NUCLEAR FUEL BANK ASSURANCES: THORNY ISSUE IN

C O N F I D E N T I A L UNVIE VIENNA 000047

SIPDIS

FOR S, D, P, T, IO, AND ISN FROM AMBASSADOR SCHULTE

E.O. 12958: DECL: 02/02/2014
TAGS: PREL ENRG TRGY KNNP
SUBJECT: NUCLEAR FUEL BANK ASSURANCES: THORNY ISSUE IN
IAEA'S NORTH-SOUTH THICKET

REF: A. 08 UNVIE 605

B. UNVIE 0045 (NOTAL)

Classified By: AMBASSADOR GREGORY L. SCHULTE, REASONS 1.4 (B) AND (D)


1. (C) Summary: The President and Secretary have publicly
endorsed the establishment of an international nuclear fuel
bank under the auspices of the IAEA, and advancing that goal
is one of UNVIE's top priorities. A fuel bank would give the
Agency the means in "last resort" circumstances to effect the
delivery of nuclear fuel to a country facing a
politically-motivated cut-off. U.S. advocacy is grounded in
nonproliferation; states like Iran intending to obscure a
military nuclear option would be stripped of the pretext that
their civil power requirements justified independent national
enrichment, but for this reason, the concept remains
controversial among Member States.


2. (C) To advance toward implementation, one or more
concrete proposals for an IAEA role in assuring reliable
access to nuclear fuel (RANF) must come to the Board of
Governors for approval. IAEA DG ElBaradei's staff aims for a
first Board action, ideally in March but more realistically
in June, to have the Board accept donated funds and authorize
the Secretariat to elaborate on the broad outlines of a fuel
bank; approving the details would require a second Board
decision. Beyond the legal and financial complexities, the
tough political issue is the eligibility of states to receive
fuel; ElBaradei's principle of equal treatment under the IAEA
Statute collides with Nuclear Suppliers Group (NSG)
guidelines and the export controls of countries that can
conceivably supply the LEU, including our own.


3. (C) Several leading states in the G-77 and NAM complain
that fuel assurances will carry the obligation that states
renounce national acquisition of enrichment capability, and
thereby reinforce what they see as the "discriminatory"
economic circumstances of today's nuclear landscape under the
NPT and NSG guidelines. In a political atmosphere he views
as "poisoned," ElBaradei has renounced his own leadership
role and is leaving to proponents of fuel assurances the task
of overcoming this distrust. Privately, ElBaradei tells us
establishing IAEA nuclear fuel assurances is a priority for
his remaining ten months in office, but that a setback would
be likely if he sought Board approval too early and failed.
Ultimately, ElBaradei must engage, as he is the most
influential advocate to many of the leading skeptics. This
should be an early and repeated message from the Secretaries
of State and Energy and in senior U.S. officials' contacts
with ElBaradei. Parallel to activating the DG on this issue,
we are reaching out to a cross-section of states to broaden
the dialogue and relate fuel assurances concepts to the
increasingly sophisticated and pragmatic consideration states
are giving to the nuclear power option. End Summary.

The Nonproliferation View
--------------


4. (C) Part of the Vienna context of the nuclear fuel
assurances issue remains the February 11, 2004, NDU speech by
former President Bush. That and subsequent statements made
explicit that the USG advocated nuclear reactor fuel supply
assurance only for states that forego enrichment and
reprocessing. Our policy aim was to address what IAEA DG
ElBaradei also had referred to as the "loophole" in the NPT
that enabled countries, Iran being the case in point, under
the guise of a civil nuclear energy program to acquire
facilities capable of producing high enriched uranium or
plutonium. Countries truly interested in developing nuclear
power would have the assurance of fuel for their power plants
from foreign suppliers, while those intending to keep open a
military nuclear option would be stripped of the pretext that
their civil power requirements justified independent national
enrichment.


5. (C) For five years, the USG and partners have advocated a
variety of voluntary mechanisms the IAEA could implement for
reliable access to nuclear fuel (RANF) as a "viable
alternative" to the spread of sensitive fuel cycle
technologies. Even after the Bush Administration climbed
down from the initial enrichment conditionality, the debate
here remained clouded by suspicion over U.S. motives. We
point to Jordan and the U.A.E. as newcomers that have
committed publicly to the development of nuclear power
relying on the market, making national decisions not to
acquire enrichment capability. South Korea and Sweden are
among the countries producing a significant share of their
electricity from nuclear, but without domestic enrichment.


