-----

Resources



Market News

 December 21, 2016
Fukushima's $70 Billion Cleanup Leaves Foreign Firms in Cold

 Cleaning up the Fukushima nuclear plant -- a task predicted to cost 86 times the amount earmarked for decommissioning Japan's first commercial reactor -- is the mother of all salvage jobs. Still, foreign firms with decades of experience are seeing little of the spoils.

Safely dismantling the Japanese power plant, wrecked by the 2011 earthquake and tsunami, will cost about 8 trillion yen ($68 billion), the Ministry of Economy, Trade and Industry said Dec. 9, quadrupling the previous estimate. While a contract to help clean up the facility would be a windfall for any firm with specialized technology, the lion's share of the work has gone to local companies that designed and built most of Japan's atomic infrastructure.

The bidding process for Fukushima contracts should be more open to foreigners as Japan has never finished decommissioning a commercial nuclear plant, let alone one that experienced a triple meltdown, according to Lake Barrett, an independent adviser at Japan's International Research Institute for Nuclear Decommissioning. While the Fukushima cleanup is unlike any nuclear accident in history, foreign firms that have experience decommissioning regular facilities could provide much-needed support, according to Barrett and even the plant's operator, Tokyo Electric Power Co. Holdings Inc.

"Internationally, there is a lot more decontamination and decommissioning knowledge than you have in Japan," Barrett, a former official at the U.S. Nuclear Regulatory Commission, said in an interview in Tokyo. "I hope the Japanese contracting system improves to get this job done safely. There is this cultural resistance -- it is almost like there is an isolated nuclear village still."

An opaque bidding process plays to the heart of criticisms tabled by independent investigators, who said in a 2012 report that collusion between the government, regulators and the plant's operator contributed to the scale of the disaster.

Of 44 subsidized projects publicly awarded by the trade and economy ministry since 2014, about 80 percent went to the International Research Institute for Nuclear Decommissioning. The group, known as IRID, was established in the wake of the Fukushima disaster and is comprised entirely of Japanese corporations, according to the ministry's website.

Japan's trade and industry ministry awarded funds directly to only two foreign firms during the same period. Many of the contracts had only one or two bidders.

Of about 70 contracts awarded since the March 2011 disaster, nine have gone to foreign companies, according to an official in the ministry's Agency of Natural Resources and Energy who asked not be named citing internal policy.

To provide opportunities for foreign companies, the ministry has created an English website for bids and also provides English information sessions to explain the contracts, the official said.

IRID's contracts are given to its members, including Toshiba Corp., Hitachi Ltd. and Mitsubishi Heavy Industries Ltd., which have partnerships and joint ventures with foreign firms, spokesman Yoshio Haruyama said by phone. While it doesn't directly contract work to companies overseas, IRID taps foreign experts as advisers and participates in international collaborative projects, he said.

Mitsubishi Heavy has about five or six contracts through IRID, but can't share how many partnerships it has with foreign firms, spokesman Shimon Ikeya said by phone. Hitachi has sub-contracts with foreign suppliers related to the Fukushima cleanup, but can't provide details about these agreements because they aren't public, a spokesperson said by e-mail.

Toshiba doesn't directly bid for ministry contracts, and instead works with IRID, company spokeswoman Yuu Takase said by e-mail.

'Knowledge and Ideas'

IRID, which aims to "gather knowledge and ideas from around the world" for the purpose of nuclear decommissioning and was receiving over 20 billion yen in government grants in March, doesn't disclose how much of their funds ultimately go to foreign businesses, according to its spokesman. Barrett, its adviser, said he thinks it's "very low," but should ideally be 5 percent to 10 percent.

Japan's biggest nuclear disaster isn't void of foreign technology. Toshiba, which owns Pennsylvania-based Westinghouse Electric Co., and Hitachi, which has a joint venture with General Electric Co., are tapping American expertise. A giant crane and pulley system supplied by Toshiba to remove spent fuel from the wrecked reactors employs technology developed by Westinghouse.

"We bring in knowledge from foreign companies, organizations and specialists in order to safely decommission the reactors," Tatsuhiro Yamagishi, spokesman for Tokyo Electric, said by e-mail. While the company can't say the exact number of foreign firms involved in the Fukushima cleanup, companies including Paris-based Areva SA, California-based Kurion Inc. and Massachusetts-based Endeavor Robotics are engaged in work at the site, according to Yamagishi.

However, foreign firms independently securing contracts is still a tall task.

"When it comes to Japan's nuclear industry, the bidding system is completely unclear," said Hiroaki Koide, a former assistant professor at Kyoto University Research Reactor Institute, in an e-mail. "The system is designed to strengthen the profits of Japan's nuclear village," he added, referring to the alliance of pro-nuclear politicians, bureaucrats and power companies that promote reactors.

Tokyo Electric's annual cost to decommission its Fukushima plant may blow out to several hundred billion yen a year, up from the current estimate of 80 billion yen, the trade and industry ministry said in October. As of June, almost 1 trillion yen has been allocated for decommissioning and treating water at Fukushima, according to Tokyo Electric's Yamagishi.

With that much money at stake, Japan has become ground zero for a plethora of companies looking to benefit from the cleanup work. The structure of Japan's nuclear industry and the closed procurement preferred by the utilities that operate atomic plants means that the most lucrative opportunities for foreign companies are in the area of subcontracting, according to a report by the EU-Japan Centre for Industrial Cooperation released in March.

"Foreign firms have long argued that the Japanese bidding process is one that is ripe for corruption due to a lack of openness and transparency," Daniel Aldrich, professor and director of the security and resilience studies program at Northeastern University in Boston, said in an e-mail. For nuclear decommissioning "there is even less clarity and transparency due to security and proliferation concerns," he said.

The Fair Trade commission raided the offices of five companies last year in relation to rigged bids for maintenance contracts from Tokyo Electric, according to Jiji Press. Eleven road-paving companies were fined in September on projects to repair roads following the March 2011 earthquake and tsunami, Jiji reported.

Andrew DeWit, a political economy professor at Rikkyo University in Tokyo, agrees that the contract awarding process isn't transparent. A lot of foreign companies seek Japanese partners to better their chances, he said.

Salt Lake City-based EnergySolutions Inc. agreed this year with Japan Atomic Power Co. to create a venture focused on decommissioning Japanese reactors. David Lockwood, president of EnergySolutions, said they needed a local partner to break into the market.

Purolite Corp., a closely held water purifying company, spent millions of dollars developing and testing a system that could be used to treat radioactive water at Fukushima. Pennsylvania-based Purolite partnered with Hitachi to help win a contract to use its technology at the wrecked facility.

Purolite is now suing Hitachi in New York and Tokyo, alleging that Hitachi is using its technology at Fukushima in breach of agreements made in 2011, shutting it out of more than $1 billion in contracts, according to court documents filed in September.

Hitachi doesn't comment on ongoing legal matters, a spokesperson said by e-mail.

"With a smaller pool of competitors, firms can expand their profit margins," said Northeastern University's Aldrich. "There are French and Russian firms that have the technical expertise to participate in nuclear decommissioning processes, but it is unclear if they will be able to compete on a level playing field with Japanese firms, which have far more experience with Japanese regulations and expectations."