The yellowcake cartel began with modest ambitions for multi-national profit.
An international "producers' club," as they called themselves, would bring stability and higher prices to the world trade in yellowcake, the raw uranium which fuels nuclear power plants.
The club - encouraged by the governments of Canada, Australia and South Africa, inspired by major producers based in France and Great Britain - set out in 1972 to rig bids and drive prices upward, according to its own secret records. It divided the market outside the United States, assigning percentages to its members. It put the squeeze on "middlemen" competitors who do not own their own uranium mines.
But this foreign-based cartel succeeded so spectacularly in achieving its goal that the matter is now a billion-dollar legal hassle in U.S. courts - and a potential time bomb which could alter the American political debate over future energy supplies.
While the public was worrying over OPEC's rising oil prices, the world price for yellowcake rose even more drastically - from $6 a pound to $41. The U.S. market price became fixed to the world price. And one middleman - the Westinghouse Electric Corp. - was staggered by the consequences.
Westinghouse, unable to fill its uranium-supply contracts to the public utilities which buy its nuclear reactors, canceled them. Now some 17 utilities are suing for damages which, theoretically, could exceed a billion dollars.
In turn, Westinghouse is suing the 29 multi-national companies which it claims were part of the yellowcake cartel. The Justice Department has a grand jury exploring the matter in search of criminal violations of the U.S. antitrust laws. A House oversight subcommittee is poring over hundreds of secret corporate documents which it had subpoenaed for its own investigation.
Each issue involves complex economic arguments over who hurt whom. Some analysts contend, for impact on uranium prices, that yellowcake was driven up by supply shortages and the zoom in OPEC, oil prices. Others believe that oil showed yellowcake how it could be done.
But what turned this foreign-based cartel into an American controversy is this: some of the alleged participants are American companies, operating through their foreign subsidiaries. One was Gulf Oil, which is still cleaning up its corporate image from the scandal of its illegal $5 million political slush fund.
Now, if Westinghouse's allegations are substnatiated, Gulf has another black eye, coming - the spectacle of the nation's eighth-largest corporation using, through its Canadian subsidiary, the leverage of an international cartel to cripple the nation's 20th largest corporation.
To make the drama richer, both Gulf and Westinghouse are based in Pittsburgh. Their top executives drink together at Duquesne Club, and Jerry, McAfee, the new board chairman brough in to clean up Gulf's image, was president of Gulf Canada when the cartel manipulations were arranged. Westinghouse, for that matter, is in a peculiar role as "victim," since it has had its own share of price-fixing scandals in the past.
Gulf does not deny that it participated in the cartel, but insists it did nothing to violate U.S. laws. "Participation in the cartel," a company spokesman in Pittsburgh said, "was through our Canadian subsidiary at the stipulation of the Canadian government which said, if you're going to be a producer, you are going to have to participate."
In the various layers of litigation, however, Westinghouse has introduced corporate documents from Gulf files to argue that Gulf, among others, was a willing partner and athat it helped block Westinghouse from the uranium purchases it needed. Other U.S. defendants include Kerr-McGee, the nation's largest uranium producer, and Getty Oil and Utah International.
Gulf attempted last week in U.S. District Court in Washington to block the subpoena if its records by Rep. John F. Moss. (D-Calif.) Commerce subcommittee. The House panel won. The still-secret records are said to include detailed inquiries from nervous managers in Gulf's Canadian subsidiary asking the home office to assure them that they were not getting themselves in trouble.
The broader questions raised by the case go in several directions, any one of which could jeopardize the Carter administration's energy blueprint. For instance:
Is the world price of uranium still subject to manipulation by a global cartel? If so, that could add another argument against rapid development of nuclear power in the United States, a development implicit in President Carter's energy plans.
Westinghouse insists the cartel is still in place, but went underground after prices soared, no longer needed to arrange rigged bidding. The government of Canada announced last fall that it withdrew from the "informal marketing arrangements" in 1975.
One market analyst dubbed the cartel "UPEC," and suggested that future increases in uranium prices are possible. Others argue that the cartel was formed mainly in retaliation against the U.S. embargo which closed the American market to foreign producers. Now that the U.S. embargo is being phased out, a foreign cartel has no further purpose. At the moment, in fact, some Europeans are fuming about the possiblity of an American-led cartel in the future.
What is the reach of U.S. antitrust laws? Both Canada and Australia enacted new laws last year, prohibiting their uranium companies from supplying documents in response to the shower of U.S. subpoenas. A matter of national sovereignty, they argued.
On the other hand, in an age when multi-national firms are astride all national borders, how much impact do U.S. antitrust laws really have, if a company can accomplish through its foreign subsidiary whatever it is prevented from doing inside America's borders?
Finally, in terms of current political sentiment, the yellowcake cartel may provoke more congressional interest in questions of who controls energy resources - the issue of the oil industry's major acquisitions in uranium and coal and other fuel sources.
The cartel, by no stretch of the facts, could be blamed on Big Oil, but some in the industry fear that Gulf's prominent role will become a cautionary tale of how oil domination of other resources threatens the future.
"It's a perfect case," said one oil industry source, "to prove that you can't trust the oil companies."
In the courtroom, where scores of lawyers are arguing over reams of confidential documents from Gulf and other corporations, things are getting a bit nasty.
Gulf has filed a motion in the antitrust suit in Chicago asking that Westinghouse's law firm - Kirkland & Ellis - be disqualified because it did a private study for the American Petroleum Institute in Washington which gave it access to the private commercial secrets of oil companies, including Gulf. The study was on "horizontal divestiture" - the antitrust question of whether the oil industry has too large a share of competiting fuels like uranium.
