Fuel Banks and Other Fuel Supply Assurances

Editor’s note:  While this essay is somewhat dated and there have been developments since it was written, it does provide the basic background for nuclear fuel banks and other fuel assurances.  With the renewed interest in nuclear power and the prospects for dramatic growth, this subject is very relevant to today’s situation.  Additionally, it is keeping with the focus of this website, as consideration of fuel banks and fuel assurance is a topic that dates to the time when Eisenhower gave his Atoms for Peace speech to promote peaceful atomic energy.

Introduction

Our September 2007 Enrichment Market Outlook essay analyzed the potential of countries that have declared their desire to develop indigenous enrichment capabilities to implement their intentions.  As we indicated, many of these countries will not be able to meet their domestic enrichment objective for economic or technological reasons – it simply costs too much and may be too complicated for some to develop in a realistic time frame.  However, there are strong incentives for countries to look at developing their own fuel cycle facilities, the foremost of which is a fear of potential supply disruptions.  In particular, emerging nuclear power countries sense that they may face supply disruptions for political reasons.  In response to this concern, numerous ideas are being developed in the nonproliferation arena to provide fuel supply assurances to support the development of nuclear power in countries that do not have indigenous enrichment and reprocessing capabilities.

For the longest time, the discussion of fuel supply assurances has been taking place primarily in the purview of the nonproliferation community from which it emanated.  However, in recent years the nuclear fuel industry has taken more of an interest in this subject as it has received more support from governments and other international entities around the world.  This increased interest makes it more likely that the policy and political concept will come into being in some form or another.  If implemented, any fuel supply assurance system will have some impact on the nuclear industry – either by establishing an additional fuel inventory, or providing commitments of suppliers and governments to assure supply under certain conditions in case of political disruption.

This time, the fuel supply assurance concept has a greater chance of becoming self-sustaining because it has moved from the discussion stage to implementation stage.  Nevertheless, it depends to a large extent on the further development of nuclear energy, as well as international and domestic political support for the concepts outlined above, and perhaps some extent to further developments in the nuclear fuel market itself, which could make some of the proposed options more feasible.

This essay has the following structure.  First, we describe the concept of politically-grounded fuel supply assurance and outline the history of the concept’s development.  Then we analyze the current proposals submitted to the International Atomic Energy Agency (IAEA), identify the key challenges related to their implementation, and list complementary proposals by the academic community grounded in the existing risk management practices.  After that, we discuss the industry’s views on fuel supply assurances based on a survey conducted by UxC in the summer of 2007.  Finally, we discuss enrichment options as a potential complementary approach to fuel supply assurances.

Objectives of Fuel Supply Assurances

Fuel supply assurance is a major concern for every nuclear utility.  Traditionally it is addressed in a number of ways, including contract performance warranties, non-delivery penalties, long-term contracts, diversification of suppliers, and the holding of inventories.  However, the industry concept of security of supply differs greatly from those in the nonproliferation world.

An assurance of supply mechanism for nonproliferation purposes discussed below addresses two particular risks/rewards.  The first one deals with the possible consequences of interruptions of nuclear fuel supply due to political considerations that are not related to nonproliferation, commercial issues or other aspects of compliance with contractual obligations.  The second seeks to reduce incentives for countries to build new national enrichment and reprocessing capabilities, which, from a proliferation standpoint, are of significant concern because they raise the potential for nuclear weapons capability since access to HEU or Pu is the central requirement for developing a bomb.

To reduce the political risks related to non-delivery of nuclear fuel and increase the incentives for not building indigenous capabilities, the fuel supply assurance mechanisms are intended encourage states to choose to rely on the international market for their nuclear fuel requirements and provide them with a backstop in the event of a political disruption.  While the rationale for the development of indigenous enrichment capabilities might be non-economic, only the truly economic motivations are addressed by the discussed proposals (other types of motivations are addressed by other means).  It is a voluntary mechanism: the states could choose to rely on international fuel supply as the more efficient measure of assuring supply.

An assurance of supply mechanism is envisaged solely as a backup mechanism to the operation of the current commercial market.  In the long run, it is hoped that both those in the nonproliferation community, as well as those in the nuclear industry, seek a well-functioning market without political interruptions.  Indeed, in addition to posing a potential proliferation threat, operating multiple small enrichment facilities does not represent an efficient way to provide enrichment services, as it does not foster trade and detracts from the development of a market.  The issue is that those in the industry often dismiss the necessary proliferation controls and trade restrictions as restrictive and causing undo costs on the market, while the nonproliferation community at times appears uninterested in how their proposals may seriously harm the market.  Thus, the trick is to find a suitable middle-ground whereby both the industry and nonproliferation community get what they want but also permit the safe and smooth growth of nuclear power around the world.

Although political and nonproliferation objectives are seldom coupled with market-based approaches, there are several successful examples of commercial arrangements applied to resolving nonproliferation problems – such as the U.S.-Russian HEU deal.

In general, assuring fuel supply requires a tiered approach.  First, fuel supplies are sourced from the normally functioning commercial market.  Second, assurances are provided that when deliveries cease for other than commercial reasons, supplies are provided by others (suppliers and/or governments).  Finally, when that approach is not sufficient, supplies from fuel reserves or fuel banks are used as a last resort.

The concept is not new – it goes back over 50 years to Eisenhower’s Atoms for Peace speech.  The next section outlines the historical perspective of the fuel supply assurance approaches.

History of the Fuel Supply Assurances Concept

The concept of nuclear fuel supply assurance originates from the 1946 Baruch Plan, when the U.S. suggested that the countries should transfer oversight over nuclear materials and activities to a specially established international agency on nuclear energy.  This plan failed because it was not consistent with the post World War II political realities.

The U.S. President Eisenhower Atoms for Peace plan in 1953 not only set up the basis for establishing the IAEA, but also for developing the civilian application of nuclear energy, knowledge and technologies.  Articles III.B.2 and XII.A.5 provide Agency authority to control over excess special fissionable materials; and the provisions of the Statute are sufficiently broad to allow the IAEA to do the following:  establish its own stock of nuclear fuel, facilitate the supply of nuclear fuel, and facilitate, inter alia, enrichment and fuel fabrication services (the relevant Articles are III, IX, IX.1, X, XI, X1.E, XIV.E, and XIV.F).

In order to develop nuclear energy, but avoid proliferation, the Nonproliferation Treaty (NPT) has been established.  It was approved by the United Nations (UN) in 1968, and entered into force in 1970.  Article IV of the Nonproliferation Treaty guaranteed access to the benefits of nuclear technology for peaceful use for states which comply with nonproliferation commitments.  NPT, establishing the system of safeguards, proved to be a rather efficient instrument of controlling proliferation; however, it was less effective in preventing proliferation.  The NPT was also blamed for dividing nations into those who have nuclear weapons, and those who do not, establishing different rules for the “nuclear elite.”  Since the development of the NPT, there have been multiple efforts to develop and improve the safeguards system, and to combine nonproliferation compliance with developing nuclear energy.

As one of the ways, the Final Declaration of the 1975 NPT Review Conference included a provision that “regional or multinational nuclear fuel cycle centers may be an advantageous way to satisfy, safely and economically, the needs of many States, while, at the same time facilitating protection and the application of safeguards.”

