5. If any of the Euratom plutonium requirements are to be obtained from private parties in the United States, such transfers may be accomplished under the language of Article V of the Additional Agreement for Cooperation. Although this article, as originally drafted, did not contemplate private transfers of special nuclear material inasmuch as such transfers were not then permitted (they are now as a result of the Private Ownership Act), the language is sufficiently broad to permit such transactions. APPENDIX "C" COMPARATIVE DRAFT BILL To amend the EURATOM Cooperation Act of 1958, as amended Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That Sec. 5 of the EURATOM Cooperation Act of 1958, as amended, is amended to read as follows: "SEC. 5. Pursuant to the provisions of section 54 of the Atomic Energy Act of 1954, as amended, there is hereby authorized for sale or lease to the Community: Seventy thousand kilograms of contained uranium 235, [Five-hundred] One thousand five hundred kilograms of plutonium, Thirty kilograms of uranium 233, in accordance with the provisions of an agreement or agreements for cooperation between the Government of the United States and the Community entered into pursuant to the provisions of section 123 of the Atomic Energy Act of 1954, as amended: Provided, That the Government of the United States obtains the equivalent of a first lien on any such material sold to the Community for which payment is not made in full at the time of transfer." APPENDIX 13 REPORTS OF COMPTROLLER GENERAL CONCERNING SALE OF PLUTONIUM TO EURATOM, OCTOBER 20 AND 24, 1967; AEC-JOINT COMMITTEE CORRESPONDENCE (SEPTEMBER 6 AND OCTOBER 16, 1967) Hon. ELMER B. STAATS, CONGRESS OF THE UNITED STATES, Comptroller General of the United States, DEAR MR. STAATS: At a hearing on August 24, 1967, AEC Commissioner Tape testified before the Joint Committee's Subcommittee on Legislation in favor of proposed legislation to authorize transfer of an additional one thousand kilograms of plutonium to Euratom. Among other things, Commissioner Tape stated that the AEC anticipated the possibility that Euratom might obtain part of this additional plutonium from AEC's licensees and that AEC expected "that Euratom's acquisitions from the private operators could not exceed fifty percent of Euratom's requirements." The Committee desires to receive a report from the General Accounting Office on the estimated financial impact upon the United States Government of the above-described policy of the AEC concerning private sales of plutonium to Euratom, as compared with policies which would either (a) allow all or any part of the additional one thousand kilograms to be purchased from private sources, or (b) require that all of this material be purchased from the AEC. The Committee would appreciate receiving this report as soon as possible. Thank you very much for your assistance. Sincerely yours, JOHN T. CONWAY, Executive Director. COMPTROLLER GENERAL OF THE UNITED STATES, B-131115. Hon. JOHN O. PASTORE, Chairman, Joint Committee on Atomic Energy, DEAR MR. CHAIRMAN: The General Accounting Office has examined into the potential financial impact on the United States Government of the Atomic Energy Commission's proposal to amend the European Atomic Energy Community (Euratom) Cooperation Act of 1958 (42 U.S.C. 2291) to authorize transfer of an additional 1,000 kilograms of plutonium to Euratom. Our review was made pursuant to a letter from the Executive Director, Joint Committee on Atomic Energy, Congress of the United States, dated September 6, 1967, in which we were requested to evaluate the financial impact upon the United States Government of adopting policies which would either (1) allow all or any part of the additional 1,000 kilograms to be purchased by Euratom from private sources or (2) require that all of this material be purchased from the Commission. In our review, we limited our examination to a measurement, to the extent practicable, of the financial consequences of the various alternatives. We did not, in our calculations, give effect to the tax implications that could arise in any sales of plutonium by private reactor owners. BACKGROUND EURATOM, an association of six member States-Belgium, France, Germany, Italy, Luxembourg, and the Netherlands-was established by the Treaty of Rome signed on March 25, 1957, for the purpose of encouraging progress in the field of nuclear energy. Under sections 123 and 124 of the Atomic Energy Act of 1954, as amended (42 U.S.C. 2153, 2154), cooperation between Euratom and the United States government formally began with the signing of an agreement for cooperation in the peaceful applications of atomic energy. This agreement became effective in August 1958. Subsequent agreements and amendments thereto have further defined the scope and methods of cooperation between the two parties. Pursuant to the provisions of these agreements and the authority provided by the Euratom Cooperation Act of 1958, as amended, the United States Government has provided Euratom programs with plutonium under various lease and sales agreements. In accordance with section 5 of the Euratom Cooperation Act of 1958, as amended, the Commission is currently authorized to provide up to 500 kilograms of plutonium to Euratom. As of June 30, 1967, the Commission had either sold or leased about 424 kilograms of plutonium to Euratom. These transactions were carried out essentially on the basis of the Commission's published price of $43 a gram. Negotiations are currently under way for the purchase from the Commission of most of the remaining authorized portion. In February 1966, Euratom formally requested the United States Government to take the necessary action to provide it with an additional 1,000 kilograms of plutonium through calendar year 1970. The request stated that most of the additional plutonium would be used in the further development of technology concerning fast breeder reactors-an advanced type of nuclear power reactor in which plutonium would be used as fuel. A schedule provided with the request showed that 500 kilograms would be needed for the French Masurca fast critical facility. 