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2012年2月18日 (土)


--The Asahi Shimbun, Feb. 16
EDITORIAL: Put TEPCO under new management as part of restructuring effort


Japan is beset by an unprecedented nuclear disaster. In this editorial, one of two devoted to the issue, we outline steps the government is being forced to consider to reform the nation's troubled power industry.
Central to this issue is the future of Tokyo Electric Power Co., the embattled operator of Fukushima No. 1 nuclear power plant, which faces financial ruin.

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Few people would dispute that TEPCO has an obligation to shoulder the bulk of the colossal costs associated with the catastrophe at the Fukushima plant.

Clearly, it is impossible for the utility to bear all the costs. There is no doubt that taxpayers will end up footing a substantial portion of the bill through higher electricity rates or taxes.

This is the reality confronting TEPCO in determining the company's future.

But first, let us take a look at the plan the government is drawing up to ride out the crisis.

It has decided to inject public funds totaling 1 trillion yen ($12.75 billion) into the company, which has little chance of surviving on its own.

The huge injection of taxpayer money is aimed at preventing disruptions in electricity supply and turmoil in financial markets.

But the Finance Ministry is voicing doubts about the wisdom of the government acquiring a more than two-thirds stake in the company, which would make it directly responsible for the utility’s management. That, the ministry fears, could entail an additional fiscal burden for the government in the future.

Instead, it wants the government to provide funds to tide over TEPCO for the time being. Under this scenario, TEPCO would remain as a private-sector company and eventually pay back the money it receives from the government.

At first glance, this idea is attractive, at least from the viewpoint of minimizing the financial burden on the public. This is because the nuclear damage liability facilitation fund law, enacted to enable the government to help TEPCO pay compensation to victims of the nuclear disaster, is also rooted in this concept.

But does it really make sense, from a long-term perspective, to allow TEPCO to continue to exist in its current form?

For TEPCO to pay back the money, the government would have to maximize the profits the company earns. To protect TEPCO’s monopoly on the regional power market, the government would have to make it almost impossible for other players to enter the market.

In short, there would be a powerful disincentive for the government to embark on reforming the nation’s electricity supply system.

There would be no momentum for drastic restructuring and selling off power plants.

The TEPCO management would have a strong incentive to minimize the compensation it pays to victims. This could result in further delays in the company’s negotiations with victims over compensation.

Still, it would be a tall order for TEPCO to raise the necessary funds to stay in business.

The job of cleaning up the nuclear mess could be a financial black hole. As for the costs of decommissioning the crippled reactors, it is not even clear how the melted nuclear fuel could be recovered.

It is generally estimated that tens of billions of yen are needed to decommission a reactor that has reached the end of its useful life. But TEPCO must deal with four reactors that have been disabled by the accident. It will take three to four decades to dismantle these facilities. The total bill will most definitely balloon to more than 1 trillion yen.

The cost will further grow if the two remaining reactors at the Fukushima No. 1 plant and the four reactors at the Fukushima No. 2 plant are factored in.

The company is already under financial strain due to growing fuel costs resulting from expanded use of thermal power generation.

It is impossible to estimate how much money will be needed to decontaminate areas hit by radioactive fallout.

TEPCO has no choice but to cut back on new investment. In doing so, it runs the risk of seriously undermining its ability to provide proper maintenance of its power supply facilities. That, in turn, could jeopardize the electricity supply situation to the Tokyo metropolitan area.

If the government wanted to avoid providing public funds to bail out TEPCO by making sure the firm will generate sufficient profits, it would have no choice but to force businesses and households in Tokyo and surrounding areas to accept exorbitant hikes in electricity bills.

Another option would be for the government to take control of TEPCO's management, fully expecting to be forced to use taxpayer money.

The responsibility for the catastrophe rests primarily with TEPCO. That said, the government had been promoting nuclear power generation as a national policy.

It had prompted the expansion of nuclear power generation, permitted the construction of the nuclear power plant and overlooked the company’s failure to take sufficient safety measures. Nobody would argue that the government shares in the responsibility for the accident.

