Uranium Enrichment:

Process to Privatize the U.S. Enrichment Corporation Needs to Be Strengthened

RCED-95-245: Published: Sep 14, 1995. Publicly Released: Sep 14, 1995.

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Pursuant to a legislative requirement, GAO provided information on the proposed privatization of the U.S. Enrichment Corporation (USEC), focusing on: (1) the net present value of the corporation; and (2) whether the privatization plan would result in any ongoing obligation or undue cost to the government.

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.

Matter for Congressional Consideration

  1. Status: Closed - Implemented

    Comments: Amendments to the Energy Policy Act of 1992 required the Secretary of the Treasury to take a more active and responsible role in the USEC privatization, including approving the final sale agreement. In July 1997, the President directed USEC to implement the privatization plan, which called for exploring a dual path process of simultaneously considering a sale to a private party and a sale of securities to the public through an initial public offering (IPO). On July 23, 1998, USEC became a private corporation, and the government received proceeds of approximately $1.9 billion, about $800 million more than had been estimated. The government was able to obtain a greater price for USEC because the Congress required the Secretary to lead the privatization process and determine the sale price, as GAO had recommended. In determining the sale price, the Secretary of the Treasury, among other things, considered USEC's excess inventory and lower working capital requirements.

    Matter: Congress, as it considers proposed legislation affecting USEC privatization, should require the President to approve the final sale agreement. To assist the President, Congress should require the Secretary of the Treasury to lead the privatization process and, in so doing, make the necessary statutory findings. The Secretary should also take responsibility for determining the sale price, obtaining, if necessary, the advice of investment bankers or other valuation experts. In determining the sale price, the Secretary should: (1) consider the total impact of the Russian contract on the price; and (2) incorporate needed updates, such as the administration's final decision on how much cash USEC should retain when it is privatized. The Secretary should also consider: (1) ways to obtain value for USEC excess inventory; and (2) the use of a clawback mechanism or warrants in the sale agreement to protect the government from the possibility of an undervalued sale.

 

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