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Politics

Japan opens door to power companies buying into overseas projects

Domestic providers such as Tepco stand to benefit

An LNG tanker docks at a Tokyo Electric Power Co. Holdings plant in Japan's Chiba Prefecture. The government aims to offer aid to LNG projects supporting Japanese companies abroad. (Photo by Shinya Sawai)

TOKYO -- Japan will make it easier for domestic power companies to invest in overseas power plant projects as part of an effort to boost the country's infrastructure exports to Southeast Asia.

Letting trading houses and other businesses that spearhead such projects pass a portion of the heavy investment burden of power operations to electric companies and others is expected to speed the process of recouping costs.

Exporting more infrastructure has been a major goal of the administration of Prime Minister Shinzo Abe. Tapping power companies such as Tokyo Electric Power Co. Holdings' know-how in overseas projects being undertaken by trading houses, heavy equipment makers and others is expected to help develop markets where demand is growing.

The country's power providers do not have much of a footprint outside Japan, but declining prospects at home have them looking overseas. Investing in infrastructure projects abroad has not been a viable option, but a planned loosening of regulations is expected to change that.

Trading houses and other companies receiving support from government-backed entities such as the Japan Bank for International Cooperation and Nippon Export and Investment Insurance are currently forbidden from selling stakes in overseas infrastructure projects to third parties. The rule is intended to prevent the sale of interests to foreign companies for a profit. But the government aims to relax the rules to allow the sale of stakes as high as 20%.

A government council on infrastructure strategy will on Tuesday decide on ways to ease the regulations. The council's decisions will be incorporated into a future investment strategy in June, and related rules are to be revised within the year.

Japan's seven main trading houses -- Mitsubishi Corp.Mitsui & Co.SumitomoItochuMarubeniToyota Tsusho and Sojitz -- have a combined overseas power capacity of nearly 40 gigawatts, equivalent to about 40 nuclear power plants. Marubeni leads the pack with about 12GW.

Some trading firms are weighing selling stakes in overseas infrastructure developments, says a government source.

The decline of Japan's population is expected to eat into demand for power, and the recent liberalization of the retail power market has shaken regional monopolies and made it harder for major players to pass costs onto consumers.

Tepco, Japan's biggest power company, has been eyeing overseas expansion but lacks the funds to launch a large undertaking on its own. Letting operators of overseas infrastructure ventures sell stakes could provide Tepco with an opportunity.

According to Japan's Ministry of Economy, Trade and Industry, foreign sales account for 50% to 70% of the operations of major European energy companies such as Germany's E.ON. The figure is about 20% for Japan's Electric Power Development, known as J-Power, but even smaller for the country's major electric power and gas utilities.

The government will also expand support for fuel procurement. So far it has offered subsidies such as low-interest financing from JBIC or low premiums from NEXI only to operations exporting fuel to Japan or building shipment facilities in producing countries. These benefits will be widened to Japanese companies bringing LNG into other consuming countries, as well as to construction of LNG terminals in consuming markets.

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