250 kilograms for the German Sneak fast critical facility, and the remainder for a number of smaller fast breeder reactor and plutonium fuel cycle studies throughout Euratom. In the field of fast breeder reactors, the agreements for cooperation between the United States Government and Euratom were supplemented by a comprehensive 10-year technical information exchange arrangement entered into by means of an exchange of letters between United States Government and Euratom officials in May 1964. The Commission has stated that the technical information emanating from the experiments to be undertaken with the additional 1,000 kilograms of plutonium requested by Euratom will be available to the United States. The Commission, in addition to producing quantities of plutonium in its reactors, has purchased plutonium produced in domestic privately owned power reactors as a result of the irradiation of the uranium used in the fuel elements. The Commission has also acquired plutonium from the United Kingdom through a cooperative agreement. Under section 56 of the Atomic Energy Act of 1954, as amended, the Commission established a guaranteed purchase price of $10 a gram for fissile plutonium (Pu-239 and Pu-241) produced under certain conditions in privately owned nuclear reactors and thereby offered private reactor owners an opportunity to dispose of their material if such were desired. Under the legislation the guaranteed market applies to material delivered to the Commission before January 1, 1971. The act does not require private reactor operators to make the material available to the Commission at the guaranteed purchase price; however, should the Commission determine that it has a requirement for such material, the act authorizes the Commission to acquire it. Technology has yet to be developed to enable private utility reactors to economically use plutonium as a fuel. Moreover, the Commission does not envision the use of plutonium for such purpose until the mid-1970's. Therefore, current civil uses of power reactor-produced plutonium are limited primarily to research and development projects. We believe that, although these is no obligation on private reactor operators to do so, it is reasonable to assume that, in the absence of an unusual market such as that created by the Euratom request, most of the plutonium produced in power reactors and available before the Commission's guaranteed purchase offer expires in January 1971 would be made available to the United States Government. This assumption is based on the current limited private demand for plutonium, the plentiful suply of material forecast for the 1970's, and the accep tance of the Commission's guaranteed purchase price of $10 a gram as representative of the value of the material as fuel in thermal reactors of current design. Although Commission officials note that this assumption is consistent with their projections, they wish to point out that it is uncertain to what extent the private reactor operators will offer plutonium to the Commission at the guaranteed purchase price and that this factor may have an effect on certain of the con clusions in this report. SUMMARY OBSERVATIONS Our review of the alternative methods for supplying plutonium to Euratom— cited by the Committee for analysis-indicates that, if the Commission served as the exclusive supplier of the plutonium at its published price of $43 a gram, maximum financial benefits to the United States Government would be achieved. Exclusive supply by the United States Government, coupled with the use of the Commission's proposed weighted average pricing formula, appears to offer the greatest opportunity for an equitable sharing by the United States Government and Euratom in the cost of plutonium available for use in civil research programs and should obviate the possibility of any reasonable question as to overpricing from a United States Government-Euratom standpoint. An arrangement whereby private reactor operators would supply all or part of Euratom's requirements would make it possible for Euratom to negotiate with the private reactor operators to purchase the plutonium at a cost lower than that at which it could be made available by the Commission and would give recognition to the private-ownership aspects of the plutonium held by private reactor operators. On the other hand, this arrangement would substantially reduce financial benefits to the United States Government. The magnitude of the financial impact on the United States Government as a consequence of adopting either alternative depends upon such factors as the future plutonium supply and demand, the cost of plutonium production, the availability of plutonium from private reactor operators, and the price at which such material will be available. In view of the uncertainties involved in predicting these and other factors, the financial impact cannot be precisely determined. In an effort to furnish some quantification regarding the effect, however, we have made certain assumptions, discussed in the report, about the above factors on the basis of currently available information as to events which may reasonably be expected to occur. On the basis of these assumptions, we have estimated that allowing Euratom to obtain 50 percent of its requirements from private reactor operators could result in a net reduction in revenues to the United States Government of about $12.6 million, compared with the revenues obtainable under a policy by which the United States Government would supply the entire amount at a weighted average price. If private reactor operators furnished the entire amount, this net reduction in revenues could amount to $25.2 million. The financial effects of different alternatives are discussed in more detail in succeeding paragraphs. PROCUREMENT BY EURATOM FROM THE GOVERNMENT