oversight

Cooperative Threat Reduction: Status of Defense Conversion Efforts in the Former Soviet Union

Published by the Government Accountability Office on 1997-04-11.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                   United States General Accounting Office

GAO                Report to the Chairman, Committee on
                   National Security, House of
                   Representatives


April 1997
                   COOPERATIVE
                   THREAT REDUCTION
                   Status of Defense
                   Conversion Efforts in
                   the Former Soviet
                   Union




GAO/NSIAD-97-101
             United States
GAO          General Accounting Office
             Washington, D.C. 20548

             National Security and
             International Affairs Division

             B-276297

             April 11, 1997

             The Honorable Floyd Spence
             Chairman, Committee on National Security
             House of Representatives

             Dear Mr. Chairman:

             In response to your request, we reviewed the Department of Defense’s
             (DOD) program to help convert defense industries in the former Soviet
             Union to commercial enterprises.1 At the time of our review, DOD had
             undertaken 20 conversion projects, and the Defense Enterprise Fund had
             completed agreements to undertake 4 projects. Our specific objectives
             were to assess (1) the effect of defense conversion efforts on the
             elimination or reduction of military activities and production capabilities
             in former Soviet weapons of mass destruction enterprises, (2) the status of
             defense conversion projects and funding, and (3) conformance of the
             Defense Enterprise Fund’s management practices to its grant agreement
             and the Fund’s operating expenses.


             DOD’s  program to convert former Soviet Union defense industries to
Background   commercial enterprises is part of the Cooperative Threat Reduction
             program, which DOD has supported since 1992 to reduce the weapons of
             mass destruction (WMD) threat.2 The program’s priority objectives include
             helping to (1) destroy nuclear, biological, and chemical weapons;
             (2) transport and store weapons that are to be destroyed; and (3) prevent
             weapon proliferation. In addition to these objectives, the Cooperative
             Threat Reduction Act of 1993 authorized DOD to establish a program to
             help demilitarize former Soviet Union defense industries and convert
             military technologies and capabilities to commercial activities. The Soviet
             Union had an enormous defense industrial complex that reportedly
             consisted of 2,000 to 4,000 production enterprises, research and
             development facilities, and research institutes and employed between
             9 million and 14 million people.3 Although the main objective of the
             Cooperative Threat Reduction Act focused on WMD reduction, the act did


             1
              The former Soviet Union countries that participate in this program are Belarus, Kazakstan, Russia,
             and Ukraine.
             2
             This report is the latest in our series of reviews of the Cooperative Threat Reduction program. See
             Related GAO products for a list of other reports.
             3
              O’Prey, Kevin P. A Farewell to Arms: Russia’s Struggles With Defense Conversion. New York:
             Twentieth Century Fund Press, 1995, page 15.



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not specifically require the defense conversion program to target WMD
capability. Nonetheless, DOD targeted WMD industries for conversion with
the goals of stimulating foreign and domestic investment in the former
Soviet Union and demonstrating that partnerships between private U.S.
companies and former Soviet enterprises can succeed.

The Office of the Secretary of Defense, along with several government
agencies, developed a list of 150 WMD-related enterprises in Belarus,
Kazakstan, Russia, and Ukraine to be candidates for defense conversion
projects. According to DOD, the list consists of enterprises that were
associated with the research, development, or production of WMD; their
delivery systems; or subsystems or components. DOD defined WMD to
include nuclear, biological, and chemical weapons; guided missiles and
aircraft that can deliver these weapons; and weapon platforms, such as
aircraft carriers, land-based missile launchers, surface ships, submarines
that carry nuclear-equipped guided missiles, and aircraft. Also, firms
associated with the production of command, control, and communications
equipment for military forces linked to those weapons, as well as with the
production of systems that provide strategic defense or counter strategic
bombers, were eligible for inclusion on the list.

The Defense Special Weapons Agency (DSWA)—formerly the Defense
Nuclear Agency—implements the defense conversion programs and
contracts under the guidance of the Deputy to the Assistant Secretary of
Defense for Cooperative Threat Reduction. In 1994 and 1995, DSWA
established and awarded contracts for the DOD-managed projects. For
most of these projects, DSWA contracted with U.S. firms to assist specified
former Soviet Union firms. Typically, the former Soviet Union and U.S.
firms established a joint venture to provide a civilian good or service,
using U.S. private and government funds and former Soviet facilities and
labor. The 20 defense conversion projects included 4 projects intended to
provide housing for demobilized Strategic Rocket Force personnel in
Belarus, Russia, and Ukraine.4 These projects were undertaken because
those countries required that housing be provided for Strategic Rocket
Force personnel before their units could be demobilized.

The Cooperative Threat Reduction Act of 1993 also authorized the
creation of a private, not-for-profit fund that would continue the defense
conversion efforts begun by DSWA. The Defense Enterprise Fund (DEF) was
incorporated in June 1994 as a government-funded enterprise to provide

4
 The Cooperative Threat Reduction Act of 1993 includes the provision of housing for former military
personnel of the former Soviet Union.



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                   financial support for the demilitarization of industries and conversion of
                   military technologies and capabilities into civilian activities. DEF received
                   its initial funding through a $7.7 million grant from DSWA. The grant
                   agreement specifies the management requirements for DEF and articulates
                   DSWA oversight responsibilities. DEF is currently required to select firms for
                   defense conversion from DOD’s list of 150 WMD-related enterprises or notify
                   DSWA if it selects a firm that is not on this list. DOD initially proposed
                   $118 million in government-funded capitalization for DEF; however,
                   according to DOD officials, the U.S. government capitalization of DEF is
                   currently envisioned to end at $71 million. The grant agreement
                   encourages DEF to seek private capital investment, and DEF is currently
                   developing plans to create a private equity fund. In accordance with the
                   grant agreement, DSWA is authorized to approve DEF’s plans.

                   Our review did not include an evaluation of DSWA’s management of the
                   20 individual contracts for defense conversion projects, or an evaluation of
                   how DOD developed the list of 150 firms that it considered to be
                   WMD-related enterprises.



                   Given the vast size of the former Soviet Union’s weapons complex and the
Results in Brief   numerous variables involved in trying to assess and quantify military
                   production capacity—including unknown factors such as possible
                   modernization or consolidations at other locations—we were unable to
                   confirm that the defense conversion projects we reviewed had any direct
                   impact on eliminating or reducing weapons of mass destruction or other
                   military production capacity in the former Soviet Union. Nonetheless, of
                   the 24 projects we reviewed, 20 had indigenous partners that DOD
                   identified as firms that had been engaged in producing weapons of mass
                   destruction, and one project involved converting resources that were still
                   engaged in producing weapons of mass destruction. Our analysis also
                   showed that at least 11 projects had directly used buildings formerly
                   engaged in activities related to weapons of mass destruction, and at least
                   8 projects had employed former workers from weapons of mass
                   destruction-related activities at the newly established enterprises.
                   According to DOD officials, the defense conversion projects are providing
                   assistance to firms that have large numbers of underutilized and often
                   unpaid employees. DOD officials hope that the projects will become
                   commercially viable and that the indigenous parent firms will invest
                   additional resources that might have otherwise been used for producing
                   weapons of mass destruction or other military hardware.




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                    Five of the 24 defense conversion projects were no longer operating at the
                    time of our review. The remaining 19 projects have made varying degrees
                    of progress in setting up commercial businesses, but eight of the projects
                    had not begun production. Four of the projects that had reached
                    production were moving forward, and for one of these projects the U.S.
                    partner bought the Russian partner’s share of the joint venture. Three of
                    the four housing projects are complete but have not established
                    commercial enterprises. Two of the housing projects were construction
                    projects and were not intended to generate ongoing businesses. As of
                    March 1997, DOD had notified Congress that it planned to spend a total of
                    $179.7 million on defense conversion projects and had disbursed
                    $143 million, including $51.7 million granted to the Defense Enterprise
                    Fund.5 As of December 1996, the Fund had committed $22.6 million to
                    eight investment projects and had invested $16.6 million.

                    The Defense Enterprise Fund has complied with many elements of the
                    grant agreement with the Defense Special Weapons Agency, but it has not
                    finalized some key grant requirements, and the Agency has not enforced
                    compliance. The Defense Special Weapons Agency’s oversight of the Fund
                    has been less rigorous than the level provided for by the grant agreement.
                    The Defense Special Weapons Agency and the Defense Enterprise Fund
                    have not established the required evaluation benchmarks necessary for
                    DOD to measure the success of the Fund, and the Fund’s long-range plan
                    for attracting private capital has yet to be finalized. DOD officials told us
                    that the Defense Special Weapons Agency was attempting to resolve these
                    issues. The Defense Enterprise Fund’s operating expenses have totaled
                    $6.8 million since its inception, which is roughly consistent with the
                    spending of other U.S. government-sponsored enterprise funds in Central
                    and Eastern Europe and the former Soviet Union.


                    As previously stated, when the Soviet Union dissolved, it left behind an
Impact of Defense   enormous defense industrial complex consisting of 2,000 to 4,000
Conversion Aid on   production enterprises—some of which were massive
WMD Industries      conglomerates—that employed 9 million to 14 million workers. To assess
                    whether any individual defense conversion project had an impact on
                    reducing this residual production capacity would have required a complete
                    analysis of the former Soviet Union’s defense industry. The defense
                    conversion projects often involved the use of a single building that was
                    part of a massive industrial complex, and we would have had to account
                    for such things as possible plant modernization or consolidation of

                    5
                     DEF received $20 million of this amount in September 1996.



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production lines. This assessment would also have required knowledge of
the initial baseline production capacity. Such an analysis was beyond the
scope of this review. We were unable to confirm that the defense
conversion projects we reviewed had any direct impact on eliminating or
reducing WMD or other military production in the former Soviet Union.

