I’ve been getting a few inquiries on the government’s (so far) successful decision to essentially force TEPCO’s private-sector stakeholders—employees, shareholders, creditors, sister regional (de facto) monopolies, and yes, consumers—to foot the entire bill while remaining for the time being for practical purposes the guarantor of TEPCO’s solvency and viability. The following is my written response, unedited, to an email that refers to a Nikkei report that Prime Minister Kan is asking TEPCO pensioners to join the rest of the stakeholders lining up for haircuts. I relied solely on my memory to write it and I’m not a lawyer, so some of the facts being used may be a little off, but I’m pretty confident that the overall narrative is pretty sound. I’ll also add here, as I told one of the inquirers on the phone, that the SOB that (I think) he is, he puts policy ahead of politics, not the other way around as more conservative parts of the Japanese mainstream media suggests.
I’ll meet you half way. I agree that Kan is an SOB. Anecdotes in the media and on the grapevine suggest that he’s been that way all along. But “political” SOB? I’m not so sure, at least in this case. True, TEPCO pensioners are not legally responsible for the mess barring the individual TEPCO pensioner whose individual contributory negligence is proven. However, if the government does not step in beyond the 120 billion yen and keep TEPCO solvent, creditors (or TEPCO) would have no recourse but to enter into one of the bankruptcy procedures and take significant haircuts. The no-doubt very generous discretionary portion (上乗せ部分) of the corporate pension plan will be in jeopardy, as TEPCO payments into the pension fund will be slashed, affecting TEPCO pensioners present and future. So, if it’s not unreasonable to demand that if the government is going to step in to save TEPCO, all stakeholders—and that includes the sister regional monopolies if you think about it—must chip in with a portion of their potential losses in the event of bankruptcy, then it’s not unreasonable to demand that TEPCO pensioners pitch in too. If this story sounds familiar, it is. It’s the parable of the JAL pensioners.
So much for Kan’s jerkhood. Or is it? Are we carrying strict liability too far? After all, one of the concessions that the government made to convince Chubu Electric Power to stop its one currently operating nuclear unit was to agree that CEP had done nothing wrong and was shutting the unit down purely as a matter of government policy. Now TEPCO stakeholders must be wondering: What does CEP have that TEPCO doesn’t? One journalist reminded me, “The accident.” True. And the Nuclear Power Indemnification Act (NPIA) demands strict liability. But Chief Cabinet Secretary Edano has on at least one occasion stated that TEPCO and the government are jointly and separately liable (不真性連帯責任), and a couple days after that the responsibility was a 50-50 split. Legally, that means that TEPCO can sue the government to shoulder its prorated-for-responsibility part of the damages. Moreover, there’s a plausible case to be made—I won’t bother with my reasoning here—that Article 3, paragraph 1, of NPIA should be invoked, putting the entire damages squarely on the government’s shoulders and the government’s alone.
The government has been doing a pretty good job of bluffing TEPCO into submission, and the TEPCO board of directors would have to move to the Caymans or someplace else where right-wing megaphone vans and firebombs cannot reach their dwellings before they could make a stand. Still, there’s no reason to believe that overseas shareholders and creditors—say, some hedge fund in Connecticut that happened to have been holding a chunk of TEPCO shares before the tsunami inundated Fukushima 1 might have reason to bring a shareholders suit on behalf of TEPCO against the government—it would be an administrative lawsuit in the case of Article 3, paragraph 1 and a civil lawsuit in the case of recovery of prorated damages—or TEPCO board members for damages.
In fact, the alternative that I present here would be a very real one if this occurred in a different socio-political environment. (Say, Delaware?) So, barring the odd US hedge fund—and there’s probably a legal minimum proportional holding required to bring shareholder lawsuits; you can look it up—the saga is likely to unfold more or less according to the government’s storyline,although there will be political bumps along the road. But no one seems to have a better alternative, and no one appears willing to contemplate an formal bankruptcy whose ramifications for the immediate stakeholders and more broadly the Japanese economy itself are unknown. In the meantime, though, it is only fair in my view that TEPCO pensioners, like any other group of stakeholders, shoulder its proportional share of the full financial burden.
BTW it is useful to keep in mind that TEPCO is likely to be allowed to more or less pass on the 1 trillion yen/yr in extra fuel costs and the write-down for at least four nuclear power units, and all the regional monopolies should also be allowed to include their payments into the newly proposed sinking fund in calculating their tariffs. So we the electricity consumers will also be sharing the costs of the disaster.