|USEC Privatisation and the Future|
|William H. Timbers, Jr|
The USEC privatisation drama is over. One of the longest running guessing games in the nuclear fuel industry is finally over. You remember the game. In fact, I will bet many of you played it with your colleagues. The game went something like this: Do you think USEC should be privatised? What is your guess for when it will happen? If the deal gets done, who gets to run the business? Will they go with an initial public offering (IPO) or will somebody buy them?
As you all know, those questions have finally been answered. The great uranium industry parlour game is over. Privatisation is history and it is time to take a fresh look at a new USEC.
USEC Inc became the newest member of private enterprise on 28 July when 100 million shares of our stock went into the public's hands. Seeing our company banner up above the New York Stock Exchange trading floor as millions of USEC shares were bought and sold was momentous for me. USEC employees at our headquarters shared in the moment, watching it via satellite. Personally, it was a great day one I will not forget. Having shed the constraints of being a government enterprise, at last we are able to devote all our time to running a world-class business.
It was also a great day for the taxpayers of America, individual investors and for our industry. The US government got about three billion dollars for USEC, making it the largest privatisation in our nation's history. The investors who bought our stock at the IPO price have seen their investment grow in value during a period when stock markets around the world have dropped sharply. Financial analysts have recommended our stock as a "strong buy", a stable investment, a "safe harbour" if you will, during these times of turbulent markets. Personally, I think we are a great investment for any market.
As I was preparing this presentation, I started thinking about the numbers of hours that I spent not to mention the many hours that USEC managers spent on privatisation. Looking back, it is just amazing how much time we spent on the process. It gives me great confidence about our company's future when I consider how much we can achieve now that 100% of USEC's effort can be directed at our business activities. We are now free to find new and more efficient ways to manage the business and create new value for our customers and shareholders.
Another big winner coming out of USEC's privatisation is the nuclear industry itself. Yes, successfully selling 100 million shares of stock is a big vote of confidence in our company. But it is also a very visible demonstration of support for all of us in this business. Tens of thousands of investors voted with their chequebooks in favour of nuclear power and its potential. While there are many critics of our industry, investors expressed their belief in our future in a very concrete manner, with their hard-earned money.
During the past couple of months as we prepared for our stock offering, I met with dozens of financial analysts. I was struck by their comments, time and again, that they just now realise that uranium-fuelled nuclear power plants do not emit carbon gases while producing nearly 20% of the world's electricity. I think our industry is at a point where we are being viewed in a more favourable light and offering something vital in solving the global warming issue. If we act decisively, we can take advantage of this opportunity to communicate about the benefits of nuclear fuel and nuclear power. There is a tremendous need for this public understanding.
Not long ago, I was chatting with a fellow guest at a dinner party. He was baffled as to why world leaders were not moving to solve the global warming situation. In his opinion, the solution was simple. There is no need to burn coal, oil, natural gas, garbage or even nuclear fuel. He was convinced that the problem could be solved by simply switching to the cleanest energy source around electricity.
I know that tremendous efforts have been made to improve the public's understanding about energy matters and the need for nuclear power. But I also know that we have just scratched the surface and we need to do more, much more to promote the nuclear fuel option.
So I challenge you individually, and our industry collectively, to undertake stronger actions to enhance nuclear energy's reputation as a solution to meet the growing global need for electrical power. How can we accomplish this? Here are a few steps.
We must lower costs, in both construction and operations. As deregulation sweeps through the industrialised countries, nuclear plants have to lower costs to be competitive.
We must increase the pace of licence renewal of nuclear plants now operating. In the United States, we have seen some action recently. BGE announced it is moving toward licence renewal for the Calvert Cliffs plant, and Duke Power plans to seek licence extensions for three Oconee units. Others have indicated an interest in extending their licences, but concrete steps need to be taken soon.
In many nations, we must demand that politicians resolve the waste storage issue. Promises have been made; now promises must be kept.
We must increase promotion of nuclear power as a key resource to abate global warming. Demand for electricity is growing, particularly in the emerging countries, and nuclear is the only proven, large-scale generation that can meet that demand without carbon emissions. We must create new alliances with other groups to promote pollution-free nuclear power.
Let us celebrate our successes and cheer publicly and loudly when an action by a customer, vendor or even a competitor enhances the reputation and prospect for nuclear power.
We all know that competition for increased market share benefits both business and customers. Likewise, we know that increasing the use of nuclear power will benefit people everywhere on the planet. By working together, we can serve both interests by promoting the sustainable and beneficial growth of nuclear power.
For many years, the door leading to the public's acceptance of nuclear power in some parts of the world has been slammed shut. Today we see that door cracked open a bit and we have an opportunity to tell our story to those who influence opinions, the news media, and ultimately to the public. In addition to the traditional voices of the nuclear industry, new voices are being heard. The influential United States Senator, Pete Domenici, has recently taken on a bold role of outspoken advocate for nuclear power.
