Analyst View: Japan Approves Nuclear Crisis Compensation
Scheme
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Japan's government approved a plan to help Tokyo Electric Power
Co compensate those affected by the crisis at its Fukushima
Daiichi nuclear plant, triggered by the March 11 earthquake
and tsunami, and save Asia's largest utility from financial
ruin.
KEY POINTS
-- A compensation fund will be set up to which other
utilities will contribute.
-- The government will provide as much assistance as needed
to prevent utilities from falling into negative net worth.
-- The government will not set an initial cap on the
liabilities of Tokyo Electric (Tepco).
-- The government will issue special-purpose bonds to fund
the scheme.
-- The government will monitor the performance of electric
power utilities.
COMMENTARY
KIYOSHI NODA,
CHIEF FUND MANAGER, MU INVESTMENTS
"The government is infringing on private firms' profits. It
has violated the profits of utilities and now it's trying to
lower the burden for the taxpayer by encroaching on banks'
profits.
"Due to this the market is facing a new political risk --
the government does not respect private profits and
investors are reacting badly to the announcement. The impact
will be especially big if the banks are asked to share the
burden, as the sums we're talking about are high."
TAKUJI OKUBO,
CHIEF ECONOMIST, SOCIETE GENERALE SECURITIES
"The scheme in general is definitely negative for Tepco
equity holders and I think from the way (the government is)
using the word stakeholder, this is a source of concern for
Tepco bondholders and banks that lend to Tepco.
He said banks may have to agree to lend to Tepco at lower
rates than usual, and Tepco bond holders may take a haircut,
"which could mean that not only equity holders ... and other
power generators have to chip in for the fall-out from the
disaster."
YUUKI
SAKURAI, CEO & PRESIDENT, FUKOKU CAPITAL MANAGEMENT
"From the perspective of shareholders of utilities' stocks,
more unclear factors have emerged after the announcement.
It's difficult to gauge what is the fair value of their
shares also because we don't know that the government won't
intervene in their nuclear power plants, as it did with the
Hamaoka plant, putting more pressure on their revenues.
"It is probably due to this uncertainty about the future
that utilities' stocks are being sold off today.
"From the
market's perspective, even though saving Tepco from
bankruptcy is a positive thing, more uncertain factors have
emerged."
TAKESHI
MINAMI, CHIEF ECONOMIST, NORINCHUKIN RESEARCH INSTITUTE,
TOKYO
"As Tepco alone cannot handle compensation costs, it may be
difficult to avoid raising taxes and utility fees.
"Although it is the government that promoted the nuclear
power policy, the public has benefited from it. So not only
Tepco and the government but also broadly concerned parties
will have to bear a burden, including other utility firms
and the public.
"It's hard to judge the compensation scheme as there is no
such thing as a perfect solution."
YASUHIDE
YAJIMA, SENIOR ECONOMIST, NLI RESEARCH INSTITUTE, TOKYO
"This scheme will help alleviate concerns of financial
market turmoil because holders of Tokyo Electric shares and
bonds are protected. I think we can avoid market turmoil
because that's essentially the whole point of this scheme.
"But there is so much uncertainty over how this scheme will
actually work because we don't know exactly how much the
total costs for compensation will be.
"Ruling and opposition parties generally agree that they
must help those affected by the nuclear crisis, so I think
bills for this scheme will be passed by parliament without
much trouble. Some details may be amended but the overall
scheme likely won't change much."
BACKGROUND
-- Government officials, bankers and Tepco executives have
been wrangling for weeks over who should foot the bill for
the crisis at the Fukushima Daiichi plant, which was
crippled by the March 11 earthquake and tsunami.
-- Two months after the disaster, Tepco is still struggling
to get reactors at the plant under control. The discovery
that water is leaking from the center of reactor No.1 could
delay the plan to resolve the worst nuclear crisis since
Chernobyl.
-- The compensation scheme is designed to prevent Tepco from
immediately going into default or bankruptcy while meeting
compensation claims.
-- The government hopes to minimize any adverse impact on
stock and bond markets by protecting Tepco's shareholders
and bond owners and to ensure stable power supply by the
regional monopoly by providing funding.
-- The scheme had been expected to be approved by Prime
Minister Naoto Kan's cabinet on Thursday but was delayed for
one day due to disagreement among ruling party members over
details of the plan.
(Reporting by
Tokyo bureau; Editing by Michael Watson)
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