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Tepco Seeks $22 Billion Bailout from Japanese Government

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(Image: Stock.xchng)
(Image: Stock.xchng)

BUSINESS

  • Tokyo Electric Power Co. needs funds to run company, pay compensation
  • Company on verge of insolvency
  • Bailout could lead to reform of utility industry

Tokyo Electric Power Co., the power company behind the Fukushima Daiichi nuclear station disaster, will seek $22.2 billion from the Japanese government. Of that amount, $12 billion will be used to keep the company afloat, and $10.2 billion will be used to pay compensation claims.

Last March, the Fukushima plant suffered a meltdown caused by an earthquake and tsunami. Over 100,000 people were displaced after radiation was released into the air. Fishing and farm industries were also affected.

Since the disaster, all but one of the nation’s 54 nuclear reactions has been taken offline. The final one will stop production in May.

At a news briefing, company president Toshio Nishizawa said the money was needed "to prepare for necessary compensation payouts, the steady decommissioning of Unit 1 to 4 at Fukushima Daiichi Nuclear Power Plant, securement of sufficient capital for stable power supply, and early bond issuance to be able to raise funds independently."

He added: "Our financial condition is extremely severe."

Compensation estimates were originally $20.5 billion, but new estimates have the figure at $30.7 billion. The amount was revised after the government updated compensation guidelines a few weeks ago.

Tepco says the rising cost of thermal power generation has not helped matters, and that it could face insolvency without a government bailout.

In February, the company’s directors were sued by shareholders for mishandling of the Fukushima disaster. In addition, the company’s stock has fallen 90% on the Tokyo Stock Exchange since last year.

Possible Utility Industry Reform

If the government bailout is approved, it would lead to Tepco being nationalized, and could also lead to the reform of the Japanese utility industry, which is controlled by 10 monopolies with combined sales of $190 billion.

Tepco is expected to revise its business plan to include the infusion of capital from government aid and public funds. The plan will also include steps to restructure the company.

The new business plan will be written by Tepco and the government’s Nuclear Damage Liability Facilitation Fund. It was originally supposed to be approved March 31, but that date has been pushed back to mid-April because the government and the nuclear fund have yet to agree on Tepco’s new management, says Tepco Managing Director Naomi Hirose.

Economy, Trade and Industry Minister Yukio Edano will need to approve the plan.

Key Statistics - Nuclear Power in Japan (source: World Nuclear Association)

  • Nearly 84% of Japan’s energy requirements must be imported.
  • In 1966, Japan opened its first commercial nuclear power reactor. Starting in 1973, nuclear energy has been of national strategic priority, but following the 2011 Fukushima accident this policy is now under review.
  • Nearly 30% of Japan's electricity is provided by 50 main reactors, and by 2017, this percentage is predicted to increase to at least 40%.

By Melina Druga for
Melina Druga is an American writer and editor. She is the author of Enterprising Women: Practical Advice for First Time Entrepreneurs.

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