VZCZCXRO0099
RR RUEHAST
DE RUEHTA #2673/01 2060902
ZNR UUUUU ZZH
R 250902Z JUL 06
FM AMEMBASSY ALMATY
TO RUEHC/SECSTATE WASHDC 6337
INFO RUEHAST/USOFFICE ASTANA
RUEBAAA/DEPT OF ENERGY WASHDC
RUEHMO/AMEMBASSY MOSCOW 1298

UNCLAS SECTION 01 OF 05 ALMATY 002673 
 
SIPDIS 
 
SIPDIS 
 
SENSITIVE 
 
DEPT FOR SCA/CEN (J. MUDGE) 
 
E.O. 12958: N/A 
TAGS: PREL PGOV KNNP MARR KZ
SUBJECT: KAZAKHSTAN: THE NUCLEAR INDUSTRY 
 
REF: A. Almaty 6 
     ¶B. Almaty 602 
     ¶C. Moscow 932 
 
¶1. (SBU) Summary: The nuclear fuel cycle in Kazakhstan is wholly 
managed by the state-owned Kazatomprom company, and dominated by 
uranium mining and milling operations. Kazatomprom is investing 
heavily in increasing uranium production not only to profit from 
the projected increase in world demand, but also with the vision 
of using its stockpiles as leverage to buy into enrichment 
facilities in other countries that it currently lacks. 
Kazatomprom is de facto completing the fuel cycle through 
vertical integration with international partners, rather than on 
Kazakhstani soil. End summary. 
 
------------------------------------- 
Kazakhstan and the Uranium Fuel Cycle 
------------------------------------- 
 
¶2. (SBU) The uranium fuel cycle consists of a series of steps, 
which differ according to the finished product.  The first 
variant: 1. Raw uranium extraction in the form of mining and 
milling; 2. Processing the raw uranium into U3O8 (yellowcake); 3. 
Fuel fabrication of the yellowcake into low-grade uranium dioxide 
(UO2) pellets; 4. Waste disposal or reprocessing of the depleted 
uranium.  The second variant:  1. Raw uranium extraction in the 
form of mining and milling; 2. Processing the raw uranium into 
U3O8 (yellowcake); 3. Conversion of the yellowcake into uranium 
hexafluoride (UF6) for enrichment; 4. Enrichment of the UF6 to 
bring out higher concentrations of the U235 isotope; 5. Fuel 
fabrication of the UF6 into high-grade UO2 pellets; 6. Waste 
disposal or reprocessing of the depleted uranium. 
 
¶3. (SBU) When part of the former Soviet Union, Kazakhstan was an 
integral part of the USSR's fuel cycle, serving as its hub for 
uranium mining, nuclear testing and waste disposal, as well as 
limited enrichment activities.  Today Kazakhstan lacks only the 
enrichment capability, although it does not sell or have markets 
for many of the steps in the fuel cycle described above.  The 
Kazakhstani fuel cycle, instead, is heavily concentrated on 
uranium extraction and both high- and low-grade UO2 fuel 
fabrication activities. 
 
¶4. (SBU) In the short run, Kazatomprom's focus is on becoming a 
leading world exporter of uranium by 2010.  Kazatomprom has made 
it clear that in the long run, it intends to gain some measure of 
control over all steps in the nuclear fuel cycle.  It is pursuing 
this goal by participating in various joint ventures with 
international firms, in exchange for access to technology or 
existing export markets. 
 
------------------------------ 
Mining, Milling and Processing 
------------------------------ 
 
¶5. (SBU) Kazakhstan possesses an estimated 15-30% of the world's 
uranium reserves, and the Kazakhstani government has repeatedly 
expressed its desire for Kazakhstan to increase its share of the 
world market.  Kazakhstan increased uranium production by 30% 
from 2004 to 2005, to 4,300 tons.  In June, Kazatomprom president 
Mukhtar Dzhakishev announced that Kazakhstan was on track to 
produce 17,500 tons of uranium per year by 2010, which would make 
it the top producer in the world.  Production would rise to 
25,000 tons per year by 2050.  (Comment:  Dzhakishev may have 
later realized that he overreached; the Kazatomprom.kz web site 
now prominently features a section entitled "15,000 tons by 
2010.") 
 
¶6. (SBU) Kazakhstan's uranium mining industry has evolved from 
the conventional, Soviet extraction industries in Stepnogorsk and 
Aktau, to numerous in-situ leaching (ISL) operations in Southern 
Kazakhstan oblast. The shift to ISL has allowed Kazakhstan to 
economically exploit a wider range of uranium deposits at a lower 
environmental cost, with less waste and improved safety. 
 
