[Senate Hearing 106-343]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 106-343


 
                             Y2K & RUSSIA:
        WHAT ARE THE POTENTIAL IMPACTS AND FUTURE CONSEQUENCES?

=======================================================================

                                HEARING

                               before the

                        SPECIAL COMMITTEE ON THE
                      YEAR 2000 TECHNOLOGY PROBLEM
                          UNITED STATES SENATE

                       ONE HUNDRED SIXTH CONGRESS

                             FIRST SESSION

                                   on

 UNDERSTANDING HOW THESE Y2K POTENTIAL FAILURES, BOTH IN THE SHORT AND 
 LONG TERM, MAY IMPACT ON CURRENT U.S. POLICY INITIATIVES AND WHAT WE 
   CAN DO TO ADDRESS THESE POTENTIAL PROBLEMS WITH RESPECT TO RUSSIA

                               __________

                           SEPTEMBER 28, 1999

                               __________

                  Printed for the use of the Committee


 Available via the World Wide Web: http://www.access.gpo.gov/congress/
                                 senate


                     U.S. GOVERNMENT PRINTING OFFICE
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                        SPECIAL COMMITTEE ON THE

                      YEAR 2000 TECHNOLOGY PROBLEM

         [Created by S. Res. 208, 105th Cong., 2d Sess. (1998)]

                   ROBERT F. BENNETT, Utah, Chairman

JON KYL, Arizona                     CHRISTOPHER J. DODD, Connecticut,
GORDON SMITH, Oregon                   Vice Chairman
SUSAN M. COLLINS, Maine              JOHN EDWARDS, North Carolina
TED STEVENS, Alaska, Ex Officio      DANIEL PATRICK MOYNIHAN, New York
                                     ROBERT C. BYRD, West Virginia, Ex 
                                     Officio

                    Robert Cresanti, Staff Director

              T.M. (Wilke) Green, Minority Staff Director

                                  (ii)

  
                            C O N T E N T S

                                 ------                                

                     STATEMENT BY COMMITTEE MEMBERS

Robert F. Bennett, a U.S. Senator from Utah, Chairman, Special 
  Committee on the Year 2000 Technology Problem..................     1
Christopher J. Dodd, a U.S. Senator from Connecticut, Vice 
  Chairman, Special Committee on the Year 2000 Technology Problem     3

                    CHRONOLOGICAL ORDER OF WITNESSES

Hon. Richard G. Lugar, a U.S. Senator from Indiana...............     6
John R. Beyrle, Deputy for the Ambassador at Large and Special 
  Advisor to the Secretary, Department of State..................    14
Dr. Edward Warner, III, Assistant Secretary, Strategy and Threat 
  Reduction, Department of Defense...............................    17
Kenneth Baker, Principal Deputy Assistant Secretary, 
  International and National Security, Department of Energy......    22
Dr. William K. McHenry, Associate Professor, McDonough School of 
  Business, Georgetown University................................    32
Richard A. Conn, Jr., U.S.-Russia Business Council, Partner, 
  Latham & Watkins...............................................    35

              ALPHABETICAL LISTING AND MATERIAL SUBMITTED

Baker, Kenneth:
    Statement....................................................    22
    Prepared statement...........................................    43
Bennett, Hon. Robert F.:
    Opening statement............................................     1
    Prepared statement...........................................    49
Beyrle, John R.:
    Statement....................................................    14
    Prepared statement...........................................    50
Conn, Jr., Richard A.:
    Statement....................................................    35
    Prepared statement...........................................    54
Dodd, Hon. Christopher J.:
    Statement....................................................     3
    Prepared statement...........................................    60
Lugar, Hon. Richard G.:
    Statement....................................................     6
    Prepared statement...........................................    61
McHenry, Dr. William K.:
    Statement....................................................    32
    Prepared statement...........................................    64
Warner III, Dr. Edward:
    Statement....................................................    17
    Prepared statement...........................................    77



 Y2K & RUSSIA: WHAT ARE THE POTENTIAL IMPACTS AND FUTURE CONSEQUENCES?

                              ----------                              


                      TUESDAY, SEPTEMBER 28, 1999

                               U.S. Senate,
                 Special Committee on the Year 2000
                                        Technology Problem,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 10:02 a.m., in 
room SD-192, Dirksen Senate Office Building, Hon. Christopher 
J. Dodd (vice chairman of the committee), presiding.
    Present: Senators Bennett, Dodd, and Lugar.

  OPENING STATEMENT OF HON. ROBERT F. BENNETT, A U.S. SENATOR 
    FROM UTAH, CHAIRMAN, SPECIAL COMMITTEE ON THE YEAR 2000 
                       TECHNOLOGY PROBLEM

    Chairman Bennett. The committee will come to order. We 
appreciate your being here this morning. Senator Dodd, the vice 
chairman of the committee, will be chairing the hearing, and he 
is on his way. Prior to his arrival, I would like to make a 
comment or two about the subject of today's hearing.
    A serious social, economic, and political crisis began when 
Russia devalued the ruble and then defaulted on its debts. That 
was in August 1998. Little work has been done to investigate 
the long-term consequences that Y2K would bring to a Russia 
already on the edge. That, of course, troubles this committee 
since Y2K failures in key infrastructures such as power, 
banking, telecommunications, and defense could have some 
serious negative impacts on the stability of the Russian 
economy and on their political environment which already is 
wrought with enough problems.
    The international monetary fund announced last Friday that 
it would offer special loans to countries suffering serious 
economic damage from Y2K. The IMF certainly hopes that this 
financial assistance won't be needed, but they say in their 
statement: ``There are uncertainties, and the potential 
consequences for international trade and growth of possible 
interruptions to production and shipment may be significant.'' 
I think these uncertainties and potential consequences 
resulting from Y2K apply to Russia as much as they do to any 
nation.
    Now, Russia is not as highly networked and interconnected 
as is the United States, but it still relies on information 
systems and microchips. In fact, the information systems that 
survived the Soviet Era and remain in use are extremely 
critical. As many as 4,000 Soviet-era mainframes are estimated 
to support the operation of Russia's industrial and defense 
enterprises. It is believed that several hundred million 
dollars would be needed to repair these systems.
    The failure, disruption or corruption of these systems in a 
short span of time could create a unique and unexpected 
challenge to the economy. In the short term, the shock from 
serious Y2K failures could exacerbate Russia's downward 
economic spiral. Since such an event would unquestionably 
affect U.S. policy, we must proactively consider how we should 
respond to these failures if and when they should occur.
    From a long-term perspective, no one knows what the impact 
of Y2K inefficiencies will mean for the Russian economy as a 
whole. We must decide soon what our foreign policy will be with 
respect to Y2K failures. We cannot engage in diplomatic shell 
games until November 1999 and then glibly announce the U.S. 
foreign policy on Y2K. What is more, I fear that whatever 
policy the White House has arrived at may crumble when the 
first CNN footage hits the air, because very often the CNN 
footage determines the policy.
    What should U.S. policy be with respect to foreign Y2K 
failures? How will we prioritize national security, the needs 
of our allies, the needs of critical trading partners, and of 
course humanitarian needs? These will be very difficult 
decisions, and there will be no time for ``spinning'' 
decisions. Different decisions will demand prompt and careful 
attention.
    The U.S. does not have the resources to save the world. 
Indeed, if it weren't for the rapid actions of a member of this 
committee, Senator Stevens, who happens to double as the 
chairman of the Appropriations Committee, we would not have had 
the emergency funds to meet emergency requirements here at 
home.
    It is vital to remember that Y2K problems unfold over time. 
They do not all occur on January 1st. We, here in Washington, 
have expended a lot of effort to examine the immediate impact 
of Y2K, from sharing nuclear information to collecting 
information about telecommunications. However, we have given 
little consideration to what happens if and when problems 
emerge in late January or in March, and as our recent report 
makes clear, we expect the majority of those problems to emerge 
overseas.
    Now, since the dissolution of the Soviet Union, America has 
reached out to try to help the Russian Federation wherever it 
was prudent to do so. We are most fortunate to have one of the 
Senate's foremost Russian experts and a valuable member of the 
committee, who normally sits up here with us and today is 
sitting there, as our first witness.
    In 1991, Senator Lugar recognized the urgent need to help 
Russia move its nuclear and chemical weapons back within its 
sovereign borders. So he has been an early warning system, if 
you will, on these problems and what needs to be done to 
prepare ourselves and protect ourselves.
    Through Cooperative Threat Reduction, the U.S. and Russia 
collaborated to dismantle launchers and destroy chemical 
weapons in the newly independent states. It is precisely 
because of this expertise that we have invited him here today 
to share his thoughts about how assisting the Russians with Y2K 
fits into the broad goals of threat reduction.
    My only regret about this hearing is that I will be unable 
to stay for most of it. This hearing comes as a result of the 
initiative and energy of Senator Dodd who has on the committee 
provided the leadership to focus on these very problems. So 
Senator Dodd, the vice chairman of the committee, will chair 
this hearing today. I will do my best to get back as often as I 
can and stay as long as I can.
    Senator Dodd, the gavel and the hearing are now yours. I 
have said all I know about this.
    [The prepared statement of Chairman Bennett can be found in 
the appendix.]

 OPENING STATEMENT OF HON. CHRISTOPHER J. DODD, A U.S. SENATOR 
FROM CONNECTICUT, VICE CHAIRMAN, SPECIAL COMMITTEE ON THE YEAR 
                    2000 TECHNOLOGY PROBLEM

    Vice Chairman Dodd. Well, thank you very much, Mr. 
Chairman, and I appreciate the gavel. My only regret is this 
committee does not have legislative authority. But I thank you 
very, very much, Mr. Chairman, and let me join you in welcoming 
our colleague on this committee, and also the Senate, who we 
will hear from shortly on this issue. And he does bring, as you 
pointed out, a tremendous amount of expertise and has devoted a 
good part of his Senate career in the latter years, 
particularly on the Russian issue, working with Sam Nunn, our 
former colleague, on a number of proposals that I think have 
made a difference already, maybe not that have lived up to even 
his expectations of what we might accomplish, but without them, 
I think we would have been in a lot worse shape today.
    And while there is much to be concerned about within 
Russia, there is good news there too. We have a tendency to 
focus on all that is wrong, and there are a lot of problems, 
but today we hope to focus, if we can, on some of the critical 
Y2K issues, and certainly it is not the chairman's intention 
nor mine to engage in any beating up on Russia or embarrassing 
them. Quite to the contrary.
    Russia is now emerging as an important ally. We have a lot 
of common interests we need to work on together, and we need to 
find out ways in which we can be helpful in a positive and 
constructive way. So I am particularly anxious to hear what my 
colleague from Indiana has to say.
    And let me just share, if I can, a few thoughts of my own 
on this subject matter. The goal of the hearing, if I may say 
so, is to try to understand how these Y2K potential failures, 
both in the short and long term, may impact on current U.S. 
policy initiatives and what we can do to address these 
potential problems with respect to Russia.
    Home to almost 150 million people, Russia spans 12 time 
zones. It is the thirtieth largest trading partner of the 
United States. There is some 11,000 of our fellow citizens who 
live in Russia. Certainly, it is not the largest trading 
partner nor the biggest host to U.S. citizens, but we all 
recognize that Russia continues to be an important U.S. foreign 
policy concern for more than 50 years.
    Since the end of the cold war, U.S. policy goals with 
respect to Russia have broadly fallen into two categories: 
reducing the threat of nuclear weapons, and supporting Russia's 
efforts to transform its political and economic system. Both of 
these, I would stress, are long-term goals that admittedly will 
take years to achieve.
    Russians struggle with many difficult issues including the 
80 percent devaluation of the ruble in 1998. The government and 
financial instability has spurred capital flight of $1 billion 
a month to leave Russia. In the past year alone, Russia has 
lost some $15 billion in capital to foreign banks.
    Now, the country must, in the midst of all of this and 
there are many issues, confront the Y2K challenge. In March, 
the Department of State testified that the U.S. would need, and 
I quote them, ``a robust policy framework in order to 
prioritize responses to international Y2K failures''. I am 
interested to learn today what this policy framework will be 
with respect to Russia.
    Many policy experts have viewed Y2K as a short-term 
problem, one best left to ``techies'' and not likely to impact 
enduring policy concerns. Unfortunately, according to the 
Gartner Group, many Y2K problems will only emerge in the weeks 
and months beyond January 1, 2000, as the chairman just alluded 
to.
    Today the committee seeks to better understand Russia's 
highly unique situation and whether Y2K could erode stability 
that we take for granted in our ongoing bilateral initiatives. 
Before I go any further, I want to specify what I mean by long-
term Y2K concerns. Many organizations responsible for key 
Russian infrastructures lack the financial resources to make 
the necessary fixes. For example, Rostelecom, Russia's long 
distance and international carrier, is reportedly unable to 
upgrade its seven gateway switches and is choosing to 
implement, and I quote, ``workarounds''. Meanwhile, regional 
carriers have only just begun testing their networks.
    Lack of funding will force many to create their own ad hoc 
fixes, and while these ``workarounds'' are likely to prevent 
immediate failures and keep connectivity, they could degrade 
capacity. In short, Russia could lose communications capacity, 
stability, and profitability. In fact, you will hear testimony 
today about the fact that six out of seven direct communication 
links from Moscow to Washington that are used in times of 
crisis would experience--would experience--Y2K failures. Let me 
emphasize: That is six out of seven key national security links 
could fail and will fail if the fixes are not implemented.
    These critical links will be fixed, we are told, but what 
about the bulk of commercial communications? The United States 
has to carefully consider the impact of Russian infrastructure 
failures in our relations with them.
    Today we will also consider the concerns of the Department 
of Defense and State, along with Energy. On September 13th, the 
Department of Defense and the Russian Ministry of Defense 
signed an agreement indicating their intent to establish the 
Center for Year 2000 Strategic Stability during the year 2000 
transition period, a subject we have discussed many times in 
this committee. In this center, U.S. and Russian military 
personnel will sit side by side and continuously monitor U.S.-
provided missile and space launches information. I would like 
to remind the audience that Russia still has approximately 
6,000 strategic nuclear weapons and over 1,000 delivery 
systems.
    The center will also provide an important link to 
communicate other defense-related events that could be 
potentially destabilizing such as an aircraft going off course 
due to navigation or communication system Y2K failure. Last 
week, nine military officials from Russia were in Colorado to 
discuss the details of this proposal, and I am very optimistic 
and heartened by this turn of events in the last few weeks.
    Also last week, the Congress passed the Defense 
Authorization Bill. It is now waiting to be signed into law, 
which may happen, in fact, even today or tomorrow or the next 
day. This bill provides for over $475 million for Cooperative 
Threat Reduction programs. In August, the Russian Ministry of 
Defense requested $15 million to address Y2K-related security 
risks for the control and protection of weapons-grade nuclear 
materials. This bill requires Russia be recertified by the 
administration. I am told that will be a part of this effort 
and part of this bill. So that is good news. Unfortunately, it 
can take several months, but we hope that we won't lose any 
time in this matter.
    Reliable energy is of key importance to the entire nation. 
In August, with unified energy systems, the Russian electrical 
monopoly cut power to some 20,000 customers just to save fuel 
for the winter. What this means is that fuel reserves for 
Russia's electrical power monopoly will be as low as the 
country heads into Y2K. The Department of Energy is working 
closely with Russia as it develops the necessary contingency 
plans that will be needed to maintain grid stability.
    Nuclear power plants are a serious concern for Russia. 
Russia has 29 nuclear power reactor units in operation at 9 
different sites. Western-style nuclear power plants employ an 
uncompromising set of in-depth safety elements, including a 
massive reinforced concrete structure called the containment 
facility, to prevent the release of radioactivity. Most Soviet-
designed reactors do not have such a containment structure. The 
most infamous plant without a containment structure is the 
Chernobyl-style reactor, and there are 11 of these reactors at 
three locations in Russia.
    While these plants do not have direct Y2K vulnerabilities, 
they can only withstand a loss of power for approximately 90 to 
120 minutes before they begin to have core damage. In a country 
where disruptions of power supply are common before Y2K, 
special consideration needs to be paid to the months and years 
beyond Y2K to reduce the chances that sudden power loss could 
compromise the power plant safety.
    Primary plant safety systems are on the front line of 
defense against accidents, and no Y2K issues have been found 
here. However, other systems important to safety and plant 
operations are of concern, such as plant process computer and 
information display systems. A Y2K-related malfunction in these 
systems would complicate operations and increase the chances of 
operator error. Operator error, as we all know, ultimately led 
to the Chernobyl accident. The combination of human error and 
computer error is one of the greatest Y2K challenges for Russia 
and the rest of the world.
    So with those initial thoughts, again I want to thank the 
chairman for holding the hearing, for his untiring efforts on 
these issues, but particularly this one as well, and to thank 
our witnesses in advance for their participation today and to 
particularly thank you, our colleague from Indiana, for his 
presence here this morning, and Senator Lugar, we are anxious 
to hear your thoughts.
    [The prepared statement of Vice Chairman Dodd can be found 
in the appendix.]

