Concept #1: Multilateral Arrangement
for Emerging Nuclear Power
The two key players in a multilateral arrangement are the multilateral entity (lessor)
and the user nation (lessee), in the form of a special purpose entity (SPE)102
(see Figure 2). Nuclear fuel leasing and nuclear fuel banks have recently
been touted as workable mechanisms to facilitate agreements for providing what have
often been called “cradle to grave” fuel cycle services to utilities
that are only “consumers” of nuclear fuel. While implementation could vary
widely, in one possible scenario a service provider or broker might arrange for
the delivery of fresh fuel and the acceptance of used fuel at a centralized/regional
interim storage facility and at a specified time following its discharge from the
utility’s reactor. This type of arrangement would enable small nuclear fuel
users to obtain fuel supply and disposition services at competitive prices (see
Figure 2. Multilateral Fuel Lease Arrangement
User nation denotes a consumer state. Source: Adapted
from James Malone, James Glasgow, Stephen Goldberg, and Peter Heine, “TRUST,
An Innovative Nuclear Fuel Leasing Arrangement,” NEI-WNA International Nuclear
Fuel Cycle Conference, Budapest, Hungary, April 2007. Figure © Stephen M. Goldberg
and Robert Rosner.
U.S. utilities have long used lease arrangements through SPEs as a mechanism to
finance their acquisition of equipment and nuclear fuel.103
In these leases, utilities arrange for a financial institution to act as a trustee
under a trust agreement between the utility and the lending bank.104 Some leases involve a “heat supply contract” with the trustee,
whereby the trustee agrees to buy the
fuel, lease it to the utility, and base the “rent” payment to the lessor
on the heat generated through the use of the fuel in the utility’s reactor.105 As these lease arrangements mature, some utilities have been able to
dispense with the need to obtain letters of credit in connection with such transactions.106 Other U.S. utilities have developed their own special financial arrangements
to address their cash flow requirements.107
To the extent that states are able, under their national laws, to commit themselves
to issue export licenses and grant retransfer approvals needed to establish meaningful
long-term fuel supply assurances, those assurances should be incorporated in peaceful
nuclear cooperation agreements that provide the legal framework for international
nuclear commerce. To bolster governmental attempts to convince emerging state recipients
of the binding nature of fuel assurance (assuming faithful performance of the agreement
by the recipient), such agreements should incorporate an advance long-term programmatic
assurance allowing the fuel and fuel components to be exported and retransferred
for processing, and ultimately shipped to the intended destination. Nuclear fuel
leases negotiated among private-sector participants should benefit from such assurances
to the same extent as the governments under whose agreements for cooperation such
commerce is carried out.
This approach offers the following advantages:
- In the long term, it could provide the financial and institutional support to develop,
construct, and operate interim centralized and/or regional storage facilities.
It could provide reliable fuel supplies buttressed by competitive pricing necessary
for a viable commercial nuclear fuel industry.
- With regard to the front-end, such an arrangement could increase risk protection
by mitigating the consequences of a fuel supply interruption for either physical
or political reasons. Historically, states have managed this risk by maintaining
large inventories. While prices for uranium and its attendant services (enrichment,
conversion, and fabrication) have risen, and while it is becoming more expensive
to dedicate capital to maintain inventory, fuel cost is a weak argument for sovereign
(national) enrichment programs. The opportunity for diversification of supply that
is inherent in the proposed fuel supply model provides an alternative to maintaining
large inventories as a way to manage the risks of supply disruption; and it remains
effective regardless of the cost of carrying inventory.
- It could provide a hedge against likely cost increases for front- and back-end services.
- By pledging the revenues from electricity sales, it could facilitate the payment
for infrastructure projects in the developing states; and it reduces the capital
formation requirements of these states. We understand that the interest rate to
finance such projects is significantly higher than commercially issued sovereign
debt. Even if developing states were able to obtain lower concession rates from
international development entities, the blended rates would not be substantially
lower.108 Therefore, the cost of borrowing capital to pay
for nuclear fuel for entities in the developing world is substantial. In addition,
some investment banks have suggested that binding contracts for supply of the nuclear
fuel required by the plant over a substantial portion of its life would be a necessary
condition for financing the construction of new nuclear power stations.
approach offers the following disadvantages:
- It would likely require significant start-up capital.
