Japan set to take over Tokyo Electric

Imposing state ownership on Asia's largest utility is one option Japan is mulling, National Strategy Minister Koichiro Gemba said on Tuesday, as the cost of fixing broken reactors and compensating businesses and households soar. Tepco provides electricity to a third of the Japanese population and usually operates enough capacity to power the whole of Britain.

“I see no other options than nationalising Tepco,” a fund manager at a major Japanese asset management firm said.

One government source told Reuters that one plan being floated was to spin-off Tepco’s nuclear business into a separate company and nationalise that. “The possibility is small that Tepco continues on in its current state,” said the source.

By getting de-facto government guarantee on 7.5 trillion yen ($92 billion) in debt, bondholders would feel more confident that Tokyo Electric can repay its loans, analysts said.

The Yomiuri reported earlier that some government members had proposed the state take a majority stake in Tepco and help it pay for damages stemming from the nuclear accident, which has also shone a light on the company's chequered past.

At the time of the disaster, the Fukushima plant was stacked high with more spent fuel than it was originally designed to hold, according to company documents and outside experts. The plant had also repeatedly missed mandatory safety checks over the past decade and was suspected of falsifying safety documents. Even before compensation claims are filed, the crippled former state-owned utility faces higher costs.

Nomura Holdings analyst Shigeki Matsumoto said Tepco will have pay more than $1 billion every month on oil and gas to make up for lost capacity. With reactors likely to be off line for a long time, that expense will mount.

Tepco took almost two years to restart reactors at its Kashiwaki-Kariwa plant, the world’s biggest, after an earthquake there halted generation in 2007, Matsumoto said, although the damage was far less severe that at Fukushima.

With radiation still leaking, the final bill could quickly empty TEPCO's coffers including $25 billion in emergency financing it has requested from Japan’s big banks.

The utility had 432 billion yen in cash and equivalents at the end of December, according to its financial statements.

Of its roughly $64 billion in outstanding bonds, the company is due to repay $4.8 billion this year, and another $5.6 billion in 2012, underscoring the importance of refinancing to meet its funding needs.