The proposal was discussed as KEPCO seeks to secure the enormous power capacity needed to support new chip fabrication plants being developed as part of South Korea's ambitious semiconductor expansion plans.
According to a document submitted to a lawmaker and shared with Reuters by the office of Lee Chul-gyu, both Samsung Electronics and SK Hynix informed KEPCO that accepting the proposal would be difficult following internal reviews.
The companies' reluctance highlights the financial and strategic uncertainties surrounding the enormous investments required to build South Korea's next generation of semiconductor manufacturing capacity.
A company official in Seoul said the chipmakers were uncertain whether such a large advance payment was necessary, particularly given questions surrounding the long-term strength and durability of global semiconductor demand.
The official spoke on condition of anonymity because of the sensitivity of the discussions.
Samsung Electronics and SK Hynix declined to comment.
Power Demand Puts Pressure on Semiconductor Expansion
The proposed payment reflects a major challenge facing South Korea as it attempts to expand its semiconductor industry: ensuring that new chip factories have a stable and sufficient supply of electricity.
Advanced semiconductor fabrication plants consume enormous amounts of power and require highly reliable electricity supplies. As Samsung and SK Hynix expand production facilities, the additional demand is expected to require significant investment in generation, transmission and other power infrastructure.
KEPCO's proposal would have effectively asked the chipmakers to provide funding in advance for electricity they are expected to consume in the future. The utility could then use the funds to invest in the infrastructure required to supply the planned manufacturing complexes.
South Korea has made the development of large semiconductor clusters a national priority as it seeks to strengthen its position in the global chip industry and maintain its competitiveness against major producers in the United States, Taiwan and China.
But the scale of the infrastructure required has created significant financial challenges for both the government and utilities.
Companies Question Long-Term Demand
The semiconductor industry's notoriously cyclical nature appears to be one of the factors behind the companies' reservations.
Demand for chips can rise sharply during periods of strong growth in artificial intelligence, smartphones, computers and other technology markets, only to weaken when inventories build up or economic conditions deteriorate.
The official familiar with the matter said Samsung and SK Hynix were concerned about whether committing such a substantial sum upfront would be justified given uncertainty over semiconductor demand over the long term.
The proposed 25 trillion won payment would represent a significant financial commitment even for two of the world's largest semiconductor manufacturers.
Both companies are already investing billions of dollars in new fabrication facilities and related infrastructure as they seek to capitalize on growing demand for advanced chips, particularly those used in artificial intelligence and high-performance computing.
KEPCO Faces Infrastructure Challenge
The dispute also underscores the growing burden on KEPCO as South Korea prepares for a substantial increase in industrial electricity consumption.
Building and upgrading the transmission network needed to supply semiconductor clusters can require years of planning and massive capital expenditure. The utility has been seeking ways to ensure that the costs of expanding the grid do not fall disproportionately on existing electricity users.
The advance-payment proposal, reported earlier this month by South Korean newspaper Chosun Ilbo, was intended to provide KEPCO with funds that could be deployed to build the necessary infrastructure ahead of the chip plants becoming fully operational.
The rejection by Samsung and SK Hynix means the government and KEPCO may need to explore alternative financing arrangements as they work to ensure that the planned semiconductor clusters receive adequate power.
The issue is likely to remain closely watched as South Korea balances its ambition to expand domestic chip production with the enormous infrastructure costs involved in supporting that expansion.
For Samsung and SK Hynix, meanwhile, the decision reflects the need to manage capital carefully amid an industry where demand, prices and investment requirements can change rapidly.