Korea Electric Power Corp., the country’s biggest electricity producer, posted a narrower fourth-quarter loss after the government allowed power prices to increase for the first time in more than a year and a stronger won cut the cost of its foreign-currency loans.

The loss shrank to 18.2 billion won ($16.2 million) in the three months ended Dec. 31 from a deficit of 336.4 billion won a year earlier, according to calculations by Bloomberg News based on a regulatory filing by Korea Electric on Monday. That compares with the average 250 billion won loss estimated by four analysts surveyed by Bloomberg News.

Korea allowed the state-run utility to raise power prices in August by 3.5 percent after fuel costs climbed. The government controls utility prices to curb inflation. The increase was the first since June 27, 2009. Gains in the Korean won, Asia’s third best-performing currency in the quarter, cut the cost of interest payments on the refiner’s foreign- currency debt.

“A hike in prices will be the key for Korea Electric to avoid a fourth consecutive annual loss” in 2011, said Kim Seung-woo, an analyst at Samsung Securities Co. in Seoul. “An increase of at least 3.5 percent will be needed this year.”

For the full-year, the utility lost 69.3 billion won, compared with a 77.7 billion-won deficit in 2009. Sales rose to 10.3 trillion won in the quarter from 8.6 trillion won a year earlier, according to Bloomberg calculations.

Sales by volume rose 7.7 percent in the quarter as the global economic recovery prompted automakers and chemical companies to use more electricity to boost output.

The government said Jan. 13 it will freeze utility charges including power and gas in a bid to restrain an inflation rate it said may approach the central bank’s ceiling of 4 percent.

President Lee Myung-bak has vowed to contain inflation at 3 percent in 2011 to ease the burden on low-income households. The Bank of Korea raised interest rates on Jan. 13 for the third time since the global financial crisis to 2.75 percent to slow consumer-price growth.

Inflation accelerated to 3.5 percent in December and producer-price inflation climbed to a two-year high. The central bank’s target is 2 percent to 4 percent for 2010 through 2012. 

(Bloomberg)