The bailout of embattled Tokyo Electric Power Co. got under way July 31, with an equity investment of 1 trillion yen ($12.78 billion) in taxpayer money.
Public funds will also be used to help the company provide 2.5 trillion yen, and counting, in compensation to victims of the accident at the Fukushima No. 1 nuclear power plant.
TEPCO customers will bear an additional burden in the form of higher electricity bills to cover the costs for stabilizing the crippled reactors, fuel for thermal power generation and compensation to victims.
TEPCO’s revenue will jump by more than 500 billion yen a year with an average 8.46-percent electricity rate increase for household users and an average 14.9-percent hike for corporate customers.
In contrast, TEPCO’s creditors and shareholders came away essentially unscathed.
Granted, the creditors had to lend an additional 1 trillion yen to the company and the shareholders cannot expect dividends for the time being. But if the government had let TEPCO go bankrupt, the creditors would have been forced to waive at least part of their loans and exempt or reduce interest payments. TEPCO’s stock would have also become worthless after being delisted.
In addition to snowballing costs for compensation, TEPCO will continue to pay for decommissioning the reactors and decontaminating areas covered with radioactive materials.
The company has incurred nearly 1 trillion yen in losses for stabilizing the reactors, with at least 50 billion yen a year said to be necessary over the next several decades.
Decontamination is said to cost several trillion yen, but specific locations, the volume of soil to be removed and other details have yet to be determined.
The government of the ruling Democratic Party of Japan decided not to let TEPCO go bankrupt to avoid bearing responsibility for providing compensation.
The utility has been kept afloat to pay compensation, with the government only providing loans and investments through the Nuclear Damage Liability Facilitation Fund.
But TEPCO could be liquidated under ballooning costs for compensation and decontamination. Government investments and loans could become irrevocable, resulting in the loss of taxpayer money.
With the 1 trillion yen investment, the government will obtain a voting right of more than 50 percent in TEPCO, enabling it to appoint directors on its own.
If TEPCO’s rehabilitation fails to make progress, the government will be able to increase its voting right to more than 75 percent, which would allow the government to merge TEPCO with another company or liquidate it.
The government’s role in protecting the interests of consumers, residents and other people could be compromised once it becomes TEPCO’s top shareholder.
A key issue will be bringing the Kashiwazaki-Kariwa nuclear power plant in Niigata Prefecture back online.
TEPCO plans to begin reactivating its seven reactors in phases from April 2013. The company said if a reactor is restarted, it would reduce fuel costs for thermal power generation and increase annual pretax profits by 70 billion yen.
The government, as the top shareholder, would support the reactivation to help TEPCO’s rebuilding. But it must carefully decide whether to approve the reactivation by conducting thorough safety reviews and listening to the voices of local residents and the general public.
The government will also be thrown into a delicate position when it comes to reforming the electric power industry.
Clearly, the traditional regional monopoly system needs to be challenged to increase competition in prices and services. However, the government may refrain from implementing radical reform so that it continues supporting TEPCO’s rebuilding.
The government apparently put priority on TEPCO’s interests ahead of those of consumers when it discussed the company’s proposed rate increase for household users.
TEPCO said the rate will be increased partly to cover 90 billion yen in maintenance costs for the No. 5 and No. 6 reactors at the Fukushima No. 1 plant and the four reactors at the Fukushima No. 2 plant.
Consumer groups took issue with the proposal, saying it is unreasonable for household users to pay for maintaining reactors that are not expected to be restarted.
Industry minister Yukio Edano sided with TEPCO, saying that the company will not be able to fulfill its social responsibilities, such as paying compensation to victims and decommissioning the crippled reactors, unless these costs are included.
(This article was written by Kaname Ohira and Mari Fujisaki.)
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