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Nuclear News - 02/04/00
RANSAC Nuclear News, 04 February 2000

A.  Brain Drain

    1. Statement by Director of Central Intelligence Before theSenateSelect Committee on Intelligence on The Worldwide Threat in 2000: GlobalRealities of Our National Security [excerpt], George J. Tenet(02/02/00
    2. Tenet Says Russian Safeguarding of Nuclear Materials is aConcern, Susan Ellis, USIA (02/03/00)
    1. Duma To Consider Ratifying START II In Spring, AgenceFrance Presse (02/04/00)
C.  Nuclear Waste
    1. Submarine Reactor Sections Unwanted, Bellona(02/03/00)
    1. Uranium Company To Cut 850 Workers In Ohio, Kentucky,Katherine Rizzo, Associated Press (02/03/00)
    2. USEC Announces Workforce Reduction, USEC News Release(02/03/00)
    3. USEC Reduces Dividend, Substantially Expands ShareRepurchasePlan, USEC News Release (02/03/00)
    4. S&P Cuts USEC Inc Ratings, Standard & Poor'sPressRelease (02/04/00)

A. Brain Drain

Statement by Director of Central Intelligence Before the SenateSelect Committee on Intelligence on The Worldwide Threat in 2000: GlobalRealities of Our National Security [excerpt]
        George J. Tenet
        February 2, 2000
        (for personal use only)


We begin with Russia. As you know, we are now in the post-Yeltsinera,and difficult choices loom for the new president Russians will choose inexactly two months:

He will face three fundamental questions:

First, will he keep Russia moving toward further consolidation of itsnew democracy or will growing public sentiment in favor of a strong handand a yearning for order tempt him to slow down or even reverse course?

Second, will he try to build a consensus on quickening the pace ofeconomicreform and expanding efforts to integrate into global markets—someRussianofficials favor this—or will he rely on heavy state intervention toadvanceeconomic goals?

Finally, will Moscow give priority to a cooperative relationship withthe West or will anti-US sentiments continue to grow, leading to aRussiathat is isolated, frustrated, and hostile? This would increase the riskof an unintended confrontation, which would be particularly dangerous asRussia increasingly relies on nuclear weapons for its defense—anemphasisreflected most recently in its new national security concept.

As these questions indicate, a new Russian President will inherit acountry in which much has been accomplished—but in which much stillneedsto be done to fully transform its economy, ensure that democracy isdeeplyrooted, and establish a clear future direction for it in the worldoutsideRussia.

Russian polls indicate that Acting President Putin is the odds-onfavoriteto win the election—though I must tell you, Mr. Chairman, that twomonthscan be an eternity in Russia's turbulent political scene. Putin appearstough and pragmatic, but it is far from clear what he would do aspresident.If he can continue to consolidate elite and popular support, aspresidenthe may gain political capital that he could choose to spend on movingRussiafurther along the path toward economic recovery and democraticstability.

Former Premier Primakov is in the best position to challenge Putin,though he faces a big uphill battle. He would need the backing of othergroups—most importantly the Communists. The Communists, however, haveshowntheir willingness to deal with Putin's party in a recent agreement thatdivided Duma leadership positions between them. Such tactical alliancesare likely to become more prevalent as parties seek to work out newpowerrelationships in the post-Yelt'sin era.

At least two factors will be pivotal in determining Russia'snear-termtrajectory:

The conflict in Chechnya: Setbacks in the war could hurt Putin'spresidentialprospects unless he can deftly shift blame, while perceived successestherewill help him remain the front runner.

The economy: The devalued ruble, increased world oil prices, and afavorabletrade balance fueled by steeply reduced import levels have allowedMoscowto actually show some economic growth in the wake of the August 1998financialcrash. Nonetheless, Russia faces $8 billion in foreign debt coming duethis year. Absent a new I-M-F deal to reschedule, Moscow would have toredirect recent gains from economic growth to pay it down, or run theriskof default.

