3
Financial Support of MPC&A Activities

CURRENT FUNDING OF MPC&A ENHANCEMENTS

As indicated in Chapter 1, during the past twelve years the U.S. Department of Energy (DOE) has received over $1.5 billion in Congressional appropriations for participation in the cooperative nuclear materials protection, control, and accounting (MPC&A) program with Russia (see Appendix H for information on recent appropriations). Limited financial support has also been provided by several other Western governments. These external funds for upgrading MPC&A systems have supplemented Russian investments in maintaining, operating, and occasionally upgrading existing systems.

There are no publicly available estimates of the aggregated MPC&A budgets of Russian facilities or even the budgets of individual facilities. According to Rosatom officials, the agency provides very limited earmarked funding for MPC&A activities at selected Rosatom facilities, thereby only marginally supplementing funds available from regularly allocated facility budgets. These officials stressed that such special allocations are very small and unlikely to increase in size. Also, as noted in Chapter 1, the Russian Academy of Sciences provides a small MPC&A supplement to the core budget of its Gatchina facility, which has a research reactor and is constructing a second reactor.

The amount of additional funding that will be required from abroad to upgrade protection of weapon-usable material across Russia depends on Russia’s readiness to assume responsibility for the use of modern methods to protect its own material and to share the financial burden of doing so. This report assumes that there will be a significant shortfall in the Russian contribution for some



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Strengthening Long-Term Nuclear Security: Protecting Weapon-Usable Material in Russia 3 Financial Support of MPC&A Activities CURRENT FUNDING OF MPC&A ENHANCEMENTS As indicated in Chapter 1, during the past twelve years the U.S. Department of Energy (DOE) has received over $1.5 billion in Congressional appropriations for participation in the cooperative nuclear materials protection, control, and accounting (MPC&A) program with Russia (see Appendix H for information on recent appropriations). Limited financial support has also been provided by several other Western governments. These external funds for upgrading MPC&A systems have supplemented Russian investments in maintaining, operating, and occasionally upgrading existing systems. There are no publicly available estimates of the aggregated MPC&A budgets of Russian facilities or even the budgets of individual facilities. According to Rosatom officials, the agency provides very limited earmarked funding for MPC&A activities at selected Rosatom facilities, thereby only marginally supplementing funds available from regularly allocated facility budgets. These officials stressed that such special allocations are very small and unlikely to increase in size. Also, as noted in Chapter 1, the Russian Academy of Sciences provides a small MPC&A supplement to the core budget of its Gatchina facility, which has a research reactor and is constructing a second reactor. The amount of additional funding that will be required from abroad to upgrade protection of weapon-usable material across Russia depends on Russia’s readiness to assume responsibility for the use of modern methods to protect its own material and to share the financial burden of doing so. This report assumes that there will be a significant shortfall in the Russian contribution for some

