Cablegate: Progress On the Russian International Uranium Enrichment

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RR RUEHVK RUEHYG
DE RUEHMO #2248/01 2431104
ZNR UUUUU ZZH
R 311104Z AUG 09
FM AMEMBASSY MOSCOW
TO RUEHC/SECSTATE WASHDC 4687
RHMFIUU/DEPT OF ENERGY WASHINGTON DC
RUEHBS/USEU BRUSSELS
RUEHKV/AMEMBASSY KYIV 0348
RUEHTA/AMEMBASSY ASTANA 0291
RUEHYE/AMEMBASSY YEREVAN 0545
RUEHKO/AMEMBASSY TOKYO 4289
RUEHUNV/USMISSION UNVIE VIENNA 0564
RUEHNE/AMEMBASSY NEW DELHI 1223
RUEHYG/AMCONSUL YEKATERINBURG 3691
RUEHVK/AMCONSUL VLADIVOSTOK 3338
RHMFIUU/DTRA CT WASHINGTON DC
RUEAEPA/HQ EPA WASHDC
RUEKJCS/SECDEF WASHDC
RHEHNSC/NSC WASHDC

UNCLAS SECTION 01 OF 05 MOSCOW 002248

SENSITIVE
SIPDIS

E.O. 12958: N/A

TAGS: KNNP ENGR IAEA TSPL SENV KZ NO AM UP SW RS
SUBJECT: Progress on the Russian International Uranium Enrichment
Center (IUEC) and the Fuel Reserve Initiatives

REF: STATE 83455

SENSITIVE BUT UNCLASSIFIED - Please protect accordingly

1. (SBU) SUMMARY: Embassy representatives visited the Angarsk
Electrolysis Chemical Complex (AECC) uranium enrichment facility on
July 15, 2009 and received a briefing in Moscow on August 3, 2009 on
the status of the International Uranium Enrichment Center (IUEC).
The briefing was provided by representatives of the Russian State
Atomic Energy Corporation (Rosatom) and Tenex, the Rosatom company
that sells uranium enrichment services and radioactive materials
abroad. According to Tenex officials, the IUEC has received all
necessary licenses for operation. In parallel to the IUEC, Russia
is planning to make 120 metric tons of low enriched uranium (LEU)
available to the IAEA as a fuel reserve (fuel bank). The IUEC would
be responsible for maintaining the fuel bank, and the material would
remain the property of the Russian Government (GOR) until it is
transferred to the IAEA. Tenex reported that the GOR and the IAEA
had an understanding that safeguards would first be applied to the
proposed fuel bank. The interagency review of the agreement between
the IAEA and the Russian Federation that sets the conditions for
establishment of the fuel bank is almost complete, and the agreement
should be submitted to the IAEA at the September Board of Governors'
meeting. End Summary.

-------------------------------------
Site Visit and Background on the AECC
-------------------------------------

2. (SBU) On July 15, 2009, representatives of the U.S. Department of
Energy's Moscow Office (DOE-M) visited Angarsk, Russia, to take part
in DOE-Rosatom discussions of post-Bratislava plans for emergency
response cooperation and to observe an emergency exercise by Angarsk
Electrolysis Chemical Complex (AECC) response forces. Shortly before
the trip, DOE-M requested a visit the Angarsk Enrichment Facility
and a briefing on the status of the International Uranium Enrichment
Center (IUEC). Tenex ensured that the site visit took place even on
relatively short notice.