Nonetheless, our review showed that 20 of the 24 conversion projects
included enterprises that DOD considers related to WMD, and according to
DOD and joint venture officials 1 of these projects involved converting
resources that were still engaged in WMD-related production. Defense
conversion assistance establishes projects that typically occupy
abandoned buildings and create a small number of jobs at large former
Soviet Union firms where workers are often underutilized and unpaid.
According to DOD officials, defense conversion efforts are aimed at
redirecting resources at former Soviet Union enterprises to peaceful
endeavors. The officials recognize that only a portion of nearly all former
Soviet Union firms that are receiving assistance will participate in a
defense conversion project. However, DOD officials hope that the projects
will become commercially viable and additional resources will be invested
that might otherwise have been used for producing WMD or other military
hardware.

We found that many of the projects used abandoned buildings of large
WMD-related conglomerates. At least 11 of the 24 defense conversion
projects used former WMD-related buildings, and in 1 case active WMD
production was occurring in a building up to the time that the defense
conversion project began. Further, at least eight projects used former
WMD-related employees. Three housing construction projects in Belarus
and Ukraine did not include WMD-related firms. Table 1 shows information
on DSWA’s and DEF’s conversion efforts.




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Table 1: Type of WMD Conversion at 20 DSWA and 4 DEF Projects in the Former Soviet Union
                                                Number of projects                                            Number of projects
                              Total         WMD                  WMD                               WMD         WMD
Project sponsor          number of      buildings        buildings not        Unable to          workers workers not             Unable to
and country                projects    converted            converted         determine         employed  employed               determine
DSWA
  Belarus                         4               2                     1                1                0                1                   3
  Kazakstan                       4               2                     2                0                4                0                   0
                                   a
  Russia                          5               2                     1                2                0                1                   4
  Ukraine                         7               5                     2                0                3                2                   2
    b
DEF
  Russia                          4               0                     2                2                1                1                   2
Total                            24              11                     8                5                8                5                  11
                                        Note: This information was obtained through discussions with officials from DSWA, DEF, U.S. joint
                                        venture partners, and former Soviet Union industry. In some cases, these officials were not able to
                                        tell us whether the workers or buildings converted from military production had been engaged in
                                        WMD-related work.
                                        a
                                         At two projects in Russia, no physical defense conversion occurred because one project was
                                        never fully established and one housing project was just beginning.
                                        b
                                         Four additional DEF projects were not included in our review because they were approved by
                                        DEF’s board of directors after we began our work (two in Kazakstan and two in Russia). Two of
                                        the four were initiated by DSWA, and DEF has made investments to the projects to provide
                                        necessary capital.



                                        Information on the defense conversion projects we reviewed follows.
                                        Appendix I provides additional information on DSWA-managed projects in
                                        Belarus, Kazakstan, Russia, and Ukraine. Appendix II provides details on
                                        DEF’s conversion projects.



Belarus                                 Of the four DSWA-managed projects in Belarus, three initially established
                                        commercial ventures at (1) a nuclear-hardened computer circuit firm, (2) a
                                        satellite optics and reconnaissance firm, and (3) a mainframe computer
                                        factory. The other project funded construction of housing for Strategic
                                        Rocket Force personnel and therefore did not establish a defense
                                        conversion enterprise.


Kazakstan                               The four DSWA-managed projects in Kazakstan are involved in establishing
                                        commercial ventures at (1) a firm responsible for converting an
                                        abandoned Soviet military command and control facility, (2) the




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                      Kazakstan National Nuclear Center, (3) a production factory for
                      submarine-launched missiles, and (4) a biological weapons production
                      enterprise. The missile factory project was able to convert the entire firm
                      from an active WMD missile producer to a commercial manufacturer of
                      cryogenic vessels.


Russia                Of the five DSWA-managed projects in Russia, three established commercial
                      partnerships at (1) a radar and avionics firm, (2) an electronics firm that
                      made gear for space and military applications, and (3) a military avionics
                      firm. One project to establish a soda bottling plant at a cruise missile
                      enterprise was canceled. The housing project is just commencing, and
                      plans are to include an aerospace enterprise that was involved with cruise
                      missiles and intercontinental ballistic missile systems, an aerospace
                      materials organization, and a firm that specialized in solid rocket motors.

                      The four DEF projects that we reviewed were all in Russia. These projects
                      are to establish commercial ventures at (1) a nuclear weapons research
                      and development firm, (2) a manufacturer of environmental control
                      systems for MIG aircraft, (3) a manufacturer of components of nuclear
                      submarines, and (4) a firm that designed and manufactured missile
                      guidance systems.


Ukraine               Of the seven DSWA-managed projects in Ukraine, five established
                      commercial ventures at (1) a manufacturer of radio components, including
                      guidance systems; (2) a manufacturer of guidance and control systems;
                      (3) a firm that designed and tested radio equipment and instrument
                      systems for missiles and satellites; (4) a firm that produced control
                      systems for missiles and space systems; and (5) a manufacturer of
                      aerospace and military electronics equipment. One housing project used
                      firms that built and designed missile silos and military bases. The second
                      housing project used a firm that made parts for the Black Sea fleet but had
                      no relationship to WMD.


                      Defense conversion projects are at varying stages of development. As of
Progress of Defense   February 1997, four projects had reached production and appeared to be
Conversion Projects   moving forward, and in one case the U.S. partner bought the Russian
                      partner’s share of the joint venture. Other projects are experiencing
                      business difficulties. DOD notified Congress of its plans to spend almost




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                                          $179.7 million, of which $143 million had been disbursed as of March 1997
                                          for all defense conversion projects.


DSWA and DEF Projects                     Two DSWA projects in Kazakstan, one DSWA project in Ukraine, and one DEF
                                          project in Russia have reached production and appear to be moving
                                          forward. However, five projects in Belarus, Russia, and Ukraine are no
                                          longer operating, and the remaining projects face obstacles. Some projects
                                          are still in the early stages of formation and will require time to mature,
                                          others face legal and bureaucratic challenges that are common in starting
                                          a commercial venture in the former Soviet Union, and others will likely
                                          need further capital investment to be successful. Table 2 categorizes the
                                          status of the 24 projects that we reviewed.


Table 2: Status of Defense Conversion Projects
Number of projects
                                      DSWA              DSWA        DSWA            DSWA               DEF
Status                               Belarus         Kazakstan      Russia         Ukraine           Russia          Total
No longer operating                        3                0            1                1               0             5
Not reached production but no
apparent obstacles                         0                0            0                1               3             4
Not reached production and
has major obstacles                        0                2            1                1               0             4
Reached production and
has major obstacles                        0                0            2                1               0             3
Reached production and
moving forward                             0                2            0                1               1             4
Housing projects                           1                0            1                2               0             4
Total                                      4                4            5                7               4            24



Belarus                                   The three defense conversion projects DSWA initiated in Belarus in
                                          mid-1994 are now dormant or no longer operating. Two of those projects
                                          had reached production, but the businesses eventually failed. According to
                                          the U.S. partners in these projects, a poor political and economic
                                          environment and a lack of understanding between the U.S. and Belarus
                                          governments led to these failures. U.S. partners explained that Belarus
                                          government officials believed they would receive monetary assistance
                                          from the U.S. government. The Belarus enterprises and government did
                                          not understand that assistance would come through U.S. private firms in
                                          the form of equipment and business assistance. The housing project begun




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            in 1995 was completed in April 1997. This project did not have the
            objective of converting a defense enterprise.


Kazakstan   Four DSWA projects began in Kazakstan, in 1995, and they are progressing
            at varying rates. One is facing bureaucratic obstacles, and the U.S. and
            Kazakstan partners are having difficulties reaching agreements. Two of the
            projects have obtained additional funding from DEF to help move their
            commercial ventures forward. One of these projects has recently begun
            production, whereas the other faces a major obstacle and needs licenses
            to pursue a telecommunications business. One project that converted a
            submarine missile factory into a cryogenic vessel factory is now producing
            and selling its products in Europe, and company officials expect a profit
            after the first year.

            Until recently, DEF projects were solely in Russia. However, DEF has signed
            agreements for two defense conversion projects in Kazakstan.


Russia      In 1994 and 1995, five DSWA-managed projects began in Russia. One project
            has been canceled, three face major obstacles before they can become
            commercially successful, and one is a housing project that is just getting
            started. The canceled project was intended to establish a soda bottling
            factory, but the Russian and American partners could not reach
            agreement. As a result, DSWA spent only $195,000 of the $5.1 million
            contract. The Russian participants in this project reported that the
            experience of working with an American company was beneficial to
            increasing their understanding of American business, and they
            subsequently negotiated business partnerships with other American
            companies.

            Although three projects face major obstacles before they can become
            commercially successful, DOD officials noted that these challenges are no
            different from those facing other investments in Russia. One project was a
            contract awarded to a U.S. partner to help a Russian firm develop
            hardware and software for an air traffic control system. The future of this
            project mostly depends on the award of a Russian government contract for
            an air traffic control system. The second project produced hearing aids but
            has had difficulty finding a market for its products. The third project
            initiated a dental chair production line and was seeking to establish a
            bottling line for disinfectant, but the project needs additional investment
            capital to move forward. The housing project is in its initial stages and will



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                        involve the conversion of Russian defense enterprises and the
                        establishment of indigenous housing assembly and component
                        manufacturing capabilities. Once these manufacturing lines are
                        established, DOD plans to construct an unspecified number of homes for
                        demobilized Strategic Rocket Force personnel with any remaining funds.

