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This time, a look at the energy situation – do we have enough of it in short term for this summer and how does the long term development and market liberalization look like today? Also another look at the farcical political discussion about new guidelines for "collective" defense together with US allies and whether the Constitution written by the Americans 65 years ago need to be changed to do that as PM Abe and the very writers now wish. Some new moves in China relations seem worth a comment, too.

While the outlook for general economy and business is turning out brighter than many pessimists have painted, things sure look more challenging for Japan's energy industry. The 9 big regional monopolies continue to supply most of the electricity through their own grids, nuclear power plants remain turned off and government measures for market liberalization are taking hold only slowly. With economy booming and no nuclear power plant yet passing the strict new safety requirements, the estimates for summer electricity balance say that it will be a close shave for sufficient power this summer across Japan. The supply is said to be just 3% over the expected peak demand in Kansai and Kyushu, the very minimum of safety margins, so these areas could face black out if even one old coal plant has a mishap or needs unexpected service. Other areas are not much better off with national average surplus estimated at 4,6%. Yet, government has again assured us there is no need for special energy saving measures.

As it happens, the first NPP expected to pass NSA's safety check belongs to Kyushu Power, but the date has been postponed several times as the agency has been adding more and more to its originally over 1000 page long check-up list. The other restart requirement, namely the local government's blessing, seem now clear for Kyushu as the local voters re-elected a pro-nuclear LDP local governor with big margin end April.

In Kansai, the situation is more difficult. Kansai Power says it has spent already JPY 300 billion (USD 3 billion) to safety upgrades and this partly contributed to JPY 100 billion (USD 1 billion) corporate loss in FY'13. Any restart also need support from governors in several affected prefectures and among them at least one, Shiga, is decidedly anti-nuclear today and facing an election later this year. Other "nuclear" prefectures with governor elections this year risking anti-nuclear candidates' win are Ehime, where a restart is said to be close, and Fukushima, which hosts the morbid ruins of "F1". For its owner, Tokyo Power, despite all central government support, things look pretty bad in local politics as the governor of Niigata prefecture, where Tepco's biggest NPP is located, is decidedly against restart permission for the "morally bankrupted" company. Just as to confirm the governor's case, Tepco booked billions of government funds given to it to compensate Fukushima people in its accounts as its commercial profit, so it could show it was profitable, a target required by the banks to grant new loans that will continue to keep the company alive. Such accounting from a well-known listed company should warrant an enquiry from the stock of exchange.

From national point of view, the NPP restarts are in urgent need when you look at the fresh trade data. March trade gap hit monthly record with imports surging +18% or ten times more than the exports grew bringing the trade gap for the whole FY2013 to whopping JPY 13,75 trillion (USD 137 billion), third negative year in row for the first time ever. The extra cost from buying more high priced fossil fuels to substitute nuclear contributed remarkable USD 35 billion share of this gap. Despite Abenomic wishes, it seems clear the exports won't grow much more to help cover the gap as Japan's industrial capacity has been greatly reduced following years of sourcing it out to China and other Asian countries as well as to USA and Europe.

The financial situation of the regional monopolies looks also serious without the nuclear restarts. Tokyo Power Co is already under government control following big injections of public money after the Fukushima catastrophe and now two more, namely Kyushu and Hokkaido, have applied for government help to survive and continue serve their areas. Others are not much better off following three years of supplying electricity at government controlled prices that, despite some increases, do not cover the costs of production without help of nuclear. It is said that the total loss for the nine old monopolies amounts up to USD 47 billion and their total corporate debt has now reached to USD 200 billion. Clearly they are never able to fully recover from this. Hence big changes are bound to take place in the energy sector not only through new government rules, but by financial necessity and increasing competition. Some 10% of the big industrial users, who are now allowed to freely choose their power supplier, have already dumped the big old giants. Many private consumers are bound to follow once they are allowed the same choice.

New ventures with new technologies and fresh money are coming in to substitute or complement the old ones in the newly liberalized market. It is said that the ongoing investments to solar power will this year reach over USD 20 billion making Japan world's biggest solar investor surpassing USA and China. As the surrounding seas are of abrupt depths, different from the shallow North Sea for instance, Japan is creating new floating wind power technologies, that one day can be exported. It is also drilling for methane gases in unforeseen depths and looking for new solutions in geothermal power. Some forest companies have started up the first biomass boilers targeting electricity sales and not just powering their factories.

Ruling parties managed this spring to agree on a unified energy policy paper that they will present to the Diet for debate. Once confirmed, it will set the national targets for the overall development ahead. Importantly, the policy paper states that "nuclear power remains an important base energy source" while, on the other hand, government is "obliged to develop renewable energy as a major alternative". Exact figures for each energy form are not spelled out, but it is said that the renewable energy target will be around 20%, a huge increase from current 1% excluding hydro. Nuclear power plant restarts are expected to cover 14-18 NPP's and to make just 12-14% of the total supply. In other words, two out of each three plants standing idle today – totally 30-34 NPP's - are not expected to ever start again, some due to their old age close to 40 years maximum limit, some because of their dangerous location. This would make nuclear power's share smaller than renewables in future Japan. Fossil fuels would remain the main source of energy, but Japan has great expectations that less polluting natural gas, especially the new "shale" gas from North America, would prevail over coal and oil. This sounds all reasonable and realistic.