¶7. (SBU) Beginning in 1997, the state-owned firm Kazatomprom 
gained ownership of all uranium exploration, production, 
processing and marketing activities formerly held by the 
Kazakhstan State Corporation for Atomic Power and Industry 
(KATEP). Kazatomprom today owns all mineral resources, requires 
producers to have licenses, and is the monopoly importer and 
exporter of uranium in Kazakhstan. All uranium mining in 
Kazakhstan is controlled by Kazatomprom in the form of three 
domestically-owned mining directorates and three joint mining 
ventures. 
 
Mining Directorates: 
 
ALMATY 00002673  002 OF 005 
 
 
-- The Stepnoye Mining Group, located in Stepnoye, Suzak 
District, Shymkent Oblast with an estimated 750,000 tons of 
reserves. 
-- The Taukentski (formerly Tsentralnoye) Mining and Chemical 
Combine in Taukent, Suzak District, Shymkent Oblast with an 
estimated 140,000 tons of reserves. 
-- Mining Group #6 located, in Chiili, Kzyl-Orda Oblast. 
 
Joint Ventures: 
 
-- Inkai, owned by the Canadian Cameco (60%) and Kazatomprom 
(40%) and located in Stepnoye, Shymkent Oblast.  Reserves 
estimated at 57,000 tons. Commercial production is estimated at 
400 tons in 2006, ramping up to 2,600 tons annually by 2010. 
 
-- Katco, owned by the French AREVA (51%) and Kazatomprom (49%) 
and located in Tsentralnoye, Shymkent Oblast. KATCO completed 
construction of the first processing plant at the end of 2005. 
Construction of a second plant will begin in spring 2006. Total 
annual production is anticipated to be 1,500 tons. 
 
-- Zarechnoye, owned by the Russian TENEX (49.33%), Kazatomprom 
(49.33%), the Russian Atomredmetzoloto (0.67%), and the Kyrgyz 
Kara-Baltinskin Mining Combine (0.67%). 
 
¶8. (SBU) Once mined, the raw uranium is then processed and 
packaged into yellowcake at either the Kara Balta Ore Mining 
Combine in Kyrgyzstan or by KazSabton in Stepnogorsk, formerly 
known as the Stepnogorsk Mining and Chemical Complex. Kazatomprom 
owns shares in both complexes and thus manages the sale of 
yellowcake on the international market to Nukem of Germany, 
Cameco of Canada, Energy Resources of Australia, various Russian 
enrichment facilities and undisclosed Chinese companies.  The 
remaining yellowcake is transferred to the Ulba Metallurgical 
plant in Ust-Kamenogorsk for conversion and/or fuel fabrication. 
 
------------------------------- 
Conversion and Fuel Fabrication 
------------------------------- 
 
¶9. (SBU) After the uranium ore is processed into yellowcake, it 
can be converted into UF6 gas for commercial enrichment or 
directly into low-grade UO2 fuel pellets for certain reactors not 
requiring enriched fuel, such as the CANDU line marketed by 
Atomic Energy of Canada. Otherwise, after the UF6 has been 
enriched, it can be converted into a high-grade form of UO2 for 
use in many different types of reactors.  There is no domestic 
market at present for the fuel Ulba produces, as Kazakhstan's 
four research reactors (see para. 21) use HEU. 
 
¶10. (SBU) It is not clear whether the Ulba plant is engaged in 
the pre-enrichment fabrication of UF6 itself. However, the 
technical literature suggests that Ulba does produce UF6 as an 
intermediate step involved in uranium recuperation, although it 
does not sell it. Kazatomprom is involved in several joint 
ventures with companies that process yellowcake into UF6, 
including Russia's Rosatom conversion sites in Yekaterinburg and 
Angarsk; Canada's Cameco site in Port Hope, Ontario; and 
Germany's Nukem site in Alzenau, Germany. 
 
¶11. (SBU) The Ulba plant's principal output is an extensive range 
of UO2 powders containing between 1-5% of the U235 isotope, which 
occurs naturally in quantities of approximately 0.7%. The Ulba 
plant's technology allows UO2 to be produced from any feed 
containing uranium, including unenriched or enriched UF6, raw 
yellowcake, uranium oxides and fluorides, fuel process wastes, 
reprocessed feed material, scraps from research laboratories, 
crucibles and so on. 
 
¶12. (SBU) Currently, the Ulba plant receives raw yellowcake from 
domestic mines, enriched UF6 from the Russian Angarsk 
Electrolytic Chemical Combine and the Electrochemical Plant in 
Zelenogorsk, and various other forms of uranium feed stock from 
undisclosed locations. The incoming feedstock is then processed 
into differing grades of UO2 for fabrication of fuel pellets. The 
Ulba plant exports the fuel pellets to the U.S., Canada, France, 
and South Korea, as well as to advanced fabrication facilities in 
Moscow (Elektrostal) and Novosibirsk, where they are made into 
fuel rods and assemblies.  In a May address to nuclear 
engineering students, Kazatomprom president Dzhakishev stated 
that Kazatomprom wanted to expand into the production of nuclear 
fuel assemblies.  He also said that the firm was developing a new 
uranium conversion process. 
 
