oversight

Nuclear Nonproliferation: Concerns With DOE's Efforts to Reduce the Risks Posed by Russia's Unemployed Weapons Scientists

Published by the Government Accountability Office on 1999-02-19.

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
                 Foreign Relations, U.S. Senate



February 1999
                 NUCLEAR
                 NONPROLIFERATION
                 Concerns With DOE’s
                 Efforts to Reduce the
                 Risks Posed by
                 Russia’s Unemployed
                 Weapons Scientists




GAO/RCED-99-54
      United States
GAO   General Accounting Office
      Washington, D.C. 20548

      Resources, Community, and
      Economic Development Division

      B-281733

      February 19, 1999

      The Honorable Jesse Helms
      Chairman, Committee on Foreign
        Relations
      United States Senate

      Dear Mr. Chairman:

      This report responds to your request that we review DOE’s implementation of its Initiatives for
      Proliferation Prevention program—an effort to develop nonmilitary applications for defense
      technologies and create jobs for weapons scientists from the former Soviet Union. The report
      also discusses DOE’s Nuclear Cities Initiative—a new effort to create jobs in Russia’s 10 closed
      nuclear cities. This report contains several recommendations to the Secretary of Energy.

      We are sending copies of this report to the Secretaries of Energy, State, and Defense; the
      Director of the Office of Management and Budget; and other interested parties. We will also
      make copies available to others on request.

      Please call me at (202) 512-3841 if you or your staff have any questions. Major contributors to
      this report are listed in appendix VIII.

      Sincerely yours,




      (Ms.) Gary L. Jones
      Associate Director, Energy,
        Resources, and Science
        Issues
Executive Summary


             The risk that unemployed weapons scientists in the former Soviet Union
Purpose      will sell sensitive information to countries or terrorist groups trying to
             develop weapons of mass destruction poses a national security threat to
             the United States. In response to this threat, the Initiatives for
             Proliferation Prevention program was established in 1994 to engage
             scientists in the former Soviet Union in peaceful commercial activities. In
             late 1998, the administration launched a new complementary
             program—the Nuclear Cities Initiative—to create jobs for displaced
             weapons scientists in the 10 cities that form the core of Russia’s nuclear
             weapons complex.

             The Chairman of the Senate Committee on Foreign Relations asked GAO to
             review (1) the costs to implement the Initiatives for Proliferation
             Prevention program for fiscal years 1994-98, including the amount of funds
             received by weapons scientists and institutes; (2) the extent to which the
             program’s projects are meeting their nonproliferation and
             commercialization objectives; and (3) the Department of Energy’s Nuclear
             Cities Initiative.


             The objectives of the Initiatives for Proliferation Prevention program are
Background   to (1) engage weapons scientists and institutes in productive nonmilitary
             work in the short term and (2) create jobs for former weapons scientists in
             the high-technology commercial marketplace in the long term. It is
             estimated that Russia’s 4,000 scientific institutes employed about 1 million
             scientists and engineers. The program is limited in scope and is not
             designed to address the total problem posed by unemployed weapons
             scientists. Rather, it is one of several U.S. government nonproliferation
             efforts focused on Russia and other countries of the former Soviet Union,
             now known as the Newly Independent States. The program is
             implemented through research and development projects involving the
             Department of Energy’s headquarters and national laboratories, U.S.
             industry, and scientific institutes in the Newly Independent States. A major
             purpose of the program is to identify commercial opportunities through
             these projects that will attract investment by U.S. companies. In this sense,
             the program functions as seed money that could lead to self-sustaining
             business ventures and create long-term employment in the Newly
             Independent States. As of December 1998, the program had funded over
             400 projects in four countries. More than 80 percent of the projects were
             in Russia, and the remainder were in Ukraine, Belarus, and Kazakhstan.




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                       Executive Summary




                       In September 1998, the Department of Energy established, and Russia
                       agreed to participate in, a new nonproliferation effort—the Nuclear Cities
                       Initiative. This effort is not part of the Initiatives for Proliferation
                       Prevention program but has many related elements. It focuses on the 10
                       nuclear cities that were among the most secret facilities in the former
                       Soviet Union. The Department of Energy and other U.S. government
                       agencies plan to help promote employment opportunities in the nuclear
                       cities, primarily for unemployed weapons scientists, through commercial
                       enterprises.


                       The cost to implement the Initiatives for Proliferation Prevention program
Results in Brief       from fiscal year 1994 through June 1998 are as follows:

                   •   Of the $63.5 million spent, $23.7 million, or 37 percent, went to scientific
                       institutes in the Newly Independent States.
                   •   The amount of money that reached the scientists at the institutes is
                       unknown because the institutes’ overhead charges, taxes, and other fees
                       reduced the amount of money available to pay the scientists.
                   •   About 63 percent, or $39.8 million, of the program’s funds was spent in the
                       United States, mostly by the Department of Energy’s national laboratories
                       in implementing and providing oversight of the program.

                       Regarding the extent to which the program is meeting its nonproliferation
                       and commercialization goals, GAO found the following:

                   •   The program has been successful in employing weapons scientists through
                       research and development projects, but it has not achieved its broader
                       nonproliferation goal of long-term employment through the
                       commercialization of these projects.
                   •   Program officials do not always know how many scientists are receiving
                       program funding or whether the key scientists and institutes are being
                       targeted.
                   •   Some scientists currently working on Russia’s weapons of mass
                       destruction program are receiving program funds.
                   •   Some “dual-use” projects may have unintentionally provided
                       defense-related information—an outcome that could negatively affect U.S.
                       national security interests.
                   •   Chemical and biological projects may not be adequately reviewed by U.S.
                       officials prior to approval.

                       The Nuclear Cities Initiative may cost $600 million over the next 5 years:



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                                 Executive Summary




                             •   The initiative is still largely in a conceptual phase, and it is uncertain how
                                 jobs will be created in the 10 nuclear cities because of restricted access
                                 and the current financial crisis in Russia.
                             •   The initiative is likely to be a subsidy program for Russia for many years,
                                 given the lack of commercial success in the Initiatives for Proliferation
                                 Prevention program.



Principal Findings

About 37 Percent of              As shown in figure 1, only about 37 percent, or $23.7 million, of the
Program Funds Is                 $63.5 million spent for the Initiatives for Proliferation Prevention program
Reaching Institutes in the       through June 1998 went to scientific institutes. Overhead charges, taxes,
                                 and other fees reduced the funds that the scientists at the institutes
Newly Independent States         received. The Department of Energy’s national laboratories received about
                                 51 percent, or $32.2 million. The remaining 12 percent, or $7.6 million,
                                 went to support U.S. industry’s participation in the program. Program
                                 officials said a significant portion of program funds is provided to the
                                 national laboratories because of the oversight role played by laboratory
                                 personnel in administering the program and providing technical oversight
                                 of the projects. However, laboratory personnel told GAO that (1) the
                                 projects were usually not their primary responsibility and took up only a
                                 small percentage of their time and (2) most of their efforts were spent in
                                 the early stages of the projects developing the paperwork necessary to get
                                 the projects started.




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                                         Executive Summary




Figure 1: Breakout of Expenditures for
the Initiatives for Proliferation                                                Funds provided to the institutes
Prevention Program Through                                                       ($23.7 million)
June 1998




                                              • 37%

                                                                         51% •   DOE expenditures ($32.2 million)




                                                    12%
                                                      •



                                                                                 Support for U.S. industry
                                                                                 participation ($7.6 million)


                                         Source: Department of Energy.




Impact of the Program on                 Although, in general, the program is employing weapons scientists on a
U.S. Nonproliferation                    part-time basis, it has not achieved its broader nonproliferation goal of
Goals Is Uncertain                       long-term employment through the commercialization of projects. The
                                         lack of investment capital and markets and the inadequate training of
                                         scientists in business skills are factors impeding the program’s commercial
                                         success. GAO reviewed 79 projects and determined that none was a
                                         commercial success, although several showed commercial potential,
                                         including projects dealing with solar panels, metals recycling, and
                                         technology to eradicate insects in lumber.

                                         Nevertheless, Department of Energy officials believe that the program is
                                         successful because it has at least temporarily employed thousands of
                                         scientists at about 170 institutes and organizations throughout Russia and
                                         other Newly Independent States. However, while over one-half of program
                                         funds have been spent on implementation and oversight, GAO found that
                                         program officials do not always know how many scientists are receiving
                                         funds or whether the key scientists and institutes are being targeted. In
                                         addition, program guidance is unclear on whether funds should be going
                                         exclusively to former or previously employed weapons scientists. Some



                                         Page 5                                  GAO/RCED-99-54 Nuclear Nonproliferation
                          Executive Summary




                          scientists currently working on Russia’s weapons of mass destruction are
                          receiving program funds. GAO also found scientists working on nine
                          dual-use projects that could unintentionally yield useful defense-related
                          information and could, therefore, negatively affect U.S. national security
                          interests. Finally, GAO found that proposed chemical and biological
                          projects may not be adequately reviewed by U.S. officials.


Recent Nonproliferation   The Nuclear Cities Initiative represents the most ambitious effort by the
Initiative Focuses on     United States to assist Russia in downsizing and restructuring its vast
Russia’s Nuclear Cities   nuclear weapons complex. According to Department of Energy officials,
                          the initiative may cost $600 million over the next 5 years. Because the
                          initiative is new, no funds had been spent at the time of GAO’s review, but
                          the Department expects to receive $15 million to $20 million in fiscal year
                          1999. The initiative will start in 3 of the 10 nuclear cities—(1) Sarov,
                          formerly Arzamas-16, (2) Snezhinsk, formerly Chelyabinsk-70, and
                          (3) Zheleznogorsk, formerly Krasnoyarsk-26—and expand later.

                          There are many uncertainties and questions related to this initiative. For
                          example, it may be difficult for the Department of Energy to create jobs in
                          Russia’s nuclear cities, which are still considered sensitive and afford
                          limited access to visitors. Furthermore, as a result of the August 1998
                          devaluation of the Russian currency, the Russian banking system has
                          virtually collapsed, and the ability of Russian banks or the willingness of
                          foreign investors to support job creation in the closed cities is
                          questionable for the foreseeable future. Given the limited commercial
                          success evidenced in the Initiatives for Proliferation Prevention program
                          and economic conditions in Russia, GAO believes that the Nuclear Cities
                          Initiative is likely to be a subsidy program for Russia for many years rather
                          than a stimulus for economic development.


                          GAO is making several recommendations to the Secretary of Energy to
Recommendations           improve the implementation and oversight of the Initiatives for
                          Proliferation Prevention program. Specifically, GAO recommends, among
                          other things, that the Secretary of Energy review the role and costs
                          associated with the national laboratories’ implementation and oversight of
                          the program; require that more accurate data be obtained on the
                          background and number of key scientists participating in the program; and
                          clarify program guidance to determine whether scientists currently
                          working in weapons of mass destruction programs are eligible for program
                          funding.



                          Page 6                                   GAO/RCED-99-54 Nuclear Nonproliferation
                  Executive Summary




                  GAO further recommends, among other things, that the Nuclear Cities
                  Initiative not be expanded beyond the three nuclear cities until the
                  Department has demonstrated that its efforts are achieving the intended
                  results, including the creation of employment opportunities for
                  unemployed weapons scientists.


                  The Department of Energy, in commenting on a draft of this report,
Agency Comments   concurred with the report’s findings and recommendations and said that
                  GAO’s evaluation will assist the Department in significantly strengthening
                  the program. The Department’s comments are presented in appendix VII.
                  The Department also provided technical comments that were incorporated
                  into the report as appropriate. The Department wanted to clarify three
                  issues raised in the report, including (1) the dual-use potential of some
                  projects, (2) the provision of program funding to Russian weapons
                  scientists currently working on their own nuclear weapons programs, and
                  (3) the lack of progress in commercializing program projects.

                  Regarding dual-use technologies, the Department noted that the projects
                  identified in the report date from an earlier period of the Initiatives for
                  Proliferation Prevention program and, at worst, might have provided only
                  incidental military benefits to Russia. The Department noted that over the
                  past 18 months, the program’s management team has intensified its
                  reviews of projects to reinforce understanding that they are to be directed
                  exclusively to peaceful purposes. Furthermore, the Department said that it
                  has been particularly sensitive to the dual-use potential of projects in the
                  Newly Independent States’ chemical and biological institutes. Nonetheless,
                  the Department recognizes that improvements are needed in the review
                  process and accepts GAO’s recommendation to strengthen the process.

                  Regarding GAO’s finding that the program is supplementing the salaries of
                  some Russian scientists currently working on weapons of mass
                  destruction, the Department stated that program policy does not allow for
                  payment to scientists to perform weapons work and, therefore, the
                  program is not subsidizing this work. However, the Department agreed
                  that program guidance is unclear on whether funds should be going
                  exclusively to former, or previously employed, weapons scientists or
                  whether scientists currently working in weapons of mass destruction
                  programs are eligible for program funding. The Department concurred
                  with GAO’s recommendation and said it will issue explicit program
                  guidance on this matter within 90 days.




                  Page 7                                  GAO/RCED-99-54 Nuclear Nonproliferation
Executive Summary




Finally, regarding GAO’s finding that the program is not achieving its
long-term commercialization goals, the Department commented that the
commercialization of science and engineering projects is very difficult in
the United States and much more so in Russia, particularly in the wake of
the August 1998 financial crisis. The Department noted that the Initiatives
for Proliferation Prevention program cannot by itself create commercial
entities. It can only set measures and procedures to maximize the
likelihood of their creation by U.S. industry. GAO’s report recognizes the
challenges faced by the Department in commercializing projects in Russia
and other Newly Independent States. Given that commercialization is one
of the purposes of the program, GAO recommends that the Department
reevaluate the large number of projects and eliminate those that do not
have commercial potential. The Department concurred with this
recommendation.




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Page 9   GAO/RCED-99-54 Nuclear Nonproliferation
Contents



Executive Summary                                                                                       2


Chapter 1                                                                                              14
                          Background                                                                   14
Introduction              IPP Program Relies Heavily on DOE’s National Laboratories and                17
                            U.S. Industry
                          IPP Projects Are the Core of the Program                                     19
                          The IPP Program Faced Early Problems                                         22
                          Objectives, Scope, and Methodology                                           23


Chapter 2                                                                                              27
                          Most IPP Program Funds Go to DOE’s National Laboratories                     27
About 37 Percent of       Industry Support Services Accounted for Expenditures of Over                 29
the IPP Program’s           $7 Million
                          NIS Institutes Receive About 37 Percent of IPP Funds                         30
Funds Reach               DOE Officials See Need for Consistent Program Funding and                    34
Institutes in the Newly     Strategic Plan
Independent States
Chapter 3                                                                                              36
                          IPP Program Funds Are Helping Some Institutes and Scientists                 36
Impact of the IPP         Long-Term Commercialization Objective Has Met With Limited                   37
Program on U.S.             Success and Will Be Difficult to Achieve
                          DOE’s Implementation and Oversight of the IPP Program Raise                  39
Nonproliferation            Concerns
Goals Is Uncertain
Chapter 4                                                                                              50
                          Role of Russia’s 10 Nuclear Cities                                           50
DOE’s New Initiative      Focus of the Nuclear Cities Initiative Will Differ From That of the          53
Will Focus More Aid         IPP Program
                          Some U.S. Officials Raised Concerns About the Challenges                     57
on Russia’s Nuclear         Facing the Nuclear Cities Initiative
Cities
Chapter 5                                                                                              60
                          Recommendations to the Secretary of Energy                                   62
Conclusions and           Agency Comments                                                              63
Recommendations




                          Page 10                                  GAO/RCED-99-54 Nuclear Nonproliferation
             Contents




Appendixes   Appendix I: U.S. Industry Coalition Membership as of September               66
               30, 1998
             Appendix II: Initiatives for Proliferation Prevention Projects               68
               Reviewed by GAO
             Appendix III: Profile of Institutes in Russia Visited by GAO                 73
             Appendix IV: Distribution of IPP Funds at Some Russian                       83
               Institutes
             Appendix V: Commercialization of Selected IPP Projects                       85
             Appendix VI: IPP Projects Selected for Inclusion Under the                   94
               Nuclear Cities Initiative
             Appendix VII: Comments From the Department of Energy                         96
             Appendix VIII: Major Contributors to This Report                            105


Tables       Table 1.1: U.S. Government Programs Focusing on Nuclear                      16
               Nonproliferation Assistance to the NIS
             Table 1.2: Distribution of IPP Projects and Associated Funding               18
               Among DOE’s National Laboratories and Kansas City Plant
             Table 1.3: Distribution of Projects and Funding for the IPP                  20
               Program
             Table 2.1: Annual Funding for the IPP Program                                34
             Table 4.1: Role of Russia’s Nuclear Cities in Weapons Design and             52
               Development
             Table IV.1: Expenditures From an IPP Payment to the Gamaleya                 84
               Institute
             Table VI.1: IPP Projects Approved for the Nuclear Cities Initiative          94


Figures      Figure 1: Breakout of Expenditures for the Initiatives for                    5
               Proliferation Prevention Program Through June 1998
             Figure 1.1: Distribution of IPP Projects by Recipient Country as             21
               of December 1998
             Figure 2.1: Percentage of IPP Expenditures for DOE                           28
               Laboratories, Industry Coalition, and Newly Independent States,
               From Fiscal Year 1994 Through June 1998.
             Figure 4.1: Russia’s Nuclear Cities                                          51
             Figure IV.1: Allocation of Funds Received at the St. Petersburg              83
               Electrotechnical University for an IPP Project
             Figure V.1: Prosthetic Foot Device That Is Being Engineered by               87
               NIS Scientists at Chelyabinsk-70
             Figure V.2: Metals Recycling Facility in St. Petersburg, Russia              88
             Figure V.3: Institute of Nuclear Research                                    90




             Page 11                                  GAO/RCED-99-54 Nuclear Nonproliferation
Contents




Figure V.4: Interior View of Medical Isotopes Production Area at            90
  the Institute of Nuclear Research
Figure V.5: Photovoltaic Cell Production                                    92




Abbreviations

DOD          Department of Defense
DOE          Department of Energy
GAO          General Accounting Office
IPP          Initiatives for Proliferation Prevention
ISTC         International Science and Technology Center
MINATOM      Russian Ministry of Atomic Energy
NIS          Newly Independent States
USIC         U.S. Industry Coalition
VECTOR       State Research Center of Virology and Biotechnology
VNIIEF       All-Russian Scientific Research Institute of Experimental
                   Physics
VNIIGAZ      All-Russian Scientific Research Institute of Natural Gases
                   and Gas Technologies
VNIINM       All-Russian Scientific Research Institute of Inorganic
                   Materials


Page 12                                 GAO/RCED-99-54 Nuclear Nonproliferation
Page 13   GAO/RCED-99-54 Nuclear Nonproliferation
Chapter 1

Introduction


               The collapse of the Soviet Union in 1991 heightened U.S. policymakers’
               concerns about the dangers posed by the Soviet Union’s arsenal of
               nuclear, chemical, and biological weapons. The U.S. government is
               concerned that unemployed former Soviet Union weapons scientists pose
               a significant risk to nonproliferation goals because they may provide their
               weapons-related expertise to countries that are trying to develop weapons
               of mass destruction (known as countries of proliferation concern),
               criminal elements, or terrorist groups. It has been estimated that about
               1 million scientists and engineers were employed in Russia’s 4,000
               scientific institutes.


               Public Law 103-87, “The Foreign Operations, Export Financing and
Background     Related Programs Appropriations Act, 1994” made funds available for a
               cooperative program between scientific and engineering institutes in the
               former Soviet Union and the Department of Energy’s (DOE) national
               laboratories and other qualified institutions in the United States. In
               response to the act, DOE undertook a program to curb the potential for
               proliferation posed by weapons scientists in the Newly Independent States
               (NIS) of the former Soviet Union through the Industrial Partnering
               Program. The name of this program was changed to the Initiatives for
               Proliferation Prevention (IPP) in 1996. The purpose of the program is to
               stabilize the technology base in these countries as they attempt to convert
               defense industries to civilian applications. Immediate near-term attention
               was to be focused on institutes and supporting activities that would
               engage NIS weapons scientists and engineers in productive nonmilitary
               work. The program was expected to be commercially beneficial to the
               United States and the NIS. IPP was also expected to promote long-term
               nonproliferation goals through the commercialization of NIS technologies.
               While commercial benefit is a major emphasis of the program, the
               nonproliferation goals of the IPP program are the foundation for all
               program activities.

               In 1998, DOE initiated another program that has complementary goals and
               focuses on creating jobs in 10 cities (commonly referred to as the nuclear
               cities) that formed Russia’s nuclear weapons complex. This program,
               known as the Nuclear Cities Initiative, is discussed in more detail in
               chapter 4. It has been estimated that Russia’s 10 closed nuclear cities
               contain about 1 million inhabitants. This total includes the families of the
               closed cities’ weapons scientists and support personnel, such as teachers
               and technicians. The cities are called “closed” because access to them is
               restricted and they are geographically isolated. These cities have



               Page 14                                  GAO/RCED-99-54 Nuclear Nonproliferation
Chapter 1
Introduction




performed the most sensitive aspects of nuclear weapons production. Two
of the cities, Arzamas-16 (now Sarov) and Chelyabinsk-70 (now
Snezhinsk), are primarily research institutes, responsible for weapons
design. The remaining eight were originally production facilities and are
now involved in dismantling weapons and in securing and disposing of
nuclear materials.