                        Three of the four DEF projects that we reviewed in Russia were in their
                        early stages of development; therefore, it was premature to draw
                        conclusions about their future progress. One of the projects has not drawn
                        on DEF’s investment because the market for the product has not matured
                        and investment at this point could result in a loss. It is not yet clear if this
                        project will move forward, but no money has been spent. The fourth DEF
                        project has reached production and is moving forward; however, the
                        Russian partner is no longer involved because the U.S. partner purchased
                        its share of the venture. According to DEF officials, this project had a
                        successful outcome. In addition, DEF has signed agreements for two other
                        defense conversion projects in Russia, bringing the total number of DEF
                        investments to eight, as of February 1997.


Ukraine                 In Ukraine, DSWA initiated seven projects, five defense conversion projects
                        and two housing projects in 1994 and 1995. As of March 1997, one project
                        has not reached production but has no apparent obstacles, two projects
                        have major obstacles to overcome, and one has reached production and is
                        moving forward. According to the U.S. companies involved in these joint
                        ventures, some delays can be attributed to Ukrainian government
                        bureaucracy—obtaining proper funding and permits and following
                        designated customs procedures. Also, Ukrainian companies involved in
                        the joint ventures believed that DSWA contract funding would be paid
                        directly to them rather than to the joint venture or the U.S. partner. The
                        fifth defense conversion project, which had planned to establish a cellular
                        phone production line at an aerospace and military electronic enterprise,
                        is no longer operating. To restore this project’s viability, DOD is currently
                        attempting to identify a new American partner. The two housing projects
                        for Strategic Rocket Force personnel are completed, and the defense
                        conversion enterprises that were created from these projects are no longer
                        operating.


DSWA and DEF Spending   DOD notified Congress of plans to spend nearly $179.7 million on defense
                        conversion projects. It has disbursed $143 million, including $51.7 million




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                                   that was granted to DEF. Table 3 shows defense conversion spending as of
                                   March 1997.

Table 3: DSWA Defense Conversion
Spending as of March 1997          Dollars in millions
                                                                                 Notified              Obligated              Disbursed
                                   Belarus                                          $20.0                   $19.8                    $18.7
                                   Kazakstan                                         15.0                     14.2                    11.4
                                   Russia                                            38.0                     33.0                    13.5
                                   Ukraine                                           55.0                     54.4                    47.7
                                   DEF granta                                        51.7                     51.7                    51.7
                                   Total                                          $179.7                   $173.1                  $143.0
                                   Note: Included in these figures is $66 million that had been obligated to housing projects in
                                   Belarus, Russia, and Ukraine. Of the $66 million, $45 million has been disbursed.
                                   a
                                    DSWA has disbursed all obligated funds to DEF, but the table does not show the amounts DEF
                                   had committed or spent.



                                   As of December 1996, DEF had committed $22.6 million of its $51.7 million
                                   DSWA grant to eight defense conversion projects and had invested
                                   $16.6 million in conversion projects. DEF anticipates an additional U.S.
                                   government grant of $15 million in fiscal year 1997 from the State
                                   Department’s Freedom Support Act funds.6


                                   DEF has complied with many elements of its grant agreement with DSWA,
DEF Management                     but DEF has not finalized all requirements, and DSWA has not followed
Issues and                         through on compliance. DEF’s operating expenditures have totaled
Expenditures                       $6.8 million since its inception in June 1994. Our analysis indicates that
                                   this is roughly equivalent to the rate of spending for operating expenses of
                                   other U.S. government-sponsored enterprise funds in Central and Eastern
                                   Europe and the former Soviet Union.


DEF Grant Agreement                The June 1994 grant agreement between DSWA and DEF requires DSWA to
Issues                             conduct semiannual progress reviews of DEF unless both entities agree
                                   otherwise. The agreement also stipulates that DSWA will make



                                   6
                                    A State Department official told us that the Department may provide another $5 million later in fiscal
                                   year 1997 or in fiscal year 1998. The Department will allocate the funds to the U.S. Agency for
                                   International Development, which will transfer them to DSWA for execution under an amendment to
                                   the existing grant agreement.



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approximately three visits annually to DEF’s home and field offices.7 As of
December 1996, DSWA had conducted two semiannual progress reviews
that were held in DEF’s Boston office. A program manager also told us that
he made one visit to the site of the Kirovsky-Zavod joint venture in
St. Petersburg, Russia. The results of the semiannual reviews were not
documented in any systematic way and, according to a DSWA official, were
informal. The minutes of DEF’s board meetings do not contain any
discussion of the results of these reviews, and the board members we
talked to did not recall any briefings or discussions of such reviews. DEF
officials and board members stated, however, that DEF and DSWA were in
frequent communication and thus did not need more frequent or
formalized reviews.

In January 1997, DSWA officials told us that they would begin conducting
oversight in a more rigorous and formalized way and would perform the
semiannual reviews and the required office visits. Accordingly, in
February 1997, the DSWA program manager conducted a semiannual review
and office visit in Richmond with DEF officials and has planned two trips to
DEF’s new field offices in Moscow and St. Petersburg.


In addition, DEF has not developed the performance benchmarks that the
grant agreement requires be established in consultation with DSWA.8 The
agreement requires DEF to establish a statement of objectives that includes
benchmarks to facilitate the assessment of DEF’s expected
accomplishments. As of February 1997, DEF had developed an objectives
statement but had not established benchmarks to assess whether and to
what extent DEF’s expected accomplishments were being achieved. The
grant agreement states that DEF’s success will be evaluated by the extent to
which it meets or contributes to its objectives, such as the successful
demilitarization of a defense industry and the development of a number of
key joint business initiatives between U.S. and former Soviet Union private
firms. The absence of these benchmarks makes it difficult to assess DEF’s
success or failure.9 In March 1997, DOD officials drafted benchmarks for


7
Until April 1996, DEF had home offices in Richmond, Virginia, and Boston, Massachusetts. In April,
DEF closed the Boston office. DEF has recently opened field offices in St. Petersburg and Moscow,
Russia.
8
 DEF has established portfolio indicators to evaluate its investments, such as rates of return achieved,
milestones for equipment and licenses procured, and exit mechanisms. DEF calls these indicators
benchmarks, but they differ from the benchmarks required by the grant agreement, which require
measuring progress toward the objectives of demilitarization and defense conversion.
9
 In the future, DOD will have to consider the Government Performance and Results Act of 1993, which
requires all federal agencies to establish systems for measuring whether agency programs are meeting
their intended objectives.



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                         DEF and told us that these benchmarks, once coordinated with DEF, would
                         be included in the requirements for the semiannual progress reviews.

                         In May 1995, DSWA amended the grant agreement to require DEF to submit a
                         long-range plan by September 1995 that, at a minimum, would address
                         how DEF intends to become self-sufficient by 1998. DEF has not yet
                         presented a specific plan to DSWA for approval; however, DOD officials
                         stated that DEF will do so on March 31, 1997. DEF plans for self-sufficiency
                         include attracting private capital, and, according to a DEF official, DEF
                         expects to be investing private funds by 1998. DEF management presented
                         a plan to its board of directors in December 1996 and provided preliminary
                         briefings to DOD officials on the plan’s essential elements in December
                         1996 and January 1997. The proposed plan involves establishing a private
                         equity fund with $15 million of DEF capital and shared management, an
                         arrangement similar to that used by the Polish-American Enterprise Fund
                         in establishing its private equity fund. The private equity fund will focus on
                         enterprises undergoing industrial and technological conversion, but will
                         not be strictly limited to defense conversion projects.10 However,
                         consistent with the legislation establishing DEF, investments by DEF in this
                         fund must support programs for demilitarization of industries and defense
                         conversion.

                         It has been difficult for U.S. government-sponsored enterprise funds to
                         attract private capital; only the first 2 funds—the Polish-American Fund
                         and the Hungarian-American Fund—of the 11 that the government has
                         sponsored in Central and Eastern Europe and the former Soviet Union
                         have been able to do so. To attract private capital, enterprise funds must
                         have a successful record of investments. The Hungarian-American Fund
                         began to look for private capital in 1991 and was finally successful in 1996.
                         The investment of private capital can provide fund management with an
                         opportunity to earn incentive compensation based on earnings over and
                         above the grant ceiling of $150,000 for fund managers.11


DEF Operating Expenses   The aggregate level of DEF’s operating expenses is consistent with that of
                         other U.S. government-sponsored enterprise funds in Central and Eastern
                         Europe and the former Soviet Union. DEF expended $6.8 million between



                         10
                          A DEF official stated that the private fund will not make any nondefense-related investments until
                         DEF funds are fully invested in defense conversion projects.
                         11
                           DEF’s grant agreement states that employees may earn no more than $150,000 per year from grant
                         funds, and any compensation in excess of the ceiling may be paid from sources other than grant funds.



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                                    B-276297




                                    June 1994 and December 1996 for operating expenses.12 Table 4 shows
                                    that DEF’s expenditure rate falls within the range experienced for all
                                    enterprise funds and for those of similar size.13 Table 5 shows DEF’s
                                    expenses by category for the last 2 fiscal years. Consistent with most U.S.
                                    government-sponsored international enterprise funds, project expenses
                                    (legal, accounting, and consulting) and personnel compensation constitute
                                    the largest share of DEF’s operating expenses.

