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Monday, May 16, 2011
The new enervated Tepco
With the onset of the Fukushima No. 1 nuclear power plant crisis following the March 11 Tohoku-Pacific earthquake, radioactive substances continue to seep into the sea, air and soil. Residents within a designated proximity of the plant will likely have to live away from their homes a long time. The prospect of the situation returning to normal is nowhere in sight.
Although the government and Tokyo Electric Power Co. (Tepco), the operator of the ill-fated plant, have worked out plans to pay compensation to victims of the crisis, it appears they are interested less in protecting people from radiation than in preserving the existing semi-monopolistic system of the power industry and in enabling the government of Prime Minister Naoto Kan to survive.
Japan has 10 electric power companies, each of which is given a monopoly of generating and distributing power within a designated region.
Some observers say the government and Tepco have sought to "trivialize" the effect of the Fukushima accidents by working out a scenario in which the power company, which should bear the total responsibility, survives with "public funding." The public at large ultimately picks up the whole bill.
Under that scenario, a new organization would be established to help Tepco oversee compensation payments to nuclear accident victims. The new body would guarantee the survival of Tepco. Not only would the government fund the new body but also the other regional power companies with nuclear plants — by chipping in their share as insurance premiums for future accidents.
Even by selling its assets and cutting executive and employee remuneration, Tepco would not be able to pay all compensation claims resulting from the Fukushima plant accidents. The eventual financial burden would be borne by people in the form of taxes and higher electricity rates.
One factor that has given rise to this haphazard scenario is the need to prevent feared chaos in the financial market if Tepco were to go under. Tepco's share plummeted from the pre-accident price of around ¥2,100 to a mere ¥292 at one point after March 11. Although it recovered to nearly ¥500 after the government's support program and Tepco's road map for bringing the Fukushima nuclear crisis under control were announced, further damage to the reactors or serious radioactive leaks could very well make Tepco shares worthless.
Tepco's interest-bearing liabilities, including corporate bonds, total more than ¥7.3 trillion, most of which is owed to insurance companies and financial institutions, both private and government-owned. The biggest lender is the Development Bank of Japan, which is 100 percent state-owned. It has lent more than ¥300 billion to Tepco.
Shortly after the Fukushima plant accidents, major banks committed another ¥2 trillion in credit lines to Tepco, including ¥600 billion from Sumitomo Mitsui Banking Corp.
Should Tepco go bankrupt, not only would the Japanese financial market be thrown into an utter chaos, but international markets would lose their trust in Japanese banking institutions to the extent that the institutions would have to pay higher interest rates to secure funds.
If worse comes to worst, Tepco share certificates would become worthless sheets of paper for 600,000 shareholders as well as for many corporate pension funds that have included Tepco stock in their portfolios. The steep drop in Tepco's stock price has already dealt a blow to investment funds in the United States. Nearly 20 percent of its stock is held by non-Japanese investors. This has reportedly led the Obama administration to urge the Kan government to take steps to prevent a further decline in Tepco stock.
Tepco is now attempting to divert public opinion away from its responsibility for the nuclear crisis to the need to secure a stable supply of electricity. Shortly after its Fukushima power station was damaged, the company announced that it would have to impose "planned rolling power outages" to make up for reduced power generation.
By emphasizing that abandoning nuclear power generation would lead to prolonged outages, Tepco sought to convince the public that it is better to rely on nuclear power generation than endure power outages and that it is time to help Tepco with public funds. This is an ultimate form of defiance by Tepco.
Industrial circles, especially manufacturing, were thrown into a panic by the government's plan to make it mandatory for major electric power users to reduce consumption by 25 percent this summer. This could be a matter of life and death for manufacturers whose activities are already hindered by the disruption of production at component suppliers located in areas devastated by the earthquake and tsunami. This fear has served to change the attitude of the business community from one of criticizing Tepco to seeking stable power supply.
It is clear that Tepco President Masataka Shimizu, who for health reasons failed to make a public appearance for some time after the Fukushima No. 1 crisis developed, is not fulfilling his job. Chairman Tsunehisa Katsumata parried questions at a recent news conference to explain Tepco's road map for action to end the Fukushima crisis. Tepco's top management appears dysfunctional and in need of leadership. There is the strong view that this dysfunction led to errors early on that exacerbated the crisis. Katsumata said at the news conference that he was not hesitant about pouring seawater onto the nuclear reactors to cool them after the quake-tsunami. But other sources point out that if he is telling the truth, the seawater would have been used a half day or more earlier.
Tepco's corporate structural problem, which led to the Fukushima accidents, surfaced in the spring of 2002 when a whistle-blower revealed that Tepco managers had covered up troubles found at the Fukushima No. 1 nuclear power plant and falsified reports to the Ministry of Economy, Trade and Industry.
Subsequently, similar irregularities were reported at the Fukushima No. 2 plant and the Kashiwazaki-Kariwa plant in Niigata Prefecture. These incidents created so much anger among municipalities and citizens that Tepco was forced to suspend the operation of all its nuclear plants. Katsumata and Shimizu are able executives in normal times but are not of the caliber to exercise crisis leadership.
Questions have been raised in many quarters, notably business leaders abroad, as to why Shimizu or Katsumata does not take command at the Fukushima No. 1 plant site, where hundreds of people — firefighters, Self-Defense Force personnel as well as employees of Tepco and Tepco subcontractors — are braving radiation risks to do repair work. Without the presence of Katsumata or Shimizu, how are workers suppose to lift their morale?
As Tepco's top executives appear unable to judge which is more important — the frontline (Fukushima No. 1), the Tepco headquarters or the prime minister's headquarters, they are snuggling up to the government. The people in Tepco's top management today have forgotten to pay attention to electricity users and local residents living near power stations.
Tepco, which has survived until now through collusion with the government, has lost the honorable face as the leader of the power industry. It is wandering about.
This is an abridged translation of an article from the May issue of Sentaku, a monthly magazine covering Japanese political, social and economic issues.