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2006-07-25 09:02:00
US Office Almaty
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DE RUEHTA #2673/01 2060902
R 250902Z JUL 06
						UNCLAS SECTION 01 OF 05 ALMATY 002673 





E.O. 12958: N/A

REF: A. Almaty 6

B. Almaty 602

C. Moscow 932

1. (SBU) Summary: The nuclear fuel cycle in Kazakhstan is wholly
managed by the state-owned Kazatomprom company, and dominated by
uranium mining and milling operations. Kazatomprom is investing
heavily in increasing uranium production not only to profit from
the projected increase in world demand, but also with the vision
of using its stockpiles as leverage to buy into enrichment
facilities in other countries that it currently lacks.
Kazatomprom is de facto completing the fuel cycle through
vertical integration with international partners, rather than on
Kazakhstani soil. End summary.


Kazakhstan and the Uranium Fuel Cycle


2. (SBU) The uranium fuel cycle consists of a series of steps,
which differ according to the finished product. The first
variant: 1. Raw uranium extraction in the form of mining and
milling; 2. Processing the raw uranium into U3O8 (yellowcake); 3.
Fuel fabrication of the yellowcake into low-grade uranium dioxide
(UO2) pellets; 4. Waste disposal or reprocessing of the depleted
uranium. The second variant: 1. Raw uranium extraction in the
form of mining and milling; 2. Processing the raw uranium into
U3O8 (yellowcake); 3. Conversion of the yellowcake into uranium
hexafluoride (UF6) for enrichment; 4. Enrichment of the UF6 to
bring out higher concentrations of the U235 isotope; 5. Fuel
fabrication of the UF6 into high-grade UO2 pellets; 6. Waste
disposal or reprocessing of the depleted uranium.

3. (SBU) When part of the former Soviet Union, Kazakhstan was an
integral part of the USSR's fuel cycle, serving as its hub for
uranium mining, nuclear testing and waste disposal, as well as
limited enrichment activities. Today Kazakhstan lacks only the
enrichment capability, although it does not sell or have markets
for many of the steps in the fuel cycle described above. The
Kazakhstani fuel cycle, instead, is heavily concentrated on
uranium extraction and both high- and low-grade UO2 fuel
fabrication activities.

4. (SBU) In the short run, Kazatomprom's focus is on becoming a
leading world exporter of uranium by 2010. Kazatomprom has made
it clear that in the long run, it intends to gain some measure of
control over all steps in the nuclear fuel cycle. It is pursuing
this goal by participating in various joint ventures with
international firms, in exchange for access to technology or
existing export markets.


Mining, Milling and Processing


5. (SBU) Kazakhstan possesses an estimated 15-30% of the world's

uranium reserves, and the Kazakhstani government has repeatedly
expressed its desire for Kazakhstan to increase its share of the
world market. Kazakhstan increased uranium production by 30%
from 2004 to 2005, to 4,300 tons. In June, Kazatomprom president
Mukhtar Dzhakishev announced that Kazakhstan was on track to
produce 17,500 tons of uranium per year by 2010, which would make
it the top producer in the world. Production would rise to
25,000 tons per year by 2050. (Comment: Dzhakishev may have
later realized that he overreached; the web site
now prominently features a section entitled "15,000 tons by

6. (SBU) Kazakhstan's uranium mining industry has evolved from
the conventional, Soviet extraction industries in Stepnogorsk and
Aktau, to numerous in-situ leaching (ISL) operations in Southern
Kazakhstan oblast. The shift to ISL has allowed Kazakhstan to
economically exploit a wider range of uranium deposits at a lower
environmental cost, with less waste and improved safety.

7. (SBU) Beginning in 1997, the state-owned firm Kazatomprom
gained ownership of all uranium exploration, production,
processing and marketing activities formerly held by the
Kazakhstan State Corporation for Atomic Power and Industry
(KATEP). Kazatomprom today owns all mineral resources, requires
producers to have licenses, and is the monopoly importer and
exporter of uranium in Kazakhstan. All uranium mining in
Kazakhstan is controlled by Kazatomprom in the form of three
domestically-owned mining directorates and three joint mining

Mining Directorates:

ALMATY 00002673 002 OF 005

-- The Stepnoye Mining Group, located in Stepnoye, Suzak
District, Shymkent Oblast with an estimated 750,000 tons of
-- The Taukentski (formerly Tsentralnoye) Mining and Chemical
Combine in Taukent, Suzak District, Shymkent Oblast with an
estimated 140,000 tons of reserves.
-- Mining Group #6 located, in Chiili, Kzyl-Orda Oblast.