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Strengthening Long-Term Nuclear Security: Protecting Weapon-Usable Material in Russia years. In addition to initial upgrades, the cost of adequate maintenance and operation of MPC&A systems, which presumably will be the responsibility of Russian facility managers in the future, is significant.1 It is tempting to argue that U.S. financial support for the cooperative program should be terminated, or at least significantly reduced, in the immediate future. The Russian economy is slowly recovering, thereby putting the Russian government in a better position to assume more of the burden for financing MPC&A systems. Unfortunately, financial realities within Russia will undoubtedly inhibit such financial allocations in the near term even if prices for Russian oil continue their upward climb. There are many competing priorities for new resources available to the Russian government. While the World Bank reports a stabilizing economy and optimistic economic growth prospects, nineteen percent of the Russian population is classified as living below the poverty line.2 Thus, significant increases in budget allocations for modernizing MPC&A systems on a broad scale seem unlikely for the next few years. The competing demands of pensions, better health care, and adequate housing, for example, are simply too strong. Even if new resources are earmarked for nuclear security in general, facility managers will have difficulty effectively acquiring more resources for MPC&A upgrades to protect Russian materials given the widespread perception in Russia that facility vulnerability is not a serious problem. In time, however, a coalition of MPC&A champions should be able to argue for a larger percentage of government resources for MPC&A. But at present, instead of spending more on MPC&A, the Russian government’s emphasis is on increasing salaries at nuclear facilities, where average paychecks are still small. As a result, the United States needs to both continue investing in MPC&A and insist on greater Russian investment. A sharp U.S. reduction in funding would surely slow the pace of enhancing security for weapon-usable material. At 1   DOE informed the committee that it had projections of costs through 2013, when current U.S. law requires termination of all U.S. funding (see Appendix D.2), but DOE considers cost estimates beyond 2009 as privileged. Official DOE estimates provided to the committee by DOE of anticipated expenditures through 2009 are included in Appendix H. After considering DOE estimates and taking into account the amount of work that remains, the committee believes that DOE will need at least $500 million through 2009 and $300 million more for upgrades thereafter if it continues operating in its current manner. Further, in May 2005, a senior Rosatom official informed the committee that Rosatom will need nearly $500 million of external funding from 2006 through 2012 to finish upgrades at Rosatom facilities and to fully develop the infrastructure (training, maintenance, and accountancy facilities, etc.) for a sustainable program. This estimate does not include the costs of upgrading naval and other non-Rosatom facilities. 2   The World Bank’s Russia Economic Report of March 2005 indicates that the GDP growth rate for 2004 was 7.1 percent. The percentage of Russian citizens living below the poverty line in 2004 was 19 percent, however. See http://194.84.38.65/mdb/upload/RER10_eng.pdf.

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Strengthening Long-Term Nuclear Security: Protecting Weapon-Usable Material in Russia present, the Russian government has neither the political will nor the readily available resources to accept the full burden of indigenization. But it certainly is in a position to move toward that objective. FINANCING FOR THE LONG TERM In order to encourage Russian ownership of the process for upgrading and maintaining MPC&A systems, a new funding mechanism that calls for greater Russian leadership and for a greater Russian role in decision-making is needed. Therefore, the committee believes that an international MPC&A Indigenization Fund should be established within the framework of the G-8 Global Partnership to provide financial support for MPC&A improvement projects proposed by Russian facilities that have demonstrated their commitment to strong MPC&A systems. While the details of such a fund, including the appropriate funding level, must be determined through analyses of technical and financial requirements and through negotiations involving all interested parties, a description of one model that might serve as the basis for initial discussions follows. The Fund would have an initial investment of $500 million to dispense to Russian institutes and other facilities over a period of ten years, with the average annual disbursement to these institutions being $50 million. This estimate accounts for the extensive size of the nuclear complex, the condition of facilities that must sustain security enhancements over the long term, and the need to develop a strong cadre of technical specialists. DOE projections of future expenditures for MPC&A improvements indicate that $500 million is an appropriate initial point of departure for international negotiations.3 As a point of comparison, the International Science and Technology Center (ISTC) in Moscow dispensed more than $600 million during its first ten years. This Center has been judged to be very successful by a number of governments that continue to contribute substantial resources for its operations. The Center does not support any major construction activities, although it supports projects in a wide variety of fields, including the nuclear sector. The interest that is earned on the funds of the Indigenization Fund, until they are dispensed, would be used to cover the costs of the secretariat of the Fund and the cost of projects that could become important focal points for Russian government coordination, such as training, information dissemination, and scientific conferences. Contributions to the Fund might include the following: $200 million from the United States; $100 million from Russia (in cash, not in kind), and; $200 million from other G-8 partners. Ideally, the money would be committed as soon as the Fund is established, when political enthusiasm for such an international 3   See footnote 1 of this chapter.