- It would likely revert
to a scheme that puts more emphasis on conventional reprocessing and recycling.
In our general opinion, user or consumer states will put a value on the used fuel
and will eventually want to burn the recycled MOX fuel.
- It would require multiple bilateral and multilateral agreements and commitments,
likely calling for a new institutional entity to manage the leasing arrangements.
It would likely require protracted discussions to iron out all the contract and
payment terms. The discussions may take so long that by the time the agreements
are ready to be implemented, consumer states may have already locked themselves
into fuel supply and conventional reprocessing contracts.
Concept #2: A Linear Model— A Special Case for the Multilateral Fuel Lease Arrangement
An alternative model that has received some attention is the linear model; in this
case, a “bundled fuel supplier” (AREVA) offers bundled services, including
conventional reprocessing and recycling services (Figure 3). This bilateral approach
is more readily adapted to the current fuel supply regime.
This approach offers the following advantages:
- Start-up capital would likely not be a barrier to implementing this model.
It could encourage aspiring consumer states to make deals with existing suppliers,
which can supply fuel cycle services with “economies of scale.”
- It could discourage developing states from building individual enrichment and conventional
reprocessing facilities, provided that all services are available. (For example,
if local waste disposal is not available, waste would be returned.)
- It could require significantly less effort in negotiating a fuel regime framework
because it typically involves a much smaller number of critical partners; indeed,
it can be viewed as a relatively modest evolution of the existing, already viable
fuel supply network.
- This approach offers the following disadvantages:
- It would indirectly encourage adding conventional reprocessing capacity.109 The likely outcome is a short- to intermediate-term increase in the stocks
of civilian separated plutonium.
- It is not conducive to a flexible technology
(including advanced chemical partitioning, if proliferation-resistant) and final
disposal opportunities. Thus, it will prematurely shut off choices on advanced technology
Figure 3. A Linear Model
User nations denotes consumer states and fuel
supplier nations denotes fuel supplier states. Source:
Modified from Stephen Goldberg and James Laidler, “Financial Strategies for
Future Reprocessing Facilities,” World Nuclear Fuel Cycle Conference, April
6, 2006. Reprinted with permission from the World Nuclear Fuel Cycle.
Industry representatives’ favorable view of the linear model is understandable,
as industry would not want to perturb (any more than necessary) the existing viable
fuel supply network. Furthermore, one can see how preserving the existing industry
contractual agreements would best serve regional storage arrangements.
To help ensure that the lessor’s remedies can be effectively enforced in the
event of the lessee’s default, the lessor could require that the lessee be
in a state that is a party to the Hague Convention on the Recognition and Enforcement
of Foreign Judgments in Civil and Commercial Matters or (for leases that specify
arbitration), the New York Convention on the Recognition and Enforcement of Foreign
Arbitral Awards. The efficacy of such remedies, coupled with recipient government
guarantees, has been demonstrated by experience with the project finance agreement
for fossil-fired generating stations and other industrial facilities in developing
Under existing U.S. law, any U.S. fuel assurance will be subject to the need for
the U.S. government, as well as private-sector suppliers, to obtain an export license
from the U.S. Nuclear Regulatory Commission, an independent regulatory body. Congress
and the U.S. executive branch are likely, in any fuel assurance agreements, to retain
the authority to refuse to perform U.S. supply assurances, even for reasons that
are unrelated to any concerns about the recipient state’s faithful performance
of its nuclear nonproliferation commitments. Numerous judicial decisions and fundamental
principles of U.S. constitutional law compel a conclusion that, regardless of whether
U.S governmental supply assurances contain the usual “subject to U.S. law”
phraseology, those supply commitments will yield to any subsequent law enacted by
Congress and to any regulation or executive branch order as well; such regulations
and orders are part of U.S. law. In light of U.S. practice for many decades, such
supply commitments are likely to contain a “subject to U.S. law clause.”
Moreover, the U.S. government, in accordance with its past practice in connection
with substantive U.S. commitments in treaties and other international agreements,
may insist on a broad right of the United States to terminate those commitments,
without being in breach of any legal obligation.