9501 - Tokyo Electric Power Co. (TEPCO)

[BargainValueHunter]

BVH,

 

Thanks for resurrecting the thread. It is worth pointing out that the panel you quoted is tasked with overseeing TEPCO's cost cutting to ensure that TEPCO does everything possible before considering raising electricity rates. Remember, in the end the cost of this disaster will be a cost added on to the electricity consumer, this panel's goal is to minimize that.

 

If the costs of fuel and compensation are astronomical, then the panel and the government may force banks to write down their loans to TEPCO and in the process probably wipe out shareholders as well (a cost the electricity consumer will bear over the long-term in the form of higher financing costs for TEPCO). Both scenarios, raising rates just high enough to support TEPCO, or demanding loan forgiveness are hard to swallow in the current economic climate in Japan, but in my opinion the later is less likely and has the potential to be far more destabilizing. That is why the government went to so much trouble to create the compensation fund - a kind of Electricity TARP for Japan. TEPCO is after all Japan's largest non-financial corporate credit.

 

I still maintain - and this in my opinion is the critical part of the thesis - that while the numbers are large, the compensation costs will be nowhere near the Y10tn predicted by some. In fact, a close reading of the provisional and final compensation guidelines leads me to believe it will be in the neighbourhood of Y1-Y1.5tn after deducting the government's reimbursement of Y120bn as stipulated in Japan's Nuclear Liability law. The compensation fund set up by the government with pay-in from the other Electric Co's can easily finance this amount with TEPCO paying it back over a number of years. (A liquidity problem not a solvency problem?).

 

As for the electricity rate rise issue, the choice seems to be either to allow the nuclear plants to restart (Kashiwazaki-Karu and potententially Fukushima Daini) or pay up for higher fuel costs. The way I read your highlighted quote is - 'if we don't restart the power plants, we will have to raise rates higher than 10%' and not as 'if we do not restart the nuclear power plants TEPCO will fail'.

 

In my opinion, an ideal scenario would be the restart of TEPCO's Kashiwazaki-Karu plant (currently stuck in maintenance limbo while the country grapples with the issues of nuclear power), which has 7 reactors and is one of the world's largest, this spring coupled with an early cold shutdown of Daichi, which may happen in a matter of days. The provisional evacuation zone has already been lifted, and after the shutdown the most densely populated parts of the Emergency evacuation zone - within 20km of the plant - will be lifted. The area that will require some work before letting people back in is much less densely populated, and the early reports suggest that decontamination may be simpler than many thought. For example, in the wooded areas, which make up the largest part of the contaminated area, removing fallen leaves and branches has been found to reduce contamination by 50-90% depending on the tree types in the area and when their leaves first appeared. And of course, the government could always limit access to these wooded areas without inconveniencing too many people.

 

M.

 

 

 

Well, looking back over your previous posts and some outside research has led me and others to believe that there may be value here after all.

Thanks for your research and posts!!

 

I wrote before that I wouldn't go nowhere near this thing but I forgot how the passage of time sometimes makes distressed investment possibilities more interesting.

 

As the clean-up and compensation picture clears 9501 just gets more interesting.

 

Thanks again!

[BargainValueHunter]

Well this just goes to show you that headline risk is still something to consider until the numbers fall in line:

 

http://www.bloomberg.com/news/2011-09-26/fukushima-desolation-worst-since-nagasaki-as-population-flees.html

 

What’s emerging in Japan six months since the nuclear meltdown at the Tokyo Electric Power Co. plant is a radioactive zone bigger than that left by the 1945 atomic bombings at Hiroshima and Nagasaki. While nature reclaims the 20 kilometer (12 mile) no-go zone, Fukushima’s $3.2 billion-a-year farm industry is being devastated and tourists that hiked the prefecture’s mountains and surfed off its beaches have all but vanished.

 

The March earthquake and tsunami that caused the nuclear crisis and left almost 20,000 people dead or missing may cost 17 trillion ($223 billion), hindering the recovery of the world’s third-largest economy from two decades of stagnation.

 

Now the question is how much of this story is hyperbole and how much is fact?

[mloub]

BargainValueHunter,

 

Yup, headline volatility is the name of the game and the article you mention is a perfect example  (I wouldn't quite call it risk, because regardless of what they write the truth is out there so to speak). After following this story for 6 months, it never ceases to amaze me when stories like this come out.

