|
|||||
|
|||||
|
|
|
|
|
|
|
|||||
|
 |
|
|||||||||||||||||||
 |
Russia: History of the US-Russian HEU Agreement
and HEU Feed Deal
HEU Deal vs. HEU Feed Deal Numerous analysts and journalists continue to confuse details from the Megatons-to-Megawatts contract with details from feed component negotiations. The confusion associated with the two "deals" centers on two important distinctions. The first point of confusion centers on the names of the deals. Many analysts refer to the Megatons-to-Megawatts contract as the HEU deal. Analysts also refer—often in the same breath—to Russia's negotiation efforts to sell its natural uranium feed as the prospective HEU feed deal. This confusion caused by the names of these two programs comes about because feed negotiations are a by-product of the Megatons-to-Megawatts contract. In other words, the feed component is a barter payment derived from the Megatons-to-Megawatts contract, but sold separately to commercial companies as part of a second deal. Added to that, many journalists do not know what the term "feed" means or refers to in "HEU feed deal." (Feed is the uranium material that Russia uses to dilute its ex-warhead HEU.) Thus, journalists frequently miss the subtle difference between "HEU deal" and "HEU feed deal," and report details from one deal as if they belonged to the other. The second point of confusion deals with the quantities the press uses to describe the aforementioned reimbursed feed component. Because the reimbursed feed and the original feed are equal quantities, it is often difficult to determine whether a report refers to the natural uranium used in Russia for dilution or to the reimbursed natural uranium that Russia was trying to sell from the United States; in mid-1999, Russia will begin selling the reimbursed natural uranium from from Russia. (Note: Russia does not directly use natural uranium to dilute its ex-warhead HEU, but uses the natural uranium to make LEU, enriched to 1.5 percent U-235, which is then used to dilute the ex-warhead HEU. For more on this process, click here.) Analysts estimated in 1993 that the reimbursed natural uranium feed component would be worth approximately $4 billion, making the total sum for both "deals" $12 billion. USEC Privatization & HEU Feed Deal Negotiations The Energy Policy Act of 1992 created USEC as a wholly owned government corporation to fulfill the Megatons-to-Megawatts contract and act as the Department of Energy's executive agent in that contract. The 1992 law also stated that the corporation was to be the first step in transferring the DOE's uranium enrichment business to the private sector and mandated USEC to prepare a privatization plan within two years. USEC operations began on 1 July 1993 and on 30 June 1995, USEC presented President Clinton and Congress with its plan. In June 1998, USEC completed privatization (redundantly renaming itself USEC, Inc.) and became a direct competitor of Minatom selling uranium on the world market.[12,13] Under the USEC Privatization Act, which President Bill Clinton signed into law on 26 April 1996, USEC partially resolved disputes concerning the disposition of the natural uranium feed component and how USEC paid for it. First, the law transferred the feed title to Russia, permitting Russia to sell the feed on its own starting 1 January 1997. (Prior to the 26 April signing, USEC was to pay Tekhsnabeksport in cash for the feed upon use, sale, or at the end of the agreement in 2013.)[6,14] Second, the law required USEC to buy the 1995 and 1996 allotments of natural uranium feed, settling the account with Russia concerning the feed.[14] However, the privatization act did not settle one of Russia's key points of frustration with the HEU feed deal—Russia's inability to ship the natural uranium feed back to Russia. According to US law, the United States can only lawfully export uranium to countries with which it has a fissile material export agreement (unless the United States deems it to be within its national security interests). Before 23 March 1999, the United States and Russia had not signed such an agreement. Therefore, Tekhsnabeksport could not ship the natural uranium feed back to Russia before selling it on the world market, and had to sell it from the USEC warehouses located in Portsmouth, Ohio and Paducah, Kentucky.[2,4] Another point of frustration for Russia, which the privatization law only partially resolved, was the issue of "overfeeding." As mentioned, prior to the privatization law USEC had to pay Russia for the feed component when it used it or sold it. Russia was frustrated because USEC could have used the natural uranium as part of a process called overfeeding (i.e., using more uranium in the enrichment process to reduce electricity consumption during production), but chose not to. DOE had been overfeeding for years when the two governments negotiated the 1993 contract, and it was assumed that that practice would continue, ensuring Russia a timely return on its feedstock. However, once USEC began receiving the Russian feed, USEC stopped overfeeding and instead began using electricity subsidies provided by DOE to compensate for the extra energy it used in reprocessing. Meanwhile, the Russian feedstock just sat in USEC warehouses without USEC trying to sell or use it. Hence, not long after deliveries began in 1995, Russia began complaining, but to no avail.