International Uranium Enrichment Centre Global Nuclear Power Development

International Uranium Enrichment Centre

Global Nuclear Power Development 16 18 46 23 150 123 TIES ACILI F T N E M ENRICH 111 78 4 2 4 S 4 Reactors in operation Reactors under construction and planned for construction 2 14 R TO W NE AC E R Uranium enrichment facilities Newcomers to the world nuclear market Growing disparity in geographic distribution of reactors under construction and enrichment facilities sets new challenges in securing supplies. 2

Nuclear Power Industrial Complex of the Russian Federation As a Basis for Mechanism to safeguard Uranium Products Supplies -uranium production(4) - conversion(3) -enrichment (4) - fabrication(2) - NPPs (10) - depleted UF 6 reconversion projects(2) Research Institutes (>50) Many years of experience, reliability, high competitiveness, and diversification of the Russian nuclear industry made Russia possible for it to offer the mechanism of additional assurance for the uranium products supplies. 3

Initiative put forward by the President of the Russian Federation The Russian President’s Initiative Saint-Petersburg, Eur. As. EC Summit, 25 January 2006 «The key element of such an infrastructure should be an international centers network under the IAEA control for the provision of nuclear cycle services, including uranium enrichment» Objectives of the initiative : v To increase the role of nuclear energy in provision of global energy assurance v To develop the global nuclear energy infrastructure via the establishment of an international nuclear fuel cycle centers network v To provide the non-discriminatory and assured access to products and services of the nuclear fuel cycle for those states, which are currently developing nuclear power 4

IUEC in the Global Energy Security WNA Multi-layer and multilateral system for the security of supplies Existing world SWU market IUEC Commercial Supplies (AECC) Collective securities issued by Suppliers via commitments made by Governments/IAEA Commercial supplies (other plants) EUP reserves owned by the state LEU RESERVE 5

IUEC in the Global Energy Security LEVEL 1 SECURITY OF SUPPLY ACHIEVED VIA: 1. IUEC international status as established by the Intergovernmental Agreement. 2. IUEC obligations stipulated in the commercial contracts with the shareholders/customers. 3. Shareholders’ participation in the IUEC Board of Directors, concurrence and approval of the production program, investment and dividend policies. 4. Establishment of own IUEC’s EUP reserve (in Russia and abroad). 5. Long-term IUEC-AECC agreement to secure assured access to the enrichment and conversion capacities as well as respective infrastructure (storage facilities, customs processing points, transport routes). 6. Future ownership of AECC’s shares by the IUEC. LEVEL 2 Assurance (when required) of supplies supported by the three other Russian enrichment facilities. LEVEL 3 Establishment on the territory of the Russian Federation and at the expense of the Russian Federation of LEU Reserve, sufficient for two 1000 MWt reactor re-fuellings at a capacity of 1 GW (quantities: 120 t. U). The IUEC shall provide LEU Reserve storage and management. The reserve will be available for access to all the countries, meeting the nuclear nonproliferation requirements, supplies to which have been cut for reasons other than those of commercial. 6

IUEC – alternative to development of national enrichment facilities OPTION 1. Development of national enrichment facilities costs Difficulties in the acquisition of technology from its owners (proliferation of sensitive technologies) Political Legal Technological Argumentation of necessity of enrichment facilities development, guarantees of their peaceful purposes use Amendment of the state’s legislative basis in accordance with the international standards Technological risks of facilities development Significant time expenses from decision-making to first production Commercial and Financial costs on acquisition of technology and development of enrichment facilities (in addition to NPP construction costs) NPP Enrichment facilities 2000 -3000 $/ k. W 500 -1000 $/SWU* ~ 75 -150 $/k. W* * can be much more for small capacity facilities OPTION 2. Participation in IUEC advantages • Participation in the strengthening of international nonproliferation activities • IAEA participation in IUEC activity (IAEA safeguards, IAEA participation in the Joint Coordinating Committee) • IUEC operates in the legal framework of the Russian Federation, that corresponds to the international standards; • IUEC operates on the basis of the intergovernmental agreement -> the execution of delivery obligations is guaranteed by the RF government No need in facilities development - IUEC reserves capacities of the already existing enrichment enterprise – AECC, with modern technology and well-developed infrastructure • No need for technology acquisition and facilities development; • Shareholder participates in the management of IUEC operation and commercial activities through it’s representative in the Board of directors; • The contribution to IUEC stock capital is negligible – 100 000 USD (10 % of shares). • IUEC pays shareholders yearly dividends from it’s profit. 7

