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Japan Starts Tepco Bailout as Fukushima Causes More Losses

Japan Starts Bailout of Tepco
The Tokyo Electric Power Co. headquarters stands in Tokyo. Photographer: Tomohiro Ohsumi/Bloomberg

Tokyo Electric Power Co. won approval for a 900 billion yen ($11.5 billion) bailout from the government after the Fukushima nuclear catastrophe to avert bankruptcy and start paying compensation for the crisis.

Trade and Industry Minister Yukio Edano approved the support after the company known as Tepco committed to cutting 7,400 jobs and 2.5 trillion yen in costs. The utility forecast an annual loss of 600 billion yen, its second since the March earthquake and tsunami wrecked its Fukushima nuclear plant.

The government of Prime Minister Yoshihiko Noda is stepping in to ensure residents, farmers, fishermen and forestry businesses are properly compensated by a utility that supplies power to 29 million customers in the political and economic heart of Japan. Tepco may need more aid after March 2013, said Takashi Aoki, who helps manage 120 billion yen at Tokyo-based Mizuho Asset Management Co.

“Tepco may wipe out its net assets of 708.8 billion yen by the end of next fiscal year” without an increase in electricity prices and the restart of nuclear power plants, Aoki said.

The forecast by Japan’s biggest utility brings its losses to 1.8 trillion yen since the disaster. The company plans to cut about 14 percent of its workforce and shave off the costs during the next 10 years, it said in a statement today.

Tepco shares fell 0.7 percent to 300 yen at the close in Tokyo today. They are down 86 percent since three reactors melted down at the Fukushima Dai-Ichi nuclear plant north of Tokyo. The company reported first-half earnings at about 4 p.m. after the market closed.

Reporting Losses

Tepco had a 627.3 billion yen loss in the six months to Sept. 31 against a profit of 92 billion yen a year earlier. It’s forecasting an operating loss of 305 billion yen for the full-year, according to its earnings statement.

Its loss was 1.25 trillion yen in the year to March 31 and 572 billion yen in this year’s first quarter.

The reactor meltdowns in Fukushima forced 160,000 people to flee radiation and damaged fishing, farming and forestry businesses.

“Tepco must compensate those affected with sincerity and generosity as well as carry out a thorough reorganization,” Edano said today in Tokyo.

Japan’s Prime Minister Noda said in Parliament on Nov. 2 he wants Tepco to “speedily” pay compensation to victims of the Fukushima nuclear disaster. The crisis shook the foundations of the country’s energy policy, which will now shift from a reliance on nuclear power

Three Goals

The company must draw up a “comprehensive” business plan by next spring that fulfills the three goals of full compensation, keeping the power on and resolving the Fukushima crisis, Edano said. The issue of whether the board must resign to take responsibility will also be considered in the plan.

“As stated in the business plan, we will make a reasonable conclusion” on management responsibility, Tepco President Toshio Nishizawa told reporters. He declined to elaborate.

The first payout involves Japanese government bonds being issued to the Nuclear Damages Facilitation Fund set up in September. These can be immediately redeemed and the funds raised transferred to Tepco, which said today it booked a 543.6 billion yen gain from the bailout in its six-month results.

Tepco wants to remain a private entity and isn’t planning to seek a capital injection from the government-backed fund, said Nishizawa, reiterating earlier comments.

Fund Legislation

Legislation passed in September provides capital of 2 trillion yen for the fund, which may request a further 3 trillion yen to be included in a supplementary budget.

“If we didn’t receive the aid, to tell the truth, we could have fallen into dire straits,” Nishizawa said.

Tepco is expected to have to pay 1.02 trillion yen in the year to March 31 in compensation to those affected by the disaster, according to an October report from a government investigation of the utility’s finances. Compensation may total 4.5 trillion yen in the first two years of the disaster, the government panel said.

Decommissioning the four damaged reactors at the plant, located about 220 kilometers (137 miles) north of Tokyo, will cost at least 1.15 trillion yen, according to the government panel, which was headed by bankruptcy lawyer Kazuhiko Shimokobe, who attended today’s meeting with Edano.

Shimokobe is now head of the steering committee of the fund that’s also overseeing Tepco.

Contamination Cleanup

The bill to clean up the contamination is estimated to be $14 billion over 30 years, according to the environment ministry.

Tepco plans to sell properties worth 247.2 billion yen within three years while it has 330.1 billion yen of shares in other listed companies and 130.1 billion yen of affiliated companies to sell, the fund said. Tepco will also consider selling power generation assets, the utility said.

Tepco’s fuel costs will rise by 830 billion yen to about 2.31 trillion yen in the year ending March 2012 as the utility must use more thermal power generation to fill in for its 17 nuclear reactors, either shut or damaged by the disaster or offline for regular maintenance, executive officer Mamoru Muramatsu said. Two out of 17 reactors are running.

The utility is expected to use 8.44 million kiloliters of oil in the year to the end of March, while consuming 22.6 million tons of liquefied natural gas and 3.18 million tons of coal, Muramatsu said.

It used 4.75 million kiloliters of oil, 19.46 million tons of LNG and 3.02 million tons of coal in the year ended March 2011, according to data on Tepco’s website.

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