  STATEMENT OF HON. RICHARD LUGAR, A U.S. SENATOR FROM INDIANA

    Senator Lugar. Thank you very much, Mr. Chairman. It is a 
privilege to be with you today. I want to talk about U.S.-
Russian cooperative activities in response to the Y2K computer 
problem.
    Since the end of the cold war, I have taken a great deal of 
interest in U.S. policy toward the former Soviet Union. As the 
Soviet Union began to break apart in 1991, Russian leaders came 
to former Senator Nunn of Georgia and me and pointed out the 
dangers of the dissolution of a nuclear superpower.
    The viability of the entire Soviet weapons custodial system 
was in doubt. There were tons of weapons and materials of mass 
destruction spread across hundreds of sites in Russia and other 
former Soviet states. Russia requested our cooperation in 
securing and dismantling its nuclear arsenal and weapons-usable 
materials, and this was the genesis of the Nunn-Lugar 
Cooperative Threat Reduction Program.
    This was not a problem that Congress wanted to deal with in 
1991. The atmosphere was decidedly against any initiative that 
focused on a foreign problem. Americans were tired from the 
cold war and the Gulf War, and yet we brought together a 
nucleus of Senators who saw the problem as we did. The Nunn-
Lugar program was passed in the Senate by a vote of 86 to 8 and 
went on to gain approval in the House and was signed into law 
by President Bush.
    While much remains to be done, the Nunn-Lugar scorecard is 
impressive. It has facilitated the destruction of 365 ballistic 
missiles, 343 ballistic missile launchers, 49 bombers, 136 
submarine missile launchers, 30 submarine-launched ballistic 
missiles. It has sealed 191 nuclear test tunnels, and, most 
notably, 4,838 warheads that were on strategic systems aimed at 
the United States have been deactivated, all at the cost of 
less than one-third of a percent of the Department of Defense's 
annual budget.
    Without Nunn-Lugar, Ukraine, Kazakstan, and Belarus would 
still have thousands of nuclear weapons. Instead, all three 
countries are nuclear weapons-free.
    I offer this as a useful example to cope with another 
problem that has arisen in our post-cold war relationship, 
namely the impact of Y2K. The atmosphere surrounding the 
current Russian-American relationship and its implications for 
our national security are not unlike those that existed in 
1991. I believe that it is in the United States' national 
security interest to again cooperate with the former Soviet 
Union to reduce the threats our country may face.
    Mr. Chairman, we do not know what is going to happen to 
Russian computer systems when we pass into the millennium, and 
neither do they, but initial estimates do not appear to be 
promising. In May, the American Chamber of Commerce in Russia 
pointed to a study that paints a disturbing picture of the 
impact of Y2K in Russia, and I quote: ``Utilities will operate 
at 40 percent of capacity for the first 2 months of the year 
2000. Transportation will be disrupted 80 percent of the time 
and telecommunications 50 percent of the time for a 3-month 
period. Hospitals will be forced to treat only emergencies for 
at least 2 months. Financial markets will be disrupted for 30 
trading days, and banks will be disrupted for 20 business 
days.'' Obviously, these estimates are disturbing and beg the 
question of whether similar problems will affect the Russian 
military and strategic forces.
    I am not going to push the panic button. In my visits to 
Russia and in briefings and conversations with experts on these 
subjects, I have been convinced that the chances of an 
accidental missile launch as a result of a Y2K problem are 
almost nonexistent, but Y2K may cause other problems in Russian 
strategic systems.
    It is in our interest to take out a kind of insurance 
policy to ensure that the transition to the new millennium does 
not exacerbate the situation. Cooperative activities and 
programs that reduce these threats are in our national security 
interest, that of the United States and that of Russia, 
provided they are implemented in a responsible manner.
    Experts agree that cooperation over the transition period 
needs to center on three specific areas: early warning systems, 
nuclear weapon security, and nuclear power plants.
    Our Department of Defense began discussing the potential 
impact of Y2K with Russian counterparts in June 1998. These 
efforts culminated in an agreement to establish a Center for 
Y2K Strategic Stability in Colorado Springs, Colorado. The 
center will ensure that for the last few weeks of December 1999 
and the first weeks of January of the year 2000, U.S. and 
Russian military officers will sit side by side and monitor 
early warning data generated by satellites observing missile 
activity around the world to ensure that potential mishaps 
caused by Y2K do not lead to strategic miscalculations and 
mistakes.
    Mr. Chairman, it is in the interest of the United States to 
ensure that Russia understands the kinds of problems they may 
encounter with strategic systems so that there are no surprises 
or confusion on January 1. We want them to understand that 
their problems are Y2K-related and not a result of U.S. hostile 
action for which they need to respond. This requires 
consultation, awareness of potential Y2K failures, and training 
of key personnel, and this kind of cooperation is clearly of as 
much value to the United States as it is to the Russians.
     Russian early warning operators may not be able to tell 
the difference between a peaceful rocket and a military rocket 
from their computer screens. Russian early warning capabilities 
continue to deteriorate, and this deterioration will be 
compounded by the transition to the year 2000. Russian Major 
General Dvorkin recently suggested that the Y2K problem could 
lead to incorrect information being transmitted, received, 
displayed, or complete early warning system failures. We should 
heed those concerns.
    I am sure we remember the convulsions the Russian command 
and control system endured several years ago when a peaceful 
Norwegian rocket launch activated President Yeltsin's nuclear 
briefcase. Fortunately, the Russians realized their mistake.
    The center in Colorado is meant to create an atmosphere for 
both sides to work together to resolve any missile launch 
detection, false alarms, or other ambiguities that may arise. I 
am hopeful the Russian military officers serving on the second 
floor building of 1840 at Peterson Air Force Base will, in the 
event of a Russian malfunction, be able to provide Moscow with 
the accurate information and data necessary to eliminate 
misperceptions.
    The continuous safe and secure storage of the Russian 
nuclear stockpile is the second area that will be complicated 
by Y2K. Over the last six or 7 months, the Department of 
Defense has sought to engage its Russian counterparts on the 
nuclear warhead protection, control, and accounting systems. 
Early in the discussions, the Russian Ministry of Defense 
admitted it had not considered the impact Y2K could have on 
their systems. The need for U.S. assistance in the area is 
clear. As members of the Senate, we have had countless 
briefings on the groups of individuals attempting to illicitly 
acquire these weapons.
    More recently, the Russians have made substantial progress 
in acknowledging and responding to these potential problems. 
The Russian Ministry of Defense is committed to establishing 
and maintaining special Y2K monitoring stations at their 
largest warhead storage facilities. Stations will be manned 24 
hours a day by officers specially trained to monitor physical 
security, environmental controls within the facility, 
telecommunications, and power levels. These efforts and 
establishments mark a tremendous improvement.
    At Pentagon urging, the Russian have conducted capability 
assessments to gauge their ability to respond to an emergency. 
Unfortunately, the results of the assessments were not 
encouraging. Due to the lack of appropriate response equipment, 
it is clear there are significant deficiencies in their 
capabilities to respond to intrusions and other potential 
threats. Our Defense Department is seeking to assist Russia in 
these efforts through other Nunn-Lugar programs.
    The Russian Ministry of Defense has requested approximately 
$15 million in equipment to upgrade their ability to respond to 
an emergency. I understand that Assistant Secretary of Defense 
Warner will testify later, so I will not attempt to describe 
the details of that assistance, but I have been told that the 
Pentagon has reviewed the request and has determined it to be 
reasonable and consistent with the Nunn-Lugar conditions and 
restrictions.
    Mr. Chairman, the Pentagon reports that a portion of the 
request can be fulfilled immediately using prior year Nunn-
Lugar monies. However, the remainder of the Y2K assistance must 
await a recertification requirement in the Fiscal Year 2000 
Defense Authorization Conference Report. The executive branch 
is hopeful the process will be completed on or around October 
1.
    Mr. Chairman, this committee must watch the situation 
closely. I believe the delivery of this assistance to be in 
United States' interests. Delays and the recertification 
process might possibly slow Y2K assistance to the point where 
the equipment arrives after the first of the new year. The 
Senate must view this additional and redundant recertification 
as a self-inflicted wound that must not be permitted to 
interfere with important national security goals. This 
committee, the Senate Armed Services Committee, and the 
Committee on Appropriations must be prepared to expunge such 
duplicative requirements should American interests dictate.
     Mr. Chairman, I have learned this morning, and you related 
that there is optimism that the recertification certificates 
can be signed, that it can be a part of the Presidential 
signature of the Authorization Bill, and we hope and pray that 
that will occur as promptly as possible.
    The potential threats emanating from Y2K problems in 
Soviet-designed nuclear reactors is a third area of concern. 
Historically, safety mechanisms and procedures at these 
reactors are poor. The reactors suffer from deficiencies in 
design, operator training, and safety procedures. Reactor 
operations and support staff face low and erratic pay, training 
shortfalls, and deficiencies in safety procedures.
    Unfortunately, these problems are compounded by a very late 
start in preparing for the transition to the new millennium by 
the states of the former union and central and eastern Europe. 
Although neither a melt down or a failure of primary safety 
systems is likely, it is in our interests to continue to work 
to prevent these potential threats.
    Many believe that Soviet-designed reactors are immune to 
Y2K-generated problems because they utilize older analog 
systems, but this is incorrect. Digital overlays were installed 
to improve performance, monitoring, and safety response and are 
susceptible to Y2K problems. If these systems were to 
malfunction, operators could be blind to some reactor functions 
or receive erroneous data that could lead to improper actions. 
In U.S. reactors, this would not pose a problem because of 
built-in redundancy of our systems. Unfortunately, redundancy 
is not present in most Soviet-designed plants.
    Reviews of Soviet-designed reactor susceptibility to Y2K-
induced problems revealed that host countries lacked the 
resources to conduct threat evaluations, and significant safety 
issues were at stake. Officials of the Department of Energy 
worked closely with their counterparts to develop assessment 
guidelines in order to determine potential problems that might 
arise during the millennium transition.
    U.S. expert assistance was crucial in overturning initial 
complacency expressed by these nations. The Department of 
Energy played an important role in completing the detailed risk 
assessments of the various Soviet-designed reactors and 
providing assistance to begin remediation of hardware and 
software problems. It is clear that without the Department of 
Energy's efforts, the risks of an accident would have been much 
higher.
    Given the existing timeframe, it is too late to fix every 
Russian system. Our efforts must continue to concentrate on 
reactor safety systems, contingency planning, and engagement 
with the Russian Ministry of Atomic Energy on these subjects. 
Transparency and consultation in these areas are in U.S. 
interests. Furthermore, I believe our country must make every 
effort to warn Americans abroad, living or working near these 
reactors, of the problems they may face as a result of Y2K.
    One of my personal concerns is the impact of local and 
Federal Government pressure to keep Soviet design reactors on 
line in the face of strain and uncertainty. It will be the dead 
of winter with temperatures propping far below freezing. Local 
and state Governors and mayors in Russia, as well as officials 
in national capitals, will be loathe to permit nuclear reactors 
to shut down. Political pressure, in addition to monitoring 
failures and the loss of offsite power, may contribute to 
failures in judgment which could lead to accidents.
    Recently, Russian Atomic Energy Minister Adamov reported to 
a conference in London that he believed that Russia had 
achieved ``the same level of safety as western units, end of 
quote''. He went to explain that the rate of unplanned shutdown 
at Russian reactors were equal to that of Germany and lower 
than France and the United States. I am hopeful his confidence 
is borne out, but it is in our interest to continue to 
cooperate in alleviating the problems inherent in the 65 
nuclear reactors at 20 sites in 9 countries of the former 
Warsaw Pact and former Soviet Union. If not handled properly, 
these reactors could prove threatening to American interests. 
We must not forget that one of these sites is less than 130 
miles from Alaska.
     Mr. Chairman, I began my testimony with the recommendation 
that we view efforts to eliminate potential threats to U.S. 
security from Y2K-generated problems in Russia as an insurance 
policy. In my opinion, an insurance policy in this area is a 
good investment. The cost of efforts to address potential 
threats today will be minuscule in comparison to the cost of 
responding to future tragedy should an accident occur.
    I understand that the atmosphere today may not be all that 
conducive to engagement and cooperation with Russia. 
Congressional committees are investigating allegations of 
corruption of Russian government officials. As I indicated in 
my introduction, the Senate has faced similar circumstances 
before, and there are many parallels between the mood today and 
that which Senator Nunn and I faced in 1991, but I would 
encourage my colleagues to once again look to the future and to 
examine the benefits of cooperating with Russia on Y2K versus 
the potential costs of inaction.
    In 1991, the Senate courageously supported the Nunn-Lugar 
program in the face of widespread discontent with foreign 
affairs. That investment has paid tremendous dividends in our 
national security. I would urge this committee and the Congress 
to once again provide our country with the leadership necessary 
to protect that national security. I am not suggesting a blank 
check for Moscow, but our government must again engage the 
Russian people through the auspices of the Department of 
Defense and Energy and our private sector. Strict management 
and accountability of cooperative efforts with Russia will 
protect our investments. We have made important progress. It is 
clear there is much work to be done.
    I praise your foresight and that of the chairman in 
examining these issues, and I look forward to working with you 
as a member of the committee on the threats facing our country.
    Vice Chairman Dodd. Thank you very, very much, Senator 
Lugar. That is excellent testimony, and I just want to pick up 
on your last comments. I think it is very, very important, and 
this is not--we are not talking about a blank check here, 
obviously. That would be unacceptable, but the important notion 
of staying engaged here during this critical period, even if 
the Y2K issue were not an issue here, I would make the same 
case, as I am sure you would.
    But this does give us an opportunity to reconnect in a way, 
because I think so much of what we hear of our country deciding 
we're going to disengage or spend our time investigating what 
is going on in Russia, while it has legitimacy to it, if that 
is the only news that is coming out of Washington, then I think 
it is going to be harder to build those necessary bridges that 
are going to be essential for the kind of cooperation on a 
whole host of other areas. And while Y2K poses some serious 
problems, as you have pointed out, it also creates some 
significant opportunities.
    So I am hopeful in light of what we have heard now, by the 
way of the signing of the DOD Authorization Bill, that the 
recertification package can go forward, and we don't have to 
wait these necessary weeks and months, I think is positive news 
and will allow us to provide some necessary assistance.
    I just wonder if you might comment on the progress of Nunn-
Lugar with regard to the 6,000 warheads, the 1,000 launch 
systems that still exist. What prospects do we have of 
continuing to reduce these kinds of numbers, in your view, in 
the coming months and years?
    Senator Lugar. I think the prospects are substantially in 
our favor on both sides. Clearly, the Senate has been 
discouraged because we ratified Star II some time ago. Duma has 
not done so, despite numerous delegations approaching our 
colleagues in Russia and elsewhere. At the same time, as the 
chairman is aware, delegations of distinguished Russian 
military officers have come to this country, and many of us 
have visited with them, discussing what they see as a potential 
outline for a Star III treaty or a Star IV or something beyond.
    Sometimes radical ideas are given of reduction of warheads 
to 2,000, each level, or maybe 1,500, or some suggesting even 
1,000 as opposed to the 3,500 level more or less that Star II 
contemplated. As a practical matter, both sides are reducing 
their weapons because of obsolescence factors, and one of the 
factors for the nuclear weapons--as well as the Y2K steps that 
we are talking about accidents, accidents that could envelope 
citizens in the homeland, and as time goes on the problems of 
maintenance are more and more acute. So this is leading in a 
practical way to constructive destruction of these situations. 
Hopefully, it will be the proper framework the Star regime has 
given, because that gives assurance to both sides and some 
degree of verification that is more satisfying than an ad hoc 
reduction sort of outside that framework.
    Vice Chairman Dodd. I wonder if you might--I wish I could 
tell you this was an original idea I had had, but so often 
Senator Moynihan proposes suggestions and ideas that are a bit 
ahead of their time, and when this proposal dealing with the 
Colorado Springs facility first surfaced, he made the casual 
comment that it might not be a bad idea to examine the 
possibility--obviously, you want to set up this framework 
first, but the possibility of having a permanent facility 
beyond the Y2K issue.
    And I wonder if you might just give your own thoughts on 
that prospect, realizing of course, one step at a time, we have 
got an initial problem we have the deal with. But do you think, 
one, it is a good idea? Two, what do you think the 
possibilities are that we might be able to establish such a 
permanent facility?
    Senator Lugar. I think the possibilities are excellent. It 
depends very largely upon Russian cooperation. The Cooperative 
Threat Reduction programs we are talking about are a very 
substantial intrusion into Russian space and into Russian 
planning. Often Americans ask why are Americans involved in 
destroying Russian missiles, warheads containing Russian 
material, and the good answer is obviously that Russia 
understands the potential proliferation for accidents, for 
maintenance problems. Without the money, without the resources 
in their defense budget to do these things they would not be 
done, or they would be done poorly with very great risk to the 
Russians and the world.
    Now, this has meant that even in the ups and downs of the 
Russian political relationship, the Cooperative Threat 
Reduction program has flowed on annually because both sides 
realize this is really crucial. It is not that the politics of 
the country are inessential, but when it comes down to it, 
human life, large portions of the country are at stake. So this 
leads, it seems to me, toward more and more cooperative 
watching of what we are all doing, the building of confidence 
in this situation, and it is something that I think we ought to 
foster.
    I agree. The Colorado Springs situation, this may be a 
blessing of Y2K that has brought us together in this very 
constructive maneuver there.
    Vice Chairman Dodd. There are obviously significant 
differences when expending potential membership in these 
cooperative efforts, but clearly, although China deals with its 
nuclear weapons in a very different way than Russia does, 
Pakistan and India come to mind immediately as potentially 
other nations that we could draw into Cooperative Threat 
Reduction efforts, and I wonder if you might just share 
thoughts on whether or not does that complicate the primary 
task of dealing with United States and Russia's relationship in 
this area? It is premature to be talking about that?
    Senator Lugar. No. I don't think it is premature. It 
requires cooperation. To take the case of India and Pakistan, 
invitations on their parts for us to be a part of their 
situation, those invitations have not been forthcoming, but 
nevertheless, they might be given the right circumstances. I 
suspect, too, the Russians are interested in a cooperative 
effort with the United States vis-a-vis other situations, and 
our agenda in Russia is with treaties we have already ratified 
such as a chemical weapons convention in which the Russians 
have ratified this.
    We all have testified. There are 40,000 metric tons of 
chemicals at seven locations. They are fairly well defined, and 
we believe fairly secure given cooperative work, but almost 
none of those chemicals are being destroyed in Russia. The 
budgetary resources simply are not there. So, once again, we 
are going to have to make some judgments. It is not a question 
of intrusion on Russian space but as a practical matter.
    Is it dangerous or not for 40,000 metric tons to continue, 
even as we here in this country for our own protection 
wrestling with this destruction of the chemical weapon stock?
    Vice Chairman Dodd. And, as you point out, of course the 
first nation to suffer with deterioration was Russia itself.
    Senator Lugar. Yes.
    Vice Chairman Dodd. We could probably just spend the day 
just on these issues alone, and obviously we have got a Y2K 
issue to look at. So, again, I thank you for your testimony. It 
has been very, very helpful, and your continuing efforts in 
this regard, you are really recognized by both sides of the 
aisle, as we say, Democrats and Republicans, as truly the 
leader in the Senate on these issues, and we respect your 
judgment and thoughts immensely.
    So you are more than welcome to join us up here. You may 
have a busy schedule, but I hope you will spend some time with 
us.
    Senator Lugar. Thank you.
    Vice Chairman Dodd. Thank you very much.
    [The prepared statement of Senator Lugar can be found in 
the appendix.]
    Vice Chairman Dodd. And now we will go immediately to our 
next panel. Panel II consists of three agencies dealing with 
Russia. Our witnesses include--and I will ask them to join us--
John Beyrle--did I pronounce that correctly?
    Mr. Beyrle. That is right, Senator. Thank you.
    Vice Chairman Dodd. John, we welcome you. John is the 
Deputy for the Ambassador at Large and Special Advisor to the 
Secretary of State for Russia and the newly independent states. 
We thank you for being with us.
    The Honorable Edward Warner, III is the Assistant Secretary 
for Strategy and Threat Reduction at the Department of Defense, 
and we thank you for joining us.
    And Ken Baker is the Principal Deputy Assistant Secretary 
for International and National Security at the Department of 
Energy, and, Mr. Baker, we thank you for joining us as well.
    Why don't I ask you to begin in the order that I have 
introduced you, if that is appropriate. And I have got this 
annoying clock up here, but you have all testified on numerous 
occasions, and you will appreciate that Senator Lugar and I 
would urge you to try to get these reports down as tight as you 
can, but I will leave the clock on only as sort of a trigger in 
your own mind. I know I have used it periodically as sort of 
where we are here.
    What do we have that clock set to? Seven minutes. Why don't 
we do it at seven, but don't feel obligated. If you need to go 
on a few more minutes, don't stop, but that might be of some 
help.
    Again, I thank all of you for your continuing cooperation, 
and we are very interested to hear what you have to say this 
morning about where things stand as we are at 94 days, 23 
hours, 50 minutes, and 24 seconds.
    Mr. Beyrle, your testimony.