Over the longer term, the new Russian president must be able tostabilizethe political situation sufficiently to address structural problems inthe Russian economy. He must also be willing to take on the crime andcorruptionproblem—both of which impede foreign investment.

In the foreign policy arena, US-Russian relations will be tested ona number of fronts. Most immediately, Western criticism of the Chechenwar has heightened Russian suspicions about US and Western activity inneighboring areas, be it energy pipeline decisions involving theCaucasusand Central Asia, NATO's continuing role in the Balkans, or NATO'srelationswith the Baltic states. Moscow's ties to Iran also will continue tocomplicateUS-Russian relations, as will Russian objections to US plans for aNationalMissile Defense. There are, nonetheless, some issues that could movethingsin a more positive direction.

For example, Putin and others have voiced support for finalizing theSTART II agreement and moving toward further arms cuts in START III.

Similarly, many Russian officials express a desire to more deeplyintegrateRussia into the world economy, be it through continued cooperation withthe G-8 or prospective membership in the WTO.

One of my biggest concerns—regardless of the path that Russiachooses—remainsthe security of its nuclear weapons and materials. Russia's economicdifficultiescontinue to weaken the reliability of nuclear personnel and Russia'ssystemfor securing fissile material. We have no evidence that weapons aremissingin Russia, but we remain concerned by reports of lax discipline, laborstrikes, poor morale, and criminal activities at nuclear storagefacilities.

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Tenet Says Russian Safeguarding of Nuclear Materials is aConcern
        Susan Ellis
        February 3, 2000
        (for personal use only)

(CIA Director also concerned about Russia-Iran ties)

Washington -- Central Intelligence Agency (CIA) Director George Tenetsays the United States will be concerned about the security of Russiannuclear weapons and associated materials, regardless of the politicalpathRussia chooses.

Tenet made his remarks during a February 3 Senate Armed ServicesCommitteehearing on Threats to U.S. National Security. The committee also heardtestimony by Rear Admiral Thomas Wilson, director of the DefenseIntelligenceAgency.

While there is "no evidence to suggest there's ever been a diversionof a's fissile material that I'm more worried about," Tenetsaid during questioning by committee chairman Senator John Warner,Republicanof Virginia. "It's the brain drain that I'm more worried about, andwherepeople (scientists) who no longer have the wherewithal to be supportedmay end up," he added.

Tenet said he is also concerned about "Russian proliferationactivitieswith regard to countries like Iran." He said Russia's strategicrelationshipwith Iran goes "beyond a relationship based on weapons or money, thatallowsthe Russians some leverage in that part of the world."

Iran's development of the Shahab-3 medium-range ballistic missile,"andthe development of longer-range missiles that have been the product ofextensive Russian assistance" is a concern, he said, adding "Iran'semergenceas a secondary supplier of this technology to other countries is thetrendthat worries me the most."

Wilson concurred with Tenet saying that the "safeguarding of nuclearmaterial and weapons" in Russia is of prime concern. He said that whileRussia is committed to safeguarding such materials, "the organizationsthat do that mission are stressed by the same economic shortfalls andreadinessshortfalls as (are) the rest of the armed forces (in Russia). And whilewe don't have evidence of loss of control, until the environmentimproves,it will be a great continuing concern."

Senator Ted Kennedy, Democrat of Massachusetts, called the hearing" preparation for the consideration of the defenseauthorization."The Clinton administration's new defense budget request will bepresentedto Congress on February 8.

He said the American people must hear "about how the nature of thethreathas altered....I think we have to deal with that changed threat."

Asked by Kennedy whether a "policy of Mutually Assured Destruction(MAD)"which provided deterrence for some 40 years, still makes sense withcountrieslike Iran, Iraq, and North Korea, Tenet responded:  "When you talkabout someone like Kim Chong-il in North Korea, I don't think anyonecouldtell you what his precise deterrence calculus is."

North Korea's domestic situation, he continued, demonstrates thatthatcountry's leader "views these weapons not just as a militaryapplication,but at the heart of his economic foundation."

Tenet said in his view the United States has "to determine howforward-deployedwe want to be with our diplomats and with our military, with ourintelligencecommunity...and then take these tools and apply them in a way thatmaximizesour leverage."

