Westinghouse shines for BNFL

Interest in the sale of Westinghouse Electric Company shows the growing importance of nuclear technology in the global power industry, and puts BNFL in a good position

Siàƒ¢n Green

British Nuclear Fuels Limited (BNFL), the UK government-owned nuclear group, has issued an information memorandum for Westinghouse Electric Company, kickstarting the sale of the US-based nuclear power plant company that it bought six years ago. Accounting for around half of the world’s operating commercial nuclear power plants, and with the global nuclear industry on the brink of a new era of growth, the Westinghouse sale has rightfully attracted a lot of interest.

On announcing the sale at the beginning of July, BNFL was contacted by 15 interested parties. It has also received responses to its information memorandum sent out last month, but will not say how many. “We announced the sale of Westinghouse on July 1st and the sale process is now underway,” said a company spokesperson. “We have had interest from several parties around the world but have not entered into negotiations with any one party.”

It is thought that companies interested in the Westinghouse sale include GE, Areva, Doosan Heavy Industries and Mitsubishi Heavy Industries. Doosan is reported to have submitted its bid already. BNFL will not comment on bids or formal offers received, but hopes to complete the sale within two years.

Current and forecast nuclear generating capacity by region, 2003-2030
Source: IAEA (Low estimates)
Estimates take into account the scheduled decommissioning of older units at the end of their lifetime
Click here to enlarge image

With the nuclear market gaining momentum, it may seem like a strange time for BNFL to sell Westinghouse, arguably its strongest asset. According to the IAEA’s most conservative estimates, global nuclear power capacity will rise from 367 GW today to 427 GW in 2020. Demand for new nuclear build will be driven by a combination of rising electricity demand and the need to combat greenhouse gas emissions. The latter is of immediate importance in markets such as North America and Europe, where rising oil and gas prices are also illustrating the need to diversify energy sources and increase energy security. The recently passed US energy bill includes incentives such as tax credits and loan guarantees for new nuclear build. China is also about to embark on a massive nuclear build programme.

So why is BNFL not capitalizing on this market? A difficult few years in the UK generation market scuppered government plans to privatize the company, and a strategic review and reorganization followed in 2004. The result is a decision to focus on the UK market and become the main contractor to the newly formed UK Nuclear Decommissioning Authority, to “deliver value and control risks to the UK taxpayer”. In addition, undertaking new nuclear build programmes in China and other parts of the world is perhaps seen as being too risky for the UK government.

The sale of Westinghouse will also help to strengthen BNFL’s balance sheet. With interest in nuclear technology rising, now is the time to capitalize on the value of Westinghouse. “The decision to sell was based on our strategy to focus on the UK clean-up business, and our other businesses will be managed to deliver value and control risk for the UK taxpayer,” said BNFL’s spokesperson. “With the pending China bid, now is an appropriate time for a sale to realise the appropriate value for Westinghouse.”

The Chinese power market is of particular importance to nuclear equipment manufacturers as nuclear power is a key element of government plans to boost generating capacity to meet rapidly rising electricity demand. Its aim is to almost double nuclear power’s share in electricity output from 2.3 per cent to four per cent. To achieve this, it is planning to spend approximately $50bn to build some 30 new nuclear power plants by 2020.

An initial contract for four reactors – worth $8bn – will be announced by the end of 2005. It is thought that the winning bidder for this contract will win lucrative follow-on orders. Frontrunners for this contract include Westinghouse, Russian firm AtomStroyExport and Areva of France.

The Westinghouse bid for contracts in China is one of the company’s most attractive prospects and if successful, would see the first application of the company’s AP1000 technology – its Generation III+ reactor design – which received Final Design Approval from the US Nuclear Regulatory Commission in September 2004. Based on Westinghouse’s Pressurized Water Reactor technology, the AP1000 is an advanced design featuring passive safety systems and modular construction.

Westinghouse recorded profits of $74m on sales of $2.1bn for the year ending March 2005. Bids for the company are expected to be in the region of $1-1.8bn, and the sale process could take anything between one and two years. While BNFL has received several expressions of interest, companies most likely to place formal bids are those with a history of working with Westinghouse and with the financial muscle to compete with engineering giants such as Areva.

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