 STATEMENT OF JOHN BEYRLE, DEPUTY FOR THE AMBASSADOR AT LARGE 
 AND SPECIAL ADVISOR TO THE SECRETARY, THE DEPARTMENT OF STATE

    Mr. Beyrle. Thank you very much, Mr. Chairman. I would like 
to say it is a real honor to follow Senator Lugar on this 
panel. As one who has spent much of his adult life thinking 
about and dealing with problems of the Soviet Union and Russia, 
I have tremendous respect and admiration. I have to say that, 
Senator Lugar, what you have done has been a real inspiration 
of many of us in government. So it is an honor to follow you, 
sir.
    I am pleased to have the opportunity to discuss the 
potential impacts and the consequences for the Russian 
Federation of the year 2000 computer problem here. I have a 
longer statement, Mr. Chairman, which I will ask be entered 
into the record, and I will summarize it here in the interest 
of the time.
    I think that the fact that focus of this hearing is solely 
on Russia and Y2K is evidence of the justifiable concern of the 
Congress and the American people on just how the potential for 
disruption associated with this change over to the millennium 
might affect our national security. Now, the two areas that 
pose probably the greatest potential risk to our national 
security are those being nuclear weapons and related questions, 
and nuclear power will be addressed by my colleagues from the 
Departments of Defense and Energy.
    For my part this morning, I would like to open our 
discussion by providing a brief overview from the perspective 
of the State Department of our current assessment of some of 
Russia's Y2K preparations. I would like to emphasize at the 
outset that our assessment of Russia's vulnerability to Y2K is 
an ongoing iterative process. We have been and remain 
continually engaged with Russia, the Russian Government, in an 
effort to gather the information we need to make a definitive 
assessment in the areas of greatest concern or those that have 
the most direct impact on American interests.
    In general, the amount and the quality of information 
available has not been optimal, but it has been sufficient for 
us to make some evaluative judgments in these key areas, and 
these are judgments that we are continually reassessing or 
refining as the situation on the ground changes or as new data 
become available. But the year 2000 technology problem is, as 
this committee well knows, without precedent in history and 
uncertainty shadows all of our efforts to deal with it.
    With regard to Russia, especially the challenge lies in 
assessing how this uncertainty translates into risk. We don't 
underestimate the potential disruptions that Y2K may bring to 
Russia, but at the same time we need to evaluate such problems 
realistically. Russia's success in navigating the Y2K 
transition throughout its society rests in large part on its 
ability to minimize its electricity and communications 
disruptions, and thus I would like to concentrate this brief 
overview on our analysis of the electrical and 
telecommunications sectors.
    Russia is likely to experience disruptions in its 
electrical grid and telecommunications infrastructure with 
subsequent effects on its financial, industrial, and government 
sectors. At this time, we do not foresee severe long-term 
disruptions. Our analysis of Russia's electricity sector 
indicates the larger cities, Moscow in particular, are likely 
to be much less affected by outages than will be the 
countryside. We attribute this partially to the Russian 
government's traditional concern and attention to urban 
populations which dates back many decades, as you know. In 
fact, as we understand the electrical sector priorities, power 
to the countryside might be reduced temporarily in order to 
ensure that the cities are not deprived. If the overall 
integrated power system is not fully functional, this could 
result in power deficits, perhaps lasting several days to 
smaller towns and villages.
    The power utility's ability to supply electricity will 
likely vary from region to region. For example, the far east 
will likely face the greatest risk of power loss or shortages. 
On the other hand, because of the economic contraction of the 
past decade, many areas are currently using much less power 
than previously was the case, and when combined with the 
extended holiday period which decreases electricity demand, 
this should result in some excess generation capacity. In turn, 
this should reduce the stress on the electrical grid and 
provide a bit more flexibility to the power generation and 
distribution operators to work around the problems that may 
develop in individual plants.
    It is not secret that Russian winters are cold. Most of us 
have spent time in them. Any disruption of the heating systems 
in Russia thus could have serious and potentially life threaten 
consequences. The reliability of the heating systems is tied 
closely to the availability of electricity.
    In larger cities such as Moscow, heat is provided mostly by 
natural gas-operated heating plants. Coal-fired plants are more 
common in the small cities and towns. These plants are analog 
and shouldn't be affected by Y2K, but once again, electricity 
is required to run the pumps that pump the water through and 
return it.
    A somewhat greater potential for disruption, in our view, 
lies with the Russian telecommunications sector. There are two 
to three thousand domestic telephone companies around the 
country, and they use a wide variety of equipment produced both 
domestically and abroad. We believe that some of that equipment 
contains embedded microprocessors that aren't Y2K compliant. 
The consequences of this are that some of the systems will 
likely fail, disrupting normal telecommunication services, and 
it could take the telecommunication companies days, maybe even 
weeks, to track down and repair all the failures.
    Russia has access to updated telecommunication satellites 
which we believe to be Y2K compliant. Less clear, however, is 
the status of the ground-based links, some of which may rely on 
embedded chips. The government and telecom providers are 
working to minimize disruptions, but we doubt that they have 
sufficient time or resources to resolve all the problems in 
time.
    Many vital industries and government entities have one or 
more backup communications systems. We believe, for example, 
the Soviet-era internal phone system that connects many 
government ministries and the Kremlin should continue to 
function. The electricity monopoly UES has its own 
communications system using power lines as well as other backup 
systems, and key energy players like Gazprom, for example, also 
have doubly redundant backups which should provide some measure 
of security in these key sectors.
    Given the efforts that Russia has made in remediating 
potential Y2K disruptions and in making contingency plans, at 
this time we are hopeful that we will not need to reduce staff 
in our embassy and three consulates in Russia. We expect to 
make a final determination on this in mid-October. Nonetheless, 
we are advising U.S. citizens who will be in Russia over the 
millennial transition to be prepared for possible disruptions, 
especially in key sectors like electricity, heat, and 
telecommunications. And as always, we strongly urge all U.S. 
citizens to register at one of our missions and remain in 
contact for updated information.
    The U.S. has worked closely with key sectors in Russia to 
prepare for transition. We focus particularly on those areas 
related to national security, as my colleagues will relate. In 
addition, however, thanks to funds appropriated by Congress, we 
have carried out a number of activities with and inside of 
Russia. Beginning earlier this year, we cooperated with the 
Russian Government, the World Bank, and the International 
Energy Agency, and the American Chamber of Commerce in Russia 
to conduct a series of workshops and seminars in Russia on the 
Y2K issue. We have sent U.S. experts to Russia, and we funded 
the travel of Russian experts to various international meetings 
and conferences.
    USIA has also developed a Russian language web site on Y2K 
to provide basic public information about the problem. However, 
a recent poll indicated that only 50 percent of Russians 
surveyed had even heard of Y2K. I think that compares with 
something like 70 to 80 percent in our own country. So clearly 
the Russian Government still has a way to go in bringing the 
reality of Y2K to its own citizens, and we want to continue to 
be able to help them to do that.
    Our experience in attempting to help or even obtain 
information on the extent of the problem in some sectors has 
been mixed. Some agencies, such as the electricity monopoly, 
have been open to technical exchanges, but for much of the 
Russian Government, transparency still comes hard. To 
illustrate, one key ministry refused to meet with the U.S. 
embassy officials to discuss their Y2K preparations because 
they didn't want to ``spread rumors''. We will continue to seek 
satisfactory answers on behalf of the many Americans who live 
in or do business with Russia.
    Mr. Chairman, in conclusion, allow me to make a very few 
brief general points. First, in assessing Russia's overall 
vulnerability, it is important to bear in mind, as Chairman 
Bennett noted in his opening statement, that much of the 
country's infrastructure is less dependant on computer 
technology than is the case in the west. This fact tends to 
lessen the risk of large-scale systemic failures in favor of 
more localized problems that can be fixed more easily and more 
quickly. Unfortunately, this has also led to a certain 
complacency on the part of some in the government and financial 
community and tendency to understate the actual risk potential.
    Second, the level of technical and engineering expertise in 
Russia is relatively high. Programmers and engineers are 
prepared to deal with the shocks and aftershocks as the 
millennium rolls over. These experts were schooled in the 
communist era of shortages when the unavailability of 
replacement systems meant fixing and re-fixing and re-fixing 
again, and thus they have been compelled to become intimately 
familiar with their systems, and they can be creative and 
resourceful in dealing with novel or unanticipated problems.
    But it is also important to remember that the Y2K problem 
is unprecedented, and it is of potentially large-scale 
magnitude. So even with the best will and capabilities, there 
are going to be too many problems to deal with immediately, and 
it is far from clear to us that Russia has sufficient resources 
to deal effectively with all the consequences.
    How long might disruptions last? Russia may continue to 
experience Y2K-resulting problems in some sectors for months 
after the new year, as was noted earlier, and it could take 
some time for any temporary fixes to be replaced by permanent 
solutions. It is going to be prudent for us to view post-Y2K 
Russia in a similar way that we are viewing pre-Y2K Russia, as 
a country that may continue to rely on U.S. and other 
international help in overcoming computer related disruptions. 
We intend, of course, to maintain close contact with key 
Russian sectors before and after the new year to continually 
assess new developments.
    Mr. Chairman, I want to thank you again for the opportunity 
to address the committee and for the leadership you and your 
colleagues have shown in maintaining a focus on what is really 
a critical issue that probably hasn't gotten the attention it 
needs, and we look forward to keeping in touch with you and the 
committee and your staff to help ameliorate the impact of Y2K 
on American national interests.
    Thank you.
    Vice Chairman Dodd. Thank you very much.
    [The prepared statement of Mr. Beyrle can be found in the 
appendix.]
    Vice Chairman Dodd. Mr. Warner.