In 1975-1977, an IAEA Expert Group developed a study analyzing potential for establishing Regional Nuclear Fuel Cycle Centers (RNFC).  The study discussed economic, safety, safeguards, and security aspects of a multinational approach to nuclear fuel cycle facilities, and focused on the back end of the fuel cycle.  The major conclusion was that the proposal was technically feasible, but could face challenges with defining host country’s responsibilities, technology transfer, physical protection, and the possible risk associated with the host country’s intentions.¹

Another attempt was undertaken in 1977-1980.  The International Nuclear Fuel Cycle Evaluation (INFCE) study focused on the widespread use of plutonium, looked into models for multilateral plutonium storage and investigated potential for a technological solution of the proliferation problems.  It also discussed the possibility of regional fuel cycle facilities, as well as other mechanisms.  As in the previous study, the conclusion was reached that the technical solution is feasible, but it would not outweigh weaknesses in the international non-proliferation regime, and that no single fuel cycle approach was superior.  It was also mentioned that proliferation-resistant solutions are negatively correlated with other factors essential for energy development and supply assurances – such as health, safety, environmental protection, and technology transfer, as well as social and political acceptance in the host state.  These solutions also add more complexity to the international agreements and challenge political independence of national states.²

Later initiatives included the work of the Expert Group on International Plutonium Storage (IPS) (1978-1982) which examined the IAEA role in management and storage of plutonium, and the study of the IAEA Committee on Assurances of Supply (CAS) (1980-1987) discussing multilateral approaches to fuel supply assurances.  However, no consensus has been reached on any of these initiatives due to a number of political, economic and technical reasons – foremost among these are the failure to agree on the non-proliferation commitments and conditions that would allow states to participate.

One of the conclusions of the 1997 International Symposium on the Nuclear Fuel Cycle and Reactors was that the abovementioned initiatives had failed primarily because of the opposed drivers motivating the governments and the industry.  While governments were mostly concerned about political factors (nonproliferation, political legitimacy, public support, national pride), the industry cared more about commercial (and technical) viability.  The key to success of the approach would be reconciliation of the different priorities.

The Symposium also developed a broader approach by including front-end, in addition to the back-end considerations, and thus encompassed uranium enrichment, spent fuel reprocessing, plutonium storage, and transportation and storage of the spent fuel.  At IAEA-sponsored meetings in 2001-2002, the focus was further expanded from reprocessing and enrichment to including repositories for spent fuel and nuclear waste.  As a result of the meetings, an Agency Technical Document (TECDOC) on multinational radioactive waste repositories has been produced.

In 2003, International Atomic Energy Agency (IAEA) Director General El Baradei re-opened the debate on ensuring fuel supply while complying with nonproliferation commitments.  He suggested reconsidering the old approaches to deal with the old and the new proliferation and fuel supply challenges, using the previous findings and learning from the failures.

In 2004, IAEA Director General El Baradei appointed a Working Group to develop and consider multilateral approaches to the nuclear fuel cycle.  According to the IAEA report, “the mandate of the Expert Group was three-fold: to identify and provide an analysis of issues and options relevant to multilateral approaches to the front and back ends of the nuclear fuel cycle; to provide an overview of the policy, legal, security, economic, institutional and technological incentives and disincentives for cooperation in multilateral arrangements for the front and back ends of the nuclear fuel cycle; and to provide a brief review of the historical and current experiences and analyses relating to multilateral fuel cycle arrangements relevant to the work of the expert group.”  In February 2005, that IAEA Working Group developed a study reviewing three approaches to fuel supply assurances.³

A report entitled “Multilateral Approaches to the Nuclear Fuel Cycle” (INFCIRC/ 640) is discussed later in this essay.

The environment in which the multilateral fuel supply assurances are now being addressed has significantly changed compared with the 1970-1980s.  Due to high energy demand, more countries that had not pursued nuclear power in the past are planning to develop nuclear energy for economic and environmental reasons.  At the same time, the nuclear market has changed significantly.  In the 1970-1980s, enrichment industry was monopolized by the states; more recently it has moved towards privatization.  At the same time, the enrichment industry is becoming controlled by multinational, rather than national, corporations, operating outside national territories with increased competition and new technologies, making small national enrichment facilities economically unjustified.  Globalization and liberalization of nuclear markets has impacted the transparency of the nuclear industry, and has required a greater systematization of issues related to nuclear trade and the international legal system.  For the reasons mentioned above, more industry participation is required for the success of the nonproliferation regime.

In June 2007, IAEA issued a report “Possible New Framework for the Utilization of Nuclear Energy: Options for Assurance of Supply of Nuclear Fuel” that discussed the proposals submitted to IAEA by different countries and institutes from 2004 to 2007.  These proposals represent the current state of thinking on fuel supply assurances and are described in the next section.

Fuel Supply Assurance Proposals

This section outlines a cross-section of the recent proposals to the IAEA.  It includes discussion of the IAEA’s multinational enrichment analysis as well as other national and multinational proposals.  First, we list the proposals in a tabular form and provide an overview of the approaches and their implementation, and then we provide a brief discussion of each.

Overview of Assured Mechanisms

Chaim Braun, a Science Fellow at the Stanford Center for International Security and Collaboration (CISAC), developed a comparative matrix of fuel supply assurances proposals submitted to IAEA (below).

Figure 1. Nuclear Fuel Supply Assurance Proposals Made Prior to Sep. 2006

	Multilateral Approaches INFCIRC/640	Russian Nuclear Centers	U.S. GNEP Initiative	WNA Proposal	Six Countries Proposal
Problem to be Solved	Replacing National Facilities with Regional Fuel Center Facilities	Giving Up Sensitive National Fuel Cycle Facilities	Giving Up Sensitive National Fuel Cycle Facilities	Disrupted Enrichment, Reprocessing Contracts	Disrupted Enrichment Contracts
What is Assured	Spent Fuel Storage, Front End Supply	Front End Supply, possibly Back End Services	Front End Supply, Ultimately Spent Fuel Take-Back	Enrichment Services, Access to Reprocessing	Enrichment Services (Reprocessing)
Assurance Mechanism	Multilateral Nuclear Fuel Cycle Centers	Russian Enrichment Facilities	U.S. Provided Diluted  HEU – Fuel Bank	Collective Suppliers Guarantee, IAEA Stockpile	Backup Commercial Contracts
Eligibility	Regional States Agreeing to Participate in Regional Center	Nuclear Weapons States (NWS)- Designated – IAEA Approved	NWS- Designated – IAEA Approved	IAEA Approved Meeting All NPT Obligations	IAEA Approved Meeting All NPT Obligations
Practical Aspects	Defining Functional Role, Facilities to be Used	Solution to Iran Problem as Model for Center Implementation	Depends on Future Administration, Tie-in with Tech. Programs	Implementing Suppliers Collective Guarantee, IAEA Stockpile Back-up of Last Resort	Switch Commercial Contracts to Other Willing Enrichers,
Role of IAEA	Fostering Regional Fuel Cycle Center Agreements, Safeguards	Management, Approvals, Safeguards	Approvals, Safeguards	Approve Triggering of Collective Suppliers Guarantee, Manage Backup Stockpile	Approve Transfer of Commercial Contracts to Other Enrichers
Role of Industry	Managing, Operating Centers	Performing Fuel  Services at Designated Center	Perform Fuel Services per USG Instructions	Perform Enrichment, Reprocessing Contracts	Perform Enrichment Contracts