Table 4: Operating Expenses Among
Enterprise Funds as of              Dollars in millions
September 1996                                                                                                 Annualized operating
                                                                                                                     expenses as a
                                                                                                                percentage of grant
                                    Fund                                            Grant commitment                   commitment
                                    Polish-American Fund                                             $264                           1.09
                                    Albanian-American Fund                                              30                          1.78
                                    U.S.-Russia Fund                                                  440                           1.90
                                    Western Newly Independent States
                                    Fund                                                              150                           3.13
                                    Baltic-American Fund                                                50                          3.14
                                    Bulgarian-American Fund                                             55                          3.33
                                    Central Asian Fund                                                150                           3.38
                                    Defense Enterprise Fund                                             71                          3.77
                                    Czech and Slovak American Fund                                      65                          4.20
                                    Hungarian-American Fund                                             70                          4.38
                                    Romanian-American Fund                                              50                          4.53
                                    Note: We calculated the percentage of operating expenses by annualizing each fund’s expenses
                                    since inception and compared that amount to the grant commitment for each fund.




                                    12
                                     This amount includes $113,000 in operating expenses incurred for the period June through
                                    September 1994.
                                    13
                                     There are several ways to evaluate administrative expenses, including comparisons to average
                                    performing assets, investment income, and grant amount. Because of DEF’s relatively early stage of
                                    development and the availability of consistent data, we used operating expenses to grant amount to
                                    make this comparison.


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Table 5: DEF Operating Expenses by
Category for Fiscal Years 1995 and   Dollars in thousands
1996                                                                              FY 1995               FY 1996
                                     Operating expenses                      Amount      Percent    Amount     Percent
                                     Project expenses                            $406         20     $1,556         34
                                     Employee compensation and benefits           700         34      1,033         22
                                     Bad debt provision                             0          0        600         13
                                     Travel and related expenses                  222         11        293          6
                                     Legal and accounting                         214         11        240          5
                                     Occupancy                                     71          4        193          4
                                     Consulting                                    96          5        141          3
                                     Raising private capital                       10          0        118          3
                                     Insurance                                     49          2         42          1
                                     Communications                                38          2         56          1
                                     Taxes and licenses                            37          2         44          1
                                     Office supplies                               32          2         53          1
                                     Depreciation and amortization                 27          1        108          2
                                     Miscellaneous                                121          6        170          4
                                     Total                                     $2,023        100     $4,647        100



                                     In addition to the recent efforts DOD has initiated to strengthen its
Recommendation                       oversight of DEF, we recommend that the Secretary of Defense direct that
                                     performance benchmarks be established, as required by DOD’s grant
                                     agreement with DEF; a long-range plan for attracting private capital be
                                     prepared by DEF and approved by DOD; and semiannual progress reviews
                                     and the required office and field visits be performed.


                                     DOD and DEF provided written comments on a draft of this report. DOD
Agency Comments                      concurred with our report and recommendation and noted its plans to
and Our Evaluation                   implement our recommendation. DEF did not expressly disagree with our
                                     report or recommendation but stated that Congress did not intend for its
                                     oversight to be carried out in the same manner as oversight of a typical
                                     U.S. Agency for International Development or DOD grantee. We generally
                                     agree with DEF on this matter; therefore, our recommendation is limited to
                                     compliance with the oversight requirements of the grant agreement itself.
                                     DEF also stated that it has controlled its expenses better than our report
                                     suggests. To evaluate DEF operating expenses, we used the most consistent
                                     and readily available data for all 11 U.S. government-sponsored enterprise




                                     Page 15                              GAO/NSIAD-97-101 Cooperative Threat Reduction
              B-276297




              funds. DOD’s and DEF’s comments are presented in appendixes III and IV,
              respectively.


              To determine the status of ongoing defense conversion projects and better
Scope and     understand their potential WMD impact, we reviewed 20 DSWA and 4 DEF
Methodology   defense conversion projects that had been approved at the time we began
              our review in early July 1996. We did not review the four DEF projects that
              were approved after we began our review. In reviewing these conversion
              projects, we examined records and interviewed officials at DSWA, DOD, DEF,
              and U.S. private firms involved in the defense conversion projects. We also
              visited several locations in Russia and Kazakstan and we interviewed U.S.,
              Russian, and Kazakstan government and private officials and toured sites
              of 12 projects to observe first-hand the (1) buildings, (2) condition of the
              projects and equipment being used, and (3) current stage of development.
              During these visits, we attempted to confirm the prior uses of buildings
              being employed for these projects and the previous roles of employees. In
              Belarus and Ukraine, we relied on statements and documents provided by
              DSWA and U.S. contractors. For all projects, we relied on the views of
              officials associated with the projects regarding how each project plans to
              overcome obstacles, achieve production, and sell products.

              In assessing the WMD attributes and the ability of each project to convert
              WMD capability, we did not review the DSWA and DEF processes for selecting
              defense conversion projects. For the purposes of this review, we accepted
              DOD’s judgment that the list of 150 firms included WMD-related enterprises.
              We were not able to independently verify the WMD relationships of
              conversion projects and we relied on DSWA, DEF, U.S. contractor, and joint
              venture officials to provide accurate information. In Kazakstan and Russia,
              we spoke with joint venture officials who are former employees of WMD
              enterprises because the facilities that we saw no longer produced WMD
              components. In Belarus and Ukraine, we relied on information from DSWA
              project managers and industry officials to understand former capabilities
              of former Soviet Union enterprises. In all cases, we used multiple
              independent sources to draw our conclusions.

              In reviewing DEF management practices and operating expenses, we
              interviewed and obtained documents from DEF and DOD officials on DEF’s
              policies, procedures, and practices. We reviewed DEF’s grant agreement,
              bylaws, corporate policies, and procedures. These documents established
              criteria for assessing DEF’s management practices. We analyzed various
              DEF project and expense files. We also spoke with selected DEF investment




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partners. We obtained documents from the U.S. Agency for International
Development on policies and expenditures of other enterprise funds. We
used data from these funds to establish a basis for determining the
consistency of DEF expenses with other funds.

We conducted our review between July 1996 and March 1997 in
accordance with generally accepted government auditing standards.


We are sending copies of this report to the Secretaries of Defense and
State, the President of the Defense Enterprise Fund, and other appropriate
congressional committees. We will also make copies available to others on
request.

Please contact me on (202) 512-4128 if you or your staff have any
questions concerning this report. Major contributors to this report are
listed in appendix V.

Sincerely yours,




Harold J. Johnson, Associate Director
International Relations and Trade Issues




Page 17                            GAO/NSIAD-97-101 Cooperative Threat Reduction
Contents



Letter                                                                                            1


Appendix I                                                                                       20
                        Belarus Defense Conversion Projects                                      20
DSWA-Managed            Kazakstan Defense Conversion Projects                                    22
Conversion Projects     Russia Defense Conversion Projects                                       27
                        Ukraine Defense Conversion Projects                                      32

Appendix II                                                                                      38
                        Kirovsky-Zavod                                                           38
DEF Conversion          Nauka                                                                    38
Projects                Khlopin Radium Institute                                                 39
                        Mashinostroyenia                                                         39

Appendix III                                                                                     41

Comments From the
Department of
Defense
Appendix IV                                                                                      43

Comments From the
Defense Enterprise
Fund
Appendix V                                                                                       50

Major Contributors to
This Report
Related GAO Products                                                                             52


Tables                  Table 1: Type of WMD Conversion at 20 DSWA and 4 DEF                      6
                          Projects in the Former Soviet Union
                        Table 2: Status of Defense Conversion Projects                            8
                        Table 3: DSWA Defense Conversion Spending as of March 1997               11
                        Table 4: Operating Expenses Among Enterprise Funds as of                 14
                          September 1996




                        Page 18                        GAO/NSIAD-97-101 Cooperative Threat Reduction
          Contents




          Table 5: DEF Operating Expenses by Category for Fiscal Years                15
            1995 and 1996

Figures   Figure I.1: Abandoned Infirmary at a Biological Weapons Factory             23
            Where Construction of a Pharmaceutical Production Line Has
            Begun
          Figure I.2: Cryogenic Pressure Vessel Production at a Former                24
            Missile Production Facility
          Figure I.3: Building Originally Constructed for a Soviet Defense            25
            Conversion Project That Now Houses a U.S.-Kazakstan Printed
            Circuit Board Production Line
          Figure I.4: Abandoned Soviet Command and Control Base Where                 27
            One Project Occupies a Building
          Figure I.5: Hearing Aid Production at a Former Integrated Circuit           29
            Production Building
          Figure I.6: Dental Chair Production Line at a Former                        31
            Manufacturer of Portable Naval Radiation Decontaminators




          Abbreviations

          DEF        Defense Enterprise Fund
          DOD        Department of Defense
          DSWA       Defense Special Weapons Agency
          WMD        weapons of mass destruction


          Page 19                           GAO/NSIAD-97-101 Cooperative Threat Reduction
Appendix I

DSWA-Managed Conversion Projects


                          The Defense Special Weapons Agency (DSWA) managed 20 defense
                          conversion projects in Belarus, Kazakstan, Ukraine, and Russia. Typically,
                          DSWA contracted with private U.S. firms to initiate projects at former
                          weapons of mass destruction (WMD) industries in the former Soviet Union.
                          These private firms often used their own capital as investments in these
                          projects.


                          DSWA planned to spend $20 million on four defense conversion projects in
Belarus Defense           Belarus. Three of the projects involved U.S. firms and Belarus
Conversion Projects       defense-related entities—Belomo Optics and Mechanical Manufacturing
                          Association, Integral Research and Production Amalgamation, and Minsk
                          Computer. One project is to provide housing to demobilized Strategic
                          Rocket Force personnel.


