Toshiba and Westinghouse

[Kirk Sorensen]

The situation at Toshiba and their subsidiary Westinghouse continues to deteriorate rapidly:

Less than a year in, Toshiba revival plan falls apart

At a news conference on Friday, CEO Satoshi Tsunakawa stressed the need to restructure the company's nuclear power business. "We will review, especially in our overseas markets, whether we want contracts that include the construction of nuclear plants or if we want to specialize in making equipment," he said.

The Japanese company began a full-fledged foray abroad on nuclear power in 2006. It acquired U.S.-based Westinghouse Electric to much fanfare, and set an aggressive goal of scoring contracts to build about 40 reactors in China, India and other countries. But the 2011 Fukushima disaster threw a wrench into these plans.

The nuclear power business will be broken off from Toshiba's energy systems segment and report directly to the CEO. The company will increase its involvement in Westinghouse and start an incremental review of its nuclear-related operations as a whole, including the possibility of a spinoff. It has even suggested shrinking the business abroad, such as through a freeze on new projects.

Toshiba chairman Shigenori Shiga ready to step down - Nikkei

Toshiba Corp Chairman Shigenori Shiga is ready to step down to take responsibility for the huge write-downs looming over the Japanese group's U.S. nuclear power unit Westinghouse Electric Co LLC, the Nikkei business daily reported.

Shiga was chairman of Westinghouse when the unit booked charges of $930 million in fiscal 2012 and $390 million in fiscal 2013, which Toshiba failed to flag at the time in violation of the Tokyo bourse's disclosure rules.

Westinghouse Chairman Danny Roderick is also expected to resign as president of Toshiba's in-house energy systems and solutions company, the Japanese business daily reported.

Toshiba scales back nuclear ambitions

Toshiba is scaling back ambitions for its nuclear business, highlighting the depths of the company’s financial crisis and the failing economics of nuclear construction.

The move, which was announced by the company’s president on Friday in Tokyo and could see Toshiba ruling itself out of future nuclear construction bids around the world, follows an emergency board meeting earlier in the day to discuss the survival of one of Japan’s best known industrial conglomerates.

Toshiba’s nuclear climbdown deals a blow to Japan’s broader ambitions of bidding for nuclear construction projects around the world — a key aim of Prime Minister Shinzo Abe’s “Abenomics” economic revival programme and a driving force behind his unprecedented global diplomatic push.

Other capital-raising measures to prevent Toshiba falling into negative net worth include splitting off the company’s profit-generating memory chip business — the most valuable jewel in Toshiba’s crown — as a prelude to a stake sale and a potential initial public offering. The company will also look at selling other assets from its portfolio of more than 500 subsidiaries.

Toshiba said it would sell a stake amounting to 20 per cent or less of the memory company, with its value defined by a bidding process expected to involve a combination of industrial and private equity investors. Analysts have previously placed a notional value on Toshiba’s memory business of ¥1.5tn-¥1.9tn ($13bn-$16.5bn). Bankers have suggested Toshiba would be looking to raise about ¥200bn from the stake sale. Toshiba had previously positioned both the memory business and the global expansion of its nuclear business at the heart of growth plans, saying last year it expected to win 50 contracts to build new nuclear plants in India and China over the next decade. But the company may now limit its ambitions to building turbines and other equipment after the company’s chief executive, Satoshi Tsunakawa, said it would “reconsider the future of the overseas nuclear business”.

Domestically, Toshiba said it would continue to focus on servicing and decommissioning Japan’s existing fleet of nuclear reactors, many of which it built. They include two of the reactors at the stricken Fukushima Daiichi plant, where the 2011 tsunami and subsequent meltdowns have tied Toshiba into many decades of decommissioning work.

