Last week, Russian weekly Vedomosti announced that Russian Ministry of Finance (Minfin) ascertained that the US side did not fulfill its financial obligations in the HEU-LEU contract and broke down negotiations on prices and timetable of the low enriched uranium shipments from Russia to the US.

The Vedomosti claimed the Minfin report for the first half of the year 2001 shows lack of 1,8bn rubles (an equivalent to $60m) in the Target Budget Funds account. The returns are less than 1bn rubles ($33m) and constitute only 36.7% of the plan. The Vedomosti points out, the law for the budget 2001 provides only one Target Budget Fund – that of Ministry for Nuclear Energy (Minatom), made by sale proceeds from the HEU-LEU contract.

The HEU-LEU agreement
In February 1993, Moscow and Washington reached an agreement On the Use of Highly Enriched Uranium Extracted from Nuclear Weapons. As a follow-up of the agreement, the two countries signed the HEU-LEU (highly enriched uranium – low enriched uranium) contract in 1994, under which 500 tons of HEU were to be purchased by the US Enrichment Corp. (USEC) until 2013.

The weapon-grade uranium contains more than 90% of the U-235 isotope (U-235 concentration in natural uranium is 0.7%). The weapon-grade uranium is blended down to meet the standards of American nuclear power plants (LEU – 4,4% for U-235) at the facilities of Tomsk-7 (Seversk) in Siberia.

The total deal amounts to $12bn (including the natural component of the uranium cost – about $4bn). Since the beginning of the contract implementation, Russia’s shipments of LEU to the US, have amounted to $2bn.

Before 1998 USEC was a part of the Department of Energy (DOE). After privatisation in 1998, USEC has been working as a private company.

On the Russian side, Minatom is responsible to implement the agreement. The joint stock company Tekhsnabexport (TENEX) is the Russian executive agent of the deal. TENEX was founded in 1963 as a trade office within the USSR Ministry of External Trade. The main task of Tekhsnabexport was to export radioactive isotopes and rare metals to East European and other countries. In 1968, Tekhsnabexport also began enriching uranium for export. In 1988, the organisation was transferred from the trade office to the Ministry of Atomic Energy. In 1989-90, Tekhsnabexport started to export natural uranium mined in Russia, as well as enriched uranium. In 1990, it shipped the first 12,000 tons of natural uranium abroad.

USEC’s statement
In the same article, Vedomosti wrote that Minatom will not suffer of the HEU-LEU funds shortage and that according to USEC, the situation will be cleared up only by the end of the year, when the contract runs out.

USEC representative Charles Yulish said to the reporter of Bellona Web, that every LEU shipment is paid in 60 days, and not in the end of the year. Charles Yulish claims, while we have up to 60 days to pay Russia for shipments, from the beginning of this contract, we have often advanced payments to our Russian partners to accommodate Russian fiscal needs. The advances are deducted against future delivery payments.

Also, it is incorrect to speak about the contract expiration. In May 2000, USEC and TENEX reached agreement on new market-based commercial terms that would begin on January 1st 2002, when the current terms expire. The new terms are under review by the respective governments. The contract goes on in any event, so there is no reason to fear that the contract will terminate, Mr Yulish said.

Enriched uranium is measured by Separative Work Units (SWU) which reflect the amount of work needed to increase the amount of U235 to any required level. The USEC representative said that when the market prices continued to fall, the company was paying Russia in the $80-90 range for SWU while the market price was in the low $80. The pending new amendment would establish market-based pricing for payment.

Charles Yulish said to the Bellona Web that at the present time, USEC has paid $215m this year to Russia for shipments of LEU fuel derived from 13 metric tons of weapons grade HEU. USEC has not received any official complaint on the payments.

The source of disinformation
Charles Yulish also said that the statements on scrapping the plan have no relation to the operations, carried out by USEC, but may concern Russia’s sale of the natural uranium component. About a third of the LEU shipment payment Russia receives from USEC is in the form of natural uranium. TENEX sells this uranium further, according to the contract with three Western companies, Cameco (Canadian) Cogema (French) and Nukem (German).

The USEC representative believes that they have not purchased uranium and that could mean that the Russian government would not have been paid. But Charles Yulish stresses, these two business deals must be kept separate: the LEU fuel deal between USEC-Tenex/Minatom and the natural uranium contract between Tenex/Minatom, Cameco, Cogema, and Nukem.

From the beginning of the HEU-LEU deal, both parties agreed that the US would pay for the enrichment component promptly when shipments were received, but the natural uranium would only be paid for by USEC (a) when it was sold, (b) if USEC used it in its own facilities, (c) or it would be returned to Russia at the end of the contract. The 1993 US Russian governments agreement and the 1994 implementing contract both state that clearly and both parties signed it.

As the shipments began, then ministry for nuclear energy, Victor Mikhailov, began to demand immediate payment no matter what the contracts stated. USEC had no basis to take on this $4bn obligation. The Russian demands were escalated and according to industry press reports became very controversial when Minatom brought in an unknown company, Pleiades, to manage the natural uranium transactions.

Eventually, the newly appointed minister for nuclear energy, Yevgeny Adamov, and the US government assisted Russia in solving this problem completing the contract between Russia and the three uranium companies. In spring of 1999, when Cameco, Cogema, and Nukem took part in the deal, being not bound by any restrictions on the radioactive materials trade either from the American, or from the Russian side.

HEU-LEU 2000
The proceeds from the HEU-LEU supplies last year made 29% of all Minatom’s currency earnings and 10% of all the non-tax budget proceeds. Minatom’s report 2000 points out, that the funds received were spent on weapon reduction, nuclear submarine decommissioning and nuclear safety programs.

In 2000, uranium prices in the world market went down due to oversupply. As a result, USEC suffered losses. Having regarded the state of the market, Minatom offered USEC to buy additional uranium volumes for lower prices. At the same time, Russia said the prices for the raw materials, being exported to the USA under the HEU-LEU contract, could be reduced.

According to the TENEX information, in 2000, five return shipments of the natural component from the US to Russia were carried out, totaling in 4.6 thousand tons.

Perspectives after the Genoa summit
Russian official daily Rossiyskaya Gazeta, reported on Tuesday that the perspective of the HEU-LEU agreement development were discussed among other issues at the working meetings of the G7 and Russian presidents in Genoa.

The sides expressed their satisfaction at the agreement implementation, and discussed the possibility of additional Russian LEU shipments to the US market.

Thus, Russia, according to the newspaper, would extend its activities at the American NPP fuel market, and the US would continue supporting USEC. The newspaper also said,functions of the executive agent of the Russian side may be transferred to the state owned Rosoboronexport company, which has a serious reputation in the weapon market.