Belomo                •   Contract amount and date: $960,000 awarded in April 1994.
                      •   Former defense capability: Producer of satellite and aerial
                          reconnaissance optics, night vision optics, lasers, simulators, and tank and
                          armored vehicle optics.
                      •   Former employment level: 40,000 at height of production; 20,000 in
                          1993.
                      •   Purpose of joint venture: To manufacture and sell laser pointer devices.
                      •   Defense building conversion: Refurbished a 12,900-square foot
                          production area. The site may have manufactured parts for a missile
                          homing device.
                      •   Joint venture production: Produced 19,023 laser pointers, which are
                          used by speakers in presentations.
                      •   Joint venture employment: 88 former defense workers. We could not
                          confirm if these employees worked on WMD-related projects.
                      •   Obstacles: Not applicable.
                      •   Status of project: Ceased operations in 1996. Falling retail prices for the
                          laser pointers and increased competition from suppliers in Asia created a
                          situation in which the venture could no longer compete.


Integral              •   Contract amount and date: $5.8 million awarded in April 1994.
                      •   Former defense capability: Producer of nuclear-hardened chips for the
                          Soviet military. According to the U.S. partner of the project, Integral
                          produced 40 percent of the chips on the Soviet Union’s missile guidance
                          systems. Integral also produced integrated circuits, transistors, electronic
                          watches, and microwave and pulse diodes.



                          Page 20                            GAO/NSIAD-97-101 Cooperative Threat Reduction
                     Appendix I
                     DSWA-Managed Conversion Projects




                 •   Former employment level: 33,000 in September 1993.
                 •   Purpose of joint venture: To produce low end integrated circuits.
                 •   Defense building conversion: Converted a 26,400-square foot facility,
                     located in the center of Integral’s complex, that had been used for military
                     production. The facility made microprocessors that could be used in
                     guidance systems.
                 •   Joint venture production: Began production and delivery of integrated
                     circuits in May 1995.
                 •   Joint venture employment: 250 former defense workers.
                 •   Obstacles: Not applicable.
                 •   Status of project: No longer operational. Because of a poor business
                     environment, the American partner withdrew from the joint venture.


Minsk Computer   •   Contract amount and date: $2.5 million awarded in September 1994.
                 •   Former defense capability: Manufacturer of mainframe computers for
                     the Soviet military. Before the breakup of the former Soviet Union, over
                     85 percent of Minsk Computer’s work was for the military. DSWA reported
                     in 1993 that Minsk Computer had no defense work and had laid off
                     40 percent of its employees.
                 •   Former employment level: 10,000 at the height of production.
                 •   Purpose of joint venture: To produce solid-state battery chargers,
                     power supplies, transformers, and wireless communications modems for
                     computer network systems.
                 •   Defense building conversion: Converted a 17,200-square foot facility
                     that was used for military production. We were not able to determine if
                     this facility had been used for WMD-related activities.
                 •   Joint venture production: Produced solid-state battery chargers, power
                     supplies, and transformers. Developed 25 prototype wireless
                     communications modems.
                 •   Joint venture employment: 168 former defense workers employed.
                 •   Obstacles: Not applicable.
                 •   Status of project: No longer operational.


Housing          •   Contract amount and date: $9.9 million awarded in May 1995.
                 •   Former defense capability: No commercial venture is being established
                     as part of this project.
                 •   Former employment level: Not applicable.
                 •   Purpose of joint venture: To build 171 apartments for demobilized
                     Strategic Rocket Force personnel and their families.
                 •   Defense building conversion: Not applicable.



                     Page 21                            GAO/NSIAD-97-101 Cooperative Threat Reduction
                          Appendix I
                          DSWA-Managed Conversion Projects




                      •   Joint venture production: Not applicable.
                      •   Joint venture employment: Not applicable.
                      •   Obstacles: None.
                      •   Status of project: Completed in April 1997.


                          DSWA notified Congress of its intent to spend $15 million on four defense
Kazakstan Defense         conversion projects in Kazakstan. These projects are between U.S. firms
Conversion Projects       and Kazakstan defense-related entities—Biomedpreparat, Gidromash, the
                          National Nuclear Center, and Kazinformtelecom.


Biomedpreparat        •   Contract amount and date: $2.7 million awarded in March 1995.
                      •   Former defense capability: Biological weapons research and
                          production. According to joint venture officials, Biomedpreparat produced
                          organisms such as Ebola and Anthrax.
                      •   Former employment level: 700 at its peak in the mid-1980s; 200 in
                          October 1996.
                      •   Purpose of joint venture: To manufacture and distribute vitamins,
                          pharmaceuticals, and antibiotics.
                      •   Defense building conversion: Renovations have begun on
                          Biomedpreparat’s infirmary (see fig. I.1), which was used as the facilities’
                          decontamination unit and will house initial pharmaceutical production.
                          Joint venture officials also hope to use a waste treatment building for
                          future production.
                      •   Joint venture production: The joint venture has bottled vitamins that
                          were manufactured in the United States to use for its initial marketing
                          efforts. The initial production line is not yet complete.
                      •   Joint venture employment: In October 1996, 14 former Biomedpreparat
                          workers were employed, and 80 to 100 former workers may be employed
                          once full production is ready.
                      •   Obstacles: This project faces major challenges because government
                          obstacles remain and the U.S. and Kazakstan partners are having
                          difficulties reaching agreements. Also, facility renovations are not
                          complete, and necessary equipment is not in place.
                      •   Status of project: Renovations on the infirmary are being completed, and
                          pharmaceutical manufacturing equipment is being shipped to Kazakstan to
                          set up a production line.




                          Page 22                            GAO/NSIAD-97-101 Cooperative Threat Reduction
                                           Appendix I
                                           DSWA-Managed Conversion Projects




Figure I.1: Abandoned Infirmary at a
Biological Weapons Factory Where
Construction of a Pharmaceutical
Production Line Has Begun




Gidromash                              •   Contract amount and date: $3 million awarded in March 1995.
                                       •   Former defense capability: Built components of missile delivery
                                           systems and manufactured engine casings. Approximately 85 to 90 percent
                                           of production had been devoted to defense, and 10 percent was related to
                                           WMD. The WMD production was focused on the manufacture of
                                           submarine-launched missiles and various prototypes. The plant
                                           manufactured the entire missile device, except for the nuclear component.
                                           When defense conversion efforts were commencing in Kazakstan in 1994,
                                           40 percent of the plant was being utilized for the production of
                                           antisubmarine rockets and missiles.
                                       •   Former employment level: 2,200 in 1988; 1,400 in 1994.
                                       •   Purpose of joint venture: To manufacture a wide array of standard and
                                           specialty pressure vessels, including cryogenic pressure vessels, valves,
                                           and other products for the oil, gas, and petrochemical industry.
                                       •   Defense building conversion: Converted 699,700-square feet of
                                           Gidromash’s production space (see fig. I.2). Some equipment from
                                           Gidromash’s former production lines was utilized, whereas other
                                           equipment was junked. Joint venture officials pointed out that one large
                                           lathe used for missile production was outside rusting.




                                           Page 23                            GAO/NSIAD-97-101 Cooperative Threat Reduction
                                            Appendix I
                                            DSWA-Managed Conversion Projects




                                        •   Joint venture production: The cryogenic vessel production line opened
                                            in July 1996. The project has firm orders for 150 cryogenic vessels and
                                            produces them at a rate of 3 to 4 a week.
                                        •   Joint venture employment: 374 former Gidromash workers.
                                        •   Obstacles: None.
                                        •   Status of project: Production has begun, and the joint venture is
                                            growing. Anticipated sales are $5 million to $6 million in 1996, $12 million
                                            to $15 million in 1997, and $20 million to $40 million by 2000.


Figure I.2: Cryogenic Pressure Vessel
Production at a Former Missile
Production Facility




National Nuclear Center                 •   Contract amount and date: $4 million awarded in March 1995.
                                        •   Former defense capability: The National Nuclear Center is a Kazakstan
                                            government organization that was established after the fall of the Soviet
                                            Union to carry out basic research in the field of nuclear energy. The center
                                            is responsible for sites that conducted nuclear weapons testing and
                                            research while the Soviet Union was intact. It also manages several
                                            research reactors.
                                        •   Former employment level: 2,000 employees in 1995.
                                        •   Purpose of joint venture: To establish a printed circuit board
                                            production and marketing business.




                                            Page 24                            GAO/NSIAD-97-101 Cooperative Threat Reduction
                                             Appendix I
                                             DSWA-Managed Conversion Projects




                                         •   Defense building conversion: The project’s main facility is located in
                                             Kurchatov, Kazakstan, which is just outside the Semipalatansk nuclear test
                                             site and is located on the grounds of the National Nuclear Center (see
                                             fig. I.3). This facility was constructed as a Soviet Union defense conversion
                                             project in the late 1980s. The second facility occupies an administrative
                                             office building just outside the grounds of the National Nuclear Center
                                             near Almaty, Kazakstan. These buildings were not used for any
                                             WMD-related activities.
                                         •   Joint venture production: Production began recently.
                                         •   Joint venture employment: 28 National Nuclear Center workers were
                                             employed as of October 1996. Additional center workers are to be hired as
                                             production demands warrant.
                                         •   Obstacles: None.
                                         •   Status of project: Project officials plan to sell printed circuit boards on
                                             the world market. The U.S. partner, an established firm in the electronics
                                             industry, will use its marketing resources to sell initial products. The
                                             project has brought in the Defense Enterprise Fund (DEF) as an investor to
                                             have enough capital to initiate production. DEF has committed a total of
                                             $2.5 million to this project and invested $500,000.


