A lower house committee of Japan’s parliament on Tuesday passed a bill to help Tokyo Electric Power pay billions of dollars in compensation to those hurt by the Fukushima nuclear disaster, ensuring a law will soon be in place to guarantee the utility’s survival and get aid to victims.
The bill, now set for passage in a lower house plenary session as early as this week and to go into law soon thereafter, will establish a fund backed by taxpayer money and contributions from other utilities to handle compensation, which analysts have estimated could cost up to $130 billion.
But the bill, a product of more than a month of wrangling between ruling party and opposition lawmakers following the initial announcement of a draft in May, leaves several key issues unresolved.
Lawmakers agreed to a future review of the bailout scheme, including how costs would be shared among the government, Tokyo Electric and other utilities, as well as whether shareholders should be asked to shoulder some of the burden.
“Overall, it’s a positive development. The passage of the bill is the biggest point to watch for Tokyo Electric’s credit risk. It will help stem a worsening of its credit status,” said Mana Nakazora, chief credit analyst at BNP Paribas Securities.
“But details remain unclear, including how much of a stake the government will take in Tokyo Electric, how to ensure the company’s cash flow and how much other power utilities have to contribute to the fund.”
The crisis at Tokyo Electric has destabilized Japan’s entire $860 billion corporate bond market. The utility, commonly known as Tepco, is the biggest bond issuer accounting for 8 percent of the market.
Since the disaster, ratings agency Standard and Poor’s has slashed Tepco’s rating deep into junk territory. The company’s stock price tumbled by as much as 90 percent at one point, forcing Dai-ichi Life and other shareholders to book special losses.
Rising expectations that the bill would pass triggered a sharp rebound in Tepco’s stock over the past few weeks to a four-month high of 643 yen on Friday. Investors have since taken profits, knocking it back to 512 yen as of Tuesday’s close.
It remains to be seen whether Tepco’s lenders will be asked by the government to make concessions. Sumitomo Mitsui Banking Corp and two other leading banks held about $27 billion in outstanding loans to Tepco as of the end of March.
“Under the scheme, creditor banks will not be asked to forgive debts, although there remains a possibility that they might be asked to ease some lending conditions,” said Yoshinobu Yamada, senior analyst at Deutsche Securities.
“We expect Tokyo Electric to formulate a major restructuring plan about a month after the passage of the bill. As early as the beginning of September, the Tokyo Electric matter might not be a factor affecting bank shares anymore.”
Sharing the pain
A 9.0 magnitude earthquake and deadly tsunami on March 11 crippled Tepco’s Fukushima atomic power plant, causing fuel meltdowns and radiation leaks in the world’s worst nuclear crisis since the Chernobyl disaster 25 years ago.
The incident has forced about 80,000 people to evacuate from the area around the plant and severely affected sales of farm produce after radiation levels exceeding safety standards were detected in beef, vegetables and tea.
The compensation bill was drafted by the ruling Democratic Party of Japan but was revised following talks with the opposition to clearly establish the government’s responsibility for compensation and dealing with the effects of the disaster.
But with Tepco still struggling to bring the plant’s reactors under control, it is difficult to estimate how high the total compensation cost will climb.
The bill also fails to make clear how Tepco and other utilities would share the costs. It says the total annual amount of contributions and how it would be split among the operators would be decided by a steering committee in the future.
That adds to the uncertainty faced by Kansai Electric Power and other utilities, which are already struggling with higher fuel costs to make up for the loss of power from idled nuclear plants.
Utilities are now operating 16 out of 54 nuclear reactors that had been available before the March 11 earthquake and all of those could be shut down by next May if public concerns about safety continue to stall restarts of reactors taken offline for routine maintenance.
“Strong uncertainty remains over the government’s nuclear policy. A large increase in fuel costs is inevitable if utilities try to replace nuclear power with thermal,” said Hiroki Shibata, analyst at Standard & Poor’s.
“It would be critical that they can pass it on to electricity bills but that has not been discussed yet. We have to carefully study the development but the situation is negative for utilities.”
