FIRST SHIPMENT OF URANIUM ARRIVES FROM RUSSIA

DELIVERY COMES AMID ARGUMENT OVER TERMS OF DEAL THAT THREATENS TO CANCEL AGREEMENT

Sixteen giant canisters of uranium that used to be in Soviet nuclear weapons arrived at a processing plant in Ohio last week, destined now for peaceful use as fuel for nuclear power plants.

The shipment was the first under a 20-year, $12 billion contract between Russia and the United States under which Russia will dilute 500 metric tons of weapons-grade, highly enriched uranium into conventional nuclear fuel and sell it to the United States.

Its arrival -- the first delivery under one of the most ambitious swords-into-plowshares agreements of the post-Cold War era -- ought to have been cause for celebration in Washington and Moscow.

Instead, the delivery came almost as a footnote to a furious argument over the terms of the deal that has pitted Americans against Russians in a radioactive bazaar, inspired wrangling and finger-pointing among Clinton administration officials and prompted a senior Russian official to threaten to cancel the agreement.

Stung by accusations in the news media that administration dithering has jeopardized an important national security agreement, senior U.S. officials involved in the bargaining said they doubt that Viktor Mikhailov, Russia's prickly atomic energy minister, seriously intended to pull the plug if his terms were not met, as he threatened to do in a June 7 letter to Undersecretary of State Lynn Davis.

Mikhailov -- the same official whose relentless quest for hard currency to shore up his obsolete empire led him to agree to sell nuclear power plants to Iran -- is widely perceived here as unlikely to forgo a lucrative sales arrangement that also keeps many of his employees at work and furthers nuclear disarmament objectives.

Senior officials described his threats as a negotiating tactic in the old Cold War brinkmanship style, and noted that last week Russian officials signed a protocol saying they are "eager to see {the transaction} successfully completed."

Mikhailov wants more money faster than provided in the sales contract he signed, under terms that violate principles he agreed to, U.S. officials said. But officials also said they want to accommodate Mikhailov rather than calling his bluff because implementation of the agreement is an important national security concern, and they are seeking ways to give him what he wants without disrupting global uranium markets or violating U.S. trade laws.

It is tempting to take a hard line and insist on enforcing the existing contract, a White House official said, "but what's wrong with that is that from a national security standpoint we want to get it done."

Energy Secretary Hazel R. O'Leary acknowledged that Clinton administration officials have been slow to resolve their differences over whether and how to reengineer the deal to suit the Russians, but she predicted the issue will be resolved this week at a Moscow meeting between Vice President Gore and Russian Prime Minister Viktor Chernomyrdin.

"I believe, when we walk out of Moscow on Friday night, after the last dinner party, we will have reached closure on this issue," she said in an interview.

A second shipment of uranium is already at sea, and the Russians have agreed to prices and delivery schedules through 1996, according to documents made available by U.S. Enrichment Corp. (USEC), the purchasing agent. The terms for deliveries after that are still in dispute, but senior officials said they now have breathing room to complete the negotiations, even if the issue is not settled at the Gore-Chernomyrdin meeting.

Resolution of the issue involves complicated questions of economics, politics and U.S. trade law, in addition to national security. But O'Leary and senior officials at the White House and State Department, as well as at USEC, said they are determined to overcome the hurdles and proceed with full implementation of a purchase agreement, a key component of U.S. nuclear disarmament policy.

In its natural state, uranium contains less than 1 percent of the isotope U-235, the fissionable material used to produce the explosive chain reaction that powers electric power reactors as well as bombs. Uranium for power plant fuel is enriched to about 4 percent U-235. Weapons-grade uranium, used as bomb fuel, is about 90 percent U-235.

As weapons are dismantled, the United States and Russia face the question of what to do with the surplus U-235, which is highly radioactive and subject to theft or diversion by terrorists. One solution is to de-enrich it, or "blend down" the material to reactor grade and use it as commercial reactor fuel.

That is the intended fate of the material USEC is buying from Russia. But there are complicating factors.

One is a separate "suspension agreement" negotiated with Russia by the Commerce Department in an anti-dumping case that limits the amount of commercial Russian uranium that can be delivered into the U.S. market. Another is the peculiar role of USEC.

When the United States and Russia were negotiating the bomb-grade uranium purchase, in 1992 and 1993, the only uranium enrichment plants in this country were owned by the Energy Department. But Congress spun them off in 1993 to the newly created USEC, which is still owned by the federal government but is soon to submit a privatization plan. USEC is the designated U.S. agent for the uranium purchase, but it now has to consider Wall Street as well as Pennsylvania Avenue in its contract negotiations. According to USEC Chairman William H. Timbers Jr. and other company executives, the purchase contract with Russia specifies that Russia be paid upon delivery of the diluted uranium for the work done in processing, or about two-thirds of the value. But Russia is to be paid the value of the material itself, or the remaining one-third, only when the material is sold into the U.S. commercial market -- which it cannot be for several years because of the anti-dumping suspension agreement. That means Russia would get about $8 billion in installments as the material is delivered, but might not get the other $4 billion until the end of the contract's term, in 2013.

Mikhailov wrote Davis that the arrangement is unacceptable, contract or not. "It is necessary to ensure that timely payments be made in full by the American side" for the full value of the delivered uranium, he said.

"That's the hangup," Timbers said in an interview. "If the Russians need to get paid and want to get paid and we want to have this deal work a little different from the contract, we have to find some way to allow us to introduce this material into the marketplace so we have the revenue to pay them."

USEC cannot simply give the Russians the money up front, he said, because it would be stuck with uranium for which there is no current market and such a burden on its balance sheet would preclude privatization. O'Leary agreed, saying USEC has an obligation to the taxpayers to make the best deal it can for itself.

Timbers, O'Leary and officials in the State Department and White House said several proposals are under consideration for resolving the issue. One is for USEC to offer the Russians an amended payment schedule in exchange for a lower price after the 1996 deliveries, an offer Timbers said he has already made.

Another is to endorse a legislative fix proposed by Sen. Pete V. Domenici (R-N.M.) under which the uranium could be sold now, producing revenue, for delivery after expiration of the suspension agreement. Another is to modify the suspension agreement, an idea opposed by the Commerce Department and by U.S. and Canadian uranium producers, who are prepared to go to court to block any such move, according to lawyers familiar with their position.

Another possibility, supported by some officials of the State Department and the Office of Management and Budget, is to remove USEC as the exclusive agent for the transaction, opening further installments up to competition by uranium brokers or private competitors in this country and Europe.

"One way or another we're all committed to seeing this worked out," a State Department official said. "Reports of this agreement's demise have been greatly exaggerated."

Articles appear as they were originally printed in The Washington Post and may not include subsequent corrections.