Index


Nuclear Nonproliferation: Concerns With DOE's Efforts to Reduce the Risks
Posed by Russia's Unemployed Weapons Scientists (Chapter Report,
02/19/99, GAO/RCED-99-54).

Pursuant to a congressional request, GAO reviewed the Department of
Energy's (DOE) efforts to create jobs for displaced former Soviet Union
scientists through its Initiatives for Proliferation Prevention program,
focusing on: (1) the costs to implement the 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)
DOE's Nuclear Cities Initiative.

GAO noted that: (1) the cost to implement the Initiatives for
Proliferation Prevention program from fiscal year 1994 through June 1998
are as follows: (a) of the $63.5 million spent, $23.7 million, or 37
percent, went to scientific institutes in the Newly Independent States
(NIS); (b) 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; and (c) about 63 percent, or $39.8 million, of the program's
funds was spent in the United States, mostly by DOE's national
laboratories in implementing and providing oversight of the program; (2)
regarding the extent to which the program is meeting its
nonproliferation and commercialization goals, GAO found that: (a) 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; (b) program officials do not always
know how many scientists are receiving program funding or whether the
key scientists and institutes are being targeted; (c) some scientists
currently working on Russia's weapons of mass destruction program are
receiving program funds; (d) some dual-use projects may have
unintentionally provided defense-related information--an outcome that
could negatively affect U.S. national security interests; and (e)
chemical and biological projects may not be adequately reviewed by U.S.
officials prior to approval; and (3) the Nuclear Cities Initiative may
cost $600 million over the next 5 years: (a) 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; and (b) 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.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  RCED-99-54
     TITLE:  Nuclear Nonproliferation: Concerns With DOE's Efforts to 
             Reduce the Risks Posed by Russia's Unemployed Weapons
             Scientists
      DATE:  02/19/99
   SUBJECT:  Nuclear weapons
             Nuclear proliferation
             Arms control agreements
             Foreign economic assistance
             Laboratories
             Defense conversion
             Dual-use technologies
             Cost analysis
             International cooperation
IDENTIFIER:  DOE Initiatives for Proliferation Prevention Program
             DOD Cooperative Threat Reduction Program
             Defense Enterprise Fund
             DOE Nuclear Cities Initiative
             Russia
             
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Cover
================================================================ COVER


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

Nuclear Nonproliferation

(141152)


Abbreviations
=============================================================== ABBREV

  DOD - Department of Defense
  DOE - Department of Energy
  GAO - General Accounting Office
  IPP - Initiatives for Proliferation Prevention
  ISTC - International Science and Technology Center
  KVANT -
  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

Letter
=============================================================== LETTER


B-281733

February 19, 1999


Letter
=============================================================== LETTER

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
============================================================ Chapter 0


   PURPOSE
---------------------------------------------------------- Chapter 0:1

The risk that unemployed weapons scientists in the former Soviet
Union 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. 


   BACKGROUND
---------------------------------------------------------- Chapter 0:2

The objectives of the Initiatives for Proliferation Prevention
program are 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. 

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. 


   RESULTS IN BRIEF
---------------------------------------------------------- Chapter 0:3

The cost to implement the Initiatives for Proliferation Prevention
program 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: 

  -- 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
---------------------------------------------------------- Chapter 0:4


      ABOUT 37 PERCENT OF PROGRAM
      FUNDS IS REACHING INSTITUTES
      IN THE NEWLY INDEPENDENT
      STATES
-------------------------------------------------------- Chapter 0:4.1

As shown in figure 1, only about 37 percent, or $23.7 million, of the
$63.5 million spent for the Initiatives for Proliferation Prevention
program through June 1998 went to scientific institutes.  Overhead
charges, taxes, and other fees reduced the funds that the scientists
at the institutes 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. 

   Figure 1:  Breakout of
   Expenditures for the
   Initiatives for Proliferation
   Prevention Program Through June
   1998

   (See figure in printed
   edition.)

Source:  Department of Energy. 


      IMPACT OF THE PROGRAM ON
      U.S.  NONPROLIFERATION GOALS
      IS UNCERTAIN
-------------------------------------------------------- Chapter 0:4.2

Although, in general, the program is employing weapons scientists on
a part-time basis, it has not achieved its broader nonproliferation
goal of 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 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
      INITIATIVE FOCUSES ON
      RUSSIA'S NUCLEAR CITIES
-------------------------------------------------------- Chapter 0:4.3

The Nuclear Cities Initiative represents the most ambitious effort by
the United States to assist Russia in downsizing and restructuring
its vast 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. 


   RECOMMENDATIONS
---------------------------------------------------------- Chapter 0:5

GAO is making several recommendations to the Secretary of Energy to
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. 

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. 


   AGENCY COMMENTS
---------------------------------------------------------- Chapter 0:6

The Department of Energy, in commenting on a draft of this report,
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. 

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. 


INTRODUCTION
============================================================ Chapter 1

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. 


