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Meltdown Imminent? The Decline of Japan’s Nuclear Export Industry

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Meltdown Imminent? The Decline of Japan’s Nuclear Export Industry

Cost overruns and declining credibility threaten to derail Tokyo’s nuclear export ambitions.

Meltdown Imminent? The Decline of Japan’s Nuclear Export Industry

Nuclear power plant in Ohi, Japan

Credit: Flickr / iaea_imagebank

On Wednesday, Japanese trading house Itochu announced its withdrawal from a joint Turkish-Japanese nuclear power plant project in the city of Sinop on the Black Sea, citing large cost overruns resulting from stricter safety regulations. This announcement comes after revelations last month that the project would cost more than double initial estimates, while its completion would be delayed well beyond the original 2023 deadline. Along with consortium partners Mitsubishi Heavy Industries (MHI) and Engie, Itochu was to contribute a share of 30 percent of the project’s overall costs, with the other 70 percent to be financed through loans from the Japan Bank for International Cooperation. However, its withdrawal — before feasibility studies have even been completed — will likely require the renegotiation of financing and final ownership arrangements between the remaining stakeholders, which could greatly increase the project’s risk for the remaining consortium partners, particularly Japanese-owned MHI. Japan’s nuclear exports were already a risky business for reasons ranging from affordability and industrial disaster to international proliferation. This latest setback, however, constitutes another serious blow to the industry’s global competitiveness.

The industry’s present woes have their roots in the Fukushima Daiichi nuclear disaster of March 2011, which has since caused ongoing damage to the reputability of Japanese nuclear technology both at home and abroad. Indeed, though the LDP government headed by Shinzo Abe has long supported nuclear power as an essential element in Japan’s energy mix, an increasingly hostile domestic environment has prompted Japanese companies to seek more accommodating markets overseas. The Abe administration has also regarded nuclear power as a core component within Japan’s broader geopolitical and infrastructure export strategies. However, nuclear vendors have been unable to entirely escape the broad revisions to safety guidelines that have greatly increased the financial burdens afflicting reactor operators at home. If anything, the same obstacles that have delayed restarts and forced closures of several sites within Japan itself have continued to hound the industry’s expansion into overseas markets. It is telling that Japan is yet to see a post-Fukushima overseas nuclear project through to completion, despite a recent surge in global demand for nuclear power expertise, particularly in the Middle East and Southeast Asia.

In fact, the situation in Turkey can be considered a microcosm of the greater global challenges facing Japan’s nuclear industry. Despite the Sinop setback, Ankara continues to pursue other civil nuclear power projects, with the construction of its first reactor complex at Akkuyu — a joint venture with Russian state-owned entity Rosatom — commencing earlier this month, and negotiations with China’s state-owned nuclear operator, China Nuclear Engineering Corporation (CNEC), over a potential third complex in Kirklareli province well underway. Russia and China are also major competitors within the broader Middle Eastern market, where the footprint of nuclear power is expected to quadruple over the next decade, causing new players to throw their hats into the nuclear infrastructure ring. While Rosatom has already secured multibillion dollar contracts to build reactors in Egypt and Jordan, South Korea has also established itself as a credible competitor in the Middle Eastern nuclear market with a four-reactor deal with the UAE and is a frontrunner in the competition for several lucrative contracts in Saudi Arabia. Indeed, the Kingdom plans to build up to 16 nuclear reactors over the next 25 years and is expected to award construction contracts in December. Riyadh has received bids from China and Russia, along with France, South Korea, and the United States, but nothing yet of note from Japan despite Tokyo’s identification of nuclear power as an area for cooperation in the Saudi-Japan 2030 Vision.

Japan’s conspicuous absence is not for lack of effort, for Toshiba’s (now former) subsidiary Westinghouse had signaled its intent to submit a bid in cooperation with a number of other American firms back in November 2017. However, the recent woes afflicting the Toshiba-Westinghouse partnership speak to the mounting challenges facing Japan’s nuclear industry more broadly. Westinghouse, originally an American firm, was purchased by Toshiba in 2006 before $13 billion in cost overruns and extensive delays at two projects in the United States saw the former file for bankruptcy in March 2017, effectively quashing Toshiba’s competitiveness in the global nuclear energy market. Toshiba eventually sold Westinghouse in February for an approximate $1 billion loss on its original investment, though it has since bought Westinghouse’s own subsidiary Nuclear Fuel Industries in an effort to shore up its domestic prospects — Toshiba is the main contractor or a major component supplier for 20 of Japan’s 54 reactors, including two at Fukushima.

Toshiba’s international retreat has not only potentially cost Japan a stake in the Middle Eastern market, but arguably in the Southeast Asian market as well. For example, the Philippines recently signaled interest in reviving its civil nuclear power program, after its sole reactor site at at Bataan was mothballed after Fukushima in 2011. Earlier this year, however, Manila expressed interest in collaborating with Russia’s Rosatom to revive Bataan, as well as constructing additional land and/or sea-based modular reactors. The Bataan project was originally a joint venture between Manila and Westinghouse which, as noted above, was until quite recently a subsidiary of Toshiba.

Japanese firms have fared little better elsewhere in Southeast Asia, most notably in Vietnam. Hanoi had formerly agreed to a joint venture with a consortium of Japanese firms in 2010, before the Vietnamese parliament abruptly canceled the contract in November 2016, citing the country’s indifferent economic outlook, and lingering safety and feasibility concerns regarding the reactors’ design. In an interview last December, former President Truong Tan Sang confirmed suspicions that uncertainties over the reliability of Japanese nuclear technology brought on by Fukushima had played a part in the project’s cancellation. Tellingly, while Japan’s nuclear ambitions in Vietnam have all but evaporated, Hanoi has not entirely abandoned its civil nuclear designs. It signed an MOU with Russia in June 2017 paving the way for the joint establishment of a nuclear science and technology center in Vietnam, while an additional MOU was signed with India in March 2018 relating to cooperation on civil nuclear power. The exclusion of Japanese firms from these markets, it would seem, could be pinned on a growing global perception that the financial and technological credibility of these companies has deteriorated to the point that they are longer considered reliable partners.

Evidently, the Japanese nuclear industry’s international prospects are in increasing decline, with potential flow-on effects for Tokyo’s geopolitical ambitions — particularly efforts to counter China’s Belt Road Initiative (BRI) through “alternative” infrastructure projects. Even so, the current political scandal raging around Prime Minister Abe threatens to deliver a decisive blow to Japan’s nuclear energy industry. Indeed, Abe’s potential departure by September could prompt a serious recalibration of Japan’s nuclear energy policy, depending on his replacement. Foreign Minister Taro Kono, for example, has already signaled his opposition to the Abe government’s current nuclear energy policy. Though Abe’s successor would face an uphill battle against the entrenched vested interests protecting the nuclear industry, a leadership change in Tokyo could yet deliver a fatal blow to Japan’s increasingly forlorn nuclear export ambitions.

Tom Corben is an Asian Studies and International Relations graduate (Hons) from the University of New South Wales, Sydney. He currently interns with the United States Studies Centre at the University of Sydney. The views expressed here are his own and do not represent those of the aforementioned institutions.