Tokyo Electric May Need $112B: Panel

A government panel reviewing Tokyo Electric Power Co.’s restructuring efforts said the troubled utility will need to raise as much as 8.6 trillion yen ($112 billion) in funds without raising charges or restarting nuclear reactors.

In a report made public on Monday, the panel also called for cost cuts totaling 2.5 trillion yen over 10 years, more than double what the company had planned, including a 14 percent reduction in its work force.

The panel’s report represents guidelines that the utility, known as Tepco, is expected to consider as it prepares a business plan that must win government approval by the end of October to unlock a taxpayer-funded bailout.

The bailout body, funded by public money and contributions from nuclear operators, will provide unlimited funds to Tepco to help meet compensation claims for the crisis at its Fukushima Daiichi nuclear plant, where reactor cooling systems were knocked out by the March 11 earthquake and tsunami, triggering radiation leaks.

“I think it will pave the way for government-sponsored financing if, as a minimum condition, (Tepco’s business plan) includes restructuring measures and asset sale put in the report,” panel head Kazuhiko Shimokobe said at a media briefing.

“The (bailout body) will dig deeper and have tough exchanges with Tepco when making the business plan and it needs to work hard to minimise taxpayers’ burden,” said Shimokobe, a lawyer known for his work in corporate turnarounds who is head of the bailout body’s steering committee.

The government’s rationale for bailing out Tepco is that it would be less costly for taxpayers to keep Tepco solvent and making it pay back over years than let it go bankrupt.

The panel estimated nuclear damages compensation would cost Tepco about 3.6 trillion yen for the year to March 2012, with additional annual costs of about 900 billion yen if the crisis lasts longer.

It also estimated the costs of scrapping four nuclear reactors at Fukushima Daiichi at about 1.1 trillion yen.

The panel, whose members include Hirokazu Yoshikawa, chairman of copper smelter Dowa Holdings , spent a little more than three months going over Tepco’s cost-cutting measures and asset sale plans.

The panel hired auditing firm Deloitte Touche Tohmatsu, Boston Consulting Group and law firm Nishimura & Asahi to do due diligence work on the utility.

In the report, the panel said Tepco had told its lenders in June that the firm would not seek debt waiver or interest reduction from them.

It also said it would be difficult to ask lenders for debt forgiveness or debt-to-swap deals while Tepco still has positive net worth.

Tepco’s lenders, among them Japan’s biggest banks including Sumitomo Mitsui Financial Group , have also come under political pressure to waive part of loans they have extended to the power company to ease Tepco’s financing problems and therefore the taxpayers’ burden.

“We are aware that the report includes very tough suggestions to us and we sincerely accept them,” Tepco said in a statement.

TOUGH CHOICE FOR PUBLIC

The report, designed to ensure the utility will raise as much money as possible on its own to minimise taxpayers’ burden, also highlighted a potential dilemma.

Following the Fukushima crisis, public concern about nuclear safety has risen to such a level that Tepco and other utilities will find it hard to obtain permission to restart reactors.

At the same time, Tepco is likely to face a strong public backlash if it tries to pass on a jump in fuel costs by switching to thermal power generators.

In the report, the panel said if Tepco cannot restart any of its reactors over 10 years it would have a cumulative deficit in its operations of about 4.2 trillion yen even with a 10 percent hike in electricity bills. The estimate does not include compensation costs, since they would be offset by the bailout funds.

For Tepco, which has lost its once-stellar credit status, it is effectively impossible to raise money in either the bond or equity markets following the crisis.

“It would be extremely difficult to make a business plan on this assumption (of no nuclear reactors) unless there is a drastic price hike,” the panel