Foreign Relations of the United States, 1969–1976, Volume E–14, Part 2, Documents on Arms Control and Nonproliferation, 1973–1976

108. Memorandum From the Deputy Secretary of State (Ingersoll) to the President’s Assistant for National Security Affairs (Kissinger)¹

Washington, January 8, 1975.

SUBJECT

• Department of State Position on NSSM 209 (Uranium Enrichment Capacity)

The Department of State has reviewed the study prepared by an interagency working group in response to NSSM 209, transmitted for comments by the NSC staff on December 19, 1974. Our recommended position on U.S. enrichment policy, presented below, is based primarily on foreign policy considerations, but we have also taken domestic concerns into account.

Discussion

U.S. enriched uranium supply policy influences our overall political relations with major countries and specifically affects our nonproliferation and energy cooperation efforts as well as our balance of payments position. All of these concerns have suffered during the past year due to the uncertainty over whether, when, and how new enrichment capacity would be built, and because of the particularly acute damage caused by the “contracting gap” which began last summer and which continues to exacerbate our foreign policy problems in the areas noted. Indeed, this created the situation which led the Department of State to request an interagency study of U.S. enrichment policy.

Last August, the President publicly affirmed the intention of the United States to remain a reliable source of enriched uranium fuel for foreign as well as domestic users. To support this declaration, prompt action is now needed to restore the credibility of the U.S. as a world supplier of enriched uranium services—not only a firm decision to commit a fourth enrichment plant and begin contracting, but also the development of a credible long-term program for achieving the additional capacity to serve foreign and domestic markets on a nondiscriminatory basis under competitive price and contract terms. This is as much a political and psychological matter, involving perceptions and attitudes, as it is a technical question of actually being in a position to supply fuel when needed.

It is equally important that our enrichment programs remain highly responsive to U.S. Government policy in the critical and dynamic fields of energy cooperation and nuclear nonproliferation. The right decision at this time would complement and reinforce our international energy policy actions and strengthen our negotiating position with other oil consumers as we prepare for a producer-consumer dialogue. American proposals for enhanced cooperation in nuclear fuel supply among members of the International Energy Agency, which can show OPEC that the industrialized nations intend to diminish their dependency on oil, must be supported by an active U.S. uranium enrichment effort carefully shaped by policy-making authorities. Given the renewed risks of proliferation, there is a need to assure that our international enriched uranium position adequately supports national and multilateral attempts to prevent the further spread of nuclear weapons, both by providing the vehicle for instituting safeguards over foreign power programs and by creating leverage through foreign dependence on U.S. fuel supply.

Demand projections based upon domestic needs indicate that a commitment to construct the fourth gaseous diffusion plant should be made no later than mid-1975 in order for the plant to provide fuel by 1982. An additional six-month delay in resuming contracting would compound our international problems, and any subsequent delay would have severely deleterious consequences for U.S. foreign policy interests through extension of the “contract gap” for an intolerably long period. Entirely apart from foreign policy, our domestic energy objectives argue for the early need to establish a clear plan to provide enrichment capacity. Stabilizing this vital component of the fuel cycle would materially assist U.S. utilities to move forward with nuclear power plant projects on schedule.

The status and prospects of the UEA private industry effort aimed at building a fourth gaseous diffusion plant remain highly uncertain. Despite its loss of partners, Bechtel continues to persevere in this endeavor, but it has thus far failed to induce electrical utilities in the U.S. and abroad to invest in the plant or to negotiate final fuel contracts—partly because of the stringent terms that UEA has demanded and partly because of the difficult financial position of many domestic utilities. This situation has led to consideration of expanded programs of U.S. Government assistance and assurance to UEA in an effort to make a private commitment possible. However, it is far from certain that a feasible “closure package” could be agreed upon to ensure a timely and positive UEA decision, particularly if crucial elements of this assistance package require new legislation and major government commitments.