Source: Chaim Braun, Nuclear Fuel Supply Assurance, CISAC, with modifications.
Source document prepared for the International Panel on Fissile Materials (IPFM), Draft

Figure 2. Nuclear Fuel Supply Assurance Proposals made During the IAEA Special Event of Sep. 2006

	NTI Proposal	German FM Proposal	U.K. ‘Enrichment Bond’	Japan’s Industry- RepU Stockpile	Japan’s IAEA Standby Arrangement
Problem to be Solved	Disrupted Enrichment Contracts	Giving Up Sensitive National Fuel Cycle Facilities	Disrupted Uranium, Enrichment Supplies	Disrupted Uranium, Enrichment, Supplies	Disrupted Uranium, Enrichment, Fabrication Supplies
What is Assured	Access to LEU, Front-End Supply	Enriched Uranium Supplies	Enriched Uranium Supplies	Front-End Natural Uranium, Possibly LEU Supply,	Front-End LEU Supplies.
Assurance Mechanism	Back-up Commercial  Contracts, Market Service	Enrichment Plant in IAEA Controlled International Zone	Enrichment ‘Bond’ between Suppliers and User States	Japan Stockpile of RepU, Cleaned-Up, Possibly Re-Enriched	IAEA Database of States Abilities to Export LEU Services
Eligibility	Meeting Nonproliferation Obligation	IAEA Approved, Meeting All NPT Obligations	IAEA Approved, Meeting All NPT Obligations	IAEA Approved, Meeting All NPT Obligations	IAEA Approved, Meeting All NPT Obligations
Practical Aspects	Stockpile of LEU under IAEA Control	Ceding National Territory for IAEA Controlled International Zone	Establishing Robust Legal Mechanism for Enrichment ‘Bonding’	Cleaning-Up, Re-Enriching Existing Stockpile. IAEA’s Eligibility  Decision Process	Reporting Capabilities to IAEA, Release of Confidential Information
Role of IAEA	Manage, Control LEU Stockpile, Safeguards	Manage Enrichment Plant in IAEA Controlled Zone	Approve States Eligibility, ‘Bond’ Guarantee	Approve States Eligibility, Manage Stockpile	Approve States Eligibility, Manage Supplies Database
Role of Industry	Providing and Hosting Stockpile, Fuel Fabrication	Contracted to Perform Enrichment Services	Perform Fuel Services	Perform RepU Clean-Up, Re-Enrichment, Holding Stockpile	Provide LEU Supply Services

Source: Chaim Braun, Nuclear Fuel Supply Assurance, CISAC, Prepared for the International Panel on Fissile Materials (IPFM), Draft, Additional material added from an article written by Oliver Meier, and published in “Arms Control Today”, November 2006, which is reproduced on the NTI webpage.

Approaches

• The proposals discuss different elements of the fuel cycle to be assured – from natural uranium to fabricated fuel. However, due to variations in reactor designs and fuel types, it might not be practical from technical and economic standpoints to maintain fabricated fuel stockpiles.
• The fuel could be available in an actual (physical) fuel bank or be committed inventory (virtual fuel bank) with governmental guarantees to supply fuel in the case of disruption. Three proposals suggest developing a fuel l reserve (“fuel bank”): IAEA (fuel reserve on a territory outside the main six supplier states), Russia’s (fuel reserve on Russia’s territory on the basis of the existing facility under the IAEA safeguards), and the S. (fuel supply reserve on U.S. territory).  The Nuclear Threat Initiative (NTI), the U.S., and Norway have committed financial support to the IAEA for establishing an international fuel reserve.
• Russian and German proposals suggest a commercial-type solution: converting an existing facility into a multinational one with profit sharing in the case of Russia, or building a new joint facility in the case of Germany.
• Russia and the S. suggest establishing inventories on the national territories, while the new enrichment facility proposed by Germany would be outside the territory of the supplier states, and an IAEA fuel bank could be located in a supplier or another state.
• Some proposals (Japan, Austria) also address issues of information transparency.
• The proposals also incorporate industry’s views (including separate WNA proposal and consultations with the industry for developing national proposals), and the views of some states that do not have LEU stocks on their territory.
• Several types of contractual assurance mechanisms have been proposed. For example, Chaim Braun suggested that under the Virtual Supply Assurance program that the IAEA issue Nuclear Fuel Credits Promissory Notes, patterned after Special Drawing Rights.  Each Credit Note gives holders the right to obtain specified amounts of a particular type of fuel service, at commercial prices from suppliers designated by the IAEA.  IAEA could issue three types of Nuclear Fuel Credits Promissory Notes: Enrichment Credits, Conversion Credits, and Fabrication Credits.  Implementation of the Credits notes program depends on customers’ and suppliers’ preferences.⁴
• The proposals include different supply eligibility criteria defined by the IAEA Board of Governors or a suppliers’ consortium.

Implementation

Most of the submitted proposals are still in the initial stage (initiatives rather than action plans) and require a lot of legal, technical, policy, and organizational issues to be resolved.  The IAEA framework and the World Nuclear Association (WNA) proposal provide the framework concept for establishing three-level fuel supply assurances.  The “Reliable Access to Nuclear Fuel (RANF)” Six Supplier States proposal is similar to WNA’s concept, and mostly addresses governments’ intentions and commitments.  The best-developed proposals are the Russian initiative of establishing an International Enrichment Center at Angarsk and the United States proposal to establish a domestic reserve under the framework of the Global Nuclear Energy Partnership program (GNEP).  Several proposals were largely developed as an extension of previously mentioned proposals, or complementary to them. 

At the Special IAEA 2006 conference, the Chairman proposed a tiered approach to establishing multilateral framework dealing with fuel supply assurances.  In the near term, it will focus implementation of the most developed proposals – NTI’s proposal for the IAEA fuel bank, Russia’s, the U.S., Six Supplier States proposals and the complementary to the RANF proposals of Japan and the U.K., as well as Germany’s proposal.  The next stage will address establishing a comprehensive multilateral system, integrated with the commercial markets.  It envisions “proposals for assured access to power reactor components and technologies and the possibilities for developing future enrichment and reprocessing operations on a multilateral basis and ultimately converting existing enrichment and reprocessing facilities from exclusively national to multinational operations.”⁵

Figure 3. Multilateral Fuel Assurance Proposals

The IAEA Process

The report of the study group, Multilateral Approaches to the Nuclear Fuel Cycle (INFCIRC/ 640), considered:

• three types of assurances of supply that do not involve ownership of facilities:
• suppliers provide additional assurances of supply;
• international consortia of governments broaden the assurances;
• IAEA-related arrangements provide even broader assurances;
• the conversion of exiting national facilities to multinational facilities;
• the construction of new joint facilities.

The report, as well as other approaches to multilateral fuel supply assurances, have been discussed during the July 2005 IAEA meeting in Moscow “Multilateral Technical and Organizational Approaches to the Nuclear Fuel Cycle Aimed at Strengthening the Nonproliferation Regime”.

