Japan's government will not put a cap on the liabilities faced by Tokyo Electric Power Co <9501.T> (Tepco) for damages stemming from its crippled Fukushima Daiichi nuclear power plant, Chief Cabinet Secretary Yukio Edano said Monday.

Under Japanese law, the operator of a nuclear facility can be granted an exemption from damages caused by a reactor if the accident was deemed to have been triggered by a grave natural disaster of an exceptional character.

Edano, responding to a question on the issue in a parliamentary committee, said the March 11 earthquake and tsunami that tore through the Fukushima Daiichi plant should not qualify for that exemption because a disaster of that scale had happened in the past and the risk of it occurring was known.

Tepco, Asia's largest utility, has started making compensation payments to residents and local governments near the plant who were forced to evacuate. But it has yet to determine how much it will have to pay in total.

JP Morgan had estimated Tepco could face 2 trillion yen ($25 billion) in compensation losses in the financial year that started last month, while Bank of America-Merrill Lynch had said the bill could reach $130 billion if the crisis continues.

The government is now working on a scheme to help Tokyo Electric cope with compensation. Sources have told Reuters that a fund will likely be set up to handle payment upfront, allowing Tepco to pay it back in installments over several years.

Whether the government would set a cap on Tepco's ultimate liability has been a sticking point in the discussions over the scheme. Some sources have said a cap would be necessary to maintain investor confidence in Tepco's bonds.

(Reporting by Mari Saito and Nathan Layne; writing by Linda Sieg; Editing by Joseph Radford and Lincoln Feast)

Japan