USEC in fuel contract standoff

1 February 2002

The so-called Megatons to Megawatts programme has been put in doubt after USEC demanded a 15% reduction from 2001 prices, after the previous contract expired on December 31, 2001. The next shipment - usually about 3 tonnes of downblended highly enriched uranium (HEU) from dismantled Soviet warheads - is due to set sail next month, but may be delayed if an agreement is not reached soon.

Nikolai Shingaryov, head of the Russian Ministry of Atomic Energy (Minatom) said: "We are still negotiating, and I am sure that the deal will be signed."

The US government is concerned that the dispute could lead to a nuclear fuel shortage in the USA. In a letter to USEC, energy undersecretary Robert Card said: "US strategic interests may be at risk if the [company] cannot ensure continuity of shipments of Russian downblended [uranium] to the USA."

In response, USEC president William Timbers told Card that his letter "undermines and could significantly affect the ability of [USEC] to reach prompt and successful agreement." Timbers added that the claim that the dispute could lead to a fuel shortage was "unwarranted and disingenuous." USEC supplies about 70% of the country's uranium for nuclear power.

Another factor that may have contributed to the current standoff is Russia's desire to achieve greater access to the North American uranium market. In the early 1990s, Russia was blocked from the US market after allegations of dumping. However, Charles Yulish, spokesman for USEC, denied any link between the anti-dumping measures and the Megatons to Megawatts programme.

The Bush administration can, at any time, appoint a new agent or an additional agent for the Russian uranium purchases. Several US utilities have told the administration that they would consider buying uranium directly from Russia.

The Russian uranium agreement may also affect the future USEC's Paducah gaseous diffusion uranium enrichment plant. The company had pinned the future of the facility on securing cheaper uranium under the Megatons to Megawatts programme, which helps offset its production costs. In a draft agreement between USEC and the Department of Energy (DoE) dated November 15, 2001, USEC had committed to:

• Maintain the Paducah enrichment facility, at an enforceable minimum production level of 3.5 million SWU per year.

• Bring a new plant online by 2007 using existing European gas centrifuge technology, or by 2009 using new USEC-developed technology.

• Allow DoE complete access to run the Paducah plant if USEC ceases operations.

• Be removed as agent for imported Russian uranium should USEC default on any of its other obligations.

However, Timbers claimed that Card, in his above-mentioned letter to USEC, had raised "many new issues that neither of us had discussed." He added that Card's interpretation of the negotiations over the Paducah plant was just as "factually wrong" as with the Russian uranium deal.

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