In September 2006, the IAEA sponsored a special conference “New Framework for the Utilization of Nuclear Energy in the 21st Century: Assurances of Supply and Non-Proliferation”, which addressed key proposals to provide fuel assurances, made in 2004-2006.  The key proposals are described below.

The WNA Proposal

As mentioned above, most of the previous attempts to develop a reliable fuel supply assurance system failed because of lack of industry support.  In order to gain industry’s perspective on the issue, the World Nuclear Association (WNA) developed a framework in which to consider the other proposals.⁶  The WNA proposal suggested three levels of supply assurances: 1) the international commercial market; 2) a collective guarantee of supply from enrichment services providers supported through government/IAEA commitments; and 3) a fuel bank as the last resort (government/ IAEA LEU stockpile).  A modest size fuel bank is viewed as the last resort.

Six Supplier States Proposal (RANF)

Based on the WNA developed framework, collective supply assurances were suggested by the six enrichment services supplier states – France, Germany, UK, the U.S., the Netherlands, and Russia – in a proposal called the “Concept for a Multilateral Mechanism for Reliable Access to Nuclear Fuel” (RANF).⁷  Under that proposal, the key supplier states agreed to substitute for each other to cover certain supply interruptions, beyond mechanisms available in the commercial market.  In addition, should these basic assurances fail, participating governments are to provide physical or virtual LEU reserves.

The implementation of the proposal could pose difficulties for a number of reasons: the agreements among the suppliers and between the suppliers and the governments are still to be defined, and may represent a significant challenge.  It is not clear how the back-up mechanism will work, and how the suppliers will substitute for each other (in particular, whether they will substitute in equal shares, or not).  Also, the proposal encourages supplier states to establish LEU reserves, but no commitments by any of the states to establish such a reserve are outlined in the proposal.  Out of supplier states only the U.S. and Russia have established such reserves in their respective territories under separate proposals.

Both the WNA and six supplier states proposals are general and are intended to work with the commercial market, rather than against it.  This puts them in the realm of the feasible, but as noted above, some key issues are still to be worked out.

Russia’s Proposal: International Uranium Enrichment Center (IUEC) at Angarsk

In February 2006, Russia proposed creating a system of international enrichment and reprocessing centers.⁸  Later it established an international uranium enrichment center based at the Angarsk Electrolytic Chemical Combine (AECC) under IAEA safeguards.⁹  The center will provide guaranteed access to uranium enrichment services for participating members.  It will operate on a commercial basis (as an open joint stock company with stakeholders’ profit sharing without technology sharing), and establish a guaranteed LEU reserve.  So far, Kazakhstan and Armenia have joined the Center, and Ukraine has expressed an interest and potentially would join the Center.  The Center was established with Russia’s interest equaling 90%, and Kazakhstan’s interest totaling 10%: later, it is expected that other participants would each purchase up to 10% of the shares from Russia (with Russia retaining at least 51% of the shares).  The initial idea was developed as a solution to the Iranian crisis; the venture is commercial with a clear marketing focus.  However, one of the major challenges of the Center is the lack of interest from potential customers, although Russia claims the economic incentive (profit sharing) is sufficient to encourage emerging countries to participate.

In September 2007, Russia announced it intends to create a guaranteed reserve of 120 MT of LEU worth $300 million and an equivalent of two reloads for a 1,000 MWe reactor.  Not many details about implementation of the Russian proposal are available.  For example, it is not clear whether the Russian LEU will come from enrichment of natural uranium or downblended HEU.  Using HEU inventories as an analogue to the U.S. proposal (discussed below) seems reasonable, although several Russian experts state that Russia is not planning to downblend HEU for other than domestic reasons, and all the LEU in the bank will come from enriched uranium.  An Agreement between the IAEA and IUEC is expected to be signed soon; the discussions in both Russia and IAEA are currently underway.

The U.S. Proposal

The U.S. proposal addresses both domestic (international reliable fuel supply reserve on the U.S. territory) and international (support of IAEA-established reserve) fuel banks.

In September 2005, the United States pledged 17.4 MT of HEU to help support supply assurances to states that foreswear enrichment and reprocessing; this HEU can be blended down to 290 metric tons of LEU, enough to provide 10 reactor reloads or fuel about 6.5 new cores (domestic reserve).¹⁰  Initially it was expected that the fuel would become available in 2009.  This fuel bank effort has been folded into the overall U.S. Global Nuclear Energy Partnership program (GNEP) program.  Support in the U.S. for the GNEP program is lagging, and its future will depend on the politics following the next presidential election in the U.S.  However, the fuel bank concept would likely survive any outcome – even if it stands on its own.

The NTI Proposal

In 2006, The Nuclear Threat Initiative (NTI) offered to contribute $50 million to the IAEA to help create an LEU stockpile managed by the IAEA if the agency takes necessary actions to approve establishment of the reserve within two years from 2006, and if member-states contribute an additional $100 million in funding or an equivalent value of LEU.¹¹  The potential reserve content, bank location, access conditions, pricing mechanisms etc. are under discussion.  One of the potential options discussed includes a stockpile of 50-60 MT 4.9% enriched LEU in the form of UF₆, either enriched from natural uranium or downblended HEU, located in one of the countries outside the major supplier states with existing nuclear infrastructure and a good nonproliferation, safety and security record.  Possible candidates include Kazakhstan, Switzerland, Sweden, and South Africa.  The U.S. Congress has appropriated $50 million to contribute to the IAEA for the LEU stockpile.  In February 2008, Norway made a $5 million contribution.  An additional $45 million (or an amount of LEU equivalent in value) must be forthcoming by September 2008 to meet the matching requirement.

Additional Proposals

Additional proposals by Japan and the United Kingdom (UK) discussed below were developed as an extension of the RANF proposal.

Japan’s Proposal

Japan’s “IAEA Standby Arrangements System for the Assurance of Nuclear Fuel Supply” includes two parts.¹²  It proposed that all fuel cycle information dissemination is to be managed by the IAEA and be based on the voluntary contributions of member-states.  In the part complementary to the Six Supplier States proposal, Japan suggested to cover not only uranium enrichment, but all the front-end services, and to add spare enrichment capacity of domestic producers to the six-supplier capacity for assuring supply.

UK Proposal

The government of the United Kingdom proposed the concept of enrichment bonds that includes guarantees that national enrichment providers (such as Japan’s program) would not be prevented from supplying enrichment services, and provides prior consent for export assurances.¹³  The latter is applicable in the instance when the IAEA assures that the country in need of nuclear fuel is complying with their Nuclear Nonproliferation Treaty (NPT) and other nonproliferation obligations.

The UK claims the proposal is a path for implementation of the RANF proposal, and outlines a way that enables countries in need of nuclear fuel to participate through existing enrichment providers.  The implementation of the proposal would require “an agreement between supplier states, the recipient states, and the IAEA, in which the supplier government would guarantee that, subject to compliance with international law and to meeting the nonproliferation commitments to be assessed by the IAEA, national enrichment providers will not be prevented from supplying the recipient state with enrichment services in the event that the guarantee is invoked.”

This proposal, like Japan’s proposal, might be welcomed by those countries with small domestic enrichment capacities (other than key suppliers).  Germany and the Netherlands are cooperating with the UK in the development of the enrichment bonds concept.  The UK Government has not yet provided details on the form of the legal arrangement.

