TOKYO -- Japan intends to fully insure bank loans for one of Hitachi's British nuclear plant projects in order to encourage domestic lenders to finance a particularly risky type of infrastructure export that Prime Minister Shinzo Abe's government seeks to promote.
When Abe met with U.K. counterpart Theresa May here Thursday, the two leaders reaffirmed bilateral cooperation on nuclear plant construction. Japan's support will include coverage for two reactors at the proposed Wylfa Newydd nuclear station in Wales -- a rare example of loan insurance for a project in an advanced economy.
State-owned Nippon Export and Investment Insurance will write the loan insurance for reactors, which Hitachi will build through British arm Horizon Nuclear Power. The Japanese conglomerate, together with Tokyo and London, will conduct working-level talks to hash out a funding support framework, with the aim of breaking ground in 2019.
The project is estimated to cost over 2 trillion yen ($18.1 billion). Hitachi, the U.K. government and two state-backed entities -- Japan Bank for International Cooperation and the Development Bank of Japan -- are expected to pick up part of the tab. But private-sector financing will also be needed to close the funding gap.
NEXI, which normally indemnifies private lenders for 90-95% of financing, will enter into talks with Japanese banks toward fully guaranteeing loans for the Wylfa project.
Nuclear project costs have tended to balloon since since Japan's 2011 Fukushima disaster owing to increased safety precautions. Seeing a higher risk of debt default, Japanese megabanks Bank of Tokyo-Mitsubishi UFJ and Mizuho Bank have sought full coverage by NEXI for any loans for nuclear plant development. Such insurance typically covers financing for projects in developing countries. NEXI is expected to impose conditions, such as a loan period of several decades, in return for an exception.
An accident or other troubles at the plant could expose BTMU and Mizuho to lawsuits from third parties because the banks would bear responsibility for financing the project. The two banks will decide on Wylfa financing based partly on discussions between Tokyo and London concerning damage compensation.
A default on the Wylfa loans would entail a taxpayer-funded repairs to the balance sheets of NEXI and JBIC. The loan insurance proposal is likely to spark a debate on whether promoting infrastructure exports in this way is worth the risk. The Abe government, for its part, will try to use the NEXI assurances to elicit more funding, public and private, from the British side.
With little prospect of constructing new reactors in Japan following the meltdowns at the Fukushima Daiichi nuclear power plant, domestic builders have focused their business offshore. Chinese state-owned enterprises are undertaking more global infrastructure projects, emboldening those who argue that Japan will be left behind in the race for overseas orders unless the country takes risks. In 2015, the U.K. became the first developed nation to approve a Chinese-made reactor.