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Strengthening Long-Term Nuclear Security: Protecting Weapon-Usable Material in Russia effort would probably be at its peak. Also, if contributions were spaced over a number of years, the interest available to the Fund would be reduced accordingly. The Russian contribution clearly would signal Russian readiness to begin to take full ownership of upgraded systems. This contribution would be used in particular, to support activities at sensitive facilities where Russian specialists assigned to the Fund would have responsibility for monitoring and auditing activities pursuant to guidelines prepared by the Fund. The procedures for ensuring that Russian funds were spent as intended would be worked out in detail. The Russian government’s financial commitment would be sufficiently large, and the lifetime of the fund sufficiently short, to ensure that there would be a clear shift of responsibility for funding from foreign to Russian sources. The Fund would be managed by a new intergovernmental entity, taking into account the experiences of the ISTC, which is led by an international team and staffed primarily by Russian specialists. Representatives of those governments providing the financial resources would serve on the governing board of the Fund. Other intergovernmental mechanisms that have effectively provided international funds to sensitive nuclear facilities in Russia would also provide useful background. While the Fund would have unique characteristics, experiences of other organizations in areas such as taxation, access to sensitive facilities, and auditing procedures would be helpful. The fund would provide financial resources on a competitive basis in response to Russian proposals for MPC&A improvement projects. Each government that provides funds would have the right to select the projects it would support with its contribution, and it would have the right to veto a proposed project to be funded by others for technical reasons. The size of the grants would vary, perhaps reaching several million dollars for multi-year projects involving significant construction or consolidation activities. Smaller projects would address replacement parts, enhanced accounting software, and other aspects of MPC&A systems. The Fund would not support operational activities such as guard services and routine maintenance. Guidelines would be proposed to help distinguish routine from enhancement activities. Specialists from laboratories of DOE, Russia, and the other G-8 partners would assist in reviewing the strength of the proposals and in monitoring the implementation of approved projects. Since the Russian government would approve each project, Russian representatives would be in a good position to ensure consistency among the proposals funded by different governments and with Russian regulations. Further, the Fund could establish guidelines to assist in ensuring consistency. This Russian responsibility would be an important step toward indigenization of MPC&A systems. As noted, the Russian contribution would be used primarily to support particularly sensitive projects. These projects would be considered along with all other projects except that they would be described in general terms to protect

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Strengthening Long-Term Nuclear Security: Protecting Weapon-Usable Material in Russia sensitive information. The monitoring and auditing results of funded projects would be presented in nonsensitive terms. In short, the Fund would enable Russian facilities that are on sound paths toward indigenization to obtain funding to complete that process and maintain and improve their technical capabilities over the long run. Also, the management of the Fund would engage senior Russian officials from several ministries to promote indigenization. Their direct decision-making responsibilities for fund-supported projects should contribute to a broader awareness within the Russian government of the importance of enhanced MPC&A systems. The projects would respond to Russian regulatory requirements while providing Western partners on the governing board an opportunity to ensure that the projects reflect international perspectives on sound MPC&A systems. While the establishment of a new international structure and its multinational decision-making processes could delay implementation of some projects, speed in the indigenization process is not as critical as that of the initial installation of upgrades. Should there be an urgent project, DOE has the option of using its own resources to address the problem if other resources cannot be mobilized quickly. Serious discussions among the governments participating in the Fund will serve to raise international sensitivity regarding the importance of MPC&A; this benefit will outweigh the delays that may be encountered in the establishment of the Fund. Several years may be required to establish the Fund, and upgrading activities should continue apace during this period. As an immediate step, international specialists should carry out the detailed analyses required to help frame the discussion that would lead to the Fund’s establishment. The United States will inevitably lose some control of the MPC&A program in Russia. However, this will actually serve the overall objective of indigenization: to move from a United States-directed effort to a Russian-directed effort. The United States will still have the right to veto proposals and can fund those projects it considers of highest priority. Prior to proposing creation of an indigenization fund, the committee also considered the following alternatives to help ensure future funding of MPC&A enhancements beyond the resources that are currently available from Russian budgets: Continue DOE funding of the effort. This approach is expensive for the United States and perpetuates a U.S.-directed model, whereas the Fund strongly encourages other countries to share the cost burden while moving toward indigenization. Require Russia to fully fund MPC&A. This is ultimately desirable, but is not feasible at the present time. The Fund is a meaningful step in this direction. Trade Russian debt for Russian support of MPC&A, use funds from the profits of the proposed international repository for storage of spent nuclear fuel