Figure I.3: Building Originally
Constructed for a Soviet Defense
Conversion Project That Now Houses
a U.S.-Kazakstan Printed Circuit Board
Production Line




Kazinformtelecom                         •   Contract amount and date: $5 million awarded in January 1995.
                                         •   Former defense capability: Kazinformtelecom is responsible for
                                             maintaining the Saryshagan missile testing site. The site controlled



                                             Page 25                            GAO/NSIAD-97-101 Cooperative Threat Reduction
    Appendix I
    DSWA-Managed Conversion Projects




    satellites, monitored intercontinental ballistic missiles, regulated early
    detection and tracking systems, and tested surface-to-air and antiballistic
    missiles. Kazinformtelecom officials explained that this site, which was
    abandoned by the Russian military in 1994, was one of three central Soviet
    command and control sites and that it controlled satellite communications
    for the Soviet military.
•   Former employment level: 3,000 military and 2,000 civilian workers
    were employed at the Saryshagan site.
•   Purpose of joint venture: To establish an international and domestic
    wireless telecommunications service in Kazakstan and have wireless
    communications in 11 Kazakstan cities.
•   Defense building conversion: The Saryshagan site is 1 of 11 sites
    operated by the joint venture but is the only site with a defense conversion
    application. The building at the abandoned Saryshagan base was
    unoccupied, and the project was using a former Soviet satellite dish that
    had been abandoned (see fig. I.4).
•   Joint venture production: Telecommunications service has not yet
    begun. The establishment of service depends on the equipment being in
    place and the granting of necessary government licenses.
•   Joint venture employment: 52 local national employees.
    Kazinformtelecom officials explained that about 25 of these people, 20 of
    whom are engineers, worked at the Saryshagan site before conversion.
    The joint venture will hire up to 250 additional people once obstacles are
    overcome.
•   Obstacles: As of February 1997, three significant obstacles needed to be
    overcome before the project could become fully functional. First, no
    resolution had been reached on an interconnect agreement with
    Kazaktelecom. Second, the Kazakstan government had granted a license to
    the venture for data communications, but it had not granted a license for
    voice communications. Until a voice communications license is obtained,
    it will not be possible to operate a profitable business. Third, one
    subcontractor had not delivered necessary equipment.
•   Status of project: Much of the equipment is in place, and the project
    officials are trying to overcome the obstacles. DEF has become an investor
    in this project.




    Page 26                            GAO/NSIAD-97-101 Cooperative Threat Reduction
                                      Appendix I
                                      DSWA-Managed Conversion Projects




Figure I.4: Abandoned Soviet
Command and Control Base Where
One Project Occupies a Building




                                      DSWA notified Congress of its intent to spend $38 million on five defense
Russia Defense                        conversion projects in Russia. Four of these projects are between U.S.
Conversion Projects                   firms and Russian defense-related entities—GOSNIIAS, Istok, Leninets,
                                      and Mashinostroyenia. One project is to provide housing to demobilized
                                      Strategic Rocket Force personnel and establish joint ventures with three
                                      defense-related entities—Kompozit, Mashinostroyenia, and Soyuz.


GOSNIIAS                          •   Contract amount and date: $4.1 million in July 1994.
                                  •   Former defense capability: GOSNIIAS is a state-controlled enterprise
                                      that designs and tests military avionics and carries out avionics and
                                      weapons integration.
                                  •   Former employment level: 8,000 employees in 1992.
                                  •   Purpose of joint venture: While no joint venture was established, the
                                      project was intended to build prototypes for air traffic control hardware
                                      and software based on the Global Positioning System and GLONASS, the
                                      Russian counterpart.
                                  •   Defense building conversion: Occupied a 8,600-square foot military
                                      design facility that had previously been used for conducting mathematical
                                      analyses concerning weapons.




                                      Page 27                            GAO/NSIAD-97-101 Cooperative Threat Reduction
            Appendix I
            DSWA-Managed Conversion Projects




        •   Joint venture production: Developed a business plan and built
            prototypes for air traffic control hardware and software.
        •   Joint venture employment: This project began with a staff of 10 defense
            workers and employed as many as 60 defense workers at one time.
        •   Obstacles: While the partnership has developed a business plan and built
            prototype hardware and software, a market has yet to develop. GOSNIIAS
            and the U.S. contractor tell us that they plan to work together in
            competing for a future Russian government contract for an air traffic
            control system. However, the contract has yet to be tendered. This
            contract could result in 200 jobs for GOSNIIAS and be worth $80 million to
            $100 million.
        •   Status of project: Work on the DSWA contract is nearly complete, and
            closeout on the contract is pending. Rockwell intends to create a
            long-term relationship with GOSNIIAS and is planning on awarding
            subcontracts to GOSNIIAS for a variety of efforts.


Istok   •   Contract amount and date: $5.7 million awarded in July 1994.
        •   Former defense capability: Producer of magnetrons, klystrons,
            high-powered vacuum tubes, carbon dioxide lasers, electro-optical
            devices, batteries, microwave devices, and solid-state electronic
            components.
        •   Former employment level: 8,000 in 1994.
        •   Purpose of joint venture: To manufacture and distribute hearing aids.
        •   Defense building conversion: The project converted a 15,100-square
            foot facility that produced highly integrated circuits. According to joint
            venture officials, this defense facility was associated with WMD.
        •   Joint venture production: By early summer 1995, production had begun
            on a hearing aid (see fig I.5) that was useful for the moderately hearing
            impaired—about 50 to 60 percent of the hearing impaired population in
            Russia. The joint venture is capable of producing 250,000 hearing aids
            annually and initially produced about 25,000 hearing aids. The venture
            purchased parts for 40,000 hearing aids, but some of the components were
            in poor condition.
        •   Joint venture employment: 160 former defense workers. According to
            Istok officials, 80 percent of the staff are engineers, but we did not
            determine if they had worked on WMD-related projects.
        •   Obstacles: The joint venture suffered a major setback in distributing its
            hearing aids. It had planned to sell the hearing aids via the Russian
            government’s medical technology supply agency, which would have
            distributed them to more than 200 hearing clinics around Russia. However,
            the lack of government funds prompted the supply agency to only



            Page 28                            GAO/NSIAD-97-101 Cooperative Threat Reduction
                                              Appendix I
                                              DSWA-Managed Conversion Projects




                                              purchase hearing aids for the severely hearing impaired—a small
                                              population for which Istok’s hearing aid was not well suited. At that time,
                                              the venture had no other products. The joint venture needs additional
                                              financing to establish new production lines.
                                          •   Status of project: Istok is now planning to produce another hearing aid
                                              and focus attention on selling it on the export market (mostly in third
                                              world countries) as well as on the Russian market. Istok also hopes to
                                              begin production on a hearing aid aimed at severely hearing impaired
                                              individuals. The joint venture has asked DSWA to provide additional funding
                                              to help move the venture forward.


Figure I.5: Hearing Aid Production at a
Former Integrated Circuit Production
Building




Leninets                                  •   Contract amount and date: $2 million in June 1994.
                                          •   Former defense capability: Manufacturer of airborne radars and other
                                              radio electronic equipment. Leninets officials claimed that they also made
                                              specialized equipment, such as chips for high-frequency radars used in
                                              MIG and Sukoi aircraft. Leninets consists of 16 factories, 10 research
                                              organizations, and 50 small enterprises.
                                          •   Former employment level: Unknown.




                                              Page 29                            GAO/NSIAD-97-101 Cooperative Threat Reduction
    Appendix I
    DSWA-Managed Conversion Projects




•   Purpose of joint venture: To remanufacture dental chairs, distribute
    new dental equipment, and bottle solutions for oral infection control.
•   Defense building conversion: The project is occupying a 4,600-square
    foot building that formerly operated, in part, as a toy factory, but Leninets
    officials stated that 55 percent of the building was devoted to
    manufacturing portable naval radiation decontaminators, which were
    intended for use on naval vessels after a nuclear attack. Production
    stopped in 1993.
•   Joint venture production: As of October 1996, the project had sold 187
    remanufactured dental chairs, earning the venture about $35,000 a month
    (see fig. I.6). The distribution of new dental equipment earns the project
    about $80,000 a month.
•   Joint venture employment: About 22 people, some of which have
    manufacturing skills associated with computers and other equipment and
    others are being used in accounting and marketing roles.
•   Obstacles: The project has had considerable difficulty in setting up its
    bottling operation, which it sees as more lucrative than the other ventures.
    The bottling operation has been delayed for over 1 year due to setbacks at
    the U.S. manufacturer of the bottling equipment and problems with
    Russian customs. Project officials also underestimated the cost of
    purchasing the equipment and refurbishing the space that they are to
    occupy. As a result, the project had run out of funds at the end of 1996.
•   Status of project: The project is seeking at least $250,000 to $500,000 in
    new capital to start up the bottling line.




    Page 30                            GAO/NSIAD-97-101 Cooperative Threat Reduction
                                          Appendix I
                                          DSWA-Managed Conversion Projects




Figure I.6: Dental Chair Production
Line at a Former Manufacturer of
Portable Naval Radiation
Decontaminators




Mashinostroyenia                      •   Contract amount and date: $5.1 million awarded in June 1994.
                                      •   Former defense capability: Producer of cruise missiles, intercontinental
                                          ballistic missiles, and maneuverable satellites.
                                      •   Former employment level: 9,000 in 1992.
                                      •   Purpose of joint venture: To establish a cola bottling facility.
                                      •   Defense building conversion: Plans called for the conversion of
                                          Mashinostroyenia’s nitrogen building, which was needed to produce
                                          missiles.
                                      •   Joint venture production: The joint venture was never established, so it
                                          never reached production.
                                      •   Joint venture employment: None.
                                      •   Obstacles: According to Mashinostroyenia officials, DOD selected the
                                          project without their input, and they were not happy to have a low-skilled
                                          project at their high-technology firm.
                                      •   Status of project: The American partner and Mashinostroyenia were not
                                          able to work out differences, and the U.S. partner asked to be released
                                          from the contract. DSWA agreed in April 1996 to cancel the contract and
                                          disbursed $195,000 of the $5.1 million contract.




