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Fate of Toshiba's Nuclear Projects Remains Uncertain

The company’s self-inflicted troubles, caused by cooking the books and mismanagement of its major acquisitions in the nuclear sector, have impacted projects in the U.S., the U.K., and India. The firm said it would exit the nuclear business worldwide.

barn 2 burningAfter weeks of media speculation, Japan’s Toshiba said on 2/14/17 it would book a barn burner of a loss estimated to be $6.3 billion related to its Westinghouse business unit which is building four nuclear reactors in the U.S. and four more in China.

Conflicting statements about the firm’s 60% equity stake in NuGen’s Moorside power station, for three reactors, raised doubts with investors and the U.K. government about the future of the project.

A plan to build six new reactors in India, which has been in the works for years, was thrown into limbo.

The write down that wipes out its shareholder equity and leaves the conglomerate with virtually no cash.

Toshiba’s chief executive officer and chairman Shigenori Shiga resigned from his post, assuming “management responsibility” for the company’s loss related to Westinghouse’s acquisition of CB&I Stone and Webster.

Risks to Nuclear Projects Worldwide

Toshiba said it now plans to focus on its nuclear fuel and equipment supply businesses and will not provide engineering, procurement and construction contractor services for overseas projects, including ones in the UK, China and India. Toshiba also said it intends to “reduce risk” at eight overseas plants currently in progress by implementing “comprehensive cost reduction measures.”

It did not provide details nor is it clear what it could do given that the U.S. projects are now several years late and over budget rattling state regulatory agencies which have to approve cost recovery charges to consumers.

Prior coverage
Toshiba’s Financial Meltdown Puts Its Nuclear Projects at Risk Worldwide
Posted on January 1, 2017

  • The company overpaid for Westinghouse in 2007 paying %5.4 billion for it and within a year sold off a 10% stake to Kazakhstan in return for access to uranium for use in fabricating commercial nuclear fuel. It wrote down half of the remaining value in 2014.
  • It is mired in court suits over the value of its acquisition of CB&I which was intended to resolve problems with the supply chain for construction of four AP1000 reactors in the U.S.

Financial controls are an issue

In July 2015 it was revealed that Toshiba raised $8 billion in capital based on false accounting statements that overstated earnings by $1.6 billion.

Financial wire services including CNBC and Bloomberg reported that Toshiba spooked investors by not releasing its earnings on schedule, saying initially it was ‘not ready’ citing problems completing an internal audit. For their part, the auditors said they could not certify that Toshiba was a “going concern” which is accounting terminology for ‘not bankrupt.”

The firm asked for a delay of 30 days to March 14 to revise its financial report. The numbers in the preliminary report could undergo a “major revision” according to wire services.

To recover Toshiba headlined its financial announcement on 2/14 by saying it would consider selling Westinghouse. The firm also said it would consider selling a 20% equity stake in its computer chip business.

Toshiba also said that a whistleblower had made allegations that it was investigating that there were problems with how the Westinghouse acquisition was handled but did not provide details.

Internal reports, Toshiba said, indicated financial controls at Westinghouse had been “insufficient” and it needed to look actions by senior managers at Westinghouse involving the purchase of CB&I which is a major supplier of nuclear components to the U.S. reactor projects. There is an ongoing dispute between the two companies over the pricing of elements of the deal.

According to the company statement, and as reported by NucNet, a wire service, the expected write-down was caused by a recalculation of the book value of CB&I Stone & Webster, the US construction-service firm purchased Westinghouse.

Westinghouse said in January 2016 that it had completed the acquisition of CB&I Stone & Webster from Chicago Bridge & Iron, a Netherlands-based engineering and construction company.

In July 2016, Chicago Bridge & Iron filed a lawsuit against Westinghouse as part of a dispute over the value of the acquired unit’s assets. The deal included the possibility of adjustments to the purchase price depending on the evaluation of the assets. The differences are reported to be at least $300 million.

In separate statements in Japan Hitachi and Mitsubishi told the Financial Times, London, that they had no plans to acquire Toshiba’s nuclear business. This may impact the firm’s support for restart of some of Japan’s reactors that were shut down following the Fukushima crisis in 2011.

The situation is uncertain in the U.S.

In the U.S. Westinghouse told Southern Nuclear, which is building two AP1000s at a site in Georgia that it would finish the job. New completion dates were set for 2020 for both units. That firm has an $8.3 billion loan guarantee from the federal government which is a plus for its investors.