The director of DOE’s Office of Nonproliferation and National Security
stated that the IPP program’s main objectives are to (1) identify and
develop nonmilitary applications for NIS defense technologies and
(2) create long-term jobs for NIS weapons scientists and engineers in the
high-technology commercial marketplace. DOE defines a weapons of mass
destruction scientist or engineer as an individual with direct experience in
designing, developing, producing, or testing weapons of mass destruction
or the missile systems used to deliver these weapons. While not all
workers on a project are required to satisfy the weapons of mass
destruction requirement, the majority of the scientific personnel should
have experience related to such weapons. The national laboratories, which
supervise IPP projects are responsible for ensuring that NIS facilities and
personnel were directly linked to weapons of mass destruction. The
program focuses on preventing the proliferation of nuclear weapons but
also addresses certain aspects of NIS chemical and biological warfare
systems. The program aims to use about 70 percent of its funding for
nuclear-related projects and 30 percent for chemical and biological
projects.

An underlying principle of IPP is that the program is expected to have an
“exit strategy” to limit U.S. government involvement. By serving as a
catalyst to forge industrial partnerships between U.S. industry and NIS
institutes, the program anticipated “handing off” commercial activities to
the marketplace as they evolved and matured. In this sense, IPP was
expected to provide the seed money that would lead to self-sustaining
business ventures and help create a climate that would foster long-term
nonproliferation benefits.

The IPP program is one of a number of U.S. nuclear nonproliferation
programs focusing on the NIS. According to DOE officials, the program is
limited in scope and is not designed to address the total problem posed by
unemployed weapons scientists. Table 1.1 provides information on the
various U.S. nonproliferation programs focusing on the NIS.




Page 15                                 GAO/RCED-99-54 Nuclear Nonproliferation
                                              Chapter 1
                                              Introduction




Table 1.1: U.S. Government Programs Focusing on Nuclear Nonproliferation Assistance to the NIS
Dollars in millions
                                                            U.S. government
                                                            agency responsible for                                             Funds received
Program name                    Year established            oversight                     Focus of program             through fiscal year 1998
Initiatives for Proliferation   1994                        DOE                           Stabilize NIS defense
Prevention (IPP)                                                                          institutes and promote
                                                                                          long-term employment
                                                                                          opportunities for
                                                                                          weapons scientists                                  $114
Cooperative Threat              1992                        Department of Defense         Destroy and dismantle
Reduction                                                                                 NIS weapons of mass
                                                                                          destruction and conduct
                                                                                          certain demilitarization
                                                                                          activities                                          1,346a
Defense Enterprise Fund         1994                        Defense Threat                Assist defense
                                                            Reduction Agencyb             conversion by financing
                                                                                          U.S.-NIS business
                                                                                          partnerships                                              67
Materials Control,              1994                        DOE                           Through cooperative
Protection, and Accounting                                                                efforts, bring NIS nuclear
(Lab to Lab)                                                                              materials protection,
                                                                                          control, and accounting
                                                                                          measures to higher
                                                                                          standards                                             428
The International Science       1994                        Department of State           Engage NIS weapons
and Technology Center                                                                     scientists in peaceful
(ISTC)                                                                                    research to prevent
                                                                                          proliferation                                             98c
Nuclear Cities Initiative       1998                        DOE                           Assist Russia in reducing
                                                                                          the size of its nuclear
                                                                                          weapons complex by
                                                                                          redirecting the work of
                                                                                          nuclear weapons
                                                                                          scientists                                                 0d
                                              a
                                               Does not include activities such as certain chain-of-custody activities, Arctic Nuclear Waste, and
                                              funds transferred to other agencies for defense conversion activities, such as IPP and ISTC.
                                              b
                                                  This agency is part of the Department of Defense.
                                              c
                                               Total from all contributors equals $215 million.
                                              d
                                                  DOE plans to spend about $600 million on the program over the next 5 years.

                                              Sources: Departments of Defense, Energy, and State.



                                              According to DOE officials, IPP complements these other programs.
                                              Department of State officials, who oversee the U.S. portion of the




                                              Page 16                                                 GAO/RCED-99-54 Nuclear Nonproliferation
                        Chapter 1
                        Introduction




                        International Science and Technology Center (ISTC) program, which also
                        provides funds to NIS weapons scientists, said the two programs share
                        similar objectives and can have a mutually beneficial effect.1 The programs
                        do have some important differences. For example, ISTC is a multilateral
                        program, funded by several countries and organizations, while IPP is a
                        bilateral program, funded solely by the United States. Unlike ISTC, which is
                        implemented by an intergovernmental agreement, IPP is implemented
                        through a series of national laboratory contracts with NIS scientific
                        institutes and laboratories.


                        IPP is implemented by DOE headquarters, DOE’s national laboratories,2 and
IPP Program Relies      U.S. industry partners. The program is managed at DOE headquarters by an
Heavily on DOE’s        office director and is part of DOE’s Office of Arms Control and
National Laboratories   Nonproliferation. The director has a staff of seven technical and support
                        personnel. In addition, the office has five technical and support personnel
and U.S. Industry       who work on the recently established Nuclear Cities Initiative. The IPP
                        program office is responsible for the program’s overall direction, DOE and
                        interagency coordination, final project approval, and budgetary matters.


DOE’s National          DOE’s multiprogram national laboratories, plus the Kansas City Plant,3 play
Laboratories            a major role in the day-to-day operations of IPP. IPP projects are assigned to
                        national laboratory scientists, known as principal investigators, who
                        (1) develop the projects with Russian scientists, (2) provide technical
                        oversight for the projects, and (3) provide testing and technical
                        confirmation of projects’ results when required by U.S. industry. Each
                        laboratory also has an IPP program manager who monitors the laboratory’s
                        IPP projects. An interlaboratory board was established in 1994 to
                        coordinate, review, and facilitate the activities of the national laboratories
                        and provide recommendations to DOE headquarters on the execution of the
                        IPP program. Program managers from each national laboratory make up
                        the interlaboratory board. An interlaboratory chairman is appointed for a


                        1
                         For more information on ISTC, see Weapons of Mass Destruction: Reducing the Threat From the
                        Former Soviet Union: An Update (GAO/NSIAD-95-165, June 9, 1995).
                        2
                         DOE manages the largest laboratory system of its kind in the world. The mission of DOE’s 23
                        laboratories has evolved over the last 55 years. Originally created to design and build atomic bombs
                        under the Manhattan Project, these laboratories have since expanded to conduct research in many
                        disciplines—from high-energy physics to advanced computing at facilities throughout the nation. Nine
                        of DOE’s laboratories are multiprogram national laboratories. The remaining laboratories are program-
                        and mission-dedicated facilities.
                        3
                         The Kansas City Plant produces and procures electronic, electromechanical, mechanical, plastic, and
                        nonfissionable metal components for nuclear weapons.



                        Page 17                                               GAO/RCED-99-54 Nuclear Nonproliferation
                                         Chapter 1
                                         Introduction




                                         1-year period. The current chairman is from the National Renewable
                                         Energy Laboratory.

                                         Table 1.2 shows the distribution of IPP projects and associated funding
                                         among the national laboratories as of December 1998.


Table 1.2: Distribution of IPP Projects and Associated Funding Among DOE’s National Laboratories and Kansas City Plant
Dollars in thousands
                                       Number of             Percentage of total              Program funds           Percentage of total
National laboratory                      projects                     projects                     allocated                      funds
Sandia                                             91                           22                    $14,383                           18
Lawrence Livermore                                 56                           14                     14,768                           18
Los Alamos                                         51                           12                     12,534                           15
Oak Ridge                                          39                            9                       9,719                          12
Pacific Northwest                                  42                           10                       7,806                          10
Brookhaven                                         36                            9                       5,222                           6
Argonne                                            37                            9                       6,572                           8
Lawrence Berkeley                                  25                            6                       5,135                           6
National Renewable Energy                          20                            5                       4,304                           5
Idaho National
Environmental Engineering                          12                            3                       1,192                           1
                                                                                                                                             a
Kansas City Plant                                   4                            1                         310
                                                                                                                                         b
Total                                            413                          100                     $81,945                          100
                                         Note: The amount of funds allocated refers to the IPP funds designated for projects at each
                                         national laboratory and the Kansas City Plant, not the amount of funds spent.
                                         a
                                          Less than 1 percent.
                                         b
                                             Total does not equal 100 percent because of rounding.

                                         Source: DOE/IPP database.




U.S. Industry’s Role                     A consortium of U.S. industry participants, called the United States
                                         Industry Coalition (USIC), was established in 1994 to promote
                                         commercialization with the NIS. USIC is a private nonprofit entity headed by
                                         a president and board of directors and includes U.S. companies and
                                         universities. (See app. I for a list of the USIC members as of Sept. 30, 1998).
                                         In order to participate in the IPP program, a company is required to become
                                         a member of USIC and pay dues based on its size. The dues structure is as
                                         follows: Small companies pay $1,000 for a 2-year period; consortiums and




                                         Page 18                                                GAO/RCED-99-54 Nuclear Nonproliferation
                       Chapter 1
                       Introduction




                       universities pay $2,000 for a 1-year period; and large companies pay $5,000
                       for a 1-year period.


                       The IPP program comprises over 400 funded projects. These projects
IPP Projects Are the   represent collaborative activities among DOE’s national laboratories, U.S.
Core of the Program    industry partners, and NIS institutes. The purpose of the activities is to
                       convert NIS defense industries to commercial civilian applications. NIS
                       nuclear, biological, and chemical weapons facilities are supposed to be the
                       recipients of IPP funding. Also eligible are facilities that were associated
                       with the development and production of strategic delivery systems or
                       strategic defense systems.

                       IPP projects are categorized in three phases—Thrust 1, Thrust 2, and
                       Thrust 3. The first phase is geared toward technology identification and
                       verification. Thrust 1 projects are funded by the U.S. government and
                       focus on “lab to lab” collaboration, or direct contact between DOE’s
                       national laboratories and NIS institutes. The second phase involves a U.S.
                       industry partner that agrees to share in the costs of the project with the
                       U.S. government to further develop potential technologies. The principal
                       instrument used by DOE to promote partnerships is the cooperative
                       research and development agreement.4 The U.S. industry partner is
                       expected to match funds provided by DOE. Industry costs can include
                       in-kind support, such as employee time and equipment. Projects that do
                       not receive any financial support from the U.S. government, known as
                       Thrust 3, are expected to be self-sustaining business ventures.

                       According to DOE, 413 IPP projects had received funding as of
                       December 1998. About 170 NIS institutes and organizations have been
                       involved in the IPP program. The distribution of the projects among the
                       three phases—and the associated funding levels—is shown in table 1.3.




                       4
                        Cooperative research and development agreements are contract instruments that allow for joint U.S.
                       government and industry cost-sharing to develop technologies for commercial application.



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                                          Chapter 1
                                          Introduction




Table 1.3: Distribution of Projects and
Funding for the IPP Program               Dollars in thousands
                                                                        Number of       Percentage of              Amount        Percentage of
                                          Thrust level                   projectsa       total projects          allocatedb       total funding
                                          Thrust 1                               332                  80            $41,777                   51
                                          Thrust 2                                79                  19             38,885                   47
                                          Thrust 3c                                2                    1              1,283                   2
                                          Total                                  413                 100            $81,945                   100
                                          a
                                          Includes projects categorized as funded, under way, and completed.
                                          b
                                              These amounts refer to program funds designated for specific projects, not total funds spent.
                                          c
                                          Although Thrust 3 projects are intended to be self-sufficient, one has received IPP funding.

                                          Source: DOE/IPP database.



                                          The IPP program is focused on four NIS countries—Russia, Ukraine,
                                          Belarus, and Kazakhstan. The bulk of the program’s effort is concentrated
                                          on Russia. About 84 percent of the funded projects are related to Russia,
                                          as shown in figure 1.1.




                                          Page 20                                                  GAO/RCED-99-54 Nuclear Nonproliferation
                                           Chapter 1
                                           Introduction




Figure 1.1: Distribution of IPP Projects
by Recipient Country as of
December 1998                                                                                  9%
                                                                                               Ukraine

                                                                                               4%
                                                                                               Kazakhstan

                                                                                               3%
                                                                                               Belarus




                                                            •   •

                                                        •




                                                                    84% •                      Russia




                                           Note: Total based on 412 projects because 1 project was not associated with a country.

                                           Source: DOE/IPP database.




                                           IPP projects evolve from various sources. According to DOE and national
                                           laboratory officials, projects are proposed primarily by NIS scientists,
                                           laboratory officials, and U.S. industry. DOE, national laboratory, and State
                                           Department officials noted that many early IPP projects were “off the shelf”
                                           ideas of the national laboratories that heavily favored basic science with
                                           limited commercial potential. IPP’s former program director told us the
                                           program’s first priority was to initiate immediate projects at key NIS
                                           institutes to stabilize personnel who were facing the threat of economic
                                           dislocation. The idea was to get as many projects as possible under way in
                                           as short a time as possible. He noted that a key element in selecting early
                                           projects was to learn as much about the facilities and personnel as




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                           Chapter 1
                           Introduction




                           possible to promote and increase transparency at the NIS weapons
                           institutes. In mid-1995, less than a year after IPP received its first year’s
                           appropriation of $35 million, 175 Thrust 1 projects and 29 Thrust 2 projects
                           had received almost $20 million.


Procedures for Reviewing   Before they are approved for funding, all proposed IPP projects are
Projects                   reviewed by DOE’s national laboratories, DOE headquarters, and a U.S.
                           government interagency group comprising representatives of the
                           departments of State and Defense and other agencies. A project is initially
                           reviewed by the DOE national laboratory that proposed the project. After
                           passing the initial review, the project is further analyzed by the
                           interlaboratory board and its technical committees. The project is then
                           forwarded to DOE headquarters for review. DOE, in turn, consults with the
                           Department of State and other U.S. government agencies for policy,
                           nonproliferation, and coordination considerations. DOE headquarters is
                           responsible for making the final decision on all projects.


                           According to its former director, the IPP program (1) faced continuous
The IPP Program            funding shortfalls, (2) was not adequately supported by DOE management,
Faced Early Problems       (3) faced confusion about the appropriate relationship between the
                           national laboratories and U.S. industry over the commercialization of NIS
                           technology, and (4) had poor relations with the State Department.
                           Furthermore, the former program director noted that DOE management did
                           not provide adequate support services, failed to recognize the program’s
                           successes, and was unwilling to support budget levels consistent with
                           DOE’s original commitments. He also noted that DOE management failed to
                           address a series of problems with the State Department until irreparable
                           damage had been done. These alleged problems ranged from broader
                           policy-level issues to administrative matters, such as lack of support in
                           processing country clearances for DOE visits to the NIS. The Department of
                           State’s Senior Coordinator for Nonproliferation Science Programs told us
                           that constructive engagement between the two agencies ceased and
                           employees of both became embroiled in personality conflicts. According
                           to the former IPP program director, DOE did not adequately address these
                           impediments in total, indicating that DOE did not consider the IPP program
                           to be a high-priority nonproliferation activity.




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                              Introduction




Improvements in Program       DOE  and State Department officials acknowledged that the IPP program had
Management Since the          difficulties in the early years but maintained that the situation has
Appointment of a New          improved markedly with the appointment of a new IPP program director in
                              September 1997. The new program director told us that he has the full
Director                      support of DOE management and the IPP program has improved relations
                              with the Department of State.

                              In the midst of these problems, DOE commissioned two reviews of the
                              program by private contractors. The first study, which cost $10,000, was
                              completed in August 1997, and the second, which began shortly after the
                              first review was completed in October 1997, cost $99,985. The studies
                              identified many similar programmatic weaknesses, including flaws in
                              program management, oversight, and failure to commercialize projects.
                              Recommendations to improve the program included

                          •   obtaining the support of DOE management for the IPP program,
                          •   establishing commercialization priorities and developing a
                              commercialization model,
                          •   incorporating commercialization criteria in project approvals,
                          •   repairing relationships with other U.S. government entities,
                          •   reaching out aggressively to industrial and financial firms, and
                          •   restructuring the USIC model to enhance commercialization potential.

                              According to the program director, since his appointment, he has
                              implemented almost all of the recommendations. He further noted that
                              program staff have been upgraded so that headquarters can assume
                              control of financial and program management responsibilities from DOE’s
                              national laboratories and Albuquerque field office.


                              The Chairman of the Senate Committee on Foreign Relations asked us to
Objectives, Scope,            review (1) the costs to implement the IPP program for fiscal years 1994-98,
and Methodology               including the amount of funds actually received by NIS scientists and
                              institutes; (2) the extent to which IPP projects are meeting their
                              nonproliferation and commercialization objectives; and (3) DOE’s Nuclear
                              Cities Initiative.

                              To determine the purpose and scope of the IPP program, we reviewed DOE
                              and State Department program files, discussed the program with various
                              DOE officials, and met with U.S. industry officials. We met with the former
                              director of the IPP program to obtain information about its history and also
                              had numerous discussions with the current IPP director and members of



                              Page 23                                  GAO/RCED-99-54 Nuclear Nonproliferation
Chapter 1
Introduction




his staff. We also met with the directors of DOE’s Office of Nonproliferation
and National Security and Office of Arms Control and Nonproliferation.
We obtained information on the IPP program from Sandia National
Laboratory, Los Alamos National Laboratory, and Argonne National
Laboratory. At the Department of State, we met with the Special Adviser to
the President and the Secretary of State on Assistance to the Newly
Independent States and his staff. We also met with State’s Senior
Coordinator for Nonproliferation, Science Programs, and with various
officials from the U.S. Embassy, Moscow. In addition, we interviewed
several U.S. industry representatives who have been associated with the
IPP program, including the former presidents of the U.S. Industry Coalition
and officials from the University of New Mexico who provided
administrative support to the coalition.

To identify the IPP program’s costs for fiscal years 1994-98, we obtained
data from DOE’s IPP program office and national laboratories. We discussed
these data with budget and program analysts from DOE’s Office of
Nonproliferation and National Security.

To assess the extent to which the IPP program was meeting its
nonproliferation and commercialization objectives, we judgmentally
selected 79 IPP projects valued at $23 million. Of the 79 projects, 70 were
with Russia, 7 were with Ukraine, and 2 were with Belarus. Of the projects
reviewed, 46 were Thrust 1, 30 were Thrust 2, and 2 were Thrust 3. One
project was described as program directed and did not have an associated
thrust level. The projects were managed by five DOE
laboratories—Argonne National Laboratory, Los Alamos National
Laboratory, the National Renewable Energy Laboratory, Oak Ridge
National Laboratory, and Sandia National Laboratory. (See app. II for a list
of the projects.)

We based our selection of projects on a number of factors. For example,
we chose our projects from five DOE national laboratories that accounted
for 57 percent of all funded IPP projects. The dollar size of projects was
also a consideration. We chose projects whose allocations ranged from
$30,000 to $1.4 million. In addition, we included the number of NIS
scientists employed on the projects among our selection criteria.
Furthermore, we asked DOE to provide us with a list of IPP projects that
would be useful to review. DOE queried several national laboratories and
provided that list to us. Whenever possible, we included these projects in
our sample. We also provided DOE with a list of proposed projects that




Page 24                                  GAO/RCED-99-54 Nuclear Nonproliferation
Chapter 1
Introduction




identified the Russian institutes we planned to visit. DOE officials said that
the projects we chose represented a fair sample of IPP projects.

We used the IPP information system to identify IPP projects. The database
was developed and maintained by Los Alamos National Laboratory. The
system holds data on all funded IPP projects as well as draft proposals.
Members from the national laboratories and the Kansas City Plant, DOE
headquarters, the Department of State, and many U.S. companies that are
members of USIC have access to the system. For the projects we selected
for our sample, we did find some inconsistencies, inaccuracies, and
incomplete data. However, we did, whenever possible, obtain corrected
data through follow-up discussions with the principal investigators at each
U.S. laboratory and with Russian officials.

To assess the impact on U.S. nonproliferation goals of the IPP program, we
met or spoke with the principal investigator for each IPP project. We used
information contained in DOE’s IPP information system to determine the
extent to which each project focused on critical nonproliferation
objectives, such as the number of weapons scientists engaged in the
project and its potential commercialization benefits. We discussed with
the principal investigator how the project was meeting these objectives
and what role the investigator played in monitoring the project. We met or
spoke with principal investigators from Los Alamos National Laboratory,
Sandia National Laboratory, Argonne National Laboratory, Oak Ridge
National Laboratory, the National Renewable Energy Laboratory, and the
Kansas City Plant.

In several instances, we contacted U.S. industry officials to follow up on
the status of commercialization activities. For example, we discussed
selected projects and related commercial activities with U.S. industry
officials from RUSTEC, Inc. (Camden, New Jersey); Energy Conversion
Devices, Inc. (Troy, Michigan); Bio-Nucleonics (Miami, Florida); TCI, Inc.
(Albuquerque, New Mexico); and Raton Technology Research, Inc. (Raton,
New Mexico).

