Japan’s Tokyo Electric Power succumbs to state control
Japan's Ministry of Economy Trade and Industry said on Wednesday that it had approved a 10-year restructuring plan for Tokyo Electric Power Company (TEPCO) that effectively puts the beleaguered utility under state control, albeit on a temporary basis.
Under the plan, the Japanese government will inject yen (Y) 1 trillion ($12.5bn) in public funds into TEPCO's coffers, which is designed to help Japan's biggest utility fund the decommissioning of the Fukushima Daiichi nuclear power plant (NPP) and eventually return to profit.
TEPCO has been relying on government support to both pay compensation to victims of the Fukushima nuclear crisis and its subsequent need to rely on more expensive fossil fuels, including spot and short-term LNG.
This additional requirement saw the company increase its LNG purchases by 15.4% year on year in the fiscal year ending March to 35.92m tonnes, and widened the company's financial losses, which TEPCO expects to reach Y708bn for the full fiscal year 2011-2012.
TEPCO has adopted a dual-pronged strategy to drive down its procurement costs, which according to the company - and based on it receiving permission to restart its 8.21GW Kashiwazaki Kariwa NPP - are expected to average Y2.47 trillion over the next three fiscal years starting April 2012.
The plan envisages a reduction in spending by at least Y3.36 trillion over 10 years through a series of unspecified asset sales and cutting at least 10% of its workforce.
It also plans to implement a 10.3% rise in its electricity tariffs for residential customers from July to supplement a 17% increase passed in April for unregulated industrial and commercial customers.
In return, the government is expected to obtain more than 50% of the voting rights in the utility after a June shareholder meeting. It will also receive additional TEPCO shares, which if converted will give the state two-thirds voting rights, giving it the option of enacting wider company reforms.
LNG terminal restructuring
The business plan also lays a blueprint for a restructuring of TEPCO's LNG import facilities and thermal power generation operations as a means of raising revenues ahead of an anticipated increase in long-term LNG procurement.
As part of this effort to reduce its operating costs, the company said that it would bring in "partners" by April 2013 to jointly run its Futtsu and Higashi Ohgishima terminals in Tokyo Bay. The company did not disclose whether it is in discussions with prospective partners, although one Japanese buyer told ICIS that TEPCO will be averse to selling stakes in the facilities to domestic competitors such as Tokyo Gas and Osaka Gas and would likely seek to partner with trading houses including Mitsubishi that would also aid the company's LNG procurement drive.
According to the plan, the share of natural gas in TEPCO's electricity mix is expected to rise to 49% in the fiscal year ending March 2021 compared with 27% outlined in the company's previous long-term strategy submitted before the Tohoku earthquake last March. In contrast, share of nuclear is anticipated at just 21% of its generational portfolio compared with the previous plan of 46%.
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