Financially troubled Toshiba Corp. previously signed a contract with a U.S. power company under which the electronics giant would cover any increase in the costs of building two nuclear reactors ordered by the U.S. firm, it has been learned.
The costs actually snowballed because the United States stiffened regulations on nuclear plants following the 2011 outbreak of the Fukushima nuclear disaster, causing the electronics giant losses amounting to 712.5 billion yen ($6.27 billion) from its U.S. nuclear power business.
Westinghouse Electric Co. (WH), Toshiba's nuclear power subsidiary in the United States, won contracts to build four nuclear reactors in the United States in 2008.
However, work on the construction of two of them -- the No. 2 and 3 reactors at the V.C. Summer nuclear plant in South Carolina -- was delayed after its design was changed because the United States stiffened its regulations on nuclear plants in the wake of the outbreak of the Fukushima nuclear crisis in 2011. This resulted in an increase in the construction costs.
A dispute broke out between the Toshiba group, CB&I Stone & Webster Inc. (S&W) that was commissioned to do the construction work and the power company over the share of the increased expenses.
Toshiba had WH take over S&W in December 2015 in a bid to settle the dispute and smoothly go ahead with the work. At the time, the Toshiba group signed a fixed-price contract, under which the Japanese firm would cover any future increase in construction costs, in return for the power company paying more to Toshiba and delaying the deadline for delivery of the reactors by two years.
It became likely that the costs of the four reactors in the United States would snowball by $6.1 billion, or some 690 billion yen from the initial estimate. Under the fixed-price contract with the power company, Toshiba was forced to shoulder a massive amount of extra expenses.
Toshiba has admitted that it concluded a fixed-price contract with the U.S. power company on the construction of the two reactors at the V.C. Summer nuclear plant but its public relations division declined to comment on the details.
The electronics giant also refused to give any information on the contracts for two other nuclear reactors.
Market players are critical of Toshiba's move. "Toshiba executives apparently decided to go ahead with the work even by taking risks. But they were too optimistic about the future prospects for the project," said a securities analyst.