After Stumble, 'HEU Deal' Back on Track

ON DECEMBER 1, the United States Enrichment Corporation (USEC) dropped its threat to resign as the government's executive agent for the U.S.-Russian Highly-Enriched Uranium Purchase Agreement. USEC had threatened to back out of the so-called "HEU deal" in recent months unless the federal government provided the company with additional financial support.

USEC unsuccessfully sought as much as $200 million in federal financial aid, arguing that the deal with the Russians was imposing undue financial burdens on the recently privatized company. Administration officials responded skeptically to USEC's claims of financial hardship. The company is spending $100 million this year on dividends to its shareholders and another $100 million to buy back its own stock.

Faced with USEC's possible resignation, the administration threatened to negotiate with other companies for the management rights to the deal, potentially creating a competitor to USEC. After much protest, USEC's board voted on December 1 to continue its involvement with the program until the end of 2001, when the current phase of the deal expires. Energy Secretary Bill Richardson said he was "pleased that USEC is standing by their role as our executive agent for the HEU Agreement...that is so critical to our nonproliferation goals."

Under the terms of the agreement, formalized in 1993, the U.S. government is committed to purchasing 500 metric tons of weapons-usable highly-enriched uranium (HEU) over a 20-year period from Russia, thereby securing the material and providing Russia with a ready source of capital (estimated at $12 billion) to safeguard its fissile material stockpiles and dismantled weapons systems. Russia blends the HEU down to low-enriched uranium (LEU) before shipping it to the United States, where USEC brokers its sale to utility companies for use in civilian nuclear reactors. USEC then reimburses the Russian government for both the raw uranium and for the enrichment of that material.

Under the HEU deal, USEC must pay above-market rates for Russian enrichment services. It is therefore in USEC's interest (as a profit-seeking private enterprise) to try to undermine the HEU deal in order to avoid having to fulfill its full contractual obligations. USEC has undermined the deal repeatedly. Most recently, in October 1999, the company failed to provide adequate shipping containers to Russia, slowing down Russian shipments of LEU to the United States.