 

Let's look at a few of their assertions, and try to find some facts:

 

1) "...the March 11 atomic disaster saturated the area, forcing 160,000 people to move away and leaving some places uninhabitable for two decades or more."

 

The 160,000 was the total number of evacuees shortly after the disaster, which also included those who evacuated because their homes were destroyed by the tsunami, but did not lie in either the 30Km evacuation preparation zone (where people are allowed to live, but are asked to stay indoors as much as possible) or the 20Km exclusion zone (where everyone was forced to get out). The actual number of Nuclear fallout evacuees was about 90,000 (25,000 from the 30km zone who chose to leave, and about 70,000 from the 20km exclusion zone - See the link to the articles here http://mdn.mainichi.jp/mdnnews/news/20110920p2g00m0dm106000c.html, and here http://www.trust.org/alertnet/news/factbox-japans-disaster-in-figures. This may seem like semantics, but it is a meaningful difference. The 90,000 number was also inflated because the evacuation zone was based on concentric circles around the plant, when in reality the radiation spread in a North-western swath, but more on that later.

 

The uninhabitable for "two decades or more" statement is also interesting. This assumes that radioactive particles (you can think of them like particles of dust - in fact that it is what they often attach themselves to) are allowed to decay on their own, in which case it would take two decades for them to decay to an arbitrarily set safety point. This ignores two issues. Firstly, the 20-km and 30-km zones were set as concentric circles because we humans like to think in geometric shapes - many of these areas did not have radioactive particles fall no them. The actual radioactive fallout was a swath heading northwest from the Fukushima plant - the wind just happened to be blowing in that direction - and is a much smaller part of the evacuation areas. Based on the maps I have seen, I would estimate it is about 1/3 to 1/4 of the evacuation and preparation zones. You can see the maps for the 30 and 20Km zones at the following links:

 

Outside 20km Zone - http://radioactivity.mext.go.jp/en/monitoring_around_FukushimaNPP_monitoring_out_of_20km/2011/09/15440/index.html

Within 20km Zone - http://radioactivity.mext.go.jp/en/1100/2011/09/1100_0923_3.pdf

 

The next idea to tackle is what exactly constitutes a safe amount of low dose radiation. The answer is no one is really quite sure. We are all exposed to ionizing radiation ("Oh the children, the children, won't somebody think of the children") from the sun. And yes it penetrates walls and breaks our DNA strands and if you get more of it (by flying at high altitudes for long periods of time, sun bathing, or getting a lot of CT scans) you are at increased risk of cancer. We also have radioactive particles that exist in nature - mostly radioactive potassium isotopes, but also some radon and a few others - which along with the sun, expose the average person living in the United states to 3.1 MILIsieverts of radiation per year from background sources. The average person also gets an average of 3.1 MILIseiverts from man made sources per year. That gives the average person an exposure amount of 6.1MILIsieverts per year (Source: http://www.nrc.gov/reading-rm/doc-collections/fact-sheets/bio-effects-radiation.html).

 

*Note the units: a MILI-sievert is 1000 times as much as a MICRO-sievert.

 

So if we take a spot on the radiation maps, anything with 0.35 MICRO-sieverts/hour would mean those folks get less radiation than the average American. There are quite a few spots in the 30-km preparation zone and even 20-Km evacuation zone that fall in this category. Anything with radiation readings of less than 1.0MICRO-sieverts/hour would equate to less background radiation than Finland (Source: Page 3 http://mightylib.mit.edu/Course%20Materials/22.01/Fall%202001/sources%20of%20exposure.pdf), and let's not forget there are areas in Kerala, India where people are exposed to almost 7.2Micro-sieverts/hour because of high background thorium levels without an identifiable increase in cancer rates (Source: http://www.ncbi.nlm.nih.gov/pubmed/19066487). This explains the Japanese governments 20Milli-sievert annual limit (that works out to 2.3Micro-seiverts per hour) that has been set for public exposure (less than one third of the annual exposure in Kerala) and one fifth of 100mili-Seiverts, the level known to cause harm when administered acutely.