[9,14] In addition, USEC, anticipating its privatization, moved to rid itself of its $4 billion liability for the feed, and thereby increase USEC's value for privatization. Thus, in April 1996 Russia gained title of the feed component and the ability to sell on its own, but this was a second-best alternative to getting money from USEC for its usage of the feed.[14] Russian law also complicates matters. Russian law prohibits the export of state assets (like the LEU as UF6) without a completed sales contract and delivery of the proceeds to Russia within 180 days.[14] This has increased Russia's urgency to negotiate a contract for the feed component and find a way to pay for it within six months of delivery to the United States. According to Mikhailov, Minatom had negotiated (with the help of Russia's Central Bank) a grace period in which Minatom would be allowed two years to deliver the proceeds of a feed deal back to Russia, though it is unclear whether that grace period still stands. Parties to the HEU Feed Negotiations In 1997, when Russia asked for bids on its natural uranium feed component, two competing groups stepped forward. One offer came from a joint venture between Cogema (France) and Cameco (Canada). The second offer came from another joint venture between two US companies, Pleiades Group Ltd. and NUKEM (a US subsidiary of a German company). Originally, Mikhailov preferred the Pleiades-NUKEM bid, but for reasons still unclear, the parties never concluded the deal. Subsequently, NUKEM joined Cogema and Cameco to form a Western consortium, which has been the bidder with which Minatom has primarily negotiated since Russia gained title of the feed. On 18 August 1997, the Western consortium and Minatom signed an agreement-in-principle regarding HEU feed sales and continued negotiations until early December. Then, on 11 December 1997, Mikhailov announced that Minatom had unilaterally withdrawn from the negotiations due to disagreements over prices and assurances that a final agreement would be enforceable.[15] In addition, he said that Minatom wanted to seek other ways to market the Russian-owned natural uranium feed directly from US territory.[10,15] While negotiating with the consortium, Tekhsnabeksport officials also negotiated with Pleiades to purchase a stake in one of its partly-owned US subsidiaries to market the feed from the United States. Subsequently, in January 1998 Pleiades purchased 49 percent of a subsidiary of Global Nuclear Services & Supply (GNSS), incorporated in Delaware in 1995. The Washington, DC-based parent company, incorporated in Zurich and also called GNSS, has been undergoing bankruptcy proceedings in Switzerland.[15,16,17] By January 1998, the newly owned GNSS subsidiary (or GNSS-Delaware) began trying to market the feed abroad. However, USEC sought Russian assurances that GNSS-Delaware had authority from Russia to sell the feed component, since GNSS was not entirely Russian-owned. Moreover, other Russian ministries were asserting that they had rights to the feed component's profits.[18] Feed negotiations remained stalled along these lines until Mikhailov left his position as Minister of Atomic Energy in March 1998. Analysts immediately speculated that Yeltsin had fired Mikhailov due to Mikhailov’s handling of the feed negotiations, though Mikhailov said he left his position voluntarily.[5,19,20] Progress of the HEU Feed Deal under Adamov A few days after Mikhailov left his post, Yeltsin appointed Yevgeniy Adamov in his stead. Since March 1998, Adamov and newly appointed US Secretary of Energy Bill Richardson have worked closely to resolve the problem concerning the feed. In June 1998, Adamov and Richardson nearly completed an agreement to sell the feed component.[5,21] However, USEC, which became fully privatized that same month, announced that it would begin selling its large volume of surplus natural uranium on the world market to pay in part for its new atomic vapor laser isotope separation (AVLIS) program.[4,14,21] USEC had obtained from DOE inventories large amounts of natural uranium (approximately 30–40 million lb., or 13,600–18,100MT) in order to increase its market value upon privatization.[14,21] However, USEC did not publicly announce that it had acquired the additional large quantities of uranium until May 1998 when it began seeking investors on Wall Street.[14] Minatom became concerned that USEC sales would further depress world uranium prices and therefore backed out of the deal, looking for a better agreement.[14,21,22] Thus, according to Thomas Neff, the architect of the whole swords-to-plowshares arrangement, "USEC's planned sales totally changed the economics of any commercial deal to buy and hold Russian uranium. Not only would the holding time, and thus the holding costs, increase, but the ultimate price received would be lower because of the additional supply to the [world uranium] market."