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Tokyo Electric – too big to fail, but it’s failing

In a sense, it is because Japan allowed Tokyo Electric to become too big to fail that it must now deal with the consequences of its potential demise. Led by Tokyo Electric, Japan’s 10 electricity companies have long resisted efforts to liberalize the market, leaving them with virtual monopolies in their respective regions.

After Nuclear Crisis, Japan’s Biggest Utility Faces Insolvency Risk, NYT By HIROKO TABUCHI, June 9, 2011 On Thursday, shares in Tokyo Electric again fell to a record low, at one point slumping to 148 yen ($1.85), down 93 percent from prequake levels. Shares finished at 192 yen ($2.40), down 4 percent from the previous day, and the company already had a 1.25 trillion yen loss in the year ending March 31, the largest annual loss for a nonfinancial institution in Japanese history.

One cause for concern, analysts say, is the inability of a gridlocked government to complete a financial rescue plan for Tokyo Electric. To appease public anger over the disaster, the government has vowed to hold Tokyo Electric fully liable for the compensation claims that are likely to roll in from farmers, fishermen and others whose livelihoods have been disrupted in the crisis.

A government plan drawn up last month places no limit on the company’s liabilities, even though Japanese law would allow for such a cap following natural disasters. But the plan, which must still be approved by a divided Parliament, also calls for a fund that would use taxpayer money to help Tokyo Electric compensate victims and continue to provide Tokyo with power, while avoiding insolvency. Under the plan, the company will eventually pay back the fund in full.

In a recent estimate, Shigeki Matsumoto, an analyst at Nomura Securities, predicted the total would come to around 5 trillion yen ($64 billion), including 3.2 trillion to 3.3 trillion yen ($40 billion to $41.2 billion) in payout to farmers and fishermen — two years’ worth of agricultural and fisheries output in the plant’s vicinity. Nomura also projected 0.6 trillion yen in compensation to displaced families.

The problem, analysts say, is that it is virtually impossible to know how large those claims could eventually be — and whether the government would have the means and commitment to cover them……..

A Bank of America-Merrill Lynch estimate puts the sum as high as $130 billion. (By comparison: BP’s compensation fund for the Gulf of Mexico oil spill is $20 billion. )

In a sense, it is because Japan allowed Tokyo Electric to become too big to fail that it must now deal with the consequences of its potential demise. Led by Tokyo Electric, Japan’s 10 electricity companies have long resisted efforts to liberalize the market, leaving them with virtual monopolies in their respective regions.http://www.nytimes.com/2011/06/10/business/global/10tepco.html

June 11, 2011 - Posted by Christina Macpherson | Japan