The Japanese government agreed yesterday to set up a fund with taxpayers’ money to help Tokyo Electric Power Co (TEPCO) compensate victims of the crisis at its tsunami-crippled nuclear power plant and avoid financial collapse.
The government will issue special-purpose bonds to help finance the scheme, which will allow Asia’s largest utility to make compensation payouts expected to run into the tens of billions of dollars. There will be no ceiling set on Tokyo Electric’s liabilities.
In return for public backing, the government will exert control “for a certain period of time” over management of TEPCO and other power utilities, which will also be asked to pay annual premiums into the fund.
The government did not provide details, but lawmakers told reporters earlier this week that the government plans to inject about ￥5 trillion (US$62 billion) worth of special-purpose bonds into the compensation fund.
The plan, agreed after weeks of wrangling among government officials, bankers and TEPCO executives over who should pay for the crisis, staves off investors’ worst-case fears of a TEPCO financial crisis roiling financial markets.
“This scheme will help alleviate concerns of financial market turmoil because holders of Tokyo Electric shares and bonds are protected,” said Yasuhide Yajima, senior economist at the NLI Research Institute.
However, bank shares slid after Japan’s top government spokesman said a distinction should be made between loans made before the March 11 earthquake and tsunami and those extended after the disaster and that banks should be asked to cooperate in easing TEPCO’s financial burden.
“I don’t think the Japanese public would possibly show support” for an injection of public funds into TEPCO without a debt waiver of pre-disaster bank loans, Japanese Chief Cabinet Secretary Yukio Edano said. “Loans after the quake are a different story.”
The market interpreted the comments from Edano as an indication banks may be asked to forgive some loans. Shares of Sumitomo Mitsui Financial Group, the utility’s main creditor bank, dropped 3.8 percent to ￥2,452, while Mizuho Financial Group lost 2.98 percent to ￥130.
Investors said there was also still much uncertainty over how much the scheme would cost, how the burden would be shared and how the government would exercise its control over the power utilities.
“From the perspective of shareholders of utilities’ stocks, more unclear factors have emerged after the announcement,” said Yuuki Sakurai, head of Fukoku Capital Management. “It’s difficult to gauge the fair value of their shares because we don’t know that the government won’t intervene in their nuclear power plants.”
The plan for TEPCO is designed in principle to protect its bondholders and keep its shares listed, although the utility is expected to forgo dividend payments for several years as it pays back the fund.
“This framework is not meant as a bailout of TEPCO. We made this framework so that compensation can take place swiftly for the victims ... and so that TEPCO can supply electricity in a stable way,” Japanese Trade Minister Banri Kaieda told reporters.
He also said the government would seek to minimize any rise in electricity costs.
One public concern is that the financial burden of payouts for those affected by radioactive leaks from TEPCO’s Fukushima Dai-ichi nuclear power plant would lead to higher electricity prices.