Post-Fukushima cost overruns may kill a giant power project in Turkey, and there are few other deals to replace it
Japan’s nuclear export industry could be dealt a fatal blow if Mitsubishi Heavy Industries pulls out of a massive project to build four large power plants on Turkey’s Black Sea coast, as reports have suggested.
The Sinop plant project in Turkey was seen as Japan’s best chance for an industry – battered and bruised after the 2011 tsunami and triple meltdown at Fukushima – to put together a workable export strategy that did not break the bank of potential international customers.
Aside from Sinop, the Japanese industry has only one viable export project still upcoming: Hitachi’s bid to build two reactors on the island of Anglesey in Britain. And even that deal is looking shaky.
Mitsubishi Heavy Industries (MHI) has not pulled the plug yet on its stake in the four-reactor project on Turkey’s Black Sea coast, but a slew of domestic media reports and talk in Tokyo, suggests that, in the face of seemingly ever-rising construction costs to meet new safety standards that have been put in place since the 2011 Fukushima disaster, the company will bail.
When the deal was signed with Ankara in 2013, the ownership profile was: 65% awarded to a consortium made up of MHI, Itochu, France’s Areva, and GDF Suez. The other 35% was covered by Turkey’s electric power utility, Elektrik Uretim.
However, in April, Itochu pulled out of the consortium, citing cost overruns. That left the consortium with 51%, and the remaining 49% owned by the Turkish utility.
Without Mitsubishi the viability of the project is in question, sources say, unless Turkey can find a new partner or is willing to take on the project without its largest foreign partner. The Russians, who are building a nuclear complex on Turkey’s southern Mediterranean coast, might be interested.
According to Kyodo, a thorough cost evaluation was to be completed by the end of this year. Itochu waited for the report to be released before bailing out of the deal. MHI is apparently waiting for the study to be completed before deciding its next move.
When the deal with Mitsubishi was signed in 2013, the estimated cost was $18 billion for four 1,100-megawatt nuclear power plants. But overall costs have soared, passing $42 billion in April – when Itochu withdrew, and is now put at about $44 billion.
Cost increases are nothing new in the nuclear power industry, but have been exacerbated in recent years by expensive adjustments phased in to meet more stringent safety concerns following the earthquake and tsunami that destroyed four units of the Fukushima Daiichi plant. The Sinop cost rises, however, also encompass other problems encountered in construction.
Fukushima, one of the most serious nuclear accidents in history, turned most of Japan against nuclear power. Before March 11, 2011, Japan had 54 nuclear plants. All were shut down after the accident and some are slowly returning to service having passed scrutiny by the regulator. Five are expected to restart within the next five years, and eight will likely be decommissioned. But prospects for the remaining plants are unclear.
Aware that no new nuclear plant may ever be built at home amid the anti-atomic public mood, Japan’s nuclear vendors have turned to overseas exports as the Fukushima accident does not appear to have destroyed the Japanese industry brand in other countries.
Endgame for nuclear exports?
If Mitsubishi does pull out of the huge project in Turkey it will be a blow to Prime Minister Shinzo Abe, who sees international exports of nuclear technology as an important way to boost the economy. On his many trips abroad, he often acts as a salesman for nuclear exports. For example, it was a topic of discussion with Turkish President Recep Erdogan on the sidelines of the G-20 meeting in Argentina.
Details of the conversation were not revealed, but it would be a good bet that they discussed the Sinop project with the threat of Mitsubishi hanging over them, and that Abe sought ways to keep the project viable.
Meanwhile, it is not just MHI that may have doubts about the sector. Japan’s nuclear export industry has suffered plenty of setbacks in the seven years since Fukushima. Questions about the future of the sector hang over all three main players in the sector.
Toshiba, one of Japan’s big-three nuclear constructors, recently pulled out of the nuclear power business overseas after incurring huge losses in the United States.
Toshiba has also suffered something of an administrative meltdown in its quest to win construction contracts in the US. In February it finally unloaded it money-losing American subsidiary, Westinghouse, for $1 billion less than it paid to acquire the company 10 years ago.
If the export program is to remain viable, it may be in Wales, where the British government is seeking to build a two-reactor nuclear power plant on the island of Anglesey. Among those bidding for the project is Japan’s third nuclear constructor, Hitachi, through a subsidiary called Horizon Nuclear.
In the nuclear world, there are constructors – like MHI, Toshiba and Hitachi – and operators, who run the plant after it is completed, and they are not always the same. Japan learned from Korea’s successful bid to build six nuclear plants in the United Arab Emirates that offering to build and also run them – a one-stop service – is key to making sales.
Hitachi is teaming up with the Japan Atomic Power Company, which operates two plants in Japan (although both are currently shut down pending the review by regulators). The plan is to present the British with a package deal.
Now, there are worries that Hitachi might pull out of the British project. Chairman Hiroaka Nakanishi was quoted in the Times of London saying his company was “facing an extreme situation,” and that a final decision on whether to stay with the project or leave it will be made next year.
If Mitsubishi does, as is widely expected, pull out of the huge project in Turkey, the only egg left in Japan’s overseas nuclear export basket will be Wales.