ANGARSK INTERNATIONAL ENRICHMENT CENTER: MOVING

UNCLAS SECTION 01 OF 03 MOSCOW 000400

SIPDIS

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: KNNP PARM RS
SUBJECT: ANGARSK INTERNATIONAL ENRICHMENT CENTER: MOVING
FROM VIRTUAL TO ACTUAL

REF: 07 MOSCOW 5591

Sensitive but unclassified. Please protect accordingly.

Summary
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1. (SBU) Development of the International Uranium Enrichment
Center (IUEC) in Angarsk continues to move forward, though
the center is still a "virtual" one to be carved out of the
existing Angarsk Chemical Complex. Embassy was warmly
received during a visit to the complex. Embassy toured the
cascade hall, the central analytical laboratory, and LEU
transport containers. IUEC senior management in Moscow
confirmed that the Angarsk complex has ample excess
enrichment capacity from which the IUEC can draw for its
first few years. They admitted, however, that they need to
do more work on the IUEC's business plan. Russian officials
highlight the role they expect the IAEA to play in the center
in providing safeguards and managing a fuel bank; they expect
the IAEA to consider participation in the Angarsk IUEC at the
March or June BOG. Armenia's entry into the Angarsk IUEC as
an equity partner should add momentum to the project. The
Angarsk IUEC project is consistent with U.S.
non-proliferation goals, and according to Russian officials,
is compatible with GNEP. End Summary.

Embassy Visits Angarsk
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2. (SBU) The Angarsk Electrolysis Chemical Complex (AECC),
40 km from Irkutsk and in operation since 1957, is the home
(or, more accurately, the home-to-be) for the International
Uranium Enrichment Center (IUEC). The Angarsk complex
produces uranium hexafloride (UF6),enriching U-235 to a
maximum of five percent, which is suitable for civilian uses
only. EST Counselor and DOE Director visited the AECC in
December. Rosatom Director Kiriyenko personally approved the
visit to the once-closed city. AECC management provided
Embassy a tour of the complex that included stops in the
centrifuge cascade hall, central analytical laboratory, the
"Chelnok" facility where UF-6 is loaded into containers, and
the Rosatom information center. As of January, delegations
from only the IAEA, France, Kazakhstan and Ukraine had
visited Angarsk to explore preparations for the International
Center.


3. (SBU) Aleksandr Teterin, head of public relations for
AECC, escorted Embassy officers throughout their stay in
Angarsk. Teterin underlined AECC's commitment to support the
development of the International Enrichment Center as it
becomes operational. He made it clear, however, that TENEX
-- manager for the project in Moscow -- is the source for all
strategic and major operational decisions. Teterin recounted
that the AECC complex is situated on six square kilometers of
land, and employs 6300-6400 personnel (down from about 12,000
in the late Soviet era). The average wage is 21,000
rubles/month (approx. $857),high for the area. Rosatom
opened an Information Center at AECC in March 2007 to improve
public relations in the wake of the announcement of plans for
the International Enrichment Center.


4. (SBU) Over the next ten years, Teterin affirmed, AECC
hopes to double its enrichment capacity. The IUEC would play
a significant part in that growth, assuming the concept meets
with success. Teterin was reluctant to confirm how much
spare capacity exists at present. Current capacity is
estimated at about 2.6 million SWU. Rosatom officials have
told us that a considerable amount of that capacity --
perhaps half -- is spare.

Organization
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5. (SBU) The International Uranium Enrichment Center emerged
as a joint venture between Kazakhstan's Kazatomprom and
Russia's Techshabexport (TENEX) in September 2007.
Kazakhstan acquired a 10% equity stake in the center. In
early February, Armenia joined as an equity partner; its
equity is also expected to be 10%. TENEX officials have told
us that Ukraine might be the next equity partner. Presidents
Putin and Yushchenko discussed Ukraine's participation the
IUEC on February 12 in Moscow. TENEX officials stress that
what differentiates the IUEC from a typical commercial
enrichment enterprise is that it allows equity partners that
do not currently have an enrichment capability the
opportunity to realize economic profit from the center.


6. (SBU) The Director General of TENEX, Aleksey Grigoriev,

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serves as Director for the International Uranium Enrichment
Center. The center will maintain offices in Angarsk and
Moscow. The center's board will likely include government
representatives from each equity partner. The IAEA, if it
agrees to participate, would act in an advisory role. At
this point, it appears that the center has no assets; each
partner's investment is based on the promise of future center
revenues.

Role of IAEA
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7. (SBU) The International Center will operate as a
black-box. TENEX Deputy DG Aleksey Lebedev underlined to us
-- as the GOR's concept paper to the IAEA has made clear --
that government-to-government agreements required of each new
partner stipulate that none will get access to enrichment
technology. Lebedev told us negotiations regarding IAEA
participation in the center had gone well. He expected the
March or June IAEA Board of Governors meeting to consider the
IAEA's role in the project.


8. (U) While in Moscow in December, IAEA DG ElBaradei
commended Putin's initiative in establishing the IUEC at
Angarsk. He noted: "The Agency has joined Russia in working
to develop a proposal to set aside a fuel bank under IAEA
control at Angarsk that would be available (to members) as a
last resort. I trust this proposal will attract broad
international support."


