Bloomberg News

Tepco to Cut Jobs, 2.5 Trillion Yen Costs After Fukushima

October 03, 2011

(Updates with comment from Tepco in eighth paragraph.)

Oct. 3 (Bloomberg) -- Tokyo Electric Power Co. has to cut 7,400 jobs and reduce costs by 2.5 trillion yen ($32.5 billion) during the next 10 years, a government panel investigating the utility’s finances after the Fukushima nuclear disaster said.

Tepco, as the company is called, 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 the report. Tepco may have to pay damages of 897.2 billion yen annually in subsequent years, the panel said, without saying how long the payments would last.

The panel headed by Kazuhiko Shimokobe, a lawyer, provided the first official estimates of the costs of the disaster at the Fukushima Dai-Ichi plant that was crippled by the March 11 quake and tsunami. Payments for reputational damage and losses on assets may total 2.62 trillion yen, the 222-page report said.

The government is trying to avert the bankruptcy of a company that supplies power to 29 million customers in the political and economic heart of Japan. The reactor meltdowns at the Fukushima station forced 160,000 people to flee radiation and damaged fishing, farming and forestry businesses.

The panel’s findings will form the basis of a plan to be drafted by Tepco and the Nuclear Damage Compensation Facilitation Corp., which was established to help compensation payments to those affected by the disaster, Shimokobe told reporters in Tokyo today.

Capital Injections

The business plan to be compiled by late October will include Tepco’s restructuring steps and needs to be approved by trade and industry minister Yukio Edano.

The plan 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. The compensation body was created by an act of parliament in August with 2 trillion yen of funds.

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.

“We are aware that the report includes tough statements about us,” Tepco said in a statement after the release. “We take the points raised seriously and will work under the supervision of the Nuclear Damage Compensation Facilitation Corp. to draft the special business plan.”

Funding Shortages

Tepco may face 8.6 trillion yen in funding shortages during the next decade if none of its nuclear power plants come back online and electricity prices are not increased, the report said. As well as Fukushima Dai-Ichi, the company’s nearby Fukushima Dai-Ni plant was shut down after the quake and five out of seven reactors at its Kashiwazaki Kariwa plant on the other coast of Japan are idled.

No Japanese nuclear reactors have restarted since the accident. Utilities are carrying out so-called stress tests on reactors as part of safety checks in the wake of the Fukushima disaster.

Tepco won’t be allowed to raise electricity rates without cost cuts acceptable to the investigation panel, Yukio Edano, the head of the trade and industrial ministry, which regulates the electricity industry, said on Sept. 16.

Tepco withdrew a plan to raise electricity rates by as much as 15 percents after receiving criticism from the panel members, Kyodo News reported last week.

Overestimating Costs

The government will examine Tepco’s cost-cutting efforts and discuss “issues including how electricity prices should be set,” Prime Minister Yoshihiko Noda said today.

The utility overestimated costs used to calculate electricity tariffs for its customers by 592.6 billion yen in the last 10 years, the report said.

Decommissioning four damaged reactors at the plant, located about 220 kilometers (137 miles) north of Tokyo, will cost 1.15 trillion yen. The cost may be higher than the estimate because of “uncertain factors” in the decommissioning process, the report said.

The panel called on Tepco to reduce pension payouts to former and current employees. The company can also raise 707.4 billion yen from asset sales, according to the panel. Earlier Tepco said it would sell assets worth 600 billion yen.

Tepco promised not to seek interest rate relief or debt forgiveness in letters sent to banks while the utility was seeking loans in June, the report said.

Share Dilution

Given Tepco had net assets of 1.29 trillion yen at the end of March, it would be “difficult to ask creditors for debt wavers or debt-to-equity swaps,” the report said.

The panel also called for Tepco stockholders to give up dividend payments and accept dilution of shares should the utility need capital injection from the compensation body.

“It isn’t possible under current laws,” Shimokobe said when asked why the panel didn’t recommend debt relief for Tepco. There needs to be a legal framework so that banks can accept such arrangements, Shimokobe said.

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.

Shares in the utility fell 0.4 percent today to close at 239 yen in Tokyo. The stock is down almost 90 percent since the day before the earthquake.

--With assistance from Taku Kato in Tokyo. Editors: Aaron Sheldrick, Peter Langan

To contact the reporters on this story: Tsuyoshi Inajima in Tokyo at tinajima@bloomberg.net; Yuji Okada in Tokyo at yokada6@bloomberg.net

To contact the editor responsible for this story: Teo Chian Wei at cwteo@bloomberg.net


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