IUEC- alternative to other schemes of supply guarantees Other schemes of supply guarantees (as alternatives to development of own enrichment facilities) Establishment of uranium fuel stock by one consumer Diversification on suppliers 1. Freezing of significant financial assets 1. Obligations of the supplier only 2. Storage expenses (stock creation, service, container acquisition) 3. Logistic problems & expenses (management of the program of purchases and material flows) 4. Provision of physical protection, safety, account and control of nuclear materials measures at contract level, with no government guarantees 2. Risk of facilities deficiency -> risk of order default -> • in case of availability of material on the market - purchase on the spot market at considerably higher price • in case of absence – risk of electric power production shortage due to absence of fuel Use of contract (quantities, tails) and financial options 1. Risk of facilities deficiency - > failure to deliver option quantities 2. Poor development of financial hedging tools (futures, options) in the uranium market Participation in IUEC also creates an operative stock of uranium fuel for many customers-> due to a high turnover rate the stock works and yields profit. Guarantee of deliveries based on IUEC contract on capacities reservation with AECC (other Russian enrichment enterprises – back-up mechanism). IUEC is ready to consider various tools to attain flexibility of the contract, including financial derivatives. 8

Sales and Procurement System for IUEC Products as Part of Commercial Activities SALES model Level 1 long-term and spot deliveries Existing and new shareholders shareholder Level 2 long-term and spot deliveries availability of excess reserved capacities customer «no enrichment» states Level 3 spot deliveries availability of excess reserved capacities customer «enrichment» states PROCUREMENT model PROCUREMENT OF SWU v. Acquisition of SWUs from the AECC v. Acquisition of SWUs from the other isotope separation industrial complexes PROCUREMENT OF FEED MATERIALS v use of the customer’s own feed material v acquisition of feed material in the market v acquisition of feed material from NAC “Kazatomprom” 9

IUEC Key Principles The IUEC is a non-proliferation strengthening tool q Transparency of the end use of IUEC products is ensured by the IAEA safeguards application to the IUEC nuclear material. q It is binding for the shareholders in the IUEC that they participate in and meet obligations as part of the Nuclear Nonproliferation Treaty of July 1, 1968 (article 5 – Intergovernmental Agreement of the IUEC establishment). q No access to proliferation of the Russian uranium enrichment technology because of retention by the Russian Federation of 50 per cent plus one controlling share in the IUEC. q Advantages from being involved in the IUEC are rewarding to refuse to develop isotope separation facilities of your own (slide No. 7). Assured access of participating countries to the EUP and uranium enrichment services q The IUEC has been established, based on the intergovernmental agreement and has an international status, which secures governmental guarantees of EUP deliveries. q The IUEC has been organized as an open-type joint stock company, where shareholders are represented in the Board of Directors, concur and approve the production&sales program, as well as investment and dividend policies. q The IUEC has been established with such place of business as the AECC, an industrial complex with fifty years of operations, having a reliable and highly competitive technology. The industrial complex has been securing supplies to customers under commercial contracts. Non-discriminatory conditions of membership for all interested countries q Equal rights of the shareholders in the IUEC are guaranteed by the Russian law. No destabilizing influence on the existing uranium market q No expansion of enrichment facilities have been planned as part of the IUEC at stage 1 (political stage), the expansion is possible in the future (investment stage) but for meeting guaranteed demand only. q The IUEC’s operations are based on market-oriented relationships, product sale price is based on market-oriented principles. 10

