TRANSPORTATION OF NATURAL URANIUM FROM TUWAITHA TO

S E C R E T SECTION 01 OF 02 BAGHDAD 001735

NOFORN
SIPDIS

E.O. 12958: DECL: 06/06/2018
TAGS: ENRG KNNP PARM PREL CA IZ
SUBJECT: TRANSPORTATION OF NATURAL URANIUM FROM TUWAITHA TO
CANADA

REF: A. SECSTATE 55887


B. SECSTATE 55862

Classified By: CETI, AMBASSADOR C. RIES, for reasons 1.4(b),(d) and (e)


1. (S/NF) Summary: The Government of Iraq (GOI) recently
finalized a sales contract with Cameco for the approximately
550 metric tons of natural uranium that was being stored at
the Tuwaitha Nuclear Research Center. To facilitate the
sale, DOD removed the material from Iraq for onward shipment
to Canada. While the USG has not shared the details of
transportation plans with the GOI or Cameco, DOD
representatives notified both parties of the commitment of
the United States Government (USG) to provide the
transportation for this operation, and informed them of a
90-day requirement from the date of contract signing for
delivery of the material from Iraq to Canada. The USG
learned only after the contract was formally executed by the
GOI and Cameco, and after the transportation operation began,
that the contract did not make accommodations for the
required 90-day delivery period. In light of this recent
misunderstanding, post should meet with the appropriate GOI
officials as soon as possible to discuss the transportation
of the material. End summary.

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OBJECTIVES
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2. (S/REL IRAQ) Drawing from the information in paragraph
three and the background as appropriate post should meet
Iraqi officials at the highest appropriate level as soon as
possible in order to inform the GOI that the United States
cannot meet the June 15 deliver date specified in the GOI's
contract with Cameco. Post should note that, per previous
discussions with both Cameco and the GOI, the USG made clear
that delivery would require a 90-day window from the date of
the entry into force of the contract, although the USG is
likely to complete the shipment in about 70 days.


3. (S/REL IRAQ) Begin points:

- As previously discussed with Cameco and the GOI, we require
90 days from the date the contract was signed to deliver the
material to Canada. The USG understood that all parties were
aware of this limitation. The shipment is expected to be
delivered on July 3, 2008, some 72 days from contract
execution.

- The contract was not executed until April 21, and the
parties did not adjust the contractual delivery date prior to
signing the agreement, nor did either the GOI or Cameco
consult us on the delivery dates.

- DOD has reviewed several alternate transportation options
in an attempt to accelerate delivery; unfortunately, the
delivery cannot be made any earlier than July 3.

- We understand that the GOI-Cameco contract includes a
provision reducing the price to 86 percent of the spot market
price after June 15. This is still an extremely lucrative
deal for the GOI, and is still much higher than any other bid
Iraq received for the uranium.

IF RAISED:

- The USG has invested USD 70 million to ensure the material
was secured, packaged, and transported from Iraq to Canada.
The USG has not attempted to recoup all of these costs from
the GOI nor required the GOI to pay the full amount of these
costs from the proceeds of the sale. However, USG and GOI
have verbally agreed that GOI would contribute USD 14 m from
the proceeds of its sale to Cameco to the USG in partial
payment of the transport costs.

- Should GOI request USG compensate it for the diminution of
GOI's sales proceeds from Cameco (estimated currently at USD
18 m) (alleged Delay Costs) due to delivery of the Yellow
Cake after the sales Contract's 6/15 delivery deadline USG
will discuss possible settlement alternatives with GOI. These
settlement discussions will be time limited to facilitate
closure of these matters within a reasonable period. (a) USG
will start by explaining why USG is not responsible for the
Delay Costs. (b) If USG is unable to achieve GOI agreement
with approach (a) USG will offer (in full settlement of the
matters) to split the Delay Costs 50/50 with GOI while
continuing to require the USD 14 m cost-share payment from
GOI. (c) Should USG's 50/50 settlement not be accepted by GOI
USG will offer (in complete settlement of the matters) to
waive its rights to the USD 14 m transport cost-share

BAGHDAD 00001735 002 OF 002


previously agreed to. If approach (c) is not acceptable to
GOI USG will not offer any further compromise and will be
prepared to defend itself against potential claims from GOI.
In each of the above cases GOI will be responsible for a
portion of the Delay Costs. In (a) GOI will absorb all the
Delay Costs; in (b) it will cover 1/2 such Costs; or in (c)
it will be responsible for USD 4 m of the estimated USD 18 m
Delay Costs.

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POINTS OF CONTACT AND REPORTING DEADLINE
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4. (U) Post is requested to report GOI response to Washington
as soon as possible. Department points of contact are ISN/RA
Jody Daniel (202-647-9486) and NEA/I-PM Seth Schleicher
(202-647-6172).

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BACKGROUND
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5. (S) On April 21, 2008, the GOI and Cameco signed a
contract for the purchase of approximately 550 metric tons of
natural uranium. Pursuant to an earlier agreement with the
GOI, the United States agreed to handle the logistics for
repackaging and transporting the material from the Tuwaitha
Nuclear Research Center. While the details of the
transportation plan have not been shared with either the GOI
or Cameco due to operational security concerns, DOD reps had
informed both Cameco and the GOI that DOD would need a 90-day
window after the contract is finalized to move the material
from Iraq to Canada. Early drafts of the contract included a
90-day window for delivery, so DOD assumed that when the
contract was signed on April 21 the material was not due in
Canada until July 21, 90 days thereafter. Only later did we
learn that, under the terms of the contract, if the material
arrives after June 15, Cameco will only have to pay 86
percent of the spot price at the time of delivery.
Therefore, if the spot price of uranium remains steady, the
GOI would receive approximately USD 18 million less for a
delivery after June 15. Given the recent volatility in the
uranium market (the spot price of uranium has fallen over 30
percent in the last three months) the GOI could potentially
lose more. As the GOI did not communicate to the USG the
early arrival date required to avoid the price penalty and
the USG is, in fact, delivering the material within the
90-day timeframe. Nonetheless, there are several factors
favoring settlement of this matter. These include the threat
of adverse public relations consequences should the press get
wind of the details of this transaction; the ongoing USG
national security interests in nuclear weapon
non-proliferation especially regarding Iran, and the
potential weaknesses in USG's defenses against a GOI claim
for payment of the Delay Costs.
BUTENIS