   BACKGROUND
---------------------------------------------------------- Chapter 1:1

Public Law 103-87, "The Foreign Operations, Export Financing and
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 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. 



                                    Table 1.1
                     
                       U.S. Government Programs Focusing on
                      Nuclear Nonproliferation Assistance to
                                     the NIS

                              (Dollars in millions)

                            U.S. government
                            agency                                Funds received
Program                     responsible for                       through fiscal
name      Year established  oversight         Focus of program         year 1998
--------  ----------------  ----------------  ----------------  ----------------
Initiati  1994              DOE               Stabilize NIS                 $114
ves for                                       defense
Prolifer                                      institutes and
ation                                         promote long-
Preventi                                      term employment
on (IPP)                                      opportunities
                                              for weapons
                                              scientists

Cooperat  1992              Department of     Destroy and                1,346\a
ive                         Defense           dismantle NIS
Threat                                        weapons of mass
Reductio                                      destruction and
n                                             conduct certain
                                              demilitarization
                                              activities

Defense   1994              Defense Threat    Assist defense                  67
Enterpri                    Reduction         conversion by
se Fund                     Agency\b          financing U.S.-
                                              NIS business
                                              partnerships

Material  1994              DOE               Through                        428
s                                             cooperative
Control,                                      efforts, bring
Protecti                                      NIS nuclear
on, and                                       materials
Accounti                                      protection,
ng (Lab                                       control, and
to Lab)                                       accounting
                                              measures to
                                              higher standards

The       1994              Department of     Engage NIS                    98\c
Internat                    State             weapons
ional                                         scientists in
Science                                       peaceful
and                                           research to
Technolo                                      prevent
gy                                            proliferation
Center
(ISTC)

Nuclear   1998              DOE               Assist Russia in               0\d
Cities                                        reducing the
Initiati                                      size of its
ve                                            nuclear weapons
                                              complex by
                                              redirecting the
                                              work of nuclear
                                              weapons
                                              scientists
--------------------------------------------------------------------------------
\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
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. 


--------------------
\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). 


   IPP PROGRAM RELIES HEAVILY ON
   DOE'S NATIONAL LABORATORIES AND
   U.S.  INDUSTRY
---------------------------------------------------------- Chapter 1:2

IPP is implemented by DOE headquarters, DOE's national
laboratories,\2 and U.S.  industry partners.  The program is managed
at DOE headquarters by an office director and is part of DOE's Office
of Arms Control and Nonproliferation.  The director has a staff of
seven technical and support personnel.  In addition, the office has
five technical and support personnel 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. 


--------------------
\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. 


      DOE'S NATIONAL LABORATORIES
-------------------------------------------------------- Chapter 1:2.1

DOE's multiprogram national laboratories, plus the Kansas City
Plant,\3 play 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-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)

National
laborato         Number of     Percentage of     Program funds     Percentage of
ry                projects    total projects         allocated       total funds
--------  ----------------  ----------------  ----------------  ----------------
Sandia                  91                22           $14,383                18
Lawrence                56                14            14,768                18
 Livermo
 re
Los                     51                12            12,534                15
 Alamos
Oak                     39                 9             9,719                12
 Ridge
Pacific                 42                10             7,806                10
 Northwe
 st
Brookhav                36                 9             5,222                 6
 en
Argonne                 37                 9             6,572                 8
Lawrence                25                 6             5,135                 6
 Berkeley
National                20                 5             4,304                 5
 Renewab
 le
 Energy
Idaho                   12                 3             1,192                 1
 National
 Environ
 mental
 Enginee
 ring
Kansas                   4                 1               310                \a
 City
 Plant
================================================================================
Total                  413               100           $81,945             100\b
--------------------------------------------------------------------------------
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. 


--------------------
\3 The Kansas City Plant produces and procures electronic,
electromechanical, mechanical, plastic, and nonfissionable metal
components for nuclear weapons. 


      U.S.  INDUSTRY'S ROLE
-------------------------------------------------------- Chapter 1:2.2

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


   IPP PROJECTS ARE THE CORE OF
   THE PROGRAM
---------------------------------------------------------- Chapter 1:3

The IPP program comprises over 400 funded projects.  These projects
represent collaborative activities among DOE's national laboratories,
U.S.  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. 



                               Table 1.3
                
                Distribution of Projects and Funding for
                            the IPP Program

                         (Dollars in thousands)

                                    Percentage      Amount  Percentage
                         Number of    of total  allocated\    of total
Thrust level            projects\a    projects           b     funding
----------------------  ----------  ----------  ----------  ----------
Thrust 1                       332          80     $41,777          51
Thrust 2                        79          19      38,885          47
Thrust 3\c                       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. 

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

   (See figure in printed
   edition.)

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
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. 


--------------------
\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. 


      PROCEDURES FOR REVIEWING
      PROJECTS
-------------------------------------------------------- Chapter 1:3.1

Before they are approved for funding, all proposed IPP projects are
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. 