We visited Moscow and St. Petersburg, Russia, in September 1998 to meet
with government and institute officials about the program and selected IPP
projects. We focused our visit on Russia because over 80 percent of all
funded IPP projects are there. We met or communicated with
representatives from the Russian Ministry of Atomic Energy and 18
institutes and organizations that receive IPP funds. We met with the
following organizations in the Moscow area: Entek (Research and



Page 25                                   GAO/RCED-99-54 Nuclear Nonproliferation
Chapter 1
Introduction




Development Institute of Power Engineering), the Kurchatov Institute, the
Research Institute of Pulse Technique, KVANT/Sovlux, the All-Russian
Scientific Research Institute of Natural Gases and Gas Technologies
(VNIIGAZ), the Gamaleya Institute of Epidemiology and Microbiology, the
Institute of Nuclear Research, the All-Russian Scientific Research Institute
of Inorganic Materials (VNIINM), the Engelhardt Institute of Molecular
Biology, and the Institute of Biochemistry and Physiology of
Microorganisms. In St. Petersburg, we met with the following
organizations: the St. Petersburg State Electro Technical Institute, the V.G.
Khlopin Radium Institute, the Ioffe Physico Technical Institute, and the
Association of Centers for Engineering and Automation (St. Petersburg
State Technical University). We also met with officials from the
All-Russian Scientific Research Institute of Experimental Physics (Sarov).
In addition, we met in the United States with officials visiting from two
other Russian institutes—the N.N. Andreyev Acoustics Institute and the
Landau Institute of Theoretical Physics. We also had discussions with the
director general of the State Research Center of Virology and
Biotechnology (VECTOR). See appendix III for more information about each
institute we visited.

One problem we encountered in doing our work was that we were denied
access to Sarov, a closed nuclear city in Russia. We had planned to visit
the city to learn more about its economic conditions and review several IPP
projects. We had been granted access to visit the city, including obtaining
the required entry and visa documents. Furthermore, IPP contracts with NIS
institutes have a provision that allows for audits by GAO. After we had
arrived in Russia, however, we were informed that the visit had not been
cleared by Russia’s Federal Security Bureau (formerly known as the KGB)
and we would not be permitted to enter Sarov. Representatives from
Sarov, however, traveled to Moscow to meet with us. They told us that
they wanted us to visit their city but did not have the final approval
authority.

We performed our work from February 1998 through February 1999 in
accordance with generally accepted government auditing standards.




Page 26                                  GAO/RCED-99-54 Nuclear Nonproliferation
Chapter 2

About 37 Percent of the IPP Program’s
Funds Reach Institutes in the Newly
Independent States
                        As of June 1998, institutes in the Newly Independent States (NIS) had
                        received about 37 percent of all IPP funding. About 51 percent of the
                        program’s funds have gone to DOE’s national laboratories, and 12 percent
                        have supported U.S. industry’s participation in the program. The portion
                        allocated to DOE’s laboratories goes for the salaries of scientists engaged in
                        the IPP projects, as well as for laboratory overhead charges. In Russia,
                        scientists and others working on IPP projects received less than 37 percent
                        of IPP funds because of various Russian taxes and administrative overhead
                        charges on IPP funds at their institutes. DOE officials told us that they view
                        the Russian taxes as costs over which they have no control and consider
                        administrative charges an acceptable program cost.

                        For the IPP program to achieve its goals, DOE officials told us it should be
                        funded at about $50 million per year. At that level, they believe the
                        program could be phased out by 2007. However, the program has never
                        received that much funding in any one year. For example, in fiscal year
                        1994, the IPP program received its largest amount—$35 million. DOE is
                        developing a strategic plan to establish goals for the IPP program and a
                        means of measuring its accomplishments.


                        Most IPP funds have gone to DOE’s national laboratories to cover (1) the
Most IPP Program        costs of scientific research related to IPP projects (2) the costs of
Funds Go to DOE’s       developing or monitoring the projects, and (3) various kinds of
National Laboratories   administrative and overhead charges. As indicated in figure 2.1, an analysis
                        of the program’s expenditures from fiscal year 1994 through June 1998
                        shows that 51 percent, or $32.2 million, of the $63.5 million spent on the IPP
                        program has gone to reimburse DOE laboratories.1




                        1
                        The administrative costs for DOE headquarters staff and the contractors who assist those who
                        manage the program are not included in any of these amounts.



                        Page 27                                              GAO/RCED-99-54 Nuclear Nonproliferation
                                       Chapter 2
                                       About 37 Percent of the IPP Program’s
                                       Funds Reach Institutes in the Newly
                                       Independent States




Figure 2.1: Percentage of IPP
Expenditures for DOE Laboratories,                                                              Funds sent to the NIS
Industry Coalition, and Newly
Independent States, From Fiscal Year
1994 Through June 1998.



                                             • 37%

                                                                           51% •                DOE expenditures




                                                   12%
                                                     •



                                                                                                U.S. Industry Coalition
                                                                                                administrative support


                                       $23.7 million = NIS expenditures.

                                       $10.8 million = DOE laboratories’ direct project cost.

                                       $21.4 million = DOE laboratories’ administrative and overhead cost.

                                       $7.6 million = U.S. Industry Coalitiion’s administrative cost.

                                       Source: DOE.




                                       The direct costs of DOE laboratories for projects ($10.8 million, or
                                       17 percent of all program expenditures) include funds used for the salaries
                                       and travel costs of DOE laboratory researchers during the time they worked
                                       on specific IPP projects. Principal investigators at the DOE laboratories told
                                       us they and their staff spent time conducting research related to the
                                       projects or monitoring the NIS contracts. IPP projects were usually not the
                                       main responsibility of the principal investigators. In several cases, they
                                       told us they spent about 5 to 10 percent of their time monitoring an IPP
                                       project. Furthermore, they said they spent most of this time during the
                                       early stages of the project, developing the paperwork necessary to get the
                                       project started.




                                       Page 28                                                  GAO/RCED-99-54 Nuclear Nonproliferation
                          Chapter 2
                          About 37 Percent of the IPP Program’s
                          Funds Reach Institutes in the Newly
                          Independent States




                          Besides the funds attributable to the principal investigators and their
                          research staff at DOE laboratories, a small portion of IPP funds was
                          allocated for equipment and materials. However, the bulk of the
                          expenditures for DOE laboratories went for administrative support fees.
                          Totaling $21.4 million, these expenditures represented 33.7 percent of total
                          program expenditures. The support fees include

                      •   a portion of laboratory overhead, including the salaries and travel
                          expenses of the IPP program managers, who coordinate the program
                          among scientists at each laboratory;
                      •   various standard administrative and support costs, paid to the contractor
                          that operates the laboratory;
                      •   another administrative charge, specifically for this program, taken from
                          the funds earmarked for institutes in the Newly Independent States; and
                      •   materials and subcontracts purchased in the United States and valued at
                          $2 million.

                          The director of the IPP program told us he was concerned about the
                          laboratories’ costs for operating the program and the length of time to
                          receive financial information from some of the labs. The director of the
                          Office of Nonproliferation and National Security and other DOE officials
                          told us that they believe laboratory overhead should be reduced to
                          maximize the amount of money received by NIS weapons institutes. The
                          director also told us that although her office supported funding the
                          principal investigators, IPP should not be a jobs program for DOE’s national
                          laboratories. The Department of State’s special adviser on assistance to
                          the NIS told us that while he supported the goal of IPP, he questioned how
                          valuable the laboratories are in promoting the goals and objectives of the
                          program and said that questions should be raised about the extent and
                          duration of the laboratories’ involvement.


                          Until the end of fiscal year 1998, the University of New Mexico provided
Industry Support          administrative services to the U.S. Industry Coalition (USIC), the
Services Accounted        consortium of industry partners interested in cooperating with DOE on IPP
for Expenditures of       projects with the Newly Independent States. DOE’s costs for the University
                          of New Mexico’s participation totaled about $7.6 million through
Over $7 Million           June 1998. DOE anticipated that the consortium would become
                          self-sustaining after 5 years, following strategic investments in successful
                          IPP projects. According to DOE officials, the university never fulfilled the
                          role envisioned for it, and its staff generally did not possess the required
                          expertise. DOE decided to terminate funding for the university as of



                          Page 29                                  GAO/RCED-99-54 Nuclear Nonproliferation
                         Chapter 2
                         About 37 Percent of the IPP Program’s
                         Funds Reach Institutes in the Newly
                         Independent States




                         September 30, 1998. DOE and the University of New Mexico agreed that the
                         university’s resources were not well suited to support IPP’s increased
                         emphasis on commercializing projects. The university may, however,
                         provide some support services to IPP in the future.

                         IPP program officials and industry members of USIC, the chartered
                         corporation, told us that USIC should still play a role in promoting the
                         commercialization of NIS technologies. On October 1, 1998, DOE entered
                         into an agreement with USIC to pursue commercial efforts with the NIS. USIC
                         is currently organizing an office in Washington, D.C., to carry out its
                         responsibilities. DOE has agreed to support USIC’s operations through
                         September 30, 1999, at a cost of $1.6 million.


                         As of June 1998, about 37 percent, or $23.7 million, of the program’s
NIS Institutes Receive   expenditures had been used to pay for work at NIS institutes; however, not
About 37 Percent of      all of these funds are reaching weapons scientists, engineers, and
IPP Funds                technicians who work on IPP projects. After a DOE laboratory wires a
                         payment of funds to a bank designated by a Russian institute2—a step DOE
                         takes when a principal investigator is satisfied that a segment of work on a
                         project is complete—the bank may charge a fee, some taxes may be paid,
                         and the institute may take some of the funds for general overhead
                         expenses. When a Russian scientist finally receives a payment, the
                         individual may have to pay additional taxes on that income. Although DOE
                         has sometimes tried to help the institutes avoid or postpone tax payments,
                         it is unclear how successful such efforts have been.

                         During our review, we found that principal investigators at DOE
                         laboratories often did not know how much IPP funding their Russian
                         counterparts received. Neither DOE nor its laboratories require any receipts
                         or other explanation from the Russian institutes to show how the funds
                         sent to Russia are allocated. Financial officials and others at the DOE
                         laboratories are satisfied if they have documentation that the funds went
                         to the designated bank account for the NIS institute. Principal investigators
                         told us that their role in monitoring the contracts was mainly to establish
                         the contracts or monitor the technical work products of the NIS
                         researchers.




                         2
                          We focused on Russia because it received 84 percent of the IPP projects.



                         Page 30                                                GAO/RCED-99-54 Nuclear Nonproliferation
                           Chapter 2
                           About 37 Percent of the IPP Program’s
                           Funds Reach Institutes in the Newly
                           Independent States




Amount of IPP Funding      DOE   does not have detailed records of the amounts of IPP funding received
Received by Russian        by individual scientists, engineers, and technicians in the NIS, and therefore
Scientists and Engineers   it is uncertain how much of the funding supplements their salaries.
                           However, at Russian institutes, according to a March 1998 DOE report to
Varies                     the Congress, the average IPP recipient receives about 47 percent of the
                           funds provided to the institute. The remainder typically goes for various
                           payroll taxes—pensions, medical insurance, and the equivalent of Social
                           Security—along with 7 to 18 percent for the institute’s overhead costs.3 In
                           addition, the IPP recipient’s salary may be subject to an income tax of 12 to
                           35 percent. The director of the IPP program said that overhead payments to
                           the institutes were justified as long as they were reasonable because they
                           helped to stabilize the institutes. Even if all of the funds destined for the
                           Newly Independent States are not allotted for salaries, DOE officials said
                           the funds are being used mostly to achieve the goal of stabilizing the
                           institutes.

                           At several of the 15 institutes we visited in Russia, we attempted to
                           determine how much IPP funding each institute received and how the
                           funding was allocated at each institute. Although we were not usually
                           provided with documentation to review, in general, Russian officials told
                           us that the funds received by the institutes went for taxes, administrative
                           and overhead costs, and salaries. An analysis of the information provided
                           to us indicated that the amount of IPP funding reaching weapons scientists
                           and technicians at the institutes varied. For example, we were told at one
                           institute that none of the IPP funds went for salaries; instead, the funds
                           were used for overhead, travel, computers, and Internet access. (See app.
                           IV for additional information on how funding was allocated at Russian
                           scientific institutes).

                           We also met with the director of a Russian institute who was visiting the
                           United States and participated in the IPP program. He told us that he did
                           not receive the amount of funding that DOE’s information showed going to
                           his institute. Our review of the project found that (1) DOE’s information
                           was inaccurate, (2) laboratory officials responsible for the project did not
                           know how much went to the institute, and (3) half of the funds allocated
                           to the Russian institute went to a U.S. company instead. We discussed this
                           project with DOE officials. They told us that they investigated the case, with
                           the assistance of their General Counsel, because of the concerns we
                           raised. DOE found that a number of actions occurred during the course of


                           3
                            The DOE report is entitled Taxation of the DOE Initiatives for Proliferation Prevention Activities in
                           the Russian Federation (Mar. 1998). The report is based on information that Sandia National
                           Laboratory officials gathered from their Russian counterparts on 28 IPP projects.



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the project that were contrary to IPP policies and practices and said that
they will not be allowed to recur. A discussion of this IPP project follows:

DOE’s IPP database showed that the N.N. Andreyev Acoustics Institute, in
Moscow, received $68,200 of the $99,700 spent for the demonstration of an
acoustic nozzle developed at the institute.4 However, the director of the
institute told us that the institute actually received $27,000. According to
the director, about 40 percent of the $27,000 was allocated for the salaries
of scientists and others participating in the project. For example, the
Russian inventor of the nozzle received $5,000 (equal to about 50 months’
salary), or about 5 percent of all IPP funds spent on the project. The
remainder of the $27,000 went for taxes in Russia and the institute’s
overhead.

Records supplied by Argonne National Laboratory show that it paid out
$60,000 rather than $68,200 in February 1998. The IPP program director at
Argonne said that the IPP database showed $68,200 was spent for the NIS
institute, but $8,200 of that amount was part of a $39,700 payment to
Argonne, not to the Russian institute. According to the DOE laboratory’s
records, about $60,000 went to a bank account designated by the Russian
institute. However, the manager of Argonne’s IPP program said he
suspected that the Russians received less than half of the $60,000. This is
because Argonne transferred the $60,000 to a U.S. company that
represented the Russian institute. Argonne officials, including the internal
audit manager who reviewed the laboratory’s records on our behalf, told
us it was unclear how much of the $60,000 went to the Russian institute or
its personnel.

The U.S. company became the institute’s exclusive agent for acoustic
activities in North America the same week in February that the agreement
with the DOE lab was finalized. The company provided us with documents
stating that the Russian institute would receive $30,000 and the U.S.
company would receive the remaining $30,000. According to a letter the
company sent the Russian institute on April 20, 1998, the Russian share
included (1) $4,368 for equipment and travel costs for two institute
officials visiting the United States, (2) $2,500 for the institute’s share of
program and demonstration set-up costs, and (3) $23,131 for the Russian
institute’s costs.




4
 The nozzle, which uses sound vibrations to break up water molecules and create a fine mist, might
have several commercial applications. For example, it might be used as a fire suppressant.



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                          Independent States




Some IPP Funds Are Used   In general, representatives of the Russian institutes we visited said it was
for Russian Taxes         typical for a portion of the IPP funds to be used for taxes. The March 1998
                          DOE report to the Congress on Russian taxation of the IPP program
                          described the tax situation for IPP as a problem, but not as debilitating.5
                          According to the report, there was no comprehensive mechanism that
                          guaranteed tax exemption for U.S. nonproliferation programs, but a
                          temporary agreement between the United States and Russia, known as the
                          Panskov-Pickering Agreement, provided for deferring taxes.6 In many
                          instances, however, Russians involved with the IPP program were not
                          aware of the temporary agreement on income tax deferment and therefore
                          did not contact the U.S. embassy to obtain it. In other cases, local
                          authorities ignored the agreement, according to the DOE report. By
                          July 1998, according to a DOE official, the Russian State Tax Service said
                          that the agreement was no longer valid and all postponed taxes were due;
                          however, the agreement was reinstituted in November 1998. A DOE official
                          said that if the Russian Duma ratifies and the Russian President approves a
                          bilateral agreement, signed by the United States and Russia in 1992 and
                          providing exemptions from some Russian taxes for U.S. aid, then the tax
                          deferments under the Panskov-Pickering Agreement may become
                          permanent.

                          Unlike the IPP program, some aid programs to Russia, such as the ISTC
                          program, provide assistance that is exempt from Russian taxes because of
                          an intergovernmental agreement. DOE officials said that while the ISTC
                          program does not pay taxes because of an intergovernmental agreement,
                          all projects, including those of the ISTC, may still involve some customs
                          duties, bank fees, and taxes at the local if not at the national level.




                          5
                          The DOE report is called Taxation of the DOE Initiatives for Proliferation Prevention Activities in the
                          Russian Federation (Mar. 1998).
                          6
                           In 1996, the Panskov-Pickering Agreement or “Agreement on the Implementation of Tax
                          Postponements under Gratuitous Assistance Rendered to the Russian Federation by the United States
                          of America” was signed, providing temporary tax deferment of some taxes, including income taxes,
                          value-added tax, excise tax, customs duties, and property tax.



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                                        As shown in table 2.1, funding levels for the IPP program have varied. In
DOE Officials See                       fiscal year 1994, the program’s initial year, IPP received its highest annual
Need for Consistent                     level of funding, $35 million. In the following year, it was not funded.7 DOE
Program Funding and                     officials believe the program needs more consistent funding and say they
                                        see a need for a program plan with adequate performance measures.
Strategic Plan
Table 2.1: Annual Funding for the IPP
Program                                 Dollars in millions
                                        Fiscal year                                                                                    Funding
                                        1994                                                                                                  $35
                                        1995                                                                                                    0
                                        1996                                                                                                   20a
                                        1997                                                                                                 29.6
                                        1998                                                                                                 29.6
                                        1999                                                                                                 22.5
                                        Total                                                                                             $136.7
                                        a
                                         The fiscal year 1996 funds include $10 million in no-year funding that the Department of Defense
                                        transferred to IPP from the Cooperative Threat Reduction Program, with the understanding that
                                        $2.5 million would be spent at chemical and biological institutes.

                                        Source: DOE.



                                        DOE officials hold a variety of views on when to end the IPP program. In
                                        part, their views depend on the program’s receiving adequate funding and
                                        accomplishing its mission. The former director of the program told us he
                                        believed the program could have ended after 5 years if it had received
                                        adequate funding. Originally, he anticipated that it would receive
                                        $50 million per year and become self-sustaining after 5 years.

                                        The current director of the program also told us in February 1998 that the
                                        program could end by 2006 if it was adequately funded at about $50 million
                                        per year. However, in June 1998 he said that funding the program and then
                                        terminating it after 5 years was artificial. He said the program should be
                                        continued as long as it is useful and meets a need.

                                        The director of DOE’s Office of National Security and Nonproliferation said
                                        that she would like to see the IPP budget increased to $50 million per year.
                                        She believes that amount would be sufficient for DOE to make a significant

                                        7
                                         According to DOE, not only federal funds are involved in assisting the NIS under the IPP. IPP tries to
                                        leverage $1 or $2 of private support for every $1 provided in federal funds. For some projects we
                                        reviewed, the private support was not in dollars sent to institutes of the former Soviet Union; instead it
                                        was more likely to be in-kind support that was used by the U.S.commercial partner to pay its U.S. staff
                                        to evaluate the work of researchers in the former Soviet Union.



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impact on nonproliferation and commercialization and to end the
program. She believes that adequate funding could lead to a phaseout by
2007. She noted that as DOE closes in on the 2000 time frame, it will be time
to take a hard look at IPP, just as DOE will take a look at its other
nonproliferation programs.

The successful completion of the program depends on identifying the
goals of the program and determining when they have been achieved. The
director of the program is developing program goals and a strategic plan.
In February 1998, the director said the program was changing how it
planned to measure performance. He noted that the program has to be
results oriented if it is to succeed. In the past, the most commonly used
measures of the program’s success included the number of projects, the
amount of funds a project provided to the NIS, and the number of institutes
engaged. These measures would continue to have some use, according to
the director, but IPP must employ more meaningful measures that show
results. Consequently, he was looking at measures such as the number of
patents issued for projects or the number of companies created. The
director said the strategic plan will include about a dozen ways to measure
performance. As of January 1999, the IPP program had developed a draft
strategic plan, which includes some performance measures. Possible
program measures include, among other things, (1) the amount of funds
spent, (2) the number of NIS employees engaged in the IPP program, and
(3) the number of job opportunities created. Possible commercialization
measures include (1) the number of Thrust 3 projects, (2) the amount of
private-sector funding for Thrust 2 and Thrust 3 projects, and (3) the
number of commercial patent applications.




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                    Russian officials participating in the IPP program told us that IPP program
                    funds are helping to prevent some institutes from closing and are
                    supplementing the salaries of some scientists. However, numerous
                    obstacles, such as a lack of capital and markets, are preventing the
                    program from achieving its long-term goal of successfully commercializing
                    IPP projects.