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Strengthening Long-Term Nuclear Security: Protecting Weapon-Usable Material in Russia in Siberia, or earmark funds earned in the U.S.-sponsored HEU to LEU blend-down enrichment program for MPC&A. These options have been debated for years with no practical outcome. They all have a common problem: money must be taken away from existing Russian claimants. The proposed Fund is based on newly-allocated funds and should therefore avoid that drawback. In summary, the Indigenization Fund is the most desirable alternative for the following reasons: By placing the program in the context of the G-8 nuclear security initiatives, which are backed by significant financial commitments from most if not all of the member countries and have garnered considerable political support from Russia, the highest levels of the Russian government would likely give higher priority to modern MPC&A systems than before. The approach of funding projects proposed by Russian institutions and subject to the approval of the U.S. and other governments, would be an important step toward Russian ownership of the program. The ISTC experience has demonstrated that multilateral programs with substantial budgets can be established and effectively implemented at sensitive facilities in Russia, while maintaining appropriate security and confidentiality measures. DOE would retain the option of directly financing proposed projects that might be delayed within the fund. OTHER FINANCING MECHANISMS FOR RAPIDLY IMPROVING SECURITY In addition to this new initiative, Congressionally appropriated funds should continue to support current DOE efforts, although these efforts should increasingly incorporate indigenization principles and approaches. As the Fund is established and begins operation, the committee believes that the DOE budget should decline accordingly, although the timing and rate of decline will depend on the schedule and commitments for the Fund. As all weapon-usable material at specific facilities comes under an acceptable level of security and as these facilities move along realistic and timely schedules toward complete indigenization, they would become eligible to apply for support from the Fund. In short, as DOE support ends, they would not face a financial void. At the same time, several steps can be taken to increase resources for MPC&A enhancement even before the Fund is fully functioning. The Russian Federal Target Program that encompasses Russia’s own MPC&A program deserves greater support from the Russian government (see Appendix J). Indeed, President Putin acknowledged in 2003 that the program was underfunded. DOE should therefore explore the feasibility of greater cost-sharing

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Strengthening Long-Term Nuclear Security: Protecting Weapon-Usable Material in Russia with Russia’s MPC&A program. One area of joint cost-sharing may be the ongoing development of the national accounting system. This may encourage the establishment of a complete and detailed baseline inventory of materials. DOE should consider how its other cooperative programs in Russia, such as the program to improve the protection of ionizing radiation sources, could complement the MPC&A program at specific facilities. As previously noted, however, the paramount importance of the MPC&A program should not be compromised. DOE should encourage Rosatom to offer one or more Russian facilities as models for efforts coordinated by the International Atomic Energy Agency (IAEA) to upgrade MPC&A systems world wide. (The model sites selected should not be among the most highly sensitive facilities.) The transition from Western cooperative programs to Russian programs should be an important aspect in the development of the models. The U.S. government should support allocation of IAEA training funds to the selected model facilities. While these funds would be relatively small, IAEA support would be prestigious for the facilities and might lead to additional income opportunities. DOE should encourage Rosatom and Russian enterprises and institutes to begin the transition from DOE-funded training programs for MPC&A specialists to self-sustaining programs. Russian enterprises and institutes should increasingly be expected to provide funds to support the transportation, lodging, and per diem costs of their own specialists attending courses at training centers, such as the center in Obninsk. Also, Rosatom should begin to cover the costs of operating these training facilities. While some institutes and enterprises are developing their own on-site programs for training MPC&A specialists, the demand for training at specialized centers will probably continue for the indefinite future. DOE should improve its understanding of the current and potential sources of Russian funding for MPC&A. DOE should encourage transparency in MPC&A allocations at both the federal level and at the facility level to the extent consistent with security considerations. Familiarizing appropriate Russian legislators, officials, and specialists with budgetary approaches used by the U.S. Congress, the U.S. executive branch, and individual U.S. facilities should be helpful in this regard. In summary, a new international MPC&A Indigenization Fund should be a cornerstone of indigenization efforts, while providing an important financial base to ensure that significant aspects of modern MPC&A systems are maintained and improved in the long term across Russia. If other approaches such as those identified above are also adopted, the overall financial support required for adequate MPC&A systems should be sufficient to fully secure Russia’s weapon-usable material now and in the future.

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