Tepco May Spend 2.67 Trillion Yen as Growth Path Charted

Tokyo Electric Power Co., operator of the crisis-ridden Fukushima Dai-Ichi nuclear power plant, is considering spending about 2.67 trillion yen ($25.6 billion) on strategic investments through partnerships as it seeks to chart a path to growth beyond the Fukushima disaster.

Of the planned investments, the utility known as Tepco plans to borrow 2 trillion yen in fresh loans from lenders, President Naomi Hirose, 60, said in an interview in Tokyo on Jan. 18. The utility will make loan requests to banks as soon as possible, Hirose said, declining to specify a timeframe.

“For the sake of Fukushima’s reconstruction, we have to seek growth,” Hirose said in the interview, three days after the company released the latest plan to turn itself around after almost three years marked by mounting losses, scares over contaminated groundwater and continuing cleanup efforts.

The financing plans outlined by Hirose are an attempt by Tepco, Japan’s biggest utility, to stake out a fresh course separate from the troubles that have befallen the company in the aftermath of Fukushima. The disaster looms large over the Tokyo-based company, shadowing everything from attempts to rebuild to morale among its employees.

More than 2,000 workers had left Tepco by the end of March 2013 since the Fukushima disaster in 2011 pushed the company to the brink of bankruptcy, forcing it to shrink overseas projects and reduce employees’ salaries and bonuses. Tepco executives, including Hirose, have voiced concern that the exodus will severely hurt the company as hundreds of talented younger workers leave.

‘Fleeing the Utility’

The growth strategy in the business plan “would help Tepco make its employees believe it is returning to a normal company and stop some of them from fleeing the utility,” Shinichi Yamazaki, a Tokyo-based analyst at Okasan Securities Group Inc., said in a Jan. 17 phone interview.

As part of the Jan. 15 announcement, Tepco said it planned to invest in upstream energy projects and overseas electricity businesses in the ten years through 2022.

Tepco has received “several offers” related to shale gas projects and plans to make an investment decision as early as fiscal 2014, which starts April 1, Hirose said in the interview. He declined to provide details as talks are private.

Corporate Value

The utility’s fuel and power unit aims to cut Tepco’s skyrocketing fuel bill by teaming with partners on everything in its supply chain from upstream energy investment to power generation, according to the turnaround plan. Tepco plans to boost its LNG procurement volume to as much as 40 million metric tons per year through the partnership from current 20 million tons on its own, it said.

“To fulfill our responsibilities in Fukushima, we will need a lot of money and are being granted a goodly amount of the government’s money,” Hirose said. “We have to repay it by improving corporate value.”

The Tepco turnaround plan’s reliance on restarting idled nuclear power reactors has served as a lightening rod for criticism directed at the company by foes who oppose restarts. All of Japan’s 48 operable nuclear reactors are shut, forcing the nation to rely on fuel imports that helped push the current account into the largest deficit on record in November.

Tepco’s Fukushima Dai-Ichi nuclear plant, 150 miles (240 kilometers) north-east of Tokyo, was hit by a giant tsunami caused by the March 11, 2011 earthquake. Operators lost control of power supply and emergency backup systems failed, causing the world’s worst nuclear accident since Chernobyl.

Energy Mix

Since the Fukushima accident, Tepco has had to contend with both the disaster’s aftermath and the challenge of surviving as a company. Tepco provides power to 29 million customers in the Tokyo metropolitan area.

As recently as yesterday, Tepco said in a statement on its website that it had detected beta radiation levels of 24 million becquerels per liter in water leaked from an area near the Dai-Ichi nuclear plant No. 3 reactor.

Tepco is probing the origin and cause, spokeswoman Kaoru Suzuki said today by telephone. The contaminated water likely hasn’t escaped outside the building, Suzuki said.

The Fukushima accident has reverberated throughout Japan, affecting everything from energy prices, company planning and a debate over the island nation’s energy mix.

Political problems persist, and the restarting of nuclear reactors -- particularly Tepco’s -- isn’t a foregone conclusion, Moody’s Investors Service said in a statement today.

Election Issue

What to do with the nation’s reactor fleet is a pressing concern, with Prime Minister Shinzo Abe yesterday saying in an interview broadcast on NHK that Japan will move to complete any partially finished atomic reactors.

The Feb. 9 election for Tokyo governor may prove a litmus test for the Japan public’s acceptance of nuclear power after former Prime Minister Junichiro Koizumi, who has renounced the use of atomic power, backed candidate Morihiro Hosokawa, another former prime minister seeking the Tokyo job on an anti-nuclear platform, according to Kyodo news.

Nuclear plants produced more than 25 percent of Japan’s electricity before the disaster. Since Fukushima, utilities have had to import more oil, coal and gas. As a result, Japan has posted a trade deficit for 17 straight months and the current-account shortfall widened to a record in November.

In addition to relying on nuclear restarts, the turnaround plan calls for Tepco to adopt a holding company structure by 2016, assuring bond investors that the resulting subsidiaries have sufficient collateral to cover outstanding debt.

Plan Reaction

Moody’s today termed the Japanese government’s approval of the turnaround plan “credit positive” because it shows a heightened level of commitment by authorities to support Tepco’s financial obligations.

Tepco hasn’t sold bonds publicly since the 2011 earthquake and Fukushima meltdown and the company says it now plans to return to the market in the fiscal year starting April 1, 2016.

The company’s shares are largely unchanged since August when the company said it had been contending with leaks of contaminated water from storage tanks at the Fukushima plant. The shares have declined 1.6 percent since Aug. 30, compared with a 17 percent advance for Japan’s Topix index.

Net losses at the utility total 2.7 trillion yen for the three full fiscal years ended March 31.

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