                    DOE’s implementation and oversight of the IPP program raises concerns.
                    For example, program officials are using inconsistent and imprecise
                    methods to identify the number and background of NIS scientists and
                    institutes receiving IPP funding. As a result, some institutes receive IPP
                    funds, even though they are not associated with weapons research and
                    development programs. In addition, IPP projects are not just directed to
                    former weapons scientists. In some cases, scientists currently working on
                    Russia’s weapons of mass destruction program are receiving IPP program
                    funds to supplement their salaries. Some of the projects we reviewed also
                    had “dual-use” implications that could yield unintended, yet useful,
                    defense-related information. Furthermore, some U.S. officials responsible
                    for reviewing proposed IPP projects related to chemical and biological
                    research told us that they did not always receive enough information from
                    DOE to adequately review the projects.



                    In general, officials at the 15 Russian institutes we visited were supportive
IPP Program Funds   of the program. Officials from three institutes told us that the IPP program
Are Helping Some    had prevented their laboratory or institute from shutting down and
Institutes and      reduced the likelihood that scientists would be forced to seek other
                    employment. A representative from Sarov told us that without the IPP
Scientists          program, the situation at the institute would be a disaster. An official from
                    the Research Institute of Pulse Technique said the IPP funding added $200
                    per month in salary and benefits for each employee assigned to the
                    project, a significant amount for a Russian scientist. Some institute
                    officials told us that the benefits of the IPP program went beyond financial
                    support. For example, the general director of the St. Petersburg State
                    Technical University said the IPP project on metal recycling has helped
                    teach the university how to do business with the United States.

                    Given the dire financial and physical conditions at some of these locations,
                    it is not surprising that institute officials were grateful for IPP funds. At
                    several institutes we saw poorly lit, unheated work space and laboratories,
                    aging equipment, crumbling floors, and peeling paint. Furthermore, some
                    institute officials told us that their workers had not been paid in several



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                        months and salaries had been eroded by the recent devaluation of the
                        ruble, the Russian currency. For example, officials from the city of Sarov,
                        which contains a major Russian nuclear weapons design facility, told us
                        that the average monthly salary was about $200. The recent devaluation of
                        the ruble, however, has reduced the actual value of the salary by about
                        half.


                        To date, no IPP projects can be classified as long-term commercial
Long-Term               successes, and only a few have met with limited success. Overall, of the
Commercialization       over 400 funded projects, only two have achieved Thrust 3 status (as
Objective Has Met       potential self-sustaining business ventures) and 79 are categorized as
                        Thrust 2 (an intermediate step toward commercialization). Even the
With Limited Success    Thrust 3 projects that we reviewed have not achieved the type of
and Will Be Difficult   commercial success envisioned by DOE. In fact, one of these projects,
                        which is designed to help one of Russia’s closed nuclear cities develop
to Achieve              material used in the production of silicon chips, does not have a U.S.
                        industrial partner and faces an uncertain future.

                        DOE and national laboratory officials told us that when the program was
                        started, there was a general expectation that most projects would not
                        graduate from Thrust 1 to Thrust 2 to Thrust 3. According to DOE data, 31
                        Thrust 1 projects have evolved to Thrust 2, and 1 project has evolved from
                        Thrust 2 to Thrust 3. Plans for the IPP program envisioned, however, that
                        projects would move from Thrust 2 to Thrust 3 in 3 years.

                        The IPP program director told us he was disappointed that more projects
                        have not evolved more quickly. He indicated that there were too many
                        ongoing Thrust 1 projects with little or no commercial potential. He said,
                        however, that the limited commercial success of the IPP projects is not
                        surprising in view of the difficulties involved in commercialization.1
                        According to the director, commercializing science and engineering
                        projects is very difficult in the United States and much more difficult in
                        Russia. He noted that commercializing a new specialty chemical or
                        polymer can take from 6 to 8 years in the United States. IPP projects do not
                        have to start at the Thrust 1 phase. DOE officials are now stressing the
                        commercialization of projects and told us that projects should have a U.S.


                        1
                         In 1994, we reported that DOE’s national laboratories faced challenges in commercializing products.
                        Although the potential for commercial product development exists, the actual outcomes will not be
                        known for several years. Over half of the national laboratory managers of programs with commercial
                        product potential expected clear evidence of that potential to emerge within 5 years. For more
                        information, see National Laboratories: Are Their R&D Activities Related to Commercial Product
                        Development? (GAO/PEMD-95-2, Nov. 25, 1994).



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industry partner identified at the conceptual stage. The director of DOE’s
Office of Arms Control and Nonproliferation told us that if a project does
not have a clear commercial objective, he will not approve it unless there
is an overriding national security consideration.

We found that many factors affected commercialization, including a lack
of capital, the lack of a clearly defined goal for achieving commercial
success, the inadequate training of NIS scientists in business-related skills,
limited markets, and concerns about intellectual property rights. The
difficulties of commercializing IPP projects have increased with the recent
economic crisis in Russia. We found some IPP projects with limited
commercial success—that is, a product has been developed and appears
marketable, but customer demand for the products has generally not been
established. A few projects we reviewed showed commercial potential and
had interested U.S. industry partners. These included (1) a metals
recycling partnership between U.S. industry and a Russian entity, (2) a
photovoltaic cell renewable energy production project, and (3) a
technology to eliminate insects from Russian lumber. For the first two
projects, the U.S. industry-NIS partnerships were established before the
partners began to participate in the IPP program. (See app. V for more
information on these and other IPP projects.)

Several institute officials told us that current economic conditions in
Russia discourage commercialization and investment. Some institute
officials told us that Russian banks had frozen their assets and they were
unable to be paid for work being done under IPP projects. Worsening
economic conditions compound the difficulties associated with investing
in Russia. According to the director general of the Khlopin Institute, it is
unrealistic to expect that nuclear scientists trained under the Soviet
system can easily make the transition to a market-based economy. He also
believed that DOE’s national laboratories were not well equipped to
promote commercialization in Russia.

A couple of DOE national laboratory officials told us that they did not have
the background and skills needed to fully implement commercialization
programs in the NIS. The IPP program director at Sandia National
Laboratory told us that the laboratories have done a good job of
identifying potential projects and U.S. industrial partners. However, a
laboratory is not the place to raise venture capital and develop markets for
products because a laboratory does not have that kind of expertise. The
actual commercial development must come from U.S. industry. According
to the general director of the St. Petersburg State Technical Institute,



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                                Russia needs an infrastructure in place before it can undertake significant
                                commercialization activities. He said that, in the long-term, Russia needs
                                to develop a cadre of managers who know how to deal in a market
                                economy. Without such managers, commercialization will not take place
                                on a broad scale in Russia.

                                Despite the limited success in commercializing IPP projects, DOE officials
                                told us that the program has been successful because it has at least
                                temporarily employed thousands of weapons scientists at about 170
                                institutes and organizations throughout Russia and other Newly
                                Independent States.


                                Our review raised several concerns about DOE’s implementation and
DOE’s                           oversight of the IPP program including
Implementation and
Oversight of the IPP        •   the adequacy of DOE’s efforts to obtain information on the background and
                                number of NIS scientists and institutes engaged in IPP projects;
Program Raise               •   the appropriateness of DOE’s supplementing the salaries of scientists
Concerns                        currently working in Russia’s weapons of mass destruction program;
                            •   the advisability of DOE’s funding projects that could unintentionally
                                provide defense-related information to Russian and other NIS scientists;
                                and
                            •   the adequacy of DOE’s reviews of IPP projects dealing with chemical and
                                biological research.


Background Information of       DOE’s program guidance specifies that each project proposal should
NIS Scientists and              include a discussion of the background and experience of the key NIS
Institutes Was Not              scientists and institutes to determine that they possess the appropriate
                                weapons of mass destruction background. The guidance also specifies that
Consistently Obtained           the principal investigator at the DOE laboratory is responsible for providing
                                this information for each project. Some principal investigators told us that
                                information on the backgrounds of the NIS scientists and engineers was not
                                relevant to the project’s success. In two instances, they said it was “none
                                of their business” to ask for such information, claiming that doing so
                                would have been too intrusive or would have resulted in a breach of
                                Russia’s national security laws. One principal investigator told us that he
                                does not want to know the roles of the scientists because this information
                                could jeopardize relationships and put the NIS scientists at risk for
                                revealing such information. At one national laboratory, the IPP program
                                director said the laboratory does not generally ask about scientists’



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background because of concerns about undermining the potential success
of a project.

During our visit to Russia, we asked for and received background
information on scientists from officials at some institutes. Representatives
from Sarov told us that it was not a violation of Russia’s laws to provide
background information, provided that a request was limited to general
information about the scientists’ nuclear weapons-related activities.

DOE’s IPP program director told us that the principal investigators monitor
the projects very closely, helping to ensure accountability. However, we
found that the degree of oversight varied among the U.S. laboratories. In
general, the principal investigators told us that they monitor the projects
through contract deliverables (end products) received from the institutes,
such as technical reports. A principal investigator is satisfied that an
institute has complied with the terms of the contract between the national
laboratory and the NIS institute upon (1) receiving the required
deliverable(s) and (2) ensuring that the institute has met other technical
expectations. Generally, the principal investigators did not believe their
role included verifying the number of scientists working on a project or
trying to determine if the scientists were performing weapons-related
work while receiving IPP funding. A Sandia National Laboratory principal
investigator told us that he was not concerned about the number of NIS
scientists who were involved in the project as long as the institute met the
technical requirements of the contract.

From the projects we reviewed, it was not always clear how NIS institutes
and scientists were selected for IPP funding. DOE and laboratory officials
told us that at the beginning of the program, it was important to get as
many projects as possible under way in as short a time as possible. They
noted that part of the initial phase of the program was focused on learning
about the NIS institutes. A State Department official told us that IPP has not
focused consistently on the most critical weapons institutes. This official
told us she is uncertain that IPP program officials always ask the right
questions about reaching the highest-priority NIS scientists when screening
projects for funding. The president of the Kurchatov Institute, in Moscow,
told us that, in general, IPP projects have not targeted the most critical
nuclear scientists. He noted that two IPP projects that DOE identified as
being highly successful have not focused on important weapons scientists
and that nonproliferation efforts to date have been ad hoc, with no real
strategy in mind.




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    The IPP program director initially told us that there is no
    U.S.-government-wide comprehensive, consolidated list of critical
    institutes and scientists that the program seeks to engage. According to
    the director, a list of institutes of nonproliferation interest for Kazakhstan,
    Ukraine, and Belarus has been developed. An interim list of Russian
    institutes has also been issued and continues to be refined. The director
    said that DOE works primarily with the national laboratories, the State
    Department, and other agencies to try to ensure that it is focusing on the
    most important nuclear institutes. However, in some cases the principal
    investigators were uncertain about the institutes’ roles in weapons
    activities. The Los Alamos National Laboratory’s IPP program director told
    us that sometimes the definition of a weapons of mass destruction
    scientist is stretched to maximize the participation of NIS scientists and
    institutes in the IPP program.

    For more than half of the projects we reviewed, we were able to determine
    that the institutes that performed the work had a clear affiliation to
    weapons of mass destruction or other defense-related activities. These
    institutes either had a direct connection to weapons research, design, or
    production or were affiliated with materials production or uranium
    enrichment. However, we found that in about 20 cases, the institutes that
    received IPP funding did not appear to have a direct association with
    weapons of mass destruction or defense-related activities. We were unable
    to determine the institutes’ backgrounds for the remaining projects we
    reviewed. Some projects that were not focused on weapons-related
    institutes included the following:

•   At the Institute of Nuclear Research, which has participated in three IPP
    projects, the work has always been academic in nature, according to
    institute officials. They said the institute never directly performed military
    work. According to DOE, although the institute is not a primary weapons
    institute, it has conducted considerable work on the effects of radiation on
    electrical systems. Currently, the institute has no significant military role
    and has probably not had one since the early 1990s.
•   Russia’s natural gas enterprise, VNIIGAZ, which participated in one IPP
    project, has performed no defense-related activities, according to officials.
•   A national laboratory principal investigator told us that a project that
    focused on studying the effects of radiation contamination in Ukraine was
    not related to weapons of mass destruction.

    In the course of our review, we also tried to determine if the 15 institutes
    we visited, plus the key biological warfare institute in Russia, are training



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                            or have had contacts with representatives from countries of proliferation
                            concern. We received responses from 12 of the institutes and found some
                            evidence that contacts with countries of proliferation concern had
                            occurred at four institutes. In one case, a researcher from an NIS biological
                            institute, which had received IPP funds, told us that he had gone to Iran on
                            a teaching contract. He said he did not provide any sensitive information
                            to Iran. Another institute told us that it had provided training to Libya in
                            1994 on light water reactors but said that the training had taken place
                            before the IPP project was awarded in 1996. On January 12, 1999, the
                            Clinton administration imposed economic penalties on this institute after
                            determining that it had provided sensitive missile or nuclear assistance to
                            Iran. According to DOE officials, the IPP program had been withholding
                            approval on additional projects for this institute for several months in
                            anticipation of this recent U.S. government action.

                            We were also told that one institute trained students from India, Pakistan,
                            and Iran about 10 years ago. Also in 1994, the institute provided a special
                            training course in radiochemistry for a group of about 20 students from
                            China. An institute official said that no sensitive information had ever been
                            included in the training courses. Finally, officials from a technical
                            university that received IPP funds told us they are currently training
                            students from China, India, Libya, Pakistan, Sudan, and Syria.

                            Officials from several institutes we visited told us that they were not aware
                            of any scientists emigrating to countries of concern to provide
                            weapons-related services. Some institute officials told us that their
                            employees are patriotic and would not jeopardize their own country’s
                            national security by providing information to a rogue state. Nevertheless,
                            Russian institute officials did note that “brain drain” is a problem. For
                            example, Russian scientists are leaving the institutes but are emigrating to
                            countries like the United States, Israel, and Germany for better
                            opportunities. In addition, scientists and technicians are seeking
                            employment in Russia’s banking and technology industries. One institute
                            official said he is most concerned about scientists who leave the scientific
                            field because their skills are lost forever. He said that when a scientist
                            emigrates to another country, however, these skills are maintained.


The Number of NIS           IPP program guidance specifies that the number of people employed in the
Scientists Engaged in IPP   NIS on IPP projects is a primary measure of the program’s success.

Projects Is Uncertain       According to program officials, the guidance clearly requires that accurate
                            figures on the number of scientists and engineers be maintained. The



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                           national laboratories we visited—Los Alamos, Sandia and Argonne—had
                           different methods for determining the number of NIS scientists and
                           engineers working on IPP projects. One of the laboratories relied primarily
                           on estimating the number of scientists by applying a formula under which
                           the total value of the contract was divided by the scientists’ average
                           monthly salary to arrive at the number of full-time equivalents. The other
                           laboratories used a combination of formulas plus some form of
                           verification, but no approach was applied systematically. In many cases,
                           however, laboratory principal investigators knew the names of some key
                           NIS participants as a result of prior meetings, correspondence, or reports
                           submitted to the laboratories.

                           According to a Sandia official, accurately tracking the number of scientists
                           employed on projects was not considered very important at the start of the
                           program. As a result, efforts to develop these figures were not a priority. A
                           former Sandia principal investigator who helped implement the IPP
                           program told us that it was never the intent of the program to identify
                           exactly how many NIS scientists were working on a project. In some
                           instances, principal investigators provided us with resumes and/or lists of
                           NIS scientists engaged in the projects. Argonne officials said that they tried
                           to get this type of information for many earlier projects because the
                           former Argonne administrator of the program viewed it as necessary to
                           qualify an institute for IPP funding. In one case we reviewed, national
                           laboratory information indicated that no scientists were employed on a
                           project. However, according to officials from the Russian institute, about
                           50 people were involved in the project. In several instances, information
                           provided by the U.S. national laboratories did not indicate how many
                           scientists were employed on a project. According to program officials, as a
                           result of our review, principal investigators at the national laboratories are
                           becoming reacquainted with program guidance on the need to maintain
                           accurate information on the number of scientists receiving IPP funds.


Some NIS Scientists Work   The September 1993 Report of the Senate Committee on Appropriations
on Weapons of Mass         provides guidance on the types of NIS institutes the Congress expected
Destruction Research and   would be included in the IPP program. The Committee recognized that the
                           Russian institutes were “principally devoted to military activities” and that
Development Programs       a loss of employment had affected “weapons scientists and engineers
While Receiving IPP        previously involved in the design and production of weapons of mass
Funding                    destruction.” DOE’s program guidance is unclear on whether funds should
                           be going exclusively to former, or previously employed, weapons
                           scientists or if scientists currently working on weapons of mass



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                        destruction programs are eligible to receive funding. The director of the IPP
                        program told us that although program guidance is unclear on this point,
                        he believes that both current and previously employed weapons scientists
                        are eligible for program funding.

                        We found that IPP projects are not directed solely to former weapons
                        scientists. For example, scientists from Sarov who were participating in
                        the IPP program and receiving salaries supplemented by IPP funds told us
                        that they are working on weapons of mass destruction projects. Sarov’s
                        deputy director for international relations told us that about half of the
                        institute’s scientists and engineers who are involved in international
                        collaboration, including the IPP program, spend part of their time working
                        on nuclear weapons research activities.

                        For many of the projects we reviewed, the principal investigators did not
                        know whether the NIS scientists and engineers were working on other
                        projects while receiving IPP funds, but several speculated that they were
                        quite possibly doing so. IPP program directors from Sandia, Los Alamos,
                        and Argonne said their laboratories do not know how the NIS scientists are
                        splitting their time among various institute activities. Laboratory officials
                        speculated that it is very likely that the scientists could be working on
                        various other projects, including their institute’s weapons of mass
                        destruction programs. Russian institute officials told us that in most cases,
                        the scientists are working on the IPP projects part-time. They may also be
                        involved in other collaborative projects with other countries and/or
                        spending part of their time working on other projects at their institute. An
                        official from Los Alamos National Laboratory told us that it would be
                        unrealistic to think that Russian scientists receiving IPP funding were not
                        also working on their own country’s weapons program.


Some Projects Have      According to DOE’s program guidance, IPP projects must not, among other
Dual-Use Implications   things, (1) include weapons and delivery system design activity and
                        (2) provide assistance in the maintenance or improvement of military
                        technology. Program officials said that since Russia’s technology base has
                        been developed in the weapons program and since the goal of the IPP
                        program is the commercial development of these technologies, there is an
                        inherently dual-use aspect of the program. Moreover, they said, many of
                        the projects involve materials science and any improvement in materials
                        have inherent dual-use potential. According to program officials, no
                        projects were undertaken that provided significant enhancements to
                        Russia’s or other NIS’ weapons of mass destruction capability.



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    Discussions with principal investigators and other information indicated
    to us that nine of the nuclear-related projects we reviewed could have
    dual-use implications—that is, information learned during the course of
    the project could unintentionally provide useful defense-related benefits to
    Russian and other NIS scientists. These projects, all of which were
    approved from 1994 through 1996, include the following:

•   One project involved ways to improve a protective coating material. The
    national laboratory principal investigator told us that Los Alamos is
    developing the coating and is paying a Russian institute to do some of the
    testing. The coating has both military and civilian applications and could
    be used to make aircraft bodies more resistant to corrosion. He noted that
    the Russians could obtain information to develop a similar material by
    analyzing the samples that Los Alamos has provided for testing. According
    to DOE headquarters officials, the Russian Federation already has aircraft
    utilizing this technology and therefore this project does not increase that
    country’s defense capabilities.
•   According to a DOE laboratory official, two IPP projects have focused on
    Russian electromagnetic absorbing materials technologies. According to
    DOE’s information, this dual-use technology presents a proliferation risk.
    Among other things, this technology could reduce electromagnetic noise
    in airports, thereby improving flight safety. In addition to potential
    commercial applications, these projects were designed to assess the state
    of the technology to determine its validity for possible application to U.S.
    defense systems. The projects have not gone beyond the Thrust 1 stage
    and were recently canceled for lack of commercial potential.
•   IPP project funds have been used to enhance communications capabilities
    through high data rate electronic links among some of Russia’s closed
    nuclear cities and DOE’s national laboratories. While the project promotes
    better communications among the Russian nuclear institutions, it is
    possible that it could also indirectly support the collaboration of Russian
    weapons laboratories. Additional communications links are planned for
    other nuclear and biological facilities in Russia. DOE officials told us that
    the benefits of the project clearly outweigh any negative implications of
    dual-use.
•   Los Alamos National Laboratory is funding two projects in Chelyabinsk, a
    closed nuclear city, to improve the durability and performance of metal.
    The principal investigator said the technology could be used, for example,
    to enhance the performance of both military and civilian aircraft engines.
    He noted that he had not given the possibility much thought but believed
    that the United States could benefit from the technological improvements
    as much as Russia. According to DOE headquarters officials, the



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                          development of aircraft engine components clearly has dual-use
                          implications. They point out that this work is highly developmental and
                          represents one of the true nonproliferation success stories. Furthermore,
                          they added, any Newly Independent State wanting to obtain this
                          state-of-the-art engine technology could easily buy it.

