December 2, 1999
Union: Russian deal to spur cuts
By Joe Walker
Union officials foresee mass layoffs at the Paducah Gaseous Diffusion Plant following a predicted decision by USEC Inc. to remain as agent for $12 billion in overpriced Russian uranium.
USEC, operator of the plant, already has laid off a total of 500 workers at Paducah and its sister plant near Portsmouth, Ohio, and has agreed not to cut any more jobs before July 1. But union officials say a USEC lobbyist told them last month that another 850 job cuts were inevitable regardless of whether USEC stayed in the Russian deal.
"My instincts are that the layoffs are going to be roughly divided at 450 at Portsmouth and 400 at Paducah," said Richard Miller, policy analyst for the atomic workers' union, known as PACE. "And I'm sure this is just the first step."
Elizabeth Stuckle, USEC spokeswoman, said the board would continue to "aggressively pursue" cost-cutting measures and ways to soften the impact of the Russian deal but had decided nothing about jobs.
The USEC Board of Directors voted by telephone Wednesday morning to remain as agent after nine months of unsuccessfully seeking support from Congress and the Clinton administration for as much as $200 million to counter its losses as agent for the Russian uranium. Privatized last year, USEC had until midnight to exit or propose changes to its agreement to receive uranium from dismantled nuclear warheads.
Despite serious concerns about the expense of the deal, the board thought it was better to continue as agent, William H. "Nick" Timbers, USEC president and chief executive, said in a news release.
"While there are quantifiable costs to USEC and its shareholders ... the company would incur greater economic costs in the long run from not being the manager of this program," he said.
Timbers said USEC will keep negotiating with Russia for lower uranium prices in the next contract and seek ways to cut costs. Russia said recently that it is prepared to discuss "market-based pricing" after 2001, Timbers said.
The board decision means USEC remains as agent for at least two more years. During that time, the company must pay $88 to $91 per unit for Russian uranium, but the market price is just above $80, Timbers said.
Because of a glutted world market for enriched uranium, the market price has slipped from $110 to $120 per unit since the Russian agreement was signed in 1993. USEC is scheduled to receive about 30 metric tons of the Russian material annually through 2013, which is about half the plants' yearly market, according to the Department of Energy. DOE owns the plants and leases them to USEC.
The board decision drew a quick response from Energy Secretary Bill Richardson, who had said USEC's case for government support wasn't convincing enough. He said he expects Timbers and others "to meet their obligations to continue operation of the plants until 2004."
When it sold stock in July 1998 to become a publicly owned company, USEC agreed to keep both plants running through 2004 unless certain "significant events" arose, such as a profit margin falling below 10 percent for 12 straight months. USEC said in a revised securities statement in November that none of those events had taken place.
U.S. Rep. Ed Whitfield said he anticipated that the board would continue to buy the Russian fuel. "There would have been too many negatives for them if they weren't the government's agent for the fuel," he said. "It would have meant that someone else would have been getting that fuel."
Whitfield also said there is still a chance that USEC will get some financial help from the federal government to pay for the higher cost fuel. "However, they are going to have to make some concessions of their own if they want help," he said.
The concessions would probably include job guarantees and allowing more than one company to own more than 10 percent of the USEC stock.
PACE questioned that stance and asked the Treasury Department for clarification. On Nov. 1, the Treasury responded to Miller that it had no information that such an event had taken place and would independently evaluate any USEC conclusion otherwise.
In a press release, Richardson said he was pleased USEC will remain as agent for the Russian uranium. He had insisted that any federal aid be contingent on maintaining the plants' work forces.
"In the end, I think they realized that it was not in their interest to abandon an exclusive long-term market position that is of considerable financial value," he said.
With progress being made on Russian uranium pricing, it made little sense to have someone replace USEC as agent, Stuckle said.
"If we don't control this material and see that it's put into the market in a responsible way, it could be dumped into the market by the Russians or be sold by someone else and be placed on the market irresponsibly," Stuckle said. "That would drastically upset the market at great cost to us."
With 30 days' notice, DOE may introduce more or alternate agents. Miller has identified the three firms - Cameco of Canada, Nukem of Germany and New York Nuclear - as having talked with the department about the Russian deal.
While preparing to mitigate more job losses, the union will seek congressional hearings on what Miller perceives as "the lack of a long-term viability plan" for USEC.
USEC says it wants to keep doing business with Russia but does not want its shareholders to subsidize national security. Timbers said earnings for the fiscal year ending June 30 are expected to be $110 million to $115 million, compared with $120 million last year. The difference is rising costs under the Russian contract, partly offset by increased sales and cost reductions, he said.
"USEC management is committed to enhancing shareholder value," Timbers said, explaining that costs and market prices must "come into better alignment."
Union officials and federal lawmakers have criticized USEC for paying a high dividend in light of slumping stock prices and financial problems that could cost more jobs. USEC's annual dividend of $1.10 has a yield of more than 13 percent, compared with a Dow Jones Industrials average of 1.67 percent.
Stuckle said the dividend was set for "a long-term horizon" of profitability and not meant to be reactive to events such as Wednesday's board decision.
After the announcement, USEC shares reached a record low of $7.38 before
finishing at $7.63, reflecting a decline of almost an 8 percent from market
opening. When USEC was privatized last year, the opening price of its stock