Sunday, May 15, 2011

13/05 Compensation framework ambiguous / Govt, TEPCO must overcome hurdles to ensure payments to victims, utility's survival

Tamaki Aikyo and Tatsuya Watanabe / Yomiuri Shimbun Staff Writers

Many hurdles stand in the way of compensation payments over the accident at the Fukushima No. 1 nuclear power plant because the framework the government is aiming to adopt is too ambiguous.

The framework juggles three important goals--preventing Tokyo Electric Power Co.'s collapse, minimizing the government's fiscal spending and keeping the hike in electricity bills as low as possible.

At a press conference at the Japan National Press Club on Wednesday, Economy, Trade and Industry Minister Banri Kaieda said: "The framework isn't aimed at bailing out TEPCO. It's a compensation system for victims."

An electric power company has a monopoly in a particular region, as no other company can supply the power required. Therefore, it is unthinkable for an electric power company to go under.

If TEPCO went bankrupt, its procurement of overseas fuel would cease and the supply of electricity could be cut off in the area it covers.

In addition, there is anxiety over compensation payments.

The debate on the compensation framework was long and contentious, as conflicting opinions were voiced at a series of ministerial meetings that lasted for five days from May 6.

The government's draft said TEPCO should be responsible for the compensation.

But a senior government official said, "State Minister for Economic and Fiscal Policy [Kaoru] Yosano continues to adhere to [a law over compensation for nuclear accidents] that has a clause exempting an electric power company from responsibility for damage caused by a massive natural disaster."

Many lawmakers from the disaster-hit areas insisted that the government should be responsible for the compensation rather than coming up with a complicated framework.

Chief Cabinet Secretary Yukio Edano and other ministers expressed concern that if the government promised to play a key role, the fiscal burden would balloon and the framework would look more like a rescue plan for the utility.

TEPCO, the central player in the issue, took a confrontational attitude until the ministerial meetings began.

TEPCO Chairman Tsunehisa Katsumata said, "To continue to survive as a joint-stock company, a ceiling must be set on the burden our company faces."

On Sunday, the third day of the meetings, TEPCO accepted a plan that would place the utility under effective state control. It also largely changed its stance by, for example, improving its restructuring plan.

After that, the debate rapidly moved toward a conclusion.

TEPCO changed its position after it was strongly urged to accept state control and restructure its business.

At the time, a senior government official said, "Unless the government provides aid, TEPCO could land up in a situation in which its debt exceeds assets and it will go under."

Also, a credit-rating agency told the government it would downgrade TEPCO unless a governmental aid plan was completed by the end of this week.

Facing a possible credit crunch, TEPCO on Tuesday said President Masataka Shimizu and seven other board members would forgo remuneration for an indefinite period.

On Wednesday, TEPCO bit the bullet and accepted the six-point agreement that the government had presented as a condition for the aid.


Difficulties raising money

However, the government has only informally decided on the basic framework of the compensation plan for victims of the nuclear crisis at the Fukushima No. 1 power plant. Practical issues remain to be solved for TEPCO to secure funds to pay the compensation.

TEPCO's funds on hand are expected to decrease from its current 2.1 trillion yen to 90 billion yen in March, due to increased purchases of liquefied natural gas and other fuels in the future and the repayment of bonds.

The 90 billion yen figure does not take into account the cost of decommissioning the nuclear reactors at the Fukushima plant or compensation for victims of the crisis.

Concerned about TEPCO's ability to secure money for compensation, the government has asked the power company to obtain support from its lending institutions.

It would be difficult for TEPCO to ask banks to forgive its debts, however, as this would make it harder for the utility to obtain future loans. One of the alternative plans that officials are discussing is to ask banks to postpone TEPCO's debt repayments.

Another possibility is to ask banks to cancel mortgages on the power company's real assets and other properties, which would make it easier for TEPCO to sell assets. The company is planning to sell assets worth 500 billion yen to secure money for compensating disaster victims.

It is uncertain whether TEPCO will be able to further reduce the salaries of its officials and employees to raise money for compensation. Eight representative directors, including TEPCO President Masataka Shimizu, will forgo their monthly salaries for an unspecified period beginning in May.

TEPCO also has announced it will cut the annual salary of its regular employees by 20 percent.

However, opposition parties may step up their criticism of the government by saying its compensation plan is based on the precondition of saving TEPCO. Depending on how the situation develops, the power company may be forced to cut its personnel expenses further.

However, TEPCO's employees can move to different companies if the utility cuts their salaries too much. That could lead to a drain of talented workers, affecting the company's long-term handling of the nuclear crisis at the Fukushima plant.

(May. 13, 2011)

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