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Bailout looms for Japan's Tepco

by Paul Whitfield  |  Published January 26, 2012 at 9:05 AM
FukushimaDaiichiNuclearPowerPlant.jpgShares in Tokyo Electric Power Co. climbed more than 5% Thursday, Jan. 26, following reports that it was prepared to accept a ¥1 trillion ($12.8 billion) bailout that would leave Japan's biggest energy utility under state-control.

The owner of the stricken Fukushima Dai-Ichi nuclear plant will receive funds from the state-backed Nuclear Damage Liability Facilitation Fund, or NDLFF, as part of a deal that could leave it under state-control for at least 10 years, according to Japanese daily Yomiuri.

Tepco had been reluctant to accept the state money because it will hand a controlling stake of more than two-thirds to the government. The Tokyo-based utility had been trying to negotiate an alternative deal that would involve the issue of non-voting shares that would leave the state with less than 50%, the paper said, citing unidentified people familiar with the talks.

The nationalization of Tepco had been widely tipped following the disastrous earthquake and tsunami that wrecked its Fukushima nuclear power plant in March last year. The resulting nuclear disaster, which resulted in the evacuation of about 80,000 people, will cost Tepco about ¥4.5 trillion in compensation over the first two years after the incident, an advisory panel told the utility in October last year.

The bailout could leave Tepco in government hands for at least a decade, depending on economic conditions, though it would remain a listed company, the Kyodo news agency reported on Jan. 21. Tepco is expected to return to operational profitability by 2013 or 2014, at which stage half of its pretax profit each year would be used to repay the bailout funds.

Tepco's willingness to accept the government bailout may be linked to its negotiations with banks, from which it is seeking an estimated ¥1 trillion in new loans. Those loans are dependent on an agreement over government support for Tepco, an increase in electricity prices, and assurances that Tepco will be allowed to re-launch idled nuclear plants.

The nationalization of Tepco could also prove the first step in the breakup of Japan's dominant utility. Tepco is expected to announce plans to sell or spin off its older fossil fuel power plants when it unveils a business plan in March. The company's fossil fuel-fired operations, which account for about 60% of its generation capacity, could be worth about ¥900 billion, the Nikkei newspaper reported earlier this month.

Nuclear power had provided about a third of Japan's energy needs prior to the nuclear disaster but the government has since idled 15 of Tepco's 17 nuclear reactors while it conducts safety reviews.

Tepco shares have slumped almost 90% since March last year. They closed Thursday at ¥213, up ¥11, or 5.5% on their previous close.

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Tags: bailout | Fukushima Dai-Ichi | nationalization | NDLFF | Nuclear Damage Liability Facilitation Fund | nuclear power | Tepco | Tokyo Electric Power Co.

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