Saturday, July 7, 2007

Toshiba sells stake in Westinghouse to Kazakhstan

After paying a premium price for Westinghouse, Toshiba is laying off some of the action

Toshiba, Westinghouse Electric Co.'s parent company, said this week it is in negotiations to sell a 10 percent stake in the Monroeville-based firm to a state-run energy company in Kazakhstan.

Nikkei English News, a Japanese newspaper, and other Japanese wire services, report that Kazatomprom will pay Toshiba Corp. $486.4 million for the interest in Westinghouse. The deal would give Toshiba access to Kazakhstan's uranium at a time when increased demand has tripled prices of the nuclear fuel ingredient in the past year. It would give Kazatomprom access to Toshiba's uranium processing technology and its sales channels.

The deal would allow Toshiba to off-load some its financial burden from its October 2006 purchase of the nuclear reactor firm. Toshiba acquired its 77 percent stake for $4.16 billion from British Nuclear Fuels Ltd. Other partners are The Shaw Group Inc. of Baton Rouge, La., which paid $1.08 billion for 20 percent of Westinghouse, and Japanese machine maker I-H Heavy Industries Co., which purchased the remaining 3 percent for $162 million.

Toshiba and its partners reportedly paid approximately $5.4B for Westinghouse in January 2006, far more than other bidders. Other bidders for Westinghouse included rival General Electric Corp., which had submitted a joint bid with Japan's Hitachi worth about $3.5 billion. Mitsubishi Heavy Industries had offered more than $2.5 billion in summer 2005.

In December 2006 Toshiba saw the first prospects of long-term returns on the premium price it paid when China placed orders with Westinghouse for four new nuclear reactors in a deal which is estimated to be worth at least $5B and as much as $8B. China also placed orders for two more reactors with AREVA a short time later.

Julian Steyn, president of Washington-based nuclear fuel consulting firm Energy Resources International, told the Pittsburgh press the deal makes sense for Kazakhstan, which is on the path to become one of the world's top producer of uranium by 2012. It is No. 3, after Canada and Australia.

"I haven't heard of this deal, but it's not unreasonable," Steyn said. "Kazakhstan is going to be reeling in an awful lot of money from uranium, and they have to think about investments."

The spot price for uranium is soaring with a posted amount in late June of $135/lb. Long-term contracts have much lower prices, but when they come up for renewal the price will likely increase.

Will a uranium cartel follow in OPEC's footsteps?

The Uranium Information Center notes Kazakhstan has 15% of the world's uranium resources and an expanding mining sector, aiming for 15,000 tU annual production by 2010. According to the CIA Fact Book, the country has a land-locked territory in central Asia about four times the size of Texas and a sparse population estimated to be about 15M people.

The US Embassy in Kazakhstan reports the country's human rights record remains poor and said the strongman government of President Nursultan Nazarbayev severely limited citizens’ right to change their government and democratic institutions remained weak. The Embassy says the government continued to restrict freedom of the press, and there were instances of government harassment of independent media. It adds the government continued to use arbitrary arrest and detention and selectively prosecute political opponents using prolonged detention as a coercive measure.

Countries like Kazakhstan with vast uranium reserves may become world players in the energy markets of the 21st century much like OPEC nations did in the second half of the 20th century. "Petropolitics" appears to have done little to advance democratic values or human rights. It is worth asking whether uranium politics may, in some cases, follow a similar course? A case in point is Thomas Friedman, a New York Times columnist, reports that the price of oil and the pace of freedom always move in opposite directions. He wrote in Foreign Policy Magazine in June 2006, "It’s the First Law of Petropolitics, and it may be the axiom to explain our age." Perhaps Mr. Friedman should cast his reporter's eye on uranium politics and tell us what he sees?

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