Energy: The Uranium Cartel’s Fallout

Billion-dollar lawsuits are popping up everywhere

Normally, Santa Fe, N. Mex., Judge Edwin Felter spends his days dealing with burglaries, muggings and an occasional divorce case. But this month Felter’s courtroom has become center stage for more than 200 top corporate, international and antitrust lawyers. By a quirk of jurisdiction, Felter is presiding over one of the largest and most complex corporate lawsuits ever filed in an American court—a $2 billion-plus action by a New Mexico uranium mining company, United Nuclear Corp., against General Atomic Co., a 50%-owned subsidiary of Gulf Oil Corp., for fraud, coercion and breaches of the nation’s antitrust laws.

The case, which has already produced more than 10,000 exhibits, is a key part of the continuing legal fallout from the operations of the now notorious world uranium cartel. The cartel included companies from Canada, Australia, Britain, France and South Africa, as well as the governments of all those countries except Britain. Gulf Oil, the only known American participant, was represented through a Canadian subsidiary. The cartel existed only from 1972 to 1975, but it cashed in on a bonanza that would make an OPEC oil minister jealous: during those three years, world “yellowcake” prices zoomed from less than $6 per Ib. to about $42, where they have since remained.

As prices climbed, United Nuclear found that contracts it had signed with a now defunct Gulf subsidiary and with General Atomic to deliver more than 27 million Ibs. of uranium at set prices ranging from $9 to $14 per Ib. could be filled only at a huge loss. All the time, it now claims, officials of both Gulf and General Atomic, neither of which were formal cartel members, concealed their knowledge that Gulfs Canadian subsidiary was helping to drive prices up by participating in the cartel. United Nuclear now seeks not only to have the contracts voided but to collect damages of $2.27 billion from G.A. In a countersuit, General Atomic denies all allegations and asks that United be forced to fulfill the contracts.

The cartel’s operations are being probed in other courtrooms too. In Richmond, Va., federal court, 15 of the nation’s largest electric utilities are suing Westinghouse Electric, the nation’s largest supplier of uranium to private industry. They seek to compel Westinghouse to honor contracts to deliver 65 million Ibs. of uranium at an average price of $10 per Ib. Doing so could cost Westinghouse as much as $2.6 billion. To avoid that loss, Westinghouse is using the same argument as United Nuclear, that it was victimized by the cartel. Meanwhile, Westinghouse has filed its own suit in Chicago against Gulf and 28 other companies that it says were either cartel members or had ties to the group. Westinghouse is asking for triple damages.

All the suits raise two important questions: Did Gulf join the cartel willingly, despite its protestations that it was forced into the group by the Canadian government? And did the cartel’s operations, even though they were confined to foreign markets, help to push up prices in the U.S.? If the courts decide that both answers are yes, Gulf would be open to antitrust prosecution by Washington, to private suits by any U.S. buyers of uranium who were hurt by the price blowup and even, conceivably, to suits by some of the 30 million-odd U.S. individuals and businesses that are paying higher rates for electricity because nuclear-power companies are paying more for uranium. In New York State alone, these increases are expected to cost customers as much as $1 billion between now and 1980.

Considerable evidence already exists. During the past year, a federal grand jury, a House subcommittee and a New York State legislative office have been investigating the cartel’s operations. They have turned up documents that tell an amazing tale of market rigging. The cartel—known as the Club to its members—was organized by the Canadian government, initially to prevent what in 1972 looked like an imminent drop in the price of one of Canada’s most important export commodities. At the time, the world supply of uranium exceeded demand by 400%, according to some estimates, and if newly discovered deposits in Australia had been made available to the world market, demand would have been unlikely to catch up with supply until the early 1980s. As it happened, Australia embargoed uranium exports until last August, and the Arab oil embargo of 1973 caused a huge acceleration of demand for uranium from nuclear-power plants around the world, so prices might have gone up anyway. Meanwhile, the cartel swung into operation.

The group set up a formal headquarters in Paris, complete with a paid secretariat, policy and operating committees and detailed rules for dividing up markets and fixing prices. Those rules forbade members to share markets or rig prices in France, South Africa, Australia, Canada and the U.S., in order to stay clear of local antitrust rules. But whenever a member company learned of a potential order from an outside country—Japan, say, or Spain—it had to inform the secretariat. The cartel would then select a member to bid at a price it had set; to preserve appearances, another member would be chosen to bid at a higher price sure to be rejected. The cartel also imposed penalties on members. On one occasion, it ordered Gulfs Canadian subsidiary to buy 300 tons of uranium from an Australian company, as a penalty for attempting to step into a deal that the cartel had earlier approved for the Australian firm and a Japanese customer.

Gulf maintains that it joined under an implied threat of being run out of Canada, where it has a big uranium-mining operation. But some Gulf letters and memorandums unearthed by investigators seem to indicate that the company was, at minimum, anxious not to be left out. One Gulf lawyer wrote a memo in June 1972 outlining the potential advantages of membership, and suggesting that if the cartel’s activities ever came to light Gulf could blame everything on the Canadian government. Another Gulf officer took it on himself to pull together several scattered sets of cartel rules into a single code of conduct.

What influence the cartel may have had on American prices is hard to establish. The group’s operations excluded the U.S., which maintained an import ban on foreign uranium fuel until the first of this year. The ban is now being gradually phased out. Nonetheless, many American uranium producers keyed their prices to world prices that Gulfs opponents charge were at least heavily influenced by the cartel.

According to Gulf, prices in the U.S. were driven up in large part not by the cartel but by its legal opponent, Westinghouse. To increase sales of its nuclear reactors, Westinghouse offered purchasers longterm, low-cost supplies of uranium fuel, though it did not own the uranium; for a time it scrambled to buy yellowcake wherever possible, and its purchases helped to lift the price. Gulf Chairman Jerry McAfee says sarcastically: “The company sold short some 60 million pounds of uranium and now is attempting to win court sanction for breaking its commitments. I think they are entitled to the same right that any commodity speculator enjoys when he has badly misjudged the market”—presumably meaning the right to go broke.

Whatever the courts rule, the cartel’s shenanigans are certain to refuel congressional demands that the nation’s oil companies divest themselves of their nonpetroleum activities. At the least, the trials will give yet more ammunition to oil-industry critics who charge that some of the world’s largest and most powerful corporations think they have become a law unto themselves.