Copyright© 2007 by StockInterview, Inc. ALL RIGHTS RESERVED. Unauthorized duplication of all or any part of this article is not permitted without written permission from the editor of StockInterview.com.


What’s a second good reason behind Toshiba’s discussions to sell a ten-percent stake in Westinghouse to the Kazakh uranium company, KazAtomProm, for about US$540 million? Of course, the first reason would be to secure sufficient uranium supplies, but what else can the Kazakhs provide which Toshiba will need in the near future?

We interviewed Charles K. Anderson of Massachusetts-based CKA associates, whose company has consulted for more than 125 nuclear companies, including global suppliers and utilities, and others, including the United Nations Special Commission (UNSCOM), the International Atomic Energy Agency (IAEA), Rosatom, and has advised government agencies in Korea, Taiwan and the Ukraine.

Anderson told StockInterview, “The other angle the press has overlooked, which is important to Toshiba-Westinghouse, is the source of what we call powder-making.” The primary angle is access to the massive Kazakh uranium deposits, which rank among the top known recoverable resources in the world.

In addition, Anderson explained, “Westinghouse will need more powder capability.” He estimated Westinghouse’s Columbia (South Carolina) fuel fabrication plant was currently running at between 90 and 92 percent capacity.

“The first step in the fuel fabrication process is to make powder from enriched UF6,” Anderson told us. “This is typically the limiting condition on fabrication capacity.” Other steps include making the nuclear fuel pellets and manufacturing fuel assemblies. Uranium dioxide, or UO2, is the powder form of enriched uranium. The powder is then used to manufacture the fuel pellets.

Anderson pointed out, “If Westinghouse hopes to be successful in the renaissance, they will need additional powder-capacity.”

What happens if the nuclear renaissance does proceed as planned?

“If Toshiba is going to sell the new reactors and first-cores in great abundance, they’ll clearly be powder-limited,” Anderson said. “Taking into account their current commitments, it will be very tight for them to build a couple of new first-cores in Columbia.”

Anderson believes Westinghouse will have to either expand the Columbia facility or purchase UO2 powder elsewhere. “Kazakhstan would be a good source for that,” he explained. “They have a lot of capacity and the powder process is similar to that used in Columbia.” The Kazakh facility, known as Ulba JSC, is located at the eastern tip of the country, near the Russian, Chinese and Mongolian borders.

Following a US$25 million renovation in the late 1990s, the Ulba Metallurgical Plant was certified by General Electric as a supplier of uranium dioxide ceramic powder to the United States. In early 2002, Global Nuclear Fuel LLC (GNF) – a partnership of General Electric, Toshiba and Hitachi – announced it would invest in shipping byproduct uranium concentrates to the Ulba plant.

At the time, it was reported the Ulba plant was the only one in the world with a process for extracting low-enriched uranium (LEU) from the byproducts of nuclear fuel production.  According to a news report, the Kazakhs would use a patented solvent extraction process and then ship back the LEU to the Wilmington-based (North Carolina) plant for the manufacture of nuclear fuel rods.

Perhaps another consideration for Toshiba is Japan’s limited powder-making capability. “Mitsubishi Nuclear Fuel is really the only one that makes powder in Japan,” Anderson pointed out. “They supply considerably less than half of that market.” The rest (of the powder), he said, comes from Western sources. “If renaissance demand kicks in, Japan will be a contributor to the problem rather than the solution.”

Another advantage the Ulba plant might offer is Gadolinium production.

With ‘reload fuel,’ utilities – especially in the United States – are operating in what is called ‘high energy cycles.’ Anderson said, “This consists of long operating cycles with high burnup and high capacity factors.” These cycles require a lot of enrichment in the fuel at the beginning of the cycle. “In order to control that, you put in a burnable poison,” he explained. “Gadolinium is the preferred burnable poison of many utilities and Westinghouse doesn’t make such pellets at Columbia. Kazakhstan could become a low-cost source of that material, as well.”

