[Financial News] Negotiations between Korea and the United States are facing last-minute difficulties as the United States demands that Korea remit $10 billion (approximately 13.8 trillion won) in investment funds to the United States before the end of this year. While the United States is pressing for the funds to be disbursed quickly, Korea has pushed back, saying that business conditions affecting the recovery of the investment—including long-term power purchase agreements (PPAs) and electricity sales prices—must be finalized first. The key issues at the final stage are understood to include the conditions that will determine the long-term cash flow of power-generation projects, such as the Texas Encinal gas-fired combined-cycle power plant being discussed as the first U.S. investment project, as well as the method for settling profits and losses across the entire investment program. According to Financial News reporting on the 17th, Korea's position is that it would be difficult to disburse funds first without setting detailed conditions needed to assess the possibility of recovering the principal, including the power project's off-takers, sales prices and the method for calculating profits and losses across the entire investment program. These differences have also put the signing and announcement of the memorandum of understanding (MOU) for the first U.S. investment project, which the United States had been pushing to conclude on the 18th, on hold. A PPA Alone Is Not Enough... Power Prices in Several Years Are Key For the Texas gas-fired combined-cycle power plant being discussed as the first U.S. investment project, the key questions are "who will buy the electricity produced, at what price and for how long." Long-term cash flow can be estimated only after securing long-term PPAs with stable off-takers, such as Big Tech data centers, and specifying the structure for determining electricity sales prices. A power plant is a long-term project that takes years to build and bring into operation. What matters is how electricity demand and market prices in Texas will move after completion, rather than current prices. If local electricity prices rise as data centers and other facilities expand, profitability could vary depending on how that increase is reflected in the sales prices received by Korea. An anonymous source familiar with the matter explained that expected sales revenue and the investment payback period must be calculated based on electricity demand and prices at the time the plant begins operating. Ultimately, the question of "who will buy"—the off-taker—and the question of "at what price it will be sold" are closely intertwined. The initial agreement between Korea and the United States reportedly included language stating that the United States would make efforts to secure off-takers for the electricity, but this was not a legal obligation. Korea believes it would be difficult to meet the standard of commercial rationality without support from off-takers and sales conditions. "Even if It Means Borrowing"... Cash Flow to Determine Project Financing Electricity sales conditions are directly linked to financing. Large-scale power-generation projects can typically raise funds through project financing (PF), establishing a project-specific special-purpose vehicle (SPV) and using a combination of equity capital and borrowing from financial institutions. The key is the project's cash flow. Once a long-term PPA and a sales-price structure are in place, the possibility of repaying principal and interest can be assessed based on expected electricity sales revenue, which could make it easier for financial institutions to participate. A source in the financial sector said that large-scale investors also use a combination of equity capital and external borrowing, explaining, "It is difficult to carry out a project like this without borrowing money." People in the ruling camp have likewise said that if the business conditions are in place, "we can carry out the project even if it means borrowing money." However, the actual borrowing amount and equity ratio of each SPV will vary according to the contractual conditions of each project. Dispute Also Emerges Over Profit-and-Loss Calculation for $200 Billion... Korea Defends Safeguards In addition to the profitability of individual projects, the way profits and losses will be settled across the entire $200 billion investment is also an issue. Korea and the United States have been discussing a plan to deploy the $200 billion in investment in the United States over 10 years, at $20 billion per year. The two countries' initial agreement is understood to have called for establishing an SPV for each project while offsetting profits and losses across the entire program at an upper-tier level. In other words, profits from one project could be used to offset losses from another. However, the United States reportedly recently demanded that profits and losses be calculated separately for each project, triggering a disagreement. Korea views this as contrary to the intent of the original agreement. Whether profits and losses can be offset across projects could affect the likelihood of recovering the overall investment and the level of risk Korea would have to bear. Ultimately, the final push between Korea and the United States is focused not only on "how much to invest" but also on "the conditions under which the money will be invested." The United States is pressing for the prompt disbursement of $10 billion upfront, while Korea maintains that conditions supporting the recovery of the investment—including PPA off-takers, electricity sales prices and the method for settling profits and losses—must be finalized first. [email protected] Song Ji-won Reporter