US Company that paid Nikola Tesla's Hotel Rent facing Bankruptcy
Thursday, 30 March 2017

Image result for westinghouse nikola tesla Most Eurpoeans know of US Westinghouse Electric company for one reason only. In 1934 the American company paid Nikola Tesla's hotel rent when it became known what is today considered the world's greatest scientist was living in impoverished conditions after he essentially spent his entire savings on research. For the next nine years Westinghouse Electric covered his hotel rent.  

This morning, unfortunately, Westinghouse Electric filed for Chapter 11 bankruptcy protection. Few were surprised as the outcome was the only one which allowed the company's troubled, and near-insolvent Japanese parent, Toshiba, to continue operating, even if it meant the bankruptcy of the iconic company. Westinghouse was one of the originators of the nuclear age, building the world’s first commercial nuclear reactor 60 years ago. Its pressurized water reactor design is in 430 power plants and accounts for 10% of electricity generated in the world.

However, few were prepared for the unexpected aftermath of this particular bankruptcy, which has set off a showdown between Toshiba and a major U.S. utility, has left the fate of four half-finished nuclear reactors and is threatening to drive a wedge between the US and Japanese governments over the fate of industries each considers vital. 

For those who have missed our previous discussion on the underlying cause for today's default, Westinghouse incurred billions in runaway cost overruns related to four nuclear reactors it is building in the southeastern U.S. These costs from the half-finished reactors had spiraled so large, they threatened the viability of its Japanese parent company, Toshiba, which in turn has been engulfed in a series of accounting and fraud scandals in recent years, has seen its profitability plummet and whose precarious finances have attracted attention of Japan’s government.

Admitting defeat in the nuclear business, Toshiba CEO Satoshi Tsunukawa said that “this is a de facto withdrawal from the overseas nuclear business for us. Therefore, we don’t see any more risk."

Others, however, see substantial risk now that their claims against Westinghouse are reduced to the status of a prepetition unsecured claim. First and foremost, is Toshiba's now former, and quite angry customer, Tom Fanning, CEO of Southern Co., the Atlanta power company and primary owner of two of the reactors being built in Georgia, who on Wednesday characterized the completion of the reactors as an international political issue, calling it a test of Prime Minister Shinzo Abe’s commitments with President Donald Trump at a summit in February to help create American jobs.

“The commitments are not just financial and operational, but there are moral commitments as well,” Mr. Fanning said in an interview from Tokyo, where he had traveled to lobby for a resolution to the mounting dispute. Quoted by the WSJ, Fanning said there are 5,000 jobs directly at stake at the two Georgia reactors, jobs that could be lost if Toshiba doesn’t commit to paying billions in future costs, which it won't now that it has severed ties with its insolvent subsidiary.

Westinghouse designed the reactors and also is building them for Southern, and contractually had agreed to shoulder cost overruns, at least until its Chapter 11 filing this morning.

Perhaps unaware of the ramifications, Trump administration officials were quiet on the bankruptcy Wednesday.

According to the WSJ, the U.S. Department of Energy, which has provided an $8 billion loan guarantee for the Georgia reactors, said it was in discussions with various companies. “We are keenly interested in the bankruptcy proceedings and what they mean for taxpayers and the nation,” said Lindsey Geisler, an agency spokeswoman.

Ironically, based on a new Westinghouse design, the reactors, the first to be constructed in the U.S. in nearly four decades, were supposed to be an answer to cost overruns and delays that have dogged the nuclear power industry. We say ironically, because it is cost overruns and delays that eventually led to the company's bankruptcy.  Worse, these plants are already years behind schedule in addition to causing huge losses for Toshiba.

 

 

 

 



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