Thursday, October 24, 2013

TEPCO Procurement Reform

TEPCO has indicated that it plans to dramatically reform its procurement methods.  It will expand by a factor of 4 -- from 15% to 60% -- the portion of its material and construction purchasing that is subject to competitive bidding, and open the bidding process to further participants rather than the "usual suspects" approach where relationships are favored over pricing.

According to Nikkei, TEPCO's annual outside purchasing is approximately $20 billion per year.  It expects to save $1 billion in annual costs once the new structure is in place, over the next 2 fiscal years.

This decision was forced upon TEPCO by its current financial predicament, its government ownership, negotiation with its banks and delays in its nuclear restart.  In the absence of such extraordinary factors, TEPCO would not have done it -- since the entire "mura" derives great benefits from the money that leaks out to affiliates, subcontractors, former employees/directors and other friends ...  But the system is one reason why Japanese electricity is so expensive, and why it costs 2X or 3X for TEPCO to do something as compared to the cost in Europe or the U.S.  The consumers are the victims; the system is not transparent, intentionally.  But TEPCO's current crisis is forcing change.

The big question now is will the utilities will take similar measures?

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