 

Of course, there are areas that are above the 20 Milli-Seivert limit which will have to be decontaminated, and there are those calling for decontamination of areas above an even lower 5 Milli-Seivert limit. (Science be damned, some people just think the lower the better, I suppose). Well the good news is that about 75% of the area is forest land that no one lives in, and the remainder is mainly farms (in other words easy to decontaminate), with small rural cities interspersed. Better yet, most of the contamination is in the top 5cm of soil and caked on houses so people have found that by pressure washing homes, and scooping up the soil radiation levels can be reduced by up to 90%.

 

For example, in this article they talk about decontaminating a house and garden. http://mdn.mainichi.jp/mdnnews/news/20110918p2a00m0na003000c.html. After washing the house they were able to reduce the radiation in the gutters meaningfully. But this passage was especially interesting - "[the] second-floor bedroom's radiation level barely changed, falling from 0.7 microsieverts per hour to 0.61 microsieverts per hour. Katayose was disappointed with the results." He was disappointed with a background radiation of 5.34Millisieverts/year for a house on the side of a mountain! Someone get this guy a physics textbook.

 

In another study looking at decontamination of wooded areas (remember they make up about 75% of the area), researchers found that removing fallen leaves and branches was enough to reduce radiation by 50 to 90%. (Source: http://ajw.asahi.com/article/0311disaster/fukushima/AJ201109160619). And finally looking at different scenarios, the environment ministry looked at the maximum and minimum amount of soil that would have to be removed for decontamination to 20 or 5 Milisieverts per year. (Source: http://www.yomiuri.co.jp/dy/national/T110925003737.htm). While the volume of soil discussed is large, there are simple inexpensive techniques that can reduce this amount to a fraction of the original amount (Source: http://ajw.asahi.com/article/0311disaster/recovery/AJ201108206604). The trade off is if you concentrate the waste, it becomes more radioactive and needs tighter monitoring. So either you have high volumes of low dose radiation, or low volumes of high dose radiation. There has been a government commission set up to determine the final guidelines for how the decontamination will be carried out...stay tuned.

 

2) "While nature reclaims the 20 kilometer (12 mile) no-go zone, Fukushima’s $3.2 billion-a-year farm industry is being devastated"

 

In fact, the rice crop has been radiation free (source: http://ajw.asahi.com/article/0311disaster/recovery/AJ2011092211619) and the initial scares proved largely unfounded. I estimate TEPCO will need to compensate farmers about $1.6billion (Y122bn) for lower selling prices, or half of their annual revenues, but there is -thankfully- no permanent damage to farm lands.

 

3) "...tourists that hiked the prefecture’s mountains and surfed off its beaches have all but vanished."

 

There has been a 50% drop in hotel revenues in the prefecture of Fukushima. Based on the compensation formula, 20% of this is being ascribed to the tsunami and the remainder to rumours about  radiation. Using a recent survey by a Hotel association in Fukushima covering 12.5% of all hotels in the prefecture, we can estimate the lost hotel revenues that TEPCO is liable for at Y166.4bn for the entire year after the Tsunami. (Source: http://www.yomiuri.co.jp/dy/business/T110926004309.htm).

 

So Y300-400bn for evacuees,  Y300bn for farmers and fisherman, Y200bn for tourism/hotels, Y300bn for businesses (there are no major factories or large businesses in the area, but they will owe money to larger enterprises far away that had to prove their products were safe), and Y220 billion for decontamination (how much the government has committed to spend, which we will assume they will recoup from TEPCO, source: http://af.reuters.com/article/worldNews/idAFTRE78730S20110908) gives us a rough pay out of Y1.5tn at the upper range.

 

Tepco has electricity sales of Y5.3tn a year and had FCF of about Y500bn/year in the past 10 years. Part of that FCF is now going to pay for higher oil and natural gas costs, but as unaffected nuclear plants come online - as they must to save Japan Inc. from even higher electricity rates - TEPCO's savings on fuel costs can be redirected to paying off the compensation. The market is pricing TEPCO today on the assumption that costs will explode, the public will demand blood even if it means cutting off their noses to spite their faces, and that things will never be normal again. The facts just don't bear that out. Time is our friend in this situation.

 

M.

 

P.S. Anyone want to guess what happened to Unit 1 at three mile Island after its sister unit in the same complex, Unit 2, had a partial melt down and released 92,500 TeraBecquerels of radiation (Fukushima released 770,000TeraBecquerels by comparison)? If you said "it's still operating to this day", you would be right.