He said he could "make a case for more intelligence dollars" and for"paying careful attention to the infrastructure of the StateDepartment,"whose facilities and resources have "been decimated around the world.Theflagship of what the United States is is in embassy and politicalreporting,and it's the first node of information that we have."

Tenet stressed that decisions must be made about "how you sustain along-term investment in all of these disciplines to maximize theinfluenceof the United States." The debate is needed, he added, because manypeople"have assumed that at the end of the Cold War, everything is fine, theworld is safe, our prosperity saves us. And if I have learned anythingaround the terrorist millennium threat, this country is at greater risktoday that t (has) ever been."

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Duma To Consider Ratifying START II In Spring
        Agence France Presse
        February 4, 2000
        (for personal use only)

MOSCOW, Feb 4, 2000 -- (Agence France Presse) Russia's Duma willconsiderratifying the US-Russian Strategic Arms Reduction Treaty (START II) inthe spring, the country's foreign affairs commission president announcedlate Thursday.

Deputies in the lower house of parliament decided on Tuesday to putSTART II on their spring agenda along with questions surrounding theAnti-BallisticMissile (ABM) treaty, commission president Dmitri Rogozin was quoted bythe ITAR-TASS agency as saying.

Despite US urging, Russia is opposing any modification of the ABMtreatysigned in 1972.

The United States is seeking amendments to the ABM treaty to enableit to build a nuclear defense shield over the United States.

START II, signed in 1993, has still not been ratified by Russia,whileSTART III talks have already begun.

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C. Nuclear Waste

Submarine Reactor Sections Unwanted
        February 3, 2000
        (for personal use only)

The city council of Skalysty at the Kola Peninsula has decided tocarryout a referendum regarding the plans of the Northern Fleet to build anonshore storage site for reactor sections from decommissioned submarinesin Saida Bay, 2.5 kilometres from the city boarder. Referendum willreportedlytake place on March 26 - the president election day in Russia. Skalistyhosts a base for strategic nuclear submarines of Delta-class andgeneral-purposesubmarines of Akula-class.

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Uranium Company To Cut 850 Workers In Ohio, Kentucky
        Katherine Rizzo
        Associated Press
        February 3, 2000
        (for personal use only)

WASHINGTON (AP) The company that owns and operates the nation's onlytwo uranium enrichment plants said Thursday it will lay off 850 workers,about 22 percent of its work force.

U.S. Enrichment Corp. will evenly divide the cuts between thePortsmouthGaseous Diffusion Plant in Piketon, Ohio, and the Paducah GaseousDiffusionPlant in Paducah, Ky. About 2,100 people work in Piketon and 1,700 inPaducah.

USEC has been hurt by falling prices for enriched uranium, which isused to fuel nuclear power plants. The company also is losing money ona deal to buy Russia's uranium stockpile and sell it to utilitycompaniesworldwide.

''It is well known that increased global oversupply of enrichment andstrong competition have resulted in increasing pressure on us to furtherreduce our labor costs,'' USEC executive vice president Jim Miller said.

The company cut 250 workers from each plant last year. It expects tosave $39 million with the latest round of layoffs, which are to begin inJuly.

''I'm trying to stay optimistic, if I can,'' said Dan Minter,presidentof the Piketon chapter of the Paper, Allied-Industrial, Chemical andEnergyWorkers International Union, which represents Portsmouth plant workers.

Last week, Energy Secretary Bill Richardson traveled to both plantsto announce plans to seek extra cleanup funds. Both facilities areheavilycontaminated, with cleanup expected to take many years.

Richardson said he would announce a plan Friday to use some of thedisplacedworkers for cleanup efforts at the plants and other EnergyDepartment-fundedsites in the areas.

Bethesda, Md.-based USEC was a federal agency set up to enrichuraniumfor commercial nuclear plants. It was privatized in 1998 to bettercompetein a global market.

