Japan Committee Clears Nuclear Compensation Bill

July 26, 2011

A lower house committee of Japan’s parliament on Tuesday passed a bill to help Tokyo Electric Power pay billions of dollars in compensation to those hurt by the Fukushima nuclear disaster, ensuring a law will soon be in place to guarantee the utility’s survival and finally get aid to victims.

The cornerstone of the bill is the creation of an institution funded by Japanese nuclear plant operators to help Tepco with massive compensation payouts.

“Overall, it’s a positive development. But details remain unclear, including how much of a stake the government will take in Tokyo Electric, how to ensure the company’s cash flow and how much other power utilities have to contribute to the fund,” said Mana Nakazora, chief credit analyst at BNP Paribas Securities.

“So, (the passage of the bill) will help to ease jitters over Tokyo Electric’s short-term credit situation but wariness will remain over its intermediate to long-term credit outlook if uncertainties in the details are not cleared up.”

A 9.0 magnitude earthquake and deadly tsunami in March crippled Tepco’s Fukushima atomic power plant, causing fuel meltdowns and radiation leaks in the world’s worst nuclear crisis since the Chernobyl disaster 25 years ago.

The incident has forced about 80,000 people to evacuate from the area around the plant and severely damaged sales of farm produce after radiation levels exceeding safety standards were detected in beef, vegetables and tea.

Since the disaster, Tepco’s corporate credit rating has fallen to junk status and the company in May reported a record net loss of 1.25 trillion yen ($16 billion) for the year that ended on March 31.

The compensation bill was drafted by the ruling Democratic Party of Japan but was revised following talks with the opposition to clearly establish the government’s responsibility for compensation and dealing with the effects of the disaster.

But it remained unclear whether the revisions would increase the government’s burden or limit Tepco’s liabilities for compensating those harmed by the disaster.

It is also far from certain how much the final bill could be for damage from the nuclear crisis, as the government and the utility are still struggling to bring the plant’s reactors under control.

After passage by the committee, the bill is now expected to be approved by a lower house

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