Energy: The Uranium Cartel's Fallout

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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.

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