Japan Sets Group For Nuclear Deals

Japanese firms team up to win international power-plant contracts

TOKYO—Japan moved to secure its role in the global, civil nuclear sector Tuesday by setting up a government-backed organization to promote Japanese technology and fight off competition for multibillion-dollar contracts from rivals such as South Korea.

Six companies— Tokyo Electric Power Co. 9501 -0.90% , Chubu Electric Power Co. 9502 0.27% , Kansai Electric Power Co. 9503 2.48% , Toshiba Corp. TOSYY 1.24% , Hitachi Ltd. , and Mitsubishi Heavy Industries Ltd. 7011 0.30% —said Tuesday that they have set up a preparatory organization to sell nuclear-power-plant construction and operation technologies overseas.

"This is the first, important step toward promoting Japan's nuclear-power technologies in emerging countries by private- and public-sector cooperation," said Masayuki Naoshima, Japan's Minister of Economy, Trade and Industry, following the joint announcement.

The Japanese government hasn't disclosed the value of its planned investment in the group.

The group is targeting a second-phase nuclear-power project in Vietnam, as well as projects in countries that plan to introduce nuclear power but have little experience, officials at the partner companies said.

Vietnam said last month it plans to build 13 nuclear reactors with a combined capacity of 15 gigawatts by 2030, while Thailand and Indonesia are among nations considering whether to build nuclear reactors.

Malaysia's state-owned power company Tenaga Nasional Bhd. said in late June it expected to sign an agreement soon with Korea Electric Power Corp. , or Kepco, for initial work on what would be Malaysia's first nuclear-power plant.

The new Japanese organization will start drawing up marketing plans and risk assessments for Vietnam, and in the fall the government will join to form a national joint venture, the officials said.

Of the six companies, Hitachi and Mitsubishi Heavy already are in cooperation with General Electric Co. and Areva SA in the nuclear-power sector. The two Japanese concerns' participation in the six-company organization won't affect their current relationships, and they will continue to work with GE and Areva when necessary, spokesmen at Hitachi and Mitsubishi Heavy said.

"We will quickly deal with any policy challenges on our side, including high-level talks between governments, efforts toward more nuclear cooperation agreements [with other countries], necessary support such as related education and legislation, and more risk-taking by governmental organizations," Mr. Naoshima said.

The effort is a response to Japanese companies suffering bitter losses when bidding for nuclear-power contracts in the United Arab Emirates and Vietnam. The losses were a huge disappointment for Japan, where the government hopes to prop up the economy by selling low-carbon technologies overseas.

In December, a government-led South Korean consortium won a $20.4 billion contract to build four nuclear reactors in the U.A.E., beating a U.S.-Japanese consortium involving GE and Hitachi, and a French consortium that included Areva. The Nikkei reported this year that the Russian government had won a 1.5 trillion yen ($17.1 billion) contract for Vietnam's first-phase nuclear-plant project in exchange for military support.

Japan's private-public marriage "is a reasonable step, given that the nuclear-related business needs government involvement to prevent [weapons] proliferation, including cooperation between governments," said Hirofumi Kawachi, analyst with Mizuho Investors Securities Co.

Last week in Tokyo, Japan had its first meeting regarding nuclear cooperation with India, after long hesitating to open such talks with New Delhi, a nonsignatory of the Nuclear Non-Proliferation Treaty. The talks came after rival South Korea began such talks with energy-hungry India earlier in June.

French energy companies—state-controlled behemoth Electricite de France SA, nuclear-engineering company Areva, engineering group Alstom SA, utility GDF Suez and oil major Total SA —have no formal arrangement when considering international contracts and tend to work together on an ad hoc basis.

The French government commissioned a report in December after the lack of a formal arrangement was blamed for the failure to win the nuclear-plant contract in the U.A.E. The report is classified because it involves military issues and it remains unclear whether the government plans to act on any recommendations the report may contain.

By contrast, Russia's nuclear industry is tightly controlled by the government. The country's former president and current prime minister, Vladimir Putin, has helped negotiate several deals around the world for state nuclear agency Rosatom.

Russia recently completed delivering equipment for two reactors in India, and is hoping to get in on India's ambitious project to build 16 new reactors. In March, Mr. Putin offered India a stake in one of the world's biggest uranium fields, in a move that demonstrated how it can leverage its huge reserves in natural resources to win contracts.

China is another enormous potential market for Japan. Japanese companies already have a strong presence there. China is undertaking a massive expansion in nuclear power, expanding its current nine gigawatts of nuclear capacity from 11 reactors to 70-80 GW by 2020 and 200 GW by 2030.

Last month, Gu Jun, president of Sanmen Nuclear Power Co., said China plans to sign a new agreement with Westinghouse Electric Co. of the U.S., a unit of Toshiba, to build more reactors at the Sanmen nuclear plant in eastern China.

China agreed in July 2007 to buy four third-generation pressurized water reactors from Westinghouse—two at Sanmen and two at Haiyang city in the northern province of Shandong. That agreement involved the transfer of advanced nuclear technology to China.

Write to Mari Iwata at mari.iwata@dowjones.com