                          The Los Alamos IPP program director told us that nothing in the IPP
                          program threatens U.S. national security interests because the United
                          States and Russia are basically equal in terms of nuclear weapons
                          development. Therefore, there are no advantages that Russia could gain
                          from the technology of U.S. origin used in the IPP program. DOE’s director
                          of Arms Control and Nonproliferation disagreed and told us the policy
                          concerning U.S. technology related to the IPP program is clear. First and
                          foremost, IPP projects are reviewed to ensure that they will “do no harm”
                          to U.S. national security interests. He said that since he assumed his
                          position in November 1997, all projects are being reviewed for any
                          potential military applications.


IPP Chemical and          According to IPP program guidance, cooperative research in biological and
Biological Projects May   chemical activities could be redirected to support a biological and/or
Not Be Adequately         chemical weapons program. The program’s guidelines call for
                          coordination with the departments of State and Defense to ensure that IPP
Reviewed                  projects will not support another nation’s biological or chemical weapons
                          knowledge base and that IPP funds are not provided to any NIS institute
                          currently engaged in work on offensive biological or chemical weapons.

                          Our review of 19 approved IPP chemical and biological projects (7 of which
                          were part of our overall sample of projects), indicated that DOE’s review
                          process may be inadequate. According to DOE officials, all chemical and
                          biological IPP projects are subject to reviews by several agencies, including
                          the Department of State, the Department of Defense’s Office of
                          Cooperative Threat Reduction, the Department of the Army’s Soldiers and
                          Biological Chemical Command (Aberdeen, Maryland), and the U.S. Army
                          Medical Research Institute of Infectious Diseases (Fort Detrick,
                          Maryland). However, for 19 projects that had been approved as of July 31,
                          1998, there was not always sufficient evidence in IPP project files to
                          determine whether the proposed projects had been reviewed by all of the
                          agencies. Furthermore, the criteria for reviewing the projects are vague.

                          We found no evidence in the IPP program files to indicate that 7 of the 19
                          projects had been reviewed by DOE program offices. External project



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    reviews also appeared to be inconsistent and/or were not well
    documented. For example, we found that, of the 19 project files,

•   13 contained evidence of the State Department’s review,
•   none showed evidence of review by DOD’s Office of Cooperative Threat
    Reduction, and
•   15 showed no evidence of review by other agencies.

    DOE does not provide specific criteria for reviewing the proposed chemical
    and biological projects. Rather, DOE forwards the projects with a cover
    letter asking reviewers to indicate whether the project (1) raises no
    concerns, (2) raises some concerns that can be dealt with through close
    oversight by the national laboratory’s principal investigator, or (3) should
    not be done in its present form. Agency officials provided varying views on
    what criteria should be applied. Two officials said that projects should
    constitute “good science” but also noted that all proposed projects must
    be consistent with U.S. national security interests. The former special
    coordinator of DOD’s Office of Cooperative Threat Reduction told us that
    her office reviews projects to identify areas of research that could be of
    interest to DOD.

    Officials from one or more of the agencies that provide or coordinate
    technical reviews of the chemical and biological projects told us that they
    (1) do not always have sufficient information about the projects, (2) are
    uncertain whether they receive all of the proposed projects, (3) do not
    always thoroughly review the projects they receive, and (4) do not know
    the overall outcomes of the project reviews. Reviewers from some
    agencies told us that many of the proposals they review contain limited
    information, making adequate evaluation difficult. The official from the
    U.S. Army’s Medical Research Institute of Infectious Diseases, who is
    responsible for reviewing biological projects, said his review is informal
    and superficial. The review is intended primarily to (1) determine that the
    projects are not being duplicated by other U.S. government agencies and
    to (2) identify promising projects that might be more appropriately funded
    by other agencies. He assumed that the proposals received a more
    rigorous review at the IPP program office.

    An official from the Army’s Soldiers and Biological Chemical Command
    noted that IPP projects are also reviewed informally. The Command began
    reviewing IPP proposals in late 1997 and focuses on whether a project is
    based on good science. The official also said (1) it is uncertain whether the
    Command is seeing all of the projects, since it evaluates only project



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proposals forwarded by DOE, and (2) there is no well established
mechanism to find out which projects are approved or rejected. The
Command expected, however, that DOE would reject any proposals to
which serious objections were raised. Officials from DOD’s Office of
Cooperative Threat Reduction told us that the IPP review process is ad hoc
and it is unclear how DOD’s review fits in with other U.S. government
reviews. These officials were uncertain how many projects they had
reviewed but thought it was only a few.

We found that some reviewers had raised objections to projects. For
example, the Soldiers and Biological Chemical Command raised concerns
about two projects, one of which focused on the destruction of toxic
material by means of ballistic missile rocket engines. DOD also objected to
this project. Ultimately, the project was not approved, primarily because it
lacked technical merit and commercial potential. National security
considerations also entered into the disapproval. Additionally, the
Command raised concerns about another project that dealt with
cholesterol esterase activators. According to the Command’s evaluation,
the proposed work could be approved, but there were concerns because it
had the potential to provide information that could be applied to enhance
the effects of nerve agents on the nervous system. According to an IPP
program official, the project was further scrutinized and found to have
only peaceful applications. The Command researcher who raised
objections to the project was never informed of its final disposition.

IPP program officials told us that despite what the documentation in the
project files showed, project proposals were routinely being sent to the
relevant federal agencies for review. IPP officials responsible for
coordinating the reviews of the chemical and biological projects said they
give reviewers a chance to provide input before decisions are made, but all
agencies are not involved on a consistent basis. For example, IPP program
officials were uncertain about the process for distributing project
proposals and obtaining comments from DOD’s Office of Cooperative
Threat Reduction. An IPP official told us that the State Department was
responsible for disseminating the proposals to DOD through an interagency
mechanism. A State Department official said this information was not
correct. DOE does, however, rely on the State Department to facilitate
other U.S. government agencies’ reviews of proposed IPP chemical and
biological projects through the interagency mechanism. A State
Department official said that this process, which has been in place for
about a year, works well and that the results of the reviews are provided to
DOE. According to program officials, as a result of our review, project




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proposals are now being sent directly to the Cooperative Threat Reduction
office for review.




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DOE’s New Initiative Will Focus More Aid
on Russia’s Nuclear Cities

                      In September 1998, the United States and Russia embarked on an
                      ambitious effort, known as the Nuclear Cities Initiative, to expand
                      commercial cooperation in Russia’s 10 nuclear cities. The two
                      governments signed an agreement to facilitate the provision of new
                      civilian jobs for workers in those locations. The Nuclear Cities Initiative
                      will complement the IPP program in that its purpose is also to create jobs
                      in the civilian sector for displaced weapons scientists. Whereas IPP is
                      focused on four countries, the initiative will focus only on Russia’s 10
                      nuclear cities. Some IPP projects will furnish the initial assistance under
                      the initiative, but the initiative is envisioned as a more ambitious
                      commercialization effort for such cities than the IPP program or any other
                      assistance program. DOE estimates that the Nuclear Cities Initiative may
                      cost $600 million during the next 5 years, with the initial funding set at $15
                      to $20 million for fiscal year 1999. On December 10, 1998, DOE submitted a
                      report to the Congress describing the objectives of the Nuclear Cities
                      Initiative.

                      U.S. embassy officials in Moscow have questioned large funding
                      commitments to the nuclear cities at this time. According to these
                      officials, promoting investment in nuclear cities has poor short-term
                      prospects because of Russia’s current economic situation and the
                      difficulties it poses to achieving commercial success in these isolated
                      locations.


                      The former Soviet Union concentrated most of its nuclear weapons
Role of Russia’s 10   program at 10 cities, shown in figure 4.1, that were so secret they did not
Nuclear Cities        appear on any publicly available maps until 1992.




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Figure 4.1: Russia’s Nuclear Cities




                      St. Petersburg




        Ukraine    Moscow
                                             Lesnoy                         Russia
                     Sarov                  Novouralsk
                     Zarechnyy              Snezhinsk
                                         Ozersk
                                       Trekhornyy
                                                                               Zheleznogorsk

                                                                  Seversk
                                                                                  Zelenogorsk

                                         Kazakhstan




                                         Nuclear cities


                                                   Source: GAO’s presentation of information from DOE and MINATOM.




                                                   The 10 nuclear cities were among the most secret facilities in the former
                                                   Soviet Union. Behind their walls, thousands of scientists and engineers
                                                   labored on the design, assembly, and production of the Soviet nuclear
                                                   arsenal. Today, the cities remain high-security areas, and access to them is




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                                      limited. The 10 cities and their roles in developing nuclear weapons are
                                      shown in table 4.1.

Table 4.1: Role of Russia’s Nuclear
Cities in Weapons Design and          New name                      Old name                     Nuclear role
Development                           Sarov                         Arzamas-16                   Nuclear weapons design
                                                                                                 and assembly; plutonium
                                                                                                 storage
                                      Zarechnyy                     Penza-19                     Nuclear weapons assembly
                                                                                                 and disassembly; plutonium
                                                                                                 and highly enriched uranium
                                                                                                 storage
                                      Novouralsk                    Sverdlovsk-44                Uranium enrichment, highly
                                                                                                 enriched uranium storage
                                                                                                 and blending
                                      Lesnoy                        Sverdlovsk-45                Nuclear weapons assembly
                                                                                                 and disassembly; plutonium
                                                                                                 storage
                                      Ozersk                        Chelyabinsk-65               Mayak Fuel Storage Site,
                                                                                                 fuel fabrication, mixed oxide
                                                                                                 fuel, plutonium production
                                                                                                 reactors, reprocessing,
                                                                                                 waste management
                                      Snezhinsk                     Chelyabinsk-70               Nuclear weapons design;
                                                                                                 plutonium and highly
                                                                                                 enriched uranium storage
                                      Trekhgornyy                   Zlatoust-36                  Nuclear weapons assembly
                                                                                                 and disassembly; plutonium
                                                                                                 and highly enriched
                                                                                                 uranium storage
                                      Seversk                       Tomsk-7                      Uranium enrichment and
                                                                                                 reprocessing, plutonium
                                                                                                 production reactors, waste
                                                                                                 management
                                      Zheleznogorsk                 Krasnoyarsk-26               Reprocessing, plutonium
                                                                                                 production reactors, waste
                                                                                                 management
                                      Zelenogorsk                   Krasnoyarsk-45               Fuel fabrication (military),
                                                                                                 uranium enrichment
                                      Source: DOE.




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                         The IPP program has provided funds to various kinds of institutes with
Focus of the Nuclear     nuclear and other disciplines throughout Russia, including many in
Cities Initiative Will   Moscow, St. Petersburg, and the nuclear cities. However, the Nuclear
Differ From That of      Cities Initiative will provide assistance only to Russia’s 10 nuclear cities. In
                         addition, unlike the IPP program, the Nuclear Cities Initiative is based on a
the IPP Program          government- to-government agreement rather than on agreements
                         between U.S. and Russian laboratories and institutes. The program is an
                         outgrowth of a meeting between the Vice President of the United States
                         and the Prime Minister of Russia at the Tenth Session of the United
                         States-Russian Federation Commission for Economic and Technical
                         Cooperation in March 1998. After additional meetings between
                         high-ranking officials, the U.S. Secretary of Energy and Russia’s Minister
                         of Atomic Energy signed an agreement on September 22, 1998. The
                         purpose of the agreement is to facilitate the provision of new civilian jobs
                         for Russian workers in the nuclear complex, which is controlled by the
                         Ministry of the Russian Federation for Atomic Energy (MINATOM). Russian
                         officials have identified a need to create 30,000 to 50,000 new jobs in these
                         cities.

                         According to DOE, the Nuclear Cities Initiative will create jobs faster than
                         the IPP program. It will include the redirection of skills not only in the
                         high-technology arena, as is being done in the IPP program, but also in the
                         service, information, education, and small business sectors. Unlike the IPP
                         program, the Nuclear Cities Initiative has a social component involving
                         other federal agencies, such as the Agency for International Development
                         and the Department of Commerce, to build good will in the scientific and
                         general communities within these cities. The initiative will provide among
                         other things, support systems for depression, women’s rights, language
                         training, and job retraining. Furthermore, unlike the IPP program, which is
                         driven by DOE’s national laboratories, DOE expects that the initiative will
                         have working groups comprising not only scientists but also business and
                         community leaders. DOE expects that the role of DOE’s national laboratories
                         will be reduced as the initiative evolves.

                         According to DOE, the Nuclear Cities Initiative will draw on the experience
                         of the United States in restructuring the former nuclear weapons
                         laboratories and production complexes. DOE will share the experience in
                         restructuring that has occurred at U.S. nuclear sites such as Hanford,
                         Washington and Oak Ridge, Tennessee, and will provide business training
                         and support for development at nuclear cities and institutes in Russia
                         affected by downsizing. The U.S. technical assistance will include training




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                                in business planning, methods to attract business to the area, and ways to
                                get new businesses started.


Objectives of the Nuclear       According to DOE’s report to the Congress on the program, the goals of the
Cities Initiative               initiative are to

                            •   assist the Russian Federation in reducing the size of its nuclear weapons
                                establishment to correspond with its post-Cold War budget realities and
                                smaller nuclear arsenal and
                            •   promote nonproliferation goals by redirecting the work of nuclear
                                weapons scientists, engineers, and technicians in the 10 Russian nuclear
                                cities to alternative scientific or commercial activities.

                                In its report to the Congress, DOE said the program serves U.S. national
                                security objectives by

                            •   assisting the Russian Federation in reducing its nuclear weapons
                                establishment, which is still significantly larger than that of the United
                                States;
                            •   facilitating the transition of Russian scientists, engineers, technicians, and
                                other specialists from weapons development or production to civilian
                                work, thereby deterring the transmission of weapons knowledge to
                                criminal elements, rogue states, or other undesirable customers;
                            •   extending into the 10 nuclear cities U.S. efforts to assist Russian science in
                                moving from weapons development to civilian uses; and
                            •   helping to promote stability in Russia at a time when that country is
                                undergoing extreme financial and political crisis.

                                The program has other benefits, too, according to the DOE report, such as

                            •   making the benefits of Russian science available to U.S. commercial
                                enterprises,
                            •   leveraging and developing existing success in bilateral and multilateral
                                “brain drain” programs to advance Russia’s new goal of downsizing its
                                nuclear weapons complex, and
                            •   providing new understanding of the conditions in the nuclear cities.

                                The agreement lists several cooperative activities. One such activity is
                                developing entrepreneurial skills in employees displaced from enterprises
                                of the nuclear complex, training them to write business plans, and




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                                  facilitating the development of such plans. Other possible activities
                                  include facilitating

                              •   the creation of conditions necessary for attracting investment in the
                                  nuclear cities to implement the projects within the framework of the
                                  agreement;
                              •   the search for investors for production diversification projects, market
                                  analysis, and the marketing of products and services resulting from the
                                  implementation of those projects; and
                              •   access to existing investment mechanisms, including investment funds.

                                  As a first step, DOE sent two working group missions, including members
                                  of the scientific, business, and financial communities, to Russia. DOE plans
                                  to send a third mission later this year. The initiative will start in three
                                  cities—(1) Sarov, formerly Arzamas-16, (2) Snezhinsk, formerly
                                  Chelyabinsk-70, and (3) Zheleznogorsk, formerly Krasnoyarsk-26,—and
                                  expand later. DOE’s report to the Congress said it is critical that projects be
                                  selected, reviewed, and launched expeditiously because of the financial
                                  crisis in Russia. The report also outlines the objectives of the Nuclear
                                  Cities Initiatives and provides milestones or goals for fiscal years 1999 and
                                  2000. Program milestones for fiscal year 1999 include developing

                              •   a strategic program plan,
                              •   budgetary needs,
                              •   methods to track program implementation,
                              •   program guidance and management policies and procedures,
                              •   program success measurements,
                              •   workshops based on lessons learned from U.S. nuclear weapons
                                  downsizing and military base closure experiences,
                              •   briefings for industry and nongovernmental organizations interested in the
                                  program,
                              •   commercialization centers or high technology incubators to develop new
                                  businesses, and
                              •   a first year’s progress report on the program.

                                  In the second year, according to DOE’s report, DOE expects that the
                                  program will expand to additional cities.


The New Initiative Will Not       The director of the IPP program, who is also the director of the Nuclear
Replace the IPP Program           Cities Initiative, said that the new program will not replace the IPP
                                  program’s efforts for several reasons. First, the IPP program will provide



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                              the initial projects for the Nuclear Cities Initiative. (See app. VI for a list of
                              IPP projects scheduled to become part of the initiative.) Second, the IPP
                              program will continue at other locations throughout the NIS, as well as the
                              nuclear cities. Third, IPP projects will continue to give DOE lab personnel
                              access to scientific institutes in the nuclear cities. By contrast, the Nuclear
                              Cities Initiative is limited to a certain geographic region of each city and
                              does not include the weapons institutes.

                              According to the Director of the Nuclear Cities Initiative, the new initiative
                              will provide access only to the municipal area, or civilian core, of the city,
                              which may be surrounded by a fence. Beyond the perimeter of the
                              municipal area are various secret nuclear institutes or technical areas that
                              will remain off limits to U.S. personnel involved with the Nuclear Cities
                              Initiative. According to the director, DOE is hoping that the initiative will
                              provide new commercial opportunities in the city that will not necessarily
                              have a scientific and research focus, as IPP projects do. The intent is that
                              this new source of employment will serve individuals who are working or
                              have worked in the weapons laboratories. Examples of projects proposed
                              for the Nuclear Cities Initiative include

                          •   a business copy center,
                          •   a nonalcoholic brewery,
                          •   a confectionery, automobile or pharmaceutical plant,
                          •   a software development company, and
                          •   a telecommunications project.

                              DOE  officials suggested that if commercial efforts are successful, not only
                              will those employed in weapons manufacturing but also their relatives and
                              friends will remain at the city and there will be less reason for weapons
                              scientists, technicians, and engineers to leave the area. Also, according to
                              the director, individuals working in the more secret technical areas may
                              become involved with commercial enterprises in a municipal area by
                              working in the municipal area part-time or eventually full-time.


The New Initiative Will       According to the director, the State Department is also considering
Draw on a Variety of          including some ISTC projects in the Nuclear Cities Initiative. Other federal
Resources                     agencies, such as the Department of Defense or the Department of
                              Commerce, may also provide assistance because the Nuclear Cities
                              Initiative is considered more of an interagency effort than the IPP program.
                              DOE will also coordinate with nongovernmental and commercial
                              organizations.



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                       Since the initiative draws on the experience of the United States in
                       restructuring its former nuclear weapons laboratories and production
                       complexes, most of the federal funding will be appropriated to DOE. The
                       DOE laboratories are expected to play a role in facilitating relationships,
                       identifying projects, and helping bring projects to commercial fruition.
                       While DOE expects to receive $15 million to $20 million for the initiative for
                       fiscal year 1999, the director said that the total funding could reach up to
                       $600 million in 5 years.1 In addition, DOE would like to receive funds from
                       other sources, including U.S. industry and venture capitalists, but the
                       program director said that the initiative may be a U.S. assistance program
                       in the first years because of current economic conditions in Russia and its
                       vast needs.

                       Unlike the IPP program, the initiative is intended to be a shared program,
                       as the Russian Federation has maintained from the outset. According to
                       the DOE director, the Russians said at one point that they would provide a
                       total of about $30 million. DOE officials recognize that such funding from
                       Russia is uncertain because of that country’s current economic conditions.
                       According to DOE officials, any Russian government assistance may be in
                       the form of buildings, equipment, and other in-kind services. Also, the DOE
                       director said that the Russians may consider revenue from the sale of
                       highly enriched uranium to the United States as a possible source of funds
                       for the Nuclear Cities Initiative.


                       In October 1998, U.S. embassy officials in Moscow raised concerns about
Some U.S. Officials    the challenges facing the Nuclear Cities Initiative, particularly in the
Raised Concerns        context of Russia’s economic deterioration. With the devaluation of the
About the Challenges   ruble in August 1998 and the partial government default, developing a U.S.
                       program to assist in commercializing the nuclear cities will require
Facing the Nuclear     adjustment. U.S. officials said that the outlook for foreign investment,
Cities Initiative      whether from Western companies or international financial institutions, is
                       not favorable in the short and medium term.

                       According to embassy officials, the initial concept of the initiative was to
                       increase investment opportunities and promote technological
                       commercialization in the nuclear cities. Three major components of the
                       initiative are (1) training, (2) refocusing the existing IPP program, and
                       (3) facilitating access for multilateral lending institutions and private
                       capital markets. The officials said the strategy was on target in mid-1998,

                       1
                        Russian officials identified a need to create 30,000 to 50,000 new jobs in the nuclear cities. DOE has
                       found that it costs $11,000 to create a new job in its nuclear complex. Hence, it would cost $550 million
                       to create 50,000 new jobs in Russia, assuming comparable costs and business skills.



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DOE’s New Initiative Will Focus More Aid
on Russia’s Nuclear Cities




but with the changes in the economic and political landscape, “the reality
is that a program based primarily on promoting investment in Russia’s
closed cities has very poor short-term prospects and needs a bridging
strategy until the situation improves.”