However, in South Carolina, where Westinghouse offered a similar message of reassurance, SCANA said that if Westinghouse could not finish the job, it would find someone who would. The firm’s CEO reminded Toshiba, and the utility’s investors, that in 2016 it renegotiated the fixed price contract to complete the two reactors. Like the plants in Georgia, the state public utility commission has to approve rate increases to cover costs as the reactors are being built.

Future of the Moorside Project in the U.K.

In the U.K. there were conflicting reports about the commitment of Westinghouse to the NuGen project where three AP1000s are planned for the Moorside project. Toshiba has committed to a 60% equity stake in the project which is estimated, at $6,500/Kw, to be worth at least $20 billion. The firm has, for now, lost the financial ability to fulfill that role.

The company said it “will consider” participating in the Moorside new-build project in Cumbria, northwest England, but “without taking on any risk from carrying out actual construction work.”

The project owner NuGen, a joint venture between Toshiba and France’s Engie, said it “acknowledges” Toshiba’s announcement that the review of its overseas nuclear business is complete and that it “remains committed” to the “development” of the proposed three-unit Moorside power station.

A NuGen representative said the company “had not yet secured an EPC structure to build at the site, but did not intend to utilize Toshiba’s services. It was always NuGen’s plan to identify an independent constructor,” he said.

The Financial Times reported that senior ministers in the UK government were “wrangling over how to support” nuclear power plant projects, with some senior Treasury officials “hostile to” direct state subsidy or investment.

India projects remain a distant goal

As for the six AP1000 reactors slated for a site on India’s east coast, aside from the usual contingent memorandum of understanding, no financial commitment was ever made nor did India waive the draconian requirements of its supplier liability law which kept U.S. firms like GE-Hitachi and Westinghouse out of the market.

India had explored getting financing for the project from the U.S Export/Import bank, but Congress slammed the lid on its lending authority two years ago in an unrelated dispute over aircraft jobs in the U.S.

China projects near completion

Toshiba’s troubles are unlikely to significantly impact the four AP1000 reactors being built in China. All four are much closer to completion than their U.S. counterparts. Also, the state owned nuclear firms for which the units are being built are backed by the deep pockets of the central government which has a political stake in seeing the units enter revenue service.

Horizon forms operating partnership with Exelon

(WNN) Horizon Nuclear Power, the UK subsidiary of Hitachi Ltd, said it was joining forces with Exelon Generation as Horizon develops its “expertise and capability” to operate a new nuclear power plant at Wylfa Newydd on the Isle of Anglesey. Exelon Generation operates the biggest fleet of nuclear power plants in the USA, with 19,460 megawatts of capacity from 22 units, eight of which are boiling water reactors. The Wylfa Newydd project will deploy two Advanced Boiling Water Reactors (ABWR).

Under the partnership, four Exelon specialists will work alongside Horizon’s growing team, providing expertise in engineering, maintenance, operations and training, Gloucester, England-headquartered Horizon said. The Exelon team will support Horizon’s Safety and Generation Director Greg Evans as Horizon develops its own nuclear operating model.

The deployment of the UK ABWR at Wylfa Newydd is seen as paving the way for the wider deployment of the technology in the UK and potentially globally. The UK’s Office for Nuclear Regulation has said the Generic Design Assessment (GDA) for the UK ABWR is on track to be completed by the end of this year. Horizon has said the GDA is seen worldwide as a ‘gold standard’ in reactor design assessment, enabling further new build projects involving the technology elsewhere.

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Darius Bentvels's picture
Darius Bentvels on Feb 21, 2017 10:53 am GMT

India did a good job, recognizing the (hidden) draconian subsidies due to the usual nuclear liability limitation laws in western countries!

Jesper Antonsson's picture
Jesper Antonsson on Feb 21, 2017 8:53 pm GMT

Rather from a concern trolls perspective… It is fascinating how people view costs. While Germans waste 24 billion dollars annually in direct EEG fees to slowly change electricity production (albeit in the wrong direction), US consumers and tax payers fret over a few nukes going a few billion over budget over a timespan of several years. The mighty US, with an economy six times the size of Germany, simply cannot afford to lose a few dollars to get the nuke industry going again. So dismantle your nukes then, go with your fracked gas extended with a little renewables, and enjoy the climate change you create for all of us. You poor guys sure can’t afford anything else.

Nathan Wilson's picture
Nathan Wilson on Feb 22, 2017 1:51 am GMT

Actually no, this is not a general liability law. It does not apply to the domestic companies which are building up India’s fleet of heavy water and fast reactors.