  STATEMENT OF HON. EDWARD WARNER, III, ASSISTANT SECRETARY, 
      STRATEGY AND THREAT REDUCTION, DEPARTMENT OF DEFENSE

    Mr. Warner. Thank you, Senator. I am also very pleased to 
be here today to discuss the cooperation on Y2K issues between 
the Department of Defense and the Russian Ministry of Defense. 
I share with Mr. Beyrle the great respect for Senator Lugar. I 
am the latest of a number of individuals that have had the 
opportunity to administer the Nunn-Lugar Cooperate Threat 
Reduction program. It is a terrific program. It has played an 
important role. It has much wider scope, as the two of you 
discussed just a few minutes ago, and I would be happy to 
respond to any of your questions on that set of issues as well.
    We have also appreciated the support of your committee, of 
both the members and the staff that from the very outset have 
helped provide us with the resources and certainly with the 
encouragement that we ought to be working with the Russians in 
this crucial area.
    What I would like to do is I have provided a much more 
detailed statement, and I would really like to simply highlight 
some of the areas in which we are engaged in cooperation with 
the Russians on Y2K. In your letter inviting me here, one of 
the questions you asked was what is the relative role of this 
cooperation in our overall pattern of cooperation with the 
Ministry of Defense, and let me say it has become one of the 
flagships of that cooperation during this year, which has been, 
thanks to our differences over Kosovo, a difficult year, but as 
I will note, we got underway our discussions with the Russians 
beginning as early as last fall.
    We began to gather serious momentum with a meeting in 
February that scheduled a series of follow-up meetings later in 
the spring. Unfortunately, of course, given our strong national 
differences over the events in the Balkans, most of our 
cooperation with Russia was put on hold for several months. A 
single exception to that, by the way, was the Cooperative 
Threat Reduction program where, even in the midst of strong 
differences, the Russians found it most certainly worth their 
while to continue this very constructive and important 
cooperation.
    Nevertheless, the re-engagement with Russia more broadly on 
defense matters didn't begin to occur until August, and again 
in the lead in that re-engagement with a couple of meetings on 
Y2K-related matters, as I will note in just a couple of 
minutes. By late August, we had a secured agreement from the 
Ministry of Defense to begin our broad agenda of cooperation 
once again and led to an important event on the 13th of 
September when Secretary Cohen visited Moscow and signed with 
Minister Sergeyev the joint statement to set up the Center for 
Strategic Stability for Y2K out at California Springs, and I 
will speak to that more in a moment.
    We have a series of further engagements with Russian expert 
counterparts scheduled throughout the rest of this year, 
leading right up to the transition, and given the fact the 
transition itself will really not culminate only on the first 
of January, I am sure we will remain in touch with them in the 
months following that because the Russians, like us, have 
identified the opening quarter of calendar year 2000 as a 
critical one in this area.
    Let me speak briefly about the five areas in which we are 
cooperating with the Russians through the Department of 
Defense. One of them is on direct communications or hot lines, 
first of which dates back to the one installed in the wake of 
the Cuban Missile Crisis in the sixties and others that have 
been added in more recent years. Another has been the 
discussion of the overall management of Y2K problems within our 
respective ministries, if you will. A third has been the 
question of nuclear weapon stockpile security, the one that 
Senator Lugar already referred to and I will speak a bit on 
this issue as well. A fourth had been the command and control 
of nuclear forces, and a fifth is the establishment of the 
Center for Y2K Strategic Stability that will be created in 
Colorado Springs.
    On the question of hot lines, we have had a continuing 
relationship with the Russians, and we have increased the 
number of both data and voice links between the top leaders in 
our governments and between risk reduction centers that were 
instigated by the Congress in the mid-1980's. That work began 
almost a year ago. It has gone on with periodic meetings.
    As we now reach the point here of the early fall, we have 
agreed on a series of measures. We are working with them to 
replace key software associated with the hot lines at our end 
and their end of these communications links. We are also, over 
the next couple of months, going to set up alternative circuits 
to sustain communication, including INMARSAT potential to be 
invoked if in fact the hot lines themselves were not to perform 
effectively and were needed in the time following the 
transition.
    With regard to the overall management of Y2K matters, that 
is how we as a department have come to address the manifold 
challenges of Y2K, we began discussions with the Russians on 
this matter last February. It was disrupted by the Kosovo 
events. We resumed discussions in late August. It is clear that 
the Russians are interested not only in comparing notes on the 
manner in which one addresses, identifies, remediates, tests 
various systems with potential Y2K failures, but it is also 
clear that this is going to become an element of our sustained 
cooperation past Y2K.
    The question of the management of information technology in 
this dynamic period, I think is going to become one of the 
elements of continuing discussion and cooperation between our 
two sides. On the nuclear weapon stockpile security matter, the 
discussions on that began as early as last fall, and they did 
so in the context of the Cooperation Threat Reduction contacts 
that we have between the Department of Defense on one hand and 
the Twelfth Main Directorate of the Ministry of Defense of 
Russia which is the one responsible for the safekeeping and 
storage of nuclear weapons. So we got off to an early start in 
talking with them.
    As Senator Lugar noted, one of the things we encouraged 
them to do is to do a far-reaching assessment of their 
potential vulnerabilities to Y2K and to also identify 
appropriate means to deal with the potential charges. The 
Russians briefed us in August about the results of that 
assessment and their measures that they are currently 
undertaking and will have in place by the time of the Y2K 
rollover at the first of the year. They noted that they had 
come to believe that they needed to be attentive to the role of 
Y2K, particularly in how it might affect the microenvironments, 
if you will, and their nuclear weapons storage facilities.
    They have agreed to set up--I mean they have set for 
themselves a goal of setting up some 50 monitoring stations at 
all of their main nuclear weapons storage area. They are also 
developing response capabilities on what they could do in case 
there is difficulty and they would need to have an emergency 
response to a problem that might arise. It is in this context 
that the Russians raised the issue that you, Senator Lugar, 
referred to a few minutes ago, the potential for direct 
financial aid from the United States in order to help them to 
procure variation types of equipment. Some are sort of office-
related equipment for the 50 monitoring centers, but the 
majority are related to the question of emergency response, and 
they have talked to us about radio communications and various 
types of vehicles, fire trucks ambulances, weapons handling 
trucks, and the like.
    As noted in my prepared statement, due to circumstances 
about the availability of funds at the moment, up to this time 
we have been able to locate $3 million, a million out of 
uncommitted Cooperative Threat Reduction [CTR], monies from 
1999 and about two million from the Y2K supplemental. If we can 
succeed in having recertification relevant to releasing the CTR 
funds and the signing of the Defense Authorization Bill, we 
will have other monies available to add to the three million.
    Right now, we have prioritized within their request on how 
the use the three million.
    If we are able to use additional monies, we will, in fact, 
dedicate those to the remainder of their list in order to 
provide them with these capabilities. We have already begun 
working with them on the contracting vehicles to be able to get 
this material in place as rapidly as possible, if at all 
possible by the time of the turnover. If not then, within weeks 
or days after that. We will continue to work on that program. 
We will look forward to working together within the 
administration and working with the Congress on the 
recertification issue here in the days ahead.
    On the command and control of nuclear forces, when our 
large delegation on Y2K matters went to Moscow in February, we 
opened a dialog with them about the approaches we have been 
taking to ensure secure and reliable communications within 
nuclear forces. We resumed that dialog just last week when a 
senior officer from the strategic command went down the 
Colorado Springs and spoke with the visiting Russian delegation 
that had come to see the new center that will be established.
    We are looking forward to sending individuals to Russia 
within the next month or so to really compare notes on the 
manner in which we have been doing operational evaluations of 
mission-critical systems and on the way we have developed 
operational contingency plans to address any possible failures 
in any systems that one identifies as at risk. We have had 
discussions with figures within the Russian Strategic Nuclear 
Forces, Major General Dvorkin and others, over the past many 
months.
    It is clear Russia has been focused on this problem since 
late last fall. It remains to be seen to have more detailed 
discussions on precisely how they have handled it. It certainly 
has been a focus of their attention.
    We do not believe--I share Senator Lugar's conclusion. We 
believe the chances are virtually nonexistent that Y2K failure 
would lead to the loss of control and the potential launch of a 
nuclear weapon. If anything, the system would probably lock up 
and make it less capable of launching weapons rather than more 
capable of doing so. But, nevertheless, we want to engage in a 
dialog with the Russians on this crucial matter.
    Finally, let me say just a couple of words about the Center 
for Y2K Strategic Stability being established in Colorado 
Springs. You two gentlemen have already described the center in 
much the same words that I would. It is designed in order to 
have American and Russian military personnel sitting side by 
side from the latter part of December into the middle of 
January, monitoring data on the potential launch of long-range 
missiles or space vehicles from around the world. The data to 
be monitored will be provided by the American side.
    Let me say for a moment and really answer a question you 
posed earlier, Senator Dodd, on whether this isn't a good idea 
over the longer term. You may remember at the summit in Moscow 
a year ago, President Yeltsin and President Clinton, as a 
matter of fact, signed a joint statement to commit the two 
sides to develop and field a jointly manned warning center of a 
permanent nature between Russia and the United States that will 
be located in Moscow. We have had--had had productive initial 
negotiations with the Russians in February and again in March 
on the road toward the establishment of that center, and that 
center will, as a matter of fact, display data developed by the 
warning sensors of both sides.
    In the case of the temporary facility for Y2K in Colorado 
Springs, we will be using U.S.-provided data only because we 
hadn't gotten far enough to be able to convince the Russians to 
provide their data to our center. On the joint warning center, 
we are looking forward to the resumption of negotiations on 
that matter within the next couple of weeks or few weeks. We 
have agreed with the Russians that this should take place. Both 
of us are preparing draft memoranda associated to the 
functioning of that center and a pre-launch notification regime 
that is going to be of an international character.
    So I believe we will pioneer this concept of jointly 
monitoring launches and having then secure communications from 
that joint warning center, in this case from the temporary 
center in Colorado Springs to our own military authorities and 
then back into Moscow. I believe that the permanent joint 
warning center, it is likely we will complete the negotiations 
over the next 6 months or so, and we will work very hard to get 
it established sometime during the year 2000.
    On a final note on the warning center in Colorado Springs, 
it will not only serve the purpose of monitoring the situation 
of global launches and having communications means to 
communicate with either side, and therefore keep any mishaps 
from becoming strategic miscalculations, it will also, because 
of the assured communications link, be a place where the 
defense establishments of both sides can rapidly be in contact 
with one another if any other Y2K-related issues may arise 
during the transition. So if the Russians prove, because of 
difficulties with their power sector or others, to have events 
that would be of military consequence, if they simply want to 
inform us of this or if they want to seek our assistance or 
expert advice on this, this will be a prime channel of 
communications to serve that purpose over the Y2K transition.
    We have done a lot in this area. We have work to be done in 
these next few months to run up to and through the transition. 
It is thanks to the support of this committee, including the 
financial support made possible by the Y2K supplemental, that 
we have been allowed to do this. So we thank you for that, and 
we will continue in this effort.
    Vice Chairman Dodd. Thank you very much, Mr. Warner.
    [The prepared statement of Mr. Warner can be found in the 
appendix.]
    Vice Chairman Dodd. Mr. Baker.

    STATEMENT OF KENNETH BAKER, PRINCIPAL DEPUTY ASSISTANT 
SECRETARY, INTERNATIONAL AND NATIONAL SECURITY, THE DEPARTMENT 
                           OF ENERGY

