The head of Tokyo Electric Power Co asked the government on Tuesday to help shoulder the burden of compensating residents displaced by the crisis at its Fukushima Daiichi nuclear plant, a bill that is expected to run into tens of billions of dollars.
Masataka Shimizu, president of the troubled utility, said it would carry out more cost-cutting in response to demands by some cabinet ministers for it to do so before receiving public help.
Ministers met over the weekend and on Monday to finalize a scheme to allow Tokyo Electric <9501.T> to cope with the massive payouts, but they have been unable to agree on a final plan that could lead to substantial rises in electricity bills.
As well as more cost-cutting by the utility, some in the government have called for creditor banks and holders of its shares and bonds to shoulder some of the burden before unveiling the scheme, seen as politically unpopular but necessary to ensure compensation is paid in full.
National Strategy Minister Koichiro Gemba hinted that holders of Tokyo Electric shares and bonds may have to bear some of the burden when asked about issue.
In relation to any burden on taxpayers, it's important to consider the issue of those who hold Tokyo Electric shares and bonds, he told reporters.
A draft plan already calls for a fund to be set up to help people who had to leave their homes due to the nuclear crisis that would include contributions from other utilities, which Tokyo Electric would reimburse over several years using its annual profits, sources familiar with the matter have said.
People living within a 20-km (12-mile) radius of the plant have been evacuated, while those in five towns downwind from it have also been told to prepare to leave their homes.
The draft is controversial since not only payments by Tokyo Electric but contributions from other utilities would likely be borne by electricity users.
Tokyo Electric and its creditor banks have been pushing for a scheme that would include substantial government help, capping the utility's liabilities and protecting its shareholders and bond owners.
They argue that given the sheer volume of Tokyo Electric bonds it is essential to prevent its credit rating being cut to junk status, which they said could wreak havoc with not only with other utilities' bond issues but the entire bond market.
Tokyo Electric is the biggest corporate bond issuer in Japan, representing about 8 percent, or about 5 trillion yen, of the entire 70 trillion yen Japanese corporate bond market.
In the immediate aftermath of the March 11 earthquake and tsunami that wrecked cooling systems at the nuclear plant 240 km (150 miles) north of Tokyo, the utility's main lender Sumitomo Mitsui Banking Corp <8316.T> and other major banks provided a total of 1.9 trillion yen in emergency loans.
STEP UP RESTRUCTURING
Shimizu told reporters after meeting Chief Cabinet Secretary Yukio Edano and Trade Minister Banri Kaieda that the company would step up planned restructuring steps including asset sales.
He said he and other representative directors of the company would forgo salaries for the foreseeable future as part of the additional measures.
Shimizu warned that the utility could face with extra costs of 1 trillion yen ($12.5 billion) for fuel after shutting down reactors in Fukushima following the quake, and it was having difficulty raising funds.
He also said it faced having to pay out 750 billion yen to redeem bonds and loans in the current financial year to March 2012, potentially overwhelming its finances.
Our fundraising situation is extremely difficult, Shimizu said in a letter to the trade minister seeking government support.
If this situation continues ... sooner or later we will not be able to secure enough funds, potentially affecting not only fair and timely compensation payments for victims but also the stable supply of electricity.
After the meeting with Shimizu, Kaieda said the government would ask Tokyo Electric to keep its requests for government financial support to a minimum and not to raise electricity prices immediately.
He also said the government was aiming to finalize the scheme this week. It had been expected to say this week it would give Tokyo Electric time to prepare for reporting its 2010/12 earnings, scheduled for later this month. ($1 = 80.275 Japanese Yen)
(Additional reporting by Taiga Uranaka, Writing by Nathan Layne; Editing by Michael Watson)