- The Washington Times - Wednesday, August 22, 2001

An ongoing Bush administration review of nuclear security policy is threatening the financial prospects of USEC Inc., a Bethesda, Md. company that markets fuel for commercial nuclear reactors.
The White House is considering whether to revamp an 8-year-old program that give USEC the exclusive rights to purchase commercial nuclear fuel derived from Russian missile warheads. The pro-
gram has been a cornerstone of U.S. efforts to prevent weapons-grade uranium from getting into terrorist hands.
The potential loss of business comes at a tough time for USEC, which is struggling as a result of tough foreign competition.
USEC has purchased the fuel since 1993 from Tenex, its Russian counterpart. But the White House review has stalled new purchases, irritating USEC's relations with Russian agencies.
Tenex told USEC that the Russian government wanted the two companies to "promptly" schedule deliveries for early 2002, according to a July 27 letter obtained by The Washington Times.
Tenex said in the letter that the complex technological requirements of preparing the fuel for delivery, and the need for various government approvals, required quick action by USEC.
But the administration, which is rethinking USEC's entire role in the process, has asked the company not to place new orders until the review is complete, said sources close to the company.
"We are conducting a review of all nonproliferation programs with Russia and … USEC falls under that review," White House spokesman Sean McCormick said.
In particular, the administration is skeptical about the costs of certain programs, Mr. McCormick said.
The delay caused by the review soon will eat into USEC's business because it cannot meet demand in the United States without deliveries from Russia, say nuclear industry analysts.
"If they don't have this deal with the Russians, they won't be able to supply their customers," said Eric Webb, vice president of Atlanta-based UX Consulting Co., which studies the nuclear industry.
The Bush administration's review of the USEC program is the latest blow to the Bethesda company, which is still struggling to carve out a role for itself eight years after it was created out of the government-owned U.S. Enrichment Corp., and three years after it went public.
But the company's biggest problem is political.
USEC began a 20-year program negotiated in 1993 by the administration of George Bush to buy nuclear fuel made from Russian warheads. It was a centerpiece of efforts to reduce nuclear stockpiles.
Since then, USEC, the sole U.S. company involved in the project, has paid the Russian government $2 billion for fuel that once filled nearly 5,000 warheads. The program does not use taxpayer money.
Last year, the company negotiated a new purchasing contract with Tenex, the state-owned Russian corporation that converts weapons-grade uranium into less-concentrated commercial fuel. But, wanting the approval of the new administration, it held off putting the deal into effect.
The Bush administration, instead of quickly approving the deal, decided to undertake a comprehensive review of nuclear security policy that included the USEC-Tenex program.
The White House put former Harvard University professor Richard Falkenrath, a bitter critic of USEC, in charge of the review. Mr. Falkenrath declined to comment on the issue.
The administration is under pressure from other U.S. companies that would like to purchase reactor fuel from Russia, which would break USEC's monopoly.
Company officials also declined to speak for the record. But USEC Senior Vice President Philip Sewell said in a July 25 speech that the company desperately needs the administration's approval of the new contract.
"The new commercial terms reached by USEC and Tenex are vital to the continuing success of the [warhead conversion] program," he said.
USEC produces its own nuclear fuel at a plant in Paducah, Ky. But the 50-year-old Paducah plant is not nearly as efficient as those operated by European companies.
Only by purchasing cheap Russian fuel can USEC hold its ground against the competition, Mr. Webb said. The administration's review could erase this advantage.
"They could go from having everything to nothing at all," he said.
USEC's stock has fallen from a high in late May of $11, partly as a result of problems with the Russian deal. The stock closed yesterday unchanged at $7.20.
USEC reported on Aug. 1 that its earnings were $41.1 million for the fiscal year ending on June 30, down from $109.1 million the year before. It has announced several rounds of layoffs, including at the Bethesda headquarters.

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