India's $12 Billion Deal Unlikely To Secure Toshiba's Lofty Nuclear Plans

28/12/2015 4:00 PM IST | Updated 15/07/2016 8:25 AM IST
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A man sits using a smartphone in front of the Toshiba Corp. logo displayed on screens in Tokyo, Japan, on Monday, Dec. 21, 2015. Toshiba forecast a record 550 billion yen ($4.5 billion) loss and will cut more jobs and restructure businesses that include chips, televisions, personal computers and home appliances following a long-running accounting scandal. Photographer: Tomohiro Ohsumi/Bloomberg via Getty Images

TOKYO -- Japan's Toshiba Corp may need to curb its ambitions in nuclear power even as it looks set to win a deal in India, battling both competition from emerging market rivals and the impact of its own deteriorating finances, industry experts said.

A senior Indian government official told Reuters earlier this month that the country expects to seal a contract with Toshiba's U.S. nuclear unit Westinghouse to build six nuclear reactors in the first half of next year.

The deal, estimated to be worth as much as $2 billion per reactor, is a blessing for Toshiba as the laptop-to-nuclear conglomerate overhauls its loss-making consumer electronics division in the wake of a $1.3 billion book-keeping scandal.

Yet industry experts say it is far from securing its goal of building 64 reactors over the next 15 years - 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.

Moreover, they say Russia and China are beefing up efforts to export their own reactors with lower prices.

In 2013, Toshiba lost to Russia's Rosatom in supplying Finland's Fennovoima power plant project, and analysts say there's little assurance Toshiba will beat out cheaper manufacturers vying for contracts in emerging countries such as China, India and Turkey.

"I expect Russia and China to eventually dominate the nuclear market," Hideo Kubota, nuclear expert at Japan's Tepia Research Institute, said.

"Their reactors are significantly price competitive," he noted.

Toshiba's deteriorating capital base, laid bare in recent financial reports after years of exaggerated profits, also means the company lacks the financial flexibility often required of nuclear reactor suppliers.

Reuters reported earlier this month that Toshiba was asking Japanese financial institutions to help fund the NuGen UK nuclear project in northwest England.

The scandal has made it more difficult for Toshiba to take on its planned share of the building costs by itself, the sources said.

Moody's also recently downgraded the company's debt rating to junk status, and the Tokyo Stock Exchange has placed Toshiba stocks in a special "watch" category to see whether it can improve internal controls. Both moves make it difficult for the company to raise funding through debt or new shares.

That also leaves Toshiba at a disadvantage to rivals such as Hitachi Ltd. An executive at Hitachi, declining to be named because he was commenting on a competitor, said massive costs for reactors meant suppliers were increasingly expected to submit funding proposals along with bids for reactor projects.

"Nowadays, nuclear projects must be accompanied by financing plans," the executive said.

Yet Toshiba insiders are upbeat, saying they expect it to take time for rivals such as Chinese manufacturers to catch up with Westinghouse's quality standards.

Toshiba Chief Executive Masashi Muromachi has so far refused to back down on the company's ambitious plans in the nuclear industry, saying 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."

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