Westinghouse CEO: Restructuring Plan Development Will Be Finished by July
Exclusive interview with the Interim President and CEO of Westinghouse Electric Company José Emeterio Gutiérrez for “Interfax-Ukraine” information agency
Question: In late March 2017, Westinghouse filed a bankruptcy claim and announced its intention to conduct strategic restructuring of its business. Has the restructuring plan already been developed, and what are its details?
Answer: At the moment, we’re working on a restructuring plan, but it’s not complete yet. In general, we are working in three areas.
First – resolving the issues in the construction business in the US. We want to develop long-term solutions in this area to avoid similar issues in the future. The second area includes a number of improvements throughout the whole company structure to make it more competitive and more profitable. Third – preparing the company for future growth.
We plan to complete development of the restructuring plan by the end of June. In addition, by the end of July we plan to develop a new business plan for the company, which will include implementation of the restructuring plan.
Question: What is the timeframe of the business plan?
Answer: The next five years. It starts after the restructuring plan is implemented, i.e. in accounts for the restructuring results.
Question: Speaking of the first area, regarding construction of NPP power units in the US. Do I understand correctly that the terms of the contracts for their construction will be reviewed? There’s information that the client companies don’t want to change the terms and timelines.
Answer: All I can say for now is that we are engaged in the process of negotiating with our clients. Unfortunately, I cannot comment on the discussions we’re having, but we hope that soon we reach an agreement with our clients, which will allow us to build these reactors for them.
Question: Westinghouse stated that the company had received external financing in the amount of $800 million to protect the company's core business for the period of its reorganization. Will this funding be sufficient, or will there be need for additional external financing in the future?
Answer: We are 100% sure that this will be sufficient to support the company throughout the bankruptcy proceedings. An important detail is that all the other company divisions are in good shape, continue to generate income and cash flow. That’s why we are convinced that the finances and the profit generated by the other companies plus the $800M will be enough while the bankruptcy claim Is being reviewed.
It’s important to understand that we are leading business as usual, continue supplying our products and services to our clients globally.
Question: Has the company figured out what triggered the need to start bankruptcy proceedings? What caused the problems in Westinghouse’s construction business?
Answer: The problem was quite obvious – cost overruns for reactor construction in the US. By late 2016 we realized that the additional cost of completing the construction would be around $6.1B. This means that the results of the fiscal year, which ended March 31, will show significant losses for Westinghouse. Moreover, on the same projects Westinghouse spent more money than it was receiving, which created fiscal issues for the company, as it was not able to continue paying its suppliers on these projects.
In order to protect our other businesses and allow them to continue operating normally, Westinghouse had no other choice but to declare bankruptcy.
Question: What are the prospects for new reactor construction in the UK and India? What role does Westinghouse see for itself in the construction of AP-1000 units in these countries? As a technology supplier without involvement in construction works?
Answer: It’s important to understand that Westinghouse did not want to be engaged in construction from the start. How do we work in China? We provide engineering services, supply, and testing, while our partners and clients in China are responsible for construction. In the US, the situation was such that we had to acquire the company, which was responsible for construction, and thus Westinghouse became engaged in construction without intending to. In the future, we would like to return to the model, where Westinghouse is not engaged in construction, but rather focuses on engineering, supplies, and testing. We plan to use this model in the UK as well as in India.
Question: Would it be possible to apply this model in the US, while outsourcing the construction works?
Answer: For now, we’re negotiating with our clients as to which model will be used. But speaking of future rather than ongoing construction of new reactors, Westinghouse plans to use the model we just discussed.
Question: Speaking of the fuel business, which is profitable for Westinghouse, does the company plan on taking any steps for expanding its presence in the markets?
Answer: Our fuel business is growing. Even in the US, we recently returned a fuel supply contract, which we lost many years ago. In Europe, we also recently signed several new contracts. In Eastern Europe, Westinghouse’s aim is to expand its presence in the Ukrainian market as well as to increase its share in Bulgaria and the Czech Republic.
We continue looking for opportunities with our partners in China. If we sign a contract for construction of six AP-1000 reactors with India, then we’ll also have significant opportunities for expanding our fuel business there. The same can be said the UK. However, both India and the UK are more long-term plans.
Question: We have seen statements that Westinghouse is ready to cover 100% of Ukraine’s demand in nuclear fuel. How serious is this, or does the Ukrainian leadership plan to maintain a competitive model in terms of fuel supply shares – 50/50?
Answer: We have invested into our plant in Sweden to expand its capacity for producing nuclear fuel for VVER type reactors. We have also invested into our plant in the US to allow it to supply parts to the Swedish plant. Overall, these investments amounted to $20M. Now we are ready to supply more fuel to Ukraine, but the final decision whether to buy more Westinghouse fuel is with the Government of Ukraine.
It's already clear that Westinghouse fuel is working very well in Ukraine; the latest inspection at the South Ukraine NPP, which took place last week, demonstrated that. This is good news for Energoatom, which knows that Westinghouse is a good and reliable supplier.
In 2016, we supplied five batches of fuel. In 2017, Westinghouse for the first time plans to supply six reloads, and the same amount will be supplied until 2020. At least, this is what’s written in the contract.
Question: Should we expect rejection or delay of implementation of the joint project with Energoatom to upgrade existing capacity of Ukrainian NPPs due to the bankruptcy proceedings?
Answer: No, the proceedings will have no effect on this. Only the American portion of the company is undergoing a bankruptcy procedure, not the European subsidiaries. They retain all the resources and equipment required for normal operation. Also thanks to the new financing package, we have the ability to invest if we need to. The message from Westinghouse to Ukraine today and tomorrow is that nothing changed, and the company is ready to continue working with Energoatom on increasing the reactors’ power as well as efficiency. What we offered to Energoatom we’ve done many times for other companies in the US and in Europe.
Question: Is Westinghouse interested in this type of business, or will you continue cooperation on this program only because there is prior agreement?
Answer: Westinghouse – is a supplier of technology first and foremost, therefore the company is interested in supplying both the fuel and the technologies required to help Energoatom increase the power of existing reactors. With our clients in the US and Europe, such programs led to a 5-10% increase in power rating, depending on the reactor.
Question: The public occasionally voices concerns that such works can potentially be unsafe. How grounded are these concerns?
Answer: We have more than 150 reactors in the US and in Europe, which already underwent these programs, which did not affect their safety. In some cases, the clients use this opportunity to also improve their reactors’ safety.
Question: Given the rapid development of "green" power generation technologies, would you expect the share of nuclear power in the global energy balance to remain unchanged over the next 10-20 years?
Answer: Globally, I think that we should expect an increase in the share of nuclear energy. It’s already clear that Asia, especially countries like China, India, Malaysia, Vietnam are developing toward nuclear energy. The only way for these countries to maintain their GDP growth while decreasing pollution and CO2 emissions is to invest in nuclear technologies. They need a clean energy base, and nuclear energy is a way to achieve this.
In the US, we expect the situation to remain as is in the short term, but in the long term we expect construction of new nuclear reactors.
In Western European countries, we expect a decrease in the share of nuclear energy, because they do not have a clear energy strategy. This is also creating problems for Central Europe. The UK is the only exception in Western Europe, because they have outlined a clear energy strategy and will use nuclear energy for the base load and renewable energy for the additional load. We also expect Eastern Europe to build new reactors.
Overall, I expect an increase in the share of nuclear energy, but nor a very rapid one. It’s clear that the “center of gravity” in its development will shift to Asia.
Question: Has Westinghouse ever considered investing into development of renewable energy technologies?
Answer: We are a nuclear company, and will remain as such.