Homepage
PR Newswire
09-09-2011, 09:20 AM
(This post was last modified: 09-09-2011, 09:21 AM by Thriftville.)
Wednesday, August 10, 2011
Tepco Seeks To Avert Nationalization With Accounting Gimmick
TOKYO (Nikkei)--Despite the massive burden of compensating victims of the nuclear disaster, Tokyo Electric Power Co. (9501) is looking to remain a private-sector company by using government financial aid to avoid falling into a negative net worth.
Tepco President Toshio Nishizawa announces the firm's earnings at a press conference.
Many industry analysts, however, say that because the plan depends on state funds, it is merely a temporary fix and therefore does not ensure the firm's long-term viability.
Tepco, operator of the crippled Fukushima Daiichi nuclear plant, said Tuesday it intends to classify the money it receives from the government as profits and assets in its books. This way, the company will be able to prevent its liabilities from exceeding its assets, according to a plan unveiled by President Toshio Nishizawa and other Tepco officials.
In other words, the utility will be able to avoid being nationalized -- a fate that many observers predicted would befall the company following the plant disaster.
Balancing act
Under Tepco's accounting scheme, the funds it receives from the new entity to help it pay compensation will be reported as accounts receivable in the asset column of the balance sheet. On the income statement, the money will be shown as special profits.
Even though its reserves to cover compensation claims, to be booked as liabilities, will keep growing, they will be "balanced" with the assets because the total Tepco receives from the entity will increase accordingly, Nishizawa explained. That means shareholder capital will not be impaired by the company's compensation payments.
Immediately after the nuclear crisis broke out in March, many policymakers in the government and the ruling Democratic Party of Japan talked about the possibility that Tepco might be nationalized, and the company's employees began bracing for that prospect. But Tepco Chairman Tsunehisa Katsumata vowed to make a "maximum effort" to keep the company in the private sector.
The outlook for Tepco's fate changed significantly when Prime Minister Naoto Kan announced his intention to step down in June, lessening some of the political attention being focused on the utility.
Despite its status as a public utility under tight government regulation, Tepco has a long tradition of taking pride in operating as a private-sector company that dates back to the early 1950s. Japan's electric power industry was put under state control as the nation entered World War II and remained that way for years into the postwar era.
Independent streak
The foundation of today's electricity supply system was laid by Yasuzaemon Matsunaga (1875-1971), an electric power industry tycoon active before and after the war. Matsunaga championed the privatization of the electric power business as chairman of a government council on restructuring the industry.
He was instrumental in the 1951 establishment of the network of nine regional utilities operating as private-sector power suppliers. The network did not include Okinawa Electric Power Co. (9511) because Okinawa was still under U.S. control at the time.
The mind-set based on Matsunaga's management credo, which stressed the importance of not relying on the government, also influenced the power industry's move in the late 1950s to introduce nuclear power under the private sector's initiative. The move triggered a bitter controversy involving the political, bureaucratic and business communities, but ended with the establishment of the Japan Atomic Power Company in 1957, a victory for the power industry.
Dependent on aid
Many industry analysts, however, question Tepco's claim that the accounting gimmick concerning public financial aid will secure its long-term viability as a private-sector company. Even if the utility manages to avoid being owned by the government, the fact will remain that Tepco's survival depends on money from the government. The company's fate is in the government's hands.
In addition, it is not clear whether the new entity will also cover the huge costs of dealing with the accident. One analyst said the only way for Tepco to survive in its current form is to carry out a combination of thorough restructuring and rate hikes.
Tepco Seeks To Avert Nationalization With Accounting Gimmick
TOKYO (Nikkei)--Despite the massive burden of compensating victims of the nuclear disaster, Tokyo Electric Power Co. (9501) is looking to remain a private-sector company by using government financial aid to avoid falling into a negative net worth.
Tepco President Toshio Nishizawa announces the firm's earnings at a press conference.
Many industry analysts, however, say that because the plan depends on state funds, it is merely a temporary fix and therefore does not ensure the firm's long-term viability.
Tepco, operator of the crippled Fukushima Daiichi nuclear plant, said Tuesday it intends to classify the money it receives from the government as profits and assets in its books. This way, the company will be able to prevent its liabilities from exceeding its assets, according to a plan unveiled by President Toshio Nishizawa and other Tepco officials.
In other words, the utility will be able to avoid being nationalized -- a fate that many observers predicted would befall the company following the plant disaster.
Balancing act
Under Tepco's accounting scheme, the funds it receives from the new entity to help it pay compensation will be reported as accounts receivable in the asset column of the balance sheet. On the income statement, the money will be shown as special profits.
Even though its reserves to cover compensation claims, to be booked as liabilities, will keep growing, they will be "balanced" with the assets because the total Tepco receives from the entity will increase accordingly, Nishizawa explained. That means shareholder capital will not be impaired by the company's compensation payments.
Immediately after the nuclear crisis broke out in March, many policymakers in the government and the ruling Democratic Party of Japan talked about the possibility that Tepco might be nationalized, and the company's employees began bracing for that prospect. But Tepco Chairman Tsunehisa Katsumata vowed to make a "maximum effort" to keep the company in the private sector.
The outlook for Tepco's fate changed significantly when Prime Minister Naoto Kan announced his intention to step down in June, lessening some of the political attention being focused on the utility.
Despite its status as a public utility under tight government regulation, Tepco has a long tradition of taking pride in operating as a private-sector company that dates back to the early 1950s. Japan's electric power industry was put under state control as the nation entered World War II and remained that way for years into the postwar era.
Independent streak
The foundation of today's electricity supply system was laid by Yasuzaemon Matsunaga (1875-1971), an electric power industry tycoon active before and after the war. Matsunaga championed the privatization of the electric power business as chairman of a government council on restructuring the industry.
He was instrumental in the 1951 establishment of the network of nine regional utilities operating as private-sector power suppliers. The network did not include Okinawa Electric Power Co. (9511) because Okinawa was still under U.S. control at the time.
The mind-set based on Matsunaga's management credo, which stressed the importance of not relying on the government, also influenced the power industry's move in the late 1950s to introduce nuclear power under the private sector's initiative. The move triggered a bitter controversy involving the political, bureaucratic and business communities, but ended with the establishment of the Japan Atomic Power Company in 1957, a victory for the power industry.
Dependent on aid
Many industry analysts, however, question Tepco's claim that the accounting gimmick concerning public financial aid will secure its long-term viability as a private-sector company. Even if the utility manages to avoid being owned by the government, the fact will remain that Tepco's survival depends on money from the government. The company's fate is in the government's hands.
In addition, it is not clear whether the new entity will also cover the huge costs of dealing with the accident. One analyst said the only way for Tepco to survive in its current form is to carry out a combination of thorough restructuring and rate hikes.