9. (SBU) Negotiations continue on the modalities and scope of
possible IAEA safeguards. Lebedev told us TENEX was open to
more intrusive activities by the IAEA at AECC, but that the
IAEA was not interested. He explained that IAEA already has
safeguards on an identical Russian-supplied facility in China
and knows the operation well. IAEA safeguards at IUEC will
thus target the center's storage areas, not the enrichment
complex. Russia has agreed to pay IAEA for the cost of
providing the safeguards.

Two Reactor Loads in Reserve
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10. (SBU) Lebedev confirmed the IUEC would set aside a
guaranteed uranium stock under IAEA supervision (if the IAEA
approves) at the Angarsk facility. The stock, enough for up
to two 1000-MW reactor core loads, would be a physical supply
of uranium, not a virtual stock. It could be placed in an
existing storage at Angarsk facility this year. Lebedev told
us the stock would consist of varying enrichment assays to
accommodate the requirements of various types of reactors.
AECC's Teterin told us AECC had already set aside an area to
house the reserve. The volume, he said, would amount to
about one hundred containers of LEU.

Business Plan
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11. (SBU) Lebedev expressed the hope that the center might be
able to conclude initial contracts for uranium services with
customers by the end of 2008. Nonetheless, he admitted that
many issues remained to be worked out regarding how the IUEC
would operate as a business. He expected that equity in the
IUEC joint stock company would provide a guaranteed share of
the dividends resulting from contracts and center operations.
Lebedev also surmised that the center, and therefore each
partner, would likely have the opportunity to make an equity
investment into the Angarsk Chemical Complex when it adds
enrichment capacity. He speculated this might occur in 3-4
years, once existing capacity becomes insufficient to meet
the combined requirements of the Angarsk plant and the IUEC.


12. (SBU) Lebedev stressed that Angarsk would phase in
additional capacity so as not to harm the market, initially
adding 300-400K SWU and ultimately ramping up to a total of
one million additional SWU. He speculated that the IUEC
might be allowed to own 10-15% of the new capacity. He
pointed out that the transition of the AECC from a federal
state unitary enterprise to a joint stock company (JSC) would
need to be finalized before any outside investment could
occur. Lebedev indicated that the plant's conversion to a
JSC should be complete by mid-2008. This would also make the
IUEC free from reliance on the state budget.

Partners and Customers
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13. (SBU) Russia does not exclude the participation of fuel
cycle states as partners in the center. However, the GOR's

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intent, Lebedev made clear, is for equity partners to be from
those countries without enrichment capabilities, particularly
those with uranium reserves of their own. The goal is to
provide not only security of access to fuel supply for these
countries, but also the additional incentive of offering
ownership in an enrichment center without having to develop
the capability indigenously. In addition to Kazakhstan and
Armenia, the GOR has extended invitations to join the IUEC to
Ukraine, Uzbekistan, South Korea, Australia, Mongolia, and
Belarus. The center's customers would include those
countries which have small nuclear power programs or those
countries which have expressed interest in nuclear power, but
lack domestic enrichment capabilities. Customers do not have
to be equity partners.

Iran
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14. (SBU) Iran remains a "potential client" if it were in
compliance with its IAEA obligations, Lebedev said. He
surmised that Russia's release of fuel for the Bushehr
reactor might eventually make it easier for Iran to
participate. To date, however, Iran had refused to meet the
conditions the GOR had set out for participation: no
indigenous enrichment and no technology transfer.

Environmental Concerns
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15. (SBU) Angarsk's Teterin emphasized to us the safe
environmental record of AECC. He claimed that only one tenth
of one percent of the pollution in the Angarsk area came from
AECC. Despite this, Teterin acknowledged that environmental
groups had been vociferous in their protest of plans for the
international enrichment center. Embassy met in Irkutsk with
the head of the most prominent (and most critical)
environmental NGO in the area, "Baikal Wave." She and her
group strongly oppose the IUEC because plans for eventual
expansion of the complex, spurred in part by IUEC, will
result in the production of more depleted uranium hexafloride
waste at the AECC site. They fear an accident could poison
Lake Baikal, only 100 km away and home to 20% of the earth's
supply of fresh water (in addition to being a UNESCO world
heritage site). Teterin said he is trying to reach out to
the activists, but to no avail. Baikal Wave claims it is
being harassed by the GOR.

No Back-end
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16. (SBU) TENEX officials have underlined to us that the IUEC
concept does not, as currently envisioned, include guarantees
on spent fuel reprocessing or return to Russia. The IUEC
focus is on assured supply, not on the back-end. Angarsk is
an enrichment facility, Lebedev noted, not a reprocessing
facility.

Comment
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17. (SBU) The addition of Armenia as an equity partner should
help spur IUEC development. A greater impetus will come if
there is IAEA BOG approval for involvement in the project.
The fact that the Angarsk Chemical Complex has excess
enrichment capacity available now means the IUEC's move from
virtual to actual can take place quickly once management
works out the details of the business model. GOR officials
welcome US interest in and support for the Angarsk IUEC, and
proclaim its compatibility with GNEP. However, they have not
solicited equity participation by US entities. The Angarsk
IUEC project remains consistent with US non-proliferation and
fuel security goals.
BURNS