3. (SBU) AECC is located about 60 kilometers north of Irkutsk in the
city of Angarsk. AECC has both a uranium conversion plant
(production of uranium hexafluoride from yellowcake or from uranium
tetrafluoride) and a uranium enrichment plant. AECC has a
significant amount of available space to install additional
centrifuges, and plenty of power for future expansion of production
capacity. AECC is the only Russian enrichment facility located in
an open city. According to AECC hosts, AECC has never been used for
production of highly enriched uranium (HEU), and it is currently
licensed to produce uranium hexafluoride enriched to up to five
percent. AECC does not conduct any R&D for centrifuge technology
development, unlike some of the other enrichment facilities. All of
these factors combined make AECC the least sensitive and most easily
accessible Russian enrichment facility.
4. (SBU) DOE-M representatives were shown a small portion of one of
the centrifuge halls and uranium hexafluoride transport container
filling station. In June 2007, Rosatom Director General Kiriyenko
said that AECC's enrichment capacity was 2.6 million separative work
units (SWUs) and that that Rosatom planned to expand AECC capacity
to 4.2 million SWUs. During the course of the visit, DOE-M
representatives were told about the Russia-Kazakhstan agreement that
calls for establishment of a joint Russian-Kazakhstan Center for
Uranium Enrichment (CUE) at AECC. (Note: The CUE is not to be
confused with the IUEC as it is a totally separate bilateral
commercial project between Russia and Kazakhstan on a 50/50 basis.
End Note.)
5. (SBU) AECC representatives mentioned that they are working
closely with local environmentalists to address concerns over AECC
activities and expansion plans. Out of all four Russian enrichment
facilities, AECC gets the most attention from environmental groups.
The main reasons for this are AECC's relative proximity to Lake
Baikal, significant media attention related to the IUEC initiative,
and the fact that Angarsk is an open city, which makes it more
accessible for nongovernmental organizations.
6. (SBU) AECC hosts confirmed that there are plans to build a
Russian-designed tails conversion facility, to convert depleted

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uranium hexafluoride into the less dangerous form of uranium
tetrafluoride, which would address the concerns of
environmentalists. However, AECC management is clearly less than
enthusiastic about operating such a conversion facility. It was
obvious that the issue of operational costs for the conversion
facility still needs to be addressed between AECC, Tenex and
Rosatom.

--------------------------------------------- --------
Status of the International Uranium Enrichment Center
--------------------------------------------- --------

7. (SBU) Because the AECC Director referred DOE-M representatives to
Tenex for information about the IUEC, DOE-M and Environment, Science
and Technology and Health section representatives held a follow-on
meeting at Tenex on August 3. Tenex representatives explained that
the IUEC was established based on the 2007 Russia-Kazakhstan
Government to Government Agreement "On Foundation of the
International Uranium Enrichment Center." (Note: Tenex provided the
text of the agreement to DOE-M. End Note.) Per the Agreement, the
IUEC was established as a Joint Stock Company incorporated in Russia
in accordance with Russian laws and is located in Angarsk. There
are currently two members - Russia and Kazakhstan - but by the
middle of next year they will be joined by Ukraine and Armenia.

8. (SBU) According to the Tenex representatives, Russia views the
IUEC as a political, rather than a commercial endeavor. It is
viewed as a pilot project to test the concept and viability of
multilateral approaches to the nuclear fuel cycle and fuel assurance
mechanisms, and has the full backing of the Russian government.
Since the IUEC is a unique international pilot project, Tenex had to
do a significant amount of paperwork within the Russian government
to enable the IUEC to operate in Russia. According to Tenex
representatives, the IUEC is moving ahead at "full speed" and has
now received all necessary licenses for operation. It has also been
included in the list of Russian organizations authorized to own
nuclear material. Tenex representatives commented that a great deal
of work will be done in 2010-2011.

-----------------------
Current IUEC Membership
-----------------------

9. (SBU) In addition to founding members Kazakhstan and Russia, the
governments of Armenia and Ukraine have decided to join the IUEC.
Although both agreements have received interagency approval within
Russia, they must also be approved by the Government of Kazakhstan,
which Tenex interlocutors characterized as notoriously slow in
processing documents. Tenex expects to receive GOK approval of both
agreements by the middle of 2010. The Rosatom representative
stressed that the IUEC is open to interested countries that are in
compliance with their obligations under the Non-Proliferation Treaty
(NPT). The legal basis for participation consists of bilateral
government-to-government agreements with the founding Parties -
Russia and Kazakhstan. Russia is currently having discussions with
other states, and Tenex is hopeful that additional states will sign
up soon.

--------------------------------------------- --------
No Commercial Incentive - No Access to Enrichment Technology
--------------------------------------------- --------

10. (SBU) As noted above, Russia is not proposing any real
commercial incentives for potential IUEC participants. Rather, at
the initial stage of IUEC development, Russia is inviting those
countries that want to demonstrate their good standing and
commitment to the NPT and to the development of multilateral
approaches and assurance of supply mechanisms. The near-term goal
is to find partners from outside the former Soviet Union (FSU) to
avoid the IUEC being viewed as a purely FSU arrangement.

