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1. ADDITIONAL FUNDING WILL NOT BE MADE AVAILABLE FROM THE U.S. TO COMPLETE THE UKRAINE NUCLEAR FUEL QUANTIFICATION PROJECT
Project was developing an alternative nuclear fuel source for Ukraine

Letter from U.S. Secretary of Energy Samuel W. Bodman to Mr. Ivan Plachkov, Minister, Ukraine Ministry of Fuel & Energy
The Action Ukraine Report (AUR), Number 557, Article One
Washington, D.C. , Tuesday, September 13, 2005

The Secretary of Energy
Washington, D.C., 20585
July 21, 2005

Mr. Ivan Plachkov, Minister
Ukraine Ministry of Fuel & Energy
30 Kreschatick Street
Kyiv, Ukraine, 01611

Dear Minister Plachkov,

Thank you for your letter regarding our cooperative efforts on the Ukraine Nuclear Fuel Quantification Projects. The collaboration that has taken place over the past several years between the government of Ukraine and the United States Department of Energy on this project has been noteworthy.

Up to the present, the United States has invested more than $50 million in assistance funds for Ukraine. However, reduced levels of funding to the International Nuclear Safety Program recently forced the Department of Energy to reduce the scope of its assistance work. The reduction impacted the Ukraine Nuclear Fuel Quantification Project and funding for the core reload is not currently available.

Due to the great strides made by Ukraine's nuclear energy sector in recent years, both financially and technically, we are confident that Ukraine now possesses the ability to independently pursue a commercial agreement with Westinghouse to supply the core reload batch of 42 nuclear fuel assemblies.

We look forward to our continued cooperation and to the enhanced energy security and independence of Ukraine.

Sincerely,

Samuel W. Bodman
[U.S. Secretary of Energy]

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2. U.S. GOVERNMENT WILL NOT FUND NUCLEAR FUEL CORE RELOAD PROGRAM TO COMPLETE UKRAINE'S NUCLEAR FUEL QUALIFICATION PROJECT (UNFQP)

Letter from Thomas C. Adams,
Coordinator of Assistance to Europe and Eurasia
United States Department of State
to Morgan Williams, Washington, D.C.
The Action Ukraine Report (AUR), Number 557, Article Two
Washington, D.C., Tuesday, September 13, 2005

United States Department of State
Washington, D.C. 20520
August 10, 2005

Mr. Morgan Williams

Dear Mr. Williams,

I am writing to clarify the U.S. Government's plans for the completion of the Ukraine nuclear fuel qualification project (UNFQP). My staff was centrally involved in the interagency discussions that determined Ukraine's assistance budget under the FREEDOM Support Act (FSA), which funds the Ukraine nuclear safety assistance [program] implement[ed] by the Department of Energy.

As you know, when we initiated the UNFQP, Ukraine's FSA budget was significantly higher that it was in FY 2005 (200+ million vs. less than 79 million). Given that budget reduction and competing priorities, and working with our Embassy in Kyiv and our counterparts in the Department of Energy, we determined that there were insufficient resources to undertake the fuel core reload.

In addition, the economic growth and political changes in Ukraine point towards the greater ability of that country to enter into a commercial agreement to purchase their fuel reload.

As A/S Fried mentioned in his July 27,2005 testimony to the House International Relations Committee, the emergency supplemental FSA appropriations of $60 million, which is intended primarily to help cement Ukraine's democratic gains and advance key economic reform over the coming months, will permit us to devote a small amount -- about $5 million -- to sustain DOE's nuclear safety activities.

We intend for this to include remaining allocations to cover the lead test assembly installation, monitoring, and testing under the UNFQP.

Unfortunately, the USG will not be able to fund the core reload. Despite having received supplemental funds, the FSA budget for Ukraine remains significantly less than it was when the UNFQP was agreed. In this budget environment there are competing priorities that must be addressed.

Please do not hesitate to contact me if you have any questions.

Sincerely,

Thomas C. Adams
Coordinator of Assistance to Europe and Eurasia

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3. UKRAINE NUCLEAR FUEL QUALIFICATION PROGRAM (UNFQP)
Ensure a competitive marketplace for nuclear fuel in Ukraine

BACKGROUND PAPER: UNFQP
The Action Ukraine Report (AUR) Monitoring Service
Washington, D. C., September 13, 2005

Ukraine currently uses nuclear power for approximately 50 percent of its electricity needs but must purchase 100 percent of its fuel from the Russian Federation. This has led to sharp price swings and intermittent cutoffs of fuel shipments reflecting the volatility of the bilateral relations of these two countries.