                                          Page 31                            GAO/NSIAD-97-101 Cooperative Threat Reduction
                               Appendix I
                               DSWA-Managed Conversion Projects




Housing                    •   Contract amount and date: $20 million awarded in June 1995.
                           •   Former defense capability: The Russian partners for this project include
                               Soyuz, a firm that built turbofans for cruise missiles; Kompozit, a producer
                               of heat shields for missiles and space systems; and Mashinostroyenia.
                           •   Former employment level: Kompozit employed 10,000 in 1992,
                               Mashinostroyenia employed 9,000 in 1992, and Soyuz employment was
                               unknown.
                           •   Purpose of joint venture: To construct a housing industry in Russia and
                               build homes for Strategic Rocket Force personnel.
                           •   Defense building conversion: No buildings have been selected for this
                               project.
                           •   Joint venture production: Unknown at this time because the joint
                               venture has not been established.
                           •   Joint venture employment: Unknown at this time because the joint
                               venture has not been established.
                           •   Obstacles: Until January 1997, DOD and the Russian government were not
                               able to reach agreement on the scope of this project.
                           •   Status of project: In January 1997, the Russian government and DOD
                               officials agreed that Russian WMD enterprises would work with an
                               American partner to establish five production lines. These production
                               lines are a modular housing assembly facility, a window and door
                               manufacturing facility, a low-pressure brass casting production line, an
                               asphalt shingle production line, and a lumber mill capable of supplying the
                               lumber suitable for housing construction. Remaining funds will be used to
                               provide housing to demobilized Strategic Rocket Force personnel.


                               Between 1994 and 1995, DSWA signed contracts totaling $53.5 million to
Ukraine Defense                initiate seven defense conversion projects. These projects were between
Conversion Projects            U.S. firms and Ukraine defense-related entities—Central Design Institute
                               and Montazhnik K, Fregat, Hartron, Kommunar, Meridian, Monolit, and
                               Orizon.


Central Design Institute   •   Contract amount and date: $16 million awarded in September 1994 to
and Montazhnik K               construct 135 apartment units. Contract options were exercised to
                               construct an additional 60 units for a total cost $18.7 million.
                           •   Former defense capability: Design and construction of defense-related
                               structures for the Ukrainian Ministry of Defense.
                           •   Former employment level: Unknown, but current employment is
                               22,000.




                               Page 32                            GAO/NSIAD-97-101 Cooperative Threat Reduction
             Appendix I
             DSWA-Managed Conversion Projects




         •   Purpose of joint venture: To design and construct apartment units for
             demobilized Strategic Rocket Force personnel and transfer modern
             housing construction and production technologies to Ukraine.
         •   Defense building conversion: There was no defense conversion
             requirement as the Ukrainian Ministry of Defense was the customer, joint
             venture partner, and subcontractor for this housing project. Furthermore,
             in 1991 the Ministry had established its own housing construction
             complex. It is now pursuing more commercial construction activities.
         •   Joint venture production: Designed and constructed 195 apartment
             units.
         •   Joint venture employment: 440 workers.
         •   Obstacles: None.
         •   Status of project: As of May 1996, all of the 195 apartment units had been
             constructed and transferred to the Ministry of Defense. The joint venture
             was hoping to continue with other construction projects.


Fregat   •   Contract amount and date: $10 million awarded in June 1994 and later
             increased to $15 million.
         •   Former defense capability: Producer of ship parts and equipment for
             the Black Sea Fleet. No ties to producing or supporting WMD.
         •   Former employment level: 3,200 in 1993.
         •   Purpose of joint venture: To produce and construct up to 261
             prefabricated housing units for demobilized Strategic Rocket Force
             personnel at Pervomaysk, Ukraine.
         •   Defense building conversion: The joint venture occupied about 150,700
             square feet of one building. Former production in this building was not
             related to WMD.
         •   Joint venture production: Produced 261 prefabricated housing units.
         •   Joint venture employment: Nearly 300 workers were involved in
             fabricating, erecting, and finishing the housing modules.
         •   Obstacles: None.
         •   Status of project: The last of the 261 housing units were turned over to
             the Ukrainian Ministry of Defense in August 1996. The joint venture had
             hoped to secure domestic and foreign customers for the prefabricated
             housing units, but there was no market for the product. The equipment
             used to produce the units remains at the Fregat factory in Pervomaysk.




             Page 33                            GAO/NSIAD-97-101 Cooperative Threat Reduction
               Appendix I
               DSWA-Managed Conversion Projects




Hartron    •   Grant amount and date: $5 million grant awarded in May 1994.
           •   Former defense capability: Hartron, the largest manufacturer of control
               systems in Ukraine, developed, produced, and installed control systems
               for missiles and space systems.
           •   Former employment level: Unknown, but current employment is 10,000.
           •   Purpose of joint venture: To produce instrumentation and control
               systems to improve the safety and reliability of Ukrainian nuclear power
               plants.
           •   Defense building conversion: The joint venture occupies about 10,800
               square feet of space in one building. The Hartron facility, however, was
               not a production facility. Instead, it was used for designing and testing
               purposes. Manufacturing of the systems was done at other facilities.
           •   Joint venture production: The joint venture delivered its first
               instrumentation and control system in May 1996 to the South Ukraine
               nuclear plant.
           •   Joint venture employment: The joint venture hired 65 employees, but
               this number could increase with production volume.
           •   Obstacles: The joint venture must contend with untimely customer
               payments. Its customers, the Ukrainian nuclear power plants, are suffering
               financial difficulties and often delay payment. The American partner
               requested an extension of the grant until September 1997 and an increase
               of the rate of disbursement, not the grant amount, to lower the cost of the
               equipment sold to the nuclear power plants. No decision has been made
               on this proposal.
           •   Status of project: As of October 1996, the joint venture had a backlog of
               orders worth over $10 million.


Kommunar   •   Contract amount and date: $3.3 million awarded in January 1995.
           •   Former defense capability: Manufacturer of aerospace and military
               electronics equipment, including missile and space guidance systems and
               relays for satellites.
           •   Former employment level: Unknown, but current employment is 18,000.
           •   Purpose of joint venture: To design, manufacture, and distribute
               cellular telephones in Asia and Ukraine.
           •   Defense building conversion: The joint venture was to convert nearly
               40,000 square feet of factory space.
           •   Joint venture production: None, as the contract is being closed out. The
               joint venture has not been registered in Ukraine. However, Kommunar
               officials still hope to pursue cellular telephone production through other
               opportunities. They believe that the market for cellular telephones is
               growing worldwide.



               Page 34                            GAO/NSIAD-97-101 Cooperative Threat Reduction
               Appendix I
               DSWA-Managed Conversion Projects




           •   Joint venture employment: Had employed 55 workers.
           •   Obstacles: The project is not operational. The U.S. partner lacks the
               capital to proceed with the project, and Kommunar would like to form a
               venture with a different firm. DOD is attempting to attract a new U.S.
               partner to this project.
           •   Status of project: DSWA is closing out the contract with the American
               partner.


Meridian   •   Contract amount and date: $4.1 million awarded in October 1995.
           •   Former defense capability: Involved in designing and testing radio
               equipment and instrument systems for missiles and satellites.
           •   Former employment level: Unknown, but current employment is 4,800.
           •   Purpose of joint venture: To manufacture high-quality die cast products
               for the housing, appliance, and automotive markets.
           •   Defense building conversion: The joint venture will eventually occupy
               over 95,000 square feet of factory space in about four buildings. One
               building is presently being refurbished to accommodate die casting
               equipment.
           •   Joint venture production: The joint venture hopes to begin production
               in July 1997.
           •   Joint venture employment: Once production begins, the venture will
               employ about 250 workers.
           •   Obstacles: None.
           •   Status of project: As part of its business plan, the American partner
               wants to fully capitalize the joint venture and is seeking over $11 million
               from such entities as DEF, the Overseas Private Investment Corporation,
               and the European Bank for Reconstruction and Development. According
               to the joint venture partner, DEF has expressed interest in funding the joint
               venture and is considering making an investment.


Monolit    •   Contract amount and date: $4.8 million awarded in October 1995.
           •   Former defense capability: Manufacturer of electronics for rocket
               control and guidance systems.
           •   Former employment level: 20,000 in the 1980s according to the joint
               venture partner. Employed 13,000 workers as of June 1996.
           •   Purpose of joint venture: To manufacture advanced instrumentation
               and control systems for nuclear and conventional commercial power
               stations in Ukraine and other former Soviet states.
           •   Defense building conversion: The production lines that occupied the
               18,300-square foot facility were used to manufacture electronics for rocket



               Page 35                            GAO/NSIAD-97-101 Cooperative Threat Reduction
             Appendix I
             DSWA-Managed Conversion Projects




             control and guidance systems. The facility, however, was not active when
             the joint venture was formed.
         •   Joint venture production: Production has yet to begin. Once equipment
             is installed, the venture could reach production in 6 to 8 weeks.
         •   Joint venture employment: The joint venture employs 25 workers.
             Once production begins, the number could increase.
         •   Obstacles: Even though the conversion of the facility is nearly complete,
             the Ukrainian State Customs Committee is not permitting joint venture
             equipment to enter Ukraine despite, according to DOD officials, an
             agreement between the U.S. and Ukrainian governments. Repeated
             attempts to resolve this issue have proven unsuccessful. Such delays will
             further impact the project schedule.
         •   Status of project: The scope of the work had to be modified because
             Monolit could not afford the labor and design work associated with
             refurbishing the factory space to accommodate the needed equipment.


