Tepco Faces ‘Zombie’ Future as Fukushima Damage Claims Mount

Tepco Faces ‘Zombie’ Future as Fukushima Damage Claims Mount
Tokyo Electric Power Co.'s Fukushima Dai-Ichi nuclear power station. Tokyo Electric faces damages of at least 4.5 trillion yen ($59 billion) for the Fukushima nuclear disaster, may be consigned to a future as a Source: Tokyo Electric Power Co. via Bloomberg

Tokyo Electric Power Co., which faces damages of at least 4.5 trillion yen ($59 billion) for the Fukushima nuclear disaster, may be consigned to a future as a “zombie company” requiring constant government funding.

The estimate is contained in a report from a panel reviewing finances at the Japanese utility known as Tepco, the Yomiuri newspaper said today. The government is trying to avert the bankruptcy of a company that supplies power to 29 million customers as it pays for the worst nuclear disaster in 25 years.

With bankruptcy proceedings “they can squeeze out at least 5 trillion yen,” Yoshimi Watanabe, the head of Japan’s opposition Your Party, said in an interview. The government is “simply writing a check to be funded by higher electricity bills and taxes. Tepco will ultimately be a zombie company.”

The term zombie company is a throwback to the 1990s when the Japan’s asset bubble burst and large corporations avoided bankruptcy by being kept alive with loans from banks that also held their stock. Tepco, which has reported losses of 1.8 trillion yen, must also find funds to pay for decommissioning and clean up costs after the March earthquake and tsunami caused three reactor meltdowns at its Fukushima Dai-Ichi plant.

The oversight panel is due to present its report next week to the Cabinet of Prime Minister Yoshihiko Noda and the findings will form the basis of a plan to be drafted by Tepco and the Nuclear Damage Compensation Facilitation Corp. The body opened its offices on Sept. 26 after being created by an act of parliament in August with 2 trillion yen of funds.

Capital Injections

The plan will provide for compensating 160,000 residents who fled the radiation leaking from the plant, along with fishery, forestry and farming businesses damaged by the accident. It will also pave the way for the government to beef up Tepco’s finances by issuing government bonds the company can immediately redeem or through capital injections.

Tepco may face as much as 11 trillion yen in compensation claims, Bank of America Corp. said in March. Shares of the company are down nearly 90 percent since the day before the disaster.

To qualify for the government support Tepco must carry out “thorough reforms,” Takehiko Sugiyama, the head of the compensation corporation, said at the opening of its headquarters in central Tokyo on Sept. 26.

Cutting Staff

These include cutting 7,400 employees, or 14 percent of its workforce, the Yomiuri newspaper said yesterday, citing a draft of the report. The compensation corporation may also take over the utility, the paper said.

Tepco’s management may be forced to step down and pensions will be cut, according to the Nikkei newspaper. Beyond compensation payments, the company may have a funding shortage of 8.3 trillion yen over 10 years if it can’t raise power tariffs and restart idled nuclear reactors.

“Tepco and the government will push through a hike in electricity rates as well as cost-cutting measures,” said Tomohiro Jikihara, an analyst at JPMorgan Chase & Co. in Tokyo. “The government promoted nuclear power, so it should take responsibility for Tepco.”

Decommissioning the four damaged reactors at Fukushima Dai-Ichi, one of which was idled before the disaster, will cost 1.12 trillion yen, the Nikkei said.

Cleanup Costs

The cleanup bill may rise depending on the cost of decontaminating farmland and residential areas near the plant, some of which may be uninhabitable for decades.

Tepco in May reported a full-year loss of 1.25 trillion yen, the biggest for a non-financial company in Japan. That was followed by a quarterly loss of 572 billion yen announced in August, as the utility booked more charges for the disaster.

It received 2 trillion yen of emergency loans from Japanese banks in late March, funds which its mostly used to redeem bonds coming due.

Tepco should be put into bankruptcy protection, said Shigeaki Koga, a former senior bureaucrat at the Ministry of Economy, Trade and Industry, which both regulated Tepco and promoted nuclear power.

Koga, who this year published a book criticizing the concentration of power in Japan’s bureaucracy, in May wrote a 16-point plan for resolving the crisis that included writedowns on loans. Tepco’s power generation and transmission units should be separated, said Koga, who was told to resign from the ministry earlier this month.

Sending Tepco into bankruptcy wouldn’t be “appropriate,” Trade and Industry Minister Yukio Edano said earlier this month.

“Tepco is too big to fail,” said Reiji Ogino, an analyst at Mitsubishi UFJ Morgan Stanley Securities Co. in Tokyo, said by phone. “Government officials don’t want to deal with the crisis. It’s easier to let Tepco excecutives apologize to those affected by the disaster.”

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