    Mr. Baker. Thank you very much, Mr. Chairman and members of 
the committee for the opportunity to appear before you today.
    Vice Chairman Dodd. You have to bring the microphone right 
over to you.
    Mr. Baker. Thank you for the opportunity to appear before 
you this morning to discuss the Y2K problems at Soviet-designed 
nuclear reactors. In the interest of time and with your 
permission, Mr. Chairman, I would like to submit my full 
statement for the record and make abbreviated remarks.
    I would also like to echo what has already been stated 
about Senator Lugar. He has been a leader to the Department of 
Energy of securing these nuclear materials, and also his 
Russian leadership has really paved the way for us already to 
secure over 100 metric tons of loose nuclear materials that is 
secured today.
    This committee is to be commended for its work on Y2K 
issues in the United States and internationally. I look forward 
to working with the committee members to assist in Y2K problems 
that Soviet-designed nuclear power plants located in the new 
independent states and eastern European countries. These Y2K 
efforts are conducted as part of ongoing safety improvement 
activities at 68 reactors and 23 nuclear power plant sites.
    I want to emphasize first that the department is providing 
assistance to these countries; however, we are not managing the 
Y2K remediation efforts. Department experts have held meetings 
with host country experts and visited several of the nuclear 
power plants to evaluate Y2K needs. Based on our experiences 
and observations of Y2K-related work being done at these 
nuclear plants, we conclude there is not a significantly 
increased risk of a nuclear accident at any of these Soviet-
designed nuclear power plants due to the Y2K event.
    Department experts anticipate that the primary safety 
systems, outlined on the board over here, at these plants will 
continue to function properly, and if needed, safely shutdown 
the plants during a potential Y2K event. There are, however, 
Y2K issues with other systems important to safety and normal 
plant operations, as Senator Lugar just discussed.
    Also, I would like to stress that, irrespective of Y2K 
issues, there are many important safety problems that need to 
be resolved at Soviet-designed nuclear power plants. Our common 
goal is to help these countries ensure that Y2K events will not 
cause an accident or significant problem regarding plant 
safety.
    The department's Y2K assistance addresses all the nuclear 
power plants and focuses on three main designs: the RBMK, the 
old Chernobyl-type reactor; the VVER-440; and the last, the 
VVER-1000. These reactors are located in nine countries: 
Russia, Ukraine, Lithuania, Armenia, Kazakhstan, the Czech 
Republic, Bulgaria, Slovakia, and Hungary. Russia, Ukraine and 
the other seven host countries have established Y2K programs.
    We have categorized these programs into four partially 
overlapping phases: one inventory and preliminary assessments 
of what they have that could be Y2K incompatible, a detailed 
assessment; phase two, analyzing these and find out what really 
needs to be fixed. The third phase is remediation, replacing 
hardware, software; and the final phase and probably most 
important phase is contingency plans, how do we plan and make 
contingencies against the worse case.
    Of the 68 nuclear reactor units in nine countries of the 
former Soviet Union, 50 have been completed with Phase II 
assessments and testing. The remaining nuclear units are in the 
process of completing the detailed assessments and testing 
activities. Of the 68 reactor units, 45 have begun their 
contingency plans. Based on current information, there are no 
known Y2K problems with a primary reactor safety systems at 
these plants. These systems detect problems and automatically 
shut down the plant. We expect that the primary safety systems 
will function properly and shut down the plants safely without 
regard to Y2K issues.
    The countries are at various stages readiness. Russia has 
established a well-organized and aggressive but underfunded Y2K 
program. Each plant reports that it has completed its 
preliminary and detailed assessments, although we are not 
certain of the death and comprehensiveness of those 
assessments. The nuclear power plants in Russia plan to 
complete remediation of their important safety systems next 
month. Ukraine has developed an assessment program but until 
recently has only completed limited assessments.
    The department is partnering with the science and 
technology center in Ukraine to work with a Ukrainian utility 
and nuclear power plants to implement Y2K assessment 
methodology similar to the one described in the IAEA guidance 
document. And here is a copy, sir, of the IAEA guidance 
document that has been passed out to all countries. It lays out 
all those four phases which I just talked about.
    Y2K concerns do exist in systems that are important to 
safety at Russian and Ukrainian power plants, however. One 
concern is the plant processing computer common to both the 
RBMK and VVER reactors. This computer monitors the reactor and 
gives information to the operator. The operator uses this 
information to make needed adjustments to the plant, such as 
moving control rods and closing and opening valves to control 
flow rates of cooling water to the reactor. Failure of the 
plant process computer is not an immediate safety concern, but 
regulations require that the plant be shut down, like Senator 
Lugar said and you said Senator Dodd, in 90 to 120 minutes, 
within a few hours, if this computer is not restored to normal.
    RBMK plant process computers are known to suffer from both 
hardware and software Y2K vulnerabilities. The VVER problems 
are, however, only to the software side of Y2K. There is 
concern that if not fixed, these and other problems could 
result in simultaneous shutdown of several nuclear plants, 
causing disruption of power supplies in the middle of winter. 
The shutting down of the reactor could have serious impact on 
the populous.
    Russians report that they have assessed the plant process 
computer software vulnerabilities and can use a manual process. 
Work is in progress in Ukraine to assess the same problems, 
using special software tools provided by the department. The 
department is working with both countries to remediate Y2K 
problems with the plant process computers by the first of 
November.
    The department has discussed with Russian and Ukrainian 
Government officials the need for sufficient supplies of diesel 
fuel to power the generators needed to be operated safely in 
the event of offsite power loss for Y2K. U.S. experts are 
meeting with the nuclear power staff to assess the adequacy of 
diesel fuel supplies and to help prepare against potential 
offsite power loss. Host countries are working with the 
department to develop contingency plans to address this 
concern. These plans are intended to help plan operators under 
potential Y2K problems and establish the procedures to address 
them. The plans would help prevent operators from inadvertently 
making a situation worse through the inappropriate operator 
actions which happened in Chernobyl.
    Based on the meetings at the International Atomic Agency 
[IAEA], discussions with the host countries, the countries of 
Bulgaria, the Czech Republic, Hungary, Lithuania, appear to be 
adequately addressing Y2K issues. Kazakhstan has permanently 
shut down their BM-350 reactor, limiting the need for Y2K 
assistance; hence, the department is focusing on the countries 
of Russia, Ukraine, and Armenia.
    In Russia, the department's efforts complement those of the 
International Science and Technology Center. The center is 
pursuing a program at Russian nuclear power plants to help 
verify Y2K assessments that Russian nuclear plants will have 
completed the guidelines. The center plans to complete those 
assessments that are either deficient or completed in the month 
of October.
    The department's Y2K effort in Ukraine is conducted in 
partnership with the Science and Technology Center, the Ukraine 
Institutes, and the nuclear power plants. Based on these 
assessments, the department is currently responding to requests 
for remediation assistance from Chernobyl.
    Nuclear power plants in Ukraine: We anticipate that the 
remaining nuclear power plants in Ukraine will have similar 
requests for remediation assistance, and as their detailed 
assessment work progresses, we will provide assistance and 
correct the most serious deficiencies needed for remediation. 
Now that remediation actions are under way, the department has 
begun to assist host countries in completing their contingency 
plans. During this phase of the department's assistance, we 
expect the highest priority vulnerabilities of the Soviet-
designed reactors to the Y2K event.
    Our contingency information is that the loss of offsite 
power is at the top of the list. The department's contingency 
planning support will address this issue. We are relying on 
host countries to assess the Y2K issues properly and remediate 
these problems and develop contingency plans within the last 
few months. We have provided information and assistance at each 
step along the path to Y2K readiness.
    The initial complacency that was expressed by the host 
country representatives has given way to significant efforts to 
help resolve this problem. We have got their attention. In the 
light of a relative late start of the Y2K activities, we cannot 
be completely certain that they will be successful, but we do 
anticipate the failure of the primary--we do not anticipate the 
failure of the primary systems, therefore the department 
believes that there is not a significant risk, increased risk, 
of a nuclear accident at a Soviet-designed nuclear power plant 
due to a Y2K event.
    We will, however, continue to work with the committee and 
others to help resolve Y2K issues that have been identified at 
Soviet-designed nuclear power plants. We will continue to 
provide other types of assistance to improve the safety of 
these plants since deficiencies remain in the design, as 
Senator Lugar said, equipment training, and operational 
procedures.
    This concludes my statement, sir. I would be happy to 
answer any questions.
    Vice Chairman Dodd. Well, thank you very, very much.
    [The prepared statement of Mr. Baker can be found in the 
appendix.]
    Vice Chairman Dodd. I thank all three of you for your 
contribution to this hearing this morning. The chairman of the 
committee, Senator Bennett, is up at the Banking Committee on a 
hearing there of some importance. I am a member of that 
committee as well, and I am going to ask one or two questions 
and then quickly turn to my colleague from Indiana. I will slip 
out and go up to the Banking Committee. Senator Bennett, I 
think will come down, and we will try to keep this moving here 
so as not to disrupt the flow and hopefully not be repetitive 
in our questions.
    One question comes to mind immediately, Mr. Baker. I saw 
where the secretary is in Russia today, in fact, and is there 
until Friday on energy-related matters and is touring nuclear 
non-proliferation programs set up to deal with vast stockpiles 
of nuclear material. Is the Y2K issue on that agenda of that 
trip? I hope it is.
    Mr. Baker. The Y2K issue is on that agenda, sir. He is 
talking to Prime Minister Makolov about the Y2K issue. It is 
very high on his list. Of course, he is there looking at 
facilities, the work we are doing with the Russian Navy and the 
other materials, protection, control, and accounting, but the 
Y2K issue is very high with the secretary, and we are really 
working very hard with the Russians. We have over 45 programs 
that we have worked with the Russians in the Y2K area, and it 
is very high on the secretary's list.
    Vice Chairman Dodd. Well, great. Well, you, I am sure, will 
be in touch with the office this week, and you might 
communicate through the appropriate channels that this 
committee is deeply interested in what he learns during these 
next few days, and we would love to be briefed, if we could 
through staff or otherwise, as to what he learns as a result of 
this. And there may be some questions that come up today that 
would be appropriately transmitted to him as a level of concern 
being expressed by members of this committee.
    Mr. Baker. Yes, sir. I will pass that on.
    Vice Chairman Dodd. Let me jump, if I can, very quickly, 
and then I will ask this one question, and then I will let my 
colleague from Indiana pick up, and I will come back. This 
report that was done under contract with the Department of 
Energy, the Pacific Northwest National Laboratory report in 
May, I presume you are familiar with this.
    Mr. Baker. I am familiar with a lot of contracts with 
Pacific Northwest Labs, sir.
    Vice Chairman Dodd. This is one they did, the worldwide 
assessment, the vulnerability of nuclear power plants and 
electric power grids to the Y2K bug, was the report that was 
done. I can just tell, without you turning around, there are 
some heads behind you saying, yes, we are familiar with this. 
So I know that feeling. My staff does that as well.
    Mr. Baker. Yes, sir. He is my engineer.
    Vice Chairman Dodd. Well, and again I appreciate the 
comments here, the level of optimism you have expressed both at 
the outset and the conclusion of your remarks about any kind of 
serious potential failure here due to the Y2K issue.
    I would like to clarify, though, and you touched on it 
here, the RBMK reactors or the Chernobyl-type reactors, which I 
have mentioned and you have mentioned, and again human error 
played such a critical role there in that tragedy, there are 11 
of these at three different locations. According to experts in 
this report, anyway, they can only withstand, as you point out 
and I mentioned in my opening remarks, a power loss of 90 to 
120 minutes. What precautions are the Russians taking so that 
this doesn't happen? Because we have heard there may be these 
disruptions that will occur in the grids, and if you lose power 
for an hour and a half or 2 hours, then you do have a serious 
problem.
    Mr. Baker. What we are doing, sir, as you say in this type 
reactor, we are fixing two things right now. We are fixing the 
process computer. We are building new software. We have got 
scanning tools to make sure that software, that process 
computer in that Chernobyl-type reactor is fixed. We also are 
putting in a new hardware system, computer system, in the data 
system in the Chernobyl-type computer, and what that does is 
monitors the core at all times to make sure that if there is 
anything wrong, these things will be compatible, and the 
operator will have--providing everything goes the way we are 
doing it right now, will have readable gauges that are 
accurate.
    Now, what are we doing in case offsite power is lost? Well, 
first of all, the plant operators have assured us that the 
populous will lose power before the reactors will lose power. 
That is one. We have got that assurance from the Russian 
Government. No. 2, we are putting in extra diesel fuel for 
these diesels to operate so if something is shut down, the 
diesels will startup.
    What we are looking at right now in the contingency plan is 
to start these diesels 2 days before the year 2000 to make sure 
they are running when the Y2K hour comes. So we are doing a lot 
of this contingency. Operators are being trained. We are 
looking at operators' procedures. So the things that happened 
in Chernobyl, like operator error, they failed to read gauges, 
I think all of this has been trained out, and the contingencies 
we are building right now will safeguard against this as much 
as one can.
    Vice Chairman Dodd. OK. And very quickly, Mr. Beyrle, if I 
could, your testimony indicates that depending upon the 
severity of Y2K problems in Russia, the U.S. will need to, and 
I quote, come to a decision on the most effective response. I 
wonder what thresholds or policies currently exist which would 
expedite the kind of decisionmaking.
    Mr. Beyrle. Well, Senator, thank you. As we look at the 
problems that, you know, are starting to come into sharper 
focus, we are trying to get as much information we can in the 
first instance from the Russian Government, Russian agencies, 
on what they see the scope of the problem as being.
    Vice Chairman Dodd. Can you bring that microphone a little 
closer to you?
    Mr. Beyrle. And how they are set up to deal with it. At the 