Germany’s Proposal

Germany has proposed creating an international enrichment center operating on a commercial basis on a neutral territory (outside the supplier states) under IAEA supervision.¹⁴  The initial proposal called “Multilateral Enrichment Sanctuary Project (MESP)” was submitted to IAEA in April 2007.  Later Germany presented the proposal at the IAEA headquarters on February 19, 2008.  The enrichment plant is to be built and operated by the international enrichment consortium, which would sell enrichment services to consumer countries with good nonproliferation records, on the international property donated by the host country to IAEA.  Eligibility criteria are to be defined by IAEA, and no technology sharing is envisioned.  IAEA will also have sovereign rights over the territory, and control the LEU supply from the facility, and the potential fuel reserve.

From an organizational standpoint, the proposal is similar to Russia’s, and envisions establishing a commercial plant with international participation and profit sharing, and a separate set aside LEU reserve.  However, unlike the IUEC, it is to be built on the international territory, which might make it more attractive for potential fuel consumers.  International territorial status might also help to resolve possible challenges arising from locating the fuel reserve on the national territories and associated with national politics and national regulations.

On the other side, the proposal will require the construction of an additional plant which might be disruptive to the market if based on a political rather than commercial basis.  Besides, with Urenco’s and AREVA’s European expansion, and the new facilities to be built in the U.S., the question is whether there would be enough resources for the new plant, or enough demand from new countries seeking enrichment supplies.

Not many details are known so far about Germany’s proposal.  It is not clear yet how the initiative could be implemented in conformity with the international law.  According to a Platts December 2007 article, in 2007, Germany discussed potential solutions to the generic legal and commercial issues with the IAEA and Urenco.¹⁵  Possibly, Germany is discussing the technology-related issues with the Enrichment Technology Company (ETC); a joint venture of AREVA and Urenco that develops and produces centrifuges based on original Urenco centrifuge technology.

It is also expected that Germany would draft a framework agreement in 2008 between the IAEA and the consortium parties, and between IAEA and the potential state hosting the plant on its territory.

Japan Industry’s Proposal

At the IAEA Special event in 2006, the Executive Vice Chairman of Japan Atomic Industrial Forum Inc. (JAIF) Mr. Takuya Hattori suggested that the Japanese utilities could provide recovered (reprocessed) uranium stored in Europe and Japan for the fuel bank on a commercial basis.¹⁶  However, this initiative would be somewhat difficult to implement because only a few utilities could use recovered uranium, and the cost of fuel from recovered uranium is much higher than the cost of using fresh fuel.

Considerations Associated with Fuel Banks

While several options for fuel supply have been suggested, not many proposals have moved into a stage of detailed assessment, and clearly many questions remain.  Although different proposals pose different sets of questions, there are some common trends.  The following comments name just a few of them and apply mostly to the fuel bank concept (fuel reserves), as this is the most widely discussed approach to assuring fuel supply causing the most concerns.  Challenges related to implementation of particular proposals are discussed in the respective sections above.

Criteria for Eligibility

Criteria for eligibility and fuel supply procedures are not always clear and vary among the different proposals.  Eligibility can be thought of occurring at two levels.  One is whether a country would be eligible at all, and the second is what type of supply disruption warrants access to a fuel bank.  Thus, a country might meet the general eligibility criteria, but not face a supply disruption that warrants access to the fuel bank, or alternatively might face an eligible supply disruption but not meet the general eligibility conditions.

On the question of general eligibility, there is a notable difference in the proposals, with the Six Supplier proposal seeking to limit access to countries which elect not to pursue enrichment and the Russian and U.S. proposals containing similar requirements although they may be implemented differently.  These proposals consider forward-looking commitments not to pursue domestic enrichment facilities as the basis for eligibility, which some states perceive as constraints on Article IV rights to peaceful use of nuclear technology.  On the other hand, NTI has phrased its proposal by reference to the recipient sovereign choice to depend on foreign enrichment, which would likely mean that it does not have its own enrichment capability but does not entail any future commitments as to domestic enrichment.   This approach bases eligibility criteria on the current status of the recipients, which is more tangible and easier to assess than future commitments.  It also gives the potential users more flexibility of further choice, and would not limit their future options.  The precise access conditions for the NTI-proposed IAEA fuel bank will, however, be determined by the member states, and this discussion remains fluid.

In general, access to the IAEA fuel bank would not be available due to commercially-based supply disruptions, but rather would be available only for politically motivated supply disruptions.  However, it is not always easy to define whether the reasons are political or not.  It is also unclear how to determine priority in getting the fuel in the case that several countries are claiming a political disruption at the same time.  The criteria of eligibility are to be set by the IAEA Board of Governors, and executed by the Director General, or developed by suppliers’ consortium and approved by the IAEA.  This also places pressure on the IAEA to be apolitical (and trusted to be so).  Apolitical decision-making might be difficult to achieve in the case of governmental involvement in collective guarantees of supply.

However, it also the case that national-level fuel banks could possibly be used to meet commercial domestic needs as well as what might be termed international nonproliferation goals.   For instance, in the case of the 17.4 MT HEU that the U.S. is blending down, it appears that a condition for accessing this material for a non-U.S. user would be if the recipient country would agree to forgo or forswear enrichment building enrichment and reprocessing capability, but it also appears that the government may make some of this material available to domestic U.S. utilities, which creates sort of a dual-use (nonproliferation and strategic commercial) inventory.  Along this same line, Russia’s international center represents a way for Russia to limit potential competition by locking the partners into the center and out of their own enrichment plans.

Potential recipient nations also have their own conditions that must be met.  In this respect it is clear that they generally do not want to have their enrichment options limited and that they would want clear guidance as to how they could access the fuel banks.  As of now, it does not seem like these conditions are being met.

Potential Customers

The proposals are developed by supplier countries rather than potential consumers of the fuel.  Currently, the IAEA is exploring the interest among the member states in establishing fuel reserves and international nuclear fuel centers.  So far, many countries have been skeptical about the viability of the idea, viewing fuel supply assurances as creating a new “cartel,” and claiming that international safeguards and export control systems are sufficient to control proliferation.  In fact, the application of the concept is very limited:  there are only a small number of potentially targeted countries and situations; most of the countries operate under the existing market system, and potentially targeted emerging countries (in case they have nuclear power plants) might be pursuing domestic enrichment for non-economic reasons.  With an unclear definition of what constitutes political disruptions, the targeted emerging countries are not likely to accept the proposal, especially if fuel is provided at market prices.

Financial Mechanisms

Lack of financial support for the IAEA fuel bank is a significant impediment on the way to implementing the fuel banks concept.  It is not clear who is to pay the costs of holding inventories and other relevant expenses.  In addition, the financial mechanism behind releasing fuel from the fuel bank, contract models, and pricing mechanisms are not fully developed yet.  Potential customers of the fuel are to pay market prices, but it is not clear how market price is to be determined in the case of the IAEA fuel bank.  It is not clear how revenue from the sold LEU is to be used, and which expenses it is to cover.

Fuel Management and Bank Administration

Fuel bank mechanisms would have to overcome legal obstacles, including the practice of supplier states to maintain consent rights over any fissile material they deliver (transfer and re-transfer).  It is not clear whether (and how) country’s consent rights are to be retained under the fuel bank operation.  Issues related to the impact of material origin, ownership and suppliers’ rights are to be resolved.