The overseas nuclear pullback heralds yet another phase of shrinkage for a company only just recovering from a 2015 accounting scandal in which it padded reported profits by about $1.3bn over seven years. As well as tumbling into loss in the wake of that scandal, the company was forced to make huge cuts to headcount — a measure analysts say is likely to have hurt the company’s competitiveness. Toshiba, which faces a still undisclosed writedown on its nuclear business that it has warned will amount to several billion dollars, also said on Friday it was “re-examining its relationship” with Westinghouse — the struggling US nuclear group in which the Japanese group bought a controlling stake a decade ago. Analysts identify the Westinghouse deal, which forced Toshiba’s Japanese management to cope with risks they were ill-equipped to handle, as a pivotal moment in Toshiba’s decline. Mr Tsunakawa said the company’s nuclear business would now “aim to proceed by becoming stronger at cutting out risk”. Mr Tsunakawa used Friday’s press conference to apologise for the “damage caused” to investors from the Westinghouse subsidiary, where delays and cost overruns on nuclear construction projects in the US will now be expressed as writedowns that analysts estimate could be as high as $7bn. The company is due to reveal the true figure on February 14 but most observers believe it will be large enough to wipe out Toshiba’s stated shareholder equity of $3bn.

[SteveK9]

It's a shame, as the reactors in China appear to be nearing completion. With the expected additional orders, could have moved past the FOAK problems, perhaps. Hard to believe the AP1000 will just disappear. Have we really fallen so far, that we don't know how to do this anymore?

Good news for competitors, Russia, S. Korea, China.

[E Ireland]

AP1000 will likely live on in the CAP1000 and CAP1400.

Just as Combustion Engineering PWRs live on in the AP1000 today.

[Kirk Sorensen]

Toshiba to withdraw from nuclear plant construction, chairman to quit

Toshiba Corp. will take no new orders related to the construction of nuclear power stations, with the company's chairman expected to resign over the massive write-down that has doomed the company's U.S. nuclear business, sources said Saturday.

The company's decision to cease taking orders effectively marks its withdrawal from the plant construction business.

[Kirk Sorensen]

Toshiba Likely To Exit Nuclear Plant Construction Business

[Kirk Sorensen]

Construction of most nuclear-power reactors is behind schedule

[Kirk Sorensen]

Toshiba to Exit Nuclear Construction Business

[camiel]

One man's loss is another man's gain. This basically means that GE-Hitachi's ESBWR will have the field to itself, regarding large nuclear reactors in the U.S.

Or am I mistaken ?

[Kirk Sorensen]

Ailing Toshiba may sell Westinghouse to pare risks from nuclear business

[camiel]

It may be that the fellow countrymen of Toshiba, Mitsubishi Heavy Industries, are interested in parts of the Toshiba-Westinghouse nuclear business. It would probably be a good fit, because Mitsubishi has focused on PWRs, just like Westinghouse.

[Kirk Sorensen]

Nuclear write-down leaves Toshiba with $3.5-billion loss in third-quarter: Nikkei

Japanese conglomerate Toshiba Corp probably suffered a group net loss of about 400 billion yen ($3.52 billion) in the nine months through December, the Nikkei reported on Sunday. The loss is largely due to a goodwill impairment of around 600 billion yen on a U.S. nuclear unit that came to light in late 2016.

The loss comes from the write-down of goodwill of CB&I Stone & Webster, a U.S.-based nuclear plant builder Toshiba acquired through U.S. subsidiary Westinghouse Electric in late 2015. Dwindling global demand for nuclear power and poor project management have pushed up labor and materials costs at the company to levels far exceeding initial estimates.

[Eino]

I am slightly off topic here, but do wonder.

The EPR also suffers from being behind schedule / over budget in it's attempts to build new plants. Both the AP1000 and EPRs were supoosed to be big plants that could take advantage of the economy of scale. Was the large size part of the problem? Too much too soon?

[E Ireland]

I wasn't aware AP1000 had any catastrophic schedule problems? Certainly not on the scale of the EPR.

The EPR suffers from being a 1970s PWR that had more equipment piled on it in a desperate attempt to meet Gen III+ Safety requirements.
The AP1000 is more intelligent in that regard, but the AP1000 is actually a fairly small unit by modern standards.

[alexterrell]

I am slightly off topic here, but do wonder.

The EPR also suffers from being behind schedule / over budget in it's attempts to build new plants. Both the AP1000 and EPRs were supoosed to be big plants that could take advantage of the economy of scale. Was the large size part of the problem? Too much too soon?

And Korea's APR1400 is 1400MW, and on time and budget.