These countries demonstrate that foregoing costly enrichment
can be the right economic decision for a peaceful nuclear
power program, in addition to being good nonproliferation
policy. Nevertheless, Iran and some compatriots in the
Non-Aligned Movement (NAM) and Group of 77 (G-77) groups in
the IAEA keep alive the suspicion that the true aim of the
U.S. and others putting forward concepts of national or
international fuel assurance is to oblige beneficiary
countries to forfeit the (NPT-documented) "inalienable right
of all countries to research, development, and use of nuclear
energy for peaceful purposes." For some states, the negative
image of closing a door on their own potential development,
to the advantage of the nuclear "haves," is a strong one.
Speaking privately on his country's objection to the fuel
bank, the Ambassador to the IAEA from Brazil, itself a
"have," told DCM "we don't want a third discriminatory
nonproliferation regime" added to the NPT regime itself and
the Nuclear Suppliers Group (NSG). Egypt's DCM here also
recently cast the issue as a skeptical question, as to why
"only now" when developing countries plan to be part of the
nuclear power renaissance does it become a priority to
internationalize fuel supply. At lunch with Ambassador
Schulte January 29, South Africa's Ambassador suggested that
the fuel assurances issue may only see progress in linkage
with other issues, including disarmament.

The Responsible Nuclear Development View
--------------


6. (C) In a late-January 2009 seminar at the IAEA (septel),
representatives of major commercial suppliers of natural
uranium, conversion, enrichment, and fuel fabrication made
clear there is ample production capacity to provide each
stage in the fuel cycle that leads to loading fuel in a
specific power plant. Planned growth in those industry
capacities would accommodate even the most ambitious
projected growth in the number of civil power reactors around
the world through 2030 or beyond. After hearing the day's
presentations, a Canadian counterpart of ours -- personally a
hardliner on proliferation concerns with respect to Iran and
Syria -- asked rhetorically about IAEA fuel assurances, "Why
are we doing this?" (Comment: Canada is also a budget
hardliner and weighs the value added of an IAEA fuel
assurance mechanism, spending donated funds, against the
staff and legal costs of implementation, thus far covered by
the regular budget funded by all. End Comment.) Brazil's
ambassador drew a similar conclusion about the satisfactory
scale and diversity of supply in the fuel market in a January
27 lunch with Latin American Board members and Ambassador
Schulte; he said it was "unclear what problem we are trying
to solve and whether it is worth the effort."


7. (C) From a consumer standpoint, the contingency that an
IAEA fuel assurance mechanism should remedy is that of a
state being cut-off for political reasons from commercial
procurement of any one or more stages in the production of
fuel for its specific reactor(s). Leaving aside a cut-off
triggered by international concern about the safe and secure
operation of a reactor per se, the issue as seen by some
enrichment "have-nots" is whether they can trust that a
politically neutral mechanism will keep their reactors going
in the event they run afoul of the country or countries
controlling their specific fuel technology. If they could
believe it would, consumer states ought to support having the
IAEA play a neutral role in underpinning energy reliability
in countries that go nuclear responsibly. But as noted
above, the mantra in the G-77 and NAM encourages disbelief.
(Comment: The U.S. should also be clear about our
preparedness for LEU fuel to be delivered to keep the lights
on in a state under sanctions unrelated to nuclear matters,
say for genocide. End Comment.) Moreover, clear differences
among leading countries in the G-77 and NAM regarding which
states may be eligible to receive LEU make the issue divisive
within their camp.

The Issue for the Board
--------------


8. (C) Initiated with the September 2006 offer by the NGO
Nuclear Threat Initiative, the IAEA is close to fulfilling a
funding challenge to establish an international nuclear fuel
bank. Warren Buffet's original USD 50 million, available
through NTI but contingent upon Board action to implement a
fuel bank by September 2009, spurred donations by DoE (aprox
USD 49.5 million after rescission),Norway, the U.A.E., and
the EU totaling close to the USD 150 million target. NTI and
the IAEA tell us they have asked Kuwait to match the U.A.E.'s
USD 10 million pledge and thereby conclude the funding

challenge. In parallel, after two years of negotiations the
Agency is close to concluding agreements with Russia that
would afford the Agency the ability to acquire and export LEU
sourced from the International Uranium Enrichment Center at
Angarsk under explicit circumstances, for use to fuel a
specific reactor in each case. Most states on the Board of
Governors, which must yet approve these Agency activities,
profess to
lack information about these two proposed mechanisms. The
landscape is made foggier by recollections of and passing
references to the numerous other proposals, floated 2-4 years
ago in varying levels of detail and market-based realism.
These are collected by the IAEA Secretariat as attachments to
its June 13, 2007, report (IAEA document GOV/INF/2007/11),
which remains indicative of the principles and structure the
Secretariat foresees for a fuel bank.