   THE IPP PROGRAM FACED EARLY
   PROBLEMS
---------------------------------------------------------- Chapter 1:4

According to its former director, the IPP program (1) faced
continuous funding shortfalls, (2) was not adequately supported by
DOE management, (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. 


      IMPROVEMENTS IN PROGRAM
      MANAGEMENT SINCE THE
      APPOINTMENT OF A NEW
      DIRECTOR
-------------------------------------------------------- Chapter 1:4.1

DOE and State Department officials acknowledged that the IPP program
had difficulties in the early years but maintained that the situation
has 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 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. 


   OBJECTIVES, SCOPE, AND
   METHODOLOGY
---------------------------------------------------------- Chapter 1:5

The Chairman of the Senate Committee on Foreign Relations asked us to
review (1) the costs to implement the IPP program for fiscal years
1994-98, 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 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 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 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. 


ABOUT 37 PERCENT OF THE IPP
PROGRAM'S FUNDS REACH INSTITUTES
IN THE NEWLY INDEPENDENT STATES
============================================================ Chapter 2

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 PROGRAM FUNDS GO TO
   DOE'S NATIONAL LABORATORIES
---------------------------------------------------------- Chapter 2:1

Most IPP funds have gone to DOE's national laboratories to cover (1)
the costs of scientific research related to IPP projects (2) the
costs of developing or monitoring the projects, and (3) various kinds
of 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

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

   (See figure in printed
   edition.)

$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. 

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. 


--------------------
\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. 


   INDUSTRY SUPPORT SERVICES
   ACCOUNTED FOR EXPENDITURES OF
   OVER $7 MILLION
---------------------------------------------------------- Chapter 2:2

Until the end of fiscal year 1998, the University of New Mexico
provided administrative services to the U.S.  Industry Coalition
(USIC), the consortium of industry partners interested in cooperating
with DOE on IPP projects with the Newly Independent States.  DOE's
costs for the University of New Mexico's participation totaled about
$7.6 million through 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 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. 


   NIS INSTITUTES RECEIVE ABOUT 37
   PERCENT OF IPP FUNDS
---------------------------------------------------------- Chapter 2:3

As of June 1998, about 37 percent, or $23.7 million, of the program's
expenditures had been used to pay for work at NIS institutes;
however, not all of these funds are reaching weapons scientists,
engineers, and technicians who work on IPP projects.  After a DOE
laboratory wires a payment of funds to a bank designated by a Russian
institute\2 --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. 


      AMOUNT OF IPP FUNDING
      RECEIVED BY RUSSIAN
      SCIENTISTS AND ENGINEERS
      VARIES
-------------------------------------------------------- Chapter 2:3.1

DOE does not have detailed records of the amounts of IPP funding
received by individual scientists, engineers, and technicians in the
NIS, and therefore it is uncertain how much of the funding
supplements their salaries.  However, at Russian institutes,
according to a March 1998 DOE report to 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 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. 


--------------------
\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. 

\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. 


      SOME IPP FUNDS ARE USED FOR
      RUSSIAN TAXES
-------------------------------------------------------- Chapter 2:3.2

In general, representatives of the Russian institutes we visited said
it was 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. 


   DOE OFFICIALS SEE NEED FOR
   CONSISTENT PROGRAM FUNDING AND
   STRATEGIC PLAN
---------------------------------------------------------- Chapter 2:4

As shown in table 2.1, funding levels for the IPP program have
varied.  In fiscal year 1994, the program's initial year, IPP
received its highest annual level of funding, $35 million.  In the
following year, it was not funded.\7 DOE officials believe the
program needs more consistent funding and say they see a need for a
program plan with adequate performance measures. 



                               Table 2.1
                
                   Annual Funding for the IPP Program

                         (Dollars in millions)

Fiscal year                                                    Funding
----------------------------------------  ----------------------------
1994                                                               $35
1995                                                                 0
1996                                                              20\a
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 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. 


--------------------
\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. 


IMPACT OF THE IPP PROGRAM ON U.S. 
NONPROLIFERATION GOALS IS
UNCERTAIN
============================================================ Chapter 3

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. 


   IPP PROGRAM FUNDS ARE HELPING
   SOME INSTITUTES AND SCIENTISTS
---------------------------------------------------------- Chapter 3:1

In general, officials at the 15 Russian institutes we visited were
supportive of the program.  Officials from three institutes told us
that the IPP program had prevented their laboratory or institute from
shutting down and reduced the likelihood that scientists would be
forced to seek other employment.  A representative from Sarov told us
that without the IPP 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 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. 


   LONG-TERM COMMERCIALIZATION
   OBJECTIVE HAS MET WITH LIMITED
   SUCCESS AND WILL BE DIFFICULT
   TO ACHIEVE
---------------------------------------------------------- Chapter 3:2

To date, no IPP projects can be classified as long-term commercial
successes, and only a few have met with limited success.  Overall, of
the over 400 funded projects, only two have achieved Thrust 3 status
(as potential self-sustaining business ventures) and 79 are
categorized as Thrust 2 (an intermediate step toward
commercialization).  Even the Thrust 3 projects that we reviewed have
not achieved the type of commercial success envisioned by DOE.  In
fact, one of these projects, which is designed to help one of
Russia's closed nuclear cities develop 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.  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, 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. 


