By Brian Spegele
BEIJING--When a unit of North Carolina's Curtiss-Wright Corp.
won a roughly $300 million deal in 2007 to supply components for
new reactors in China, industry officials trumpeted China's nuclear
boom as good for U.S. business.
Today, Chinese companies are competing for that business--and
foreign companies risk getting left out. Meanwhile,
Curtiss-Wright's contract is caught up in a legal dispute, while
Chinese authorities blame the company in part for the delay of a
landmark nuclear project.
U.S. and other foreign companies are now struggling to keep
their hold in China, the industry's biggest growth market and a
rare bright spot more than three years after the Fukushima disaster
in Japan put many of the world's nuclear projects on hold. Yet
China is increasingly turning to local companies to build crucial
parts for multibillion-dollar nuclear projects, a result of Chinese
industrial nationalism and frustration over U.S. supplier
problems.
With the global nuclear industry focused on China, the Chinese
government has used the heft of its huge market to secure transfers
of key technology and gradually localize production. In the
process, China is achieving a political aim to source sensitive
manufacturing at home and satisfying a practical need to avoid
complications posed by faraway suppliers.
One of those supplier issues has surfaced in eastern China's
Zhejiang province, where Pennsylvania's Westinghouse Electric Co.
is building the first of four of its most advanced, commercially
available reactor, the AP1000, in China. Local authorities blame
two-year delays in part on quality problems related to
Curtiss-Wright. In a written statement, Curtiss-Wright said it has
"refined and improved our design processes" as a result.
"This sort of thing has damaged U.S. companies' reputations
here," said Li Ning, a nuclear-industry expert at China's Xiamen
University. "Chinese companies are really growing and basically
squeezing out the international suppliers."
In one case, a specialty part produced by SPX Corp. of
Charlotte, N.C., for early AP1000 projects will be supplied by a
Chinese state machinery company in future projects, according to
State Nuclear Power Technology Corp., a company under China's
central government that is leading the AP1000 rollout. Of the four
AP1000 reactors Westinghouse is building in China, the final one
will have as many as nine major components supplied by Chinese
companies that initially were supplied by foreign firms in the
first unit, SNPTC says.
The turnabout illustrates how China is moving swiftly to build a
nuclear industry. Already, Westinghouse has provided details of the
AP1000 as part of a technology-sharing deal. China plans to use
that to build its own reactors that experts say it could sell
abroad.
"Folks in the U.S. need to remember that just because we were
the first ones to the dance doesn't mean we can rest on our laurels
forever," said Andy Mulkerin, managing partner at Nicobar Group, a
Shanghai nuclear consultancy. "It's a global market and you've got
to be hungry in order to be successful."
Westinghouse, which is constructing eight AP1000 units
world-wide, said it has made significant progress "resolving
first-of-a-kind issues," and the company had "increased confidence
toward realizing the timely completion of these projects." Units
under construction in the U.S. have also faced delays and rising
costs.
China makes up a huge portion of global nuclear growth as the
appetite for large nuclear projects wanes, not only because of the
Fukushima disaster's impact but also because of an abundance of
cheap natural gas coming from new drilling technologies.
Out of 71 reactors being built globally, China is currently
constructing 26, according to the International Atomic Energy
Agency. Another 180 reactors are planned or proposed in China,
according to the World Nuclear Association.
China's technical advances have been on display in recent
months. The state company involved in the AP1000 rollout said in
September it won preliminary safety approval from China regulators
for its own reactor design, the CAP1400, based on Westinghouse's
AP1000.
By the time State Nuclear Power Technology builds its first
CAP1400, 80% of the components are expected to be locally made, up
from an average of about 55% in the first four AP1000s, according
to the company. Many companies eager to enter China's nuclear
market have signed technology-transfer agreements with Chinese
state firms--to avoid the risk of getting shut out of the market
entirely.
China First Heavy Industries Co., a technology maker also under
China's central government, is among the firms that are getting
business previously held by foreign companies. In August, First
Heavy delivered its first domestically produced reactor pressure
vessel for an AP1000 reactor. Earlier AP1000 reactor pressure
vessels had been supplied by South Korea's Doosan Heavy Industries
& Construction Co., according to State Nuclear Power
Technology. Doosan declined to comment.
Still, despite the challenges, opportunities remain for
international providers, said Rosemary Yeremian, president of
Strategic Insights Inc., a Toronto-based consultancy. China is new
to the global nuclear stage, and partnerships bring quality and
other assurances, she said.
As work crews began construction in Zhejiang after the 2007 deal
with Westinghouse, Chinese state companies and research institutes
got to work dissecting the AP1000. U.S. supply-chain kinks also
soon emerged.
Curtiss-Wright positioned itself for success off the AP1000
deal. It valued a contract to supply reactor coolant pumps for the
China reactors, coupled with a technology-transfer agreement with
State Nuclear Power Technology, at nearly $300 million.
After testing in 2012, Curtiss-Wright shipped the pumps for
installation at the first AP1000 in Zhejiang. However, subsequent
testing revealed flawed welding, according to a U.S. Nuclear
Regulatory Commission filing. Curtiss-Wright blamed its own
supplier for the defect.
The flawed pumps were returned to the U.S. for fixes. According
to a Securities and Exchange Commission filing by Curtiss-Wright,
"disassembly, inspections, and preparation for shipment costs"
related to the pumps cost it $23.7 million. Westinghouse wants
about $25 million in damages for the delays, according to
Curtiss-Wright. Westinghouse declined to comment on "litigation
matters or commercial discussions."
In a written statement, Curtiss-Wright said it "continues to
work with our partners in China to negotiate a new follow-on
contract."
Meanwhile, SPX, the U.S. company selected to supply squib
valves--a key safety technology--for China's AP1000s, as part of an
agreement valued at more than $100 million, soon became dogged by
questions over the valve's manufacturing. After a February 2012
facility inspection, the NRC said SPX hadn't properly implemented
its quality-assurance program. Back in Zhejiang, concerns over the
part forced reordering of more than 200 squib-valve component
pieces, according to authorities in Zhejiang.
The province cited squib-valve concerns and problems at
Curtiss-Wright as reasons for delays in completion of the first
AP1000, which isn't yet online. As a result, the provincial
government said it had been forced to import electricity from other
provinces.
SPX didn't comment directly on delays related to the squib
valve, but said the parts it supplied Westinghouse satisfied
"demanding quality requirements and technical specifications."
Yang Jie contributed to this article.
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