The mechanism for the bank administration is not yet determined.  Different proposals envision different roles for the IAEA – from administration to ownership of either physical or virtual stockpiles.  It is not clear how it could be implemented under the international legal system.  The allocation of rights, responsibilities and functions between the IAEA, host countries, and supplier states (and companies) are not clear either.

Agreements to be developed include at least arrangements between the supplier states and the IAEA; among the suppliers; contractual arrangements with nuclear fuel providers, transporters, storage providers, etc, agreements covering safeguards, security, safety and liability for nuclear damage with the host state where the fuel is located, as well as transit agreements with neighboring states.

Fuel Bank Operation and Size

The fuel banks are to be established as a last resort, moderate size option addressing a small group of countries, with very low probability of being drawn upon.  The estimated size of the fuel bank is one to two reactor reloads.  However, the assumptions behind determining the adequate size for ensuring emergency supply are not clear.  It is also not clear who would add material to the bank when the material in the bank has been used.  There are also questions left regarding reserve content and location.

Technical Challenges

There are numerous technical issues, and we raise just a few here.  The form of the fuel reserve is not defined yet.  There are challenges associated with both fabricated and non-fabricated fuel.  Utilities use different enrichment levels, and so the 4.9% U²³⁵ assay suggested by NTI for the IAEA fuel bank would not apply to all fuel needs, but it is close to the current 5% maximum enrichment for light water reactors and could be downblended to lower assays at the fabricator.  It may be possible to have the material at different assay levels (e.g., 3.0%, 4.0%, and 5.0%) which could be blended, but this may not be practical.  There are proposals to up-blend or down-blend material in one of the supplier states, but it leads to another level of complexity, and would take additional time.

There is also the important issue of getting the fuel fabricated, as it must be before it is usable in a reactor.  Generally, there is an excess of fabrication capacity, so fabrication would not pose as large a problem as getting the enriched fuel itself.  Besides, fabrication is not as sensitive from the nonproliferation standpoint as enrichment, and fabrication facilities are not the focus of nonproliferation discussion. But, it is still an issue that must be addressed.  Several proposals address fabrication issues – in this essay we focus on enrichment proposals, and omit fabrication ones.  In the meantime, while keeping a reserve of fabricated fuel was considered unpractical because of differences in reactor design, an option of suppliers’ commitment to provide a potential customer with a broader choice of fabrication options, in case of potential disruption, looks reasonable.

The international fuel supply assurances implementation mechanism is under development, and a lot of challenges are envisioned at the implementation stage.  The ease or difficulty of implementation will significantly impact the viability of the proposals.

Financially-Based Proposals

In addition to the official proposals submitted to IAEA, several market-based proposals suggested by members of the academic community have introduced complementary financial solutions to the issue of fuel supply assurances.  These are based on the existing contract practices and traditional approaches to risk management, and present options for public-private cooperation in order to simplify implementation of fuel supply assurance concepts.  Two of them are discussed below.

Mutual Fund by Insurance Companies

The Harvard-Wharton proposal developed by Debra Decker and Erwann Michel-Kerjan, from Harvard Belfer Center and the Wharton School respectively, suggested establishing an international mutual insurance corporation to guarantee nuclear-fuel supplies, and is based on the general risk management practices of insuring political risks.¹⁷  Member countries pay annual insurance premiums to establish an insurance fund.  A portion of the premiums are used to establish a cash reserve and to purchase supply options to be used in case of supply disruption; another portion of the premiums is used for reinsurance.  Funds accumulated by the insurance consortium would pay for disruption in fuel supply (as pre-defined in the insurance contract).  Authors refer to the similarities with the nuclear liability insurances under the U.S. Price Anderson Act.  Although traditionally insurance companies deal with more measurable risks, there is experience dealing with large-scale political risks, and according to the authors, there is a willingness on the part of insurance companies to investigate such potential.  The authors also suggest that the IAEA set up a nonprofit Exchange-Traded Fund.  While academic in nature, the proposal is quite detailed and provides a staged approach and guidelines for implementation.  Currently, potential stakeholders are reviewing the possibilities of the proposal implementation.

Escrow Account

Chaim Braun, a Science Fellow at the Stanford Center for International Security and Collaboration (CISAC) suggested establishing escrow accounts, in which independently managed funds are set aside as compensatory payments in the case of non-delivery.¹⁸  This type of assurance would rely on stronger measures for non-delivery than the non-performance guarantees and penalty clauses contained in existing commercial contracts.  According to the proposal, host governments for the fuel suppliers impose contributions on fuel providers in the country to provide payments into the escrow fund.  The proposal suggests that “the escrow account fund would be invested in secure government bonds that would yield income compensating for inflation.”  The accumulated funds would be kept as a supply assurance escrow account which will cover the cost of disruption (losses in case of politically motivated disruption) not covered by contracts’ guarantees.  Size and schedules of payments will be agreed upon later.  The account would be managed by an independent board comprising the IAEA, non-profit organizations, and representatives of the sponsoring governments.  The IAEA will assess the nonproliferation records and eligibility of the recipient country.  The proposal is not limited to enrichment services assurances, and includes fabrication.  The concept is similar to the abovementioned Harvard-Wharton proposal, providing financial back-up for contract disruption.  As the Harvard-Wharton proposal, it grants financial assurances in the case of disruption, but not the assurance of the physical fuel supply, which is the major concern for the emerging countries.

Other Arrangements

Several other proposals are trying to use contract practices to help assure supply for nonproliferation purposes.  For example, earlier we discussed “nuclear fuel credits” proposed by Chaim Braun.

Fuel leasing and take back is another popular concept, partly exercised through GNEP, which addresses nonproliferation challenges not only on the front-end but on the back-end.¹⁹  Additional fuel leasing proposals have been made by a number of other experts and groups.²⁰

While dealing with the back-end is especially important from a nonproliferation standpoint, in this essay we omit proposals addressing back-end or fabrication in order to focus on the enrichment issues.

Although the financially-backed approaches we examined need further exploration, they might serve as a useful complementary mechanism for the assuring supply proposals, help to resolve some of the abovementioned challenges, and provide a financial pool supporting operation of the fuel banks.

Fuel Banks: An Industry Perspective

As this initially nonproliferation-related topic gained more interest in the industry, UxC included questions on fuel banks in its 2007 summer survey of participants in the nuclear fuel market.²¹  The rationale was not only to acquire the industry’s point of view on the nonproliferation-grounded concepts, but to encourage out-of-the-box thinking about potential alternatives to the proposed mechanisms to assist in achieving nonproliferation goals without distorting the market.  We believe that the industry’s perspective is crucial to the discussion.

For the purpose of the survey, the first question specifically asked respondents, both consumers and producers, about “fuel banks” rather than fuel supply assurances.²²

We asked the following questions:

• Do you believe that an international nuclear fuel bank to promote non-proliferation goals would be beneficial or harmful for the market?
• Do you believe that there are other measures that could support supply assurance beyond the creation of fuel banks?

