Mitsubishi Predicts Restart for Japan Reactors

Published on Wednesday January 18 2012 (AEST).

TOKYO—The chief executive of Mitsubishi Heavy Industries Ltd. said he expects Japan's idled nuclear reactors to restart operations this spring despite widespread safety concerns among the Japanese public, and that the domestic backlash against nuclear technology won't affect overseas demand.

Japan has idled all but five of its 54 commercial reactors, and has been conducting so-called stress tests to gauge nuclear plants' resilience to natural disasters. So far, no Japanese reactor shut down for regular maintenance has been restarted amid the public's safety concerns after the March tsunami that triggered an accident at the Fukushima Daiichi nuclear complex.

But Hideaki Omiya, Mitsubishi Heavy's president and chief executive, said during an interview with The Wall Street Journal that he is confident the plants will resume operations soon, after they gain approvals from local officials nearby.

"My sense is that this process will be completed by spring, and from spring to summer this year there will be a resumption of operation at some power plants," Mr. Omiya said.

The Japanese heavy-equipment manufacturer is one of Japan's three major nuclear-plant-equipment makers, along with Hitachi Ltd. and Toshiba Corp. Nuclear equipment accounts for about one-third of Mitsubishi Heavy's nearly ¥1 trillion ($13 billion) in power-systems revenue, which itself makes up 34% of the company's total revenue—the largest of its six core businesses.

The last of Japan's reactors still in operation are slated to go offline by May, effectively eliminating the source of one-third of the country's electricity supply.

The Japanese government has signaled its intent to persuade municipalities near nuclear plants to approve restarts before the traditional midsummer peak in demand for electricity.

Prime Minister Yoshihiko Noda has vowed to scrap plans for new plants as part of a policy designed to gradually reduce Japan's dependence on nuclear energy as older reactors are decommissioned.

Still, Mitsubishi Heavy is optimistic about nuclear energy's future outside its home market. "There's been a severe backlash against nuclear-plant construction in Japan so we don't expect to see a lot of new reactors here for some time," Mr. Omiya said. "But globally, demand for nuclear power is not declining."

While the company expects to see higher revenue from safety upgrades of existing nuclear plants in Japan and increased reactor decommissioning projects, the loss of new domestic orders has prompted it to curtail growth plans. The company abandoned a goal of doubling its annual nuclear revenue of ¥200 billion to ¥300 billion by 2014, Mr. Omiya said.

Mr. Omiya said he expects to see strong demand at home and abroad for power-generation equipment, especially natural-gas-fired plants.

Mitsubishi Heavy has been hurt by the sharp appreciation of Japan's yen against the dollar and other currencies to record levels because it depends on foreign markets such as the U.S. and China for about 50% of its sales. A strong yen reduces the price competitiveness of exports and erodes the yen value of dollar-denominated profits.

Noting that Mitsubishi Heavy loses about ¥5 billion for every one yen appreciation in Japan's currency against the dollar, Mr. Omiya said the company might shift more of its output overseas. "If the current yen strength continues…manufacturers like us will move more production offshore and spur the hollowing out of Japanese industry," he said.

The European financial crisis is another headache for Mitsubishi Heavy and other Japanese exporters, even though their direct exposure to euro-denominated sales might be limited. "We're worried about how the European crisis will affect the [overall] Japanese economy," Mr. Omiya said. "The impact on the U.S., China and the rest of Asia is also a big concern."

For the fiscal year ended on March 31, Mitsubishi Heavy said Europe accounted for 15% of its net sales, compared with 26% from Asia and 21% from the U.S.