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– General John Shalikashvili
former Chairman of the Joint Chiefs of Staff
U.S., Russian Companies Tentatively Agree on 'HEU Deal'
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Philipp C. Bleek

The companies implementing a 1993 nonproliferation program under which the United States buys uranium from Russian nuclear warheads for use in power reactors reached an agreement in February that will allow shipments to resume in March.

Under the U.S.-Russian Highly Enriched Uranium Purchase Agreement, the U.S. government committed to purchasing, over a 20-year period, 500 metric tons of weapons-origin uranium blended down to low-enriched uranium for use in commercial power reactors. The agreement is implemented by the Russian government-controlled Techsnabexport (Tenex) and the private, U.S.-based USEC, Inc., formerly the government-run United States Enrichment Corporation.

Known as the “HEU Deal,” the initiative is intended to make the Russian material unusable for nuclear weapons; employ Russian scientists who might otherwise be tempted to work for proliferant states or groups; and provide a much-needed revenue stream for Russia’s nuclear complex, which has struggled to pay personnel and maintain physical security. The deal also provides a significant percentage of the uranium needed to meet U.S. nuclear fuel needs.

The initiative had been effectively stalled this year because the agreement establishing prices for the HEU deal had expired at the end of 2001, and the companies could not agree on how much USEC would pay for Russian uranium under a new agreement. The terms of the previous contract allowed for its prices to be extended through 2002, but USEC had refused to place orders for this year’s shipments before a new contract had been concluded.

USEC and Tenex began negotiating new pricing terms in the spring of 1999. USEC sought to replace the existing terms, which specified a fixed uranium price that the company alleged was too high, with a more flexible pricing arrangement consisting of a three-year running average of the market price for uranium, with an additional discount. Moscow initially balked because the resulting price was significantly lower than the existing arrangement, but USEC sweetened the deal by agreeing to purchase a limited quantity of non-weapons-origin uranium fuel to provide Russia with additional revenue.

The Clinton administration approved that deal in its final week in the White House, but the incoming Bush administration withheld approval pending an internal review. (See ACT, March 2001.) The Bush administration authorized the conclusion of negotiations in November 2001, and on February 22 the State Department announced that USEC and Tenex had “concluded” a new agreement, whose terms are “subject to review and approval by the two governments.” Washington has begun that process, according to a spokesman.

The new pricing arrangement, which a source familiar with the deal said resembled USEC’s previous offer but does not include non-weapons-origin fuel, would enter into force in 2003. The two sides have agreed to an interim arrangement that maintains the previous price for 2002, the source indicated. Shipments of nuclear fuel will begin in March, according to the State Department and USEC.

Although the pricing agreement clears the way for shipments to begin, the governmental approval necessary for long-term implementation of the deal appears less than certain. Sources familiar with the issue indicated in late February that although approval by Washington and Moscow was possible within days or weeks, it could also be delayed substantially.

In an acrimonious exchange of letters with USEC head William Timbers, Energy Undersecretary Robert Card wrote January 8 that the administration “will not be able to provide approval of any long-term agreement until all other domestic issues have been resolved.”

Card was referring to the government’s concern that the United States is overly dependent on the HEU deal for nuclear fuel. To address that concern, the Department of Energy has been seeking an agreement with USEC that would require the company to maintain a domestic capacity to enrich uranium, prepare to construct a new enrichment facility, and allow the government to operate existing facilities if USEC ceases to do so.

In a January 10 response to Card, Timbers criticized the Energy Department’s demands, saying, “No U.S. corporation could subject itself to such unprecedented and unnecessary government authority and remain accountable to its shareholders or remain in business.”

Russian approval of the new contract terms appears uncertain as well, in part because the new contract will provide Moscow with considerably less revenue than the terms of the previous agreement. Russian Minister of Atomic Energy Alexander Rumyantsev wrote his U.S. counterpart January 15, calling USEC’s pricing proposals “unacceptable” and requesting government-to-government meetings “as soon as possible,” an overture that was apparently spurned by Energy Secretary Spencer Abraham.