January 10, 2017 6:46 am JST

Nuclear risk miscalculation triggers Toshiba meltdown

Shares plunged 35% since big charge came to light

SOICHI INAI and YUKIHIRO OMOTO, Nikkei staff writers

Construction delays at Plant Vogtle in the U.S. state of Georgia have led to ballooning costs for the Toshiba group.

NEW YORK -- Just as Toshiba appears to be turning the corner from its accounting scandal, the Japanese conglomerate faces a huge write-down on its U.S. atomic power operations owing to risks of cost escalation in plant construction.

Westinghouse Electric's work on reactors for a new nuclear power plant in Augusta, Georgia, has been suspended every time U.S. Nuclear Regulatory Commission inspectors come to check on the facility, a site worker said in May, describing the agency's frequent visits.

The NRC keeps a close eye on the facility, known as Plant Vogtle, even demanding design changes in the wake of the 2011 Fukushima Daiichi nuclear disaster and the ever-present threat of terrorism. Naturally, the agency only thinks about safety -- not how long construction will take.

Under the timeline as of last May, Plant Vogtle's No. 3 unit was expected to be operational in June 2019 and the No. 4 unit one year later -- some three years behind schedule. The delays mean longer employment of construction workers, pushing up costs. The amount of the write-down at Westinghouse, a Toshiba subsidiary, is "quite fluid," Toshiba Chairman Shigenori Shiga said Thursday, adding that he "could not give a specific number at this time."

Westinghouse acquired CB&I Stone & Webster, a nuclear construction business, from U.S. engineering giant CB&I in December 2015. Westinghouse would pay $229 million, according to information from CB&I when the deal was announced.

The deal lets Westinghouse do more on its own, Chairman Danny Roderick said.

For its part, CB&I CEO Philip Asherman said getting rid of the nuclear business has given it greater flexibility in creating business plans, in addition to making shareholders happy.

Typically, expenses associated with construction delays are paid for by engineering companies. Compensation for power utilities may be required as well. CB&I concluded that the nuclear construction business, where schedules are constantly in flux, was too risky and thus decided to sell it. Westinghouse took on those risks, which can crop up in any stage of development, from design to installation to labor management.

The construction unit that Westinghouse acquired is also building plants in South Carolina and has provided engineering support for a Chinese project. Rumors have swirled of a looming charge at a facility under construction in China's Zhejiang Province.

It's not as if Toshiba is a stranger to risk. Its two core businesses, semiconductors and nuclear power, carry their fair share. But the Japanese company failed to foresee a 2012 exit by Shaw Group, an investment partner in Westinghouse. Pursuant to the contract, Toshiba was forced to buy the U.S. partner's stake for roughly 125 billion yen ($1.08 billion at current rates). Shaw was quick to realize the climate surrounding nuclear power changed drastically after Fukushima, as was CB&I.

Toshiba's shares tumbled 35% between Dec. 27 -- when the U.S. charge came to light -- and Friday. This compares with a 3% decline in shares of CB&I and a 0.6% dip in shares of U.S. utility Southern Co., the parent of Plant Vogtle's operator. The stock market meltdown highlights how Toshiba is all alone in contending with the myriad risks of the nuclear power business.

Toshiba Corp.

Japan

Market(Ticker): TKS(6502)
Sector:
Industry:
Consumer Durables
Electronics/Appliances
Market cap(USD): 8,503.42M
Shares: 4,237.6M

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