Yet with the drawn-out schedule for the changes and the old monopolies still fighting for their existence, it seems Japan has chosen again the hard, long way to do the necessary changes, not quick and effective as others probably would do. In long term, there is light at the end of the tunnel, but in short term, we must just hope there is enough electricity to carry us again through the summer with no blackouts.

The discussion about if and how to change Japan's self-imposed, pacifistic defense rules that do not any more suit to today's reality, is even more slow-moving. PM Abe's pet idea to change parts of the Constitutions to allow for practical changes in the defense guidelines has shrank into an endless debate of whether what can be done in what situation and what rules, if any, need to be changed. Remarkably, the whole debate has been hijacked from PM's hands by just about every Tom, Dick and Harry in LDP and other parties. All kind of party bureaucrats starting from Ishiba, who lost the run for party leader to Abe in 2012 and serves today as party secretary (No.2), down to various committee heads, are claiming "leadership" in this highly newsworthy topic. Yet, it seems clear that it is at Komeito, the Buddhist party, who is LDP's ruling partner, where "the buck stops" as they say. And what this highly pacifistic party says, is that there is hardly any need to change laws at all.

PM's trump cards in the game turned out both flat: his hand-picked private "expert committee" was too clearly railroaded by PM in its pro-view and his handpicked legislation bureau chief tendered in resignation "for health reasons" instead of giving his expected pro-view. Now it seems the inter-party committee talks will go on to the end of this parliament session in June without any conclusion. In other words, PM's legislative initiative is buried for the time being. Once again, Japanese politicians managed to make a simple looking, sensible issue into a big comical mess.

It is evident that a power change in the political field within LDP is behind all this. As explained earlier, not only other parties but many veteran leaders in his own party do not like Abe despite his continued popularity among the voters. Many of them are concerned how his pet policies including the constitution change and rewriting history have repeatedly clashed with Japan's national interests for good relations and positive trade and investment with the neighboring countries. One concrete sign of this was the parliamentary delegation that visited Beijing during Golden Week, while Abe was tripping around Europe, to discuss possibilities to build the relations back to normal level. The delegation leaders were LDP veteran Komura, who has served as Foreign Minister in the past, DPJ vice chairman Okuda, who was Foreign Minister in all three past DPJ governments before LDP's return to power under Abe, and ruling partner Komeito's No.2. Their message, that China should separate the geopolitical feuds from beneficial business activity, seemed to be received well, especially against data of a big drop in Japanese corporate investment in China this year. Soon afterwards, there was a meeting between the trade ministers of the two countries, first one in long time.

Back at home, political gossip says that ex-PM Fukuda, who also has been visiting China several times with the same message, would get wide support from other LDP elders, should he stand up to challenge Abe as the party leader. Another ex-PM, who thinks he should be re-elected, but do not enjoy such wide support for his bad mouth, is Aso-san, who chooses to make his case by calling the current boss as "Abe-kun" to emphasize his seniority and superiority. Throwing their voice in the melee are ex-PM's Koizumi and Hosokawa, who have now launched their anti-nuclear movement on national level after their failed effort in the Tokyo governor election in January.

Meanwhile, things are cooking up against China government, too. A not unexpected move to push its ownership case of the entire South China Sea against Vietnam backfired badly with a violent popular rising of anti-China feelings there. It must have been quite a dilemma for the Chinese media how to report about the Vietnamese mob burning and looting Chinese factories there, exactly the same as Chinese did to Japanese factories some time ago "to express their rightful anger against the oppressors". It seemed that the only difference was that the Vietnamese demonstrators came riding their own motorbikes, often three-on waving flags, and not in government sponsored buses, and that they were not that well instructed as they, by mistake, looted some Taiwanese, Korean and Japanese factories, too. As show of the country's newly found technical, if not moral, progress, it was reported that the communist Prime Minister himself was sending mobile text message instructions to millions. Yet, The People's Daily and others in China found that the reason for this sudden Vietnamese outburst against "friendly China" was that it was orchestrated by Japan and USA. "Stop mingling in our peaceful relations", the warning went to these two "outsiders".

After all the propaganda war about an island in East China Sea, it looks like China's focus has now shifted to South China Sea, but there those at the receiving end, even if much smaller, are not as docile and apologetic as Japan has been.
Timo Varhama  
May 21, 2014  

Previous Columns

12 May 2014
Economic Outlook: Consumers Still Genki, Companies Profitable

30 April 2014
Travels, Trade Deals and Security Concerns

3 April 2014
Colorful stories and scandals, serious tax challenge to consumers

20 March 2014
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21 February 2014
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10 February 2014
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23 January 2014
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16 January 2014
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18 December 2013
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27 November 2013
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21 October 2013
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1 October 2013
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25 October 2011
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27 September 2011
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19 May 2011
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28 January 2011
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About the Columnist

The columnist is a Japan veteran among Finnish business, our Chamber ex-president and today Member of the Board of Trustees.
After running a major Finnish industry company's Japan business for over 20 years, he is now Senior Associate in a strategic consulting company.

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