Joint Ventures:

-- Inkai, owned by the Canadian Cameco (60%) and Kazatomprom
(40%) and located in Stepnoye, Shymkent Oblast. Reserves
estimated at 57,000 tons. Commercial production is estimated at
400 tons in 2006, ramping up to 2,600 tons annually by 2010.

-- Katco, owned by the French AREVA (51%) and Kazatomprom (49%)
and located in Tsentralnoye, Shymkent Oblast. KATCO completed
construction of the first processing plant at the end of 2005.
Construction of a second plant will begin in spring 2006. Total
annual production is anticipated to be 1,500 tons.

-- Zarechnoye, owned by the Russian TENEX (49.33%), Kazatomprom
(49.33%), the Russian Atomredmetzoloto (0.67%), and the Kyrgyz
Kara-Baltinskin Mining Combine (0.67%).

8. (SBU) Once mined, the raw uranium is then processed and
packaged into yellowcake at either the Kara Balta Ore Mining
Combine in Kyrgyzstan or by KazSabton in Stepnogorsk, formerly
known as the Stepnogorsk Mining and Chemical Complex. Kazatomprom
owns shares in both complexes and thus manages the sale of
yellowcake on the international market to Nukem of Germany,
Cameco of Canada, Energy Resources of Australia, various Russian
enrichment facilities and undisclosed Chinese companies. The
remaining yellowcake is transferred to the Ulba Metallurgical
plant in Ust-Kamenogorsk for conversion and/or fuel fabrication.


Conversion and Fuel Fabrication


9. (SBU) After the uranium ore is processed into yellowcake, it
can be converted into UF6 gas for commercial enrichment or
directly into low-grade UO2 fuel pellets for certain reactors not
requiring enriched fuel, such as the CANDU line marketed by
Atomic Energy of Canada. Otherwise, after the UF6 has been
enriched, it can be converted into a high-grade form of UO2 for
use in many different types of reactors. There is no domestic
market at present for the fuel Ulba produces, as Kazakhstan's
four research reactors (see para. 21) use HEU.

10. (SBU) It is not clear whether the Ulba plant is engaged in
the pre-enrichment fabrication of UF6 itself. However, the
technical literature suggests that Ulba does produce UF6 as an
intermediate step involved in uranium recuperation, although it
does not sell it. Kazatomprom is involved in several joint
ventures with companies that process yellowcake into UF6,
including Russia's Rosatom conversion sites in Yekaterinburg and
Angarsk; Canada's Cameco site in Port Hope, Ontario; and
Germany's Nukem site in Alzenau, Germany.

11. (SBU) The Ulba plant's principal output is an extensive range
of UO2 powders containing between 1-5% of the U235 isotope, which
occurs naturally in quantities of approximately 0.7%. The Ulba
plant's technology allows UO2 to be produced from any feed
containing uranium, including unenriched or enriched UF6, raw
yellowcake, uranium oxides and fluorides, fuel process wastes,
reprocessed feed material, scraps from research laboratories,
crucibles and so on.

12. (SBU) Currently, the Ulba plant receives raw yellowcake from
domestic mines, enriched UF6 from the Russian Angarsk
Electrolytic Chemical Combine and the Electrochemical Plant in
Zelenogorsk, and various other forms of uranium feed stock from
undisclosed locations. The incoming feedstock is then processed
into differing grades of UO2 for fabrication of fuel pellets. The
Ulba plant exports the fuel pellets to the U.S., Canada, France,
and South Korea, as well as to advanced fabrication facilities in
Moscow (Elektrostal) and Novosibirsk, where they are made into
fuel rods and assemblies. In a May address to nuclear
engineering students, Kazatomprom president Dzhakishev stated
that Kazatomprom wanted to expand into the production of nuclear
fuel assemblies. He also said that the firm was developing a new
uranium conversion process.


