TOKYO (Reuters) - Japan’s government is moving to take a more direct role in the clean-up of the wrecked Fukushima nuclear plant, as concerns grow over the ability of embattled operator Tokyo Electric to handle the legacy of the worst atomic disaster in a quarter century.

Japan's Economy, Trade and Industry Minister Toshimitsu Motegi (R), wearing a protective suit and a mask, inspects contaminated water tanks at the tsunami-crippled Fukushima Daiichi nuclear power plant in Fukushima prefecture August 26, 2013, in this photo released by Kyodo. REUTERS/Kyodo

The concerns have also revived debate about the future of Tokyo Electric Power Co (Tepco) itself, including early-stage proposals to put its toxic nuclear assets under government control and leave the rest of the company as a provider of power to the nation’s biggest economic region.

“I want the government to have a responsible framework - not just for checking what Tokyo Electric is doing to deal with Fukushima - but for the government to commit to dealing with the Fukushima problem itself and conduct this as a joint operation, including the water problem and decommissioning,” said Tadamori Oshima, who heads the ruling Liberal Democratic Party’s taskforce on post-disaster reconstruction.

“Concerning the question of what the government will pay for and what Tepco will pay for, I think we need to debate and redraw the line,” Oshima told Reuters in an interview.

Public worries about Fukushima, revived by news of leaks of radiated water at the plant, have threatened to further delay the restart of other off-line reactors - a key element of Prime Minister Shinzo Abe’s recipe for economic revival and a pillar of the turnaround plan Tepco has given its creditor banks.

Japan’s nuclear industry, which once provided a third of the nation’s power, has nearly ground to a halt since a massive quake and tsunami struck the coastal Fukushima plant in March 2011, causing reactor meltdowns. Tepco has been pumping water over the reactors to keep them cool, storing the radioactive waste water as well as contaminated ground water in ever-growing numbers of above-ground tanks.

“What is clear by now and can hardly be ignored is that Tepco as a private company is overwhelmed by the containment work in Fukushima,” said Martin Schulz, a senior research fellow at Fujitsu Research Institute.

“The discussion about nationalizing or breaking up Tepco and at least putting the stabilization of the Fukushima reactors under direct government control is back.”

Japanese officials also fear the glare of international attention could threaten Tokyo’s bid to host the 2020 Olympics, a decision on which will be made by the International Olympics Committee on September 7 in Buenos Aires.

Japan’s foreign ministry has begun issuing English language updates on the plant and the Tokyo Metropolitan Government now carries the latest radiation data on its website showing that radiation levels in the capital, some 230 km (140 miles) from Fukushima, are on par with or lower than London and New York.

GOVERNMENT INITIATIVE

Tepco said on the weekend that radiation near a tank holding highly contaminated water at the plant had spiked 18-fold, to a level that could kill an exposed person in four hours. It said no new leak had been detected at the tank, but another leak was found from a pipe connecting two other tanks.

Tepco, Japan’s largest utility, last year got a 1 trillion yen ($10.2 billion) injection of tax money in exchange for giving the government a de facto controlling stake but management has been left to the company. The firm also gets public funds - in theory to be paid back - to help compensate residents forced to flee after the 2011 quake and tsunami triggered triple meltdowns at the plant.

The government has insisted that the utility should be responsible for the cost of decommissioning the reactors, a job expected to take decades and require as yet non-existent technologies, although the government has budgeted research and development funds - including an industry ministry request for a 40 percent boost to 12.5 billion yen in the budget for 2013/14.

The government has said it will unveil steps to address the huge accumulation of radioactive water at the plant soon.

Abe’s cabinet is also likely to discuss this week funding for the Fukushima clean-up after a series of revelations about leaks of radioactive water at the coastal plant, Oshima said.

Steps under consideration would fall short of the liquidation called for by Tepco’s harshest critics - including Hiroki Izumida, the governor of Niigata Prefecture, which hosts Tepco’s mammoth Kashiwazaki Kariwa nuclear plant.

Such calls were rejected in the months after the March 2011 disaster, when authorities judged Tepco was too big to fail.

“First, the government should make a further commitment and make every effort under the current framework,” Oshima said.

LDP Deputy Secretary General Koichi Haguida, a close aide to Abe, agreed liquidation was not in the cards but said the government must take the lead not just in dealing with the floods of water contaminated by the process of keeping the damaged reactors cool, but in decommissioning as well.

“Fukushima is a problem that must be separately resolved. So rather than leaving this solely to Tepco’s responsibility, the government will take the initiative and get involved in dealing with the contaminated water and decommissioning to a significant extent,” he told Reuters in an interview.

It is unclear whether more direct government involvement would open the door wider to foreign contractors.

U.S. firms such as Kurion and Shaw Group, a unit of Chicago Bridge & Iron Company, and EnergySolutions Inc have been engaged in water treatment at Fukushima, though a Reuters investigation in December found foreigners had won few, if any, contracts to develop technologies for scrapping the reactors.

DECOMMISSIONING AGENCY?

One option that has been floated is to create a new legal framework to give the Japanese government direct oversight at Fukushima, perhaps along the lines of Britain’s National Decommissioning Authority, a public body charged with managing the dismantling of Britain’s atomic power and research stations.

“I have said from way back that Japan should set up a decommissioning agency,” Yasuhisa Shiozaki, the LDP’s acting policy chief, said on a TV show last week.

Tepco said the utility welcomed the government’s involvement in dealing with contaminated water but said it was hard to comment on any possible spin-off of the Fukushima operations.

“Either way, the company will continue to work with the government to thoroughly carry out decommissioning,” company spokesman Yoshimi Hitotsugi said.

Taking on the Fukushima clean-up as a government project could be politically risky for Abe, who returned to power for a rare second term in December, since that would mean it could no longer lay the blame for missteps at Tepco’s door.

Tepco’s admission on July 22 - one day after Abe’s LDP-led bloc won an upper house election - that contaminated water was leaking into the Pacific despite earlier denials, spurred the government to pledge to support efforts to stem the flow.

The intervention by the government at Fukushima comes at a time when Tepco’s long-term sustainability remains in doubt.

The utility has aggressively cut costs and hiked electricity rates last year. But its failure to win local support for restarting its Kashiwazaki Kariwa nuclear plant has cost it an estimated $1 billion per month in added fuel costs.

“For Tepco to be reborn, it is imperative for the Kashiwazaki nuclear plant to start moving,” said Osamu Goto, a director general for energy and environment policy at the industry ministry’s Natural Resources and Energy Agency. “If this situation continues, they will have to raise rates again or we enter bankruptcy territory.”