TOKYO Japan is set to launch a $13 billion bail-out of the owner of its stricken Fukushima nuclear power plant after the utility dropped resistance to a public fund injection, sources said on Thursday, as the country debates the future of nuclear power.
The injection of 1 trillion yen ($12.8 billion) in public funds into Tokyo Electric Power Co (9501.T) would effectively nationalize the firm, supplier of power to almost 45 million people, in one of the world's biggest bailouts outside the banking sector.
Tepco's Fukushima plant was wrecked by a quake and tsunami last March, sparking the world's worst nuclear crisis in 25 years and swamping the firm with future cleanup, decommissioning and compensation costs estimated at $100 billion or more. But it had been resisting a bail-out, fearing a loss of management control.
It is now resigned to the state rescue, but sources familiar with the matter said it was still dragging its feet over the form of bail-out, with the government proposing that the state-backed Nuclear Damage Liability Facilitation Fund take a two-thirds share, which would let Tokyo make the key decisions.
"If the government has a two-thirds stake, they have a right to control management, so naturally, Tepco doesn't like that," said one source familiar with the matter.
Tepco's plight is emblematic of problems facing Japan's entire nuclear power industry, once touted as safe, clean and cheap. Fifty of the nation's 54 reactors have been idled since the disaster and all may be off-line by spring for safety checks, despite government efforts to regain public trust in an industry that had provided a third of Japan's power.
The government has abandoned a plan to boost nuclear power to more than half of electricity supply by 2030, but has signaled atomic energy could play a role for decades to come.
Prime Minister Yoshihiko Noda aims to come up with a new plan for Japan's mid-to-long-term energy mix by summer, but must first persuade a wary public to allow off-line reactors to resume operations -- not an easy task.
BANKS TO LEND MORE
Tepco's fate is also being watched for clues as to whether Japan will deregulate its system of monopolistic regional utilities that both generate and distribute electricity.
Tepco's share price soared on the bail-out news, jumping as much as 8 percent in heavy trade.
Tepco, which together with the fund is drafting a business reconstruction plan to be unveiled in March, is also seeking at least around 1 trillion yen in fresh loans from banks and insurers, sources said.
One source said the financial institutions were likely to agree to the additional lending in an effort to keep Tepco afloat and protect their already big exposures.
Japan's three mega-banks -- Mitsubishi UFJ Financial Group (8306.T), Mizuho Financial Group Inc (8411.T) and Sumitomo Mitsui Financial Group Inc (8316.T) -- have combined exposures to Tepco of around 3.3 trillion yen, and their outstanding bonds total 5 trillion yen, according to IFR Japan Capital Markets.
A source familiar with the plan said it envisaged Tepco remaining under state control for 10 years, while resuming bond issuance in four or five years after which it would issue new equity to raise money to pay back the government.
The Nikkei business daily said the plan called for the utility to swing into profit in fiscal 2014 after posting a parent-only net loss of about 580 billion yen in the year ending March 31 and next fiscal year.
That would be followed by a net profit of 37.7 billion yen in fiscal 2013, largely on the sale of real estate, the Nikkei said. Tepco is also expected to generate a pretax profit of 159.1 billion yen in fiscal 2014, it added.
The projection for improved earnings, however, is based on the assumption Tepco will increase household electricity rates by 10 percent in October and reduce fuel costs by restarting reactors at its Kashiwazaki-Kariwa nuclear plant in fiscal 2013 -- moves the utility will find difficult to execute.
Tepco shareholders will need to approve an increase in its authorized share capital at an annual meeting in June before the nationalization plan could go ahead.
($1 = 78.2250 Japanese yen)
(Additional reporting by Ashutosh Pandey in Bangalore, Osamu Tsukimori, Nobuhiro Kubo and Taiga Uranaka in Tokyo; Editing by Mark Bendeich)