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Wednesday, April 27, 2011
Tepco said likely to survive crisis
Legal loophole may keep top power provider roughly intact
By ELAINE KURTENBACH
Some would consign the Tokyo utility embroiled in Japan's worst-ever nuclear plant disaster to the corporate graveyard.
Its share price has fell by 80 percent, leaking regaining control of the reactors may take a year or more and compensation claims could run to an eye-watering ¥10 trillion ($120 billion).
Yet Tokyo Electric Power Co. will probably survive and might even prosper. Plenty of companies have emerged from past major disasters — even self-inflicted ones.
Just think back a year to the Gulf of Mexico oil gusher, one of the world's biggest environmental calamities.
The share price of the culprit, BP PLC, has largely recovered since the April 20, 2010, explosion, which spilled more than 200 million gallons of crude oil in the four months it took to cap the burst Deepwater Horizon well 1.6 km beneath the sea.
Despite an estimated $40.9 billion in costs from the disaster, the energy giant is forging ahead with new ventures and seeking to explore again in the Gulf of Mexico, after a moratorium on deep-water drilling was lifted in October.
Tepco's path to recovery looks somewhat less certain, but analysts say the position it holds make the government likely to do what's necessary to keep it afloat — even if in a new guise. For one, Tepco is the main source of power for the Tokyo region — home to 30 million people and a heartland of manufacturing.
"Government support will be forthcoming because Tepco is really too big to fail," said Thomas Grieder, analyst for Asia-Pacific energy at IHS Global Insight.
That's not to say the utility won't end up paying in some form for the radiation leaks and other disruptions from its Fukushima No. 1 nuclear plant, which was wrecked by the March 11 earthquake and tsunami that killed an estimated 27,500 people.
"For Tepco, this is obviously going to have a very long-lasting financial impact, and also hurt its reputation as a leading electricity generator," Grieder said.
Investors dumped ¥1.06 trillion of its shares last month, though its share price has recovered slightly since.
Tepco has sought a ¥2 trillion loan to help tide it through the initial emergency. Last week, the company said it expects to pay ¥50 billion ($600 million) in initial compensation to the nearly 80,000 residents who were evacuated from near the plant due to radiation leaks.
Investment bank Merrill Lynch estimated Tepco could face compensation claims of ¥2.4 trillion to ¥3 trillion if the nuclear reactors are brought under control in six months — the speediest scenario under the company's timetable. Claims could rise to ¥10 trillion if that process takes two years.
The utility faces many trillions of yen more in costs in the time it will take to clean and close the plant.
Tepco has laid out a blueprint for getting Fukushima No. 1's overheating, leaking reactors into a cold shutdown within six to nine months, but regulators say prospects are uncertain.
The company will likely seek limits on its liability based on the 1961 Act on Compensation for Nuclear Damage. It exempts plant operators from paying compensation for accidents caused by a "grave natural disaster of an exceptional character or by an insurrection."
Unlike BP, Tepco has few overseas assets it can sell to raise cash, and its leeway for raising already high electricity rates is constrained.
The company has said it is considering job cuts and other moves to reduce costs.
"Everything hinges on the law," said Paul Scalise, an expert on Japan's power industry and research fellow at Temple University in Japan. "Tepco will go bankrupt otherwise."
The government will likely opt for a compromise: alternatives mentioned so far include setting up a joint industry fund to help cover some costs, or issuing zero- or low-interest loans to Tepco to tide it over the crisis.
Ultimately, Tepco appears likely to follow the example of BP and other major corporations — most of them in the chemical and energy sectors — that eventually bounced back from major disasters.
The plant at Three Mile Island in Pennsylvania, site of a 1979 partial meltdown of a reactor core that was the last major U.S. nuclear accident, is still operating under AmerGen Energy LLC, a subsidiary of Chicago-based Exelon Corp.
Exxon Mobile Corp. is the world's largest publicly traded company despite the 1989 Exxon Valdez tanker spill.
Union Carbide Corp., responsible for the 1984 Bhopal, India, gas leak that killed more than 15,000 people and sickened hundreds of thousands of others, is now owned by Midland, Mich.-based Dow Chemical Co. It has sought to settle remaining compensation claims.
So has Chisso Corp., the chemical company whose methylmercury emissions beginning in the 1950s caused debilitating Minamata nervous system disease, one of the country's worst industrial pollution cases.
Many publicly listed firms with huge ranks of investors, such as BP and Tepco, are simply too big to let fail, says Charles Perrow, a Yale University professor specializing in accidents involving high-risk technologies.
Some get just a slap on the wrist. Others keep getting contracts because there are few alternatives, he says.
Japan looks certain to remain heavily reliant on nuclear power, which provides 30 percent of its energy and at ¥6.1 (7.4 cents) per kilowatt hour is one of Japan's cheapest sources of electricity, in terms of operating costs, says Scalise.
But the current crisis has prompted Prime Minister Naoto Kan and other top officials to promise a thorough review of the nuclear power industry and its regulators.
While Tepco's nuclear crisis is Japan's worst so far, and in global terms second only to the 1986 Chernobyl disaster, it is certainly not the first.
The firm was not sufficiently prepared for such a severe disaster, "there is no mistake about that," Chief Cabinet Secretary Yukio Edano said last week.
In the previous worst accident, in 1999, fuel reprocessing workers hand-mixed uranium in stainless steel buckets, instead of processing them by machine. Hundreds of workers were exposed to radiation and thousands of people were evacuated as a precaution. Two workers later died.
A 1997 fire and explosion at Tokai, Ibaraki Prefecture, exposed at least 37 workers to low doses of radiation.
Those accidents involved other companies. But Tepco itself has safety violations that stretch back decades. Malfunctions at Tepco's Kashiwazaki-Kariwa nuclear plant on the Niigata Prefecture coast following a 2007 earthquake pushed the company into a loss for the fiscal year that ended in March 2008.
Such mishaps are frightening but Perrow believes there is a certain inevitability to many industrial accidents.
He says that despite new drilling rules imposed since the Deepwater Horizon disaster, a high-tech system for capping blown out wells and containing spills, and stricter oversight of the industry, deep-sea drilling remains highly risky.
Even the most rigorous safeguards and tightest rules never seem to entirely end the risk of disaster, says Masaaki Kanno, an economist at JP Morgan.
"Technology is progressing and every time we have an unexpected disaster, it's easy to make excuses that we didn't expect it and so on," Kanno said. "In that sense there may be some progress, but not enough."