Bloomberg News

Japan May Get ‘Good Tepco, Bad Tepco’ in Government Takeover

December 30, 2011

(Updates to close share price in fifth paragraph.)

Dec. 29 (Bloomberg) -- Tokyo Electric Power Co. may be approaching the end of its life as a private company as the cost of the Fukushima nuclear disaster drains cash and the government considers nationalizing the utility.

“We’re probably seeing the beginnings of the end of Tepco as the entity that we know,” said Penn Bowers, a utilities’ analyst with CLSA Asia-Pacific Markets in Tokyo. The government may “wrap up the bad assets from Fukushima into a ‘Bad Tepco,’” and leave other assets as a ‘Good Tepco’ that could be listed, Bowers said.

Tepco shares fell to the lowest since the company listed in 1951 after Trade and Industry Minister Yukio Edano said two days ago the company needs to consider being nationalized. Edano, who served as chief cabinet secretary and government spokesman in the months following the March 11 earthquake and tsunami, now runs the ministry overseeing the nuclear power industry.

The same day he spoke of a government takeover, Edano’s ministry said in a statement it was studying changing rules governing Japan’s electricity industry to make distribution networks independent of power generators to spur competition. Those studies will form part of a new national energy policy to be drawn up by summer.

Change Will Come

“Certainly the industry will change and there will be an opportunity for new entrants or companies that are already involved,” said Bowers, who named Electric Power Development Co., known as J-Power, and Tokyo Gas Co. as having independent power production businesses.

Tepco closed 2.2 percent lower at 182 yen in Tokyo trading after declining 12 percent yesterday. The stock has fallen 92 percent since the day before the disaster, wiping about $40 billion off its market value.

The government may consider folding “bad Tepco” assets in with other operating atomic plants in Japan to create a state- run nuclear utility, CLSA’s Bowers said.

Japan’s 10 regional utilities dominate production, transmission and distribution of power in Japan, generating combined annual revenue of 15.7 trillion yen ($200 billion), according to data compiled by Bloomberg.

Tepco, which supplies power to 29 million people in metropolitan Tokyo, the world’s biggest city, needs support from the government’s Nuclear Damage Liability Facilitation Fund to avoid bankruptcy. It may face 4.5 trillion yen in compensation payments by 2013 to those who lost livelihoods and homes as a result of radiation fallout from the Fukushima atomic station.

Bad Idea

The utility this week requested 689.4 billion yen in additional government aid to pay compensation.

Giving Edano’s ministry, known as METI, control over Tepco through any nationalization scheme is masking over issues that need to be confronted at the utility, said Shigeaki Koga, an ex- METI bureaucrat.

Koga was forced out of the ministry for going public with criticism of the handling of Tepco after March 11 and insisting it should be put into bankruptcy.

“Injection of government funds into Tepco without clarifying responsibility of the shareholders, creditors and management just protects those entities,” Koga, who now serves as a special adviser to Osaka-city mayor Toru Hashimoto, said in a phone interview yesterday. “Edano should fire all Tepco’s top management before using taxpayers money and Tepco should be liquidated to reduce the financial burden on the public.”

Calls to Noriyuki Mita, METI’s director for the power industry’s policy planning division, for a response were unanswered. Edano has said he wouldn’t allow the bankruptcy of Tepco as it would restrict cash available for Fukushima radiation evacuees.

METI was the regulator and promoter of nuclear power in Japan and, as a result, is not qualified to restructure the industry after Fukushima, Koga said.

“You have to remember the METI officials handling Tepco matters now are pro-intervention, not pro-reform.”

--With assistance from Tsuyoshi Inajima in Tokyo. Editors: Peter Langan, Aaron Sheldrick

To contact the reporters on this story: Yuriy Humber in Tokyo at yhumber@bloomberg.net; Yuji Okada in Tokyo at yokada6@bloomberg.net

To contact the editor responsible for this story: Peter Langan at plangan@bloomberg.net


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