- "It was lunacy to privatize the U.S. agency that
processes uranium for bombs." Sept. 11 brought home the dangers of
terrorism. But years before that, during the mid-1990s, a decision was
made that worsened the risk of nuclear terrorism today: The government
privatized the U.S. Enrichment Corp., commonly known as USEC...
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- A division of the Energy Department, USEC had been the
government entity charged with enriching natural uranium metal. Low-enriched
uranium fuels nuclear power plants; highly enriched uranium fuels nuclear
weapons. The two products are made by the same process.
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- In 1993 USEC was also entrusted with implementing a swords-to-plows
deal with the Russians. It would dilute highly enriched uranium from deactivated
Soviet nuclear warheads and sell it to utility companies for power. We
had no desire to see some underpaid apparatchik sell nuclear material to
an Osama bin Laden or Saddam Hussein.
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- To most people the idea of privatizing the agency making
ingredients for nuclear bombs made as much sense as selling shares in the
Defense Department. But forces were arrayed to push a USEC sale. Clinton
was desperate to balance his budget. To budget bureaucrats every dollar
counted--although I believe that sound accounting would not allow receipts
from privatization to be counted. Treasury was blinded by ideology--the
notion that privatization was always and everywhere a good thing. And Wall
Street hungrily eyed the underwriting fees.
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- As chairman of the Council of Economic Advisers, I saw
the proposal as bad economics and, worse, bad national security. Over the
CEA's objections, the agency went public in July 1998, raising $1.5 billion
at $14.25 a share. Morgan Stanley and Merrill Lynch led the underwriting,
reaping $43 million in fees, an amount that seems out of proportion to
the government's take, especially taking account of the hundreds of millions
of dollars' worth of uranium stockpiles that the government threw in to
the deal.
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- We worried that a profit-motivated USEC would put obstacles
in the way of getting more uranium out of Russia, and this is just what
happened. USEC has no desire to see the U.S. market flooded with uranium
from abroad. So USEC has pushed for unrealistically low prices from the
Russians and asked for U.S. government subsidies. So far it has bought
only 141 metric tons of the 500 tons of bomb-grade uranium to which it
is committed to purchasing. By some estimates the amount of highly enriched
uranium still in Russia is equivalent to 26,000 warheads.
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- Consider: A terrorist or state need buy (or steal) only
55 pounds of the high-grade uranium to make a bomb. And the engineering
prowess required to turn that U-235 into a weapon is not great. It would
be accessible to a rogue state, probably to a very well financed terrorist.
Those 55 pounds would be enough to flatten everything in a half-mile diameter.
If USEC bought more uranium we could rest easier about it not ending up
in a terrorist's hands.
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- As a business proposition USEC is a loser, too. Its technology
is antiquated. One argument for the sale--that it would enable the company
to proceed with the development of a new laser-based technology--has evaporated:
As the CEA predicted, USEC abandoned the laser effort. Net income fell
to $16.6 million in the last year from $250 million before privatization.
The stock is trading at around $7. But USEC officials aren't regretting
the stock sale. Last year Chief Executive William Timbers made $990,000
in salary and bonus, more than triple what he could have made as a government
official.
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- Privatization was a mistake. What should we do now? Renationalization
is one option. Another idea comes from USEC's customers, the utilities.
They want to form a new company that would buy uranium directly from Russia
and sell it to the utilities at a price lower than USEC offers, cutting
out the middleman. This would benefit American consumers while speeding
up the removal of uranium from Russian depositories.
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- In the post-9/11 world it has become even more necessary
to find a way to prevent nuclear proliferation.
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- Research assistance by Christopher Helman.
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