NOTE FOR MR. JAMES A. NIX FROM(SANITIZED)

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP87R00029R000200320014-8
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 5
• Document Creation Date: December 20, 2016
• Document Release Date: March 22, 2007
• Sequence Number: 14
• Publication Date: August 14, 1981
• Content Type: MEMO

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?
14 August 1981
White House (TELE: 456-2291
ATTN: Mr. James Nix
Please call Mr. Nix, 0MB (395-3664) for pickup
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THIIRECTOR OF CENTRAL INTELLIGEN?
WASHINGTON, D.C. 20505
14 August 1981
NOTE FOR: Mr. James A. Nix
Office of Management and Budget
(Office of Scientific and Weapons Research, CIA) on
the problem(s) you mentioned in your call to me yesterday.
Please let me know how you wish me to follow up.
ched are some "analytical thoughts" of
cc: SA/NPI
I I OER
2 5.!X 1
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? CONFIDENTIAL, ?
Given a choice, in the 1990s, among Australian-origin
enriched. uranium, US-origin enriched uranium, and US enrichment
of foreign origin uranium, price considerations will probably
dictate that a customer for enriched uranium choose the third
option. However, nuclear supply decisions are rarely made purely
on the basis of price, and the relative costs of the three options
listed above will depend on policy and technology decisions which
are still well in the future.
US use of "cost recovery" pricing rather than "fair value"
pricing for enrichment services makes those services considerably
less expensive than those of either Urenco or Eurodif and competitive
with those provided by Techsnabexport. A continuation of this
policy, and the availability of established facilities and cheap
electricity from TVA, seem likely to make US services cheaper than
Australian services which will be privately operated with more
recent, more expensive capital equipment. A change in US policy
to adopt "fair value" pricing would intentionally relinquish at
least part of this edge.
The exact magnitude of the price differential between US
and Australian services will depend on numerous factors. It will
depend on the particular technology the Australians adopt (US,
Japanese, or Urenco centrifuge technology of French Chemex
technology) and Australian ability to hold costs to the amounts to
be projected in the feasibility study to be conducted in the next
two years. The differential will also depend on US decisions
regarding the gas centrifuge enrichment plant, the technical
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is CONFIDENTIAL
success of laser isotope separation, and any number of unforeseen
US, Soviet, French; West European, and Japanese policy
initiatives. 0
The cost of the uranium feed also depends on its source.
Non-US origin natural uranium tends to be somewhat cheaper than
US origin uranium. This is partly because some foreign uranium
is cheaper to mine, partly because some countries engage in
predatory pricing to enhance exports, and partly because foreign
uranium must be priced lower to overcome the additional cost of
transporting it to the enricher. The relative cost advantage of
foreign uranium over domestic uranium will fluctuate,,however,
based on supply and demand, price fixing arrangements, and national
policies which''tie provision of enrichment services to purchase
of domestic uranium. u 25x1
The non-price factors, which seem to accompany all nuclear
supply decisions, will probably be as important as the price. Assurance
of supply-is the biggest such factor. The Arab oil. boycott of
1973-4 and oil supply disruptions since 1979 have sensitized countries
to the risk of relying too heavily on any one country for their
energy needs. Although unilateral US actions in the past have
contributed to the notion of the unreliability of the US as a nuclear
supplier, it would be unrealistic to assume that any US policy could
overcome the developing trend to assure supply by diversifying
suppliers. The Japanese, for example, having fought World War II
over assurance of supply of raw materials, have an almost fanatical
commitment to diversifying their sources of uranium and establishing
a domestic fuel cycle of doubtful economics to guarantee their nuclear
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energy supply. An Australian enrichment plant would be an
attractive alternative to reliance on US or European suppliers
for most of the countries of South and East Asia. These countries
may be willing to pay a cost differential. Further, if the
uranium market tightens, Australia--one of the world's largest
uranium suppliers--could condition uranium sales on supply of enrich-
25X1
The other side of the assurance of supply question is the
market assurance question for the supplier. One of Australia's
considerations in choosing an enrichment technology supplier is
the ability of the supplier to guarantee a market for the enriched
product. The Japanese are a prime market for Australian enrichment
services and probably view that market potential as a key lever
in getting Australia to buy Japanese centrifuge technology. The
Japanese could conceivably boycott an Australian enrichment plant
built with Urenco or US technology.
Other non-price factors'which frequently affect nuclear
supply decisions are the fostering of bilateral relations, the
development of a market for other resources, the supplementary
provision of desired technology, concenssionary financing, and
national prestige. Any or all of these could figure into the choice
among the three options considered here.
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