USEC officials say while the company is profitable, it is losingmoneyon the Russian contract. The deal was set up by the U.S. government tokeep Soviet-era warhead uranium away from rogue nations and terrorists.USEC has bought the uranium equivalent to 3,000 warheads.

USEC asked the federal government in December to compensate thecompanyfor up to $200 million lost on the Russian deal, but the governmentdeclined.

USEC's stock price has fallen steadily since opening in 1998 at$14.25per share. It closed unchanged Thursday at $5.87½ on the New YorkStock Exchange.

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USEC Announces Workforce Reduction
        USEC News Release
        February 3, 2000
        (for personal use only)

Bethesda, MD -- USEC Inc. (NYSE:USU) announced today that it willreduceits production workforce by 850 beginning July 2000. This 20 percentemployeereduction, a critical step in reducing the Company’s cost structure inresponse to declining market conditions, is expected to result inapproximately$39 million in annual production cost savings. The Company will alsoreduceits headquarters costs.

A voluntary reduction in force will be offered. If there are notenoughvolunteers, an involuntary program will be initiated. The reductionswillbe divided approximately equally between the Company’s two plants inPaducah,Kentucky, and Portsmouth, Ohio, and will be conducted in full compliancewith the privatization agreement with the U. S. Treasury Department.

"We regret having to take this action and the impact it will have onour employees," said USEC Executive Vice President Jim Miller. "It iswellknown that increased global oversupply of enrichment and strongcompetitionhave resulted in increasing pressure on us to further reduce our laborcosts. We continue to strongly support government activities to carryoutworker transition programs and to create new jobs. We will continue tomake every effort to work closely with our unions, state and localofficials,the U.S. Department of Energy and Congress to seek timely implementationof these transition programs."

In guidance offered by USEC today about its fiscal year 2001 outlook,USEC is projecting substantially lower earnings next year compared tothecurrent fiscal year. This outlook results from continuing low marketpricesfor SWU and uranium, lower anticipated USEC sales volumes in fiscal2001,and higher unit production costs that stem from the substantial volumeof Russian enriched uranium that the Company must purchase atabove-marketprices and the resulting lower production volumes at the enrichmentplants.Continuing U.S. government restrictions further limit the Company fromtaking decisive cost-cutting actions required by current unfavorablemarketconditions.

USEC Inc. is the world’s leading supplier of enriched uranium fuelforcommercial nuclear power plants. A global energy company, USEC has itsheadquarters in Bethesda, Maryland, and operates production plants inKentuckyand Ohio.

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USEC Reduces Dividend, Substantially Expands Share RepurchasePlan
        USEC News Release
        February 3, 2000
        (for personal use only)

-- Total Program to Acquire 30% of Original Shares -

Bethesda, MD – The Board of Directors of USEC Inc. (NYSE: USU) todayreduced by half the dividend paid on common shares, declaring aquarterlydividend of 13.75 cents per share on USEC’s common stock. The dividendis payable March 15, 2000 to shareholders of record on February 25,2000.

Following a review of the Company’s financial outlook thatanticipatessubstantially lower net income for fiscal 2001 and beyond, the Boardreducedthe dividend, beginning with the March 15 payment. The Board took thisaction in order to align the payout ratio with the Company’s projectedearnings, to provide a highly competitive dividend yield based oncurrentmarket prices and to fund, together with excess cash, a significantsharerepurchase program. Based on a market price of $6 per common share, anannualized dividend of $.55 yields 9.2 percent.

In a related action, the Board approved an expansion of the commonstockrepurchase program that authorizes buying back up to an additional 20millionshares, for a total of 30 million shares, by June 2001.

Under a prior repurchase authorization, during the period betweenJune10 and December 31, 1999, the Company repurchased 9.6 million shares.USEChad 90.5 million shares outstanding as of December 31, 1999. Theexpansionof the repurchase plan will be funded through internal cash flow andaugmentedby short-term borrowings, as needed. Over the term of the full program,the share repurchase will be funded by internal cash flow. The Boardactionauthorizes the Company to purchase the shares from time to time on theopen market or through privately negotiated transactions during the next17 months.