11. (SBU) IUEC participating countries will not have access to
enrichment technology. Moreover, current plans do not call for the
IUEC to have its own enrichment capacity, as the IUEC will place
orders for enrichment services at AECC. (Note: It is unclear how

MOSCOW 00002248 003 OF 005

much enrichment capacity is currently available at AECC. We heard
from Angarsk locals that at times the AECC enrichment plant was
significantly underloaded. Given current expansion plans as well as
GOR backing and political support for this effort, we expect that
the IUEC would be given priority access to AECC's enrichment
capacity. End Note.)

12. (SBU) Since IUEC does not have to invest in building its own
enrichment capacity, the initial investment by participating
countries is nominal. IUEC bylaws set IUEC capitalization at 26
million rubles (slightly less than $1 million). Russia owns 51
percent of the IUEC stock. The Kazakhstani share of 10 percent of
the IUEC stock cost Kazatomprom less than $100,000. Other
participating countries will have to invest $100,000, or less if
they want to settle at five percent ownership. The IUEC is planning
to pay dividends to the stockholders, and the dividends will be
distributed according to the share each stakeholder holds in the
IUEC. As the stakeholder investments are minimal, the dividends
will not significant, but they will certainly be expected to cover
initial investments. Tenex representatives noted that if there is
more interest as the project progresses, the IUEC Board of Directors
may make a decision to issue additional stock for purchase by
authorized agents of IUEC member countries, but Russia will retain
the 50 percent plus one share ownership.

13. (SBU) Current plans call for the IUEC to have commercial
contracts for 500,000 - 600,000 SWUs per year, which would allow the
IUEC to support itself. The goal is to sign the first contract for
enrichment services with Kazakhstan in the first quarter of 2010.
Orders from IUEC stockholder countries will take priority, but the
IUEC is ready to supply services to other countries as well.
According to the Rosatom representative, the only precondition of
supply is compliance of each transaction with Nuclear Suppliers
Group guidelines.
14. (SBU) If the IUEC eventually gets a steady flow of enrichment
contracts, the IUEC may decide to buy stock at the AECC and,
thereby, become a co-owner of the actual enrichment facility. If
this were to take place, IUEC members would still not have access to
any enrichment technologies. Such a situation would require certain
regulations to be issued by Russian authorities, as it would
constitute foreign investment into a so-called "strategic
enterprise." However, Tenex representatives were confident this can
be done given the strong GOR backing of the IUEC.

-------------------------
IUEC Management Structure
-------------------------

15. (SBU) The IUEC management structure is typical of Russian joint
stock corporations. Tenex Deputy Director Aleksey Lebedev is IUEC
Chairman of the Board and Director of IUEC Moscow representative
office. All IUEC member countries get a seat on the Board.
Currently, Rosatom and IUEC are working to transfer the controlling
stake ownership in the IUEC from Tenex to Rosatom, so that Rosatom
would control the Russian stake in IUEC directly, rather than via a
chain of companies that own each other
(Rosatom-Atomenergoprom-Tenex-IUEC). The transition is expected to
be completed by the end of 2009.

16. (SBU) A Joint Consultative Commission (JCC) was established by
the Russian-Kazakhstan Government to Government Agreement to resolve
disputes between the parties and discuss implementation of the
agreement. The JCC is the forum that will be used to decide on any
issues that arise related to the IUEC. The Tenex representative
noted that it is still early to discuss issues like marketing
strategy, etc., but that the JCC would be used in the future to
address such issues. Despite different amounts of IUEC stock
ownership, each party gets the same number of members on the JCC.
The agreement also provides for IAEA participation in the JCC in an
observer capacity. The IAEA, Kazakhstan, and Armenia attended the
last meeting of the JCC, which was one year ago. The next JCC will
be held at the end of 2009.

---------
Fuel Bank

MOSCOW 00002248 004 OF 005

---------

17. (SBU) In parallel with the establishment of the IUEC, Russia is
planning to make 120 metric tons of low enriched uranium (LEU)
hexafluoride available to the IAEA as a fuel reserve (fuel bank).
Russia has had an extensive discussion with the IAEA on both the
IUEC and the fuel bank, and the necessary agreement and fuel supply
contract with the IAEA. The material in the fuel bank will remain
the property of the Russian Federation until it is transferred to
the IAEA. The IUEC will be the agent responsible for maintaining
the fuel bank.

