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RUEHTA/AMEMBASSY ASTANA 0291
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RUEHNE/AMEMBASSY NEW DELHI 1223
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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 
 
MOSCOW 00002248  002 OF 005 
 
 
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