By Ashby Jones
Here’s the problem: Tokyo Electric Power Co., which supplies Japan with more than one-third of its total power, is on the hook for damages stemming from the post-earthquake-and-tsunami nuclear accident.But the damages, which are still mounting, could reach tens of billions of dollars.
It’s a sum that Tepco simply doesn’t have. At the same time, letting the company go under isn’t an option, given its role as a regional monopoly that provides all of Tokyo with its power.
So what happens? Well, a debate is what happens. A debate over who should pay the company’s liabilities. Click here for the WSJ story.
The debate is pitting pretty much anyone who’s anyone in Japan. As reporter Yuka Hayashi writes:
The argument pits numerous stakeholders against each other, including executives at the utility hoping to reduce the company’s liability, bankers and investors wanting to protect their balance sheets, and politicians worried about reactions from voters who may be hit with higher tax and electricity rates.As a first step, the government will unveil as soon as next week the initial draft outlining a plan for disbursing compensation for people displaced from homes and farmers affected by radiation-related sales cuts. Many such victims seek immediate cash payments.
The plan, according to the Japanese media, will feature the establishment of a new organization that will prop up the finances of Tepco with loans and issuance of preferred shares, to be covered with public funds, bank loans and insurance premiums contributed from other power companies. Tepco will reportedly raise money by selling down its huge portfolio of assets, mostly real-estate and stockholdings.
Some lawmakers, such as Yosuke Isozaki of the main opposition Liberal Democratic Party of Japan, are calling for a drastic restructuring program similar to the one used for Japan Airlines Co. last year. In that case, shareholders lost their investments as the company was delisted from the stock exchange. Bond holders and lenders also took substantial losses.
“Tepco must be effectively nationalized and placed under government control,” said Isozaki in an interview. “It must sell everything it can to pay the compensation. Its equity must be wiped out and executives must all step down.”
At the same time, such a plan must be executed with caution. Akihisa Nagashima, a lawmaker with the ruling Democratic Party of Japan, acknowledged that Tepco right now is very unpopular among the Japanese people. But he also said: “The big problem is it is too big to fail.”
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