[Kirk Sorensen]

Toshiba’s Nuclear Reactor Mess Winds Back to a Louisiana Swamp

If you want to understand why Toshiba Corp. is about to report a multi-billion dollar write-down on its nuclear reactor business, the story begins and ends with a one-time pipe manufacturer with roots in the swamp country of Louisiana. The Shaw Group Inc., based in Baton Rouge, looms large in the complex tale of blown deadlines and budgets at four nuclear reactor projects in Georgia and South Carolina overseen by Westinghouse Electric Co., a Toshiba subsidiary.

On Tuesday, Toshiba is expected to announce a massive write-down, perhaps as big as $6.1 billion, to cover cost overruns at Westinghouse, which now owns most of Shaw’s assets. The loss may actually eclipse the $5.4 billion that Toshiba paid for Westinghouse in 2006 and has forced the Japanese industrial conglomerate to put up for sale a significant stake in its prized flash-memory business. Toshiba had to sell off other assets last year following a 2015 accounting scandal.

Toshiba made a big bet on a nuclear renaissance that never materialized, in part because it couldn’t build reactors within the timelines and budgets it had promised. The company had anticipated that Westinghouse’s next-generation AP1000 modular reactor design would be easier and faster to execute -- just the opposite of what happened. Now the Japanese company may exit the nuclear reactor construction business altogether and focus exclusively on design and maintenance.

“There’s billions and billions of dollars at stake here,” says Gregory Jaczko, former head of the U.S. Nuclear Regulatory Commission (NRC). “This could take down Toshiba and it certainly means the end of new nuclear construction in the U.S.” Toshiba confirmed it will unveil a “huge loss” on Tuesday; a spokeswoman declined further comment. In January, Satoshi Tsunakawa, Toshiba’s president, said the company may sell shareholdings, real estate or other assets if needed to strengthen its balance sheet. “We will keep considering all options as needed and promptly, and take all necessary steps,” he said at a briefing in Tokyo.

When Toshiba bought Westinghouse a decade ago, the U.S. Congress had just started dangling loan guarantees and other incentives aimed at restarting a dormant nuclear industry. In 2008, Westinghouse signed deals to build four new reactors for utilities Southern Co. and Scana Corp., the first U.S. nuclear plants since the 1979 accident at Three Mile Island to be approved for construction by regulators. In a 2015 interview with Bloomberg Businessweek, Southern Chief Executive Officer Thomas Fanning said his utility’s two reactor projects at Plant Vogtle in Georgia were “going to be one of the most successful mega-projects in modern American industrial history.”

To build that mega-project, Westinghouse turned to Shaw, a newcomer to nuclear work. Shaw was founded in 1987 by James Bernhard Jr., who distinguished himself through his deal-making acumen. He got his start paying $50,000 for the assets of a bankrupt pipe fabricator, and grew via one acquisition after another. In 2000, Bernhard swooped in at a bankruptcy auction and, during an 18-hour bidding war, bought Stone & Webster Inc., a once-venerable engineering firm that had already agreed to a deal with a much bigger rival.

Stone & Webster had built the Massachusetts Institute of Technology’s campus and many of the country’s nuclear plants from the 1950s to the 1970s, but it was a shell of its old self when Bernhard bought it. Still, the name gave Shaw new credibility in the nuclear field, which it capitalized on to win all of Westinghouse’s contracts. “They weren’t necessarily qualified, but they had the heart and the go-get-them to take it on,’’ says Jeffrey Kellerman, a retired construction project controller who worked for Shaw at its nuclear sites. Bernhard declined to comment for this story.

Building nuclear reactors is a tall order, given the regulatory complexity and consortium of contractors required to get the job done. And in fairness to Westinghouse and Shaw, plenty of other companies have missed deadlines. “Nuclear construction on-time and on-budget? It’s essentially never happened,’’ said Andrew J. Wittmann, an analyst who covers the industry for Robert W. Baird & Co.

It’s easy to see why Shaw wanted Toshiba’s business, but harder to understand why Toshiba chose Shaw. More established contractors simply may not have wanted the work, but Bernhard also used his deal-making skills to sweeten the agreement by taking on a chunk of Toshiba’s debts temporarily. “If you want to have a business, you have to get plants up and running, so they went forward even if it wasn’t a perfect match-- that was the calculation for Toshiba,” says David Silver, an analyst at Morningstar in Chicago.

