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. Last Updated: 07/27/2016

Russia to Use Uranium Stockpile as Collateral




Russia's Nuclear Power Ministry is planning to use uranium stockpiled in the United States under a $12 billion disarmament deal as collateral for a multimillion-dollar loan from major Western banks, a top official said Thursday.


The loan, which still requires Finance Ministry approval, would allow the cash-starved Nuclear Power Ministry to tap the value of nearly $100 million worth of natural uranium currently stored in the United States.


The uranium is payment to Russia under a landmark 20-year "Megatons to Megawatts" deal. Russia dilutes highly enriched uranium from dismantled nuclear warheads and sells it to the United States as low-enriched fuel for nuclear power stations.


The disarmament deal won high praise when it was signed in 1994, but it has since become bogged down by U.S. trade restrictions on Russian uranium exports and by controversy over the middlemen Russia would use to market its uranium.


Most recently, Viktor Mikhailov, who as nuclear power minister negotiated the deal, was demoted to deputy minister.


But Mikhailov said in an interview Thursday that Russia would press ahead with the deal. Its main problem now is that world uranium prices are low. "We can't throw uranium on the market when world prices have fallen so sharply," Mikhailov said.


But he said that by using the stockpiles of natural uranium in the United States, Russia could sign long-term supply contracts and secure loans from Western banks at cheap rates. The loan would be used to finance the Nuclear Power Ministry's ecological and scientific projects, he added.


The natural uranium stockpile is a bizarre spin-off of the intricacies of the disarmament deal.


The U.S. government only pays cash for two-thirds of the nuclear fuel it receives from Russia. As a concession to U.S. uranium mining interests that object to Russian nuclear fuel sales on their market, the rest is paid in the form of natural uranium.


Russia must sell this natural uranium to recoup the rest of its money, eventually as much as $4 billion, but U.S. laws ban the transfer of nuclear materials to Russia and quotas limit sales on the U.S. market.


To market the uranium internationally, Russia last year formed Global Nuclear Service and Supply, a joint venture between Techsnabexport, the state uranium exporter, and the U.S. firm Pleiades. The world's leading uranium trading companies -- Nukem of Germany, Cogema of France and Cameco of Canada -- had wanted to act as middlemen on the deal but the talks broke down late last year.


U.S. officials have questioned the choice of Pleiades, citing alleged links with Mikhailov. The company is headed by Alexander Shustorovich, a 30-year-old Russian-American and Harvard graduate who is a friend of Mikhailov.


Mikhailov denied that his departure as nuclear power minister was related to the controversy surrounding the uranium deal and said he is no longer responsible for it in his new incarnation as chairman of the ministry's scientific council. But analysts have said his replacement, Yevgeny Adamov, is his protege and would likely defer to him on how to carry out the deal.


Mikhailov said Russia had chosen Pleiades as its sole partner on the deal because the other companies were offering the wrong deal. "They did not offer suitable terms for Russia," Mikhailov said.


Naseer Hashim, senior vice president and general counsel at Pleiades, denied any improper links between Pleiades and Mikhailov.


"Mikhailov doesn't have any personal relationship with Pleiades," he said, adding that Mikhailov, 64, and Shustorovich were just friends.


Hashim said that using the uranium stockpile as collateral for a loan was the best way to use it in the current depressed market. He declined to specify the size of the loan or name the banks involved. But sources familiar with the deal said it would be worth at least $50 million.


Demand for uranium is expected to grow in the coming years as more nuclear reactors come on line, Hashim said. Although world prices currently are at a historic low, a loan would avoid a fire sale now and allow the government to enjoy the upside if prices pick up.


Mikhailov said the Russian government earned roughly $450 million from the disarmament deal last year, but part is sunk in the U.S. stockpile. "It's like cheese in a mousetrap," he said. "The Russians are the cheese, and the mousetrap is American."


The Russian government is currently pressing ahead with plans to expand its own uranium trading operations. Mikhailov said Tekhsnabexport had established a subsidiary in Frankfurt, Germany called Internexco, and was in the process of setting up a company in Japan.


Hashim said GNSS has signed a memorandum of understanding with a major Japanese trading company, which he declined to identify, to set up a joint venture for uranium sales in Tokyo.


"We are helping Russia become a direct market participant," Hashim said. "In the end they will make several hundred million dollars more."