– Westinghouse, undergoing bankruptcy, received a financial „helping hand”. However, it is not clear whether it will regain its position as one of the world’s leading suppliers of nuclear technology. It seems that it has also fallen out of the race for the Polish nuclear power plant – writes Piotr Stępiński, editor of BiznesAlert.pl.
Bankruptcy of Westinghouse
At the beginning of the year, Brokfield Business Partners L.P. informed that they would buy from Toshiba Corp. 100% of shares in the bankrupt Westinghouse for USD 4.6 billion. As announced, the transaction will be partially financed with equity (approximately USD 1 billion). The remaining amount is to be paid on the basis of debt financing. The purchase is to be completed in the third quarter of 2018, once the court’s and relevant regulators’ decision has been reached.
By comparison, when Toshiba bought Westinghouse in 2006, it paid USD 5.4 billion. Business Partners L.P. is an industrial company providing business services, listed on the New York and Toronto stock exchanges. It manages global assets worth over USD 265 billion, of which approximately 141 is located in the United States. It invests mainly in real estate, energy, and infrastructure. According to José Emeterio Gutiérrez, Westinghouse’s CEO, the interest of Business Partners has confirmed the position of the company led by him as a global leader in the nuclear market.
A risky investment
Business Partners’ investment in the nuclear sector is somewhat surprising, as it is the first of its kind. Previously, the company did not engage in nuclear power plants. Nevertheless, according to the commentators, the takeover of Westinghouse from Toshiba fits in with the risk strategy of the company that buys assets in a „precarious situation”. Let us remind you that Business Partners takes over Westinghouse under the benefit of an inventory. Not only the 132-year history of the failing company, but also the debt, which, according to Toshiba, at the end of 2016 amounted to nearly USD 9.8 billion. It is not known what plans the new owner will have as regards the Japanese-American company. All the more so since investments in the energy sector, and even more so in nuclear energy, are among those with increased risks. The latter is in crisis because, following the Fukushima disaster in 2011, many countries have decided to withdraw from nuclear power.
The situation is also not improved by the falling costs of generation from renewable energy sources, as well as the recent decision of the Federal Energy Regulatory Commission. The Republican-controlled institution rejected Donald Trump’s plans to support coal and nuclear power plants. The growing share of renewable energy sources and gas in the U.S. power industry led to the exclusion of 531 coal-fired units. In addition, the closure of eight obsolete nuclear reactors was announced last year. Other factors which negatively affect the decision to build new nuclear units are reports of increasing costs and delays in projects already underway. The problems with Westinghouse’s projects of two American nuclear power plants in Georgia and South Carolina primarily contributed to the catastrophic financial situation of the company. As a result, in March 2017, the company owned by Japanese Toshiba filed for bankruptcy with the court. Westinghouse’s experience is also reflected in Europe. Delays and significant cost overruns are observed in projects of e.g. Great Britain and France.
New contracts needed
This also poses a challenge for Westinghouse and its new owner to find new business partners. It sees opportunities in China. By 2020, the world’s second largest economy wants to have a nuclear capacity at the level of 58 GW and will grow by 16.5% annually. In November last year, CEO José Emeterio Gutiérrez announced that he expected further nuclear cooperation with the State of China, all the more so as a growing economy will need new and clean sources of production.
Beijing is awaiting completion of the Sanmen power plant, where the APR1000 reactor will be used. Unfortunately, this project is also lagging behind. According to the latest announcements, it is likely to be implemented this year. Originally, it was to be put into service in 2014, but has not been put into service yet. Nevertheless, the Chinese believe in the success of this project. According to the data of the World Nuclear Association, 21 power plants are being built on the Yellow River, four of which will use APR1000 reactors. More than half of the 41 projects planned will be based on Westinghouse’s technology. The success in China may influence the launch of a wave of orders in countries that are looking to implement nuclear projects, among others, South Africa, India, Mexico, the Czech Republic and Saudi Arabia.
In particular, participation in the construction of the Saudi reactors would be an important step for Westinghouse. At the end of November last year, it was reported that the company had been talking to other American companies about setting up a consortium to win a tender for the construction of two nuclear reactors in Saudi Arabia, worth many billions of dollars. If this were to happen, one could have the impression that the USA still believe that the AP1000 reactors would be able to compete with French, Russian, South Korean and Chinese reactors, while Washington did not lay down weapons and still wants to remain a leading player in the nuclear technology market. By the end of December 2017, the companies concerned were to answer Riyadh if they wanted to become involved in the Saudi nuclear power plant. However, it is unclear whether Westinghouse replied. This is all the more so because what is at stake is 17.6 GW of the capacity that Saudi Arabia wants to install in nuclear power generation by 2032, which corresponds to the capacity of 17 reactors. According to various estimates, two reactors are supposed to have a capacity of 1,000-1,600 MW or even 2.8 GW.
Westinghouse can lose in the race for the Polish nuclear plant
The United States of America was listed among potential technology suppliers also for the planned nuclear installation in Poland. At the beginning of 2017, a delegation in the United States discussed a similar topic with representatives of overseas companies and US Departments of Commerce and Energy. The development of the high-temperature reactor (HTR) was also discussed. Deputy Minister Andrzej Piotrowski, visiting the USA at that time, reminded that in 2016 a team had been established to prepare for the implementation of HTR in Poland, regardless of the construction of a nuclear power plant. As the Ministry of Energy indicated in its communication, the use of this solution in Poland would make it possible in the future to significantly reduce the import of natural gas, which is used as a heat source in the chemical industry.
Despite many trips and meetings of Deputy Minister Andrzej Piotrowski with potential suppliers from Japan, South Korea, China, and France, the fate of the Polish nuclear power plant still remains unresolved. We do not know whether the decision to build a nuclear power plant that has many times been postponed will be made in January, although the Ministry of Energy represented by Deputy Minister Piotrowski argued that this would be the case in December. Perhaps this matter will be accelerated because of the changes in the government brought about by yesterday’s reconstruction. As a result of the reshuffle, Jan Szyszko who acted as breaker of the Polish nuclear power plant, left the seat in the Council of Ministers and rudders in the Ministry of the Environment. However, we do not yet know who will provide the technology, who will finance the construction, and where the power plant will be built. The only thing we know is that Krzysztof Tchórzewski, the Minister of Energy who was spared by the recent wind of changes in the government, supported the project in the declarative sphere.
The situation is also complicated by unclear signals coming from the Polska Grupa Energetyczna, which is responsible for the construction of a nuclear power plant in Poland through its subsidiary – PGE EJ1. On the one hand, at the beginning of November 2017, in a conversation with BiznesAlert.pl, Henryk Baranowski, President of PGE, asked whether the nuclear power plant would be crossed out of the Polish energy mix, said that, for the „time being, there is nothing to suggest that.” A few weeks later, Monika Morawiecka, PGE’s Strategy Director, said that her company was not sure about the future of the nuclear power and was considering options other than the construction of a nuclear power plant.
It seems that the execution of such an expensive project, without defining a financing model by Westinghouse, which despite the acquisition by Brokfield Business Partners L.P. is still facing a financial chasm, remains doubtful. It is also unknown what the new owner’s policy will be, whether they will be interested in the implementation of the project in Poland and whether we ourselves will make the final decision on the construction. If the government gains courage to turn the green light for nuclear power, it will look for a supplier who can boast of years of experience, but also a stable financial situation. The deal concerning the Polish nuclear power plant may be changed due to the acquisition of new contracts in Saudi Arabia, but it is not known whether the Americans will be able to win a contract. For the time being, it seems that while LNG supplies from the United States to Poland are a realistic prospect, nuclear technology is quite distant.