Chubu Electric in Talks to Buy Hydro Plants in Japan

By Shigeru Sato and Michio Nakayama

Feb. 3 (Bloomberg) -- Chubu Electric Power Co., Japan’s third-biggest utility, is in talks to buy hydropower plants from two regional governments that are raising funds for stimulus packages to cope with a deepening recession.

Nagano and Mie prefectures in central Japan plan to sell 24 plants, said officials familiar with the deals, who asked not to be named as contracts haven’t been signed. Noriyuki Narugami, a Chubu Electric spokesman, confirmed by phone from Nagoya that the regional governments are in talks on the sales.

Japanese utilities want to increase generation from renewable resources such as hydropower to meet goals for reducing carbon-dioxide emissions. Local governments are trying to fund stimulus programs aimed at lifting their economies and are finding it difficult to profit from hydropower since the electricity market was deregulated in 1995, lowering power prices.

“These hydro businesses haven’t been contributing to municipal governments’ finances, and they should be sold off to private entities if they can’t make a profit,” said Hirofumi Kawachi, a senior energy analyst at Mizuho Investors Securities Co. in Tokyo.

Nagano will sell all of its 14 hydroelectric plants, officials with direct knowledge of the talks said. Mie prefecture started talks to sell 10 hydro plants late last year and will finish negotiations by March 2010, said an official familiar with the deal who asked not to be named until an agreement is reached.

Hokuriku Purchase

All 24 generators may cost about 28 billion yen ($313 million), according to Bloomberg calculations based on the total capacity and using the price Hokuriku Electric paid Fukui prefecture for its assets.

Hokuriku Electric Power Co. agreed in October to buy hydropower stations with capacity totaling 50 megawatts from Fukui for 7.2 billion yen. Nagano’s 14 plants have a total capacity of 99 megawatts and Mie’s 10 generators have 98 megawatts.

Ishikawa prefecture, with a population of 1.17 million, last week agreed to start talks with Hokuriku Electric for the sale of its five hydropower plants with total capacity of 36.1 megawatts, an official familiar with the discussions said. The two sides aim to agree on a deal by March 2010.

Chubu Electric shares lost 2.6 percent to 2,440 yen at the 11 a.m. morning break in Tokyo trading, in line with the 1.9 percent decline in the 17-member Topix utilities index. Hokuriku Electric fell 1.6 percent to 2,500 yen.

Stimulus Measures

Japan is facing its worst recession since World War II, with factory production dropping in December by an unprecedented 9.6 percent and companies from Hitachi Ltd. to Nippon Oil Corp. cutting earnings targets, prompting state and local governments to hammer out emergency rescue plans.

The Nagano assembly last month passed a 5.9 billion yen supplementary budget to its 833 billion yen budget for this fiscal year to provide low-interest loans to farmers and small- and medium-sized enterprises. Mie will vote this month on a package of relief measures. Details of the plan have yet to be decided, according to the government’s Web site.

Japanese utilities have said they will cut the amount of carbon they produce to generate a kilowatt-hour of electricity by 20 percent from the 1990 level by 2012. Japan, a signatory to the Kyoto Protocol on climate change, pledged to cut emissions of gases blamed for global warming by 6 percent from the 1990 level by 2012. The country’s total emissions rose 2.3 percent last financial year because generators burned more fossil fuels.

“Our purchase last year of the Fukui prefecture plants was part of efforts to buy up generators run on renewable energy as we increase the use of hydro, solar, wind and biomass fuel,” said Tomonobu Yoshida, spokesman for Hokuriku Electric, which supplies customers in central Japan’s Toyama, Ishikawa and Fukui.

Hydroelectric power costs about 11.9 yen a kilowatt-hour, according to Chubu Electric. That compares with 5.3 yen for atomic power, 5.7 yen for coal-fired generation, 6.2 yen for natural gas and 10.7 yen for oil.

To contact the reporter on this story: Shigeru Sato in Tokyo at ssato10@bloomberg.net.