According to these officials, one important element in planning the
initiative has been the assumption that Russian banks would support
projects by providing small to medium-sized loans. However, the entire
Russian banking system has collapsed, and there is no indication the
situation will return to normal in the short term. The ability of Russian
banks to support job creation in the nuclear cities by creating lending
opportunities and investing has thus been severely curtailed. A number of
banks are in financial difficulty and will likely not survive without a
government bailout. U.S. officials have cautioned that “care should be
taken in transferring funds to any project in Russia lest the money be
swallowed up in a bankrupt financial institution.” U.S. officials also
referred to problems with the Russian tax structure. “Tax and customs
problems have been especially detrimental to U.S. assistance programs
and [the initiative] could be another casualty of Russia’s dysfunctional tax
structure” if the Russian government does not make improvements.
Another concern is limited access to the nuclear cities. Without sufficient
access, accountability, and transparency, there is a danger that the
assistance will never go to the targeted areas. Access problems may
continue because Russia’s Federal Security Bureau may view this program
as an intelligence-gathering effort. Officials from Sarov’s All-Russian
Scientific Research Institute of Experimental Physics told us that the
Nuclear Cities Initiative can help, but it will be difficult to attract
commercial partners to a city located behind a fence. The city has been
isolated for over 40 years and it is not practical to think that conditions
can be changed overnight; transition must occur on a step-by-step basis.

Still another challenge to implementing the initiative is the limit on
intellectual property rights accorded to Russian researchers, according to
DOE officials. As the IPP program is structured, the United States has
worldwide intellectual property rights except in the NIS; however, the
Russian collaborators may find their intellectual property rights to be of
dubious value in a country that does not have the entrepreneurial capital
to commercialize their ideas. Therefore, if the Russian intellectual
property rights under the Nuclear Cities Initiative are also limited to the
NIS, they may not be considered very valuable.




Page 58                                    GAO/RCED-99-54 Nuclear Nonproliferation
Chapter 4
DOE’s New Initiative Will Focus More Aid
on Russia’s Nuclear Cities




According to U.S. embassy officials, the banking issues, the poor prospects
for foreign investment, the taxes on U.S. assistance, the potential
restrictions on access to the nuclear cities, and concerns about intellectual
property rights are some of the reasons that the program should be
redirected in the short term from promoting investment to establishing the
building blocks to attract financial resources when the Russian economy
stabilizes. They recommended that more immediate aid could include
working with Russians on developing business plans, providing leadership
training, and working with local and regional governments to improve the
business environment.




Page 59                                    GAO/RCED-99-54 Nuclear Nonproliferation
Chapter 5

Conclusions and Recommendations


             DOE’s effort to supplement the salaries of former weapons scientists so
             that they do not sell their services to terrorists, criminal organizations, or
             countries of proliferation concern is laudable and, we believe, in our
             national security interests. However, we have concerns about the
             implementation and oversight of the IPP program. The program appears to
             be at a crossroads, requiring DOE to determine whether it will simply
             provide short-term financial assistance or will serve the longer-term
             nonproliferation goal of directing former weapons scientists into
             sustainable commercial activities. The program’s long-term goal presents a
             much more difficult challenge than providing short-term assistance.
             Furthermore, given the economic situation in Russia, this goal may never
             be realized for the majority of IPP projects. As we noted earlier, over
             80 percent of IPP projects are still in the Thrust 1 stage.

             While the program has needed—and benefited from—the support
             provided by DOE’s national laboratories, we believe that it is time to
             reassess the laboratories’ future role, particularly if the focus of the
             program is to commercialize projects and thereby provide for the
             long-term employment of NIS weapons scientists. While the national
             laboratories possess technical skills and have made great strides in helping
             to “open up” NIS institutes, they have, by their own admission, limited
             expertise in commercial market activities. In addition, the high proportion
             of funding—about 63 percent—going to the U.S. national laboratories and
             to support U.S. industry’s participation in the program—does not seem
             consistent with the program’s goal of supplementing the salaries of NIS
             former weapons scientists.

             The IPP program has established hundreds of projects at many institutes
             throughout the NIS. It is uncertain, however, to what extent IPP funds have
             focused on the most critical scientific institutes and targeted the most
             important weapons scientists. Our review showed that the national
             laboratory officials who monitor the projects were frequently uncertain
             about the number of weapons scientists employed and their background.
             In fact, some of the institutes we visited did not work on weapons of mass
             destruction or have any clear defense orientation. We believe that program
             officials could conduct a more thorough review of these institutes to
             better ensure that program funds are being focused on the most important
             facilities and personnel. In addition, more careful monitoring of funds
             disbursed to Russian and other NIS institutes would ensure greater
             accountability for these funds. Furthermore, IPP’s program guidance is
             unclear as to whether assistance should focus on previously employed
             weapons scientists and/or scientists currently working on weapons



             Page 60                                  GAO/RCED-99-54 Nuclear Nonproliferation
Chapter 5
Conclusions and Recommendations




programs. As a result, U.S. funds are supplementing the salaries of
scientists working on Russia’s weapons of mass destruction programs.

Ensuring that IPP projects are consistent with U.S. national security
interests is essential to safeguarding sensitive technologies. Some of the
projects related to weapons, particularly the chemical and biological
projects, could have dual-use implications. Although the projects were
reviewed by U.S. government officials, the emphasis of their reviews
appeared to be to ensure that they were “good science.” Furthermore,
some IPP chemical and biological projects were apparently given cursory
reviews by some key reviewing officials. More rigorous and systematic
reviews of all IPP projects would provide greater assurance that U.S.
national security concerns are being carefully considered.

The IPP program has not demonstrated significant progress toward its
longer-term nonproliferation goal of directing NIS weapons scientists from
defense work to self-sustaining commercial employment. This goal would
be difficult to achieve under any circumstances but is made more difficult
by the deteriorating economic conditions in Russia. The program has
evolved into a longer-term effort than was initially envisioned, and it is
unclear when the program is scheduled to end. While DOE has claimed
from the outset that the program has an exit strategy, or end point, it is
unclear how that strategy is being implemented. DOE officials provided
differing time frames for phasing out the program, and measures of the
program’s success are lacking. Given the unique nature of the program, a
strategic plan is needed that, to the extent possible, links its goals, costs,
performance measures, and time frames. Program officials told us that
they are finalizing such a plan.

Successfully implementing the Nuclear Cities Initiative, a major economic
development effort, is a daunting challenge considering the dire economic
conditions in Russia, including the all but complete collapse of its banking
system. The 10 nuclear cities are in remote locations and access to them is
restricted. Attracting investors to these locations and finding customers to
purchase whatever products or services are produced will prove to be
major challenges. Given these problems and the limited commercial
success evidenced in the IPP program, we believe that the Nuclear Cities
Initiative is likely to be a subsidy program for many years, rather than a
stimulus for economic development. In addition, we question whether DOE
possesses the expertise needed to develop market-based economies in a
formerly closed society. At a minimum, DOE will have to work in
partnership with other federal and international economic development



Page 61                                   GAO/RCED-99-54 Nuclear Nonproliferation
                         Chapter 5
                         Conclusions and Recommendations




                         agencies and private industry. Furthermore, DOE’s initial estimate of the
                         program’s costs—$600 million over 5 years—may be just a down payment
                         on a financially larger and longer-term program.


                         To maximize the impact of the Initiatives for Proliferation Prevention
Recommendations to       program’s funding and improve DOE’s oversight of the program, we
the Secretary of         recommend that the Secretary of Energy
Energy
                     •   reexamine the role and costs of the national laboratories’ involvement
                         with a view toward maximizing the amount of program funds going to the
                         NIS institutes;
                     •   obtain information on how program funds are being spent by the NIS
                         recipients;
                     •   seek assurances from the Russian government, either through a
                         government-to-government agreement or through other means, that
                         program funds are exempt from Russian taxes;
                     •   require that program officials, to the extent possible, obtain accurate data
                         on the number and background of the scientists participating in program
                         projects and eliminate funding for institutes that did not formerly work on
                         weapons of mass destruction;
                     •   clarify program guidance as to whether scientists currently employed in
                         weapons of mass destruction programs are eligible for program funding;
                     •   require that project reviewers consider all military applications of projects
                         to ensure that useful defense-related information is not unintentionally
                         transferred;
                     •   strengthen and formalize DOE’s process for reviewing proposed chemical
                         and biological projects by (1) providing complete project information to
                         all reviewing U.S. government agencies and organizations, (2) developing
                         criteria to help frame the evaluation process, and (3) providing feedback
                         to all of the reviewing agencies about the final disposition of the projects.

                         In addition, given that one of the purposes of the program is to sustain the
                         employment of weapons scientists through projects that can be
                         commercialized, we recommend that the Secretary

                     •   reevaluate the large number of Thrust 1 projects, particularly those that
                         have been funded for several years, and eliminate those that do not have
                         commercial potential and
                     •   develop criteria and time frames for determining when Thrust 1 projects
                         should be terminated if they do not meet the criteria for graduation to the
                         program’s next phase.



                         Page 62                                  GAO/RCED-99-54 Nuclear Nonproliferation
                      Chapter 5
                      Conclusions and Recommendations




                      Because DOE plans to implement the Nuclear Cities Initiative in a relatively
                      short amount of time (5 years) at a cost of about $600 million during
                      uncertain economic times in Russia, we believe it is critical that the
                      program’s implementation be based on solid thinking and planning that
                      considers the problems experienced under the IPP program. Therefore, we
                      recommend that the Secretary

                  •   develop a strategic plan for the initiative before large-scale funding begins
                      and include goals, costs, time frames, performance measures, and
                      expected outcomes, such as the number of jobs to be created for each city;
                      and
                  •   not expand the initiative beyond the three nuclear cities until DOE has
                      demonstrated that its efforts are achieving the program’s objectives, that
                      is, that jobs are being created in the civilian sector for displaced weapons
                      scientists, engineers, and technicians.



                      The Department of Energy, in commenting on a draft of this report,
Agency Comments       concurred with the report’s findings and recommendations and said that
                      our evaluation will assist the Department in significantly strengthening the
                      program. The Department provided clarifying comments on three issues
                      raised in the report, including (1) the dual-use potential of some projects,
                      (2) the provision of program funding to Russian weapons scientists
                      currently working on their own nuclear weapons programs, and (3) the
                      lack of progress in commercializing program projects. The Department
                      agreed with our recommendations on these issues, and its comments are
                      presented in appendix VII. The Department also provided technical
                      comments that were incorporated into the report as appropriate.
                      Regarding the Initiatives for Proliferation Prevention program, the
                      Department stated that, among other actions responding to our
                      recommendations, it will (1) examine the role of the national laboratories,
                      (2) work with the State Department to develop an agreement with Russia
                      to exempt program funds from Russian taxes, (3) instruct program
                      officials to obtain data on the number and background of Newly
                      Independent State scientists in the program, and (4) reevaluate the large
                      number of projects to eliminate those without commercial potential.
                      Regarding our recommendations related to the Nuclear Cities Initiative,
                      the Department said that it will publish a strategic plan within 90 days. The
                      Department also concurred with our recommendation that it not expand
                      the initiative beyond the first three nuclear cities until the initiative
                      demonstrates that jobs are being created in the civilian sector for



                      Page 63                                  GAO/RCED-99-54 Nuclear Nonproliferation
Chapter 5
Conclusions and Recommendations




unemployed weapons scientists. However, the Department stated that it
did not want to preclude the possibility of reducing weapons-related
activities through the initiative in another nuclear city if the opportunity
arises.




Page 64                                   GAO/RCED-99-54 Nuclear Nonproliferation
Page 65   GAO/RCED-99-54 Nuclear Nonproliferation
Appendix I

U.S. Industry Coalition Membership as of
September 30, 1998


               Name of organization                         Location
               ACSPECT Corporation                          Reno, Nevada
               Air Products and Chemicals                   Allentown, Pennsylvania
               American Cyanamid                            Princeton, New Jersey
               Amoco Research Center                        Naperville, Illinois
               Aquila Technologies Group                    Albuquerque, New Mexico
               Argonide Corporation                         Sanford, Florida
               Ashurst Government Services, Inc.            Baltimore, Maryland
               Battelle Memorial Institute                  Columbus, Ohio
               Beam Tech Corporation                        San Antonio, Texas
               Bio-Nucleonics                               Miami, Florida
               Bryant College                               Smithfield, Rhode Island
               Burle Industries, Inc.                       Lancaster, Pennsylvania
               Defense Enterprise Fund                      Richmond, Virginia
               Digirad Corporation                          San Diego, California
               Dycor Industrial Research, Ltd.              Burlington, Washington
               Dye Seed Ranch, Inc.                         Pomeroy, Washington
               Eagle-Picher Industries, L.L.C.              Quapaw, Oklahoma
               Earth Search Sciences, Inc.                  McCall, Idaho
               EG&G ORTEC                                   Oak Ridge, Tennessee
               Ensign Bickford Company                      Simsbury, Connecticut
               Failure Analysis Associates, Inc.            Menlo Park, California
               Fenix Technology International, Inc.         Washington, D.C.
               General Atomics                              San Diego, California
               Global One                                   Reston, Virginia
               Henis Technologies, Inc.                     Creve Coeur, Missouri
               Intel Corporation                            Santa Clara, California
               International Technologies                   Albuquerque, New Mexico
               LaSen, Inc.                                  Las Cruces, New Mexico
               Laser Fare, Inc.                             Warwick, Rhode Island
               M & K Associates, Inc.                       Boulder, Colorado
               M-C Power Corporation                        Burr Ridge, Illinois
               McDonnell Douglas                            Huntington Beach, California
               Mine Safety Appliances                       Pittsburgh, Pennsylvania
               Mobil Technology Corporation                 Dallas, Texas
               National Center for Manufacturing Sciences   Ann Arbor, Michigan
               New Horizons Diagnostics Corporation         Columbia, Maryland
               O-Tech International, Ltd.                   McLean, Virginia
               Oakton International Corporation             Oakton, Virginia
                                                                                           (continued)


               Page 66                                       GAO/RCED-99-54 Nuclear Nonproliferation
Appendix I
U.S. Industry Coalition Membership as of
September 30, 1998




Name of organization                         Location
Paratek, Inc.                                Aberdeen, Maryland
Phygen, Inc.                                 Minneapolis, Minnesota
PPG Industries, Inc.                         Pittsburgh, Pennsylvania
Radiation Monitoring Devices                 Watertown, Massachusetts
Radkowsky Thorium Power Company              Washington, D.C.
RAIES International Corporation              Palm Harbor, Florida
Raton Technology Research, Inc.              Raton, New Mexico
RedZone Robotics, Inc.                       Pittsburgh, Pennsylvania
Reynolds Metals Co.                          Chester, Virginia
Rhode Island Technology Transfer             Providence, Rhode Island
RUSTEC, Inc.                                 Camden, New Jersey
Scientific Utilization, Inc.                 Huntsville, Alabama
Soiltech Environmental Systems               New York, New York
Stable Earth Technology, L.L.C.              Louisville, Kentucky
Superconducting Core Technologies            Golden, Colorado
Sweet Analysis Services                      Alexandria, Virginia
Symetrix International, Inc.                 Colorado Springs, Colorado
Synmatix Corporation                         Southfield, Michigan
Technology Commercialization International   Albuquerque, New Mexico
Texaco Inc.                                  Houston, Texas
Thermacore, Inc.                             Lancaster, Pennsylvania
TRACE Photonics                              Tijeras, New Mexico
TRASPACE International Corporation           San Jose, California
Triox Technologies, Inc.                     Murray, Utah
TSI Research                                 Solano Beach, California
United Technologies                          West Palm Beach, Florida
University of Missouri-Columbia              Columbia, Missouri
Westinghouse Electric Corporation            Pittsburgh, Pennsylvania

Source: U.S. Industry Coalition.




Page 67                                       GAO/RCED-99-54 Nuclear Nonproliferation
Appendix II

Initiatives for Proliferation Prevention
Projects Reviewed by GAO


                Responsible
                U.S. national                             Project’s title         Project’s
                laboratory      Country   Thrust level    (abbreviated)            funding
                Argonne         Russia    1               Radwaste
                                                          encapsulation            $80,000
                Argonne         Russia    1               Redirection of
                                                          nuclear safety           182,000
                Argonne         Russia    1               Millimeter and
                                                          submillimeter
                                                          waves                    200,000
                Argonne         Russia    1               Atomic clusters          130,000
                Argonne         Russia    1               Laser
                                                          instruments              120,000
                Argonne         Russia    1               Polymer
                                                          membranes for
                                                          separation
                                                          technologies             100,000
                Argonne         Russia    1               High-
                                                          temperature
                                                          superconductors           50,000
                Argonne         Ukraine   1               Milk
                                                          decontamination           80,000
                Argonne         Russia    1               Detection of
                                                          landmines and
                                                          explosives                60,000
                Argonne         Russia    1               Neutronic
                                                          enhancement of
                                                          explosives
                                                          detection                 90,000
                Argonne         Belarus   1               Ceramic coating           80,000
                Argonne         Russia    1               Electrolyte
                                                          impurities on
                                                          molten
                                                          carbonate fuel
                                                          cells                    130,000
                Argonne         Russia    1               Acoustic nozzle          100,000
                Argonne         Russia    1               Cover gas on
                                                          molten
                                                          carbonate fuel
                                                          cells                    130,000
                Argonne         Russia    1               Zeolite guest
                                                          compounds                100,000
                Argonne         Russia    2               Bipolar plate
                                                          material for
                                                          molten
                                                          carbonate fuel
                                                          cells                    500,000
                                                                                (continued)



                Page 68                             GAO/RCED-99-54 Nuclear Nonproliferation
Appendix II
Initiatives for Proliferation Prevention
Projects Reviewed by GAO




Responsible
U.S. national                                          Project’s title         Project’s
laboratory          Country            Thrust level    (abbreviated)            funding
Argonne             Ukraine            2               Magnetic
                                                       separation for
                                                       milk                     960,000
Argonne             Russia             2               Radioprotectors          200,000
Argonne             Russia             2               Diamond thin
                                                       film cathodes            350,000
Argonne             Russia             2               Wave sweeper
                                                       and gas analyzer         250,000
Argonne             Russia             2               Soil remediation          50,000
Argonne             Russia             2               Soil remediation          50,000
Argonne             Russia             2               Soil washing
                                                       remediation              400,000
Los Alamos          Russia             1               Material control
                                                       and
                                                       accountability
                                                       infrastructure           140,000
Los Alamos          Russia             1               Reactor safety           145,000
Los Alamos          Russia             1               Optical sorter           146,000
Los Alamos          Russia             1               Microbiologically
                                                       influenced
                                                       corrosion                144,000
Los Alamos          Russia             1               Microbiologically
                                                       influenced
                                                       corrosion                160,000
Los Alamos          Russia             1               Polymer
                                                       membranes                321,000
Los Alamos          Russia             1               Ion beam
                                                       materials
                                                       processing               110,000
Los Alamos          Russia             1               Materials
                                                       coatings                 400,000
Los Alamos          Russia             1               Nanophase
                                                       powders                  185,000
Los Alamos          Ukraine            1               Materials
                                                       processing               100,000
Los Alamos          Russia             1               Conductivity of
                                                       high-strength
                                                       metals                   284,000
Los Alamos          Russia             1               Bimolecular
                                                       modeling                 234,000
Los Alamos          Russia             1               Materials for
                                                       manufacturing            251,000
Los Alamos          Russia             1               Materials for
                                                       manufacturing            350,000
                                                                             (continued)


Page 69                                          GAO/RCED-99-54 Nuclear Nonproliferation
Appendix II
Initiatives for Proliferation Prevention
Projects Reviewed by GAO




Responsible
U.S. national                                          Project’s title         Project’s
laboratory          Country            Thrust level    (abbreviated)            funding
Los Alamos          Russia             1               Optical systems          105,000
Los Alamos          Russia             1               Optical systems          250,000

Los Alamos          Russia             1               Telecommunications       200,000
Los Alamos          Russia             2               Gas separation
                                                       membranes                130,000
Los Alamos          Russia             2               Gas separation
                                                       membranes              1,070,000
Los Alamos          Russia             2               Ion technologies         345,000
Los Alamos          Russia             2               Parallel
                                                       computing
                                                       applications             430,000
Los Alamos          Russia             1               Medical
                                                       radioisotope
                                                       production                80,000
Los Alamos          Russia             2               Positive
                                                       emission
                                                       tomography               400,000
Los Alamos          Ukraine            2               Microwave
                                                       materials
                                                       processing               656,000
Los Alamos          Russia             2               Nanophase
                                                       metal powders            250,000
Los Alamos          Russia             2               Nanophase
                                                       metal powders                  0
Los Alamos          Russia             2               Technical risk
                                                       and reliability
                                                       center                         0
Los Alamos          Russia             3               Commercialization
                                                       of positive
                                                       emission                no funds
                                                       tomography              allocated
National          Russia               2               Photovoltaic
Renewable                                              products
Energy Laboratory                                                               988,750
National          Russia               2               Next-generation
Renewable                                              photovoltaic
Energy Laboratory                                      products                 428,000
National          Russia               2               Photovoltaic gas
Renewable                                              recycling
Energy Laboratory                                      technology               184,000
Oak Ridge           Russia             1               Immunomodulatory
                                                       of interferon and
                                                       cells                    200,000
                                                                             (continued)



Page 70                                          GAO/RCED-99-54 Nuclear Nonproliferation
Appendix II
Initiatives for Proliferation Prevention
Projects Reviewed by GAO




Responsible
U.S. national                                          Project’s title         Project’s
laboratory          Country            Thrust level    (abbreviated)            funding
Oak Ridge           Russia             2               Soil and water
                                                       remediation              820,000
Oak Ridge           Russia             2               Advanced
                                                       recycling of
                                                       commingled
                                                       metals                   627,000
Oak Ridge           Russia             2               Battery
                                                       technology               800,000
Oak Ridge           Russia             2               New methods
                                                       for recycling
                                                       commingled
                                                       metals                   468,000
Oak Ridge           Russia             2               Cockroach toxin          322,250
                                       a
Sandia              Russia                             Telecommunications
                                                       with closed cities     1,285,000
Sandia              Russia             1               Medical
                                                       radioisotope
                                                       production in
                                                       Russian reactors          90,000
Sandia              Russia             1               Silicon-based
                                                       electronics              134,000
Sandia              Russia             1               Security tags
                                                       and seals for
                                                       hazardous
                                                       material
                                                       containers               100,000
Sandia              Russia             1               Security tags
                                                       and seals for
                                                       hazardous
                                                       material
                                                       containers               100,000
Sandia              Ukraine            1               Renewable
                                                       energy sources            30,000
Sandia              Russia             1               Thin film
                                                       characterization
                                                       and analysis
                                                       techniques for
                                                       X-ray scattering          98,000
Sandia              Russia             1               Safety,
                                                       reliability, and
                                                       risk assessment
                                                       training                 150,000
Sandia              Belarus            1               Health effects
                                                       from
                                                       radionuclide
                                                       contamination            106,000
                                                                             (continued)



Page 71                                          GAO/RCED-99-54 Nuclear Nonproliferation
Appendix II
Initiatives for Proliferation Prevention
Projects Reviewed by GAO




Responsible
U.S. national                                                Project’s title           Project’s
laboratory           Country             Thrust level        (abbreviated)              funding
Sandia               Ukraine             1                   Lessons learned
                                                             compendium                  82,000
Sandia               Russia              1                   Human relations
                                                             workshop                   120,000
Sandia               Russia              1                   Development of
                                                             separator plates
                                                             for phosphoric
                                                             acid fuel cells            400,000
Sandia               Russia              1                   Medical
                                                             prosthesis                 250,000
Sandia               Russia              2                   Log irradiation           1,021,000
Sandia               Russia              2                   Microwave
                                                             components                 598,000
Sandia               Russia              2                   Conversion of
                                                             natural gas to
                                                             liquid fuel                800,000
Sandia               Russia              2                   Commercial
                                                             application of
                                                             cutting
                                                             technologies for
                                                             oil/gas platforms          200,000
Sandia               Ukraine             2                   Brazing process
                                                             for stainless
                                                             steel tubes                225,000
Sandia               Russia              3                   Silicon of Siberia        1,283,000
Total allocated costs $23,188,000

a
This project was identified as program directed and was not assigned a thrust level.