 

 

 

[BargainValueHunter]

Great write up, mloub!

 

BargainValueHunter,

 

Yup, headline volatility is the name of the game and the article you mention is a perfect example  (I wouldn't quite call it risk, because regardless of what they write the truth is out there so to speak). After following this story for 6 months, it never ceases to amaze me when stories like this come out.

 

Let's look at a few of their assertions, and try to find some facts:

 

1) "...the March 11 atomic disaster saturated the area, forcing 160,000 people to move away and leaving some places uninhabitable for two decades or more."

 

The 160,000 was the total number of evacuees shortly after the disaster, which also included those who evacuated because their homes were destroyed by the tsunami, but did not lie in either the 30Km evacuation preparation zone (where people are allowed to live, but are asked to stay indoors as much as possible) or the 20Km exclusion zone (where everyone was forced to get out). The actual number of Nuclear fallout evacuees was about 90,000 (25,000 from the 30km zone who chose to leave, and about 70,000 from the 20km exclusion zone - See the link to the articles here http://mdn.mainichi.jp/mdnnews/news/20110920p2g00m0dm106000c.html, and here http://www.trust.org/alertnet/news/factbox-japans-disaster-in-figures. This may seem like semantics, but it is a meaningful difference. The 90,000 number was also inflated because the evacuation zone was based on concentric circles around the plant, when in reality the radiation spread in a North-western swath, but more on that later.

 

The uninhabitable for "two decades or more" statement is also interesting. This assumes that radioactive particles (you can think of them like particles of dust - in fact that it is what they often attach themselves to) are allowed to decay on their own, in which case it would take two decades for them to decay to an arbitrarily set safety point. This ignores two issues. Firstly, the 20-km and 30-km zones were set as concentric circles because we humans like to think in geometric shapes - many of these areas did not have radioactive particles fall no them. The actual radioactive fallout was a swath heading northwest from the Fukushima plant - the wind just happened to be blowing in that direction - and is a much smaller part of the evacuation areas. Based on the maps I have seen, I would estimate it is about 1/3 to 1/4 of the evacuation and preparation zones. You can see the maps for the 30 and 20Km zones at the following links:

 

Outside 20km Zone - http://radioactivity.mext.go.jp/en/monitoring_around_FukushimaNPP_monitoring_out_of_20km/2011/09/15440/index.html

Within 20km Zone - http://radioactivity.mext.go.jp/en/1100/2011/09/1100_0923_3.pdf

 

The next idea to tackle is what exactly constitutes a safe amount of low dose radiation. The answer is no one is really quite sure. We are all exposed to ionizing radiation ("Oh the children, the children, won't somebody think of the children") from the sun. And yes it penetrates walls and breaks our DNA strands and if you get more of it (by flying at high altitudes for long periods of time, sun bathing, or getting a lot of CT scans) you are at increased risk of cancer. We also have radioactive particles that exist in nature - mostly radioactive potassium isotopes, but also some radon and a few others - which along with the sun, expose the average person living in the United states to 3.1 MILIsieverts of radiation per year from background sources. The average person also gets an average of 3.1 MILIseiverts from man made sources per year. That gives the average person an exposure amount of 6.1MILIsieverts per year (Source: http://www.nrc.gov/reading-rm/doc-collections/fact-sheets/bio-effects-radiation.html).

 

*Note the units: a MILI-sievert is 1000 times as much as a MICRO-sievert.

 

So if we take a spot on the radiation maps, anything with 0.35 MICRO-sieverts/hour would mean those folks get less radiation than the average American. There are quite a few spots in the 30-km preparation zone and even 20-Km evacuation zone that fall in this category. Anything with radiation readings of less than 1.0MICRO-sieverts/hour would equate to less background radiation than Finland (Source: Page 3 http://mightylib.mit.edu/Course%20Materials/22.01/Fall%202001/sources%20of%20exposure.pdf), and let's not forget there are areas in Kerala, India where people are exposed to almost 7.2Micro-sieverts/hour because of high background thorium levels without an identifiable increase in cancer rates (Source: http://www.ncbi.nlm.nih.gov/pubmed/19066487). This explains the Japanese governments 20Milli-sievert annual limit (that works out to 2.3Micro-seiverts per hour) that has been set for public exposure (less than one third of the annual exposure in Kerala) and one fifth of 100mili-Seiverts, the level known to cause harm when administered acutely.

