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 on this blog
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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