Page 72                                              GAO/RCED-99-54 Nuclear Nonproliferation
Appendix III

Profile of Institutes in Russia Visited by GAO


                        This appendix provides information on the 15 Russian institutes we visited
                        that had received Initiatives for Proliferation Prevention (IPP) program
                        funds. The information was obtained from written material provided to us
                        by the institute and from interviews with institute officials. We asked the
                        institutes to review what we had written about them. Comments from
                        those that responded have been incorporated.


                        ENTEK, the Research and Development Institute of Power Engineering,
Entek, Research and     was organized about 45 years ago and is one of Russia’s largest research
Development Institute   centers for nuclear engineering and technology. Among its varied
of Power Engineering    responsibilities, ENTEK designs reactors for nuclear power plants,
                        research reactors, and nuclear district heating plants. Current research is
(Moscow)                focused on advanced designs in nuclear power as well as existing plant life
                        management. ENTEK is currently engaged in defense conversion
                        activities.


                        The Research Institute of Pulse Technique is part of the Russian Ministry
Research Institute of   of Atomic Energy (MINATOM). The institute is a closed area that we were
Pulse Technique         unable to visit. Instead, we met with institute representatives at an outside
(Moscow)                location. The institute was created primarily to design and develop
                        methods for measuring fast pulses. This means it studies gamma X-ray
                        emissions during nuclear tests. During the course of its work, the institute
                        has developed routine measurement devices, such as electromagnetic
                        detectors and oscilloscopes.

                        More recently, the institute’s work has shifted to maintaining the safety of
                        Russia’s nuclear weapons, detecting underground explosions, and
                        measuring low-level radiation. The institute now employs about 1,000
                        people, compared with about 3,000 10 years ago. Employment has been
                        fairly stable in the last 2 years. Many of the institute’s members have
                        retired, but many have left science in response to banking and computer
                        software opportunities in Russia. So far, according to institute officials,
                        there has been no external brain drain—emigration to other countries.
                        Employees at this institute are being paid regularly.




                        Page 73                                  GAO/RCED-99-54 Nuclear Nonproliferation
                       Appendix III
                       Profile of Institutes in Russia Visited by
                       GAO




                       The St. Petersburg State Electrotechnical University was established in
St. Petersburg State   1886. Among the oldest technical universities in Russia, it comprises seven
Electrotechnical       schools: radio engineering; electronics; automation and computer science;
University (St.        industrial automation and electrical engineering; electrophysics; marine
                       automation, electrical and radio engineering; and humanities.
Petersburg)
                       In 1992, the school was granted university status and became the first
                       electrotechnical university in Russia. More than 70,000 students have
                       graduated from the university, including over 3,000 foreign students from
                       35 countries. The faculty numbers about 1,100, and the university currently
                       has about 7,000 students at the seven schools.

                       Originally, the university was closely aligned with military research,
                       focusing on creating special devices that worked against an array of pulses
                       with high power. The purpose of this research was to prevent the jamming
                       of communications equipment in the wake of a nuclear bomb. Since 1992,
                       the demand for military research has declined, so the university is looking
                       for international collaboration on peaceful activities. The university has
                       also created the first fast-acting tunable microwave components and
                       devices for wireless communications. These components are used in cell
                       phones and satellite communications.


                       Kurchatov is the leading nuclear research institute in Russia. Formerly
The Kurchatov          part of MINATOM, Kurchatov is now an independent institute. Up through
Institute (Moscow)     the mid-1950s, defense activities represented more than 80 percent of the
                       institute’s budget. By 1965, the defense portion had been reduced to about
                       50 percent, and today, less than 3 percent of the work is defense related.
                       Kurchatov has virtually no defense-related contracts. Since the
                       devaluation of the ruble, the average salary is now equal to about $30 per
                       month. Senior scientists and researchers earn significantly more, although
                       no figures were provided.


                       Sovlux, a joint venture company, was created in the early 1990s. It is
KVANT/Sovlux           owned by KVANT, MINATOM, and a U.S. company, Energy Conversion
(Moscow)               Devices. Sovlux is located on KVANT’s grounds but appears to be
                       autonomous. Sovlux is a product of Russia’s effort to shift from defense to
                       civilian enterprises. The Sovlux enterprise was created as a means of
                       commercializing activities in batteries and photovoltaic cells. Sovlux has
                       about 40 employees, mainly former employees of KVANT. Some Sovlux
                       employees are former employees of MINATOM enterprises and other defense



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industries. Sovlux has hired some of the leading specialists from KVANT,
including 7 PhDs and 28 graduates of Russian universities. Among these
employees are machine cleaners, turners, and some specialists in
machinery and production techniques.

KVANT  was established during World War II and is an enormous state
defense industry organization. It had 16 production facilities and plants
spread across Russia, including research institutions. In the 1980s, it was
removed from any state ministries and focused almost exclusively on
Russia’s space and military program. Many of the power sources used on
Russian satellites were built by KVANT. The power panels on the Mir space
station were developed by KVANT. In the mid-1980s, KVANT began converting
technology to solar energy, using its experience from space/satellite
applications. At that point KVANT started to look for other applications of
its technology. KVANT began manufacturing photovoltaic modules for
terrestrial applications. It believes that amorphous silicon technology is
the most promising because it will lead to the goal of cheap production of
photovoltaics.

In the early 1990s, KVANT and Energy Conversion Devices were introduced
and began discussing the possibility of a joint venture. Sovlux was created
with the idea of establishing a manufacturing base for photovoltaics in
Russia that could be commercialized, with product distribution around the
world. KVANT paid Energy Conversion Devices $10 million for equipment
and expertise and established a small production facility at Sovlux. The
agreement envisioned two parts—(1) a photovoltaic production facility in
Moscow capable of producing 15 to 20 megawatts of photovoltaic capacity
per year and (2) a nickel storage battery production facility at a remote
defense production facility at Glazov, about 18 hours by train from
Moscow. Energy Conversion Devices was paid an additional $1.5 million
by the Chepetsk Mechanical Plant (which belongs to MINATOM) for
technology. Also, according to the agreement, Energy Conversion Devices
has 50 percent of the shares of the battery plant. Glazov is a MINATOM
facility that focuses on metallurgy research and production. Currently,
Glazov is providing Energy Conversion Devices with materials to build the
negative electrode portion of the batteries. These batteries are to be used
in small motor scooters. The most promising market is in Asia, where
reliance on the scooters is very heavy. Glazov is supplying its own
equipment and technology. More than 1/2 ton of material has been sent to
Energy Conversion Devices. In 1999 the plant should deliver 100 tons of
material to a U.S. company, Ovonics, which is a subsidiary of Energy
Conversion Devices. In about 1 to 2 years, the plant hopes to begin selling



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                         the material to General Motors and Ovonics for the manufacture of
                         traction batteries for the production of electric vehicles.


                         The All-Russian Scientific Research Institute of Experimental Physics, also
All-Russian Scientific   known as VNIIEF, was founded by government decree in 1946. It is at the
Research Institute of    city of Sarov, where the first Soviet nuclear bomb was designed and
Experimental Physics     assembled. The primary mission of VNIIEF is designing nuclear warheads.
                         The institute fabricates experimental and prototype warheads. The
(Sarov)                  institute employs approximately 20,000 people. In 1990, it reported that its
                         staff included 3 academicians, 2 full-time and 3 corresponding members of
                         the academy, 70 employees with doctorates in science, and 500 PhD
                         candidates.

                         Weapons-related work has been declining since the early 1990s. The
                         institute is moving many of its employees into other areas, such as nuclear
                         safety, agriculture, and the environment. One of the main ways of shifting
                         to nondefense work is through international collaboration. About 4,000
                         employees, or about 20 percent of the workforce, participate in
                         international collaboration. Of these 4,000 employees, about 2,000 are
                         scientists and the remainder are technical assistants, interpreters, and
                         administrative assistants. Approximately half of the 4,000 spend about half
                         of their time on international collaboration. About 10 percent of the people
                         involved in international collaboration are associated with IPP projects.

                         Eighty percent of the institute’s international collaboration is with the
                         United States. VNIIEF/Sarov also collaborates with France, Germany, China,
                         and the United Kingdom on projects for peaceful, civilian purposes.


                         VNIIGAZ was established in 1948 and is the main research and engineering
All-Russian Scientific   arm of GAZPROM, Russia’s supplier of natural gas. The institute’s work in
Research Institute of    Russia’s gas industry includes geology, the technology and engineering of
Natural Gases and        gas production, transportation, and processing. Currently, VNIIGAZ
                         cooperates with over 40 foreign companies. During the past years, major
Gas Technologies         international projects have been jointly implemented with Amoco and
(VNIIGAZ) (Moscow)       Caterpillar (United States), Gaz de France (France), Ruhrgas (Germany),
                         and ENI (Italy). VNIIGAZ’s activities are also being supported by the
                         European Community. Joint projects have been completed with Rolls
                         Royce on energy efficiency and ENI on the reconstruction of the Unified
                         Gas Supply System.




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                      The Khlopin Radium Institute, which is now part of the Russian Ministry
Khlopin Radium        for Atomic Energy, was founded in 1922 to investigate all aspects of
Institute (St.        radioactivity. The first Russian/European cyclotron was built at the
Petersburg)           institute. Khlopin produced the chemical technology that contributed to
                      the production of weapons-grade plutonium. During the Soviet era, many
                      Khlopin employees worked on weapons testing and production and
                      radiation effects. After World War II, defense projects dominated the work
                      at Khlopin. In the 1960s, reprocessing emerged as a key nuclear
                      technology, and Khlopin became the sole designer and developer of the
                      RT-2 reprocessing facility.

                      Khlopin’s defense-sector work has declined and currently accounts for
                      about 5 percent of the total budget. After the reactor accident at
                      Chernobyl, many institute personnel went to there to work on remediation
                      issues. In 1985, the institute started to become involved in international
                      collaboration and international contracting work. The institute’s
                      environmental and waste remediation departments expanded greatly.
                      Although the institute contracted with the United Kingdom, Japan, and
                      France for reprocessing activities, reprocessing is now limited because of
                      the problems at Krasnoyarsk-26 (work has virtually stopped for lack of
                      money). Khlopin works closely with Krasnoyarsk-26 on many scientific
                      matters.

                      Khlopin employs about 800 people, of whom one-third are scientists,
                      one-third are engineers, and one-third are support staff. The number of
                      employees has been reduced by about half over the last 10 years. The
                      losses have come through retirements as well as career changes prompted
                      by opportunities at Russian banks and other burgeoning Russian
                      enterprises. The institute does not have enough money to attract and
                      retain talented young people. Three scientists emigrated to Israel. Institute
                      personnel are also working with in Finland, Sweden, the United Kingdom,
                      France and the United States. These scientists remain Khlopin employees.

                      International contracts account for about 35 percent of the institute’s
                      budget. The remainder of the institute’s funding comes from MINATOM, the
                      Ministry of Science, and direct contracts with Russian nuclear industry
                      plants.


                      The Ioffe Institute is one of Russia’s largest institutions for research in
Ioffe Physico         physics and technology, operating a wide range of projects. It was founded
Technical Institute   in 1918 and run for several decades by Abram Ioffe. The institute is
(St. Petersburg)      affiliated with the Russian Academy of Sciences and is Russia’s major


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                        institute for semiconductor physics and semiconductor devices.
                        Departments include solid state physics, astrophysics, plasma physics, and
                        the physics of dielectrics. The first Russian transistor was developed at the
                        institute. During Soviet times, the institute was state supported and
                        financed. It also had agreements with Soviet civilian and defense
                        organizations, which provided a small amount of funding. It was primarily
                        funded to do nonweapons work. However, defense research was
                        conducted in the solid state physics department. Currently, the institute
                        receives about 20 percent of its funding from abroad for collaborative
                        work with the United States, Germany, Japan, South Korea, France, and
                        China. Singapore has expressed interest in collaboration, but it has not yet
                        occurred.

                        About 10 years ago, the institute employed about 3,500 people; today it
                        employs about 2,500, including about 600 researchers with PhDs. Around
                        10 percent of the staff emigrated to the United States or Israel. Of the
                        others who have left, many have gone into private business in Russia or
                        have moved elsewhere in the West to pursue science.

                        The average age of the employees is 38. Ten years ago, the average age
                        was 42. The institute is getting some younger people, but the middle-level
                        employees are leaving.


                        The Association of Centers for Engineering and Automation carries out
Association of          the federal innovation program “Engineering Network of Russia”
Centers for             according to a decree by the Russian government. The network unites
Engineering and         more than 100 engineering centers throughout Russia and the Newly
                        Independent States (NIS). Its centers employ over 100 doctors of science
Automation (St.         and 200 PhDs. The centers seek to collaborate with partners all over the
Petersburg State        world, including the United States, Scotland, South Korea, Finland,
                        Germany, France, Greece and Belgium. The association’s head is called
Technical University)   the Science-Intensive Engineering Center of St. Petersburg State Technical
(St. Petersburg)        University.


                        The Gamaleya Institute for Epidemiology and Microbiology of the Russian
Gamaleya Institute of   Academy of Medical Sciences has been active for over a century. In the
Epidemiology and        course of its long existence, its activities have focused primarily on basic
Microbiology            research and to a lesser extent on applied studies in three closely related
                        areas:
(Moscow)


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                       •   medical microbiology, particularly in the fields of genetics and the
                           molecular biology of pathogenic bacteria;
                       •   basic and applied infectious immunology; and
                       •   epidemiology, including the problems of nosocomial infections and
                           infections with natural foci.

                           The Gamaleya Institute has focused most of its attention on studying
                           viruses, including lethal ones, and identifying cures for their effects.
                           During the Cold War, the institute conducted research to defend the Soviet
                           Union against lethal viruses that might be introduced by the West. The
                           director noted, however, that this type of work can always be turned
                           around into an offensive capability.

                           Since the breakup of the Soviet Union, the institute has transformed itself
                           and its mission. During the Cold War, nearly all of its work was research,
                           but now about 80 percent of its work is clinical and 20 percent is research.
                           The institute is actively marketing products, such as testing kits for
                           sexually transmitted diseases. Since the institute employs many medical
                           doctors, it also performs hospital functions. In addition, it manufactures
                           medicines for humans and animals. The institute is part of the Russian
                           Academy of Medical Sciences. While some parts of the institute are in dire
                           financial straits, the overall health of the institute is good, according to
                           institute officials.

                           The institute has experienced minimal turnover in staff. According to
                           institute officials, about 10 people have left and emigrated to the United
                           States. Others have left the institute to work in Russia’s private sector, in
                           industries such as banking and computers. According to institute officials,
                           no scientists/doctors have emigrated to rogue nations, and the institute
                           does not have contracts with these countries. The deputy director said
                           “the patriots” remain and the institute will survive whatever economic
                           hardships come its way.


                           The institute does basic and applied research and specializes in nuclear,
Institute of Nuclear       neutron, neutrino and particle physics. During the Soviet era, the institute
Research (Moscow)          conducted experimental nuclear research and was trying to investigate
                           different processes related to nuclear research. About 5 to 6 years ago, the
                           institute began changing its scope of activities and is now doing more
                           applied research and less basic research. It began working in isotope
                           production for medical purposes. It has been producing strontium-82
                           targets for positron emission tomography, which is used to diagnose



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                         cancer. The institute is collaborating with many countries and is working
                         with Los Alamos National Laboratory, Argonne National Laboratory,
                         Fermi Laboratory, Brookhaven National Laboratory, and Canada-Triumph
                         Laboratory in Vancouver.

                         The institute has 1,380 employees, including 800 who work in Troitsk. The
                         laboratory we visited is the Moscow Meson Factory. The institute is now
                         working primarily in applied sciences because it needs to supplement its
                         budget. The institute is facing difficult economic conditions. During the
                         period from July through September 1998, the institute had enough money
                         to pay only 1 month’s worth of salaries. About 10 years ago, the institute
                         had over 2,500 employees, but many have retired or left because of the
                         dire financial conditions. Currently, about 30 employees are working
                         abroad on contracts, but they remain employed by the institute. About 30
                         employees have moved to other countries, including Germany and Canada.
                         According to institute officials, no employees have emigrated to rogue
                         countries.


                         This institute is named for Academician A.A. Bochvar, and is often
All-Russian Scientific   referred to as the Bochvar Institute. Its work includes spent fuel
Research Institute of    reprocessing, the transportation of radioactive materials, work on spent
Inorganic Materials      fuel containers, radiation technology and research, radiochemistry, and
                         nuclear waste management and disposal. It was founded in 1945 and was
(VNIINM) (Moscow)        part of the “Soviet Manhattan project.” Initially, its work focused on
                         plutonium and uranium issues, but now it addresses fuel for nuclear
                         power plants, structural materials, and fuel rods for thermal neutron
                         reactors, fast reactors, research reactors, and nuclear powered
                         icebreakers.

                         The institute performed comprehensive work on plutonium recovery and
                         reprocessing and first reprocessed spent fuel in 1977. It also conducts
                         work related to nuclear disarmament, the long-term storage of nuclear
                         materials and products, and the conversion of weapons-grade plutonium
                         and uranium into reactor fuel as well as the immobilization of plutonium.
                         According to institute officials, these activities are supported by the
                         Department of Energy.

                         The institute produced the equipment and methods for reprocessing
                         nuclear waste and spent fuel, and it conducted research on nuclear fusion
                         and superconductive materials. It also developed the materials for
                         powerful magnets, blanket materials for fusion research, and processes for



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                       tritium recovery, extraction, and purification. The institute also provides
                       analytical support for verifying the results of inspection activities under
                       certain nonproliferation treaties. In 1987, the first Russian plant was
                       commissioned for the vitrification of high-level waste. The second one was
                       commissioned in 1991, and 280 curies of nuclear waste were vitrified in
                       Chelyabinsk.


