Westinghouse Electric Co. has filed for Chapter 11 bankruptcy. This is due to cost overruns with it four nuclear reactors that are being constructed. This allows its parent company, Toshiba, to limit their financial losses.
This move will allow Westinghouse to decide whether it will continue the construction of the nuclear power projects for utility companies SCANA Corp and Southern Co.
Toshiba CEO Satoshi Tsunakawa said, “Toshiba concluded that a Chapter 11 filing was essential to rebuild Westinghouse.”
This filing for bankruptcy also ends the partnership between Westinghouse and Toshiba. In October 2006, Toshiba bought Westinghouse’s nuclear business for $5.4 billion and declared that that acquisition would lead to the dawn of a new era for nuclear energy. The backdrop then was high oil and gas prices. Also, there were movements to prevent global warming from worsening by capping carbon emissions.
However, the combination of Westinghouse and Toshiba has failed. Current Westinghouse-related liabilities has totaled to $9.8 billion as of December 2016. Toshiba has put its memory chip unit for sale to cover these losses. Toshiba is also forced to pull back from new nuclear projects that are currently being discussed in India and Britain.
This reorganization of Westinghouse will lead to complex negotiations between Toshiba, Westinghouse and the utility companies which are its main creditors. The deal will also bring into the picture the government loan guarantees by the U.S. government to help fund the nuclear reactors.
Westinghouse has already secured $800 million in financial assistance from Apollo Investment Corp for this period of reorganization.
Toshiba wants to find a buyer for Westinghouse, but there has been a scarce response to this. Two possible buyers would be Korea Electric Power Co., and Chinese nuclear construction company, KEPCO.
Jeffrey Merrifield, a former member of the Nuclear Regulatory Commission, said, “There is much value in that design going forward, and a lot of the challenges are being dealt with right now.” Merrifield said that there might be coalitions of U.S. companies that might want to purchase certain components of Westinghouse, which are the parts that design the reactor parts.
SCANA said that it is considering abandoning the project which is already a third complete.
Stan Wise, head of Georgia’s Public Service Commission said that the Southern Co’s nuclear project will likely be abandoned, which is now 36% complete.
Wise said, “There is a reason Westinghouse is exiting the process and bankrupt. Something told them the pain for them can only get worse. I hope there is a way for this process and contract to continue.”
20% of U.S. electricity is derived from nuclear energy. But it’s nuclear reactors are old with an average age of 35. Dan Aschenback, a senior vice president at Moody’s, said, “As these units get decommissioned, to stay at that percentage you need more units. But you can’t get there if you cannot construct it.”
Westinghouse said that their operations in Asia, Europe, Africa and Middle East will not be affected by this bankruptcy filing.
Jeff Stein March 28, 2017
Posted In: Personal Finance