same time, we are consulting internally, inside the U.S. 
Government obviously, as part of the committees and the 
commissions that have been set up to deal with this and also 
multilaterally with our allies, with the EBRD, with the 
international financial institutions to try to come up with 
strategies and policies to deal with this.
    For instance, I think beginning next week or the next 2 
weeks in Prague and culminating in mid-November in Vienna, 
there will be a series of meetings in which we are bringing 
together the operators of electricity grids in central and 
eastern Europe and the energy providers to try to get them 
together to share expertise and solutions, put them together 
with our experts to give them a sense of how we think that 
ought to deal with the problems. We use those forums as a way 
to get a better sense of what the problems might be, but I have 
to say at this point we are still gathering as much information 
as we can, and we are going the need to continue in that effort 
through the millennium rollover and after.
    We need to prioritize. We need to come up with strategies 
to deal with the disruptions that are going to hit our national 
security interests first and foremost. Those are the priority 
things that we have to deal with, the nuclear questions that my 
colleagues have talked about.
    The second order of priorities, the economic and 
humanitarian considerations, we will also have to deal. There 
are finite resources, obviously, that we have to bring the bear 
on that, but we probably are going to need to work out a fairly 
well-thought-out policy framework, prioritized policy framework 
for responding to these problems.
    Vice Chairman Dodd. We have got about 66 working days, I 
count. I mean 94 days, but working days, and then we are going 
to be out of session here, some would hope earlier than later, 
but fairly soon, I presume sometime around the first of 
November or shortly thereafter. So we will be, in terms of the 
Congress's ability to initiate, to enact legislation and things 
that may be needed--now, obviously, there may be contingency 
funds and other ways of getting around it, but you can 
appreciate my sense of some concern here.
    I will let you comment as I go out the door on this, but my 
concern is that coming to a decision process with so few 
working days left on how you prioritize, and I think you have 
stated it well. I agree with your initial prioritization that 
you have made here as to what is important. I just get a little 
uneasy about our ability to actually respond, to the extent 
that we want to be able to respond, to provide the necessary 
assistance. It is just getting so short in terms of time.
    Mr. Beyrle. No. I agree with you entirely, Senator, and a 
lot of it depends on the Russian Government and Russian 
agencies, how forthcoming they are going to be in being up 
front with us on the problems that they haven't addressed yet, 
and the problems that they foresee coming down the road may be, 
as we have talked about, 30 to 40 days after January 1, 2000.
    This is an iterative process. We are not going to have 
anything close to all the answers even on January 1st. We will 
need to stay in touch with the committee, obviously, because 
there may be resource implications for us. Clearly, we are 
going to want to try to help the Russians deal with this 
problem through continually providing expertise, hardware, and 
training, but there aren't unlimited resources for that.
    Vice Chairman Dodd. I apologize. Thank you.
    Chairman Bennett. I told the Banking Committee Senator Dodd 
and I are doing tag team. I stayed there until I questioned, 
and then I am down here, and he is back up there. I apologize 
not having been here. I have no brilliant questions.
    Senator Lugar. Senator Lugar. Well, Mr. Chairman, I would 
like to ask Mr. Warner, we have had a great deal of discussion 
about the value of Russian and American military officers 
sitting side by side in Colorado Springs or in the more 
ambitious program that you have been negotiating, but what 
assurance can you give the American people that while they are 
sitting there side by side, that strategic interests of the 
United States, our early warning capabilities and what have 
you, are not compromised?
    Mr. Warner. We are ensuring both in the temporary center to 
be established in Colorado Springs and as we negotiate the 
modalities for the permanent facility, if we do reach closure 
on that, that will be established in Moscow, that in both cases 
we will provide in a sense what we call filtered data from our 
sensors, both space-based and ground-based radars and infrared 
detectors.
    Senator Lugar. Filtered data?
    Mr. Warner. Filtered data means that it will be adequate to 
most certainly say there has been a launch, approximately where 
it is been, what is the direction in which the missile in 
question seems to be proceeding, and even a broad projection of 
the potential impact area. We can do that in ways, and we have 
worked closely with the space command and other military 
experts on this matter to ensure that the filtering means that 
it is adequate to the task, but it does not by any means reveal 
internal critical characteristics of our sensors.
    Senator Lugar. Mr. Beyrle, in your testimony, you have 
pointed, I think correctly, that power generation and 
telecommunications are the areas of greatest concern, but can 
you give some idea is the State Department continuously 
planning a risk assessment of what these failures may mean? I 
cited the American Chamber of Commerce estimates that as much 
as 40 percent of transportation could be affected for a period 
of time, likewise, the chunks in telecommunications, banking 
system, the securities markets.
    In the event that these situations come to pass in that 
degree with that large of a portion of the Russian economy or 
the Russian people being poorly served, this is likely to have 
a lot of implications as to life in the country during those 
weeks and months, that is the ability of local governments to 
maintain control or even more difficult ramifications as life 
becomes so grim people take desperate measures of all sorts. 
What kind of thinking is the State Department doing, or what 
sort of discipline are you applying now to try to think through 
what happens in Russia if these things come to pass, leaving 
aside whether the Y2K thing is being remediated in as rapid a 
way as possible?
    Mr. Beyrle. Well, Senator, we are obviously concerned about 
some of the worse-case scenarios that you have alluded to 
there. I think in the first instance, we have tried to impress 
upon the Russian Government the importance of communicating 
with its own people what the realities of Y2K may be and what 
the worse-case potentials are.
    Senator Lugar. To what extent are they doing that? What 
evidence do you see of that?
    Mr. Beyrle. Frankly, as I mentioned earlier, the fact that 
a recent poll indicates that 50 percent of the Russian people 
aren't even aware of the Y2K problem is indicative of the fact 
that they have a lot of work to do. We understand from our 
contacts with entity in the Russian Government which is charged 
with civilian disasters, civilian emergencies and natural 
disasters, that some areas of the country are beginning to 
stockpile fuel, for example. We heard about stockpiling diesel 
fuel in connection with nuclear plants.
    But it is, frankly, to our judgment at this point, not 
enough. Much more has got to be done on this. I think with 
respect to your question about disruptions in telecommunication 
and the effects that this could have on business transactions, 
on essential services, health, security, communications, there 
is also, obviously, a tremendous potential for disruption. I 
don't think that we won't see this necessarily leading to 
unrest in Russian society.
    Russians are somewhat accustomed to dealing with failure, 
to making due through hardship. That is a somewhat glib 
response that maybe ignores the reality that we may be looking 
at a situation, where for two or 3 weeks people don't have 
telephones, people don't have electricity in their homes.
    Senator Lugar. There are, as we have cited, maybe as much 
as 11,000 American citizens who are in Russia presently. 
Perhaps this understates the number. What is to happen to them 
in this period of time? Would your advice be to leave the 
country, or how do they cope?
    Mr. Beyrle. We have recently put on a consulate information 
sheet to the general public and made it available to citizens 
living in Russia, and also on the State Department web site, 
which advises citizens to take precautions and to prepare to 
cope with the disruptions that may come to pass. We have tried 
to be very straightforward with the U.S. public living in 
Russia that disruptions are likely, but as someone has pointed 
out, the Y2K problem is somewhat the mirror image of a natural 
disaster, as with an earthquake. You know what is going to 
happen. You may not know when, but you know what is going to 
happen.
    Y2K is the opposite. We know when it is going to happen, 
but the consequences aren't exactly clear. So we are trying to 
warn American citizens simply that there is a potential for 
disruptions and that they need to take precautions accordingly.
    We do have every intention of keeping our embassies open 
and staffed to provide the information services that Americans 
are going to need during this time. There is no plan at present 
for any draw-down of staff in Russia or any of our consulates. 
We are still assessing the situation. If there were changes on 
the ground that forced us to reconsider that, we would still 
maintain our embassies and consulates open, and we would still 
maintain a level of essential services and essential staffing 
to deal with American problems.
    Senator Lugar. Well, that is very important. Obviously, you 
try to communicate with each one of these citizens, and the 
Russian Government is apparently beginning to try to 
communicate with its citizens, but as you pointed out, those 
outside of Moscow, St. Petersburg, or urban areas, may be the 
most vulnerable, and these may be the last to get the word in 
terms of the Russian communication system.
    Likewise, what thought has the State Department given as to 
in the event that these remote areas have extraordinary 
suffering or even seemingly are cutoff by communications from 
other parts? Are Governors of those areas capable of managing 
on their own? In other words, if the central government fails 
in this sense or really is ineffective, what is the status of 
the rest of Russia, the components as people try to deal with 
this?
    Mr. Beyrle. Well, obviously inherent in your question is 
the realization and the reality that the decentralization that 
has taken place in Russia since the fall of communism has 
helped the situation in that the regions are a bit more self-
reliant now and have more autonomy and probably more 
independent decisionmaking capability. Whether they will have 
the wherewithal to cope with these problems is another 
question.
    Frankly, these are questions that we are only now beginning 
to wrestle with. These are the kind of worse-case scenarios 
that we, in the first instance, need to engage with the Russian 
Government on. We need to ensure that they have thought through 
the worse-case scenarios themselves and are beginning to put 
plans in place to deal with them. It is not a problem that we 
can solve for them. We can provide help and assistance, but we 
need to make sure that they are focused on the problem.
    Senator Lugar. Hopefully, if the Russian Government is 
monitoring this hearing, this will be helpful to indicate that 
we are concerned, and we believe they ought to be, because it 
is a very serious matter, and they should be.
    Mr. Beyrle. I think you are right. This is one of many ways 
we have of getting the message to the Russian people and the 
Russian Government.
    Senator Lugar. Mr. Baker, just one follow-up question of 
Senator Dodd's query about nuclear plant failure. What are the 
problems or the increased risks of radiation release in all of 
this? At some stage, that is not the only fear people have of 
these instruments, but it is a major one, and after a certain 
amount of shutdown, the danger of that obviously increases 
substantially. What is your own analysis?
    Mr. Baker. Well, Senator, you know, the RBMK-type reactor 
does not have a containment device. The VVERs do have 
containment devices, so radiation, you know, cannot escape if 
something went wrong, but we hope--and we have been working, 
like I say, day and night with all these committees involved. 
There is over 45 committees involved with the IEA and involved 
with the Department of Energy on making sure that reactors 
operators have the current procedures, that they have been 
trained, that the software and the hardware will be fixed in 
these two units that I just talked about so if something goes 
wrong, they can shut it down immediately.
    We have the primary system that is an analog system that 
will shut down immediately. So we think the radiation would be 
controlled, that if something goes wrong with the system, all 
it takes the pin rods going right down into the reactor, and it 
stops instantaneously.
    The big concern, of course, like the worse case-type 
concern, is where you lose offsite power, and power is not 
provided to the reactor and the diesels do not startup or the 
batteries do not work and then the cooling system does not get 
to the reactor and the reactor melts down, but that is the 
worse-type scenario which we don't think there is hardly 
probability of that right now, but what went wrong with 
Chernobyl was about everything. They didn't follow their 
gauges. The reactor, they tried to bypass some gauges that gave 
different readings. So it was a training problem. It was a 
procedure problem, and it was a reactor problem, and hopefully 
those type things have been overcome.
    As I mentioned to you before, the reason--reactors in 
Russia do have--are more dangerous than in the United States. 
We say in our opinion they are 100 times more dangerous, but, 
again, we are doing the same things at the Department of Energy 
as, you know, in our nuclear safety program, and as you 
mentioned, design equipment, training, operational procedures. 
So we are saying this Y2K event on top of it does not increase 
the risk, but we need to keep working like we have been working 
on nuclear safety because we need to fix the Y2K problem, and I 
think we have.
    We are not saying, sir, we will be finished in January, 
because you have got other safety systems that don't have such 
a high priority as these that will not be fixed complete by 1 
January; however, the primary and the backup systems, so that 
we won't have some type of catastrophic failure, we think have 
been fixed.
    Senator Lugar. Well, I thank you, Mr. Baker. Your testimony 
and that of the other witnesses underlines the fact that 
rapidly in this room we have gotten over whether the United 
States and Russia should be cooperating. The question is will 
the intensity of all that cooperation, every safeguard we are 
attempting to institute at the Department of Energy or 
Department of Defense get there in time, but I congratulate the 
chairman again for simply pointing out that this is the issue, 
the quality of the engagement, not whether there should be 
engagement, because this is a crucial time for both of our 
countries.
    Mr. Baker. I agree with you, sir. The worst enemy is time 
right now.
    Chairman Bennett. Thank you very much, Senator Lugar.
    I may have some additional questions, but I will submit 
them to you in writing because I was not here to hear your 
testimony, and thank you very much for being here today.
    We will now proceed to the final panel. We have heard from 
Senator Lugar as our first panelist, the global overview. Then 
we have heard the governmental view from State, Defense, and 
Energy. Now we are going the hear from some private citizens 
who have expertise in the area.
    We welcome to the committee Mr. William McHenry who is an 
associate professor at Georgetown. He has been studying Russian 
information systems since 1978 and is joined by Mr. Richard 
Conn who chairs the legal committee of the U.S. Russia Business 
Council, and is a lawyer as a partner at the firm of Latham & 
Watkins. Gentlemen, we appreciate your patience, and we 
appreciate your willingness to be with us and share your 
expertise.
    Mr. McHenry, we will start with you.