Basic Rights of Shareholders in the IUEC To have an priority option on the uranium enrichment services against other customers Agreement* Voting authority at the General Shareholders’ Meeting Federal Law**, The Articles of Association of the IUEC Dividends right Federal Law, Articles of Association of the IUEC A part of title to be held in case of the liquidation of the company Federal Law, Articles of Association of the IUEC Pre-emptive right to shares in the IUEC, in proportion to the shareholder’s share in the registered capital Federal Law Right to repurchase shares when voting against making a resolution or abstaining from voting on the following issues: • on the reorganization of the company; • on the approval to complete a major transaction; • making changes and additions to the Article of Association or validation of the revised Articles of Association, limiting shareholder’s rights. Federal Law Right to gain access to constituent instruments, reports, and other documents on the IUEC’s activities as per Articles of Association of the IUEC and legislation Federal Law, Articles of Association of the IUEC Right to nominate candidates to the Board of Directors and Audit Commission of the IUEC, propose items to an agenda of the general shareholders’ meeting (for shareholders who hold not less than 2 per cent of shares) Federal Law Right to seek convening of the extraordinary general shareholders’ meeting (for shareholders who hold not less than 10 per cent of shares) Federal Law Right to seek inspection of the IUEC’s financial and business operations by the Audit Commission (for shareholders who hold not less than 10 per cent of shares) Federal Law *Agreement - Agreement between the Government of the Russian Federation and the Government of the Republic of Kazakhstan on the IUEC establishment dated 10. 05. 2007 **Federal law – Federal Law No. 208 -ФЗ dated 26. 12. 1995 “On Joint-Stock Companies" 11

IUEC Organizational and Legislative Chart 12

LEU Reserve (Fuel bank) at JSC “IUEC” The idea to establish the low enriched uranium security reserve means to set up a mechanism for the assurance of supplies accessible for all countries meeting the nuclear non-proliferation requirements to which countries the supplies have been stopped for the reasons other than of technical or commercial character. A waiver related to the possibility to develop the nuclear fuel cycle is not required from the member-state by this mechanism. Basic Principles Non-exclusive nature Non-discriminatory nature The availability of the LEU reserve does not preclude to use other mechanisms for the assurance of supply Political issues shall not prevent fuel deliveries from LEU reserve for any country, and all countries have equal rights to such a delivery § the LEU reserve shall be used only in extra cases after all the No adverse influence on market-based mechanisms for the supplies have failed, i. e. in the existing uranium market event of a political force majeure § the products are supplied on a market-oriented basis No heavy investments required Generation and use of the security reserve shall not incur expenditures from the IAEA budget or any other additional payments (contributions to the budget) by the IAEA member states q The reserve shall consist of 120 t of low enriched uranium in the form of UF 6 with an assay of 2. 00% to 4. 95% (~250 -700 fuel assemblies depending on the reactor type). q The price of LEU supply based on market spot indicators published by the respective reputable companies averaged over a period, preceding the LEU delivery. 13

Participation of IAEA in IUEC activity Establishment of LEU reserve under the auspices of IAEA Participation of the IAEA representative in the Joint Advisory Commission (JAC) Application of IAEA safeguards to IUEC nuclear materials Assurance of supplies in case level 3 situation occurs (political force majeure) Participation of the IAEA in the decision-making process with the aim to: Compliance with nonproliferation regime while supplying products of the IUEC • improve the IUEC operating efficiency • resolve disputes between the Parties of the Agreement on establishing the IUEC, including those related to compliance with the requirements of nonproliferation regime 14

