UPDATE 2-Japan vows to skirt nuclear shutdown, watchdog embarassed
* Government sees 10 pct power shortage, 20 pct cost spike if all reactors halted
* Government to seek reactor restarts once safety confirmed
* Share of nuclear power to fall, but public debate needed on nuclear-free option
* Utility implicates regulator in attempt to manipulate public opinion
* Kan says nuclear regulator's existence questions (Adds trade minister comments, details)
By Shinichi Saoshiro and Yoko Kubota
TOKYO , July 29 (Reuters) - Japan will strive to avoid a complete shutdown of its 54 nuclear reactors and avert crippling power shortages in the near term while charting plans to reduce the nation's dependence on nuclear power, the government said on Friday.
Heightened safety fears since the March 11 earthquake and tsunami triggered meltdowns and radiation leaks at the Fukushima power plants may hinder restarting of reactors shut for maintenance and leave Japan with no nuclear power by May 2012.
The government faces an uphill battle in winning over an increasingly sceptical public and it suffered a fresh setback on Friday when one of the power utilities revealed the state-run nuclear power regulator tried to manipulate the outcome of a citizen debate on nuclear power four years ago.
"If the Nuclear and Industrial Safety Agency, which as a part of the government is in charge of nuclear safety, has done something that contradicts or is against the government, then this is a problem that would question its existence," Prime Minister Naoto Kan told a news conference.
Kan surprised the public and his own cabinet ministers earlier this month by saying that the world's worst nuclear crisis since 1986 in Chernobyl convinced him that Japan should wean itself off nuclear energy.
A recent poll showed about 70 percent of Japanese voters endorsed that vision.
The government, in its energy policy review, said delaying the restart would lead to a 10 percent power shortage next summer and a 20 percent spike in electricity costs.
It also said Japan would become less dependent on nuclear energy -- a reversal of a 2010 policy that sought to boost nuclear generation as a cheaper and cleaner alternative to fossil fuels. But it stopped short of endorsing Kan's vision of nuclear-free Japan.
"The final shape of nuclear power will be determined through public debate, including whether there will be no more (atomic plants)," Koichiro Gemba, the national strategy minister charged with reviewing Japan's energy policy, told a news conference.
Japan's government, and the nuclear watchdog, have come under intense criticism for the accident at the Fukushima nuclear plant, and Kan has said he would resign though he did not specify exactly when.
Revelations by Chubu Electric Power Co that the nuclear watchdog asked it in 2007 to recruit residents to speak in favour of a certain type of nuclear power at a public forum are likely to stoke more anger against the regulator and intensify public calls for Japan to go nuclear-free.
On Friday, another power company apologised for enticing its employees to participate in a 2006 forum on nuclear power, at the request of the trade ministry. Earlier this month, Kyushu Electric Power Co admitted that a senior official asked employees of its affiliates to send email messages in favour of nuclear power.
Trade Minister Banri Kaieda said an independent investigation would be launched into both firms.
In August, the government is expected to announce a plan to set up an independent nuclear regulatory agency, and Gemba said breaking up regional utilities was also an measure being considered to make the nuclear sector more transparent.
Kan had said that Japan would consider separating power generation from distribution, making it easier for new players, such as renewable energy producers to enter the market.
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