wins UAE Deal Worth $20.4 Billion

| About: Korea Electric (KEP)

Korea Electric Power Corp. (NYSE:KEP) led consortium has won a $20.4 billion contract for developing a civilian nuclear program for the United Arab Emirates. Other members of the Korea Electric Power consortium are Hyundai Engineering and Construction, Samsung and Doosan Heavy Industries. The consortium beat a number of prominent bidders like General Electric Co. (NYSE:GE), Hitachi Ltd. (HIT).

Under the agreement, the Korea Electric Power consortium will design and construct four 1,400 MW units, and provide operational help in running the units. The company estimates that the first of the nuclear units will begin producing electricity in 2017, followed by the other three by 2020.

This is not the first Middle Eastern venture for Korea Electric Power. The company is already building a power plant in western Saudi Arabia for the state-run Saudi Electricity Company. The 1,200 MW oil fired power plant deal in Rabigh was signed between Korea Electric in consortium and a Saudi Arabian company, ACWA Power International. The consortium was awarded the contract in Mar 2009. The 1,200 MW plant will be built in two equal phases. The first phase will become operational in 2012 and the second in 2013.

Korea Electric Power is an integrated electric utility with an annual capacity of 63,529 MW. The company owns 87.6% of the total electricity generating capacity in South Korea. Korea Electric Power Corporation through nuclear means generates approximately 35% of its electricity output. South Korea has the sixth largest installed capacity of nuclear power in the world.

Korea Electric is expected to retain its strong competitive position in the Korean electricity industry as the dominant electric utility and continues to be well positioned to capitalize on growth opportunities in this market. Furthermore, the company is well positioned to benefit from the industry restructuring initiatives of the Korean government. However, in the near term foreign currency valuation loss, escalating fuel cost, planned retrenchment cost, increased price of purchased power and uncertainty surrounding pending regulatory cases, prompt us to take a conservative and cautious view of the stock. We continue to maintain our market Neutral recommendation on the shares.