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Russia Signs First Commercial Uranium Supply Agreement with U.S. Energy Firms

GALWAY, IRELAND--June 2, 2009--Researched by Industrial Info Resources (Sugar Land, Texas)--Rosatom Nuclear Energy State Corporation (Moscow, Russia) recently announced that it signed a landmark deal with three U.S. electricity companies, whereby Rosatom would supply the firms with enriched uranium fuel. This is the first commercial contract in the nuclear energy sector between North American companies and Russia.

The three U.S. firms are AmerenUE, a unit of Ameren Corporation (NYSE:AEE) (St. Louis, Missouri), Luminant (Dallas, Texas), and Pacific Gas & Electric Company (NYSE:PCG) (San Francisco, California). Tekhsnabexport (Tenex) (Moscow, Russia), a state-owned uranium trading company and a unit of Rosatom, will supply $1 billion worth of enriched uranium from 2014 to 2020 to the three firms, which belong to a conglomerate named Fuelco (Thornwood, New York). According to Tenex Director Alexei Grigoryev, the deal would increase the company's share of fuel supplied to the U.S. to 30% from 23%.

In February 2008, Russia and the U.S. signed an agreement that lifted the high anti-dumping levies against nuclear fuel from Russia. The agreement authorized Russia to supply enriched uranium to the civil nuclear power industry of the U.S. The agreement paved the way for the latest supply agreement, which is a culmination of five years of effort invested by Fuelco.

The earlier agreement allowed Russia to sell uranium to a monopoly importer and not directly to U.S. utility companies. The monopoly importer is United States Enrichment Corporation (Piketon, Ohio), formerly a division of the U.S. Energy Department. Although United States Enrichment was later sold to a private company and is now a subsidiary of USEC Incorporated (NYSE:USU) (Bethesda, Maryland), its role as a monopoly importer continued. It will maintain its role as long as the "megatons for megawatts" program continues.

Russia is one of the world's largest suppliers of uranium. The "megatons for megawatts" program is part of the 1993 nonproliferation agreement, whereby bomb-grade high-enriched uranium from dismantled Russian nuclear warheads is recycled into low-enriched uranium fuel for use in American nuclear power plants. Russia has been supplying fuel to more than half of the operational power plants in the U.S. As of December 31, 2008, about 352 tons of high-enriched uranium has been recycled to produce 10,213 tons of low-enriched uranium, equivalent to elimination of 14,090 nuclear warheads. The program expires in 2013. The program was also aimed at keeping Russia's nuclear materials away from black markets. However, under the new contract, Russia would be supplying U.S. companies with nuclear fuel derived from virgin uranium, enriched in Russia.

Grigoryev also announced that Tenex recently signed a $100 million contract with Chubu Electric Company (TYO:9502) (Nagoya, Japan), under which Tenex would supply Chubu with low-enriched uranium for 10 years.

In another development, Sergei Kirivenko, head of Rosatom, said Russia has a total uranium reserve of more than 1 million tons, of which 875,000 tons are proven reserves and 575,000 tons are recoverable reserves. Combined with the uranium stocks in storage, the total reserves amounted to more than 1 million tons. Although Kirivenko did not disclose the quantity of uranium in storage, he said that it is sufficient to operate existing and future nuclear power plants for more than 60 years. Plans are already under way to develop uranium fields in the South Yakutia region of Russia.