 

Of course, there are areas that are above the 20 Milli-Seivert limit which will have to be decontaminated, and there are those calling for decontamination of areas above an even lower 5 Milli-Seivert limit. (Science be damned, some people just think the lower the better, I suppose). Well the good news is that about 75% of the area is forest land that no one lives in, and the remainder is mainly farms (in other words easy to decontaminate), with small rural cities interspersed. Better yet, most of the contamination is in the top 5cm of soil and caked on houses so people have found that by pressure washing homes, and scooping up the soil radiation levels can be reduced by up to 90%.

 

For example, in this article they talk about decontaminating a house and garden. http://mdn.mainichi.jp/mdnnews/news/20110918p2a00m0na003000c.html. After washing the house they were able to reduce the radiation in the gutters meaningfully. But this passage was especially interesting - "[the] second-floor bedroom's radiation level barely changed, falling from 0.7 microsieverts per hour to 0.61 microsieverts per hour. Katayose was disappointed with the results." He was disappointed with a background radiation of 5.34Millisieverts/year for a house on the side of a mountain! Someone get this guy a physics textbook.

 

In another study looking at decontamination of wooded areas (remember they make up about 75% of the area), researchers found that removing fallen leaves and branches was enough to reduce radiation by 50 to 90%. (Source: http://ajw.asahi.com/article/0311disaster/fukushima/AJ201109160619). And finally looking at different scenarios, the environment ministry looked at the maximum and minimum amount of soil that would have to be removed for decontamination to 20 or 5 Milisieverts per year. (Source: http://www.yomiuri.co.jp/dy/national/T110925003737.htm). While the volume of soil discussed is large, there are simple inexpensive techniques that can reduce this amount to a fraction of the original amount (Source: http://ajw.asahi.com/article/0311disaster/recovery/AJ201108206604). The trade off is if you concentrate the waste, it becomes more radioactive and needs tighter monitoring. So either you have high volumes of low dose radiation, or low volumes of high dose radiation. There has been a government commission set up to determine the final guidelines for how the decontamination will be carried out...stay tuned.

 

2) "While nature reclaims the 20 kilometer (12 mile) no-go zone, Fukushima’s $3.2 billion-a-year farm industry is being devastated"

 

In fact, the rice crop has been radiation free (source: http://ajw.asahi.com/article/0311disaster/recovery/AJ2011092211619) and the initial scares proved largely unfounded. I estimate TEPCO will need to compensate farmers about $1.6billion (Y122bn) for lower selling prices, or half of their annual revenues, but there is -thankfully- no permanent damage to farm lands.

 

3) "...tourists that hiked the prefecture’s mountains and surfed off its beaches have all but vanished."

 

There has been a 50% drop in hotel revenues in the prefecture of Fukushima. Based on the compensation formula, 20% of this is being ascribed to the tsunami and the remainder to rumours about  radiation. Using a recent survey by a Hotel association in Fukushima covering 12.5% of all hotels in the prefecture, we can estimate the lost hotel revenues that TEPCO is liable for at Y166.4bn for the entire year after the Tsunami. (Source: http://www.yomiuri.co.jp/dy/business/T110926004309.htm).

 

So Y300-400bn for evacuees,  Y300bn for farmers and fisherman, Y200bn for tourism/hotels, Y300bn for businesses (there are no major factories or large businesses in the area, but they will owe money to larger enterprises far away that had to prove their products were safe), and Y220 billion for decontamination (how much the government has committed to spend, which we will assume they will recoup from TEPCO, source: http://af.reuters.com/article/worldNews/idAFTRE78730S20110908) gives us a rough pay out of Y1.5tn at the upper range.

 

Tepco has electricity sales of Y5.3tn a year and had FCF of about Y500bn/year in the past 10 years. Part of that FCF is now going to pay for higher oil and natural gas costs, but as unaffected nuclear plants come online - as they must to save Japan Inc. from even higher electricity rates - TEPCO's savings on fuel costs can be redirected to paying off the compensation. The market is pricing TEPCO today on the assumption that costs will explode, the public will demand blood even if it means cutting off their noses to spite their faces, and that things will never be normal again. The facts just don't bear that out. Time is our friend in this situation.

