Japanese Government to Take Over Tepco in Bailout

(Reuters) - The owner of the stricken Fukushima nuclear reactor, Tokyo Electric Power Co, will agree to be taken over by the government in a near-$13 billion bailout, sources said Thursday, even as Japan debates the future of nuclear power.

The injection of 1 trillion yen ($12.8 billion) in public funds would effectively nationalize Tepco (9501.T), supplier of power to almost 45 million people including Tokyo residents, in one of the world's biggest bailouts outside the banking sector.

Tepco has been dragging its feet over a proposal for the state-backed Nuclear Damage Liability Facilitation Fund to take at least a two-thirds stake in the company, which has been swamped by liabilities associated with the earthquake and tsunami which ruined its Fukushima nuclear power plant in March.

If the government has a two-thirds stake, they have a right to control management, so naturally, Tepco doesn't like that, said one source familiar with the matter.

Tepco's future as an independent firm has been in doubt since the disaster, which triggered the world's worst nuclear crisis in 25 years and left the utility with huge compensation payments, cleanup costs and rising fuel bills as public concerns over safety make it hard to restart other off-line reactors.

Its plight has become emblematic of problems facing Japan's entire nuclear power industry, much of which has been idled since the disaster while authorities work to regain some public trust in an industry that had provided a third of Japan's power.

Tepco's fate is also being watched for clues as to whether Japan will deregulate its system of monopolistic regional utilities that both generate and distribute electricity.

Tepco's share price soared on the news, jumping 8 percent in heavy trade to 219 yen.

Tepco, which together with the fund is drafting a business reconstruction plan to be unveiled in March, is also seeking about 1 trillion yen in additional bank loans, sources said.

Under the plan, the utility is expected to swing to profit in fiscal 2014 and resume issuing bonds two years later, the Nikkei business newspaper reported.

The plan calls for government control to end in six or seven years, the Nikkei added, though other reports have said it might last about a decade.

According to the plan, Tepco is expected to post a parent-only net loss of about 580 billion yen in the year ending March 31 and next fiscal year, followed by a net profit of 37.7 billion yen in fiscal 2013, largely on the sale of real estate, the Nikkei said. Tepco is also expected to generate a pretax profit of 159.1 billion yen in fiscal 2014, it added.

The projection for improved earnings is based on the assumption Tepco will increase household electricity rates by 10 percent in October and reduce fuel costs by restarting reactors at its Kashiwazaki-Kariwa nuclear plant in fiscal 2013 -- moves the utility will find difficult to execute, the daily said.

Tepco shareholders will need to approve an increase in its authorized share capital at an annual meeting in June before the nationalization plan could go ahead.

(Reporting by Ashutosh Pandey in Bangalore, Osamu Tsukimori and Nobuhiro Kubo in Tokyo; Editing by Chris Gallagher and Mark Bendeich)