--------------------
\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). 


   DOE'S IMPLEMENTATION AND
   OVERSIGHT OF THE IPP PROGRAM
   RAISE CONCERNS
---------------------------------------------------------- Chapter 3:3

Our review raised several concerns about DOE's implementation and
oversight of the IPP program including

  -- the adequacy of DOE's efforts to obtain information on the
     background and number of NIS scientists and institutes engaged
     in IPP projects;

  -- the appropriateness of DOE's supplementing the salaries of
     scientists 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
      NIS SCIENTISTS AND
      INSTITUTES WAS NOT
      CONSISTENTLY OBTAINED
-------------------------------------------------------- Chapter 3:3.1

DOE's program guidance specifies that each project proposal should
include a discussion of the background and experience of the key NIS
scientists and institutes to determine that they possess the
appropriate weapons of mass destruction background.  The guidance
also specifies that 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' 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. 

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 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 SCIENTISTS
      ENGAGED IN IPP PROJECTS IS
      UNCERTAIN
-------------------------------------------------------- Chapter 3:3.2

IPP program guidance specifies that the number of people employed in
the NIS on IPP projects is a primary measure of the program's
success.  According to program officials, the guidance clearly
requires that accurate figures on the number of scientists and
engineers be maintained.  The 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 ON
      WEAPONS OF MASS DESTRUCTION
      RESEARCH AND DEVELOPMENT
      PROGRAMS WHILE RECEIVING IPP
      FUNDING
-------------------------------------------------------- Chapter 3:3.3

The September 1993 Report of the Senate Committee on Appropriations
provides guidance on the types of NIS institutes the Congress
expected would be included in the IPP program.  The Committee
recognized that the Russian institutes were "principally devoted to
military activities" and that a loss of employment had affected
"weapons scientists and engineers previously involved in the design
and production of weapons of mass 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 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 DUAL-USE
      IMPLICATIONS
-------------------------------------------------------- Chapter 3:3.4

According to DOE's program guidance, IPP projects must not, among
other 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. 

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 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 BIOLOGICAL
      PROJECTS MAY NOT BE
      ADEQUATELY REVIEWED
-------------------------------------------------------- Chapter 3:3.5

According to IPP program guidance, cooperative research in biological
and chemical activities could be redirected to support a biological
and/or chemical weapons program.  The program's guidelines call for
coordination with the departments of State and Defense to ensure that
IPP 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 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 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 proposals are now being sent directly to the
Cooperative Threat Reduction office for review. 


DOE'S NEW INITIATIVE WILL FOCUS
MORE AID ON RUSSIA'S NUCLEAR
CITIES
============================================================ Chapter 4

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. 


   ROLE OF RUSSIA'S 10 NUCLEAR
   CITIES
---------------------------------------------------------- Chapter 4:1

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

   Figure 4.1:  Russia's Nuclear
   Cities

   (See figure in printed
   edition.)

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 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 Development

New name                        Old name            Nuclear role
------------------------------  ------------------  ------------------
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. 


   FOCUS OF THE NUCLEAR CITIES
   INITIATIVE WILL DIFFER FROM
   THAT OF THE IPP PROGRAM
---------------------------------------------------------- Chapter 4:2

The IPP program has provided funds to various kinds of institutes
with nuclear and other disciplines throughout Russia, including many
in Moscow, St.  Petersburg, and the nuclear cities.  However, the
Nuclear 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 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 in business planning,
methods to attract business to the area, and ways to get new
businesses started. 


      OBJECTIVES OF THE NUCLEAR
      CITIES INITIATIVE
-------------------------------------------------------- Chapter 4:2.1

According to DOE's report to the Congress on the program, the goals
of the 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 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
      REPLACE THE IPP PROGRAM
-------------------------------------------------------- Chapter 4:2.2

The director of the IPP program, who is also the director of the
Nuclear Cities Initiative, said that the new program will not replace
the IPP program's efforts for several reasons.  First, the IPP
program will provide 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 DRAW
      ON A VARIETY OF RESOURCES
-------------------------------------------------------- Chapter 4:2.3

According to the director, the State Department is also considering
including some ISTC projects in the Nuclear Cities Initiative.  Other
federal 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. 

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. 


--------------------
\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. 


   SOME U.S.  OFFICIALS RAISED
   CONCERNS ABOUT THE CHALLENGES
   FACING THE NUCLEAR CITIES
   INITIATIVE
---------------------------------------------------------- Chapter 4:3

In October 1998, U.S.  embassy officials in Moscow raised concerns
about the challenges facing the Nuclear Cities Initiative,
particularly in the context of Russia's economic deterioration.  With
the devaluation of the ruble in August 1998 and the partial
government default, developing a U.S.  program to assist in
commercializing the nuclear cities will require adjustment.  U.S. 
officials said that the outlook for foreign investment, 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, 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. 