Our review of the Commission's production practices and planning indicates that plutonium produced by the Commission for civil needs would be limited to that amount necessary to meet total anticipated requirements after the amount anticipated to become available from other sources during a campaign period has been considered. For example, if total requirements were estimated at 2,000 kilograms during a campaign period and 1,000 kilograms were expected to be made available from private reactor operators, the Commission's production would be limited to 1,000 kilograms. Commission projections indicate that the civil program demand for plutonium-exclusive of Euratom's requirement-exceeds the supply available from all production other than the Commission's production. On this basis, the additional demand created by Euratom's request would result in a requirement that the Commission produce an additional 1,000 kilograms for the civil program, irrespective of whether the plutonium is supplied to Euratom in whole or in part by the Commission or by private reactor operators. Plutonium is composed of a number of isotopes including the fissile isotopes Pu-239 and Pu-241. The Commission's current published price for plutonium is $43 a gram of fissile isotopes Pu-238 and Pu-241. Because these fissile isotopes are contained in varying quantities, the selling price for each gram of total plutonium varies accordingly. For example, in a situation where the plutonium consists of 90 percent of these fissile isotopes, the selling price would be $38.70 a gram (90 percent of $43). In our calculations we have accepted the $43 a gram as representative of the Commission's cost of production and, for purposes of simplicity, have assumed that the transactions would involve plutonium consisting of 90 percent of these fissile isotopes. If the Commission were to supply the 1,000 kilograms at its current published price of $43 a gram, the United States Government would receive the greatest amount of revenues-about $38.7 million. The maximum dollar inflow would be realized for balance-of-payments application. The Commission proposes to establish a weighted average price for its sale of plutonium. This price is to be determined from the cost to the Commission at the time the price is established for all portions of plutonium available to the civil programs. We were informed, in further amplification of this pricing policy, that, should Euratom require any special conditions with respect to the quality of plutonium, such as Pu-240 content, the Commission's price would be the actual cost of producing or obtaining that quality of material but no less than the weighted average price. Regarding the use of a weighted average price, if the 1,000 kilograms were to be furnished to Euratom by the Commission, the cost to Euratom would be reduced by about $900,000 for each dollar that the weighted average price is less than the current published price of $43 a gram. For example, if a weighted average price of $38 were established, the sales price for the 1,000 kilograms would be reduced by about $4.5 million. A similar reduction would be applicable to the balance-of-payments situation. A Commission study indicates that a weighted average price of the plutonium available to the civil programs as of June 30, 1967, would amount to about $38 a gram. If the United States Government supplies all 1,000 kilograms, the weighted average method of computing the price would result in a more equitable sharing in the cost of plutonium by the United States Government and Euratom and should obviate the possibility of any reasonable question as to overpricing from a United States Government-Euratom standpoint. PARTIAL PROCUREMENT BY EURATOM FROM DOMESTIC REACTOR OPERATORS Under this method Euratom would be permitted to negotiate with private reactor operators to obtain a portion of its needs at a cost which presumably would be lower than that which would result from purchases from the United States Government. The method would also provide an opportunity for private reactor operators to dispose of a portion of their material at a price higher than the United States Government's guaranteed purchase price. Assuming that Euratom were permitted to obtain 500 kilograms of its total requirement directly from private reactor operators, we estimate that such action could result in a net reduction in revenues to the United States Government of about $12.6 million. This action also would reduce the balance-of-payments dollar inflow to the United States Government by an undeterminable amount. In arriving at the net reduction in revenue, we did not consider the potential tax revenue that might result from private sales of the plutonium. Use of this method provides Euratom and the private reactor operators with distinct economic benefits at the expense of the United States Government-sponsored research programs, in that Euratom would be able to directly procure lowcost plutonium which would otherwise remain available for use in United States Government programs. Furthermore, the use of a weighted average pricing formula for the remainder of the material to be furnished by the Commission would increase the detrimental effect, inasmuch as the United States Government's benefits resulting from the acquisition of low-cost plutonium would be shared with Euratom. It should be noted that the benefits of less costly plutonium available from private reactor operators would accrue exclusively to the domestic civil programs in the absence of the Euratom requirement and that the Euratom requirement would result in the need for production of an additional 1,000 kilograms of plutonium for the civil programs in the Commission's reactors. In consideration of these factors, we believe that the adverse effect on the United States Government is measurable in terms of lost revenue but is offset by the cost that would otherwise be associated with acquisition of the plutonium from private reactor operators. |