Procedure of the IUEC new member entry I. Signing by the government of a new state-member separate agreements with the governments of the existing state-members of the IUEC in which the authorized IUEC shareholder-organization from the new state-member is defined (duration of the Agreement is 10 years since the time of signing, the Agreement is extended tacitly for ten-year periods in the absence of the Parties’ objections) II. Approval of the transaction by the Governmental commission on foreign investments control in the Russian Federation, headed by the Head of the Government of the Russian Federation in pursuance of the Federal law dated 29. 04. 2008 No. 57 -FZ “On the procedure of foreign investments into legal entities of a strategic importance that ensure the defense and security of the country” III. Approval of the transaction by the President of the Russian Federation in pursuance of the Federal law dated 05. 02. 2007 No. 13 -FZ “On specifics of management and disposition of the property and assets of organizations that operate in the field of nuclear energy use”. IV. Execution of corporate procedures to obtain the block of IUEC shares from JSC “Techsnabexport” by the authorized shareholder-organization of the new country Upon entry - holding a General meeting of shareholders to introduce changes into Board of Directors’ structure: 1. Change (if required) of the number of Board Directors (currently – 7 members); 2. Election of a new shareholder representative to the Board of Directors. 15

Project financing Political stage IUEC Authorized capital ~ US $ 1. 05 m. Selling of shares to new shareholders The Russian Federation, by means of signing the agreement on reservation of IUEC-AECC capacities , provides to IUEC a certain amount of uranium enrichment capacities to assure the supplies of products to the IUEC shareholders. at par (~ US$105 000 per 10% of shares) In case of capacities shortage (in the future) Investment stage IUEC Authorized capital (additional shares issue) OPTIONS to implement the investment stage: v acquisition of AECC shares by IUEC; v creation by IUEC its own production capacities. 16

Key Dates September 2006 Statement by Rosatom at the 50 th session of the IAEA General Conference on the establishment of the IUEC on the site of “Angarsk Electrolysis Chemical Complex” (AECC) October 2006 The decision of the Republic of Kazakhstan to join the Russian initiative on establishing the IUEC January 2007 Note Verbale of the Russian Ministry of Foreign Affairs to the IAEA on including AECC into the list of Russian Facilities open for the application of the IAEA safeguards 3 August 2007 The Agreement between the Government of the Russian Federation and the Government of the Republic of Kazakhstan on establishing IUEC 5 September 2007 Registration of JSC “IUEC” as a legal entity 27 November 2007 Registration of JSC “IUEC” shares issue 29 November 2007 Decision of the Republic of Armenia ‘s Government to participate in the IUEC. 27 December 2007 An issue of regulation by the Government of the Russian Federation on including JSC ”IUEC” into the list of nuclear fuel cycle facilities that can be subject to the application of IAEA safeguards under the Agreement on the application of the IAEA safeguards in the Russian Federation – INFCIRC/327 January 2008 Note Verbale of the Russian Ministry of Foreign Affairs to the IAEA on including JSC “IUEC” into the list of Russian Facilities which can be subject to the application of IAEA safeguards February 2008 Exchange of diplomatic notes between the Russian Federation and the Republic of Armenia on entering of the Republic of Armenia into JSC “IUEC” 25 August 2008 Including of IUEC into the List of Russian legal entities entitled to own nuclear materials September-October 2008 Acquisition by IUEC of licenses required for work After completion of internal procedures Conclusion the agreement on purchase and sale of the IUEC shares between JSC“Techsnabexport” and JSC “Armenian NPP” December 2008 First delivery 17

Project Development Plan 1. Short-term period (till the end of 2009) v Arrangement of storage sites for LEU Reserve and IUEC’s nuclear materials; v Conclusion of agreements with transportation companies; v Arrangement of the IUEC’s office in Angarsk; v Exercising of the supply mechanism; v Long-term operation program elaboration. 2. Medium-term period (2010 -2015) v Finalizing the IUEC’s shareholders structure (Russia – 50%+1 share, Kazakhstan 10%, Armenia – 10%, block of shares for allocation – 30%-1 share); v Determination capacities’ requirements; v Supplies of products to shareholders; v Evaluation of necessity to start the project investment stage; v If necessary – making a feasibility study of investment project. 3. Long-term period (2016 -2030) v If necessary, the project investment stage. 18