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. 


CONCLUSIONS AND RECOMMENDATIONS
============================================================ Chapter 5

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 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 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. 


   RECOMMENDATIONS TO THE
   SECRETARY OF ENERGY
---------------------------------------------------------- Chapter 5:1

To maximize the impact of the Initiatives for Proliferation
Prevention program's funding and improve DOE's oversight of the
program, we recommend that the Secretary of 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. 

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. 


   AGENCY COMMENTS
---------------------------------------------------------- Chapter 5:2

The Department of Energy, in commenting on a draft of this report,
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 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. 


U.S.  INDUSTRY COALITION
MEMBERSHIP AS OF SEPTEMBER 30,
1998
=========================================================== Appendix I

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         Ann Arbor, Michigan
Sciences

New Horizons Diagnostics Corporation      Columbia, Maryland

O-Tech International, Ltd.                McLean, Virginia

Oakton International Corporation          Oakton, Virginia

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              Albuquerque, New Mexico
International

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. 


INITIATIVES FOR PROLIFERATION
PREVENTION PROJECTS REVIEWED BY
GAO
========================================================== Appendix II

Responsible U.S.
national                                              Project's title           Project's
laboratory        Country           Thrust level      (abbreviated)               funding
----------------  ----------------  ----------------  -----------------  ----------------
Argonne           Russia            1                 Radwaste                    $80,000
                                                      encapsulation

Argonne           Russia            1                 Redirection of              182,000
                                                      nuclear safety

Argonne           Russia            1                 Millimeter and              200,000
                                                      submillimeter
                                                      waves

Argonne           Russia            1                 Atomic clusters             130,000

Argonne           Russia            1                 Laser instruments           120,000

Argonne           Russia            1                 Polymer membranes           100,000
                                                      for separation
                                                      technologies

Argonne           Russia            1                 High-temperature             50,000
                                                      superconductors

Argonne           Ukraine           1                 Milk                         80,000
                                                      decontamination

Argonne           Russia            1                 Detection of                 60,000
                                                      landmines and
                                                      explosives

Argonne           Russia            1                 Neutronic                    90,000
                                                      enhancement of
                                                      explosives
                                                      detection

Argonne           Belarus           1                 Ceramic coating              80,000

Argonne           Russia            1                 Electrolyte                 130,000
                                                      impurities on
                                                      molten carbonate
                                                      fuel cells

Argonne           Russia            1                 Acoustic nozzle             100,000

Argonne           Russia            1                 Cover gas on                130,000
                                                      molten carbonate
                                                      fuel cells

Argonne           Russia            1                 Zeolite guest               100,000
                                                      compounds

Argonne           Russia            2                 Bipolar plate               500,000
                                                      material for
                                                      molten carbonate
                                                      fuel cells

Argonne           Ukraine           2                 Magnetic                    960,000
                                                      separation for
                                                      milk

Argonne           Russia            2                 Radioprotectors             200,000

Argonne           Russia            2                 Diamond thin film           350,000
                                                      cathodes

Argonne           Russia            2                 Wave sweeper and            250,000
                                                      gas analyzer

Argonne           Russia            2                 Soil remediation             50,000

Argonne           Russia            2                 Soil remediation             50,000

Argonne           Russia            2                 Soil washing                400,000
                                                      remediation

Los Alamos        Russia            1                 Material control            140,000
                                                      and
                                                      accountability
                                                      infrastructure

Los Alamos        Russia            1                 Reactor safety              145,000

Los Alamos        Russia            1                 Optical sorter              146,000

Los Alamos        Russia            1                 Microbiologically           144,000
                                                      influenced
                                                      corrosion

Los Alamos        Russia            1                 Microbiologically           160,000
                                                      influenced
                                                      corrosion

Los Alamos        Russia            1                 Polymer membranes           321,000

Los Alamos        Russia            1                 Ion beam                    110,000
                                                      materials
                                                      processing

Los Alamos        Russia            1                 Materials                   400,000
                                                      coatings

Los Alamos        Russia            1                 Nanophase powders           185,000

Los Alamos        Ukraine           1                 Materials                   100,000
                                                      processing

Los Alamos        Russia            1                 Conductivity of             284,000
                                                      high-strength
                                                      metals

Los Alamos        Russia            1                 Bimolecular                 234,000
                                                      modeling

Los Alamos        Russia            1                 Materials for               251,000
                                                      manufacturing

Los Alamos        Russia            1                 Materials for               350,000
                                                      manufacturing

Los Alamos        Russia            1                 Optical systems             105,000

Los Alamos        Russia            1                 Optical systems             250,000


Los Alamos        Russia            1                 Telecommunication           200,000
                                                      s

Los Alamos        Russia            2                 Gas separation              130,000
                                                      membranes

Los Alamos        Russia            2                 Gas separation            1,070,000
                                                      membranes

