Wednesday, March 29, 2017

Shedding Nuclear Liabilities: The Prioritization of Corporate Profits as Toshiba Sheds Westinghouse's Toxic Liabilities


Toshiba, a company whose corporate reputation was shocked by recent admission of financial misconduct, announces bankruptcy for its nuclear subsidiary, Westinghouse:
AP (2017, March 29). Toshiba says Westinghouse filing for bankruptcy. The Asahi Shimbun, http://www.asahi.com/ajw/articles/AJ201703290062.html

Toshiba said in a statement that it filed the chapter 11 petition in the U.S. Bankruptcy Court of New York. The move had been largely expected. Toshiba has been eager to get Westinghouse off its books to improve its plight, and it said it would do just that from this fiscal year. It has said earlier it wants to sell Westinghouse. Toshiba said Westinghouse had racked up debt of $9.8 billion.

Toshiba reiterated its view that at the root of the problem was the acquisition of U.S. nuclear construction company CB&I Stone and Webster.…The company's reputation has also been tarnished in recent years by a scandal over the doctoring of accounting books to meet unrealistic profit targets.

The company has said it will no longer take on new reactor construction projects and will focus on maintaining the reactors it already has. But it is also involved in the decommissioning of the Fukushima No. 1 nuclear power plant, which suffered multiple meltdowns after the March 2011 tsunami.
Another article on the bankruptcy published by Reuters attributes cost overruns to nuclear reactors being built within the US Southeast:


Tom Hals, Makiko Yamazaki and Tim Kelly (March 29, 2017). Huge nuclear cost overruns push Toshiba's Westinghouse into bankruptcy. Reuters, http://www.reuters.com/article/us-toshiba-accounting-board-idUSKBN17006K
Westinghouse Electric Co, a unit of Japanese conglomerate Toshiba Corp (6502.T), filed for bankruptcy on Wednesday, hit by billions of dollars of cost overruns at four nuclear reactors under construction in the U.S. Southeast.

Bankruptcy will allow Pittsburgh-based Westinghouse to assess whether to continue construction of the first new U.S. nuclear power projects in three decades for utility companies SCANA Corp (SCG.N) and Southern Co (SO.N). The company also provides nuclear design, engineering and decomissioning work around the globe, and said in court filings that its nuclear fuel and power plant servicing operations are "very profitable."

Westinghouse and affiliates intend to use bankruptcy to "isolate them from the one specific area of their businesses that is losing money: their construction of nuclear power plants in Georgia and South Carolina," the company said in a filing in Manhattan's U.S. Bankruptcy Court.

For Toshiba, the filing will help keep the parent company afloat and ringfence it from soaring liabilities from Westinghouse. Toshiba said Westinghouse-related liabilities totaled $9.8 billion as of December, making it one of the industry's most costly collapses to date.
Notice two important aspects of the Reuters report beyond the attribution of causality:

1. Although new construction isn't described as profitable, servicing and de-commissioning old reactors is described as "very profitable."
2. Bankruptcy will "keep the parent company afloat and ringfence it from soaring liabilities from Westinghouse"



I wondered exactly what Westinhouse's liabilities entail. I found a pretty detailed discussion in Bloomberg Gadfly by David Fickling that attributes the liabilities to nuclear waste and concludes that the company's actual and potential liabilities exceed its profits.

Fickling also observes that Kazatomprom, Kazakhstan's state-owned uranium miner, has a put option to sell a 10% stake in the company, which complicates matters:
Fickling, David. (March 10, 2017). Toshiba’s Radioactive Liabilities. Bloomberg Gadfly, https://www.bloomberg.com/gadfly/articles/2017-03-10/toshiba-s-westinghouse-liabilities-will-have-a-long-half-life

Environmental and decommissioning liabilities add further risks, which can be fiendishly difficult to estimate. Toshiba's best guess at the time of its 2016 annual report was that the environmental costs would come to 10.4 billion yen, plus another 24.2 billion yen for decommissioning.

Then there's Kazatomprom, Kazakhstan's state-owned uranium miner, which holds a put option over its 10 percent stake in Westinghouse. IHI Corp. will receive about 19 billion yen in May after exercising a similar option over its 3 percent share, Toshiba said last month. Should Kazatomprom make the same decision and get a comparable price, the cost of buying out minority shareholders alone would be enough to wipe out all the nuclear unit's underlying profits since 2011...

A billion yen here, a billion there, and sooner or later you're talking big money. While the 712.5 billion yen goodwill writedown has been priced in, there's an even bigger elephant in the room: A 793.5 billion yen guarantee for customers of its U.S. nuclear power plants.

Bankruptcy or a sell-down of the good bits of the nuclear business may be necessary for Toshiba, but neither strategy will make those liabilities disappear.

As you can see above, Fickling notes that the liabilities are not going to disappear. While he is technically, correct, some entity or entities will ultimately bear those liabilities and based on my analyses published  in Crisis Communication, Liberal Democracy and Ecological Sustainability, those liabilities are going to take the form of externalities that adversely impact the economic and biological well being of communities far into the future.

Here is some background on the complex chain of ownership from my Crisis Comm book cited above:
WESTINGHOUSE ELECTRIC: Westinghouse Electric Company LLC: Predecessor company established in the U.S. 1886 by George Westinghouse. Westinghouse Electric Corporation was an important nuclear engineering firm across the second half of the Twentieth century. 
In 1954 Westinghouse created the S2W reactor for the world’s first nuclear-powered submarine. Westinghouse Electric Corporation purchased Columbia Broadcasting Corporation (CBS) in 1995 and assumed its name in 1997. In 1998, CBS sold its nuclear power division to British Nuclear Fuels Limited (BNFL). 
BRITISH NUCLEAR FUELS: British Nuclear Fuels Limited (BNFL) British-government owned public company specializing in nuclear energy and fuels. Fuel activities included MOX production and reprocessing at Sellafield. It also ran reactors and sold electricity. It was established in 1971 from the break-up of the U.K. Atomic Energy Authority and instituted as a public company fully owned by the British government in 1984. 
After BNFL purchased Westinghouse’s nuclear operations from CBS in 1998, it acquired licensing rights on the Westinghouse trademark and re-organized acquired assets as Westinghouse Electric Company.
TOSHIBA GROUP: Toshiba Group purchased 87 percent ownership of Westinghouse in 2006. Today Toshiba Group is the majority owner with KazAtomProm owning approximately 10 percent of shares.

Toshiba founded in Japan 1938 as Tokyo Shibaura Electric K.D with the name changing in 1978 to Toshiba Corporation in 1978. Toshiba announced it was considering selling its stake in Westinghouse Electric in 2015 as a result of a significant accounting fraud that involved over-statement of earnings. Toshiba shareholders as of March 2014 included “domestic corporations” (controlling 50.6 percent of stock), overseas corporations (controlling 19.9 percent of stock), financial institutions (controlling 15.1 percent of stock), and individuals and other shareholders holding remaining equity.






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