Within the FY 1996 Foreign Operations Appropriations bill, Congress specified that the US Agency for International Development spend �no less than $30 million� for the design, technology transfer and testing of an alternative source of nuclear fuel.

The intent is to ensure a competitive marketplace for nuclear fuel in Ukraine, lowering costs to energy consumers and improving the safety and efficiency of nuclear fuel products offered.

This program was initiated after a Nuclear Cooperation Agreement was signed by Secretary of State Albright in Kyiv on March 7 1998 following the Ukrainian Government�s termination of a contract for the supply of a turbine generator to the Bushehr Nuclear Power Plant in Iran at the request of the US Government.

Although the non-nuclear sale to Iran was considered to be legal under international law, the US Government pledged the Ukrainian Nuclear Fuel Qualification Project (UNFQP) as compensation for the loss in revenue and employment by the voluntary termination of Ukrainian Government support for the project.

In December 1999, the US/Ukrainian Binational Committee issued a statement in strong support and full commitment to the program resulting in a US/Ukrainian Intergovernmental Agreement signed June 2000 between then-Secretary of Energy Richardson and Ukrainian Energy Minister Tulub during the visit of former President Clinton to Kyiv

A contract was awarded to Westinghouse Electric Company in July 2000 to work with Ukrainian authorities in fulfilling the program goals and immediately confronted strong Russian opposition to the project as it threatened their monopoly supply status, illustrating the program�s strategic need for Ukraine.

The Intergovernmental Agreement called for the development, testing and production of fuel through both �lead test assemblies� and a �full test reload.� The agreement also called for extensive training to allow Ukrainian engineers to monitor nuclear fuel for the first time. These activities are currently being conducted at the Westinghouse fuel facility in Columbia, South Carolina.

While opposition by Russia has continued, the UNFQP has progressed also well with approximately $50 million expended to date and an additional $15 million required for program completion. The U.S. government announced in July 2005 a termination of the program before its completion that will ultimately not yield to Ukraine an alternative fuel supply unless other funding sources can be found to continue the program.

The Department of Energy has decided not to provide funding to provide the �full test reload� as was originally called for by the Intergovernmental Agreement which was resigned June 5, 2005. Without the testing, licensing and examination of a reload of fuel, experts feel it will be impossible to determine whether the first of a kind process of mixing both western and Russian fuel together in a Soviet built reactor will result in a safe and reliable alternative to Russian suppliers.

The decision by the U.S. government brings to an end an important cooperative relationship between US commercial firms and Ukrainian weapons scientists that effectively prevented Ukrainian nuclear aid to Iran.

The UNFQP provided the creation of the Center for Reactor Core Design (CRDC) which for the first time in Ukraine�s civilian nuclear power history will provide it with its own ability to analyze Russian-made fuel before insertion into its own reactors to ensure safety.

Approximately 40 weapons scientists previously employed in WMD work at the Kharkiv Institute for Physics and Technology have been trained and reemployed to comprise an expert group with advanced western technologies and practices that can be expanded upon through Ukrainian resources to advance fuel safety and independence.

The Kharkiv Institute has become a focus of US non-proliferation efforts recently as it houses one of the largest stocks of bomb-grade Highly Enriched Uranium in the Former Soviet Union.

It has been reported the Ukrainian government has expressed its regret and concern over the letter from Secretary of Energy Samuel Bodman stating that the United States' share of the program costs will not now be made available and that the final part of the joint efforts between the United States and Ukraine would be subsequently stopped.

The government of Ukraine still hopes that funds will be made available by the U.S. government to meet the continued needs of this important program as significant efforts are still required before an alternative nuclear fuel provider can be qualified in Ukraine. Many experts do not feel the present program was far enough along to be commercially viable and still needs further financial support from governments.

It is very clear to experts that Ukraine critically needs to develop the domestic ability, or a clear alternative supplier from the west for nuclear fuels. It will not matter much what they do in other areas if they are not going to become more independent regarding the critical supply of nuclear fuel they need.