Japan Utilities Seek Government Lender’s Help on Fuel Costs

At least two Japanese utilities are in talks with a state-owned lender to secure funding, as the industry faces a third year of losses following the Fukushima disaster of 2011.

The possibility of capital injections into Kyushu Electric Power Co. (9508) and Hokkaido Electric Power Co. (9509) by the Development Bank of Japan Inc. comes as the government seeks to forestall electricity rate increases by utilities that could hinder the country’s fragile economic recovery.

Japan’s power sector has been forced to rely on costly fossil fuel imports since the 2011 accident forced the idling of its nuclear plants and a government bailout of Tokyo Electric Power Co., operator of the stricken Fukushima plant.

“From the standpoint of their profit and loss statements, it is clear that those utilities have financial problems due to the cost of fossil fuels for generation,” said Hiroshi Takahashi, an energy research fellow at Fujitsu Research Institute. “There are two solutions. One is raise the electricity tariff. The other is the startup of their reactors.”

Talks on the share sale between Kyushu Electric and the DBJ are ongoing, with one proposal calling for a 100 billion yen ($963 million) preferred stock investment into the utility, a person familiar with the matter said, asking not to be named because the talks are private. Yuka Ohtsuba, a spokeswoman for the company serving 8.5 million customers on the southernmost of Japan’s four main islands, said talks were under way.

Fuel Costs

Hokkaido Electric, with a customer base of 4 million users on the country’s northernmost main island, said yesterday it’s in talks with the DBJ on ways to raise funds. The DBJ was considering buying about 50 billion yen in the power company’s preferred stock, a person familiar with those talks said.

In order to replace nuclear generating capacity, Japan’s regional utilities have turned to fossil fuels such as coal, gas and oil, resulting in 20 straight months of trade deficits for the resource-poor nation. Before the Fukushima accident, nuclear provided more than a quarter of Japan’s electricity.

Japan spent 27.4 trillion yen on fossil fuels in 2013, up 50 percent from 18.1 trillion yen in 2010, the year before the Fukushima disaster, according to Trade Ministry data.

Kyushu Electric had total debt of 3.05 trillion yen at the end of 2013, while Hokkaido’s debt was 1.28 trillion yen. Both utilities narrowed net losses for the nine months ended Dec. 31, 2013 after raising rates paid by customers.

Chief Cabinet Secretary Yoshihide Suga, remarking yesterday on the possible sale of Hokkaido Electric shares, said that it was important there be no new rate increases.

Economic Impact

Such an increase could hamper an economic recovery in Japan, which is already expecting headwinds after the consumption levy climbed to 8 percent yesterday from 5 percent, Fujitsu Research’s Takahashi said.

Japan saw a 0.7 percent increase in its gross domestic product in the three months ended in December, a quarter of the pace initially expected by strategists.

Kansai Electric Power Co., the nation’s second-biggest utility after Tokyo Electric and its most dependent on nuclear power, has also narrowed losses on a rate increase. With its 4.41 trillion yen in debt at the end of 2013 and no immediate sign that its reactors will soon resume operation, it could be next in line for DBJ assistance, Takahashi said.

Kyushu Electric applied in July for restarts of two reactors at its Sendai plant and two reactors at its Genkai plant. Japan’s Nuclear Regulation Authority said last month that it would expedite safety checks needed for restarts at the two Sendai plant reactors.

Nuclear Question

Even with the inspections, Kyushu Electric may not be granted the necessary approvals to resume operations until as late as September, after the peak summer demand season has begun, according to Penn Bowers, an energy analyst with CLSA Asia-Pacific Markets in Tokyo.

Hokkaido Electric has applied to the NRA for checks at three units at its Tomari plant. Those units could require months of construction before they meet the safety standards necessary before restarting, Kyodo News reported on Feb. 4, citing the nuclear regulator.

Kyushu Electric shares fell 60 yen, or 5 percent, in Tokyo to 1,151 yen, their lowest since Feb. 6. The shares were the fourth-biggest faller on the Topix index.

Hokkaido Electric’s closed down 42 yen, or 5.4 percent, at 739 yen. The company fell 91 yen yesterday to 781 yen, its biggest drop since Oct. 23, 2012. The shares were the worst performer yesterday on the Topix index.

To contact the reporter on this story: Jacob Adelman in Tokyo at jadelman1@bloomberg.net

To contact the editors responsible for this story: Jason Rogers at jrogers73@bloomberg.net Iain Wilson, Keith Gosman

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