This law is aimed at protecting India’s powerful coal industry against economic competition. The foreign reactor programs (such as two the already complete Russian units at Kudankulam) all come with lifetime uranium supply contracts. The contracts also include provisions which allow India to keep the spent fuel, and reprocess it to make plutonium fuel for their fast reactor program (note that spent fuel from modern light water reactors can not be uses to supply weapons-grade plutonium).

India’s domestically designed heavy water reactors have historically suffered from uranium supply shortages. By restricting use of foreign reactors, these laws also restrict access to imported nuclear fuel, which ultimately also slows India’s plan to make their own nuclear fuel in fast reactors. It’s a double win for the coal industry.

So once again, anti-nuclearism is not safety driven, as it will result in hundreds of thousands of needless deaths from air pollution.

Darius Bentvels's picture
Darius Bentvels on Feb 22, 2017 7:15 am GMT

If it was to protect coal, they wouldn’t have an expensive subsidy program to expand nuclear. While coal doesn’t need subsidies as it’s much cheaper….

By restricting foreign reactors, these laws also restrict access to nuclear fuel, which slows India’s plan to make their own nuclear fuel…
Which again implies that they shoot themselves in their foot…
Don’t think India’s govt is crazy..

The Bopal accident made them more aware about the consequences of socializing (the huge cost of) nuclear accidents and nuclear waste. Western world still have to experience.

Helmut Frik's picture
Helmut Frik on Feb 22, 2017 8:55 am GMT

As far as I could read India just found out that there will be no need to start amy forther construction for a cola powerd plant till 2016, and most likely for the following decades too. The renewable tenders come in at prices well below what India pays for coal power, so they skip the plans to raise the coal power fleet, and just finish the ones under construction.
Since Nuclear and coal power share the components in the non nuclear part of the power plants, the supply chain for this part od nuclear power stations i s dying too. Which means higher prices and higher project risks.

Darius Bentvels's picture
Darius Bentvels on Feb 22, 2017 8:59 am GMT

The Germans don’t waste $24B/a in EEG fees.

Those fees are now ~€70/MWh paid by the consumers (~60% of all consumption), but the real fee is substantial less as German whole sale price is with €30/MWh about €20/MWh cheaper than that in Nuclear UK, due to the continued introducing of new (mainly wind & solar) generators thanks to the Energiewende.
So the real fee is ~€16B/a

Most of that is historic pay off for the investments to create a mass market for PV-solar in order to get the prices down in the first decade of this century.
The whole world profit from that investment!
They had guaranteed prices for all produced electricity of €700/MWh during 20yrs in order to create such mass market…

As after 20 years those investments are paid off, the Energiewende levy is predicted (AGORA) to gradually decrease after 2022, while they continue to enjoy the continued price decrease of wind & solar which are predicted to cost €20-€30/MWh in 2050 in Germany (so no guarantees needed)…

In the end German consumers will be much cheaper off than UK consumers*) as also found by the simulation studies of French govt institute ADEME.
While enjoying a near 100% renewable grid.
*) UK consumers will pay more as nuclear costs are higher in increase as shown with their new NPP (Hinkley C).
The guaranteed price for all electricity it produces is inflation corrected since 2012. So it’s now already £102/MWh and with 1.5%/a inflation it will increase towards £148/MWh in 2042, halfway the guarantee period (assuming Hinkley start in 2025)

Jesper Antonsson's picture
Jesper Antonsson on Feb 22, 2017 9:26 am GMT

about €20/MWh cheaper than that in Nuclear UK

False comparison. UK isn’t especially nuclear and its cost have risen due to dwindling nat gas resources.

due to the continued introducing of new (mainly wind & solar) generators

Rather due to the refusal to decommission coal and lignite to compensate for the introduction of RE assets. So Germany has a huge fossil-heavy surplus which it exports.

The whole world profit from that investment!

Solar still isn’t cheap enough to give profits. Most of solar investments are still waste, which the extreme labor numbers show. The world would profit more if the US kick-started nuclear supply chains and encouraged exports and trade in nuclear.

the Energiewende levy is predicted (AGORA) to gradually decrease after 2022 […] price decrease of wind & solar which are predicted to cost €20-€30/MWh in 2050

The value factor of wind in Germany was 86% and for solar 93% in 2016, and dropping fast. So wind and solar are becoming worthless in the market place. That means that those entire €20-30 must be paid by consumers as subsidies, not by the market.

Proof by EPR is not valid reasoning.

Mark Heslep's picture
Mark Heslep on Feb 22, 2017 2:28 pm GMT

US consumers and tax payers fret over a few nukes going a few billion over budget over a timespan of several years.

*Some* do, and their ranks thin over time, despite the best efforts of the world’s Caldicotts.

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