According to Anderson, new reactor ‘first cores’ create a peak for a facility’s powder-making capacity. “Almost three times the annual load goes with the first core of a new reactor,” Anderson said. “Then the demand dies back once the reactors are operating.”

It could be very difficult to fill first core orders after 2010.

Under a scenario where new reactors were coming online every year, say five, six or ten reactors every year, then he believes it would make sense for Westinghouse to spend $50 – 100 million to build a new plant with additional capacity. “But where you may have three or four first cores, and it dies back, or the competition gets stiff, then you would be over investing for a plant,” Anderson said.

He thinks the Kazakhs could provide ‘surge capacity’ to meet those peaks, obtaining capacity through the country’s Ulba facility without the necessity of building a new plant in the United States, at least until the reliable renaissance demand becomes more clear.

“But, not all Westinghouse customers would be happy to get powder from Kazakhstan, or rely on that, in any case,” Anderson added. “And the Russians don’t particularly like Kazakhstan developing toward the West.”

He believes there are a lot of issues which could arise to complicate supplies. “You have to get enriched uranium into Kazakhstan,’ Anderson explained. “There is the potential of supply interruption and the threat of delays.” Enriched uranium has to be shipped in for the powder to come back to make pellets and build the fuel assembly. “There’s a logistical element that’s not ideal.”

One problem: Kazakhstan is a landlocked country.

And there are problems importing and exporting nuclear fuel in and out of this country. This can be a concern for some utilities. “In principle, a utility gets enriched uranium wherever they get the best deals,” said Anderson. “This material is then delivered to the powder-maker (fabricator), which is the next step in the process."

The transportation process is not as simple as shipping machinery or crude oil. And the transportation route can involve several other political and regulatory jurisdictions.

“The way the fuel cycle is currently arranged, there are a lot of interfaces,” Anderson said. “There are a lot of people in the middle and things can get disrupted from time to time.”

However, Anderson notes, “The Kazakhs have been vocal about a comprehensive fuel supply center. If you could arrange to buy nuclear fuel like you buy coal or oil, in just one step, there are some definitive advantages to that.” Anderson pointed out it is a system to which the Kazakhs have grown accustomed. “That’s the way the Soviets used to do it,” Anderson said. “I think that’s part of the interest from the Kazakh point of view.”

The Toshiba-Kazatomprom also adds another player to a new development for reactor manufacturers. “Increasingly, we think the competition amongst reactor and fuel fabricators would require them to supply uranium with the deal,” Anderson explained. “The worst thing that can happen is building a plant and not having uranium to fuel it.”

Anderson believes manufacturers, such as Areva and Toshiba, would be supplying the first core and several reloads along with nuclear reactor orders. “Areva, the Russians and others that are major competitors have sources of uranium,” he said. And Toshiba doesn’t quite yet.

In the future, Anderson sees the comprehensive fuel supply under the roof of the reactor vendor. “The vendor would arrange the initial fuel cycle steps,” he said, “and just sell finished assemblies to the utilities.” This would remove the utility from the middle of the fuel cycle.

Presently, owners and/or operators of the nuclear reactor hold the responsibility of bringing uranium through many of the steps, from obtaining yellowcake through to fuel fabrication. “Comprehensive fuel supply would become the responsibility of the vendor,” Anderson said.

The Russians, however, can’t be pleased with the Toshiba deal. “I think the Russians consider Kazakhstan within their sphere of influence,” Anderson noted. “With Toshiba-Westinghouse coming in, this would be looked upon as an intrusion.”

Hints have already been dropped in the Russian media about displeasure with this deal. Some believe Russia would probably view Kazatomprom as a future competitor should the deal take place.

Anderson concluded, “To us the deal sounds better for Toshiba-Westinghouse than it does for Kazakhstan. It really depends upon your view of the (nuclear) renaissance.” And the Kazakhs may look at this opportunity as the country’s chance to establish a little independence and to develop in a bigger way with the West.