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"Gargantuan risk" involved in nuclear business

April 1, 2017

EDITORIAL: Toshiba debacle highlights huge risks in nuclear power business



The high-profile bankruptcy of Toshiba Corp.’s U.S. nuclear subsidiary is graphic evidence of the gargantuan risk involved in the business.

Hefty losses incurred by Westinghouse Electric Co. have plunged the Japanese parent into unprecedented crisis.

Toshiba is expected to post a staggering net loss of 1 trillion yen ($9 billion) for the year through March, the biggest red ink ever for a Japanese manufacturer.

Westinghouse, which filed for bankruptcy March 29, went belly up under the weight of huge cost overruns at four nuclear reactors it has been building in the United States.

In an effort to protect its bottom line against possible further losses from the U.S. nuclear power business, the Japanese heavy machinery giant will remove the U.S. unit from its consolidated results so it can determine the scale of the losses it needs to write off.

Toshiba is paying dearly for its nuclear power debacle. It will sell off its semiconductor business, its primary cash cow, to cover the losses. It will also pull the plug on most of its overseas nuclear power operations.

Toshiba acquired Westinghouse, which had a solid reputation in the nuclear power industry, in 2006. At that time, atomic energy was attracting renewed global attention due to the technology's reputation as a relatively cheap and eco-friendly power source. There were strong expectations of a global reactor construction boom.

Toshiba spent more than 500 billion yen to acquire Westinghouse in an ambitious bid to catapult itself to the pinnacle of the industry.

The 2011 disaster at the Fukushima No. 1 nuclear power plant radically changed the situation. All of Japan's nuclear reactors were shut down, effectively destroying the prospects for new construction.

Nuclear safety standards have been tightened all over the world, causing construction costs of nuclear power plants to rise markedly. The pace of reactor construction elsewhere has also slowed.

Despite the harsh business environment, Toshiba’s successive management teams remained bullish about the outlook of the nuclear power business. The upshot is the company’s current predicament.

Top Toshiba executives, both past and present who were involved in decisions that led to this debacle, should be held strictly responsible for their failure to assess accurately the growing risk of the business.

Toshiba’s woes highlight the broader scope of issues facing the now-struggling nuclear industry in Japan.

Two other major heavy machinery makers, Mitsubishi Heavy Industries Ltd. and Hitachi Ltd., manufacture nuclear reactors. The government has been promoting exports of Japanese nuclear power technology as a key element of its strategy to stoke economic growth.

All these makers are facing formidable management challenges in the current tough business climate.

Mitsubishi Heavy has sharply upped its investment in Areva to support the embattled French nuclear power company, which is its partner in the business.

Hitachi is expecting to report a loss of about 65 billion yen related to the joint development of nuclear fuel technology with General Electric of the United States.

The three Japanese makers are now talking about merging their nuclear fuel operations. It is said that the three companies realize they will inevitably have to consolidate their core reactor manufacturing operations.

The government also needs to reconsider its nuclear power strategy.

Late last year, the Japanese and British governments exchanged a memorandum over nuclear power projects that Hitachi and other companies are pursuing in Britain.

Japanese government-affiliated financial institutions will consider providing financial support for these projects. But loan losses incurred by such government-affiliated lenders would eventually have to be covered by taxpayers. They need to make careful and rigorous assessments of the risks involved.

The outlook for nuclear power projects in emerging countries, which makers expect will become their major customers, are also becoming increasingly murkier.

Last year, Vietnam scuttled its plan to build a nuclear power plant based on Japanese technology.

There is much international criticism about Japan’s efforts to export nuclear power technology in the aftermath of the catastrophic Fukushima accident.

Toshiba’s costly fiasco should prompt the nation to rethink its nuclear power drive.



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