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Industry ministry's push behind move to integrate nuclear fuel businesses

Hitachi Ltd., Toshiba Corp. and Mitsubishi Heavy Industries Ltd. are considering integrating their nuclear fuel businesses next spring amid the deteriorating environment in the nuclear power field in the wake of the 2011 Fukushima nuclear disaster, after which most domestic reactors have been left idle and construction of new reactors has been put on hold.

    Behind the move also apparently lies a push by the Ministry of Economy, Trade and Industry, which oversees the country's energy policy -- with a realignment of nuclear reactor businesses expected to come into focus.

    "It's difficult to run a nuclear fuel business. The situation is tough because nuclear reactors remain offline," a grim looking Mitsubishi Heavy Industries President Shunichi Miyanaga told reporters on Sept. 29.

    Following the nuclear meltdowns at the Fukushima No. 1 nuclear power plant in March 2011, most reactors in the country have stayed idle, and as of September this year only three reactors were online -- the No. 1 and No. 2 reactors at Kyushu Electric Power Co.'s Sendai nuclear plant in Satsumasendai, Kagoshima Prefecture and the No. 3 reactor at Shikoku Electric Power Co.'s Ikata nuclear plant in Ikata, Ehime Prefecture. Even since before the Fukushima disaster, orders for nuclear fuel had been plummeting, forcing heavy industry makers to suffer a severe business setback.

    Major power companies are also reluctant to make investments in nuclear plants as it is hard to discern their power generation costs when decommissioning and other expenses are included. In the government-set energy mix target for fiscal 2030, nuclear power accounts for 20-22 percent, but observers have raised questions about the feasibility of that goal. Nuclear plant makers are bound to face difficulties as "we have no choice but to be reserved about building new nuclear plants amid the current public sentiment," according to a senior industry ministry official.

    With the strong backing from the industry ministry, Hitachi, Toshiba and Mitsubishi Heavy Industries have entered talks over the merger of their subsidiaries -- Global Nuclear Fuel-Japan Co., Nuclear Fuel Industries Ltd. and Mitsubishi Nuclear Fuel Co.

    "Sure those businesses should be integrated, but they won't necessarily produce profits as the prices and quantity ordered for nuclear fuel have been on the decline," said Kosuke Tai, chief analyst at Daiwa Securities Co. Nevertheless the three manufacturers are poised to bolster their business foundations through integration of their production bases and reduction of material procurement costs.

    Once the integration of nuclear fuel businesses is settled, the next focus will be on the realignment of nuclear reactor businesses. With the prospect of reactor restarts unclear in the country, the government aims to bolster the cost competitiveness of Hitachi, Toshiba and Mitsubishi Heavy Industries in the global market by integrating their reactor businesses in order to press forward with the government's nuclear plant export policy. Specifically, the government is vying with China, South Korea and Russia, which are pitching their price edges in emerging countries where many nuclear plant construction projects are underway.

    Because the types of reactors they produce vary, however, arrangements will need to be made before their reactor businesses are integrated. While Toshiba and its U.S. nuclear subsidiary Westinghouse Electric Co. produce both boiling water reactors (BWRs) and pressurized water reactors (PWRs), Hitachi only manufactures BWRs and Mitsubishi Heavy Industries only PWRs.

    Furthermore, each of those makers has business partnerships with foreign manufacturers and their business strategies are apparently diverse. Those companies are also expected to face higher hurdles in negotiating with the U.S. and French governments as "nuclear reactor production is affected by each country's national policy at a far greater level than that for the nuclear fuel business," according to an official with a government-affiliated financial institution. "A considerable amount of time and labor will be necessary" for the merger of domestic reactor businesses, confided a senior industry ministry official.

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