On the merigs of its allegations, Westinghouse won something of a moral victory in a Pittsburgh case which it settled with a local utilities company. The state judge, I. Martin Wekselman, listened to much of the antitrust evidence against Gulf and the other cartel participants and observed in his settlement order:
"There was persuasive evidence that both the price and supply of uranium were drastically affected by a number of interrelated contingencies including a conspiracy among United States and foreign uranium producers to fix prices, to allocate markets and to eliminate competition from intermediaries in the uranium market such as Westinghouse . . ."
The "club" arrangements, strangely enough, were first publi cized in detail last year by environmentalist - who are as opposed to nuclear-power manufacturers like Westinghouse as they are to uranium miners like Gulf. Documents leaked or stolen from the Mary Kathleen mines in Australia were turned over to Friends of the Earth, which made them public.
Those secret papers, plus others subpoenaed by Westinghouse in the lawsuits, depict a rather formal organization with by-laws and marketing rules and fines for members who broke them. The "club" jumped around the Western World with regular meetings in Paris and Johannesburg and London and other commercial centers.
"A leader and a runner-up will be selected by the secretary in consultation with the committee," the operating rules stated. ". . . The leader would have the right to go to the appropriate minimum price then applicable . . . The runner-up would have the right to go to the minimum price plus 8c/lb . . All 'other producers' would have the right to go to the minimum price plus 15c/lb. . ."
The deals floating around the world were then assigned to different "leaders" as, for example, a 1972 letter from a British executive outlined to his Australian affiliate:
"It has also been agreed that the Australians and Nufcor [a South African company] will work out a scheme where by they will be leading in regard to a quotation for Taiwan; the French and Nufcor will make similar arrangements for a quotation in Yugoslavia. I would like to mention that this does not mean we will not be quoting and it will still mean that we have to pursue it actively, but there is very little chance of our getting any of this business . . ."
The question of what induced yellowcake prices to multiply in 1974 and 1975 is a jungle of cause-and-effect arguments. What is much clearer from the documents that have surfaced so far is that the cartel members, including Gulf, saw Westinghouse as a rival - and acted to head it off in the world uranium market.
At a "club" meeting in Cannes in the summer of 1972, the representatives were warned that three Swedish utilities were dickering with Westinghouse for their future uranium supply and perhaps gambling that the club arrangements would break down.
"The club," according to minutes of the meeting, "could well be in for a 'war of nerves.'"
At the meeting, the "club" agreed upon rules for how to handle uranium bids from reactor manufacturers like Westinghouse, setting the price higher and reserving the right to make a competing quotation to the eventual buyer. A Gulf Canada man was not present at Cannes, but a copy of the minutes turned up in the home-office files and Gulf was already being assessed dues to support the "club" headquarters in Paris.
Late in 1972 Westinghouse did conclude a deal to supply uranium to the Swedish companies, depending on an Australian mine for its supply. Don Hunter, an official of Gulf's General Atomic in San Diego, wrote the following internal report in March, 1973:
"We have learned that Westinghouse has submitted a joint venture with Queensland Mines for approval of the Australian government. If this arrangement is approved. Westinghouse will be provided with up to 2 million pounds per year from 1975 to 1980 and 600,000 pounds per year post-1980 . . . The proposed venture is approximately three months away from fruition and if it develops would provide Westinghouse with a potential source for U.S. reactor sales. It would also provide a source for their substantial foreign shortage.
"We will work with GMCL [Gulf Minerals Canada Ltd.] to try to put pressure on the Australians to block the proposed arrangement."
The Australian government did cancel Westinghouse's venture a few months later. Westinghouse contends it was parr of the cartel activities. Others point out that the newly elected labor government in Australia was waging its own campaign against mineral exploitation by foreign corporations and did not need any prompting from Gulf Oil.
In any case, the private records of the cartel continued to mention Westinghouse as an adversary. Minutes of the eighth session of the "operating committee" held in London in October, 1973, reviewed dealings with "middlemen," and reported:
"Westinghouse: Nufcor received from Westinghouse a proposal to buy at 25 per cent below club prices and declined it."
A new pricing schedule was discussed and the minutes noted:
"This new line of price will be proposed to the next policy committee but will be applied immediately unless there is formal opposition by anyone of the groups. In particular it will be applied to - Westinghouse" and two European suppliers.
A month later in Las Palmas, the operating committee met again and the draft minutes included this item.
"Negotiations with middlemen. If was agreed that nobody would enter into serious discussions with Westinghouse before coming back to the club."
Albert I., Bethel, the Westinghouse vice president in charge of uranium resources, testified before the Moss subcommittee on how Westinghouse came up short:
". . . During the latter part of the 1973 and during 1974 we were making attempts to consummate large purchases of uranium, multimillion-pound lots. Late in 1973, we went out for proposals for supply and we got no bids. We went out again in June of 1974, July of 1974, and again we got no firm quotations. During 1975 we made several bids for parcels that were on the marekt and were unsuccessful. We bid what we thought was a reasonable price and got no takers."
Westinghouse's version is that all of its experts had predicted an ample market in uranium and stable prices, far into the future. Others claim that Westinghouse took risks - selling uranium without secure sources of supply - and it got burned when the 1974 oil crisis, among other things, sent the prices soaring.
Whatever caused the yellowcake inflation, "club" members did reach their original goal. As one British member put it: "improving uranium prices although selling lesser quantities."