Los Alamos        Russia            2                 Ion technologies            345,000

Los Alamos        Russia            2                 Parallel                    430,000
                                                      computing
                                                      applications

Los Alamos        Russia            1                 Medical                      80,000
                                                      radioisotope
                                                      production

Los Alamos        Russia            2                 Positive emission           400,000
                                                      tomography

Los Alamos        Ukraine           2                 Microwave                   656,000
                                                      materials
                                                      processing

Los Alamos        Russia            2                 Nanophase metal             250,000
                                                      powders

Los Alamos        Russia            2                 Nanophase metal                   0
                                                      powders

Los Alamos        Russia            2                 Technical risk                    0
                                                      and reliability
                                                      center

Los Alamos        Russia            3                 Commercialization          no funds
                                                      of positive               allocated
                                                      emission
                                                      tomography

National          Russia            2                 Photovoltaic                988,750
Renewable Energy                                      products
Laboratory

National          Russia            2                 Next-generation             428,000
Renewable Energy                                      photovoltaic
Laboratory                                            products

National          Russia            2                 Photovoltaic gas            184,000
Renewable Energy                                      recycling
Laboratory                                            technology

Oak Ridge         Russia            1                 Immunomodulatory            200,000
                                                      of interferon and
                                                      cells

Oak Ridge         Russia            2                 Soil and water              820,000
                                                      remediation

Oak Ridge         Russia            2                 Advanced                    627,000
                                                      recycling of
                                                      commingled metals

Oak Ridge         Russia            2                 Battery                     800,000
                                                      technology

Oak Ridge         Russia            2                 New methods for             468,000
                                                      recycling
                                                      commingled metals

Oak Ridge         Russia            2                 Cockroach toxin             322,250

Sandia            Russia            \a                Telecommunication         1,285,000
                                                      s with closed
                                                      cities

Sandia            Russia            1                 Medical                      90,000
                                                      radioisotope
                                                      production in
                                                      Russian reactors

Sandia            Russia            1                 Silicon-based               134,000
                                                      electronics

Sandia            Russia            1                 Security tags and           100,000
                                                      seals for
                                                      hazardous
                                                      material
                                                      containers

Sandia            Russia            1                 Security tags and           100,000
                                                      seals for
                                                      hazardous
                                                      material
                                                      containers

Sandia            Ukraine           1                 Renewable energy             30,000
                                                      sources

Sandia            Russia            1                 Thin film                    98,000
                                                      characterization
                                                      and analysis
                                                      techniques for X-
                                                      ray scattering

Sandia            Russia            1                 Safety,                     150,000
                                                      reliability, and
                                                      risk assessment
                                                      training

Sandia            Belarus           1                 Health effects              106,000
                                                      from radionuclide
                                                      contamination

Sandia            Ukraine           1                 Lessons learned              82,000
                                                      compendium

Sandia            Russia            1                 Human relations             120,000
                                                      workshop

Sandia            Russia            1                 Development of              400,000
                                                      separator plates
                                                      for phosphoric
                                                      acid fuel cells

Sandia            Russia            1                 Medical                     250,000
                                                      prosthesis

Sandia            Russia            2                 Log irradiation           1,021,000

Sandia            Russia            2                 Microwave                   598,000
                                                      components

Sandia            Russia            2                 Conversion of               800,000
                                                      natural gas to
                                                      liquid fuel

Sandia            Russia            2                 Commercial                  200,000
                                                      application of
                                                      cutting
                                                      technologies for
                                                      oil/gas platforms

Sandia            Ukraine           2                 Brazing process             225,000
                                                      for stainless
                                                      steel tubes

Sandia            Russia            3                 Silicon of                1,283,000
                                                      Siberia


Total allocated costs $23,188,000
-----------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------
\a This project was identified as program directed and was not
assigned a thrust level. 


PROFILE OF INSTITUTES IN RUSSIA
VISITED BY GAO
========================================================= Appendix III

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, RESEARCH AND DEVELOPMENT
   INSTITUTE OF POWER ENGINEERING
   (MOSCOW)
------------------------------------------------------- Appendix III:1

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


   RESEARCH INSTITUTE OF PULSE
   TECHNIQUE (MOSCOW)
------------------------------------------------------- Appendix III:2

The Research Institute of Pulse Technique is part of the Russian
Ministry of Atomic Energy (MINATOM).  The institute is a closed area
that we were unable to visit.  Instead, we met with institute
representatives at an outside 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. 


   ST.  PETERSBURG STATE
   ELECTROTECHNICAL UNIVERSITY
   (ST.  PETERSBURG)
------------------------------------------------------- Appendix III:3

The St.  Petersburg State Electrotechnical University was established
in 1886.  Among the oldest technical universities in Russia, it
comprises seven schools:  radio engineering; electronics; automation
and computer science; industrial automation and electrical
engineering; electrophysics; marine automation, electrical and radio
engineering; and humanities. 

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. 


