TRANSPORTATION OF NATURAL URANIUM FROM TUWAITHA

S E C R E T STATE 055887

NOFORN
SIPDIS

E.O. 12958: DECL: 05/23/2018
TAGS: CA ENRG IZ KNNP PARM PREL
SUBJECT: TRANSPORTATION OF NATURAL URANIUM FROM TUWAITHA

REF: PARKS-BENNETT EMAIL (05-14-2008)

Classified By: NEA DAS Lawrence E. Butler
for reasons 1.4(b),(d),and(e).


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SUMMARY
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1. (S/NF) 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 and manage expectations.
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 $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.

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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% 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,
Washington is not considering compensating the GOI for its
loss.
RICE