Orizon   •   Contract amount and date: $2.7 million awarded in October 1995.
         •   Former defense capability: Manufacturer of precision guidance and
             control systems for military satellites.
         •   Former employment level: Once employed about 18,000 workers. 9,000
             current employees.
         •   Purpose of joint venture: To produce and assemble polyvinyl chloride
             windows and doors for sale in the former Soviet Union, especially
             Ukraine.
         •   Defense building conversion: The joint venture is converting 53,800
             square feet of space and will have an additional 10,800 square feet for
             storage. In the building that the joint venture occupies, satellite guidance
             and control systems were installed and tested. High bay areas, required for
             the assembly and testing of large military satellite systems, were idle
             before the establishment of the joint venture.
         •   Joint venture production: Production was to have begun in October
             1996. Although the project schedule slipped about 5 months, the joint
             venture began production in March 1997.
         •   Joint venture employment: 15 workers; employment is expected to
             increase with the commencement of production.
         •   Obstacles: Orizon was to have provided the labor and materials for
             modifying the building and installing the required utilities, but it did not
             receive its appropriated funding from the Ukrainian government to finance
             these efforts. To avoid further delays, DSWA modified the contract so that
             the American joint venture partner could complete the necessary
             renovations and begin production.



             Page 36                            GAO/NSIAD-97-101 Cooperative Threat Reduction
    Appendix I
    DSWA-Managed Conversion Projects




•   Status of project: Production began in March 1997.




    Page 37                            GAO/NSIAD-97-101 Cooperative Threat Reduction
Appendix II

DEF Conversion Projects


                     As of July 1996, DEF had approved four investments in Russia for up to
                     $8.8 million. In one case, the investment was in the form of a loan and, in
                     three cases, in the form of an equity position. These projects are between
                     U.S. firms and Russian defense-related entities—Kirovsky-Zavod, Nauka,
                     Khlopin Radium Institute, and Mashinostroyenia.


                 •   Investment amount and date: $3 million in loans approved in
Kirovsky-Zavod       April 1995.
                 •   Former defense capability: Manufacturer of propulsion systems for
                     nuclear submarines.
                 •   Former employment level: 50,000 in 1991.
                 •   Purpose of joint venture: To produce excavator frames for export to a
                     plant in Belgium.
                 •   Defense building conversion: Converted 60,300 square feet of floor
                     space in a building that was previously used to manufacture pumping
                     turbines and was not related to WMD.
                 •   Joint venture production: Producer of excavator frames.
                 •   Joint venture employment: Initially employed about 80 workers, but the
                     number has risen to 100 and could peak at 200 by the end of 1997. It is
                     likely these workers were in the defense industry, but it is uncertain
                     whether they worked on WMD-related activities.
                 •   Obstacles: None.
                 •   Status of project: The plant is currently working at capacity, and the
                     project is expected to break even in 1997. The project is expected to pay
                     off its DEF loan. The U.S. partner expressed interest in expanding the
                     operation, but the Russian partner was not willing to do so. As a result, the
                     U.S. partner purchased the Russian partner’s share of the joint venture.


                 •   Investment amount and date: $2.8 million equity investment approved
Nauka                in September 1995. The project has not yet used DEF funding.
                 •   Former defense capability: Designer of environmental control systems
                     for MIG aircraft.
                 •   Former employment level: 5,000 employees.
                 •   Purpose of joint venture: To produce and market environmental control
                     systems for private commercial aircraft manufacturers.
                 •   Defense building conversion: Converted 53,800 square feet of factory
                     space. We were not able to confirm if this space had been used for
                     WMD-related activities.
                 •   Joint venture production: Has a limited 3-year contract to make heat
                     exchangers (environmental control system components) for a British firm.



                     Page 38                            GAO/NSIAD-97-101 Cooperative Threat Reduction
                       Appendix II
                       DEF Conversion Projects




                   •   Joint venture employment: About 40 employees that were younger
                       hires and did not work on previous WMD projects.
                   •   Obstacles: There is no market in Russia for domestic aircraft engines and
                       no aircraft are being sold; thus, no market exists for aircraft environmental
                       control systems.
                   •   Status of project: The American partner has not yet drawn on the DEF
                       investment.


                   •   Investment amount and date: $1 million equity investment approved in
Khlopin Radium         September 1995.
Institute          •   Former defense capability: Research and development associated with
                       nuclear weapons, and plutonium and isotope production, among others.
                   •   Former employment level: 1,600 in 1995.
                   •   Purpose of joint venture: To convert Russian WMD expertise into a
                       commercial venture that builds and operates log sterilization and
                       debarking centers in Russia, which will export treated logs to the United
                       States.
                   •   Defense building conversion: Unknown.
                   •   Joint venture production: To irradiate timber of bugs and fungi so they
                       will be suitable for export and processing in U.S. sawmills.
                   •   Joint venture employment: Approximately 10 scientists are working on
                       this project, and more Khlopin employees will be used as this project
                       develops.
                   •   Obstacles: The project needs cash to get a log yard in Russia operational,
                       and it needs to obtain a Western timber products firm as a partner.
                   •   Status of project: DEF has invested $500,000 of the $1 million approved.
                       Although the technology is not at issue, the project has not yet
                       demonstrated it can deliver logs. The DEF Chief Financial Officer has
                       temporarily become Chief Executive Officer of the joint venture.


                   •   Investment amount and date: $2 million equity investment approved in
Mashinostroyenia       February 1996.
                   •   Former defense capability: Manufacturer of intercontinental ballistic
                       missiles, nuclear cruise missiles, and reconnaissance satellites.
                   •   Former employment level: 9,000 in 1992.
                   •   Purpose of joint venture: To convert skilled Russian military
                       programmers who were working in the areas of guidance and control
                       systems for cruise missiles and rocket launchers to commercial
                       programmers for software development.




                       Page 39                            GAO/NSIAD-97-101 Cooperative Threat Reduction
    Appendix II
    DEF Conversion Projects




•   Defense building conversion: The project will occupy space outside of
    Mashinostroyenia’s security enclosure.
•   Joint venture production: Expected to develop commercial software
    programs for mainframe computers.
•   Joint venture employment: 300 former WMD-related workers within 3 to
    5 years (projected).
•   Obstacles: The original Western partner withdrew from the investment.
•   Status of project: DEF is seeking another Western partner.




    Page 40                         GAO/NSIAD-97-101 Cooperative Threat Reduction
Appendix III

Comments From the Department of Defense




               Page 41    GAO/NSIAD-97-101 Cooperative Threat Reduction
                Appendix III
                Comments From the Department of Defense




Now on p. 15.




Now on p. 15.




Now on p. 15.




                Page 42                              GAO/NSIAD-97-101 Cooperative Threat Reduction
Appendix IV

Comments From the Defense Enterprise
Fund




              Page 43     GAO/NSIAD-97-101 Cooperative Threat Reduction
Appendix IV
Comments From the Defense Enterprise
Fund




Page 44                                GAO/NSIAD-97-101 Cooperative Threat Reduction
Appendix IV
Comments From the Defense Enterprise
Fund




Page 45                                GAO/NSIAD-97-101 Cooperative Threat Reduction
Appendix IV
Comments From the Defense Enterprise
Fund




Page 46                                GAO/NSIAD-97-101 Cooperative Threat Reduction
Appendix IV
Comments From the Defense Enterprise
Fund




Page 47                                GAO/NSIAD-97-101 Cooperative Threat Reduction
Appendix IV
Comments From the Defense Enterprise
Fund




Page 48                                GAO/NSIAD-97-101 Cooperative Threat Reduction
Appendix IV
Comments From the Defense Enterprise
Fund




Page 49                                GAO/NSIAD-97-101 Cooperative Threat Reduction
Appendix V

Major Contributors to This Report


                        Blake Ainsworth
National Security and   Muriel J. Forster
International Affairs   Venecia R. Kenah
Division, Washington,   Beth Hoffman León
                        Pierre R. Toureille
D.C.                    F. James Shafer


                        Richard Seldin
Office of the General
Counsel




                        Page 50               GAO/NSIAD-97-101 Cooperative Threat Reduction
Page 51   GAO/NSIAD-97-101 Cooperative Threat Reduction
Related GAO Products


              Weapons of Mass Destruction: DOD Reporting on Cooperative Threat
              Reduction Assistance Has Improved (GAO/NSIAD-97-84, Feb. 27, 1997).

              Weapons of Mass Destruction: Status of the Cooperative Threat Reduction
              Program (GAO/NSIAD-96-222, Sept. 27, 1996).

              Nuclear Nonproliferation: Status of U.S. Efforts to Improve Nuclear
              Material Controls in Newly Independent States (GAO/NSIAD/RCED-96-89,
              Mar. 8, 1996).

              Weapons of Mass Destruction: DOD Reporting on Cooperative Threat
              Reduction Assistance Can Be Improved (GAO/NSIAD-95-191, Sept. 29, 1995).

              Weapons of Mass Destruction: Reducing the Threat From the Former
              Soviet Union: An Update (GAO/NSIAD-95-165, June 9, 1995).

              Weapons of Mass Destruction: Reducing the Threat From the Former
              Soviet Union (GAO/NSIAD-95-7, Oct. 6, 1994).

              Soviet Nuclear Weapons: U.S. Efforts to Help Former Soviet Republics
              Secure and Destroy Weapons (GAO/T-NSIAD-93-5, Mar. 9, 1993).

              Soviet Nuclear Weapons: Priorities and Costs Associated With U.S.
              Dismantlement Assistance (GAO/NSIAD-93-154, Mar. 8, 1993).

              Russian Nuclear Weapons: U.S. Implementation of the Soviet Nuclear
              Threat Reduction Act of 1991 (GAO/T-NSIAD-92-47, July 27, 1992).




(711217)      Page 52                           GAO/NSIAD-97-101 Cooperative Threat Reduction
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