   THE KURCHATOV INSTITUTE
   (MOSCOW)
------------------------------------------------------- Appendix III:4

Kurchatov is the leading nuclear research institute in Russia. 
Formerly part of MINATOM, Kurchatov is now an independent institute. 
Up through 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. 


   KVANT/SOVLUX (MOSCOW)
------------------------------------------------------- Appendix III:5

Sovlux, a joint venture company, was created in the early 1990s.  It
is owned by KVANT, MINATOM, and a U.S.  company, Energy Conversion
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 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 the material
to General Motors and Ovonics for the manufacture of traction
batteries for the production of electric vehicles. 


   ALL-RUSSIAN SCIENTIFIC RESEARCH
   INSTITUTE OF EXPERIMENTAL
   PHYSICS (SAROV)
------------------------------------------------------- Appendix III:6

The All-Russian Scientific Research Institute of Experimental
Physics, also known as VNIIEF, was founded by government decree in
1946.  It is at the city of Sarov, where the first Soviet nuclear
bomb was designed and assembled.  The primary mission of VNIIEF is
designing nuclear warheads.  The institute fabricates experimental
and prototype warheads.  The 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. 


   ALL-RUSSIAN SCIENTIFIC RESEARCH
   INSTITUTE OF NATURAL GASES AND
   GAS TECHNOLOGIES (VNIIGAZ)
   (MOSCOW)
------------------------------------------------------- Appendix III:7

VNIIGAZ was established in 1948 and is the main research and
engineering arm of GAZPROM, Russia's supplier of natural gas.  The
institute's work in Russia's gas industry includes geology, the
technology and engineering of gas production, transportation, and
processing.  Currently, VNIIGAZ cooperates with over 40 foreign
companies.  During the past years, major international projects have
been jointly implemented with Amoco and 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. 


   KHLOPIN RADIUM INSTITUTE (ST. 
   PETERSBURG)
------------------------------------------------------- Appendix III:8

The Khlopin Radium Institute, which is now part of the Russian
Ministry for Atomic Energy, was founded in 1922 to investigate all
aspects of radioactivity.  The first Russian/European cyclotron was
built at the 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. 


   IOFFE PHYSICO TECHNICAL
   INSTITUTE (ST.  PETERSBURG)
------------------------------------------------------- Appendix III:9

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


   ASSOCIATION OF CENTERS FOR
   ENGINEERING AND AUTOMATION (ST. 
   PETERSBURG STATE TECHNICAL
   UNIVERSITY) (ST.  PETERSBURG)
------------------------------------------------------ Appendix III:10

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


   GAMALEYA INSTITUTE OF
   EPIDEMIOLOGY AND MICROBIOLOGY
   (MOSCOW)
------------------------------------------------------ Appendix III:11

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

  -- 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. 


   INSTITUTE OF NUCLEAR RESEARCH
   (MOSCOW)
------------------------------------------------------ Appendix III:12

The institute does basic and applied research and specializes in
nuclear, neutron, neutrino and particle physics.  During the Soviet
era, the institute 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 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. 


   ALL-RUSSIAN SCIENTIFIC RESEARCH
   INSTITUTE OF INORGANIC
   MATERIALS (VNIINM) (MOSCOW)
------------------------------------------------------ Appendix III:13

This institute is named for Academician A.A.  Bochvar, and is often
referred to as the Bochvar Institute.  Its work includes spent fuel
reprocessing, the transportation of radioactive materials, work on
spent fuel containers, radiation technology and research,
radiochemistry, and nuclear waste management and disposal.  It was
founded in 1945 and was 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 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. 


   ENGELHARDT INSTITUTE OF
   MOLECULAR BIOLOGY (MOSCOW)
------------------------------------------------------ Appendix III:14

The Engelhardt Institute was organized in 1959 to study the effects
of radiation.  It functions like a university and is part of the
Russian Academy of Sciences.  Engelhardt does work on DNA, chemistry,
and genetic 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. 


   INSTITUTE OF BIOCHEMISTRY AND
   PHYSIOLOGY OF MICROORGANISMS
   (MOSCOW REGION)
------------------------------------------------------ Appendix III:15

In the 1950s, Russia established science cities--one each for
chemistry, biology, and physics.  The Institute of Biochemistry and
Physiology of Microorganisms is part of the city established for
biology and was established around 1962.  The institute was developed
because Russia was far behind the rest of the world in the biological
sciences.  It was decided that the institute's work would not be
defense related. 

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 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. 


DISTRIBUTION OF IPP FUNDS AT SOME
RUSSIAN INSTITUTES
========================================================== Appendix IV

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 Electrotechnical
   University for an IPP Project

   (See figure in printed
   edition.)

Source:  St.  Petersburg Electrotechnical University. 

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. 


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

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


COMMERCIALIZATION OF SELECTED IPP
PROJECTS
=========================================================== Appendix V

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


   SOME IPP PROJECTS HAVE NO
   DISCERNIBLE COMMERCIAL
   POTENTIAL
--------------------------------------------------------- Appendix V:1

In a few cases, the principal investigators at the Department of
Energy's (DOE) national laboratories told us that the projects they
were responsible for had little or no potential for commercial
success.  For example, the 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.  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. 


