Korea East-West Power Co Ltd (EWP) and LG Corp are considering a joint venture in Australia this year, mainly to procure coal in the spot market for EWP, industry sources close to the deal said on Thursday.
The possible deal will mark the first coal tie-up of a South Korean utility with an energy trading firm and would be the second Asian utility to set up a trading arm, after Japan's Chubu Electric Power Co linked a similar deal with London-based EDF Trading in 2007.
The joint venture between EWP and LG Corp will also signal a shift from its traditional habit of securing large volumes under long-term contracts, and may herald a more active trading market in Asia.
South Korea, the world's second-biggest steam coal importer after Japan, imported 90.5 million tonnes of bituminous and sub-bituminous coal in 2008. Australia was the top supplier, shipping 36.4 million tonnes, or 40 percent of the volume.
South Korean utilities have in recent years increased spot market purchases in a bid to take advantage of price volatility.
The two firms have not yet determined how much of EWP's annual coal consumption would be secured through the joint venture and how much capital the two firms would invest, the sources said. EWP imported 14.2 million tonnes last year.
EWP, along with four other power generating companies, was spun off from state-run utility Korea Electric Power Corp in 2001.
(Reporting by Fayen Wong and Cho Meeyoung; Editing by Michael Urquhart)