"In light of the anticipated future earnings levels announced today,the Board felt it was prudent to alter the dividend policy at thistime,"said Chairman James R. Mellor. "The share repurchase program, however,underscores the Board’s confidence in the long-term prospects of ourCompany.

USEC Reduces Dividend

We consider the purchase of our shares at current market prices to bea good use of our cash resources, while still offering a highlycompetitivecurrent dividend yield."

USEC Inc. is the world’s leading supplier of enriched uranium fuelforcommercial nuclear power plants. A global energy company, USEC has itsheadquarters in Bethesda, Maryland, and operates production plants inKentuckyand Ohio.

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S&P Cuts USEC Inc Ratings
        Standard & Poor'sPressRelease
        February 4, 2000
        (for personal use only)

NEW YORK, Feb 4 - NEW YORK Standard & Poor's today lowered itsratingson USEC
Inc. (see list below).

The current outlook is negative.

The downgrade reflects greater-than-anticipated intensification ofcompetition.USEC's financial performance is being hurt by continuing erosion in theprice of its main product, enriched uranium.

Pricing pressure is resulting from excess production capacityindustrywide,exacerbated by aggressive efforts by competitors to gain market share,the liquidation of safety stocks that had been held by certain customersand countries, and exports to the U.S. market by Kazakhstan, which hasbeen able to circumvent trade barriers.

Standard & Poor's does not anticipate any near-term improvementin prices.

Adding to the challenges for USEC is its role as marketer of materialfor AO Techsnabexport ('Tenex'; unrated), a Russian government entity.

Under its contract with Tenex, USEC is obligated to purchase enricheduranium from Tenex at a price that now exceeds its own unit productioncost.

With the decline in market prices, this arrangement has becomeincreasinglyburdensome for USEC.

To date, efforts by USEC to renegotiate pricing under the contractandto obtain relief from the U.S. government have been unsuccessful.

While USEC might ultimately choose to withdraw from the arrangementwith Tenex, the company would thereby run the risk that the Russianmaterialwould destabilize the world market for enriched uranium -- as occurredin the early 1990s.

USEC has also been adversely affected by rising costs. Materialpurchasedfrom Tenex has displaced USEC's own production, causing unit productioncosts to rise.

USEC has also been affected by rising electric power costs -- thisbeingthe largest component of its cost structure and by unfavorable currencyexchange rate movements.

Management has initiated aggressive cost-cutting actions, such as thejust-announced plan to reduce its work force by 850 employees, but theseare unlikely to fully offset adverse market conditions and costpressures.

USEC had been expected to replace its current production technologywith a new laser-based technology, which it was hoped wouldsignificantlyimprove the company's cost position, but development efforts wereterminatedduring 1999 due to poor economics. USEC is now in the process ofevaluatingalternative technologies.

USEC's earnings prospects have deteriorated considerably. Managementhas stated that net income for the fiscal year ended June 30, 2000, isexpected to total a weak $110 million to $115 million (beforerestructuringcharges), and decline to between $35 million and $45 million duringfiscal2001.

In contrast, USEC's internal cash flow generation remains relativelystrong, but this largely reflects the planned liquidation of its naturaluranium inventories, which will be depleted in 5 to 6 years.

In reaction to the weakness of its common share price, USEC initiatedshare repurchases during 1999, and a new 20 million share repurchaseprogramhas just been announced (worth about $118 million at the current shareprice): implementation of this program would more than offset the cashsavings resulting from the just-announced cut to its common dividend.

Still, USEC's financial flexibility should remain adequate, in lightof the company's moderate debt usage and the availability of borrowingsunder its bank credit facility.


Ratings would be jeopardized by further erosion in pricing, or ifmanagement'scost cutting efforts fail to stabilize earnings, Standard & Poor'ssaid. RATINGS LOWERED

To From USEC Inc. Corporate credit rating BB+ BBB Short-termcorporatecredit rating B A-2 Senior unsecured debt BB+ BBB Bank loan rating BB+BBB Commercial paper B A-2

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