Supply Chains

Kazakhstan and Uranium: It's About Transparency

Is the little-known, resource-rich Eastern European nation of Kazakhstan a key to the long-awaited worldwide renaissance in nuclear power? According to articles in the Washington Post and other publications, the major players in the world market for nuclear fuel are increasingly focusing on Kazakhstan. The big investors in the country’s uranium market include Russia, China, Japan, France, and Canada.

Kazakhstan announced late last year that it has become the world’s largest uranium producer, eclipsing Canada and Australia. Kazatomprom, the state-owned uranium company, said uranium production had increased by 63% to reach at least 13,900 tons—about one-third of world output—in 2009. Kazakhstan said its uranium output would rise to 18,000 tons this year.

But market intrigue and geopolitical maneuvering could undermine Kazakhstan’s position in the global uranium market. That’s the word from long-time observers of uranium markets, who note that the figures about Kazakhstan’s production are far from transparent.

Kazakhstan was the largest supplier of uranium to the former Soviet Union, which had an aggressive nuclear (both weapons and power) program. Since then, according to several analysts, production has fallen by more than half. Now Kazakhstan is trying to rebuild its uranium industry and reach out to a world that looks like it may again embrace nuclear power in a major way, in order to combat global carbon dioxide emissions.

The Washington Post in late February noted that Mukhtar Dzhakishev, CEO of the state-owned Kazatomprom uranium supply firm, was arrested by his government, charged with illegally selling the rights to the country’s uranium deposits to foreign firms for his own benefit. He has denied the charges and, at last notice, was incarcerated, pending trial. Dzhakishev countered that Russia arranged for his arrest, to prevent the Kazakh firm from becoming a dominant international competitor in the nuclear fuel business, now that it has been unleashed from its Russian ties.

According to the World Nuclear Association, Kazakhstan has 15% of the world’s uranium reserves and is seeking to expand its production from an estimated 18,000 metric tons of uranium this year to 30,000 metric tons by 2018. The country, which has a fuel pelletizing factory, hopes to supply 30% of the world fuel fabrication market by 2015. Kazakhstan does not have uranium enrichment capability; it relies on Russia for that service.

The Kazakh uranium industry retains close ties to Russia. In 2006, the two countries signed three joint venture agreements, worth about $10 billion, for new reactors, uranium production, and enrichment. In 2007, Kazatomprom signed an energy cooperation deal with Japan, including supply of uranium to Tokyo and technical assistance to Kazakhstan. The aim is to supply about 40% of the Japanese market for natural uranium and fabricated fuel.

A December 2006 agreement with China’s Guangdong Nuclear Power Group, followed by additional strategic deals with China, should lead to Kazatomprom becoming the major supplier of uranium and nuclear fuel to China’s largest nuclear power plant developer. China is at the center of the worldwide nuclear power boom.

In 2007, Kazatomprom bought 10% of Westinghouse, the Japanese-owned U.S. civilian nuclear plant developer. Kazatomprom has also signed an agreement with Canada’s Cameco Corp., a major uranium supplier, for a uranium hexaflouride conversion plant in Kazakhstan.

In its late February article on Kazakhstan’s uranium industry, the Washington Post noted that the Kazakhstan government charged that CEO Dzhakishev "struck a series of deals giving foreign firms access to uranium mines in exchange for help moving Kazakhstan into higher-end segments of the nuclear fuel cycle. Each made Kazakhstan less dependent on Russia, its traditional partner in the industry." For many independent analysts, that sounds like a good business model.

For Western customers and investors, the issue main issue appears to be transparency. According to Western businessmen and women, Dzhakishev, 45, part of a new generation of Eastern European business leaders, was making strides to move his state-owned company into a institution that all customers and business partners would understand. His arrest, and reports of his physical deterioration in prison, suggest that Kazakhstan is not necessarily a reliable business partner.

The Kazakh government replaced Dzhakishev, the Washington Post reported, with the son-in-law of Russia’s major uranium buyer. More reason to question the nation’s resource transparency?

—Kennedy Maize is executive editor of MANAGING POWER.

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