 

M.

 

P.S. Anyone want to guess what happened to Unit 1 at three mile Island after its sister unit in the same complex, Unit 2, had a partial melt down and released 92,500 TeraBecquerels of radiation (Fukushima released 770,000TeraBecquerels by comparison)? If you said "it's still operating to this day", you would be right.

 

 

 

[BargainValueHunter]

The question is does TEPCO have enough cash flow to cover these liabilites...

 

http://www.reuters.com/article/2011/09/29/tepco-idUSL3E7KS3HU20110929

 

Trade Minister Yukio Edano, who has the power to reject or approve Tepco's final business plan, this month suggested banks forgive some of their loans but Japan's top banks, including Mitsubishi UFJ Financial Group , Mizuho Financial Group and Sumitomo Mitsui Financial Group , have so far rejected such suggestions.

 

They are among lenders that provided about 2 trillion yen ($26 billion) in emergency loans to Tepco in the immediate aftermath of the nuclear meltdown.

 

The panel wants lenders to maintain their combined outstanding loan balance to Tepco at roughly 2 trillion yen for at least 10 years, and will ask Tepco to trim its annual expenses by an further 160 billion yen, the Nikkei said.

 

As of the end of June, Tepco had a little more than 4 trillion yen in outstanding loans and another 4.7 trillion yen in outstanding corporate bonds.

 

Other media reports have said the committee will propose the utility slash 14 percent of its workforce, trim pension payouts and begin selling 600 billion yen in assets to help pay for compensation.

 

The biggest prize in its asset portfolio is a 7.9 percent stake in KDDI , Japan's No. 2 cellphone carrier. The holding is worth around $2.7 billion.

 

Tepco also faces a 1.15 trillion yen bill to decommission four reactors in Fukushima, the Nikkei said. ($1 = 76.425 Japanese Yen)

[mloub]

The question is does TEPCO have enough cash flow to cover these liabilites...

 

That is of course the heart of the matter. And the answer, is it all depends. We can start off by scenarios that would kill TEPCO:

 

1) If the government drags its feet on releasing money from the Compensation fund because of political considerations. Remember the compensation needs to be paid soon, and TEPCO hopes to recoup the money over many years. The compensation law designed this fund to be an off balance sheet liability to keep TEPCO solvent. It is the equivelant of taking out an insurance policy, then filing a claim the first day. You get your pay-out, but then your premiums go up for many years. The compensation committee is talking about a 10 year pay back term which means in my opinion TEPCO could easily handle claims of Y1.5-2tn, but would likely fail or face significant share dilution if claims rose above Y4tn. I base this on TEPCO's historical FCFO of Y500bn.

 

2) If Compensation ends up being significantly higher than Y2tn - (See Above).

3) Another criticality accident at the plant with new radiation release.

 

4) A significant delay in allowing non-affected nuclear plants to come back on-line while concurrently refusing to allow TEPCO to raise electricity rates to make up for the rise in their fuel costs. There are projections that TEPCO's fuel costs without the Kashiwazaki-Kariwa nuclear plants back on-line would be about Y1tn/year (by contrast TEPCO spent an extra Y90bn on fuel in Q1 2012 with 5 of their nuclear plants operational at Kashiwazaki-Karu). TEPCO would have to raise rates between 15-20% to be made whole, which in my opinion is politically impossible. These plants have to be brought back on line. There is understandably a great deal of debate around this topic, but cooler heads are prevailing. Noda signaled his intention to have all non-affected plants back on-line by the summer, and some within the party have started to push for restarts by the end of the year (Source: http://www.yomiuri.co.jp/dy/national/T110924003182.htm). In my opinion, the sooner TEPCO reaches cold shutdown at Fukushima, the more politically palatable it will be to restart other plants currently in maintenance. Cold shutdown is two to three months ahead of schedule, which bodes well, in my opinion.

