Mumbai: Japan has rejected a proposal from The Children's Investment Fund of UK to raise its stake in Electric Power Development Co (known as J-Power), Japan's biggest electricity utility, citing risks to public order.

The Japanese authorities have denied permission to the London-based hedge fund to raise its stake in J-Power from 9.9 per cent to up to 20 per cent despite its offer to forgo voting rights on nuclear power issues. (See: Japanese government set to reject UK fund's bid for J-Power)

The Bank of Japan has asked The Children's Investment Fund Management Ltd. via a lawyer that it should withdraw an application to increase its stake in Electric Power Development Co., the ministries of trade and finance said in a joint statement.

TCI, the biggest individual shareholder in J-Power, has time until April 25 to respond. If the fund fails to abandon its attempt within the stipulated 10 days, the government will issue an order.

This is the first rejection under a new Japanese law that requires companies in sensitive sectors such as utilities, broadcasting and defence production to seek government approval to raise foreign stakes above 10 per cent.

The $10 billion TCI in an e-mailed statement also said the government should transfer control of the utility's Oma nuclear plant to a state-run firm, to preclude any influence by public shareholders.

Government officials said the fund may control decisions at J-Power that could in turn hurt Japan`s overall energy policies, including a key nuclear power plant project slated for completion in 2012.

J-Power is building its first nuclear power plant in northern Japan's Aomori Prefecture, with commercial operations slated to begin by March 2012. The plant will use MOX fuel, a uranium-plutonium mixture, including recycled plutonium.

Any change in the plan schedule could endanger the operation of a plutonium reprocessing plant, which in turn would hurt other nuclear power plants in Japan that are counting on the plutonium supply, officials said.

The plant will employ reactor technology developed by General Electric Co and Hitachi Ltd, and turbines made by Toshiba Corp, a J-Power spokesman said.

J-Power was privatised in 2004 under the economic reform programme to wrest the world`s second-largest economy out of a decade-long stagnation.

Japan is not alone in blocking high-profile investments in key sectors of the economy. The US, the UK as well as some other European nations have measures in place to control stakes in companies considered critical to national security or energy needs.

Last year, Japan's Supreme Court rejected an appeal by US investment fund Steel Partners to block its takeover bid by sauce-maker Bull-Dog Sauce Co. Steel Partners also has faced resistance in trying to raise its stake in Japanese beer maker Sapporo Holdings Ltd.

John Ho, head of TCI's Asian division, said the fund remained committed to J-Power,  the only generating company in Japan with a transmission grid linking all four main islands, and is building its first nuclear power plant.