In the scandal over cases of AIDS contracted from contaminated blood products and hepatitis B contracted from childhood vaccination, the government has decided to provide financial relief and pay compensation to victims. In doing so, it is taking responsibility for the policy mistakes that led to the public health disasters.

If the government decides to assume ultimate responsibility to deal with the aftermath of the nuclear disaster triggered by the March 11 Great East Japan Earthquake and tsunami, it would be able to use the process to open up new possibilities for the nation’s power market.

Herein lies the biggest significance of nationalizing the utility.

Obviously, the financial burden to the public should be kept to a minimum.

That would require the government to exhaustively restructure TEPCO to scrape up as much cash as possible to pay off the debt.

TEPCO is effectively in a state of negative net worth as its liabilities exceed its assets.

Free market principles would dictate that the company should go face legal bankruptcy procedures.

The company’s stock should be declared valueless. Even though it has used up a big chunk of its capital surplus to deal with the situation, TEPCO still has some 900 billion yen in equity capital.

As long as taxpayer money is used to deal with the utility mess, shareholders should accept the loss of their investment in the company.

The government should also require the company’s creditor banks to forgive at least part of the debts owed by TEPCO to them.

Financial institutions are supposed to impose market discipline on corporate financing by lending money to companies at interest rates that reflect the risks of their businesses assessed through rigorous examinations.

But the banks had been providing funds to TEPCO at favorable terms. That’s because there was a tacit understanding that the government would protect regional power monopolies at any cost.

That attitude reflects their underestimation of the safety risks of nuclear power generation. The financial institutions should pay the price for that.

It is not easy to decide how to deal with TEPCO bonds, which are secured by specific company assets.

But the value of the company’s electricity business has been deeply compromised. There should be a reasonable way to reduce the value of the bonds in line with the decline in the value of the underlying assets.

The government should figure out what to do through dialogue with the market.

The funds thus raised should be used primarily to pay compensation to victims. This problem should be settled as quickly as possible to move the process of handling the TEPCO mess to the next step.

Clearly, the management team should be replaced. Not only the top management posts, but also key leadership positions at major sections should be filled with people committed to reform, to be recruited from both inside and outside the company. This way, employees would be encouraged to point out problems with the company and contribute ideas for fixing them.

The company’s assets, including power plants, should be sold or spun off boldly. Shady business transactions with affiliated firms should be terminated. The salaries of employees need to be reviewed fundamentally.

In addition, TEPCO’s pension program should be treated as that of a failed company. Getting the consent of former employees for cuts in their pension benefits should be done as soon as possible.

The shortfall of funds left after all these efforts would have to be covered through rate increases. But the hikes would be much smaller if these radical restructuring steps are taken.

If neither of the two options results in a financial burden on the public through electricity rate increases, then it would clearly be better if the government takes control of the company’s management.

It is almost impossible at this moment to estimate the total amount of damages caused by the nuclear accident.

Power market liberalization would prompt more businesses and households in the region to switch from TEPCO to other power suppliers.

Since TEPCO itself is dismantled in the process, there will be a limit to how much money the company can receive from electricity charges.

In the end, the government, which is responsible for the expansion of nuclear power generation in this country, will have to consider using taxpayer money to cover the shortfall while reorganizing its nuclear power budget.

Given the fiscal crunch, it is also necessary to take new measures to increase tax revenue, such as taxing the use of TEPCO’s power transmission network. That would spread the burden to all the consumers of electricity within the region served by the utility.

If all these steps fail to raise the necessary amount of money, the government will have to expand the national tax base. In that case, it will be necessary to adopt special measures to win public support for the tax increase, such as imposing higher tax rates within the region served by TEPCO.

It is vital to minimize the negative effects on people’s daily lives and the nation’s economy as a whole.

None of the ideas discussed here would be easy to implement.

But the entire nation needs to rise to the challenges created by the nuclear disaster.

By doing so, we would be able to consider the situation of people in Fukushima as our own problem and start thinking seriously about the future of our nation’s energy policy.


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