Major Projects in China: Energy & Infrastructure

Westinghouse Wins $5.3 Billion China Nuclear Contract (Update5)

By Ying Lou and Wing-Gar Cheng

Dec. 16 (Bloomberg) -- China picked Toshiba Corp.'s Westinghouse Electric Co. for the biggest international nuclear reactor contract in history, trumping Areva SA for a project worth about $5.3 billion.

Westinghouse will build two reactors at Sanmen in Zhejiang province and two at Yangjiang in Guangdong, the U.S. Department of Energy said. U.S. Energy Secretary Samuel Bodman and Ma Kai, head of China's National Development and Reform Commission, signed the agreement in Beijing today.

China becomes the first customer for Monroeville, Pennsylvania-based Westinghouse's latest technology. The U.S. company, bought by Japan's Toshiba for $4.16 billion in October, gains an edge in bidding to supply as many as 26 more reactors by 2020 as China turns to atomic energy to cut coal pollution and reduce reliance on oil.

``Awarding the contract may ease trade pressures with the U.S.,'' Alice Hui, an analyst at UBS AG in Hong Kong, said today. ``It's also about China's desire to gain access to new U.S. technology which it doesn't yet have. It's more a sensitive and political decision.''

The contract to build the plants for China National Nuclear Corp. ends almost two years of negotiating and lobbying by Westinghouse, Paris-based Areva and Russia's AtomStroyExport. China, which wants to get 4 percent of its power from nuclear energy by 2020 from about 2.3 percent now, needs to add two reactors a year to meet the target.

Trade Talks

The agreement, signed during a five-nation energy summit, came after the first round of new biannual China-U.S. trade talks. U.S. Treasury Secretary Henry Paulson led a team of Cabinet officials to try to persuade China to spur domestic demand and narrow a record trade gap that is fueling demands for protection among some lawmakers and companies.

Federal Reserve Chairman Ben S. Bernanke urged China to let its currency gain at a faster pace to end a ``distortion'' that benefits exporters. The U.S. trade shortfall with China swelled to $24.4 billion in October.

``This represents a multi-billion-dollar commitment by the Chinese that should generate some 5,500 jobs in the United States,'' Bodman said. ``It demonstrates that enhanced cooperation can yield benefits to both nations and advance our mutual goals of energy security and improved environmental stewardship.''

China's order is part of more than $200 billion forecast to be spent worldwide on nuclear power by 2030, according to the Paris-based International Energy Agency, an adviser to 26 of the world's largest energy users. A surge in oil and natural gas prices and concern that the carbon dioxide released by burning fossil fuels leads to global warming are driving the revival.

Construction Start

The construction of the nuclear reactors will start in early 2007, Baton Rouge, Louisiana-based Shaw Group Inc., a Westinghouse partner on the project, said in a statement today. Shaw Group owns a 20 percent stake in Westinghouse.

The four reactors will be Westinghouse-designed AP 1000 units, with capacity of 1,100 megawatts each, the department said in the statement. The plants should start operating by 2013, Westinghouse President Stephen Tritch said.

Westinghouse agreed to transfer technology to China that could be used in the construction of more nuclear reactors in China during the next 15 to 20 years, Bodman said.

``The Chinese were very demanding,'' he said at the State Guest House, where the accord was signed. ``Chairman Ma and the NDRC were very demanding,'' he said without elaborating.

Short List

China National Nuclear, the largest nuclear power plant builder in the world's second-biggest energy consumer, short- listed the three companies in February 2005. The nation, which relies on coal and oil for 90 percent of its energy needs, wants to increase the use of cleaner-burning alternatives such as nuclear to cut pollution and its reliance on coal imports.

``This project of cooperation will certainly play a very important role in enhancing the cooperative partnership between China and the U.S.,'' Ma said today.

The cost of building a kilowatt of AP1000 capacity is between $1,000 and $1,200, according to Westinghouse's Web site.

``The cost using AP1000 technology is cheaper compared with the French technology,'' Hui said. ``The risk is that the U.S. technology is not proven yet, no reactor has yet been built using the technology.''

Japan-China Tensions

Tokyo-based Toshiba, Japan's biggest supplier of nuclear power reactors by capacity, said Oct. 17 it had completed the purchase of 77 percent of Westinghouse.

``China, along with the U.S., is one of the biggest potential markets for the nuclear power business,'' Toshiba spokesman Keisuke Ohmori said by telephone from Tokyo. ``We plan to further expand our global reach.''

Toshiba plans to expand its nuclear business, including nuclear plant construction, maintenance and fuel, to 900 billion yen ($7.6 billion) in the year ending March 2021, compared with 400 billion yen now, the company said in a statement on Oct. 17.

Awarding the contract to a Japanese-controlled company may enable China to smooth over tensions in relations with its neighbor over contested rights to oil and gas reserves, said Hui.

``Westinghouse is owned by Toshiba so that may also help China in its talks with Japan on the East China Sea dispute,'' Hui said.

China has nine nuclear reactors operating in the provinces of Zhejiang and Guangdong. Two reactors are under construction in Jiangsu in the east. Together, these projects have a capacity of about 9,000 megawatts.

Nine Reactors

China is the third-biggest nuclear energy user in Asia, after Japan and South Korea, according to the BP Statistical Review of World Energy June 2006 report.

Areva runs its nuclear reactor unit in a venture with Siemens AG of Germany. Charles Hufnagel, a Paris-based spokesman for the French company, declined to comment.

French President Jacques Chirac said he promoted bids by Areva when meeting with Chinese counterpart Hu Jintao and Prime Minister Wen Jiabao during his visit to China in October.

France ``takes note'' of the Chinese decision, the French finance ministry in an e-mailed statement in Paris today. A Chinese government emissary will be received in Paris in the coming days to ``evaluate the situation and the outlook'' for France's cooperation with China on the nuclear sector, it added.

Areva, which won its first nuclear reactor contract in China in 1986 and has built four of its nine reactors, employs 3,500 people in the country.

By 2015, as many as nine new reactors may be operating in Latin and North America, seven in Europe and 23 in Asia, Jack Fuller, chief executive officer of Wilmington, North Carolina- based Global Nuclear Fuel LLC, told delegates at the Pacific Basin Nuclear Conference in Sydney in October.

To contact the reporter on this story: Ying Lou in Hong Kong at ylou1@bloomberg.net ; Wing-Gar Cheng in Beijing at wgcheng@bloomberg.net

Last Updated: December 16, 2006 11:50 EST