18. (SBU) It is envisioned that when the Level III mechanism of
supply assurance is invoked (that is when both existing market
arrangements and backup commitments by suppliers fail to work), the
material from the fuel bank will be sold to the IAEA at market
price, or even at a premium to the market, to avoid disruption of
commercial uranium sales. Such an approach will allow for the money
received from the sale to re-stock the LEU hexafluoride in the fuel
bank. The Rosatom representative noted that interagency review of
the agreement between the IAEA and the Russian Federation that sets
the conditions for establishment of the fuel bank was almost
complete, and the agreement should be submitted to the IAEA at the
September Board of Governors' meeting.

------------------------------
Application of IAEA Safeguards
------------------------------

19. (SBU) The Rosatom representative explained that Russia included
both the IUEC and AECC on the list of facilities to which IAEA can
apply safeguards. However, IAEA is not staffed well enough and is
leary of applying safeguards to an enrichment facility within a
nuclear weapons state. Rosatom commented that the IAEA views AECC
as not "safeguards friendly" and that applying safeguards would be
"a big waste of money." So the current understanding between Russia
and the IAEA is that safeguards will be applied first to the fuel
bank that remains the property of the Russian government, as well as
to any material owned by the IUEC. The GOR will assume all costs
related to application of these safeguards. Rosatom estimated that
the IAEA would need three to four full-time equivalent employees
(FTEs) to implement the safeguards requirements. The IUEC is
working to make arrangements to allocate workspace for the
inspectors and to resolve equipment and access issues.

20. (SBU) In response to a question about whether the IAEA or Russia
had any interest in using the AECC enrichment plant as a testbed for
safeguards technologies for enrichment facilities in third
countries, Rosatom said that a lot of work had been done in this
area when Russia decided to build an enrichment plant in China.
Since the Chinese enrichment facility was built using Russian
technology and is now under IAEA safeguards, the IAEA has thoroughly
tested safeguards application to a Russian-designed enrichment
facility. Apparently the IAEA does not have an interest in further
pursuing this type of work.

-------------------
Fuel Bank and IAEA
-------------------

21. (SBU) The Rosatom representative noted that Rosatom was
pleasantly surprised by how well the Russian fuel bank proposal was
received by the IAEA, even when compared with the Nuclear Threat
Initiative (NTI) proposal and especially the German proposal. The
biggest concerns the IAEA expressed in discussions with Russia were
liability, physical protection, and the cost of maintaining the fuel
bank. It appears that the Russian proposal better addresses these
concerns than the other proposals. The biggest issue for Russia in
negotiating the fuel supply contract with the IAEA for deliveries to
implement Level III assurances of supply was reaching an agreement
on the transfer of title and liability for the material. Tenex's
position was that the title transfer to the IAEA should occur at the
St. Petersburg Seaport, while the IAEA wanted Tenex to deliver it
directly to the end user, which violates a number of Russian customs
and banking regulations.

MOSCOW 00002248 005 OF 005

22. (SBU) Rosatom commented that there was strong opposition
generated by India among the non-aligned movement countries at the
June 2009 Board of Governors' meeting toward assurance of supply
initiatives in general. The Rosatom representative indicated that
India has a problem with any document including mention of the NPT
and India's non-nuclear status. The Rosatom representative was not
able to predict what would be required to get the Russia-IAEA
agreement for establishment of the fuel bank approved, whether it
would require a Board of Governors' resolution, vote, or if it would
have to be brought for IAEA General Conference consideration.

-------
Comment
-------

23. (SBU) Russia is clearly moving aggressively to implement its
IUEC and fuel reserve initiatives. On August 28, 2009, a Tenex
representative confirmed to DOE-M that the Russian interagency
review of the Russia-IAEA Agreement to establish a fuel bank is
complete. The draft decree from the Russian Prime Minister
authorizing an appropriate Russian representative (likely Rosatom
Director General Kiriyenko) to sign the agreement on behalf of the
Russian Federation is currently being reviewed, and it should issued
in time for the September IAEA BOG meeting. The outstanding issue,
therefore, is when and if the IAEA Director General will receive
authority to sign on behalf of the IAEA.

BEYRLE

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