Since the start of the Fukushima No. 1 nuclear plant crisis, debate has raged over whether the government should have Tokyo Electric Power Co. go bankrupt.

Even though the financial crises facing Tepco are far greater than those Japan Airlines Co. faced, one question that crops up is why the state won’t let Tepco fail like JAL did in 2010, after which the government stepped in and restructured the carrier.

Observers say if Tepco goes bankrupt, the government would have to directly pay the trillions of yen it will cost to compensate disaster victims who had to evacuate their homes and abandon their livelihoods, to decontaminate the areas hit by radioactive fallout and to scrap the Fukushima plant.

The government is reluctant to assume those costs, which would be akin to the state accepting the blame for the triple meltdown crisis, the observers say.

“If Tepco goes bankrupt, there would be discussions over who should pay the compensation. It would have to be the government. It’s a matter of how to take responsibility, and the government wants that to fall to Tepco,” said Eiichiro Kume, a former JAL employee who unsuccessfully ran in the Lower House election in December 2012 from Your Party. Kume is now a secretary to Kenji Nakanishi, an Upper House lawmaker from the party, which wants Tepco broken up.

Tepco is presently paying redress to the victims of the meltdowns, but it has to tap the state-backed Nuclear Damage Liability Facilitation Fund because the compensation is so vast.

The fund has so far paid out more than ¥3 trillion in compensation, meaning the government is in reality footing the bill for the redress of victims, even though it appears like Tepco is directly in charge of making the payments.

Another factor making it difficult for the government to liquidate Tepco is the cost to decontaminate the areas near the plant, said Shuya Nomura, a professor at the Chuo Law School.

“In JAL’s case, it was possible to recover the taxpayer money if JAL made a successful comeback and profited,” said Nomura, who was on a Diet panel that investigated the Fukushima disaster.

“In the case of Tepco, the government would be paying for things outside the utility’s main brief, including decontamination. It is unclear how much it would amount to and whether the money would ever be recouped,” he said.

Nomura noted that JAL failed because of mismanagement but that Tepco was doing fine before monster tsunami from the Great East Japan Earthquake on March 11, 2011, overwhelmed the insufficiently protected power plant.

Bankruptcy would force shareholders and creditors to eat the loss too, which they would find unfair considering a natural disaster was the main cause of Tepco’s problem, Nomura said. Others, however, argue that Tepco could have prevented or at least mitigated the crisis, but managers and now-disgraced government regulators with cozy ties to the power industry failed to ensure the plant was adequately protected despite long being aware of the tsunami threat.

Financial market players have been pressuring the government to keep Tepco from failing, claiming that a bankruptcy may lead to a default of the utility’s corporate bonds and bring chaos to the credit market, he said.

Kume and Nomura both feel the government should scrap Tepco because under the current situation, it is required to turn a profit as a private firm and cover the costs of compensation, decontamination and decommissioning.

“No matter how much profit Tepco makes, it will all go to compensation,” Kume said. “Do you think employees can keep their motivation in such a company?”

Indeed, hundreds of employees have left the utility every year since the disaster started, including 712 who quit in fiscal 2012 and 465 in fiscal 2011, compared with just 134 in fiscal 2010, which ended on March 31, 2011.

Kume warned that if the situation continues as is, Tepco may not retain the ability to provide a stable power supply.

Kume said one lesson learned from JAL that can be applied to Tepco is that undergoing bankruptcy could enable the utility to have a fresh start and improve employee morale.

Kume, who worked for JAL for more than 20 years and left the airline right before it went bankrupt, said he has met his former colleagues since the bankruptcy and their morale was much higher than before.

Nomura said that another lesson to be drawn from the experience with JAL is that the government should have a firm vision of the future of the company and the overall industry if Tepco were to go bust.

“The government had to build a basic policy for Japan’s airline industry in the process of reconstructing JAL,” Nomura said.

Some argued that JAL did not have to survive because All Nippon Airways could be expanded to compensate for its disappearance. But JAL staged a comeback because the government decided the nation’s airline industry needed the flagship carrier, Nomura said.

“This lesson indicates that a basic energy policy needs to be established (before any Tepco bankruptcy), otherwise, it would be hard to come up with a vision of a new Tepco,” he said, noting any new Tepco must embody that new energy policy. The government is currently reviewing its long-term energy policy, specially focusing on what to do with nuclear power and renewable energy.

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