The perceived benefits of establishing the private entry policy in 1971 were obviously persuasive to U.S. decision makers at that time and many arguments for continuing this policy can be made. However, given the delays and difficulties experienced in seeking to transfer responsibility for the next increments of enrichment capacity to the private sector, it would seem reasonable at this stage to question the advisability of the “privatization” policy as currently conceived. Four issues warrant special consideration:

1. Although there is no guarantee of success, if we persevere in seeking private entry, we might be able to achieve a UEA commitment by the end of June to build a fourth gaseous diffusion plant. While this may be soon enough to avoid a supply gap, the continued inability to resume contracting promptly would, as indicated, further damage our foreign policy interests and weaken the ability of the U.S. to maintain a sizeable share of the foreign enrichment market. The immediate resumption of government contracting above present plant capacity, pending UEA’s decision and with termination of these contracts in favor of a private plant when committed, has been suggested as a means of ending the “contracting gap.” However, even if this step were approved by Congress, we share AEC’s assessment that it would undercut prospects for private entry by removing the incentive for utilities to sign contracts with UEA, since the government would be seen as committed to provide new capacity. Moreover, even if initial private entry is achieved, it is unclear, given technological, financial, and marketing uncertainties, whether the process could be repeated with other firms using different technology (e.g., centrifuge) to provide the succession of new facilities needed to support our foreign and domestic enrichment objectives over the coming decades. In any event, whatever our domestic plans and programs, most foreign customers would at this point be expected to doubt the long-term reliability of a U.S. private entry policy.

2. The assumption that the enrichment business is conducive to private ownership, at least in the near term, should be reviewed in light of recent experience. The proposal to offer major assistance to facilitate UEA’s commitment raises the prospect of a government-subsidized and federally supported industry with few of the characteristics of competitive free enterprise. In any case, progress in centrifuge technology suggests that there may not be room for private competition in diffusion plants beyond the next increment. Yet the prospect of early private commitments to large centrifuge plants is uncertain, since the AEC’s centrifuge demonstration program implies that substantial government assistance in the form of jointly funded pilot-scale facilities will be necessary to ensure that commercial-scale plants are built to meet future demand. Despite the fact that other elements of the nuclear fuel cycle in the United States are in private hands, enrichment technology, financing, and planning present unique problems. As in the case of nuclear waste disposal (and as might well be the case in fuel reprocessing), the enrichment function at this juncture might best be accomplished through a government entity. Of course, under any form of government responsibility, private industry would continue to play a major role in the enrichment field through research and development activities, component manufacturing responsibilities, and plant construction and facility operations under government contracts.

3. The strongest argument favoring a policy of turning to the private sector to provide enrichment services is that it would avoid the necessity of making a substantial investment of government funds over the next decade—which would not yield offsetting revenues until the 1990s. However, it is possible to avoid this problem through the establishment of a government corporation to assume responsibility for developing new capacity and operating the three existing plants—while holding open a future ownership role for the private sector in building additional elements of capacity. Funding such a corporation would not necessarily involve congressional appropriations or direct federal outlays; self-financing could be accomplished by borrowing from the private money market or from the U.S. Treasury which would issue bonds. While the net expenditures of such a corporation would be included under the federal debt ceiling, such expenditures would not contribute to the federal budget deficit—as would be the case if ERDA built new plants. Also, a government corporation would be structured to permit the investment of foreign capital. Some foreign countries would welcome the opportunity to invest in return for the increased assurance they would gain regarding supplies of reactor fuel (and of course for a share of the net revenues or bond interest).

4. In terms of responsiveness to foreign policy requirements, successful private ownership may be acceptable, but either direct government ownership or a properly-designed government corporation are clearly preferable. In the energy field, government planning is necessary to integrate multilateral initiatives abroad with capacity increases at home; our ability to initiate multilateral enrichment programs has already been inhibited by our private entry policy. While industry would be subject to government safeguard agreements and national export controls, the formulation and implementation of new non-proliferation policies could be complicated by the existence of diverse U.S. enrichment firms committed to corporate goals. In addition, flexibility in offering enrichment services under special terms to particular countries for diplomatic purposes or as preferential treatment to NPT parties would be diminished under private ownership. As a general point, although American industry would be motivated to remain competitive on price and contract requirements in the world market, it should be recognized that the U.S. is competing internationally with enrichment organizations in which foreign governments play major roles.