 STATEMENT OF WILLIAM MCHENRY, ASSOCIATE PROFESSOR, MCDONOUGH 
           SCHOOL OF BUSINESS, GEORGETOWN UNIVERSITY

    Mr. McHenry. Chairman Bennett, Vice Chairman Dodd, and 
members of the committee, thank you for inviting me to testify. 
In the interest of time, I will abbreviate my remarks and ask 
that my whole statement be included in the record.
    Chairman Bennett. That will be done.
    Mr. McHenry. Thank you.
    This problem in Russia is taking place against the backdrop 
of extraordinary economic problems, as we have been discussing, 
and considerable political uncertainty. Indeed, the outlook of 
Politician Gregory Yavlinski was heard remarked that Russia's 
real Y2K problem is actually Boris Yeltsin, but we have to 
think really what impact and potential failures have against 
such events as the gross domestic product declining 4 percent 
since 1991 or, for example, the unified electrical system 
saying it only has 60 percent of the fuel oil it needs for the 
fall and winter season of this year.
    Let me begin with my overall assessment. I agree with the 
assessments that have been made so far today that there will be 
a certain number of outages in various systems, but I also 
believe they will be local and contained and will not have an 
immediate dramatic long-term effect on the economy, especially 
in comparison with the other sources of problems that we have. 
I liken the impact to the number of blows that are coming 
during the boxing match. Many other blows are coming from other 
sources, and it is difficult to say just which blow might knock 
out the fighter.
    I think over the longer term, the key question is whether 
or not there is any silver lining effect that comes from doing 
the remediation work. I believe that the Y2K problem may lead 
to greater economic efficiency, so I think on the one hand we 
may see some short-term visible effects. In the longer term, 
the effects that could be more serious would be more economic 
inefficiency. So let me talk about why I believe this is true.
    First of all, as I have outlined in my statement, there 
have been delays in getting the work started. I have gone into 
considerable detail about that. By July, the estimate was that 
there are 150,000 systems in the government as a whole, and 
about 30,000 of these needed to be remediated, of which about 
10,000 or 30 to 35 percent had already been remediated at that 
point in time. So if you look at the systems that they are 
going to be repairing by January 1st, it immediately leaps to 
mind the fact that there are a number of systems that they are 
simply skipping remediation work now that they don't consider 
to be critical. and that is one of the main sources of the fact 
that I believe there will be more economic inefficiency that 
comes about in the months after the year 2000 comes when they 
will have to deal with addressing those systems as well.
    Second, in addressing the effectiveness of government 
policies, I want to mention that there has been enormous amount 
of work that is being done now and especially since the 
beginning of 1999. You can see a mobilization that has 
occurred, and the mobilization is in the area of sort of an 
administrative approach to the question. It sort of resembles 
the old campaigns that they had in Soviet times, and one of the 
things that they did was that organized a network of centers of 
competency which were designed to provide a visible place where 
organizations could go to get help for the Y2K problems.
    They have been certifying all sorts of different software 
packages. They have been certifying hardware, especially 
personal computers, but the one thing the government couldn't 
do was to provide a lot of funding to these organizations, and 
since the centers required payment, this reduced the number of 
clients dramatically who were willing to come to them.
    They also represent a mix. Some of leading systems 
integrators, but others are remnants of the Soviet system and 
do not have a particularly good reputation. By June 1999, they 
were present in only about 51 percent of the administrative 
regions of Russia. So I also--you know, this is additional 
evidence that there are some regions that have not received the 
necessary attention, and there has also been some movement to 
provide incentives, legal incentives. This has been a second 
crippling factor that has stopped the Russians from really 
taking a timely approach to this.
    But in July, Boris Yeltsin rejected a law that had been 
passed by the Duma and the Federation Council about the Y2K 
situation. So that leaves just an order that he signed in June 
and a lot of orders that have been signed by the State 
Committee on Telecommunications which is now the lead body that 
is working on this.
    The third is the question of financing. I think it is 
interesting that the government has consistently given very 
different estimates about the costs. First, it was 500 million. 
Then they said it would be two to three billion dollars. Then 
in May, they said it was $657 million. In June, they said it 
was $471 million. In July, they said it was $538 million. Now, 
what this says to me is that a lot of work is going on. It says 
that ministries have been refining their estimates. They have 
been getting more precise information. They have been carrying 
out the inventories of the systems. But also, of alarm is the 
fact that as of July, only 15 percent of the funds or about $80 
million had been spent.
    Just a couple of days ago, the Duma approved a new bill to 
appropriate $800 million--I am sorry--up to $80 million for Y2K 
remediation, and that is awaiting the approval of the 
Federation Council and Yeltsin's signature. So this is the 
first time that the legislature has actually appropriated 
money. All throughout 1999, the monies have had to come from 
the budgets of the ministries themselves.
    Also, a recent development is the State Committee on 
Telecommunications has finally been given the green light to 
seek a $50 credit to buy hardware and software in the west for 
possible delivery in October or November. This is something 
that has been discussed for many months, but it is different to 
believe that any systems based on this equipment would be able 
to be ready by January 1, 2000.
    And, as we have discussed, very limited information is 
available about private firms, how much they have taken up they 
problem. However, a representative from Novell recently told me 
that they have seen a very large rise in business from 
government institutions and industrial enterprises in the 
second and third quarter of 1999, and that official at least 
believes that 90 to 95 percent of their customers will actually 
be ready.
    Now, in terms of the energy area, the unified energy system 
has taken a very serious approach, in my opinion. As of July 
1999, they were saying that 35 percent of their critical 
systems had been modernized or put back into service, but they 
had only spent about 20 percent of the $30 million they felt 
was necessary. The oil and gas companies seemed to be in better 
shape with much lower percentages of unremediated systems.
    The central bank has reported that 80 percent of banking 
organizations have now remediated and are testing their 
systems, and evidence of that is that they have been able to 
carry a large-scale integrated test involving four different 
regions of the country. I believe that there is enough work 
going on there, and it has been going on for long enough and 
that the package software has been remediated that we don't 
expect a major meltdown there.
    In the telecommunications sector, I agree that there are 
major potential problems there; however, again, the FAPSI which 
is the sort of former KGB arm for telecommunications, stepped 
in in July and began testing local telecommunications systems, 
and in this administrative approach, the pressure is being put 
on, and typically, you know, the history of the Soviet system 
is when attention is focused on certain problems in a very 
specific and very focused way, that they tend to fix those 
problems. They can't fix all of the problems that arise in the 
economy, but they can do the ones that are the most highest 
priority.
    So I am a little bit more optimistic than what has been 
said so far in the hearing today. I believe that in measure of 
the risks that are involved, that they will be able to 
remediate the major systems that need to. So let me finish by 
talking about the longer term impact on the economy.
    I believe that there are less noticeable effects which will 
increase inefficiency due to local infrastructure problems, due 
to manual processing that may be necessitated by internal 
systems that don't work or insert bad data or because new 
systems haven't been purchased and that there will be the 
continued need for those other systems that won't be ready that 
they have had to put to the side for the time being.
    So I believe that we should focus in our policy area in 
first of all making sure that we do the kinds of things that we 
have talked about, in forestalling catastrophic failures for 
areas like nuclear power plants, but then we have to choose 
what kind of silver lining we might want to provide for them. 
and I am of the opinion that a lot of economic activity in 
Russia takes place through barter. It is helping to keep alive 
a lot of enterprises which are not providing positive economic 
benefit for the economy. So if we were to provide resources to 
replace the computers that are in those enterprises, we might 
actually simply be prolonging the agony of that sector of the 
Russian economy.
    On the other hand, giving help to small businesses that 
have no means to carry out remediation could be a way to 
provide the same kind of silver lining that a lot of western 
firms have been getting from this, and these include the most 
aggressive users of the internet, which may number about 1.5 
million right now, and businesses that are more vulnerable to 
economic shocks because they are dealing in case rather than in 
bartered goods.
    So, in conclusion, let me say that any time we speak about 
the longer term impact of policies in Russia, we have to think 
about how to encourage the formation of the necessary 
conditions for true economic reform. Many believe that an 
important part of the answer is building the civil society 
based on the rule of law that protects business activities in a 
stable climate. Investment in basic institution-building, such 
as education, may be a better long-term use of funds than 
supporting Y2K remediation expect in the most critical areas. 
Without stronger fundamental institutions, the Russian economy 
may still be lurching along from one crisis to the next long 
after the Y2K problem has faded from memory.
    Thank you.
    Chairman Bennett. Thank you very much.
    [The prepared statement of Mr. McHenry can be found in the 
appendix.]
    Chairman Bennett. Mr. Conn.