Enrichment and Reprocessing


ALMATY 00002673 003 OF 005

13. (SBU) Currently, there are no enrichment facilities in
Kazakhstan, although the Ulba Metallurgical Plant produced
military grade, highly enriched uranium (HEU) fuel until the mid-
1980's. Kazakhstani government officials insist that there are no
plans to engage in enrichment on the territory of Kazakhstan.

14. (SBU) Likewise, Kazakhstan does not conduct formal
reprocessing activities, though the chain of activities at the
Ulba plant does include the separation of all types of uranium
concentrates. This same technology gives the Ulba Plant the
capability to downblend HEU into low-enriched uranium (LEU) by
separating the U235 isotope. Ulba is currently downblending 2900
kg of fresh fuel from BN-350 that was transferred there in 2001
with support from Ted Turner's Nuclear Threat Initiative.


Power Production


15. (SBU) Before decommissioning in 1999, the 1000MWt BN-350
Liquid Metal Fast Breeder Reactor in Aktau was Kazakhstan's sole
nuclear power reactor, producing power, district heating, and
plutonium for the Soviet nuclear program over its 27 year
lifespan. The Department of Energy has been working with
Mangyshlak Atomic Energy Complex (MAEC), which owns BN-350, since
1996 to upgrade materials protections and controls (1996-1998)
and to package the spent fuel (1996-2001). The next phase of the
project is to move the spent fuel to a safe long-term storage
facility at the Baykal-1 site in Kurchatov and to safely dispose
of the sodium coolant. Kazakhstan presently has no functioning
nuclear power plant.

16. (SBU) Kazakhstan has long flirted with plans to expand its
nuclear power infrastructure. As reported Ref B, in January
Prime Minister Daniyal Akhmetov instructed the Ministry of Energy
and Mineral Resources to convene a working group to evaluate the
construction of nuclear power plants by 2015. The working group
announced in July that it had identified four regions as
potential sites for nuclear power plants: Almaty Oblast in
southeastern Kazakhstan, Mangistau Oblast in western Kazakhstan,
Akmola Oblast (central Kazakhstan surrounding Astana), and
Eastern Kazakhstan Oblast. The group also announced that it had
drafted technical specifications for the proposed power plants,
but did not reveal any details.

17. (U) In a January 2006 interview published on the Nuclear.Ru
web site, Kazatomprom president Dzhakishev commented that the
decision to build nuclear power plants should be determined by
economic necessity. Dzhakishev argued that as Kazakhstan
currently produces enough electricity for its own needs, there is
no economic reason at present to construct nuclear power plants.


Nuclear Waste and Spent Fuel


18. (SBU) Kazakhstan inherited some 230 million tons of
radioactive waste from the Soviet Union and continues to produce
small amounts related to the uranium mining and processing
activities. The waste is stored in 529 different locations,
including 127 sites at uranium mining and processing facilities;
76 at ore milling and processing facilities; 16 at former nuclear
test sites; five at nuclear facilities; and 301 at plants using
sealed radiation source products. Spent fuel is currently stored
at the Baykal-1 reactor complex at the National Nuclear Center in

19. (SBU) In June 2001, Kazatomprom president Dzhakishev
presented a proposal to parliament to turn Kazakhstan into a
commercial importer of radioactive waste. A group of
parliamentary deputies, joined by NGOs and environmental
activists, quickly mounted a public campaign against the
proposal, citing Kazakhstan's lack of administrative structure
and rampant corruption as grounds for its dismissal. By 2003,
their efforts resulted in the proposal stalling in Parliament.

