The Paducah Sun
The Paducah Sun
June 04, 2000
Paducah, Kentucky

USEC has limited business options

It's understandable that the congressional delegations of Kentucky, Illinois and Ohio are deeply worried about the implications of a Russian proposal to sell commercial-grade uranium to the United States Enrichment Corp.

The proposed deal could well speed the closing of one of USEC's two gaseous diffusion plants, located in Paducah and Portsmouth, Ohio, as well as the plant in Metropolis, Ill., that produces feed material for the two enrichment facilities.

It appears to be mainly a matter of time before the financially struggling company shuts down one of the gaseous diffusion plants. But the members of Congress who represent those areas Hopkinsville Republican Ed Whitfield and Democrat Ted Strickland, whose district includes Portsmouth aren't politically inclined to accept that grim probability. They're doing the job they were elected to do by fighting to keep jobs in their districts.

However, USEC's managers have a different task. Their mission, which is entirely legitimate, is to stabilize the company and generate profits for stockholders.

If they are unable to right the company's ship, all the involved parties stand to lose stockholders, workers at both enrichment plants, the employees of the Honeywell plant in Metropolis, the Paducah, Portsmouth and Metropolis communities.

This is a high-stakes struggle, but it doesn't pit good guys against bad guys. All the evidence indicates everyone involved has defensible motives.

The problem is, USEC's management is facing some very difficult choices. There is no painless escape from the company's financial dilemma, which was created in large part by the Clinton administration when it made USEC the agent for overpriced Russian uranium recycled from nuclear warheads.

Survival is the company's first order of business.

Since USEC was privatized in 1998, its stock has plummeted by nearly 70 percent. Declining prices for enriched uranium have helped to drive USEC earnings down.

In the name of national security, USEC already has paid Russia $13 billion for recycled uranium. USEC is paying more for the uranium than it costs its plants to enrich it.

As a cost-cutting move, the company is eliminating 621 jobs in Paducah and Portsmouth.

Against this gloomy background, it's not surprising that USEC is seeking some relief from the Russian uranium agreement.

Nick Timbers, the company's president and chief executive officer, hopes USEC can buy the commercial uranium from Russia and then release it as part of a package deal that will be "matched with material manufactured in our country by our employees," the Associated Press reported.

In this way, USEC plans to make relatively expensive U.S. enriched uranium more attractive to customers.

The uranium the Russians are offering for sale won't require processing. This fact raises fears that USEC is turning into a uranium broker, a move that could lead to the closing of both enrichment plants.

Again, we understand the concerns of USEC critics, but we wonder what alternative they would suggest to salvage the company's competitive position. If the United States doesn't buy the Russian uranium, a foreign competitor probably will buy it.

Congress needs to keep in mind that it approved the privatization of USEC. Presumably, that meant allowing USEC to function as a business.

It's unreasonable to expect the company to make a profit while paying for national security and meeting all the political demands placed on it.

Despite the concerns of the Kentucky, Illinois and Ohio delegations, we doubt that there is broad sentiment in Congress to protect the plants either by providing subsidies to USEC or returning the facilities to federal control.

National security requirements may lead to a reversal of the privatization, but as long as USEC is able to hold on, it's unlikely Congress will want to relive the problems that preceded privatization.

At this point, the bottom line literally is that USEC must figure out how to make a profit in a very demanding environment.