Fukushima – Compensation of Nuclear Damage after Great Earthquake in Japan

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The government’s role on nuclear power development is restricted in activities listed below.

–Determining long term plan
–Regulating for the safety
–Regulating electricity rate to make electric power companies to obtain profit from high-cost nuclear power generation
–Assisting research and development (R&D), especially Fast Breeder Reactor
–Subsidize to local municipalities in which area important nuclear facilities are located.
–Assisting radioactive waste disposal
–Providing insurance

Government  as insurer is becoming important more and more.

•The insurance function of government needs relatively small budget (if no events occur), but it plays very important role.
•Recently insurance function of government (“taxpayer as last resort”) is becoming important more and more.
•For example, when big financial institutions failed in financial crisis, they were bailed out by government (ultimately by taxpayers burden) though they gained big profit before financial “bubble” collapsed.

The Cost inflicted by Fukushima Daiichi Accident

•Japanese government released “Guidelines for the scope of the Nuclear Damage” April 28 and May 31. which includes:
–Compensation to victims who were forced to evacuate and lost there properties and jobs
–Compensation to the money which refugees paid for evacuation
–Compensation to unsold agricultural, diary and fishery products. They are not limited within the products contaminated by radioactive substances over shipment limitation.
•Fukushima Daiichi NPS (1F) is operated by Tokyo Electric Power Company (TEPCO).
•Total Asset of TEPCO as of March 31 is 14,790 billion yen.
•Total Debt is 13,187 billion yen. (very large)
•Net Asset is 1,602 billion yen.
•On the other hand,  payment for compensation may reach several trillion yen. And cost for purification of contaminated land also may reach several trillion yen. Therefore TEPCO is sure not to have solvency for compensation and cost of purification.
•In Japan, nuclear facility operator should join two compulsory liability insurances.
•The first compulsory liability insurance is owned by government. It is called “Indemnity Agreement ” in the “Act on Compensation for Nuclear Damage ”. This insurance covers
–Damage caused by earthquake or  volcanic  eruption
–Damage caused by normal operation
–Damage not claimed within 10 years from the accident.
•The upper limit of this insurance payment is 120 billion yen.
•Second compulsory liability insurance is privately owned, Japan Nuclear Insurance Pool which is organized by big nonlife insurance companies in Japan.
•This privately owned compulsory insurance covers the claims not covered by government owned compulsory insurance.
•The upper limit of this insurance payment is also 120 billion yen.

Government owned nuclear insurance bankruptcy

•Fukushima nuclear disaster was caused by earthquake and tsunami, therefore its claim is covered by government owned insurance.
•Government owned insurance should pay at least 120 billion yen, but the sum of insurance fee collected from 1962 to 2010 is only 15 billion yen. (reported April 13 by Mainichi Shimbun newspaper)
•In fact government owned insurance substantially went bankrupt.

Leaked government documents reveal

•The “Diamond Online” (http://diamond.jp/articles/-/12350) revealed detail of the new scheme based on leaked government documents:
•Nuclear Damage Compensation Facilitation Corporation provide 10 trillion yen to TEPCO.
•TEPCO’s contribution may be 200 billion yen per year and other electricity companies with nuclear power stations (including now in construction or suspension) contribute 200 billion yen per year.
•TEPCO and other electricity companies raise electricity rate to pay these contributions.
•Japanese government provide 10 trillion yen to Nuclear Damage Compensation Facilitation Corporation, and the Corporation return the money by the contribution from electricity companies.

Why should TEPCO survive?

•Japanese government explains:
–The “Act on Compensation for Nuclear Damage” declares government’s obligation to give aid to nuclear operator (article 16).
–The government insists if TEPCO go bankrupt, its great debt beyond 13 trillion yen may make world financial market unstable.
–And if TEPCO go bankrupt, the power supply to Tokyo metropolitan area is afraid to stop.

Why doesn’t Japanese government provide money to TEPCO directly?

•Japanese government explains that if government directly provide money to TEPCO and TEPCO is obliged to return it, the money become TEPCO’s debt therefore it does not help to relieve TEPCO’s financial difficulties.
•But under Nuclear Damage Compensation Facilitation Corporation scheme, there is no direct contract between the Corporation and TEPCO (TEPCO is ordered  by government to contribute), therefore the money provided from the Corporation  becomes donation to TEPCO and does not become TEPCO’s debt, according to Japanese government.
•I have enough ability to judge this explanation is valid or not, but I feel this explanation is very suspicious.

Opponents says

•The new TEPCO support scheme should be cancelled and TEPCO should be liquidated. Because:
•TEPCO should be punished because
–it neglected the risk of tsunami and
–its inappropriate treatment after earthquake and tsunami brought great nuclear disaster.
•TEPCO’s shareholders and creditors also should be punished because they fed the money to construct nuclear stations. (I feel this is very populist opinion)
•When the “Act on Compensation for Nuclear Damage” was legislated, a great damage such as Fukushima nuclear disaster was not expected. Therefore we should ignore the article 16 of this act.
•The liquidation of TEPCO will make Japanese electricity market more competitive and efficient.

The closing remarks of this presentation are:

•(1)Japan is very disaster prone and densely populated country. But there are many nuclear facilities in this territory. This is the result of moral hazard brought by insurance-like schemes prepared by Japanese government.
•(2) Japanese government prepared two insurance-like schemes before Fukushima disaster; government owned “Indemnity Agreement” and privately owned “Nuclear Insurance Pool”. Private owned nuclear insurance does not cover the risk of earthquake and volcanic eruption. These risks are covered by government owned insurance.
•Government owned insurance has very important, critical role in Japan to use nuclear energy.
•In other words, If no government owned insurance, there should be no nuclear power station in Japan.
•(3) The instruments previously installed for compensation (i.e. two insurance-like schemes) were revealed to be very insufficient. Government owned insurance substantially bankrupted due to Fukushima nuclear disaster.
•(4) Though TEPCO is one of the largest companies in Japan, the damage of Fukushima nuclear disaster is far beyond the solvency of TEPCO who is responsible to this disaster.
•Japanese government chose to salvage TEPCO and made the third scheme (Nuclear Damage Compensation Facilitation Corporation). Under this scheme, electric power rate will be raised therefore the consumers of electric power will bear the burden of the cost of Fukushima nuclear disaster.


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