We expected that a significant portion of the respondents would consider fuel banks to negatively impact the market, and we also thought there would be significant differences in responses between the U.S. and non-U.S. respondents, as well as between utilities and non-utilities.  However, there was almost no difference in responses between utilities and non-utilities; U.S. and non-U.S. respondents.  In general, 52 percent of the respondents indicated that fuel banks would be beneficial, while 48 percent thought that they would be harmful – almost a 50/50 split (see Figure 5).

Those that saw fuel banks as beneficial cited the following: “supports controls on proliferation of nuclear material”; “may be the only way that the international community would allow nuclear power to proceed in some countries”; “may assuage some opponents of nuclear power which cite proliferation as a problem which should limit nuclear expansion”; “could provide more stability in the market as new nations introduce nuclear power”; “provides incentives to expand nuclear power which could stimulate the open market further; “provides an “insurance policy” for the industry”; “would reduce restrictions on the access to material to the extent that it achieves an “international status.”

Responses of those who considered fuel banks to be harmful included the following: “takes material that would be potentially available to the market out of the market permanently”; “creates more trade barriers and political interference in the market”; “not compatible with the market and would distort the market”; “resulting inventory overhang could discourage investment in new capacity”; “increases dependency on such supplies instead of relying on own security stocks and long-term contracting”; “places additional restrictions on material that would otherwise be freely traded”; “pointless in the sense that it would not dissuade countries that truly wanted to develop nuclear weapons”.

It is fairly obvious that some respondents believe fuel banks would distort the market (taking material out of the market, creating an inventory overhang, creating additional trade restrictions), thus increasing supply risk for utilities not given supply guarantees and also increasing price risk due to political involvement and associated distortions of the market.  There is the belief that fuel banks would be ineffective anyway – that’s why the fuel supply assurances target only one type of motivation – economic, when countries do not build their own enrichment and reprocessing capacities for purely economic reasons.  One interesting comment was that the development of fuel banks would make recipients dependent on fuel banks and not take the initiative to develop their own security measures.

While the negative perception of fuel banks did not come as a surprise, observations on the benefits of the fuel supply assurances shows that the industry has done a certain amount of thinking on these issues.  One of the arguments was that fuel banks could promote nuclear power in the countries which could be discouraged from developing it otherwise, and further, that growth in nuclear power would be good for the market.  While in the short term fuel banks “consume” uranium, in the long term, growing nuclear power while putting more pressure on supply, is good for the market and will result in more participants – more buyers and sellers to supply them, which should make for a more vibrant market and stimulate developing new advanced enrichment technologies.  As mentioned by respondents, such a solution could be the only way for nuclear power to be allowed in certain countries.

The respondents also brought to attention the nonproliferation aspect of the problem.  In fact, a well-functioning market is at the opposite end of the spectrum from the point where all countries built their own facilities.  In the situation where countries build facilities, this would bring great inefficiencies, resulting in higher prices, which would at the same time be detrimental to the progression of nuclear power and encourage still more countries to build enrichment plants.  Since preventing proliferation is a significant factor in political and public perception of nuclear power development, establishing fuel banks as an effective nonproliferation measure could be an additional argument for gaining public and political credits.

The last comment states that material that might currently be restricted in the open market, like Russian uranium, would lose this restriction if it became part of a fuel bank.  In other words, for the purposes of the fuel bank, the material might lose its origin, or get a generic origin such as IAEA.  The fuel bank will provide an opportunity for the countries facing trade barriers – like Russia – to find a temporary use for extra enrichment capacities.  In addition to overcoming trade restrictions, fuel banks could play sort of a marketing role, leading to expansion of the market as a result.  This idea was exploited by the Russian proposal of establishing an international enrichment center in Angarsk.

Alternative Measures for Fuel Supply Security

In our survey, we also asked for suggestions on alternatives to fuel bank approaches to fuel supply assurances.  In response to the question of whether there were other measures that could support supply assurance beyond fuel banks, 72 percent of the respondents responded positively, while 28 percent responded negatively (see Figure 6).

However, the way the question was worded, it did not explicitly ask for alternatives to support nonproliferation goals, but steps to support supply assurance in general.  Besides, the companies which are responding to the survey are those currently in the industry and thus their focus on market-based supply assurance relates to existing utilities needs.  At the time of the survey, there was much more focus on uranium than enrichment, as the spot uranium price had just reached its historical high, while the supply of enrichment is the main focus of fuel banks.  While this might not help address the supply assurances for emerging countries, it does reveal that existing market participants are concerned with the issue of supply security in general.  Also there is no unanimity on the issue of government involvement in fuel supply assurances.

Some of the suggested alternatives included “additional government subsidies and a more relaxed regulatory environment,” “a sound procurement policy and a larger market,” “defining needs clearly and transparently,” “limiting or excluding hedge funds from purchasing uranium,” “increase recycling,” “instituting government funding for uranium mine development,” “emerging countries should develop strategic LEU inventories under oversight of IAEA,” “investing in more exploration and ease licensing procedures for new mines and fuel cycle facilities,” “reviewing accounting and tax rules to encourage utility inventories,” “having governments keep their noses out of the market,” “developing more diverse production sources,” “lifting trade restrictions,” “deploying advanced enrichment technologies and mine capacity,” and “assurance of export licenses from governments.”

Enrichment Options as a Potentially Complementary Approach

Another approach is along the lines of the earlier discussed practices of insuring the supply disruption risk by creating a mutual insurance company, and is based on the recent launch of using financial derivatives for hedging uranium supply.  A public-private initiative would be another financially-driven approach to the problem that could complement a “physically-driven” one where inventories of fuel are built up and held in fuel banks.  In this respect, it should be less expensive and less disruptive to the market, and more in line with how the market is currently developing.

Similar to a mutual insurance corporation pool, in the evolving derivatives market for uranium, the pool members could pay the premium for the option, which is the same as paying an insurance premium.  Options are just forms of insurance, giving the buyer the right to buy at a certain price in the future or a seller the right to sell at a certain price.  The pool members could include potential consumer countries (governments and/or utilities in case utilities are not government-owned) as well as other countries/companies potentially interested in developing additional supply capacity and providing supply services, including suppliers’ host countries, hedge funds, trading companies, etc.

As these would be call options, the premium would be paid to suppliers, who would then presumably hold inventories and/or excess capacity to cover the contingency that the option would be called.  The premium would cover the cost of carrying this additional inventory/capacity, and depend on parameters such as the strike price and the period over which it applies, but in any case the option costs are far less than the commodity.  As a hypothetical example, in the case of the $300 million value of the Russian inventory, which is sufficient to create fuel for two reloads, this same amount of money could cover options for 10 million SWU provided that the option premium was $30 per SWU.

One of the challenges that has been associated with uranium futures and options is that the underlying spot market is neither very liquid nor transparent, making futures and options pricing more difficult.  This is even truer for enrichment, and to date no derivatives have been developed for enrichment.  In this regard, any problems cited for uranium when it comes to the development and use of derivatives are magnified when it comes to enrichment.  In addition, the primary purpose of options, like other derivatives, is to mitigate price risk, not supply/delivery risk, although some buyers look to physically-settled futures as sources of supply.  It is likely that emerging countries would be more concerned with access to supply than the price of this supply.  However, they should also be concerned with a well-functioning market, as that is the best way to assure supply availability in the long term, and the options approach is consistent with a well-functioning market.  And, in the worst case, options could guarantee a financial settlement if there was no supply availability, but this would likely be the exception and not the rule.

