Fukushima Nuclear accident: who will pay the bill?

The March 11, 2011 earthquake and tsunami severely damaged the facilities of the Fukushima plant. Since then, Japan has been facing the world's second most important catastrophe after Chernobyl.

Fukushima Nuclear accidentPrimarily responsible for the crisis of the Fukushima nuclear accident, TEPCO, which supplies a third of Japan's electricity, has proceeded to the indemnification of victims. It will disburse an initial down payment of 12 000 USD for each evacuated family. In total, nearly 48 000 households living within a radius of 30 km around the plant will benefit from this first disbursement. The bill is poised to reach at least 600 million USD in addition to the 24 billion USD required to solve leakage problems on the site.

Moreover, TEPCO will have to cover medium and long-term compensation of losses such as the contamination of water and arable land. This cost is likely to reach an additional 24 billion USD. Should the crisis go on, this bill could exceed 130 billion USD according to Bank of America Merrill Lynch.

To cope with these exceptional expenses, TEPCO, which is already overburdened by a debt of 91 billion USD, compounded since the accident by a new bank loan worth 24 billion USD, is most likely to be financially rescued by the Japanese State. It will also initiate a broad cost-reduction program, starting with staff members’ wage cuts.

Fukushima nuclear accident: consequences and compensation

The Fukushima accident has not only caused significant damages to the site’s nuclear reactors, but it also caused power and water outages, the radioactive contamination of the technicians and population. In addition, air, soil and marine environment are contaminated, causing, thus, considerable medium and long-term damages.

The issue of compensation for damages caused to properties and victims has already been raised. In Japan, there is only an obligation of third party liability insurance for the operator of a nuclear plant. Underwriting a property damage policy is not compulsory.

Regarding the damages caused to third parties by the Fukushima nuclear accident, the third party liability of Tokyo Electric Power (TEPCO), the power company owning the plant, has been highlighted since the outbreak of the crisis.

Tepco’s third party liability insurance covering damages to third parties is limited by law to 120 billion JPY, that is about 1.5 billion USD. However, this coverage does not include major natural catastrophes like earthquakes and tsunamis. In fact, Japanese law excludes the third party liability of the operator in case of major disaster. Hence, it is the Japanese government which is expected to support most of the damages occurred to third parties.

The material damages caused to Tepco’s properties would be supported by the company itself which, unfortunately, refused to renew its property policies in August 2010 on the grounds that the proposed rates were too high.

The nuclear risk coverage at the international level

The coverage limits and insurance premiums vary from one country to another. In the United States, the average property damage premium amounts to 400 000 USD per reactor for a coverage of 375 million USD. In France, Assuratome the insurance pool provides a capacity of 757 million USD for the entire market (damages to property and third party liability combined). In Japan, the capacity offered for damages and legal liability by the Japan Atomic Energy Insurance Pool (JAEIP) is around 1 billion USD.

Today, there are 20 active pools worldwide. In terms of capacity, the JAEIP pool ranks first, followed by the Swiss Nuclear Insurance Pool (856 million USD) and the French insurance pool Assuratome.

Nuclear operators, worldwide, pay a total annual premium of about 700 million USD, 75% of which for damages to property premiums and 25% to third party liability premiums.

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