9. (C) In the September 2008 Board of Governors meeting,
Pakistan as G-77 spokesman and Cuba on behalf of the NAM made
statements under sevQal agenda items to declare the Board
should make no decisions about a fuel bank or related
mechanisms without a thorough analysis of all political,
legal, financial, and other aspects -- code for "never."
Privately, Pakistani Ambassador Shahbaz said the fuel bank
would gain approval "over my dead body." The skeptics also
complained to IAEA DG ElBaradei that a lunchtime public
briefing on the various fuel assurance proposals, planned
during the ensuing week's General Conference, was an
unauthorized activity. Unnerved, ElBaradei withdraw agency
co-sponsorship and the event went on under U.S. and Russian
invitation. In a political atmosphere he views as
"poisoned," ElBaradei is leaving to Member State proponents
of fuel assurances the task of overcoming others' distrust.
In public, ElBaradei regularly sets out a visionary goal of
multilateralizing the fuel cycle to support power generation
as a development imperative. Privately, he tells the U.S.
and other Ambassadors that establishing IAEA nuclear fuel
assurances is a priority for his remaining tenure (through
November 30, 2009),but that a setback would be likely if he
sought Board approval too early and failed. We judge, and
have told him and his staff, that he (and not the USG) can be
the most effective advocate to many of the leading skeptics
among the G-77. As the previous Administration came to a
close, the U.S. was seen in Vienna as the most public
advocate. But as former Secretary Shultz pointed out in a
recent CSIS panel, an initiative carried forward by a broad
coalition and grounded in the national interests of many has
greater chances than one seen as a U.S. project to which we
are signing up others. In order to support the fuel bank
concept more effectively, we are working now with a
cross-section of states to broaden the dialogue and relate
fuel assurances concepts to the increasingly sophisticated
and pragmatic consideration states are giving to the nuclear
power option.


10. (C) Both the Russian and Secretariat proposals for
involving the IAEA as supplier of last resort in nuclear fuel
procurement and transfer must come to the Board of Governors
for approval. The Board must also formally accept the USD
150 million donated thus far and authorize its expenditure on
a fuel bank. ElBaradei's staff aims for a first Board
action, ideally in March but more realistically in June, to
have the funds accepted and to receive authority to elaborate
on the broad outlines of a fuel bank. The issue is not on
the provisional agenda for the March 2-6 Board meeting, and
without Russian preparedness to circulate at least a paper
for information on its arrangement, ElBaradei will hold back
as well from formally notifying the Board of the donations or
Secretariat concept. As we reported last fall (ref A),the
IAEA's concept would entail a series of contractual
arrangements under which the Agency relies on market
suppliers to hold a reserve of LEU and when needed trigger
transport, fuel fabrication, and other services enabling the
delivery of reactor-specific fuel elements. Beyond the legal
and financial complexities, the tough political issue is the
eligibility of states to receive fuel; ElBaradei's principle
of equal treatment under the IAEA Statute collides with NSG
guidelines and the export controls of countries including the
U.S. that can conceivably supply the LEU. This issue is
divisive even among the opponents, as non-NPT signatory
Pakistan stands to be excluded, while Egypt and other Arab
states may oppose "universality" that includes non-NPT
states, as it would open any mechanism to Israel as well.

The DG Must Stand Up as We Broaden the Dialogue
-------------- --


11. (C) Comment and Recommendations: As reported ref B,

ElBaradei and his staff wrapped themselves readily in the
mantle of Obama Administration support for a fuel bank,
posting quotes from the Secretary's confirmation hearing on
the Agency's public website. One week after the
Inauguration, the web item on U.S. support for the Agency was
removed, reportedly because the external relations and policy
office (EXPO) was concerned the G-77 would criticize it as an
endorsement of the fuel bank and an inappropriate effort by
the Secretariat to influence a Board decision. The U.S. must
overcome this excessive caution on ElBaradei's part and
activate him to advocacy. An inquiry about the status of the
fuel bank initiative and Russian proposal and encouragement
of his personal action should be among the talking points in
early Cabinet-level or other senior USG contacts with the DG.
In particular, he must bring the case to Pakistan, South
Africa, and those others that are inflating it as an
emblematic North-South dispute.


12. (C) Comment Contd.: We must also work bilaterally on the
hardest opponents and recruit close allies to do likewise.
South Africa, Egypt, and Brazil are among the most
influential countries leading the opposition. Their
protection of national "rights" is political and emotional
but also, in varying degrees, tied to retaining national
industry options that may or may not be economically
feasible. Consistent with the Secretariat's advice to us to
have other champions come forward, UNVIE is reaching out to
non-enrichment nuclear power countries and likely newcomers
to spur a broad dialogue about how international fuel
assurances would support national energy planning by closing
a thin, conceivable gap in supply. We should be able to
leverage the fuel bank as part of a broader Obama
Administration renewal of the NPT framework. This theme
should figure in initial senior Administration contacts with
counterparts in India, China, and potential nuclear power
newcomers including U.A.E., Vietnam, Jordan, Turkey, Morocco,
Thailand, and others.




SCHULTE