A payoff scandal has struck Japan’s nuclear world, threatening to delay the restart of idled reactors in what’s becoming the industry’s biggest crisis since the Fukushima meltdowns of 2011.

The issue, which emerged at the end of last month, centers around how an influential municipal official in a town that hosts a nuclear plant spent years doling out large gifts to executives of its operator, one of the country’s biggest power producers. It’s an example of how big business and small towns work together, sometimes at the expense of corporate governance.

The payments to senior management at Kansai Electric Power Co. included hundreds of millions of yen, U.S. currency, vouchers for tailored suits and even gold coins hidden in a box of candy. To make matters worse, the official in question was close to — and received money from — a company that won construction work from the utility.

The news is a blow to an already deeply unpopular industry as it seeks to resume operations at plants that were shuttered after Fukushima. It’s likely to have an impact beyond Kansai Electric, with the government’s top spokesman, who called the payoffs “murky,” vowing to investigate whether there are similar cases at other companies.

Abe’s headache

It’s become a headache for Prime Minister Shinzo Abe, who has pushed nuclear power as a cheaper source of energy than imported fuels such as oil, coal and natural gas. Questions in the Diet about the scandal may delay his efforts to pass a U.S. trade deal and proceed toward changing the pacifist Constitution.

“This could slow the restart timetables (for idle reactors) and undermine whatever goodwill had been recovered by the nuclear industry since Fukushima,” said Tom O’Sullivan, founder of Tokyo-based energy consultant Mathyos. Of Japan’s 33 operable reactors, just nine are back online. Fifty-four reactors were in operation before the Fukushima crisis.

The scandal is the latest exposure of governance issues at Japanese companies, which include the arrest last year of Nissan Motor Co. Chairman Carlos Ghosn for allegedly concealing more than $140 million in compensation and Kobe Steel Ltd.’s indictment in 2018 for falsifying quality data.

Kepco Chairman Makoto Yagi and President Shigeki Iwane bowed in apology at a three-hour public briefing this month as they detailed how they and 18 other executives received almost ¥320 million in cash and presents from Eiji Moriyama, who died at the age of 90 in March, between 2006 and 2018.

Pay cuts

But they also tried to play down the scandal. Accepting the gifts was inappropriate but not illegal, Iwane said. And they had no influence over how the firm awarded construction contracts. The president and chairman took 20 percent pay cuts for one or two months but initially said they would not step down.

“It’s astounding how badly they’ve managed this crisis,” said Jeff Kingston, director of Asian studies at Temple University in Tokyo. “Of course they should resign.”

Chairman Yagi finally resigned last week, while President Iwane intends to do so after the completion of an investigation into the payments, which could end by December.

The immediate risk for Kepco is that the issue may delay the restart of three of its reactors, including two in the town in question, Takahama, Fukui Prefecture. Every month a reactor stays offline saddles the utility with extra fuel costs of ¥3.6 billion, according to Nomura Securities Co.

Hot temper

“The government will do a thorough investigation into the industry to check if there are similar cases in other companies,” Chief Cabinet Secretary Yoshihide Suga, the government’s top spokesman, told reporters in Tokyo on Sept. 27. It’s “outrageous” that Kansai Electric executives accepted the gifts in a “murky” fashion, he said on Oct. 2.

The company has strived to deflect blame for the matter, painting a picture of Moriyama as a difficult person to handle. Executives wanted to return the gifts but couldn’t because Moriyama was hot-tempered when he didn’t get his way, according to a report dated September 2018 that the company released earlier this month. He was an important person in Takahama, a small coastal community where Kansai Electric had four reactors. The company’s report, as well as articles in Japanese media, contained details of why it wanted to keep him on-side.

Moriyama became entwined in Kansai Electric’s nuclear business when he served as Takahama’s deputy mayor from 1977 to 1987. He helped push through an expansion to add two reactors at the Takahama plant, and landed an advisory position at a Kansai Electric unit the year he retired.

Birthday parties

He remained an influential figure due to his many contacts in the town of just over 10,000, holding seats on numerous municipal committees and advising local companies that did business with the power sector. Moriyama would often appear at Kepco gatherings, meetings and even birthday parties.

After the Fukushima disaster, Kepco needed to retrofit the Takahama plant to meet new safety standards, requiring $5 billion worth of work.

Moriyama told Kansai Electric officials he wanted the Takahama plant to quickly return to service, and the utility shared more information with him — such as time lines and necessary renovations. At the same time, Moriyama had received about ¥300 million from Yoshida Kaihatsu, a local construction company that won orders for work at the Takahama plant, according to media reports. Maintenance and security companies linked to Moriyama were also granted contracts.

Internal probe

Multiple calls to Yoshida Kaihatsu went unanswered.

Last year, the payments were uncovered by the National Tax Agency, which informed the utility. Kansai Electric investigated the matter in an internal probe completed in September 2018. But the utility concluded nothing illegal had transpired and decided not to release the findings. Then last month, local media exposed the affair.

It’s clear there’s more to come on the scandal. Kansai Electric has commissioned external parties to conduct a probe, as ordered by industry minister Isshu Sugawara. He said Oct. 8 that he expects the third-party investigation to uncover new facts. A group of opposition lawmakers is seeking to question the executives and hold a Diet debate on the issue.

Kansai Electric’s investigation will leave no stone unturned to determine the cause and events surrounding the payments, the company said in an emailed response. The utility will also make efforts to ensure that this type of incident doesn’t happen again, it said.

In a sense, the goings-on at Kepco suggest things haven’t changed in the nuclear industry. They mirror what independent investigators said in a 2012 report led to the scale of the Fukushima meltdowns: collusion between government officials and a power company.

“This is the ‘nuclear village’ at its worst,” Temple University’s Kingston said, referring to the nexus of companies, politicians, bureaucrats and others that promote atomic power. “The cozy and collusive ties are a hotbed of corruption and raise questions about other plants.”

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