20. (SBU) Nevertheless, some scientists, officials and nuclear
industry representatives still support the proposal in the belief
that it would allow the country to profit from solving its own
nuclear waste problem. They argue that the imported quantities
of radioactive waste would equal only 1% of Kazakhstan's current
stockpile, while generating some $30-40 million in profits. They
advocate importing low and medium level radioactive wastes, as
defined by the IAEA, which would not include spent fuel
containing plutonium. Others, however, argue that because not
all countries adhere to the IAEA's classification system, low and

ALMATY 00002673 004 OF 005

medium level wastes could contain plutonium, thus increasing
proliferation and contamination risks. In June, new National
Nuclear Center head Kairat Kadyrzhanov stated publicly that the
debate over nuclear waste storage had caused "too much
commotion." He expressed confidence that Kazakhstan could
develop ways to store waste, including its own, with no risk to
the environment.


Research and Development


21. (SBU) Three organizations manage the Kazakhstani government's
nuclear research and development activities: the Institute of
Atomic Energy (IAE), the Institute of Nuclear Physics (INP), and
the Nuclear Technology Safety Center (NTSC). The IAE and the INP
are both part of the National Nuclear Center (NNC), established
on the former Semipalatinsk nuclear test site at Kurchatov in

1992. The NNC owns several small cyclotrons and particle
accelerators. The NNC also owns the four research reactors in
Kazakhstan, which include three tank-type units of 6, 10 and 60
MW at Kurchatov and one 400kW high-temperature gas reactor
outside of Almaty in Alatau. All of the research reactors are
operated by the IAE and use imported Russian HEU fuel.

22. (SBU) In August 2005, the GOK passed Resolution 832 creating
the "Nuclear Technologies Park" joint stock company to be
constructed on the NNC site in Kurchatov. The Resolution
allocated 273 million tenge ($2.3 million) for the initial
implementation plan. Construction is expected to conclude in 2020
and will involve nuclear physics installations and industrial

23. (SBU) The Institute of Higher Technologies is a research
institute owned by Kazatomprom (50%), Ulba (47.5%), and
Volkovgeologia (2.5%). It recently established three new
laboratories dealing with technology used at Ulba (fluorine and
electrochemistry, tantalum and beryllium, and nuclear materials
and reactors). Some observers believe the labs were created to
preserve Ulba's knowledge base in the event that more of Ulba's
ethnic Russian experts leave. Kazatomprom also runs the
Kazakhstani Nuclear University, which offers courses in uranium
production and ISL processing and plans to expand its offerings
to courses on nuclear fuel production and power industry


The Future of the Uranium Fuel Cycle


24. (SBU) Kazatomprom president Dzhakishev announced on May 15
that Kazatomprom has no plans for an IPO and will remain a state-
owned enterprise for the foreseeable future. Kazatomprom has
recently allowed several foreign companies to buy large shares in
a number of Southern Kazakhstan mining operations. In January,
Kazatomprom entered into a strategic partnership agreement with
two Japanese corporations, Sumitomo Corporation and Kansai
Electric Power Corporation. The agreement provides for the
creation of a tripartite joint venture for development of the
uranium deposit n southern Kazakhstan (Ref B).

25. (SBU) In January 2006, Kazakhstan and Russia announced their
intention to integrate their nuclear industries. Later that
month, the head of Russia's Rosatom commented on the advisability
of restoring the former Soviet Union's nuclear technological
complex that existed under the Ministry of Medium Machine
Building (Minsredmash) (Ref C). The first meeting of the Russian-
Kazakhstani working group for nuclear power cooperation took
place this March in Moscow.

26. (SBU) In his January interview with Nuclear.Ru, Kazatomprom
president Dzhakishev stated that the firm's task "over the next
three decades is to create a vertically integrated company with
the complete fuel cycle . through alliances, its own production,
and other options." Dzhakishev in May announced his company's
plans to buy shares of Russian and French enrichment companies in
exchange for access to Ulba's production facilities. He noted
that negotiations are set to wrap up in 2006-2007.

27. (SBU) Comment: Taken together, Kazatomprom's actions point
strongly to a desire to ultimately control the entire fuel cycle
through international cooperation, using its vast domestic
uranium reserves as economic leverage. Future cooperation will
likely rely heavily on further integration with the Russian
nuclear industry, though Kazatomprom has made efforts to
diversify its engagements, which include numerous Canadian,
Japanese, American, German, Chinese and South Korean joint

ALMATY 00002673 005 OF 005

ventures. End comment