Westinghouse executives hoped its AP1000 reactors’ main components, or modules, could be built efficiently at specialized work yards, then shipped to a plant site and snapped together like enormous steel-and-concrete Legos. On top of that, the U.S. government in 2005 gave nuclear developers a package of tax credits, cost-overrun backstops, and federal loan guarantees. In the next few years, U.S. utilities filed dozens of applications to build new reactors.

After Westinghouse hired Shaw to handle construction in 2008, it wasn’t long before the company’s work came under scrutiny. By early 2012, NRC inspectors found steel in the foundation of one reactor had been installed improperly. A 300-ton reactor vessel nearly fell off a rail car. The wrong welds were used on nuclear modules and had to be redone. Shaw “clearly lacked experience in the nuclear power industry and was not prepared for the rigor and attention to detail required,’’ Bill Jacobs, who had been selected as the state’s monitor for the project, told the Georgia Public Service Commission in late 2012.

The troubles were only starting. At Southern’s two new reactors in Georgia -- a massive construction site on the edge of the Savannah River-- thousands of workers have logged more than 25 million man-hours, yet the project is years behind schedule.

Originally planned to open in 2016 and 2017, they’re now slated for 2019 and 2020--and that may be a stretch. To hit the new targets, Westinghouse would have to accelerate the pace of work to “over three times the amount that has ever been achieved to date,” Jacobs, the state’s project monitor, told the utility commission last year. In November, Westinghouse said 33.4 percent of the construction was complete, but a utility supervisor with Southern who asked not to be identified said he’s skeptical. The hardest part of the project – the reactor’s center – has just started, he said.

Just as problems began to surface, in July 2012 Shaw agreed to sell itself for $3.3 billion to Chicago Bridge & Iron Co., a much larger engineering firm that wanted in on the envisioned nuclear renaissance. But three years later, with little progress to show for itself, CB&I decided to cut its losses. It sold the bulk of Shaw’s assets to Toshiba for $229 million, accepting the significantly lowered price in exchange for shedding liabilities related to the projects.

But in April 2016, four months after the deal closed, Toshiba concluded it had miscalculated and accused CB&I of inflating Shaw’s assets by $2.2 billion, and asked to renegotiate. CB&I balked and sued Toshiba for breach of contract last July. A preliminary decision in December ruled in favor of Toshiba’s request to renegotiate. CB&I has appealed that ruling. “We remain confident this issue will come to a resolution favorable to CB&I,” said Gentry Brann, a spokeswoman for the company. CB&I has argued that at least some of the reactor problems have been because of Westinghouse and its AP1000 designs.

Westinghouse has turned to another construction contractor, Fluor Corp., to help get its projects back on track, but it’s too early to say how much progress they’re making. Meanwhile, the NRC continues to press Westinghouse about problems with its AP1000 design after a neutron shield block, which contains radiation, failed during testing. Regulators will hold a hearing this week at which Westinghouse is expected to explain its work on the issue; Toshiba meanwhile declined to comment.

Those troubled projects in the American South are now threatening the Japanese icon’s foundations. The value of Toshiba shares has been cut in half over the last six weeks, wiping out more than $7 billion in market value. And what of the U.S. nuclear renaissance? Westinghouse’s projects for Southern in Georgia and Scana in South Carolina had once been viewed as part of a rebirth of the U.S. atomic power industry. However, stumbles with those projects, the nuclear disaster in Fukushima and a flood of cheap natural gas that lowered U.S. power prices made new reactors increasingly expensive and risky. Of the 30-odd applications for new reactors that started in the mid-2000s, only the four Westinghouse units have gone forward.

One figure who seems to have come out of the Westinghouse mess pretty much unscathed is Shaw founder Bernhard. He completed the sale of his firm to CB&I in 2013, pulling in $3.3 billion for himself and other shareholders. Bernhard, whose stake was worth about $50 million at the time of the sale, now runs a private equity firm in Baton Rouge. On his website, Bernhard touts his 25-year experience at Shaw and says his new fund “seeks to create sustainable value.” "They got out whole and then some,” said Silver, the analyst with Morningstar. “It was a good deal for them but only because they were able to unload the hot potato.”