Uranium Enrichment

The United States Enrichment Corporation, a wholly owned government corporation, was created in 1992 to take over the Energy Department's (DOE) uranium enrichment program. The Corporation's privatization plan forecasts that its stock could be sold for between $1.5 and $1.8 billion, less about $100 million in transaction fees. The plan also assumes that the Corporation will take with it up to $600 million out of its Treasury Account. After privatization, the Corporation could pay as much as $1.1 billion annually in taxes. The return to the U.S. Treasury from privatizing the Corporation could range from $1.7 billion to $2.2 billion. GAO believes, however, that the net present value analysis on which the plan's forecasted sale price is partly based. For example, it does not reflect current market conditions and recent administrative decisions. Further, the plan's analyses do not consider the value of excess inventory, which could be worth more than $300 million. Because the Corporation's sale has national security implications, involves billions of dollars, and may set a precedent for the contemplated sales of other federal assets, GAO urges that careful scrutiny be given to the privatization process. The privatization process must protect the taxpayers' interest as fully as possible. This protection can best be ensured by placing in the lead role a government officials whose position will not be affected by the privatization and whose job will be clearly defined as protecting the taxpayers' interests. Moreover, safeguards may be needed to protect the taxpayers if the Corporation is undervalued when sold. The privatization plan assumes the enactment of proposed legislation requiring that most of the Corporation's liabilities remain with the federal government, and the plan's estimates are based on this assumption.

GAO found that: (1) the USEC privatization plan predicts that USEC stock could sell for up to $1.8 billion and USEC would take up to $600 million out of its Treasury account after privatization; (2) after privatization, USEC could pay taxes valued up to $1.1 billion annually, although it could have options to minimize taxes; (3) the current net present value analysis needs revision, since it does not reflect the value of excess inventory and current market conditions; (4) although USEC will play the lead role in determining how and when key privatization decisions are made, the Department of the Treasury will also play an active role and concur in key decisions; (5) safeguards may need to be implemented to protect taxpayers if USEC is undervalued when sold; (6) whether or not USEC is privatized, the U.S. government has ongoing obligations related to the uranium enrichment program and could pay $17.8 billion or more to meet requirements; and (7) the privatization plan assumes that most of USEC liabilities would remain with the government.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

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