Toshiba, nukes and fiscal woes

January 16, 2016

The elephant in the room for Toshiba is nuclear

http://www.japantimes.co.jp/news/2016/01/16/national/media-national/elephant-room-toshiba-nuclear/#.VpqhjVKDmov

by Philip Brasor

Special To The Japan Times

Japanese press outlets often cover scoops from competing outlets, but it’s rare to build on a competitor’s story with original reporting, especially when the scoop is a few years old. In December, the weekly magazine Aera, which is affiliated with the Asahi Shimbun, ran an article about a secret meeting that took place between representatives of Japan, Mongolia and the United States almost five years ago. This meeting was first reported by Haruyuki Aikawa in the May 9, 2011, issue of the Mainichi Shimbun.

What interested Aera reporter Atsushi Yamada about the article was Aikawa’s assertion that Toshiba Corp. was on hand for the negotiations. In 2006, Toshiba had bought a majority share in the American company Westinghouse, a manufacturer, like Toshiba, that started out in the home electronics field and eventually expanded into nuclear power plant construction. Japan said it would buy uranium mined in the central Asian country and in return Mongolia would tap Japan’s nuclear energy expertise in building power plants and, more significantly, nuclear fuel reprocessing facilities that would incorporate the acceptance of high-level nuclear waste from Japan and other countries.

Though the Mainichi story received little attention in Japan or the U.S., it was translated and disseminated in Mongolia, thus leading, only three months after the 2011 nuclear meltdown in Fukushima, to citizen protests against the deal, which opponents said would turn their country into a “toilet” for the world’s nuclear waste. Later, the Mongolian government said it might be difficult for it to accept this waste.

Yamada read subsequent emails between Toshiba’s president at the time, Norio Sasaki, and an official of the U.S. Dept. of Energy, which said that negotiations with Mongolia should continue and that any further arrangements be made in a confidential manner. Toshiba’s public relations department confirmed the existence of the emails to Yamada but denied that Toshiba had asked the Mongolian government to receive outside nuclear waste. The negotiations, it said, had more to do with “building on the system of nuclear nonproliferation.”

Aikawa told Yamada that while ostensibly the negotiations were between the three governments, the plans for the deal were drawn up by the U.S. and Toshiba with the aim of selling nuclear power plants to emerging economies under a scheme called Comprehensive Fuel Service. According to this scheme, vendors assure potential customers that they will handle any future nuclear waste produced by power plants the customers buy, which is why Mongolia’s acceptance of such waste is so important. Due to local resistance, neither the U.S. nor Japan has anywhere to dump spent fuel, even their own.

The reason Yamada became so interested in this topic years after the fact is that in the meantime, Toshiba has been caught up in financial scandals that have brought the company to its knees, and he wanted to explore the connection between Toshiba’s nuclear energy business and its fiscal woes.

The connection itself is not a secret. Toshiba spent almost ¥600 billion to buy its share of Westinghouse, which at the time of the purchase was only worth about ¥250 billion. The extra “goodwill” money (norendai) was in anticipation of future revenues that would accrue as Toshiba expanded its nuclear energy business both in Japan and throughout the world with Westinghouse as its “trump card.” But then Fukushima happened, putting a serious damper on demand for plant construction.

The revenues Toshiba envisioned didn’t materialize, and the norendai became a huge liability it tried to hide through bookkeeping. Sasaki, his predecessor and his successor are all now being sued by Toshiba’s management for ordering improper accounting practices after Nikkei Business reported that Toshiba was violating Tokyo Stock Exchange regulations regarding the disclosure of a subsidiary’s losses.

However, at the end of December, the Financial Services Agency, in its investigation of the accounting scandal, did not find Toshiba to be at fault, but rather punished the auditing firm of Ernst & Young ShinNihon for “failure to detect” Toshiba’s improper accounting practices. In a follow-up article in the Jan. 11 issue of Aera, the reporter wondered if this arrangement didn’t smack of “conspiracy,” and an FSA representative told the magazine that the agency “suspected” as much but “could not find any evidence.” For the next three months, ShinNihon is suspended from signing any new business contracts and must pay a “surcharge” of ¥2.1 billion. Though that may sound severe, industry people told Aera that usually in such cases penalized companies are suspended from conducting business altogether.

So why didn’t the FSA accuse Toshiba of accounting fraud, especially given that it’s not uncommon for auditors to revise their findings so as not to inconvenience powerful clients? As Yamada points out, the agency didn’t even mention Westinghouse in its findings.

Perhaps the government still needs Toshiba, since Prime Minister Shinzo Abe has pegged Japanese growth at least partly to the export of nuclear technology. In November, the Asahi Shimbun interviewed the CEO of Westinghouse, who said his company had plans to build dozens of new reactors all over the world, “including Japan.” Abe is selling nuclear technology to Vietnam, Turkey and other countries, and in October he finalized a trade deal with Mongolia.

Ryoko Imaoka, an associate professor at Osaka University and longtime expert on Mongolia, has explained that the U.S., desperate to find a friendly country to accept nuclear waste, was pushing Japan to make a deal with Mongolia. Japan publicly downplays the nuclear part of the trade agreement and Japanese media have obliged, though Mitsubishi Corp. is already developing three new mines there. She says the country’s currently dormant uranium pits remain extremely radioactive and it’s not clear where any nuclear waste would be buried, but in any event there are Mongolians who are ready to sue to shut the whole thing down.