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Mitsubishi Heavy faces tough decisions in nuclear power business

Orders dry up at home and abroad after Fukushima disaster

TOKYO -- Mitsubishi Heavy Industries and Japan Nuclear Fuel are putting the final touches on a plan to acquire a roughly 10% stake in the troubled French nuclear energy company Areva. But for Mitsubishi Heavy it is an agonizing decision.

The investment would involve spending 40-50 billion yen ($350-438 million), which is an extraordinary amount considering the uncertain future of the nuclear power business. Mitsubishi Heavy has made little headway with exports, highlighted by Vietnam's recent decision to abandon plans for a pair of nuclear plants. The Japanese company finds itself in a tight spot, pulling with no progress on a rope it cannot release.

In Japan, the Sendai plant operated by Kyushu Electric Power is one of the few domestic nuclear power plants now running. Restarting other plants and making them safer and more quake-resistant are the tasks at hand. But Mitsubishi Heavy has received few hard orders and it is rough going for the manufacturing aspect of its nuclear power business, admitted company President Shunichi Miyanaga.

Facing dim prospects for new domestic orders, both Mitsubishi Heavy and Japan Nuclear Fuel must find other ways to secure enough business to keep their equipment and workforces active.

Back in 2006, Mitsubishi Heavy partnered with Areva to develop a so-called Generation III+ pressurized-water reactor with state-of-the-art technologies. The team has been using the design to compete with the larger, older-generation pressurized-water systems promoted by two other groups: the team of Hitachi and General Electric, and the team of Toshiba and Westinghouse.

The nuclear power business thrived amid a renaissance during the 2000s as countries looked to nuclear power as a relatively low environmental-impact alternative to other kinds of power plants.

But everything changed in 2011 with the Fukushima Daiichi nuclear disaster. As countries postponed or outright canceled orders for nuclear power plants, Areva fell into dire financial straits.

The French government, which owns nearly 90% of Areva, is looking to cut its losses. Unprofitable businesses are being excised from Areva and a new company is being set up that will seek over 30% of its capital from Japan, China, and elsewhere. A Chinese stake will help the French company participate in the rapidly growing market for nuclear power in China, and a Japanese stake will only strengthen Areva's ties with Japanese partners for exports to emerging economies.

There are lingering worries inside Mitsubishi Heavy about this huge investment in Areva. To alleviate those concerns, Mitsubishi Heavy has voiced confidence that there will be another nuclear renaissance in 20 to 30 years.

The International Energy Agency estimates that world nuclear capacity in 2030 will be 1.6 times that of 2013. While some countries like Germany have turned their back on nuclear power, other countries like China and India are serving as engines of growth.

Unfortunately for Mitsubishi Heavy, its partnership with Areva is stalling even as the team of Toshiba and Westinghouse forge ahead in India and China.

To make matters worse, Vietnam abandoned its nuclear plans in November due to budgetary constraints and other factors. And Turkey has been slow with a feasibility study.

This all bodes ill for the investment Mitsubishi Heavy is thinking to make in Areva. As one insider explained, "it is a huge amount of money, and I don't see the company getting it back any time soon."


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