PECO, a major US energy company, has become a leader in nuclear services, including operating power plants for other utilities. Corbin McNeill, PECO's chairman and CEO, recently crystallised his company's view: "We believe the twenty-first century will bring the next great nuclear age, a true renaissance for nuclear power plants."
The Global Forum is promoting the efforts of noted scientists and international energy experts who endorse the benefits of nuclear power. That will be the theme of their annual meeting in Paris in October.
The Nuclear Energy Institute has launched a national advertising programme in the United States. Their ads drive home the message that nuclear power plants are reliable, proven, consistently safe and environmentally clean. The Atlantic Council, an important independent think tank, has published a year-long study by international authorities on the importance of nuclear power to the future of Asia.
These examples of new voices, added to our own, have a real opportunity to break through the noise and chatter to make a positive impression and change perceptions.
Finally, I could not address a meeting of uranium industry professionals without talking about a subject of great mutual interest uranium. More specifically, USEC's uranium. During the past three or four months there has been a lot of speculation about USEC's uranium inventory its size, how it was obtained and when it would enter the marketplace.
Most published reports reflected dire warnings that USEC had far too much uranium, that we would flood the market, that uranium prices would crash, and that the US-Russia HEU contract was doomed. Experts trotted out charts and graphs to show these outcomes.
Contrary to pundits, industry publications, reports and dire predictions, the sky did not fall and the uranium market has not crashed. I believe this stability reflects confidence in USEC being a rational player in the uranium marketplace. I want to emphasise again that market stability is in USEC's own financial interest, and we intend to be prudent marketers of our uranium inventories.
Our business objective regarding our uranium inventory is simple: USEC seeks to maximise shareholder value in sales of its uranium. Therefore, as a publicly traded company with fiduciary obligations to our shareholders, USEC can ill afford to unsettle the uranium market, and reduce the value of our inventory.
We have been very upfront about our plans. Let me outline them here for you. We will dispose of our uranium inventory in a gradual, market-sensitive manner. We have not established a timetable for selling specific quantities; we intend to be flexible about this. We expect most of our uranium sales to occur after 2000, and sales through 2005 should represent less than 10% of world demand.
At the risk of being repetitious, let me say that it flies in the face of logic and business common sense for USEC to flood the market with uranium and we have no intention of doing so.
The US-Russia HEU contract is another area where there has been considerable misinformation, which has led to unwarranted concerns. Let me be perfectly clear: we will continue to implement the Megatons to Megawatts programme as Executive Agent for the United States government.
In spite of all the hand wringing, the US-Russia HEU contract has been and continues to be successfully implemented. One-third of the total of 500 tonnes of HEU is under firm commercial terms. That is the equivalent of more than 7000 nuclear warheads converted to nuclear reactor fuel. Russian deliveries of the LEU continue, and we continue to pay the Russians much needed hard currency.
For critics concerned about a private company being responsible for this strategic transfer of resources, safeguards are in place. President Clinton's May 1998 Executive Order creating and empowering the government's Enrichment Oversight Committee provides ample protection for United States national security interests.
And to answer a question that I am sure is on many minds: yes, the Russian LEU costs USEC more than producing the SWU ourselves. While cost is important for a private enterprise such as ours, it is not the only factor to consider. By timing deliveries to coincide with periods of peak electricity usage in the United States, we can better manage our product mix using the Russian material. There is no question that one way or another, the Russian material will continue to be introduced into world markets.
It benefits all of us to turn these megatons of destruction into megawatts that power peaceful commerce. We believe it is in our best interest, and in the best interest of the global marketplace for enriched uranium, to have this material purchased and introduced into the global market by USEC. We have the greatest incentives and resources for achieving this in a stable, responsible manner.
I want to thank you for inviting me to make this presentation. This is a welcome forum for sharing our vision for a healthy and expanding nuclear industry. The uranium industry is at an important stage as we approach the millennium. The public appears ready to take a fresh look at the benefits of nuclear power. Governments around the world reflected the same concerns and interests by signing the Kyoto agreement in 1997.
That historic pact should result in fewer new emissions of greenhouse gases, in an effort to slow global warming. Nuclear power is the best choice for meeting these environmental challenges and the pent up demand for electricity in the emerging countries. While the financial markets are currently in turmoil, the long term view is that growth in these countries is inevitable.
The privatisation of USEC is now history and we are eager to be an active, committed participant in the nuclear industry. We recognise the responsibility which that entails and we are ready to shoulder that load. I invite you to look at USEC in a new light because we have changed; keep your eye on us because we are free to fully focus on our business, our customers and on growing our business. We will continue to excel at safety, efficiency and performance. We also have greater freedom to partner with others in the industry and to actively promote nuclear power development and expansion.
So, an opportunity lies before us to significantly enhance the prospects for our industry. The time is right. Let us seize the moment. Working together, we can create new opportunities and increase the dimensions of the nuclear industry's prospects.
As the old saying goes, a rising tide lifts all boats. Let us not forget that this law of nature affects all of us in the nuclear power industry. We are in this together.
© copyright The Uranium Institute 1998 SYM9798