Daily Management Review

Is the Potential Indian Nuclear Power Plant Deal Enough for Toshiba’s Lofty Nuclear Plans?


Is the Potential Indian Nuclear Power Plant Deal Enough for Toshiba’s Lofty Nuclear Plans?
Battling both competition from emerging market rivals and the impact of its own deteriorating finances, Japan's Toshiba Corp may need to curb its ambitions in nuclear power even as it looks set to win a deal in India, industry experts said.
There were media reports that Toshiba's U.S. nuclear unit Westinghouse was well on the way to securing a deal with the Indian government to build six nuclear reactors in the first half of next year.
As the laptop-to-nuclear conglomerate overhauls its loss-making consumer electronics division in the wake of a $1.3 billion book-keeping scandal, the deal that is estimated to be worth as much as $2 billion per reactor, is a blessing for Toshiba.
However this would not be enough for the company, experts point out, as it would be far from securing its goal of building 64 reactors over the next 15 years. This aim is described by many as an ambitious plan announced in November and even more bullish than its outlook before the 2011 Fukushima disaster that spurred a nuclear phase-out among developed nations such as Germany.
This has been compounded by the efforts of Russia and China who are beefing up efforts to export their own reactors with lower prices.
There is little assurance Toshiba will beat out cheaper manufacturers vying for contracts in emerging countries such as China, India and Turkey as Toshiba, in 2013, had lost to Russia's Rosatom in supplying Finland's Fennovoima power plant project, say analysts.  
"I expect Russia and China to eventually dominate the nuclear market. Their reactors are significantly price competitive," Hideo Kubota, nuclear expert at Japan's Tepia Research Institute, said.
 The company lacks the financial flexibility often required of nuclear reactor suppliers, say analysts, due to  Toshiba's deteriorating capital base which has been laid bare in recent financial reports after years of exaggerated profits.
There were reports in the media that the company had been seeking help from Japanese financial institutions to fund the NuGen UK nuclear project in northwest England.
Sources said that the company is  not in a position to take on its planned share of the building costs by itself due to the scandal
While the Tokyo Stock Exchange has placed Toshiba stocks in a special "watch" category to see whether it can improve internal controls, Moody's also recently downgraded the company's debt rating to junk status. This has made it very difficult for the company to raise capital through debt or through the sale of new shares.
The massive costs for reactors meant suppliers were increasingly expected to submit funding proposals along with bids for reactor projects, said an executive of rivals such as Hitachi Ltd., which also leaves Toshiba at a disadvantage.
"Nowadays, nuclear projects must be accompanied by financing plans," the executive said.
However the superior technological knowhow of Hitachi would result in the rivals such as Chinese manufacturers to catch up with Westinghouse's quality standards.
Yet the company believes that a push for cleaner energy gave the business plenty of room to grow.
"We expect to see considerable demand for new plants globally as part of an effort to address global warming," he told reporters last week. "If we can maintain our competitiveness, we are confident that our nuclear business will grow big," says Toshiba Chief Executive Masashi Muromachi.