Infrastructure Abroad Key Focus-The Japan times onlines

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The right track: Britain's first bullet train, a Class395 built by Hitachi Ltd., comes out of a

maintenance building at the Ashford Maintenance

Center in Kent, England. HITACHI LTD.

Wednesday, July 28, 2010

Infrastructure abroad key focusGovernment, Japan Inc. join to pursue bids

By HIROKO NAKATA

Staff writer

Building so-called social infrastructure has huge potential abroad, prompting

Japanese companies to form broad corporate alliances, often with governmentsupport, to win contracts for overseas projects.

Heavy electric equipment makers HitachiLtd., Toshiba Corp. and Mitsubishi

Heavy Industries Ltd. aim to make

inroads in building social infrastructureoverseas because there is little

perceived need for new projects at

home, whereas emerging economies

appear to have huge potential, experts

said.

Demand for railways, energy plants,information technology, water supply

systems and other infrastructure is

surging. The Organization for EconomicCooperation and Development

estimates the market will amount to $40

trillion by 2030.

"The scale of overseas projects is too

big, so one company alone can't take the

whole risk," said Hiroki Shibata, ananalyst at Standard & Poor's Ratings

Japan K.K.

Earlier this month, Hitachi, Toshiba,

Mitsubishi Heavy and three utilities

Tokyo Electric Power Co., ChubuElectric Power Co. and Kansai Electric Power Co. said they will form a new

company this fall, aiming to win contracts for nuclear power plants in Vietnam

and other developing nations.

They will draw up proposals not only to build the plants, for which equipment

makers have expertise, but will offer plant operations and maintenance

knowhow, and training for engineers.

The consortium will seek financial and legal assistance from the government, thecompanies said in a joint statement.

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are required to provide all kinds of support," Toshiba spokesman HirokiYamazaki said.

The new venture's prime purpose will be to win the next Vietnam nuclear plantbid, in 2011, he said.

"It is quite rational for these makers to shift focus to infrastructure business from

electronics because they already have a strong business background in heavy

industry," Standard & Poor's Shibata said.

"Also, they don't have to get involved in heated price competition (in the

infrastructure business) like what they experience in the electronics andsemiconductor sectors," Shibata said. "They can also take advantage of their

technology for safety and environmental friendliness in the infrastructure

business."

Hitachi and Toshiba have been hit hard in recent years by low-priced South

Korean, Taiwanese and Chinese home appliances and semiconductors.

Another big reason these companies and the government are uniting against

overseas competitors is the recent, and stunning, failure of Japanese firms towin international bids for nuclear plants in the United Arab Emirates and

Vietnam.

The United Arab Emirates, which plans to start operating its first nuclear plant in

2017 and another three by 2020, in December selected a South Korean

consortium that made a $20 billion bid. Experts say a visit by South KoreanPresident Lee Myung Bak and his negotiations played a big role in the

successful bid.

Then came Vietnam's reported decision in February to select Russia's state-run

Rosatom Corp. to build two of four nuclear plants that were approved last

November by Hanoi as the nation's first atomic plants. Russia reportedly evenoffered a submarine in a package deal.

Hitachi's efforts are bearing fruit in the railway sector.

The company grabbed the spotlight in December when it rolled out Britain's firstbullet trains, the Class 395. Now 174 of them run between London and Kent at a

maximum speed of 225 kph. Hitachi won the order in 2005 amid competition

with overseas giants.

Hitachi, which specializes in building trains, had support from East JapanRailway Co. to meet the demand for rail operations and maintenance in Britain.

Hitachi also tied up with Mitsubishi Heavy in June to widen the train lineup,

Hitachi spokesman Katsunori Shimokawara said.

Hitachi's experience in London led to a much bigger order up to 1,400 trains

for the Intercity Express Program that runs between London and Edinburgh,

although the order is now under reconsideration by Britain's new government.

Hitachi is waiting for Britain's final decision on the IEP, which was delayed by

Britain's general election in May.

Meanwhile, Hitachi plans to ship about 600 Crossrail commuter trains to London

starting in 2015 and have HS2 rapid trains running between London andMidland from 2020.

"We believe Britain and China will become the big markets for us,"

Shimokawara said. "Hitachi is aiming for 350 billion in sales in fiscal 2015, 60

percent of which will be earned overseas."

The company hopes to win orders in Brazil, India, Vietnam and Indonesia, he

said.

Unlike in Japan, where train manufacturers do only that, overseas they can

engage in a wider range of business, including rail system maintenance.

In emerging markets, train makers not only provide maintenance but also runoperations.

Because of the wide need for support to introduce energy plants and railways

overseas, governmental involvement is inevitable to win contracts, Shibata said.

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There are also several risk factors involved with international contracts, including

volatile raw material prices and additional financial burdens coming from

changes in specifications, he said.

Eiji Yamada, who specializes in social and industry design at Japan Research

Institute Ltd., said the government needs to export Japan's social infrastructure

to make it the de facto standard.

To this end, the government must support emerging nations' education andhuman resources to facilitate the acceptance of the high standards of Japanese

technology. "We have to lay these countries' foundations so they can accept our

specs," he said.

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