                       The Engelhardt Institute was organized in 1959 to study the effects of
Engelhardt Institute   radiation. It functions like a university and is part of the Russian Academy
of Molecular Biology   of Sciences. Engelhardt does work on DNA, chemistry, and genetic
(Moscow)               engineering. Engelhardt has about 450 employees and administrative staff,
                       as well as about 200 undergraduate, graduate, and postgraduate students.
                       About half of the staff scientists are biochemists and mathematicians.
                       According to officials, the institute does no work on weapons of mass
                       destruction and did not work on biological warfare during the Soviet era.
                       About a quarter of the institute’s budget comes from international
                       collaboration, primarily with the United States, France, and Sweden. With
                       the collapse of the Soviet Union, the institute determined that it would
                       have to become more self-sufficient and rely less on government funding.
                       It fostered a greater entrepreneurial mentality and created individual units
                       that have assumed large responsibility for obtaining work with
                       international collaborators.


                       In the 1950s, Russia established science cities—one each for chemistry,
Institute of           biology, and physics. The Institute of Biochemistry and Physiology of
Biochemistry and       Microorganisms is part of the city established for biology and was
Physiology of          established around 1962. The institute was developed because Russia was
                       far behind the rest of the world in the biological sciences. It was decided
Microorganisms         that the institute’s work would not be defense related.
(Moscow Region)
                       The institute started work on the genetic engineering of microorganisms
                       and microbiology in 1972. Its scientists do biochemistry, physiology, and
                       genetics and are interested in applications of basic research. For example,
                       they developed a single-cell protein to be used as a food additive for
                       livestock. This accomplishment was the basis for a microbiology industry
                       in Russia. About 1 million tons of the livestock additive was produced
                       each year.

                       Another asset of the institute is its fermentation pilot plant. Although the
                       institute has experienced staff to operate the plant, it does not have money



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for the spare parts needed to sustain operation. Another department at the
institute has cataloged 15,000 microorganisms and has 10,000 to 15,000
microorganisms remaining to be cataloged. The institute also focuses on
biodiversity, applying these concepts to pollution control, ecology,
environmental science, remediation research, and related fields.




Page 82                                      GAO/RCED-99-54 Nuclear Nonproliferation
Appendix IV

Distribution of IPP Funds at Some Russian
Institutes

                                         We obtained some information on how IPP funds were allocated from
                                         officials at other institutes, mainly in St. Petersburg and Moscow. For
                                         example, the St. Petersburg Electrotechnical University received $300,000,
                                         but $117,000, or 39 percent of the total, went for salaries and taxes.1
                                         According to a university official, most of the funds were used for
                                         equipment, materials, overhead, travel, and other purposes, as shown in
                                         figure IV.1.


Figure IV.1: Allocation of Funds
Received at the St. Petersburg                                                                 Overhead
Electrotechnical University for an IPP
Project                                                                                        6%
                                                                                               Travel

                                                                                               3%
                                                                                               External assistance


                                                         •   •


                                                 • 10%
                                                                          39% •                Salary (including taxes)

                                               20%
                                                 •



                                                             22%
                                                               •


                                                                                               Equipment

                                                                                               Materials and consumables




                                         Source: St. Petersburg Electrotechnical University.




                                         1
                                         The project involved tunable microwave components for wireless communications, under contract
                                         No. AO-497 with Sandia National Laboratory.



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                                       Distribution of IPP Funds at Some Russian
                                       Institutes




                                       An official at the Landau Institute for Theoretical Physics in Moscow told
                                       us that none of the funds received from an IPP project went for salaries.
                                       Twenty percent of the institute’s reimbursement for efforts to improve
                                       fiber optical transmission systems went for overhead, and the remainder
                                       went for travel, computers, and Internet access. Elsewhere, at the
                                       Gamaleya Institute in Moscow, officials said that of the $80,000 received
                                       from the IPP program, $12,290, or 15.4 percent of the funds, went toward
                                       salaries, as shown in table IV.1. The rest of the money went for taxes,
                                       supplies, and other costs. The institute received the funds via Oak Ridge
                                       National Laboratory in an effort to find possible new pharmaceutical
                                       compounds.

Table IV.1: Expenditures From an IPP
Payment to the Gamaleya Institute      Type of Expenditures                                        Amount                  Percentage
                                       Salaries                                                    $12,290                       15.4
                                       Taxes                                                         21,023                      26.3
                                       Supplies                                                      45,618                      57.0
                                       Other costs                                                    1,069                        1.3
                                       Total                                                       $80,000                        100
                                       Source: Gamaleya Institute.



                                       Taxes on the Gamaleya project funds included a value-added tax, which
                                       institute officials in Russia told us should not be paid on IPP projects.2
                                       Institute officials said they were perplexed that the funds were subject to
                                       such a tax, and they queried their partner at Oak Ridge National
                                       Laboratory, but the issue has not been resolved. The institute generally
                                       charges for overhead but has eliminated that assessment for now because
                                       of the high tax rate.

                                       The director general of the State Research Center of Virology and
                                       Biotechnology (VECTOR), which has been involved in developing biological
                                       weapons in the Novosibirsk region, told us that 10 percent of the research
                                       center’s portion of an IPP project’s funding goes for overhead costs. The
                                       principal investigator, who has a doctoral degree, is paid no more than $25
                                       a day. The other participants — scientists, who usually have doctoral
                                       degrees, and technicians — are paid $15 to $25 per day, depending on their
                                       expertise and involvement in the project. Taxes amount to about
                                       40 percent of the salaries.



                                       2
                                        The value-added tax is a sales tax on all goods and services acquired in Russia.



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Appendix V

Commercialization of Selected IPP Projects


                           This appendix discusses the status of efforts to commercialize several IPP
                           projects that we reviewed.


                           In a few cases, the principal investigators at the Department of Energy’s
Some IPP Projects          (DOE) national laboratories told us that the projects they were responsible
Have No Discernible        for had little or no potential for commercial success. For example, the
Commercial Potential       principal investigator for one Thrust 1 project dealing with engine
                           materials said there was no recognized U.S. industry partner for the
                           project, even though the project has been under way since 1994. Similarly,
                           the principal investigator responsible for a Thrust 1 project on nuclear
                           safety risk assessments, which began in 1995, said the project did not have
                           commercial potential. Officials from Russia’s Khlopin Radium Institute,
                           who collaborated on the project, said the project had no commercial
                           application because it was research oriented. The institute’s director said
                           that despite the lack of commercial potential, he was glad to have the
                           project. In another instance, Sandia National Laboratory spent $120,000 on
                           a seminar to provide a workshop for Russian officials to downsize the
                           Russian nuclear weapons complex. The project, completed in August 1998,
                           was led by a human resources employee from Sandia. According to the
                           project leader, the project did not have a direct commercialization benefit
                           but was intended to promote, among other things, strategies for meeting
                           future human resources needs. We were told by a laboratory official that
                           one of the intended benefits of the project was to encourage Russian
                           school children to choose science- and technology-related disciplines to
                           maintain the Russian nuclear complex.

                           A couple of projects that had U.S. industry partners did not come to
                           fruition for various reasons. Part of the national laboratories’ role is to
                           review the claims made by Russian institutes about the potential
                           commercial applications of their technologies. As a result, for projects
                           such as the following, IPP program funds are used to try to substantiate the
                           potential commercial viability of the Russian technology.

                       •   $201,900 was spent for a Thrust 2 project involving Argonne National
                           Laboratory and the Russian Institute of Biophysics. The Russian institute
                           claimed that it had invented an agent that could reduce the effects of
                           radiation. The Argonne principal investigator told us that the institute was
                           unable to support its claims and was reluctant to provide sample agents to
                           the laboratory for testing and evaluation. After many months, the institute
                           finally sent a sample, which the principal investigator said appeared to
                           have been sitting on a shelf for a long time and had no unique qualities.



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                           Commercialization of Selected IPP Projects




                           Argonne received $138,100 for the project, and the institute received
                           $63,800.
                       •   $294,000 was spent on a Thrust 2 project to study a cockroach toxin
                           developed by Russian biological warfare institutes. According to the Oak
                           Ridge National Laboratory principal investigator, the project was designed
                           to validate claims by the Russians that they had developed a toxin to kill
                           cockroaches that would be protein based and would not be applied in the
                           form of a dust. As a result, the toxin could be used widely in sensitive
                           machinery and equipment, such as computers and submarines. U.S.
                           researchers were unable to replicate the toxin provided by the institute.


                           Some projects appear to have greater commercial potential. For example,
Other IPP Projects         Sandia National Laboratory has a Thrust 1 project with Chelyabinsk-70, a
Have Greater               Russian closed city, to help improve a prosthetic foot device developed by
Commercial Potential       a U.S. company (see fig. V.1). The Russian scientists working on the
                           project are expected to test the U.S.-manufactured prototype and offer
                           design changes. According to the Sandia principal investigator, there is a
                           market for the technology, and once it has been further improved and
                           refined, it can be marketed. It is anticipated that the Russian scientists will
                           assume more responsibility for manufacturing components—and perhaps
                           the entire device—if the project becomes commercially viable.




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Figure V.1: Prosthetic Foot Device
That Is Being Engineered by NIS
Scientists at Chelyabinsk-70




                                     Source: Sandia National Laboratory.




                                     Another Thrust 1 project that shows commercialization potential is a
                                     device known as an acoustic nozzle. The technology for this device was
                                     developed by a Russian institute about 25 years ago for submarine sound
                                     detection. The technology is now being used for other applications, such
                                     as fire suppression and fuel dispersal. In November 1998, the Federal
                                     Aviation Administration began testing the device for possible use in
                                     aircraft fire suppression. According to a Federal Aviation Administration
                                     official, the initial testing of the device was promising but the inventors
                                     have to modify the device so that it can pass further testing before it can
                                     be approved for use in U.S. aircraft.

                                     We also reviewed a project involving the recycling of metals from old cars
                                     that has enjoyed some commercial success (see fig. V.2). A U.S. company
                                     that has recycled metals for many years is looking for more cost-efficient
                                     and effective ways to separate and recover the metals, such as brass,
                                     aluminum, and tungsten carbide. Once separated, the metals are sold to
                                     other companies. Currently, the separation is done manually and is very




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                                           Appendix V
                                           Commercialization of Selected IPP Projects




                                           expensive. Russian participants are providing equipment and developing
                                           new metals separation technology and expertise to improve the existing
                                           processes. According to the U.S. industry representative, he initiated
                                           contact with Russian defense-related institutes in the early 1990s to
                                           determine what technologies they might have for possible commercial
                                           application. As a result, he identified an enterprise in St. Petersburg and
                                           began working with them on this project. A joint venture company was
                                           formed in 1995 as the venue for the commercial relationship. IPP funds
                                           have been applied to the project since 1996 and used to support research
                                           and development.


Figure V.2: Metals Recycling Facility in
St. Petersburg, Russia




                                           The U.S. industry official said that the IPP program demonstrates the U.S.
                                           government’s commitment to sustaining the project. He told us that the IPP
                                           program provides discipline and structure because the Russian partner is
                                           held accountable to time frames and deliverables. The program serves as a
                                           bridge between U.S. and Russian industry. The national laboratory
                                           principal investigator told us that the U.S. government is phasing out and
                                           should complete its role in the project by the summer 1999. He believes
                                           the collaboration between U.S. and Russian industry will continue and the
                                           project will move into a Thrust 3 phase.




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Commercialization of Selected IPP Projects




Russian officials participating in the project spoke positively about the IPP
program because it introduced more accountability into the project. They
told us that the project would continue without IPP funding but at a slower
pace. The general director of the St. Petersburg State University, which
established the association1 that leads the project, told us that the project
has also been valuable because it gives the Russian participants greater
experience in doing business with the United States. In addition the
project helps the center meet its strategic goal of finding self-financing
projects that will no longer require future government support.

We reviewed a Thrust 3 project involving the production of medical
isotopes used to diagnose heart disease. This project, which evolved from
a Thrust 1 project, employs scientists from Russia’s Institute of Nuclear
Research. The institute uses its particle accelerator to irradiate a small
block of rubidium metal, called a target. The target is exported to Los
Alamos National Laboratory for further refinement and is eventually
forwarded to a U.S. pharmaceutical company that prepares the medical
isotope for sale to hospitals. Once in the hospital, it is administered for
cardiological imaging (see figs. V.3 and V.4).




1
 The Association of Centers for Engineering and Automation carries out a Russian federal innovation
program to promote commercialization. It unites more than 100 engineering centers throughout the
NIS. The association’s head is called the Science Engineering Center of St. Petersburg State Technical
University.



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                                       Appendix V
                                       Commercialization of Selected IPP Projects




Figure V.3: Institute of Nuclear
Research




Figure V.4: Interior View of Medical
Isotopes Production Area at the
Institute of Nuclear Research




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                         Appendix V
                         Commercialization of Selected IPP Projects




                         According to Los Alamos officials, the project was reclassified as a Thrust
                         3 project because it had shifted away from direct laboratory participation,
                         although the laboratory will continue to provide some oversight and
                         material processing functions. The U.S. industry partner, a small New
                         Mexico firm, assists in transporting the material and takes care of various
                         administrative functions. Institute officials told us that the project does
                         not provide sustained employment. In addition, the manufacturing
                         capacity of the institute is constrained because it cannot pay for the
                         electricity to produce the material on a consistent basis and has only a
                         limited share of the market. The U.S. industry partner has placed a
                         purchase order for irradiated fuel targets in fiscal year 1999.


                         Other projects we reviewed showed commercial potential, but their
Lack of Capital Stalls   success is uncertain. For example, one project deals with the irradiation of
Some Projects            Russian timber so it can be exported to the United States. The U.S. Food
                         and Drug Administration and the U.S. Environmental Protection Agency
                         require that logs be disinfested to remove insects before entering the
                         United States. According to Sandia National Laboratory, complete
                         implementation of the project will result in the creation of 100,000 jobs in
                         the NIS. However, only about 100 of these jobs would be for weapons
                         scientists. The project, which was started in 1996, is languishing because
                         the U.S. industry partner has encountered serious financial difficulties.
                         The director general of the Khlopin Radium Institute, the NIS partner, told
                         us that the project has great potential but is now a paper exercise because
                         it lacks funding. The national laboratory principal investigator also said
                         the project is stagnant. He said that if the U.S. company is unable to
                         provide the necessary funding, the project may be terminated in early
                         1999.

                         Another project we reviewed dealing with the fabrication of photovoltaic
                         cells appears to hold promise but is stalled for lack of capital. The project
                         envisions U.S.-Russian collaboration on the production and sale of solar
                         cells (shingles), modules, and systems in Russia, with most of the products
                         geared to developing countries that do not have ready access to electricity.
                         A U.S. industry official told us that the technology, much of which was
                         developed in the United States before the IPP program began, has
                         commercial potential. Because of the technology’s importance, the project
                         received high-level attention by both the U.S. and the Russian
                         governments. The Russian Ministry of Atomic Energy (MINATOM) agreed to
                         provide several million dollars to enable the existing plant to begin
                         full-scale production and to help construct a full production facility but



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                                Appendix V
                                Commercialization of Selected IPP Projects




                                has been unable to meet its commitment. The U.S. industry official also
                                told us that the IPP program was critical to sustaining the project, enabling
                                the venture to do critical preproduction work and train personnel.

                                We visited the pilot photovoltaic cell facility in Moscow and talked to
                                representatives from the plant. They confirmed that the technology is
                                ready for commercial production but the project lacks financing. Pending
                                the required financing, the plant has been limited to research and
                                development activities. A new opportunity growing out of the
                                collaboration is the production of solar cell panels for space. Some
                                prototype modules employing the technology are currently being tested on
                                Russia’s Mir space station.


Figure V.5: Photovoltaic Cell
Production




                                Another project that DOE believes may have enormous commercial
                                potential—but has an uncertain future—is DOE’s effort to help
                                Krasnoyarsk-26 develop a production facility for electronics-grade



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Commercialization of Selected IPP Projects




polycrystalline silicon, a precursor for the production of virtually all
silicon for integrated circuits and other electronics. Krasnoyarsk-26 is one
of Russia’s 10 nuclear cities and has been responsible for plutonium
production. The project has major visibility with the Russian government
and was approved for funding by DOE in January 1997. In addition, the U.S.
Defense Enterprise Fund has provided some assistance.

If this facility is built, it is expected to (1) provide Russia with a significant
role in the world silicon marketplace and (2) employ as many as 800
scientists, engineers, and technicians. However, the Sandia National
Laboratory principal investigator said that no Russians from
Krasnoyarsk-26 have been employed by the project with DOE funds to date.
The amount allocated for this project is $1.2 million, and $248,600 had
been spent as of December 1998. A significant amount of the money spent
to date has been for preliminary designs by a U.S. consultant. However,
several million dollars will be required for the Russians to obtain a more
detailed plant design, and overall investment costs of about $200 million
are anticipated. Although DOE considers this one of its two Thrust 3
projects, there is no major commercial investor. In fact, no U.S. company
has been an industrial partner. In May 1998, Sandia National Laboratory
officials told us that the most promising investor was a German company.
However, in December 1998, the Sandia principal investigator told us that
the potential German partner’s interest had declined because of the
deteriorating Russian economy. According to the principal investigator,
the project is going more slowly than anticipated, and the Russians have
been looking for funding from other countries, such as Oman, and
multilateral organizations. Continued U.S. funding depends on whether
Russia can find an investor for the project.




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Appendix VI

IPP Projects Selected for Inclusion Under
the Nuclear Cities Initiative

                                             DOE  selected 23 IPP projects as the initial activities under the Nuclear Cities
                                             Initiative. These projects had been approved between May 15 and July 21,
                                             1998. Ten of the projects were announced when the U.S. Vice President
                                             visited Russia in the fall of 1998. Table VI:1 identifies the nuclear cities and
                                             DOE laboratories involved, as well as the purpose of and funding for the
                                             projects.


Table VI.1: IPP Projects Approved for the Nuclear Cities Initiative
Dollars in thousands
Russian nuclear city             DOE national laboratory         Purpose                                          Allocated funding
Seversk                          Lawrence Berkeley               Use a plasma system to produce a
                                                                 diamondlike coating for materials                             $100
Zhelelnogorsk                    Sandia                          Design treatment for high-level
Ozersk                                                           radioactive tank waste                                         150
Sarov                            Pacific Northwest               Host a workshop on economic
                                                                 diversification                                                 75
Sarov                            Lawrence Livermore              Develop a better well-casing
                                                                 perforator for oil and gas
                                                                 production                                                     260
Sarov                            Lawrence Livermore              Develop a pulsed pressure
                                                                 generator for oil and gas fields                               220
Sarov                            Lawrence Livermore              Develop a new explosives
                                                                 detonator for safer mining and oil
                                                                 exploration                                                    260
Sarov                            Brookhaven                      Use electron beam technology to
                                                                 assess precious minerals in ore
                                                                 rubble                                                         140
Sarov                            Lawrence Berkeley               Develop a new magnetron for food
                                                                 sterilization and processing                                   950
Sarov                            Sandia                          Conduct a planning workshop for
                                                                 the development of a center to
                                                                 preserve the Russian infrastructure                            100
Sarov                            Sandia                          Conduct a workshop to provide
                                                                 Russians with decontamination and
                                                                 decommissioning information                                    100
Sarov                            Oak Ridge                       Develop a new sensor to detect
                                                                 flaws in ceramics using acoustical
                                                                 measurements                                                   143
Sarov                            Pacific Northwest               Apply and demonstrate nuclear
                                                                 waste management techniques
                                                                 and technologies                                               135
Ozersk                           Brookhaven                      Develop a pulse neutron source for
                                                                 studying condensed matter and
                                                                 nuclear physics research                                       150
                                                                                                                         (continued)




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                                        Appendix VI
                                        IPP Projects Selected for Inclusion Under
                                        the Nuclear Cities Initiative




Dollars in thousands
Russian nuclear city       DOE national laboratory             Purpose                                                Allocated funding
Snezhinsk                  Lawrence Livermore                  Develop new generation X-ray
                                                               tubes for medical diagnosis and
                                                               nondestructive evaluations                                                 335
Snezhinsk                  Lawrence Livermore                  Improve cathode-anode X-ray
                                                               tubes                                                                      320
Snezhinsk                  Los Alamos                          Establish a Russian center to focus
                                                               on quality and standardization
                                                               practices                                                             1,200
Snezhinsk                  Sandia                              Develop a flexible explosive
                                                               system for cutting steel-reinforced
                                                               concrete structural sections for
                                                               decontaminating and
                                                               decommissioning DOE and
                                                               Department of Defense structures                                           200
Zheleznogorsk, Snezhinsk   Pacific Northwest                   Host economic diversification
                                                               workshops at Pacific Northwest                                             200
                                                                       a
Total allocation                                               $5,038

                                        a
                                         In addition, $50,000 in IPP funds was approved for a Lawrence Livermore project to fund travel
                                        for four people to Snezhinsk. This was considered an additional project.




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Comments From the Department of Energy




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Comments From the Department of Energy




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Page 104                                 GAO/RCED-99-54 Nuclear Nonproliferation
Appendix VIII

Major Contributors to This Report


                       Victor S. Rezendes, Director, Energy, Resources, and Science Issues
Resources,             Gene Aloise, Assistant Director
Community, and         Duane G. Fitzgerald, PhD, Nuclear Engineer
Economic               Glen Levis, Senior Evaluator
                       Daniel Semick, Senior Evaluator
Development Division
Washington, D.C.




(141152)               Page 105                               GAO/RCED-99-54 Nuclear Nonproliferation
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