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Russia: Government Will Use Uranium As Collateral For Loans

Moscow, 20 March 1998 (RFE/RL) -- A top Russian official says the government is planning to use natural uranium, which is being stockpiled in the U.S. under a landmark bilateral disarmament deal, as collateral for a multi-million dollar loan from major Western banks.

Viktor Mikhailov, who left his post as Atomic Energy Minister this month, after overseeing Russia's sprawling nuclear empire for six years, said in an interview yesterday the stockpiles of natural uranium in the U.S. allow the government to sign long-term supply contracts and secure loans from Western banks at cheap rates.

Mikhailov, who is currenty First Deputy Atomic Energy Minister in charge of scientific projects, said a loan was being considered, because low world prices of uranium made it difficult to sell the stockpile. He said the loan, which needs Finance Ministry approval, would be used to finance the Atomic Energy Ministry's ecological and scientific projects.

If approved, the loan would give the government a way to realize the potential of nearly $100 million worth of natural uranium currently being stored in the U.S. under the "Megatons to Megawatts" deal, a $12 billion U.S.-Russia disarmament agreement signed in 1994. The 20-year deal calls for Russia to dilute highly enriched uranium from dismantled nuclear warheads, and sell it to the U.S. to be used in nuclear power stations.

The deal is regarded as one of the most important 'swords-into-plowshares' agreements following the end of the Cold War. But it has been dogged by disputes that have denied the cash-starved Russian government an important source of revenue.

Naseer Hashim, senior vice-president and general counsel at the U.S. firm Pleiades, which is working with the Russian government on the uranium deal, said talks with what he called "top tier" investment banks have been ongoing for the past two months on a loan. Pleiades last year formed a joint venture with MinAtom's marketing arm Tekhsnabexport called Global Nuclear Service and Supply (GNSS), which is charged with marketing the natural uranium.

Pleiades has been scrutinized by U.S. officials for its 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.

Hashim denied that Mikhailov had any personal relationship with Pleiades, saying the two men were just "friends."

Mikhailov said his departure as Atomic Energy Minister was unrelated to the controversy surrounding the uranium deal, and said he is no longer responsible for the deal. But analysts have said his replacement, Yevgeny Adamov, is his protege and would likely defer to him on how to carry out the deal.

Hashim said the loan could be arranged quickly, if the Russian Finance Ministry approves it. 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 dollars.

Demand for uranium is expected to grow in the coming years as more nuclear reactors come on line. Although world prices of uranium currently are at a historic low, many believe the market has bottomed out and is set for a recovery, which could mean a windfall for the Russian government.

Russia has been selling diluted weapons grade uranium for use in nuclear reactors to a U.S. government agency, which has paid cash for roughly two-thirds of the shipments and the rest in the form of natural uranium.

But U.S. laws banning the transfer of nuclear materials to Russia have prevented the natural uranium component, worth 4,000-million dollars under the deal, from being exported directly back to Russia. At the same time, the U.S. has imposed quotas, limiting the amount of Russian uranium that can be sold on the U.S. market.

Mikhailov said the Russian government earned roughly $450 million from the deal last year, but part of that amount is in the form of natural uranium stuck in the U.S. Mikhailov compared it to cheese in a mousetrap. As he put it: "The Russians are the cheese, and the mousetrap is American."

Mikhailov said the government would press ahead with plans to sell the stockpiled natural uranium on its own, after talks with an international consortium broke down late last year.

Three major uranium trading companies -- Nukem of Germany, Cogema of France and Cameco of Canada -- had offered to buy the natural uranium component and sell it at a future date, when prices recover. But Mikhailov called the firm "monopolists" and said their proposal would have meant major losses to the Russian government.

Hashim said there were several problems with the consortium's proposal, including a demand for government guarantees for an advanced payment it had offered to make for the uranium.

A source from the consortium, however, said he was baffled by the Russian government's decision to break off negotiations. "We offered them a very good price," he said, adding that he hoped to restart talks soon.

But Mikhailov said Tekhsnabexport had established an affliliated company in Frankfurt, Germany, called Internexco, to facilitate exports of uranium, 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 name, to set up a joint venture for uranium sales in Tokyo.

Hashim said the new arrangement allowed Russia to become what he called "a direct market participant" and earn "hundreds of millions of dollars more."