Recommendation

The Department of State recommends that an immediate decision be made to establish a policy-responsive government corporation to assume the responsibility for managing existing enrichment plants and building new increments of capacity, holding open the prospect of ultimately transferring to the private sector some or all of the responsibility for constructing additional facilities. In terms of the options presented in the NSSM 209 report, our recommendation would fall between alternative B, which explicitly defers private entry until after the fourth and fifth plants are built, and alternative C, which forms a government corporation to assume complete and indefinite responsibility for enrichment.

In brief, our recommendation rests upon the following judgments:

—Short-term and long-term foreign policy interests would be extremely well served through a government corporation which would not only permit a rapid removal of the present “contracting gap,” but would also provide a policy and management framework to assure the orderly introduction of new capacity, scaled to meet foreign as well as domestic needs. Establishment of such a corporation would permit the smooth integration of plants utilizing advanced technologies presently being developed.

—A decision to move forward decisively in assuring future nuclear fuel supply under a government corporation would strengthen efforts to utilize alternative energy sources in the United States, and help support similar efforts on the part of industrialized nations abroad. It would demonstrate to OPEC as well as to major consumers our determination to respond to the current crisis.

—In contrast with direct ERDA ownership, our recommended course of action would avoid contributing to federal budget deficits. At the same time, a carefully designed corporation could remain highly responsive to government policy and would be more responsive than private ownership. Safeguards initiatives could be carefully managed, foreign participation in U.S.-based enriched plants could be encouraged, and multilateral facilities located abroad could be supported by such a corporation. Efficient operations and timely capacity decisions, moreover, could help ensure that the U.S. would capture an appreciable fraction of the foreign enrichment market, thus yielding financial as well as policy benefits.

—Under the recommended policy, private industry would remain active in enrichment efforts through R&D, manufacturing, and plant construction and operations. With this continued experience, and as a consequence of technical assistance naturally provided by the corporation as a U.S. Government instrument, private industry could, at some future time, reach the position where it would be both desirable and feasible for certain companies to finance, build, and own specific increments of enrichment capacity (perhaps a series of small-scale centrifuge plants) within an overall supply program and policy framework. Whether this would result in private and corporation plants operating side by side or ultimately involve transferring all new enrichment capacity to the private sector need not be resolved at this stage.

The scenario associated with our recommendation would include the following steps:

(1) An announcement by the President in February 1975 that, due to factors largely beyond the control of the firms involved, the effort to achieve private entry into the enrichment field has been unsuccessful, and that the administration would shortly introduce legislation to establish a government corporation to build and operate enrichment plants, until such time as conditions warranted transfer of some or part of this responsibility to the private sector.

(2) Subject to approval by the Joint Committee on Atomic Energy, an immediate resumption of contracting by ERDA (preferably through an enrichment directorate), associated with a Presidential decision to request initial plant construction funds in ERDA’s FY 77 authorization.

(3) An urgent and comprehensive interagency study of the preferred structure of a policy-responsive government corporation to be formed within a year to assume responsibility for U.S. enrichment efforts, consistent with foreign and domestic objectives and recognizing the goal of selective ownership opportunities for private industry in the future.

(4) Informing UEA of the President’s decision as soon as possible, noting that, with its unique experience as the only industrial entity to have studied the question of building a new diffusion plant in the U.S., Bechtel would be in an excellent position to seek the contract to construct and operate a new plant but could not be assured a preferred status.

(5) A plan to discuss the rationale and objectives of the President’s decision at high levels with officials of electric utilities and nuclear companies, as well as with prominent public figures and foreign representatives, in an attempt to obtain constructive support at home and abroad.

Robert S. Ingersoll

1. Summary: Ingersoll summarized the Department’s position on U.S. uranium enrichment policy.

   Source: Ford Library, National Security Council, Institutional Files—NSSMs, Box 31, NSSM 209—Future Uranium Enrichment in the U.S. (4). Secret. The NSSM 209 study is Document 106. NSSM 209 is Document 79.