Clearly, this is an area that needs to be studied further, but it seems like the market is evolving such that it would make such a financially-based solution to nuclear fuel assurance easier to implement.  While these products were not developed with the intent of addressing nonproliferation concerns, such application should not be discounted.

A Possible Future

Although the general perception is that the industry does not support the nonproliferation-backed alternative of establishing fuel banks, the outcomes of our survey convey that this is not true.  Survey participants outlined several arguments that could be used by the advocates of the fuel banks concepts to move forward.

Currently, implementation mechanisms for the fuel assurances concepts submitted to the IAEA are being developed.  However, while some official proposals are more advanced than others, implementation mechanisms are tricky.  In general, financial proposals are complementary to the country proposals.  They are obviously easier to implement because they are market-based, however, they are not so much nonproliferation driven and assure price rather than commodity delivery risk.  Nevertheless, they might be helpful in providing financial back-up for implementing fuel reserve proposals.

Ultimately, whatever occurs in terms of fuel supply assurances, it is imperative that both the industry and the nonproliferation community communicate their intentions and concerns in an effective and transparent manner.  Neither side has a monopoly on good ideas or intentions, and it is crucial that whatever fuel supply assurance regime becomes reality complements a well-functioning market rather than harms it.  The future of the enrichment industry, as well as nuclear power as a whole, may be impacted by what happens in the nonproliferation world, just as the evolution of the industry and market can impact the nonproliferation regime.

This article was originally published in the February 2008 issue of the Enrichment Market Outlook.

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1   RNFC study is discussed in V. Meckoni, R.J. Catlin, L.L. Bennett, “Regional Nuclear Fuel Cycle Centers, IAEA Study Project”, International Atomic Energy Agency, Vienna, Salzburg 1977, International Conference on Nuclear Power and its Fuel Cycle.  For the industry views on fuel supply assurances see e.g. C. Allday, British Nuclear Fuels Limited (BNFL), United Kingdom, “International Cooperation in the Supply of Nuclear Fuel Services,” International Atomic Energy Agency, Vienna, Salzburg 1977, International Conference on Nuclear Power and its Fuel Cycle.

2   INFCE study is discussed in 2004, Marius Stein, Canberra Aquila, Inc., Albuquerque, New Mexico, U.S.A., Gotthard Stein and Bernd Richter, Forschungszentrum, Juelich, Germany, and Caroline Jorant, Areva, France “Multi- or Internationalization of the Nuclear Fuel Cycle: Revisiting the Issue” in Journal of Nuclear Material Management, Summer 2004, Volume XXXII, No. 4.

3   International Atomic Energy Agency (IAEA) Report “Multilateral Approaches to the Nuclear Fuel Cycle”, INFCIRC/ 640, 22 February 2005.

4   Chaim Braun, Center for International Security and Cooperation (CISAC), Stanford University, “Technical Review of Fuel Assurance Proposals”, presentation at the Special Event at the 50th IAEA General Conference, “New Framework for the Utilization of Nuclear Energy in the 21st Century: Assurances of Supply and Non-Proliferation,” Vienna: 19-21 September 2006.

5   Special Event at the 50th IAEA General Conference, “New Framework for the Utilization of Nuclear Energy in the 21st Century: Assurances of Supply and Non-Proliferation,” Vienna: 19-21 September 2006, Report of the Chairman, Mr. Charles Curtis.

6   World Nuclear Association (WNA) Report, “Ensuring Security of the Supply in the International Nuclear Fuel Cycle”, May 2006.

7   “Communication dated 31 May 2006 received from the Permanent Mission of France, Germany, the Netherlands, the Russian Federation, the United Kingdom of Great Britain and Northern Ireland and the United States of America”, GOV/INF/2006/10.

8   “Communication received from the Resident Representative of the Russian Federation to the Agency transmitting the text of the Statement of the President of the Russian Federation on the Peaceful Use of Nuclear Energy”, INFCIRC/667, 8 February 2006.

9   “Communication received from the Resident Representative of the Russian Federation to the IAEA on the Establishment, Structure, and Operation of the International Uranium Enrichment Center”, INFCIRC/708, 8 June 2007.

10 “Communication dated 28 September 2005 from the Permanent Mission of the United Sates of the America to the Agency”, INFCIRC/659, 29 September 2005.

11 “Nuclear Threat Initiative Commits $50 million to create IAEA Nuclear Fuel Bank”, press-release, 19 September 2006.

12 “Communication received on 12 September 2006 from the Permanent Mission of Japan to the Agency concerning arrangements for the assurance of nuclear fuel supply”, INFCIRC/683, 15 September 2006.

13 “Communication dated 30 May 2007 from the Permanent Mission to the United Kingdom of Great Britain and Northern Ireland to the IAEA concerning Enrichment Bonds – A Voluntary Scheme for Reliable Access to Nuclear Fuel”, INFCIRC/707, 4 June 2007.

14 “Communication received from the Resident Representative of Germany to the IAEA with regard to the German proposal on the Multilateralization of the Nuclear Fuel Cycle”, INFCIRC/704/ May 4, 2007

15 Mark Hibbs, “Germany Aims to Prepare Agreements for Multilateral SWU Plant Proposal”, Nuclear Fuels, December 31, 2007.

16 Takuya Hattori, Executive Vice Chairman, Japan Atomic Industrial Forum Inc. (JAIF), “Strategy on Supply Assurance: The Perspective of Japanese Nuclear Industry”, Speech at the IAEA Special Event “New Framework for the Utilization of Nuclear Energy in the 21st Century: Assurances of Supply and Non-Proliferation,” Vienna: 19-21 September 2006.

17 Debra K. Decker and Erwann O. Michel-Kerjan, “A New Energy Paradigm. Ensuring Nuclear Fuel Supply and Nonproliferation through International Collaboration with Insurance and Financial Markets”, BCSIA Discussion Paper 2007-02, Kennedy School of Government, Harvard University, March 2007.

18 Chaim Braun, “Nuclear Fuel Supply Assurance,” CISAC, Prepared for the International Panel on Fissile Materials (IPFM), Draft, 2007

19 James Malone, James Glasgow, Stephen Goldberg, and Peter Heine, “TRUST (Terms for Reliable Uranium Service Transactions through Leasing) – an Innovative Fuel Leasing Approach”, Presentation at the NEI-WNA International Fuel Cycle Conference in Budapest, Hungary, in April 2007.

20 E.g., “Reforming the Nuclear Fuel Supply”, Panel at the Carnegie Nonproliferation Conference, Washington, DC, Nov. 8, 2005.  Also see Pierre Goldschmidt ”Mechanisms to Increase Nuclear Fuel Supply Guarantees,” Presentation at the Carnegie Nonproliferation Conference, Washington, DC, November 8, 2005; Valentin Ivanov, Presentation at the Carnegie Nonproliferation Conference, Washington, DC, November 8, 2005, and others.

21 “Industry Views on Fuel Banks”, Ux Weekly, September 24, 2007

22 We want to express our thanks to those that took the time to respond to the survey.  There were a number of thoughtful and thought-provoking responses on a subject where there were obviously strong feelings.