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Japan’s participation in a $40bn nuclear power project in the US has hit a roadblock over fears that its lenders might have to assume liability for any meltdown on American soil.
Prime Minister Sanae Takaichi agreed during a visit to Washington in March that Japan would provide funding and industrial co-operation to build next-generation small modular reactors in Tennessee and Alabama.
The project was agreed as part of Tokyo’s commitment to invest $550bn in the US, a promise given in return for lower US tariffs on Japanese exports under Donald Trump’s “liberation day” regime.
But details of the project are still being thrashed out between Tokyo and Washington because of concerns on the Japanese side about their potential liability in a nuclear accident, according to four people familiar with the discussions.
The US commerce department has offered verbal reassurance that the state-backed Japan Bank for International Cooperation and other Japanese institutions would not take on any liability for a potential nuclear accident, said the people. A person close to commerce secretary Howard Lutnick said he had personally assured Japan it would not have any liability in relation to the projects.
However, that promise has not been put in writing in legal terms — a process that could take months or years of complex regulatory discussion to settle, said the people.
In Japan’s regulatory system, nuclear plant operators shoulder liability for any accident, whereas in the US, financial responsibility is spread across a wider range of parties, including the plant owner.
The deadlock is the latest obstacle to fulfilling Japan’s investment pledge. Other problems that have arisen in recent months include a refusal by many Japanese industrial groups to lead projects submitted by the US, according to officials who spoke to the FT.
The negotiations’ opaque nature has left officials on the US and Japanese sides uncertain of when various funding deadlines will be triggered.
Alongside the nuclear reactors, Takaichi in March unveiled $33bn plans for two natural gas power facilities, though officials said the usual 45-day deadline for Japanese state-backed banks to provide funding was not triggered at the time.
The US commerce department made a funding request for the gas-fired power plants in recent weeks, said two people familiar with the matter. But for the nuclear reactors, Japanese negotiators are insisting the liability issue be resolved before a capital call is made.
The commerce department told the FT that Japan would have no liability because of the project’s structure and that it had relayed that message to Tokyo more than once.
“They are paying for the projects, not operating them,” said a department spokesperson. “The projects are being built on US federal land and will be 100 per cent owned by the United States government.”
A person involved in negotiations on the Japanese side said: “Legally speaking we’re not excluded and cannot be excluded. We don’t know how we would be exempted.”
Another commerce official said Japan had not asked the department for any written assurances.
He said three commerce lawyers had provided a written presentation to Japanese officials on July 15 that explained why the projects carried no liability for Tokyo. The officials did not raise any questions at the conclusion of the briefing, he added.
Taking on nuclear liabilities for a foreign nation is particularly sensitive in Japan, which was rattled by the Fukushima meltdown in 2011. Decommissioning and compensation have cost an estimated ¥23.4tn ($144bn).
No western commercial SMRs are operational yet, adding to uncertainty around project execution and safety.
The SMRs and the gas-fired power plants represent the second batch of projects in Japan’s investment pledge. The first batch — initiatives on a crude oil export terminal and natural gas-fired power plant — were agreed in February.
Japanese officials said they were under growing pressure to move at “Trump speed” to announce a third round of projects ahead of midterm elections in November.
The US has proposed a semiconductor plant and an oil and gas export terminal for the third round, according to a person with knowledge of discussions. Japanese officials are concerned about the projects’ commercial viability.
Tokyo has also negotiated for project funding to be delivered in stages, with the US allowed to make a capital call up to four times a year, diverging from the original agreement that said the entire sum would be provided upfront.
Financing for the second round of projects is likely to include funding from US banks, including Citi and Morgan Stanley, for the first time, according to two people familiar with the matter. The funds will be backed by guarantees from Nexi, Japan’s export credit agency.
Japan’s trade ministry, JBIC and Nexi declined to comment.
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