[14] More recently, on 25 August 1998, Tekhsnabeksport notified Pleiades that the June 1997 agreements that allowed Pleiades to purchase a stake in GNSS-Delaware, are no longer valid. However, in November 1998, Pleiades won a restraining order in a Swiss court to block Russia's attempt to circumvent the GNSS-Delaware subsidiary and sell the feed independently. Pleiades released a statement after the ruling, confirming its continued interest in the HEU feed negotiations and affirming the validity of Pleiades stake in the GNSS-Delaware subsidiary.[15,16,23] At the Moscow summit on 2 September 1998, Yeltsin informed Clinton that due to USEC privatization and the lack of progress in securing a contract for the feed, Russia was going to pull out of the entire HEU arrangement. Clinton, however, dissuaded Yeltsin from withdrawing and promised him that the United States would work out a solution.[14] On 22 September 1998 Adamov and Richardson met in Vienna at the IAEA General Conference and signed a "Joint Report" on the status of the Megatons-to-Megawatts contract.[25] In the Joint Report, DOE agreed to defer sales of DOE-owned natural uranium for five to 10 years, to oversee uranium sales made by USEC, and to buy back the 1997 and 1998 allotments of natural uranium feed—about 11,000MT—from Minatom. To bolster the Vienna accord, on 21 October 1998 Congress appropriated $325 million to pay Russia for the 1997 and 1998 feed allotments.[14] However, according to the Vienna accord, the buyback of the 1997 and 1998 allotments would only take effect if Minatom and the consortium could work out a commercial deal for the feed component in 1999, and for "about 10 years thereafter." Thus, with Clinton's urging, DOE agreed to facilitate and mediate an agreement between the two parties over the future of the feed component.[10,14,24,25] In late November 1998, some signs emerged indicating that US direct intervention in the talks was having a positive impact, but prices continued to be a stumbling block to a final contract. Other knowledgeable sources said at the time that the main stumbling block was the "political intransigence" of the Russian negotiators, who did not view the commercial market realistically.[24] Further talks were held in Washington, DC in mid-January 1999 toward finalizing a feed contract, and although a 70-page draft appears to have been prepared, the outcome of the talks remained to be seen.[9] On 24 March 1999, at DOE headquarters in Washington, DC, Richardson and Adamov signed the HEU Feed Deal and several accompanying accords. A day later, Minatom and the Western Consortium signed a commercial contract to buy the feed, freeing up the congressionally appropriated $325 million to buy Russia's 1997 and 1998 feed allotments. Among the protocols between DOE and Minatom is a fissile materials export agreement for the feed, which allows Minatom to create a 22,000MT stockpile of natural uranium equivalent in Russia. Any uranium in excess of 22,000MT, Russia may sell as LEU to several countries. [See the Assurances Annex to the HEU Feed Deal for a list of countries.] In addition, the Assurances Annex provides a number of verification and accounting measures to ensure the stockpile is not diverted for weapons use or development. DOE will also be able to maintain an equivalent stockpile in the United States. The estimated value for the HEU Feed Deal is now $2.8 billion (at the $10.75/kg spot price), bringing the total value for both the HEU Feed Deal and the HEU Deal to $10.8 billion. Only the pending court case filed by Pleiades against Tekhsnabeksport concerning its August 1997 arrangement could halt the HEU Feed Deal, but Russian officials do not think that outcome is likely. For more details on the HEU Feed Deal and the accompanying accords, see the abstract in the chronology of developments or the full texts of the HEU Feed Deal accords. The Future of the Deal According to Neff, now that Adamov, Richardson, and the consortium have solved the feed component dispute, the next problem to tackle will be USEC's obligation to pay Tekhsnabeksport for Russian enrichment services. When USEC was government-owned, DOE could order it to pay Russia for its enrichment services even if it was unprofitable. Now, USEC has "no strong incentives" to continue its role in the HEU deal. In fact, USEC has strong incentives to quit its role in the HEU deal. According to Neff, with Russian LEU deliveries scheduled to increase in 1999 to 30MT annually, "USEC will have to operate their own [enrichment] plants well below their optimum production levels." Moreover, according to the Megatons-to-Megawatts contract, in 1999, USEC will have to pay more for Russia's dilution services component than the current market price for new contracts for such services. Thus, USEC will incur a loss, while stockholders will clamor for profits. In fact, based on the cost of enrichment services and the higher prices expected for uranium if Russian uranium were kept off the market, USEC's current profits would be about three times higher if USEC pulled out of the HEU deal altogether.[14] Kent A. B. Jamison
Sources:
Last updated 26 February 1999
HOME | CONTACT US | SITE MAP |
|
|||||||||||||||||||
Fissile Material Production and Disposition