 

As for points (1) or (2), if the government delays release of money from the compensation fund, the evacuees would be the main victims. So I do not see a scenario where the government withholds the compensation funds. Up to this point, things have moved along as planned. As for the total liabilities, the panel set up to study TEPCO's restructuring has estimated that the compensation bill could be anywhere from Y3-4tn. As I have posted before, my own estimates are Y1-1.5tn. They have not released their calculation methodology, and I feel they are being quite conservative, as they should be. Time will tell.

 

In the good news front, the evacuation preparation zone was recently lifted within the 20-30Km circle, and so with the exception of the north-western swath, about 30,000 evacuees can now return home. The 3 reactors have just reached cold shutdown parameters (i.e. the water circulating around them is below 100 degrees celsius) and the total radiation output at the plant is 0.4mSV per year, but TEPCO has delayed officially announcing a cold shutdown until it has a few more data points. The formal announcement could come any day now, and that means that the 20km evacuation zone will be re-assessed soon. The number of outstanding evacuees after that point is hard to gauge, but it should be well below 50,000 as only those folks who live in areas with unsafe levels of contamination will be kept out while others within the circle to the due north and south, will be allowed to return.

 

As for (3), if this happens god help us all. I would consider this a major risk for any investment in Japan today, not just TEPCO. Thankfully, the chances of this diminish with each passing day as the Fuel cools down and TEPCO gains more control of the site. I consider this risk extremely low, but can't place a number on it.

 

In terms of (4), things have been promising and I think we may have a combination of outcomes. For one, the Japanese government and increasingly the national dailies in Japan have started to call for a restart of the reactors. The alternative - significantly higher electricity costs and a hollowing out of the manufacturing sector - are just not palatable. A pro-nuclear mayor just got re-elected, which is neither here nor there, but was seen in the wider Japanese media as a mini-referendum on nuclear power. The recent $20 drop in crude has also been a nice help. Each dollar drop in the Price of CIF Crude to Japan saves TEPCO Y15bn annually. (Source: Page 5 http://www.tepco.co.jp/en/corpinfo/ir/tool/presen/pdf/110809-e.pdf). Each drop in the Yen/US exchange rate by 1 Yen saves them Y16bn annually. (The Yen has appreciated by 6Yen against the dollar since the tsunami). And finally, each drop by 1% utilization of their nuclear power plants costs them Y11bn annually. (Their utilization rate was 29% in the first quarter, and will drop to 0% if the reactors in maintenance are not restarted within the year).

 

So, let's look at TEPCO's Liquidity situation

Mar 31, 2011 - Cash - Y2,248 Bn

                      Debt - Y8,903 Bn

                      Net Assets - Y1,602 Bn

 

The March 31, 2011 Statement of net asset was after a Y1,020Bn reserve to scrap the Fukushima Plants was established. And of note, TEPCO generated Y988Bn in FCF while spending Y661Bn on Capex during the year, for a conservative FCFO of Y327Bn. (It was likely more in reality because some of the capex was growth capex).

 

Q1 June 30, 2011 - Cash - Y1,794Bn*

(*Tepco only released their current assets in Q1, not the actual Cash balance, and current assets had decreased by Y454Bn from Q4, so I assumed this was entirely a reduction in cash).

                          - Debt - Y8,650Bn

 

Of the Y454Bn reduction in cash, Y250Bn went to paying down debt, and most of the remaining Y200bn was likely spent on interim compensation. This is cash that will come back to TEPCO once the compensation fund is set up. So, at Q1 end, TEPCO's cash position should be thought of as about Y2tn.

 

TEPCO has Y500bn in debt repayments this year, and will likely spend Y500bn on increased fuel costs and work on Fukushima, which should be offset by about Y300-400bn in FCFO, leaving them with about Y1.3tn by year end.

 

Next year, TEPCO has Y700bn in Debt repayments, at which point enough certainty should be present with respect to long-term compensation and clean-up costs that either banks rollover TEPCO's debt, or all will be lost.

 

M.

 

P.S. One final word about decommissioning Fukushima. Three mile island sat for 11 years before defueling operations began - which was the capital intensive part of decommissioning - and then decommisionig cost about 1 billion dollars. TEPCO could very plausibly argue that time is on their side, and develop a decommissioning strategy that depends on waiting for radiation levels within the reactor areas to naturally decline before carrying out costly decommissioning work, so I do not see this as a huge liquidity drain.

[BargainValueHunter]

Up 25% today!

 

Anybody know why?

