TOKYO– Japan on Friday announced a plan to help Tokyo Electric Power compensate victims of the crisis at its tsunami-crippled nuclear plant without going broke while it struggles to resolve the worst nuclear crisis since Chernobyl.
The plan, agreed after weeks of wrangling between government officials, bankers and Tokyo Electric executives over who should pay for the crisis, allays investors' fears that a collapse of the power firm would roil financial markets.
It comes as engineers are still working to bring reactors under control at Tokyo Electric's Fukushima Daiichi nuclear power plant north of Tokyo two months after the earthquake and tsunami that led to radiation leaks.
Ratings agency Standard and Poors lowered Tokyo Electric, known as Tepco, to BBB from BBB+, saying in a statement: "The upper limit of compensation remains unclear at this stage, and we expect Tepco's profitability to remain under significant pressure for a very long period."
The government will issue special-purpose bonds to help finance a fund that will allow Asia's largest utility to handle compensation claims expected to run into tens of billions of dollars. No ceiling was set on Tokyo Electric's liabilities.
The government is also considering buying preferred shares from Tokyo Electric, also known as Tepco, if it runs short of capital. It did not provide details on the size of its planned fund injection but lawmakers told reporters earlier this week the bond issue would total about 5 trillion yen ($62 billion).
In return for public backing, the government said it will exert control "for a certain period of time" over management of Tokyo Electric and other power utilities, which will also be asked to pay annual premiums into the fund.
Though relieved that the worst may have been averted, investors sold utility stocks, unsettled by the prospect of the government's hands-on role in running the sector.
Bank shares also slid after Japan's top government spokesman said a distinction should be made between loans made before the March 11 earthquake and tsunami and those extended after the disaster and that banks should be asked to cooperate in easing Tokyo Electric's financial burden.
The market interpreted the comments from Chief Cabinet Secretary Yukio Edano as an indication banks may be asked to forgive loans or make other concessions. Shares of Sumitomo Mitsui Financial Group, the utility's main creditor bank, dropped 3.8 percent.
"The government is infringing on private firms' profits. It has violated the profits of utilities and now it's trying to lower the burden for the taxpayer by encroaching on banks' profits," said Kiyoshi Noda, chief fund manager at MU Investments. (Reuters)