Q+A-How is Japan's reconstruction plan shaping up?

TOKYO, July 27 (Reuters) - Japan plans additional spending of 13 trillion yen ($166 billion) for rebuilding from the world's costliest natural disaster, hoping to spread the spending over five to 10 years to build roads and seawalls and to boost the use of renewable energy.

But analysts worry there may be a substantial delay before reconstruction shifts into high gear as a political deadlock heightens four months after the devastating March 11 earthquake and tsunami, which also triggered a nuclear crisis.

The government aims to outline its reconstruction plan this week but may put off detailing how the spending will be funded as many ruling party officials are cautious of the idea of tax hikes proposed by the government's advisory body.

IS SPENDING BIG ENOUGH?

With its ability to spend constrained by a huge debt pile, Tokyo is struggling to come up with financing sources. It is considering issuing special bonds that chiefly mature in five years and then raising taxes to repay them.

The 13 trillion yen spending comes on top of the combined 6 trillion yen that Tokyo has already set aside in two extra budgets without new borrowing.

The combined spending is expected to support projects worth 23-25 trillion yen, a government source has told Reuters, with about 80 percent of those due over the first five years.

That is twice the size of spending after the Kobe earthquake in 1995, when 80 percent of an 11.6 trillion yen, 10-year plan was completed in the first five years.

The sums would be more than enough to cover the material damage to buildings, roads and ports from the March disaster, which the government estimates at 16.9 trillion yen, compared with 9.9 trillion yen for Kobe.

HOW WILL JAPAN PAY FOR IT?

To finance the spending, the government plans to issue 10 trillion yen in reconstruction bonds and cut other spending by 3 trillion yen.

A government advisory panel last month recommended temporary increases in the corporate, personal income and sales taxes to repay the bonds.

A hike in the tobacco tax is also seen as a possibility.

The government has also floated the idea of share sales in phone giant NTT and Japan Tobacco but it would first have to amend laws that require its minimum shareholdings in the two companies.

The government could also sell shares in Tokyo Metro Co, the operator of Tokyo's subway systems, which could potentially generate cash with an initial public offering.

The government is considering tax increases over a period of five years from fiscal 2012 starting next April to generate 10 trillion yen in revenue, Kyodo news agency has reported.

WHO WILL BENEFIT?

The government came up with a list of reconstruction projects last week but it lacked important details such as the total amount of spending and how that would be divided.

Plans include infrastructure development, such as building of sea walls and ports, supporting agriculture and promoting tourism.

The construction industry looks poised to be the main beneficiary. However, it is not clear when the money will start pouring in as Prime Minister Naoto Kan may step down before the government compiles a third extra budget. This makes many companies reluctant to factor in reconstruction demand in their earnings estimates.

Construction machinery maker Komatsu Ltd has reported a 30 percent increase in its overall order books in the past three months thanks to demand arising from rebuilding factories and facilities damaged by the earthquake and tsunami.

It expects sales of hydraulic shovels would get a boost from reconstruction demand but is unable to make specific estimates, a spokesman says.

Morgan Stanley MUFG Securities in June downgraded three of Japan's four major construction firms, including Obayashi Corp and Shimizu Corp , predicting little positive effect on earnings from the rebuilding effort.

"It is not yet clear what projects will be included in the government reconstruction scheme. The government is due to announce a framework and overall figures but this may not be followed immediately by action, given even removing of debris has not made headway," Atsushi Takagi, analyst for the construction sector at Morgan Stanley MUFG says.

HOW DOES REBUILDING FACTOR IN ECONOMIC RECOVERY FORECASTS?

Investors are counting on reconstruction spending to help the world's third-largest economy pull out of a slump caused by the disasters and to resume moderate growth in the third quarter. Tokyo's spending plans are roughly in line with market forecasts.

Such reconstruction demand is expected to add 0.8 percent to Japan's gross domestic product between now and fiscal year 2015/16, nearly double the boost from post-Kobe quake reconstruction, Daiwa Institute of Research estimates.

Economists have been predicting that the economy will rebound in the third quarter after a brief quake-induced recession, but some are becoming worried that the reconstruction effect may get delayed.

"The timing of reconstruction is likely to be delayed given the execution of the first extra budget has been delayed and we have yet to factor this in our economic forecasts." Satoshi Osanai, economist at Daiwa Institute, says. ($1 = 78.070 Japanese Yen) (Editing by Tomasz Janowski)