[mloub]

BVH,

 

I haven't heard or read anything concrete. TEPCO is preparing their application to the new Nuclear Damage Liability Fund which should be out by early November - just before Tepco's quarterly release.

 

There has been speculation in the press based on insider reports that TEPCO will ask for Y700bn to Y1,000bn for compensation they expect to incur in the full fiscal year. It is possible people viewed these numbers favorably. (www.bloomberg.com/news/2011-10-18/tepco-to-ask-for-9-1-billion-for-fukushima-payouts-nikkei-says.html).

 

If compensation for a full year after the disaster is in the 700 to 1,000Bn range it is hard to imagine them hitting 4-10tn in final compensation costs which was the worst case scenario floating out there earlier in the crisis. TEPCO is planning to release their own estimate of the final compensation costs based on their experience to date in their next Quarterly release, which should be interesting. I expect TEPCO to release a very conservative - i.e. slightly inflated - compensation estimate, but I expect it will be less than the Y4.5Tn number that the investigation panel released a few months ago.

 

Of course the shares have gyrated wildly on little or no news in the past, and I would take both movements up or down at this stage with a grain of salt. The proof in the pudding - so to speak - will be the total compensation costs, and the restarts of Kashiwazaki-Kariwa. And for that we will likely need to wait and see well into the new year.

 

M.

 

 

 

[BargainValueHunter]

BVH,

 

I haven't heard or read anything concrete. TEPCO is preparing their application to the new Nuclear Damage Liability Fund which should be out by early November - just before Tepco's quarterly release.

 

There has been speculation in the press based on insider reports that TEPCO will ask for Y700bn to Y1,000bn for compensation they expect to incur in the full fiscal year. It is possible people viewed these numbers favorably. (www.bloomberg.com/news/2011-10-18/tepco-to-ask-for-9-1-billion-for-fukushima-payouts-nikkei-says.html).

 

If compensation for a full year after the disaster is in the 700 to 1,000Bn range it is hard to imagine them hitting 4-10tn in final compensation costs which was the worst case scenario floating out there earlier in the crisis. TEPCO is planning to release their own estimate of the final compensation costs based on their experience to date in their next Quarterly release, which should be interesting. I expect TEPCO to release a very conservative - i.e. slightly inflated - compensation estimate, but I expect it will be less than the Y4.5Tn number that the investigation panel released a few months ago.

 

Of course the shares have gyrated wildly on little or no news in the past, and I would take both movements up or down at this stage with a grain of salt. The proof in the pudding - so to speak - will be the total compensation costs, and the restarts of Kashiwazaki-Kariwa. And for that we will likely need to wait and see well into the new year.

 

M.

 

 

Thanks. :)

[BargainValueHunter]

Update:

 

http://www.washingtonpost.com/world/japan-to-provide-1255-billion-to-operator-of-tsunami-ravaged-nuclear-plant/2012/05/09/gIQAhOzqCU_story.html

 

Japan’s government on Wednesday approved a 1 trillion yen, or $12.6 billion, bailout for the operator of the disaster-stricken Fukushima nuclear plant, putting the giant utility under temporary state control as it continues to deal with the extensive damage at the facility.

 

The move, which had been widely expected, will prevent the Tokyo Electric Power Co., known as Tepco, from collapsing. With the newly authorized public funds, the company can decommission the stricken reactors at the plant on Japan’s northeastern coast, pay compensation to the tens of thousands of people who fled as radiation spread and provide electricity to its 45 million customers.

 

But the bailout also gives the government a majority share of the former monopoly, a change that will formally take place after Tepco’s annual shareholders meeting next month, according to the Kyodo news agency. Tepco will be forced to follow a restructuring plan that includes electricity rate increases, management changes in management and $41.4 billion in cost-cutting measures over the next decade.

 

 

[BargainValueHunter]

http://finance.yahoo.com/news/japan-oks-restart-1st-reactors-031922741.html

 

TOKYO (AP) -- Japan's government on Saturday approved bringing the country's first nuclear reactors back online since last year's earthquake and tsunami led to a nationwide shutdown, going against wider public opinion that is opposed to nuclear power after Fukushima.

 

The decision paves the way for a power company in western Japan to immediately begin work to restart two reactors in Ohi town, a process that is expected to take several weeks.