--------------------------- 
Enrichment and Reprocessing 
--------------------------- 
 
ALMATY 00002673  003 OF 005 
 
 
 
¶13. (SBU) Currently, there are no enrichment facilities in 
Kazakhstan, although the Ulba Metallurgical Plant produced 
military grade, highly enriched uranium (HEU) fuel until the mid- 
1980's. Kazakhstani government officials insist that there are no 
plans to engage in enrichment on the territory of Kazakhstan. 
 
¶14. (SBU) Likewise, Kazakhstan does not conduct formal 
reprocessing activities, though the chain of activities at the 
Ulba plant does include the separation of all types of uranium 
concentrates. This same technology gives the Ulba Plant the 
capability to downblend HEU into low-enriched uranium (LEU) by 
separating the U235 isotope.  Ulba is currently downblending 2900 
kg of fresh fuel from BN-350 that was transferred there in 2001 
with support from Ted Turner's Nuclear Threat Initiative. 
 
---------------- 
Power Production 
---------------- 
 
¶15. (SBU) Before decommissioning in 1999, the 1000MWt BN-350 
Liquid Metal Fast Breeder Reactor in Aktau was Kazakhstan's sole 
nuclear power reactor, producing power, district heating, and 
plutonium for the Soviet nuclear program over its 27 year 
lifespan.  The Department of Energy has been working with 
Mangyshlak Atomic Energy Complex (MAEC), which owns BN-350, since 
1996 to upgrade materials protections and controls (1996-1998) 
and to package the spent fuel (1996-2001). The next phase of the 
project is to move the spent fuel to a safe long-term storage 
facility at the Baykal-1 site in Kurchatov and to safely dispose 
of the sodium coolant.  Kazakhstan presently has no functioning 
nuclear power plant. 
 
¶16. (SBU) Kazakhstan has long flirted with plans to expand its 
nuclear power infrastructure.  As reported Ref B, in January 
Prime Minister Daniyal Akhmetov instructed the Ministry of Energy 
and Mineral Resources to convene a working group to evaluate the 
construction of nuclear power plants by 2015.  The working group 
announced in July that it had identified four regions as 
potential sites for nuclear power plants: Almaty Oblast in 
southeastern Kazakhstan, Mangistau Oblast in western Kazakhstan, 
Akmola Oblast (central Kazakhstan surrounding Astana), and 
Eastern Kazakhstan Oblast.  The group also announced that it had 
drafted technical specifications for the proposed power plants, 
but did not reveal any details. 
 
¶17. (U) In a January 2006 interview published on the Nuclear.Ru 
web site, Kazatomprom president Dzhakishev commented that the 
decision to build nuclear power plants should be determined by 
economic necessity.  Dzhakishev argued that as Kazakhstan 
currently produces enough electricity for its own needs, there is 
no economic reason at present to construct nuclear power plants. 
 
---------------------------- 
Nuclear Waste and Spent Fuel 
---------------------------- 
 
¶18. (SBU) Kazakhstan inherited some 230 million tons of 
radioactive waste from the Soviet Union and continues to produce 
small amounts related to the uranium mining and processing 
activities. The waste is stored in 529 different locations, 
including 127 sites at uranium mining and processing facilities; 
76 at ore milling and processing facilities; 16 at former nuclear 
test sites; five at nuclear facilities; and 301 at plants using 
sealed radiation source products.  Spent fuel is currently stored 
at the Baykal-1 reactor complex at the National Nuclear Center in 
Kurchatov. 
 
¶19. (SBU) In June 2001, Kazatomprom president Dzhakishev 
presented a proposal to parliament to turn Kazakhstan into a 
commercial importer of radioactive waste. A group of 
parliamentary deputies, joined by NGOs and environmental 
activists, quickly mounted a public campaign against the 
proposal, citing Kazakhstan's lack of administrative structure 
and rampant corruption as grounds for its dismissal. By 2003, 
their efforts resulted in the proposal stalling in Parliament. 
 