   OTHER IPP PROJECTS HAVE GREATER
   COMMERCIAL POTENTIAL
--------------------------------------------------------- Appendix V:2

Some projects appear to have greater commercial potential.  For
example, Sandia National Laboratory has a Thrust 1 project with
Chelyabinsk-70, a Russian closed city, to help improve a prosthetic
foot device developed by 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. 

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

   (See figure in printed
   edition.)

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 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

   (See figure in printed
   edition.)

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. 

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 association\1 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). 

   Figure V.3:  Institute of
   Nuclear Research

   (See figure in printed
   edition.)

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

   (See figure in printed
   edition.)

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. 


--------------------
\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. 


   LACK OF CAPITAL STALLS SOME
   PROJECTS
--------------------------------------------------------- Appendix V:3

Other projects we reviewed showed commercial potential, but their
success is uncertain.  For example, one project deals with the
irradiation of 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 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

   (See figure in printed
   edition.)

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
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. 


IPP PROJECTS SELECTED FOR
INCLUSION UNDER THE NUCLEAR CITIES
INITIATIVE
========================================================== Appendix VI

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)

                      DOE national
Russian nuclear city  laboratory            Purpose                     Allocated funding
--------------------  --------------------  -----------------------  --------------------
Seversk               Lawrence Berkeley     Use a plasma system to                   $100
                                            produce a diamondlike
                                            coating for materials

Zhelelnogorsk         Sandia                Design treatment for                      150
Ozersk                                      high-level radioactive
                                            tank waste

Sarov                 Pacific Northwest     Host a workshop on                         75
                                            economic
                                            diversification

Sarov                 Lawrence Livermore    Develop a better well-                    260
                                            casing perforator for
                                            oil and gas production

Sarov                 Lawrence Livermore    Develop a pulsed                          220
                                            pressure generator for
                                            oil and gas fields

Sarov                 Lawrence Livermore    Develop a new                             260
                                            explosives detonator
                                            for safer mining and
                                            oil exploration

Sarov                 Brookhaven            Use electron beam                         140
                                            technology to assess
                                            precious minerals in
                                            ore rubble

Sarov                 Lawrence Berkeley     Develop a new magnetron                   950
                                            for food sterilization
                                            and processing

Sarov                 Sandia                Conduct a planning                        100
                                            workshop for the
                                            development of a center
                                            to preserve the Russian
                                            infrastructure

Sarov                 Sandia                Conduct a workshop to                     100
                                            provide Russians with
                                            decontamination and
                                            decommissioning
                                            information

Sarov                 Oak Ridge             Develop a new sensor to                   143
                                            detect flaws in
                                            ceramics using
                                            acoustical measurements

Sarov                 Pacific Northwest     Apply and demonstrate                     135
                                            nuclear waste
                                            management techniques
                                            and technologies

Ozersk                Brookhaven            Develop a pulse neutron                   150
                                            source for studying
                                            condensed matter and
                                            nuclear physics
                                            research

Snezhinsk             Lawrence Livermore    Develop new generation                    335
                                            X-ray tubes for medical
                                            diagnosis and
                                            nondestructive
                                            evaluations

Snezhinsk             Lawrence Livermore    Improve cathode-anode                     320
                                            X-ray tubes

Snezhinsk             Los Alamos            Establish a Russian                     1,200
                                            center to focus on
                                            quality and
                                            standardization
                                            practices

Snezhinsk             Sandia                Develop a flexible                        200
                                            explosive system for
                                            cutting steel-
                                            reinforced concrete
                                            structural sections for
                                            decontaminating and
                                            decommissioning DOE and
                                            Department of Defense
                                            structures

Zheleznogorsk,        Pacific Northwest     Host economic                             200
Snezhinsk                                   diversification
                                            workshops at Pacific
                                            Northwest

=========================================================================================
Total allocation                            $5,038\a
-----------------------------------------------------------------------------------------
\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. 




(See figure in printed edition.)APPENDIX VII
COMMENTS FROM THE DEPARTMENT OF
ENERGY
========================================================== Appendix VI



(See figure in printed edition.)



(See figure in printed edition.)



(See figure in printed edition.)



(See figure in printed edition.)



(See figure in printed edition.)



(See figure in printed edition.)



(See figure in printed edition.)



(See figure in printed edition.)


MAJOR CONTRIBUTORS TO THIS REPORT
======================================================== Appendix VIII

RESOURCES, COMMUNITY, AND ECONOMIC
DEVELOPMENT DIVISION WASHINGTON,
D.C. 

Victor S.  Rezendes, Director, Energy, Resources, and Science Issues
Gene Aloise, Assistant Director
Duane G.  Fitzgerald, PhD, Nuclear Engineer
Glen Levis, Senior Evaluator
Daniel Semick, Senior Evaluator

*** End of document. ***