Westinghouse files for bankruptcy

29 March 2017

Japan’s Toshiba Corp’s US nuclear subsidiary, Westinghouse Electric, filed for Chapter 11 bankruptcy in New York court. Westinghouse listed $10bn each in assets and liabilities in its filing in US Bankruptcy Court for the Southern District of New York.

It also proposed to appoint Weil, Gotshal & Manges as legal adviser, AlixPartners as financial adviser, and PJT Partners as investment banker, subject to court approval. Toshiba said last month it expected to write down JPY712.5bn($6.2bn) in its nuclear-power business, citing cost overruns at Westinghouse and diminishing prospects for atomic-energy operations.

Toshiba now says its full year loss may widen to JPY1010bn. The company was twice given permission to delay reporting its earnings until 11 April. The nuclear services business accounts for about a third of its revenue. The Japanese government confirmed on 29 March that it was aware of Toshiba's plans. Toshiba President Satoshi Tsunakawa said the move was aimed at "shutting out risks from the overseas nuclear business." In February, Toshiba announced it would no longer build new nuclear facilities and would focus instead on supplying parts and engineering. It has put its memory chip business up for sale to compensate for the Westinghouse losses.

Pennsylvania-based Westinghouse, whose technology forms the basis of about half the world’s nuclear units, supplied the world’s first pressurised water reactor for a nuclear power plant in 1957. Toshiba acquired Westinghouse for $5.4bn in 2006 and Westinghouse signed deals in 2008 to build four AP1000 reactors for Southern Co (Vogtle NPP in Georgia) and Scana Corp (VC Summer NPP in South Carolina) , the first US nuclear plants since the 1979 accident at Three Mile Island to be approved for construction by regulators. However, both projects incurred huge cost overruns and delays. Westinghouse in 2015 purchased nuclear construction company Stone & Webster, which locked it into fixed prices for completing the projects.  

Scana and Southern could end up facing billions of dollars in additional costs, according to Morgan Stanley. Scana faces as much as $5.2bn while cost overruns for Southern could reach $3.3bn. Westinghouse is reportedly seeking to exit its role as contractor for the two projects.

Scana on 29 March provided an update on the impact the Westinghouse bankruptcy on the VC Summer project. South Carolina Electric & Gas Company, principal subsidiary of Scana, and VC Summer co-owner Santee Cooper, contracted with Westinghouse in 2008 to build two Westinghouse AP1000 reactors at the plant. Scana said it had been working with Westinghouse in anticipation of the bankruptcy filing “to reach an agreement, subject to bankruptcy court approval, that allows for work on the project to continue toward completion of the units”.  This agreement “allows for a transition and evaluation period” during which Scana will assess information provided by Westinghouse and “determine the most prudent path forward for the project".  Fluor will continue as the construction manager during this period and will continue to work towards completion of the units. Lonnie Carter, Santee Cooper President and CEO noted:  "This agreement will provide SCE&G and Santee Cooper the time necessary to perform due diligence related to cost and schedule.  It gives us critical direct access to resources and information that Westinghouse had not provided us to date, which will be important as we plan for the future of the project."

Implications for China, UK and India

The bankruptcy proceedings also place question marks over Westinghouse’s other AP1000 projects in China, and planned projects in the UK and India. Westinghouse said in a statement on 29 March that it obtained $800m in debtor-in-possession financing to help fund its reorganisation. The company has agreed with owners of its AP1000 reactor developments to continue the projects during an initial assessment period, and it will continue work in China, it said. “We have taken action to put Westinghouse on a path to resolve our AP1000 financial challenges while protecting our core businesses,” Interim President Jose Emeterio Gutierrez said in the statement. “We are focused on developing a plan of reorganisation to emerge from Chapter 11 as a stronger company while continuing to be a global nuclear technology leader.”

Toshiba said its European business, including the UK, as well as its Asian, Middle East and African operations would see no impact, helped by the firm securing $800m of extra financing. However, the bankruptcy could still have far-reaching consequences for the UK's future nuclear plans. The Moorside nulcear plant in Cumbria is due to open in the mid-2020s. Toshiba has a 60% stake in NuGen, a joint venture with France's Engie (formerly GDF Suez), which has the contract to build the plant, for which Westinghouse was to build AP1000 reactors. In February, Toshiba said it would continue to work on the development of Moorside, but would not be involved in its construction. A Toshiba spokeswoman said 29 March that it was "assessing the feasibility of the project, but at the moment, nothing is decided".

Japan’s Nikkei reported on 27 March that Westinghouse has turned to Korea Electric Power Corp (Kepco) to sponsor its reorganisation. Kepco earlier dismissed speculation that it is considering buying  Westinghouse, but confirmed an interest in joining the NuGen consortium. Kepco president Cho Hwan-eik said on 22 March: “We have no plan to acquire Toshiba’s stake [in Westinghouse] . . . there is no role for us there”. However, Cho said Kepco would be keen to take Toshiba’s 60% stake in NuGen, once the sale conditions have been clarified. “The basic sales structure has not been set yet although intense negotiations are going on between the UK and Japan. We will be the first to jump into the race once the sales conditions including debt and equity are decided,” he said. 

Kepco had been identified by industry experts as the only potential acquirer of Westinghouse that would be acceptable from a national security perspective. Analysts say possible contenders from China and Russia would probably be blocked by the USA and the UK, while others, such as Mitsubishi Heavy Industries and Hitachi, have already denied any interest. Kepco has been in talks for months about investing in NuGen, the Financial Times reported, citing people involved in the process. Kepco is seeking to enter the UK nuclear market as part of its ambition to become the world’s third-largest exporter of nuclear reactors by 2030. As part of the NuGen consortium it would most probably seek to substitute its own reactors for the planned Westinghouse AP1000s.

Westinghouses’ bankruptcy also puts at risk the construction of six nuclear reactors planned for  India under the India–USA Civil Nuclear Agreement

“The truth is the picture is very hazy at the moment,” a senior official at the Nuclear Power Corporation of India Ltd (NPCIL), responsible for the construction alongside Westinghouse, told the Hindu Times newspaper.

Construction of the reactors in the Indian state of Andhra Pradesh is unlikely to begin this year, as was planned. The deal may also be delayed because the Japanese parliament is yet to ratify the India-Japan Nuclear Cooperation Agreement (NCA), signed in November 2016. If the parliament fails to ratify the agreement, the nuclear deal between Tokyo and New Delhi will be illegal as India is not a signatory of the 1968 treaty on the non-proliferation of nuclear weapons (NPT).



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