TOKYO -- The Japanese government has entered into negotiations to acquire U.K.-based Urenco, a major European producer of enriched uranium, in a deal that is expected to be worth several billions of dollars.
The state-owned Japan Bank for International Cooperation is expected to make an offer together with U.S. nuclear energy company Centrus Energy.
The not-so-ulterior motive is to block companies from Russia and China -- two countries that are increasing their influence in the global nuclear power market -- from taking control of the company.
At home, the Japanese government is promoting nuclear power generation as a major source of electricity -- another reason it hopes to secure an interest in Urenco's enriched uranium.
The Japanese government is holding talks with major shareholders of Urenco, sources close to the matter said. Ownership of Urenco is evenly split by three parties -- the governments of the U.K. and the Netherlands as well as German electric utilities including RWE.
The German side is exploring a sale as the government plans to phase out nuclear power. The U.K. government, working on fiscal consolidation, is also looking for a buyer.
Urenco is engaged in turning natural uranium into enriched uranium, which is critical in generating nuclear power. The company ranks second in the world after Tenex -- a unit of Russian nuclear concern Rosatom -- in terms of capacity to produce enriched uranium, holding a global share of around 30%.
JBIC and Centrus Energy are looking to acquire a majority or larger stake in Urenco, which would cost several hundred billion yen (several billions of dollars). JBIC by itself hopes to hold a stake of around 20-30%. Negotiations are expected to last through the summer. A deal could be struck as early as this year.
The joint bid for Urenco is aimed at keeping Russia and China at bay. Both countries are said to be showing interest in acquiring the enriched uranium producer.
According to the Japan Atomic Industrial Forum, China had 35 nuclear reactors in operation as of January 2017, while Russia had 30. Including reactors in the planning stage, however, the numbers grow to 82 in China and 55 in Russia, surpassing Japan's 53.
The Japanese government is pushing nuclear power generation as the country's main source of electricity and is concerned that its supplies of enriched uranium would be disrupted if Urenco falls into Russian and Chinese hands.
What Japan gets out of the deal
Japan started actively examining a Urenco purchase around spring of last year. Centrus Energy first pitched the idea to Tokyo in a move that appears to be aligned with Washington's interests. With Rosatom, Urenco and France's Areva controlling 90% of the enriched uranium market as of 2015, there is a chance that the business landscape would shift dramatically depending on which country gets a piece of Urenco.
The Japanese government's plans for financing the deal are a sign of its sense of urgency. JBIC, supervised by the Ministry of Finance, normally engages in lending. The bank rarely dips its hands in stock purchases and other high-risk investments, and spending between tens of billions of yen to around 100 billion yen for an equity stake is even rarer.
The Ministry of Economy, Trade and Industry had sought to take a stake in Urenco through state-backed Japan Oil, Gas and Metals National Corp., but Urenco fell outside the scope of the entity's legal investment authority. So the government settled on JBIC.
The Urenco negotiations are closely linked to Japan's energy program, which is due to be revised as soon as this summer. The plan is to have nuclear energy -- positioned as a baseload power supply immune from weather or time of day -- provide 20-22% of the nation's electricity by fiscal 2030.
The revised energy program will maintain those goals, despite an international retreat from nuclear energy. As a resource-poor country, Japan seeks to avert a large outflow of national wealth by turning to nuclear plants, which are less costly than fossil fuels.
A Urenco deal would also serve to repair a degree of awkwardness that developed between the U.S. and Japan surrounding Toshiba and Westinghouse Electric, the Japanese conglomerate's one-time American nuclear subsidiary that went bankrupt last March. White House officials expressed concern over job losses at Westinghouse, and the prospect of a hostile foreign power gaining control of the reactor builder and access to technological secrets.
The bilateral nuclear cooperation agreement due to expire this July is set to be automatically extended. The pact allows Japan to use plutonium for peaceful purposes. However, some in the U.S. are wary of that agreement, citing nuclear proliferation fears.
Washington can still cancel the nuclear deal at any time with six months' notice. Daniel Poneman, president and CEO of Centrus Energy, served as U.S. deputy energy secretary. He can act as a go-between to the current White House and help Japan maintain a solid relationship with the U.S.
A radioactive business?
The uranium enrichment business is still heavily dependent on the degree to which nuclear power takes off. Centrus Energy's predecessor, USEC, was a big player until the global market imploded in the wake of the Fukushima nuclear disaster in 2011. USEC was forced to file for Chapter 11 bankruptcy in 2014.
On top of that, the World Nuclear Association sees a supply glut in the enriched uranium market lasting through 2020. What to do with growing plutonium stockpiles remains a pressing issue as well.
European countries are sharply divided in their post-Fukushima nuclear policies. While Germany and Switzerland are turning away from atomic energy, the U.K. is building new nuclear plants.
France sought to wean itself off atomic power, but is now prioritizing scrapping fossil fuel plants. Nuclear reactors will continue to play a role there.
This leaves only a handful of nations advancing nuclear power, putting the profitability of uranium enrichment in doubt. JBIC -- and ultimately Japanese taxpayers -- could end up shouldering heavy losses if business conditions suffer.