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Nuclear power: Mitsubishi Heavy weighs pros, cons of Areva investment

Nuclear power: Mitsubishi Heavy weighs pros, cons of Areva investment

TOKYO — Japan’s Mitsubishi Heavy Industries faces a difficult decision: An important business partner, French nuclear plant builder and operator Areva, has asked it to invest in its wholly owned manufacturing unit, Areva NP.

     Lending financial assistance to Areva could help both companies sell more nuclear plants in emerging markets, but Areva’s business has been performing poorly for years. Throwing its lot in with the French company is a risk and would have big implications for Mitsubishi Heavy’s own nuclear power operations.

     Areva and French utility EDF have drawn up a new ownership plan for Areva NP in which EDF will purchase a stake of 51-75% in the unit, while its parent will reduce its stake to 25% or less. Both companies are looking for foreign investors, whose stakes may reach about 20% in total.

Think it over

Responding to recent press reports about the Areva NP investment offer, Mitsubishi Heavy issued a statement Thursday, saying, “No decision on the matter has been made,” although it acknowledged discussing the issue with the French companies.

      Mitsubishi Heavy and Areva announced in October 2006 the creation of a 50-50 joint venture to develop and sell a midsize pressurized water reactor called Atmea1.

      The partners are currently negotiating with Turkey on a project to build four Atmea reactors. They are also pitching the reactors to Vietnam and Brazil. If Areva runs into serious financial trouble, Mitsubishi’s overseas expansion could be hampered.

     Areva posted its fourth straight year of net losses in the fiscal year ended December 2014, with the red ink reaching 4.8 billion euros ($5.34 billion) for the year.   

     Areva wants to shore up its reactor business, which forms the core of the company, with a cash injection from its Japanese partner. Mitsubishi Heavy knows the business well and has a deep understanding of pressurized water reactors. There are about 60 nuclear plants in France requiring replacement or maintenance. Deepening ties with Areva is thus an opportunity for Mitsubishi Heavy, as well as a risk.

     However, Masanori Koguchi, who serves on Mitsubishi Heavy’s board, is not sold on the idea, saying there are “many indefinite factors.” 

No spark

Many market players believe it will take Areva awhile to restructure. Separately from its Atmea business, the French company is developing European pressurized reactors, a design said to be safer and more economically efficient than today’s reactors. But the new model has been plagued with problems.

     Plans to build the new reactors in Finland and France have been delayed, causing big losses for Areva. And following the meltdown at Japan’s Fukushima Daiichi nuclear plant in 2011, Germany and other European countries have been trying to reduce their reliance on nuclear power, or phase it out entirely.

     Mitsubishi Heavy has its own problems, including its struggling shipbuilding business and snags in the development of the Mitsubishi Regional Jet, a small commercial plane. One Mitsubishi Heavy executive said the company lacks a sufficient rationale for investing in the Areva unit to justify the decision to shareholders.

     A bigger obstacle is China’s possible participation in the deal. EDF is said to have offered Chinese nuclear power companies the opportunity to invest, including China General Nuclear Power Group, which is working with EDF to build European pressurized reactors in China.

     The French companies are eager to enter the Chinese market, which is expected to see strong demand for new plants. A Japanese government official said the Chinese are eager to hone their nuclear fuel reprocessing skills through the partnership.

     The biggest concern for Mitsubishi Heavy is that Chinese competitors could lay their hands on its nuclear technology, should it decide to take part. But if it stands aloof, the French-Chinese alliance could become a competitor in the global market. Whatever it decides, Mitsubishi Heavy faces risks.

     The wishes of the Japanese government, which sees nuclear plants as a key export, are likely to tip the balance one way or the other.

Nuclear power: Mitsubishi Heavy weighs pros, cons of Areva investment

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