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Toshiba Likely To Exit Nuclear Plant Construction Business

Westinghouse is “unlikely to carry out actual construction work for the future nuclear power plant projects to eliminate risk.”

Satoshi Tsunakawa, President and CEO of Toshiba, the Japanese company that owns Westinghouse and its CB&I Stone Webster subsidiary, made that statement during a recent press conference. The event, held on January 27, was called to provide a status report for restructuring actions first announced on December 27, 2016.

Computing Magnitude Of Lost Goodwill

The restructuring is required as a result of the growing realization that the value of Westinghouse’s CB&I Stone and Webster subsidiary is probably several hundred billion yen (several billion dollars) less than its current book value. Adjusting the company’s stated value with its real value will require taking a write off of “goodwill.”

The reduction in goodwill value is based on CB&I’s existing and predicted future liabilities associated with completing four nuclear plant construction projects, two at Plant Vogtle in northeast Georgia and two at the V.C. Summer site in northwest South Carolina. This is an excerpt from the company’s Jan 27 press release.

Determination of the goodwill requires verification of enormous data and considerable time for scrutiny. Given this, Toshiba will announce the goodwill and others, and its earnings result for the third quarter of FY2016, on February 14th, 2017, the deadline for submission of the quarterly report. In the earnings announcement, Toshiba will explain the impact of the current issue, its causes and countermeasures, and the revised forecast for the full fiscal year.

Midori Hara, a spokesperson from Toshiba’s Public Relations office, stated via email that “we are reviewing future of our nuclear power business outside Japan, but nothing has been decided at this time.”

During the Jan 27 press conference Mr. Tsunakawa said that the restricting solution may include a move to separate the “nuclear business from the Energy Systems and Solutions Company, and position it as an organization directly under the control of the President and CEO, as a measure to strengthen risk management. This will allow smoother reporting and decision-making and promote more information sharing, and also support us in our goal of securing stronger management of U.S. nuclear project costs and enhanced governance of Westinghouse.”

Hara deferred any comment on the fate of Danny Roderick, President and CEO of Toshiba’s Energy Systems & Solutions Company.

We cannot comment on the responsibility of Danny Roderick at this moment as well.

Hara’s email also explained the preliminary understanding of root cause of the company’s current financial stress.

Initially, the construction for the U.S. two projects were carried out by CB&I by its subsidiary called Stone & Webster, however, since there were disputes related to cost increase from change in NRC’s regulation, Westinghouse acquired Stone & Webster in 2015 that resolved all the disputes and moved on for construction.

This acquisition is becoming the issue now, which Toshiba has announced on Dec. 27 2016, that it could result in making several billion US dollar loss (write-down).
(Emphasis added.)

More Liability Than Expected

A reasonable translation of that statement is that Westinghouse determined that disputes about project costs and determining who would pay for them threatened to halt construction. To avoid that situation, Westinghouse purchased the construction company so it could move forward.

That put Toshiba – through Westinghouse and CB&I Stone and Webster – on the hook for all project construction costs beyond the agreed contract price.

Though there is plenty of blame to go around for the cost overruns, several major regulatory changes have been significant drivers. Some of those decisions are so far in the past that they have been largely forgotten.

Major Impact From NRC Imposition Of Aircraft Impact Rule

One of those changes happened more than a decade ago, soon after the contracts were signed for the four AP1000 units currently under construction. The NRC determined that all reactors whose construction had not already started would be required to meet the newly issued Aircraft Impact Rule.

Read full article at Forbes