Japan's Tepco, Chubu Electric plan to merge existing thermal power plants

Japanese utility majors Tokyo Electric Power Co and Chubu Electric Power Co are planning to combine their existing thermal power plants through a new joint venture, creating a utility giant with over half of the market share, Japan Times reported.

An agreement to the effect is expected to be reached later today, according to the newspaper.

The companies will form a 50:50 joint venture by April, and both the utilities' thermal power plants will be transferred to the new company in several years.

Earlier, in October, Tepco and Chubu said that they would team-up to buy liquefied natural gas (LNG) and build new power plants. They formulated plans for joint initiatives for investment in upstream gas projects overseas, building new thermal power plants and procurement of LNG. A possible deal on existing thermal power plants of both the companies is a continuation of earlier plans.

The utilities have a combined output of around 70 million kilowatts from their thermal plants, as of March 2014, more than half of the country's total thermal power generation capacity from ten regional electric players.

Through the joint venture, the companies expect to reduce fuel and other costs besides achieving economies of scale in repair and maintenance work, according to sources.

Tepco imports around 25 million tonnes of LNG while Chubu buys 14 million tonnes, mostly through long-term contracts from Qatar, Malaysia and Russia. A business combination is expected to place the companies in a better bargaining position with respect to pricing of gas.

A time frame for achieving the partnership is still not known and will depend on how the tie-up proceeds.

The deal opens a new chapter in Tepco's rehabilitation plan approved by the government in January last year, as the company has been struggling in the aftermath of the 2011 Fukushima nuclear catastrophe. Since then, it has ramped up expensive LNG imports amid its huge liabilities for compensation to the disaster victims. 

According to analysts, the Tepco-Chubu combination would spark greater cooperation or merger among Japan's regional players which dominate the power generation and transmission in the country.