TOKYO Tokyo Electric Power Co, Japan's biggest utility and owner of the devastated Fukushima nuclear plant, will be taken over by the government after the country's trade minister on Wednesday approved a $12.5 billion capital injection.
In what is effectively a nationalization, the government will help avert the collapse of once-powerful Tepco, the supplier of power to almost 45 million people in and around Tokyo.
The injection of 1 trillion yen ($12.5 billion) brings total government support for the company to at least 3.5 trillion yen since the meltdowns at Fukushima in March last year, triggered by an earthquake and a tsunami.
The eventual cost of the nuclear disaster, including compensation and clean-up costs, has been estimated at more than $100 billion.
"Without the state funds, (Tepco) cannot provide a stable supply of electricity and pay for compensation and decommissioning costs," Trade and Industry Minister Yukio Edano told a news conference after granting approval to the utility's 10-year turnaround plan, which paves the way for state control.
"Even though the firm will be under so-called state control, I want the company to do your best to step out of this situation soon," Edano told Tepco President Toshio Nishizawa, referring to the government's intention to own Tepco only until it recovers.
The government will get more than half of Tepco's voting rights, allowing it to choose board members, according to the plan.
It will also take convertible stock that, when converted, will increase its control to more than two-thirds, enabling it to make unilateral decisions on major management issues including mergers. The takeover must first be approved by a general shareholders' meeting in June.
The utility, saddled with trillions of yen in compensation and clean-up costs from the radiation crisis as well as surging fuel costs to cover for lost nuclear power capacity, has been facing insolvency risks since the disaster.
In addition to taxpayers' money, major creditors will provide the firm with an additional 1 trillion yen in credit, and a government-backed bailout body will aid Tepco with an additional 850 billion yen for compensation, the plan said.
Tepco also said it plans to hike electricity rates for three years for households by 10 percent and for corporate customers by about 17 percent.
The takeover allows the government to push through reforms at the utility, which downplayed the risks of earthquakes and tsunamis at its nuclear stations and covered up safety lapses.
Tepco will sell or lease some of its thermal power plants, a move Edano suggested could be an initial step towards loosening the grip of Japan's 10 regional monopoly utilities including Tepco by opening markets to some competition.
Tepco vowed to cut 3.3 trillion yen in costs over 10 years and said it aims to turn profitable in the 2013/14 business year, forecasting a net profit of 106.7 billion yen.
But this goal depends on some uncertain factors.
The household electricity rate hike, unpopular among the public, must first be approved by the government.
Tepco also aims to start bringing back on line seven reactors at its Kashiwazaki Kariwa plant from 2013/14.
But Japan has been unable to restart any of its 50 nuclear reactors after the Fukushima disaster due to mounting public worries, and the local authorities at Kashiwazaki Kariwa are not an exception.
Furthermore, the government has yet to decide what role nuclear power will play in Japan's future energy policy.
"The only thing we can do is to try to seek the public's understanding. If we can't realize this, then the impact would be big on our revenues and expenditures ... But we do not have a plan B or a C now," Tepco President Nishizawa said.
Tepco lodged a formal request for government support last month after months of dragging its feet as it sought to avoid losing control.
Chairman Tsunehisa Katsumata will be replaced by a member of the bailout body, and a new president was chosen this week from within Tepco to replace Nishizawa in June. ($1 = 79.7750 Japanese yen)
(Reporting by Yoko Kubota; Writing by Aaron Sheldrick; Editing by Chris Gallagher and Jane Baird)