Japan moves to secure 'too big to fail' TEPCO



Japan hints banks may have to waive some TEPCO debt

Tokyo (AFP) May 13, 2011 - Japan on Friday suggested for the first time that banks may have to waive some pre-quake loan terms to the operator of the Fukushima nuclear plant before it gets public help to pay compensation. Banking shares tumbled on comments from Yukio Edano about Tokyo Electric Power's fate -- in particular, that the public would not accept government financial support for TEPCO unless banks waive some pre-quake loan terms. "I don't think the Japanese public would possibly show support" for an injection of public funds into Tokyo Electric Power Co. (TEPCO) without a debt waiver of pre-disaster bank loans, said Chief Cabinet Secretary Yukio Edano, the top government spokesman. "Loans after the quake are a different story," Edano added.



The remark came as the Japanese government announced a rescue plan Friday to keep TEPCO solvent and help it foot the bill for the Fukushima disaster. "Without the government support, TEPCO would be crushed by debt sooner or later," Hideyuki Ishiguro, investment strategy supervisor at Okasan Securities, told Dow Jones Newswires. "If TEPCO fails, banks would lose everything. Banks would thus have no choice but to accept that (waiver) if asked by the government." The comments hit. Sumitomo Mitsui Financial Group, TEPCO's key lender dropped 3.80 percent to 2,452 yen as Mizuho Financial Group lost 2.98 percent to 130 yen. More than 80,000 people have been forced from homes, farms and businesses in a 20-kilometre (12-mile) zone around the plant that was hit by a tsunami on March 11 and has since leaked radiation into the air, ground and sea.



The power company faces compensation payments worth tens of billions of dollars for victims of the world's worst nuclear accident since Chernobyl a quarter of a century ago. TEPCO and the government have yet to release estimates for the payout bill, but analysts say it could range from four trillion yen ($50 billion) to 10 trillion yen depending on how long the nuclear crisis lasts. To help TEPCO, Asia's biggest electric power company, meet its obligations, the centre-left government of Prime Minister Naoto Kan decided on a financial aid plan paid for mostly with new government bonds. After the Tokyo stock market closed, Mizuho Financial Group said Friday that its profits for the fiscal year to March surged 72.6 percent but the outlook is uncertain in the wake of the March 11 earthquake and nuclear crisis.



Japan's third largest bank by market capitalisation said group net profit came to 413.2 billion yen ($5.1 billion) for the financial year from 239.4 billion yen a year earlier. The profit gain was helped by a decline in bad loan reserves, or money set aside to compensate for potential debt turning sour as the financial health of borrower companies improved, the bank said. Sumitomo Mitsui Financial Group (SMFG) posted a hefty 75.2-percent jump in its net profit in fiscal 2010. In the financial year that ended in March, the nation's third-largest bank by assets reported a net profit of 475 billion yen ($5.8 billion). by Staff Writers

Tokyo (AFP) May 13, 2011

Stricken Tokyo Electric Power is "too big to fail", analysts say, not only because it powers Japan's economic heart but also because its collapse would create turmoil for the country's financial system. Asia's biggest power company, TEPCO supplies electricity for the megacity of Tokyo and the wider Kanto region, an area that accounts for more than a third of the nation's gross domestic product. The firm at the centre of the world's worst nuclear crisis in 25 years is also Japan's largest corporate bond issuer, accounting for eight percent of the country's 62 trillion yen ($765 billion) corporate bond market. "The main reason why the government cannot let TEPCO go under is the utility's crucial role as power supplier" to around a third of the population, said Mana Nakazora, chief credit analyst at BNP Paribas Securities Japan. "The government took into account the big impact TEPCO's failure would have not only on compensation payments to those affected by the nuclear crisis at its plant, but also people's lives and the financial market," she said. Prime Minister Naoto Kan's government, TEPCO executives and banks scrambled to devise a plan announced Friday to ensure a hefty compensation bill is met, TEPCO shares stay listed and bondholders such as pension funds are protected. The economic impact of power shortages and collapsing TEPCO share value on banks and pension funds "contribute to the 'too big to fail' argument," said Paul J. Scalise of the Institute of Contemporary Asian Studies, at Temple University, Japan Campus. "The government has made it clear that TEPCO must remain solvent in order to avoid blackouts and to avoid skyrocketing electricity prices," he said, amid fears TEPCO may have to eventually hike rates to help pay for compensation. The situation has inevitably drawn comparisons to the US financial crisis of 2008. "TEPCO is as large, if not larger, than some of the banks in question," said Scalise. "Obviously, TEPCO cannot be allowed to fail if such a failure implies continued blackouts and brownouts in the Kanto region beyond peak demand summer months of 2011, significantly impacting future growth, jobs and prosperity." The embattled utility's Fukushima Daiichi plant is now permanently out of action, and 13 of the company's 17 nuclear reactors are offline. Japan generates about 30 percent of its power from nuclear plants. Hiroshi Watanabe, economist at Daiwa Institute of Research, said "curbs on power supply are curbs on corporate activities. The impact is very big." Japanese industrial production saw a record fall in March. Shares in TEPCO are down nearly 80 percent from pre-March 11 levels when an earthquake and tsunami knocked out cooling systems at the nuclear plant. It caused reactors to overheat, triggering explosions and the ongoing release of radioactive materials nine weeks after the earthquake. The worst nuclear disaster since Chernobyl in 1986 has forced the evacuation of tens of thousands of people from their houses, businesses and farms in a 20-kilometre (12-mile) radius around the plant. The compensation amount and costs associated with the clean-up are expected to reach several trillion yen. The government and TEPCO have not released any estimates, but analysts say it could be anything from 4 trillion yen to 10 trillion yen depending on how long the nuclear crisis lasts. The company secured around 2.0 trillion yen in emergency loans from major banks after the disasters but faces huge costs in decommissioning the Fukushima plant and 750 billion yen in bond redemptions due this year. Nakazora said that of the 62 trillion yen corporate bond market, TEPCO bonds alone come in at 5 trillion yen and that domestic investors including pension funds hold nearly all of them. Its credit rating has been cut several times since the quake. Failure to secure TEPCO would threaten "a possible impact" on future pension payments to the Japanese public, she said. Japan on Friday announced a scheme using public funds to rescue TEPCO to ensure payment of compensation, amid last-minute disputes within the ruling party over how heavily the company should be penalised and who would pay. Critics say this raises the issue of "moral hazard" -- the suggestion that companies' behaviour will be shaped by the knowledge the government will rescue them should they face difficulties. With a track record of safety cover-ups, TEPCO has been criticised for inadequately preparing for events such as that of March 11 amid perceived soft regulation by a government body responsible for promoting nuclear power. Kan has pledged to reconsider plans to boost Japan's reliance on nuclear energy, but many doubt the nation has many other options in the face of soaring fuel costs. "I am sceptical that Kan is serious," said Scalise. "I suspect it is just more political rhetoric designed to impress the electorate and counter his declining approval ratings than a firm change in national energy policy."



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Australia says uranium output set to double

Sydney (AFP) May 13, 2011



Australia's uranium production is set to double over the next four years, Resources Minister Martin Ferguson said Friday in a confident assessment in the wake of Japan's nuclear crisis. "Uranium mining is a key industry for Australia," Ferguson told a conference in Sydney. "We are already the world's third-largest uranium producer, with nearly half of the world's low-cost uranium reserve ... read more