¶20. (SBU) Nevertheless, some scientists, officials and nuclear 
industry representatives still support the proposal in the belief 
that it would allow the country to profit from solving its own 
nuclear waste problem.  They argue that the imported quantities 
of radioactive waste would equal only 1% of Kazakhstan's current 
stockpile, while generating some $30-40 million in profits.  They 
advocate importing low and medium level radioactive wastes, as 
defined by the IAEA, which would not include spent fuel 
containing plutonium.  Others, however, argue that because not 
all countries adhere to the IAEA's classification system, low and 
 
ALMATY 00002673  004 OF 005 
 
 
medium level wastes could contain plutonium, thus increasing 
proliferation and contamination risks.  In June, new National 
Nuclear Center head Kairat Kadyrzhanov stated publicly that the 
debate over nuclear waste storage had caused "too much 
commotion."  He expressed confidence that Kazakhstan could 
develop ways to store waste, including its own, with no risk to 
the environment. 
 
------------------------ 
Research and Development 
------------------------ 
 
¶21. (SBU) Three organizations manage the Kazakhstani government's 
nuclear research and development activities: the Institute of 
Atomic Energy (IAE), the Institute of Nuclear Physics (INP), and 
the Nuclear Technology Safety Center (NTSC).  The IAE and the INP 
are both part of the National Nuclear Center (NNC), established 
on the former Semipalatinsk nuclear test site at Kurchatov in 
¶1992. The NNC owns several small cyclotrons and particle 
accelerators. The NNC also owns the four research reactors in 
Kazakhstan, which include three tank-type units of 6, 10 and 60 
MW at Kurchatov and one 400kW high-temperature gas reactor 
outside of Almaty in Alatau.  All of the research reactors are 
operated by the IAE and use imported Russian HEU fuel. 
 
¶22. (SBU) In August 2005, the GOK passed Resolution 832 creating 
the "Nuclear Technologies Park" joint stock company to be 
constructed on the NNC site in Kurchatov. The Resolution 
allocated 273 million tenge ($2.3 million) for the initial 
implementation plan. Construction is expected to conclude in 2020 
and will involve nuclear physics installations and industrial 
facilities. 
 
¶23.  (SBU) The Institute of Higher Technologies is a research 
institute owned by Kazatomprom (50%), Ulba (47.5%), and 
Volkovgeologia (2.5%).  It recently established three new 
laboratories dealing with technology used at Ulba (fluorine and 
electrochemistry, tantalum and beryllium, and nuclear materials 
and reactors).  Some observers believe the labs were created to 
preserve Ulba's knowledge base in the event that more of Ulba's 
ethnic Russian experts leave.  Kazatomprom also runs the 
Kazakhstani Nuclear University, which offers courses in uranium 
production and ISL processing and plans to expand its offerings 
to courses on nuclear fuel production and power industry 
development. 
 
------------------------------------ 
The Future of the Uranium Fuel Cycle 
------------------------------------ 
 
¶24. (SBU) Kazatomprom president Dzhakishev announced on May 15 
that Kazatomprom has no plans for an IPO and will remain a state- 
owned enterprise for the foreseeable future. Kazatomprom has 
recently allowed several foreign companies to buy large shares in 
a number of Southern Kazakhstan mining operations.  In January, 
Kazatomprom entered into a strategic partnership agreement with 
two Japanese corporations, Sumitomo Corporation and Kansai 
Electric Power Corporation.  The agreement provides for the 
creation of a tripartite joint venture for development of the 
uranium deposit n southern Kazakhstan (Ref B). 
 
¶25. (SBU) In January 2006, Kazakhstan and Russia announced their 
intention to integrate their nuclear industries. Later that 
month, the head of Russia's Rosatom commented on the advisability 
of restoring the former Soviet Union's nuclear technological 
complex that existed under the Ministry of Medium Machine 
Building (Minsredmash) (Ref C).  The first meeting of the Russian- 
Kazakhstani working group for nuclear power cooperation took 
place this March in Moscow. 
 
¶26. (SBU) In his January interview with Nuclear.Ru, Kazatomprom 
president Dzhakishev stated that the firm's task "over the next 
three decades is to create a vertically integrated company with 
the complete fuel cycle . through alliances, its own production, 
and other options."  Dzhakishev in May announced his company's 
plans to buy shares of Russian and French enrichment companies in 
exchange for access to Ulba's production facilities. He noted 
that negotiations are set to wrap up in 2006-2007. 
 
¶27. (SBU) Comment:  Taken together, Kazatomprom's actions point 
strongly to a desire to ultimately control the entire fuel cycle 
through international cooperation, using its vast domestic 
uranium reserves as economic leverage. Future cooperation will 
likely rely heavily on further integration with the Russian 
nuclear industry, though Kazatomprom has made efforts to 
diversify its engagements, which include numerous Canadian, 
Japanese, American, German, Chinese and South Korean joint 
 
ALMATY 00002673  005 OF 005 
 
 
ventures.  End comment 
 
ORDWAY