Japan's Tepco requests $12 billion bailout

Tokyo Electric Power Co requested 1 trillion yen ($12 billion) of public funds to avert collapse, paving the way for the government to take control of what once was the world's biggest private utility.

The company, known as Tepco, also asked for 845.9 billion yen in extra aid from a government-backed fund to compensate people affected by the Fukushima disaster, said Toshio Nishizawa, president of Tepco, at a news briefing on Thursday. The utility may face insolvency if its capital keeps falling, he said.

The government is preparing a bailout package of as much as 11 trillion yen after last year's quake and tsunami crippled the Fukushima Daiichi nuclear station and forced about 160,000 people to flee their homes. The capital injection, if approved by the government, would effectively nationalize Tepco and lead to a possible reform of Japan's electricity industry, now monopolized by regional utilities.

"Tepco would become the touchstone of the government's liberalization of the industry," Yuji Nishiyama, a Tokyo-based analyst at Credit Suisse Group AG, said on Thursday before the announcement. "If the government seriously wants to reform the power industry, it needs to hold two-thirds of Tepco's voting rights."

Kazuhiko Shimokobe, head of the steering committee of the fund, told reporters on Thursday that the government hasn't decided on how much voting rights it will take in Tepco.

Compensation payouts may rise to 2.55 trillion yen, up from a previous estimate of 1.7 trillion yen, Tepco said in a statement on Thursday. The company requested the additional compensation aid after a government panel updated guidelines on March 16. The government approved Tepco's requests for 890.9 billion yen in November and 689.4 billion yen in February.

The request for the capital infusion in public funds and the additional state aid is expected to be incorporated into a business plan, including measures to restructure the company, to be drawn up by Tepco and the government-backed fund.

Nationalizing Tepco may portend a breakup of Japan's 10 regional power monopolies that ring up combined sales of $190 billion a year to produce, transmit and distribute electricity, according to data compiled by Bloomberg. Breaking off Tepco's transmission business from power generation would end its monopoly in Tokyo and may provide a model for the rest of the country, said Penn Bowers, who tracks utilities at CLSA Asia-Pacific Markets.

Tepco and the nuclear damage fund originally aimed to have the business plan approved by Saturday as they are concerned a delay will cause further downgrades in Tepco's long-term credit rating, two people familiar with the negotiations said earlier this month.

The government and the compensation fund are still "undecided" on Tepco's new management and that's one of the major reasons for the delay, Shimokobe said. The utility and the compensation fund may be able to submit the business plan in mid-April, Tepco Managing Director Naomi Hirose told reporters in Tokyo on Thursday.

"We are working with the compensation fund to iron out details of the government's voting rights," Nishizawa said. "A final decision will be disclosed in a business plan."

Bloomberg News in Tokyo