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MHI-Hitachi tieup sign of the times

Merger follows Fukushima-inspired opening of thermal power sector to true competitive bids

Kyodo

The move by Mitsubishi Heavy Industries Ltd. and Hitachi Ltd. to merge their thermal power businesses, announced Thursday, comes as domestic companies that construct power plants face increasing competition from foreign rivals.

The crisis at the Fukushima No. 1 nuclear plant has prompted reforms in the utility industry, forcing a change in the market for power systems that major domestic makers, including Mitsubishi Heavy and Hitachi, have dominated for years.

Amid the growing calls to phase out nuclear power, the Mitsubishi-Hitachi tieup could also trigger realignments involving plant makers and related industries.

“This is the most powerful combination,” Hitachi President Hiroaki Nakanishi told a news conference Thursday, apparently excited about forging the alliance between the former rivals.

The company to be created through the merger, set for Jan. 1, 2014, is expected to be controlled 65 percent by Mitsubishi Heavy and the rest by Hitachi.

It will boast sales of about ¥1.1 trillion, making it one of the world’s largest players in the market for power generation systems. Global giants in this field include Germany’s Siemens AG, with ¥2.9 trillion in power system sales, and General Electric Co. of the U.S., with ¥2.5 trillion in turnover.

Mitsubishi Heavy and Hitachi will be integrating operations for gas turbines, generators and other fossil fuel thermal power systems, as well as geothermal power systems and fuel batteries.

“We would like to make it a thermal power system company that leads the global market,” Mitsubishi Heavy President Hideaki Omiya said.

The new company will also aim for contracts overseas, including in emerging economies.

But competition meanwhile is intensifying in the domestic market, where the two companies used to have the edge.

At the Yoshinoura power plant run by Okinawa Electric Power Co., which started up its No. 1 generator Tuesday, Germany’s Siemens supplied a gas turbine.

In a competitive bid for equipment at the Nishinagoya power plant of Chubu Electric Power Co., General Electric joined forces with Toshiba Corp. to outbid MHI.

Behind these inroads from overseas are reform initiatives sparked by the Fukushima crisis.

Since September, the Ministry of Economy, Trade and Industry has required major power utilities to hold competitive bids — that include new entrants — when they build or renovate fossil fuel plants.

The change followed growing criticism that utilities generally have not been cost-effective because of a tariff mechanism that grants them much leniency when assessing costs.

Domestic utilities have also come under pressure to cut costs as they seek to hike electricity charges to cover the fuel bill for running nonnuclear power plants while their reactors remain idled by the Fukushima crisis.

In this environment, single-tendering — which tends to get a higher price tag — will no longer be the norm.

While the Japanese makers are worried, it is a welcoming sign for foreign firms.

“We didn’t even have a chance to make proposals for products before,” but now there is a chance of doing business, an official at a foreign manufacturer said.

MHI and Hitachi back in August 2011 discussed a full-scale merger. While Hitachi was keen, MHI was rather reluctant. The idea was eventually dropped.

“Former and current presidents and other top management officials (at Mitsubishi Heavy) were alarmed that the company would be swallowed by Hitachi,” an industry source said.

The forthcoming tieup “will not lead to a comprehensive integration,” MHI President Omiya said Thursday.

But he did not rule out the possibility of integrating their nuclear power business.

“We would like to discuss it when we have a clear outlook on when domestic nuclear reactors would be rebooted,” Omiya said.

In the nuclear power system business, the two firms have different foreign partners. Hitachi is working together with General Electric while Mitsubishi Heavy is collaborating with France’s Areva SA.

The MHI chief suggested the latest move by the two companies might trigger a realignment that would also involve Toshiba and other major manufacturers.

“The Japanese market will continue to experience severe conditions for a long period of time. If we join together, however, it could work to our advantage,” Omiya said.

Japex plans LNG plant in Fukushima, cross-country link

Japan Petroleum Exploration Co., or Japex, on Friday announced a plan to build a liquefied natural gas receiving terminal at Soma port in Fukushima Prefecture by 2018.

Japex also plans to lay a 40-km pipeline between the terminal and Natori, Miyagi Prefecture, to provide gas to both prefectures.

The terminal will be linked to the pipeline network that supplies Miyagi, Fukushima, Yamagata and Niigata from a gas terminal and gas fields in Niigata on the Sea of Japan coast.

The link will allow these prefectures to receive gas if facilities on either coastline are compromised by a natural disaster.