    STATEMENT OF RICHARD A. CONN, JR., U.S.-RUSSIA BUSINESS 
               COUNCIL, PARTNER, LATHAM & WATKINS

    Mr. Conn. Good morning, Mr. Chairman and Senator Lugar. I 
am appearing before you today in my capacity as the chairman of 
the Legal Committee of the U.S.-Russia Business Council, an 
organization made up of approximately 250 U.S. companies active 
in Russia. It is a great pleasure and honor to provide a 
perspective on the potential effects of Y2K upon business in 
Russia in the short term and long term based on my years living 
in Russia in the early 1990's through the mid-1990's and my 
work on behalf of clients since then.
    It is important, in my view, to begin by putting in context 
Y2K problems as they affect Russia. Since we have been 
discussing different analogies, I would look at Y2K as simply a 
part of a tidal wave that has hit Russia over the past several 
years and would note that whether that tidal wave is 31 feet or 
30 feet may not make that much of a difference to the typical 
Russian.
    It is difficult to keep track of the number of governments 
that Russia has had come and go over the past 2 years. During 
that same timeframe, Russia suffered a knock-out economic blow 
which you, Senator Bennett, alluded to. With the simultaneous 
difficulty of its government debt and massive devaluation of 
its currency, Russia's banking system, which never had been 
particularly robust, was left in a shambles, causing even 
greater reliance upon barter, an inefficient economic system.
    The world came quickly to see what happened to those 
involved in Russia for some time, namely that the Russian 
Government was virtually bankrupt, living off of borrowed 
funds, and Russia had an insufficient economic base from which 
to service its debt. Russia simply had not sorted out precisely 
how it was going to make a living, and to date it has still not 
succeeded in producing significant goods and services either 
for its own consumers or for foreign consumers to buy.
    More recently, Russian governmental structures have 
suffered a crisis of confidence as the world has come to see 
with ever greater skepticism that information provided by 
Russian governmental entities is questionable. On top of this, 
regional disputes in Russia have boiled over into the heart of 
Russia's capital as terrorist bombs have turned Moscow into an 
anxious city, cracking down on people whose physical appearance 
categorizes them in the minds of law enforcement as sympathetic 
to the views of southern republics.
    It isn't hard to understand why Y2K issues have not 
registered in Russia with the residents that they have in more 
developed western countries. Indeed, as a matter of priority, 
that the U.S.-Russia business council itself attempted to 
establish with Russia, Y2K has not in all candor been near the 
top of the list. This is not due to our view that Russia will 
avoid hardship as a result of Y2K. It will not. But rather, 
because of the political reality is such that Russia simply 
cannot focus significant attention on this issue, due in part 
of the press of other matters and also to the lack of financial 
wherewithal to address the problem, even if it wished to do so.
    For these reasons it is perhaps surprising that Russia has 
done as much as it has to address Y2K matters. As noted in my 
written statement, there are certain sectors of the Russian 
economy in which Russia has made some progress, particularly 
with respect to large companies where financial resources and 
understanding of Y2K issues are greater.
    I concur with the assessment of my colleagues at the 
American Chamber of Commerce in Moscow which were quoted at 
length by Senator Lugar. These provide a sense of the gravity 
of the situation. In addition, I view the State Department's 
perspective as a fair prognosis of Y2K's effect in Russia. The 
State Department noted that the country appears to be somewhat 
prepared to deal with Y2K problems but anticipated disruptions 
in key sectors of electrical power, heat, telecommunications, 
transportation, financial, and emergency services.
    In response to these reports, Russian officials 
characteristically played down the potential for disruptions. 
They continue to maintain that computers which support Russia's 
vast infrastructure continue to be checked and worked upon to 
prevent the bug from disabling key sectors. The credibility of 
these reports, in my judgment, is weakened by inconsistencies 
and lack of verification.
    Let me turn, then, to likely steps that we can see in the 
final days of this year from Russia. As outlined in my written 
statement, there are a variety of steps that Russia can take to 
continue the preparations it has already undertaken to deal 
with Y2K matters. These include, for example, setting up a 
committee to coordinate emergency measures as they arise now 
and in the beginning of the year 2000.
    I believe it unlikely, however, that Russia will 
significantly gear up its efforts at this time. The reasons for 
this are essentially the same reasons that explain Russia's 
failure to act decisively to date. These include five factors: 
first, the lack of financial resources which were alluded to by 
my colleague. Russia has already reduced its estimates with 
respect to the cost of Y2K compliance from somewhere in the 
area of one to three billion, down--at least the latest I have 
heard--to below $200 million at this stage and without 
explanation as to why those estimates have been reduced; No. 2, 
ongoing lack of governmental leadership and coordination; No. 
3, lack of political rewards for dealing with Y2K issues; four, 
other issues that are perceived as more pressing from Russia's 
perspective; and five, a cultural bias against reacting until a 
problem is clearly manifested.
    Accordingly, while we can all hope to see greater progress 
during the next couple of months, we should not expect any type 
of additional effort over that time. Again, I would except from 
that the matters that Senator Lugar was alluding to previously 
dealing with security and energy-related matters having to do 
with nuclear safety issues.
    As to short-term effects upon the Russian economy and 
potentially upon U.S. business, Russia's severe and economic 
political difficulties unquestionably pose the greatest threat 
to its citizens during the cold and dark winter months ahead. 
Last year, for example, there were many regions of Russia that 
were simply unable to obtain the basic necessities of food and 
heat during the winter months. The last thing that Russia needs 
is a Y2K bug that can only make matters worse. Unfortunately, 
that is precisely what Russia is going to get.
    Accordingly, I believe that in the short term the 
combination of existing difficulties and the added Y2K-related 
failures will make more severe and more widespread the 
electrical power, heat, telecommunications, transportation, 
financial, and emergency service failures that had been visited 
upon Russia in the past. It is, however, noteworthy that since 
all of these sectors traditionally suffer period failures 
within Russia, it is probably not likely that Russians 
themselves will perceive the failures as magnitudes more severe 
than during last winter or that they will ascribe failures to 
Y2K.
    Moreover, the ability of Russia to deal with inefficiencies 
and political and economic failures through working around 
problems, combined with their pride and being able to withstand 
hardship, will work to minimize the manifestations of Y2K 
within Russia. In addition, the effect upon Russia will, in 
some small way, be cushioned by the fact that some Russian 
technology was purchased from the west in recent years and is 
Y2K compliant.
    More significantly and on the other hand, a part of Russia 
is simply not linked in with the high-tech world, and therefore 
is unlikely directly to feel the effects of Y2K. The country, 
of course, will indirectly feel those effects through the lack 
of basic supplies as an already highly inefficient economy 
grinds even more slowly.
    Turning then to long-term effects, after adjusting during 
the first half of the year 2000 to the effects of the Y2K bug, 
it would not be surprising to see the issue largely disappear 
from the political and economic extreme in Russia as it is 
overtaken by more high profile issues. Russia may well find 
itself paying the price for creating an unattractive investment 
environment that has driven away domestic and international 
investors, as well as domestic and international talent from 
Russia. This may translate into a lengthy period of time during 
which is difficult for Russia to acquire the expertise and 
investment needed to truly solve Y2K problems after they have 
gone through a period of ``workarounds''. In addition, it will, 
in all likelihood, delay and extend the time period Russia 
needs to become aware of Y2K-compliant computer technology from 
the west in the future.
    In sum, I would anticipate that the effects of Y2K will 
linger far longer in Russia than they will in western countries 
that are better prepared on all levels to effectuate long-term 
solutions. In conclusion, while other countries no doubt will 
feel the economic effects of Russia's failure to prepare 
adequately for Y2K, sadly for Russia and its citizens, it 
itself will feel the brunt of the blow most dramatically. 
Ironically, given the heavy burdens that Russia already carries 
and the difficult life being led by its people today, it is not 
likely that Y2K will be identified as the source of the 
hardships. Rather, Russians will, in all likelihood, see little 
relationship between Y2K and their difficulties and will, 
accordingly, continue not to place a high priority on solving 
Y2K problems.
    Mr. Chairman, thank you very much for affording the 
opportunity to join Professor McHenry and sharing my thoughts 
with you today.
    [The prepared statement of Mr. Conn can be found in the 
appendix.]
    Chairman Bennett. Thank you very much for your insight. Let 
me ask you a totally personal question. The last time I was in 
Moscow, I dealt with Richard Werthlen of Latham and Watkins. 
Were you there on station the same time he was there?
    Mr. Conn. Actually, Mr. Chairman, Mr. Werthlen, a good 
friend, came in to relieve me. I founded our office in 1991, 
end of 1991, and stayed there until Richard and his many 
children joined us in 1995.
    Chairman Bennett. OK. Well, he was very helpful on the 
issue that I was in Russia trying to deal with, and I am 
grateful to him and to Latham & Watkins for having him there. 
Is he still there?
    Mr. Conn. Actually, he just recently left to return to Los 
Angeles. We have a new head of our office, one of my other 
partners, Sonia Golden.
    Chairman Bennett. Well, maybe it is a good sign for the 
long term that you keep office there. You assume that sooner or 
later Latham & Watkins will make some money out of Russia.
    Mr. Conn. We would like to think that. We and all the other 
U.S. businesses over there tend to be a fairly hearty group 
that are ready for the rough roads.
    Chairman Bennett. For a long time.
    Your testimony reminds me of a summary that we received on 
this committee. We sent two consultants to Russia, and to a 
number of countries around the world. They came back with their 
summary country by country, and the written summary, of course, 
was appropriately couched, but in the personal briefing, the 
lead consultant said to me, Nothing is going the work in 
Russia, and nobody is going to notice because nothing works 
now.
    And that is kind of what I am hearing from the two of you. 
We could get into Chekov and Dosdieski and so on about their 
capacity for suffering. You have referred to that. But let us 
pick up on the comment about the connections with the rest of 
the world.
    Gazprom not only provides natural gas for Russia but 
provides a very substantial amount of natural gas for western 
Europe. We can't get any answers as to what is going to happen 
in Russia beyond what I think the two of you have given us in 
your formal statement. But let us talk for just a minute about 
the impact a Y2K failure could have on eastern Europe and 
western Europe and other people who are more dependant on 
Russia for natural resources than, say, the United States is. 
Do either of you have a reaction to that?
    Mr. McHenry. The only thing that I can say about that is 
that Gazprom has been working on the problem since at least the 
beginning of 1998, if not earlier, and now reports that only 7 
percent of its systems are remaining to be remediated and also 
using a lot less computerization in general and is one of the 
richest organizations in Russia and has been installing SAPR-3, 
which is a major--it is called an enterprise resources planning 
package. It has been a similar solution adopted by a lot of 
western large multinational corporations to deal with their Y2K 
problem. So I am pretty hopeful about Gazprom and the fact that 
they are not going to have serious reductions in shipments.
    I also say this: If anybody is going to reduce shipments 
because of Y2K, it will be inside the country. It won't be 
outside. So I am not seeing that as a significant threat. You 
might have a different opinion.
    Mr. Conn. I would concur particularly with that final point 
that given desirability of raising hard currency, that it most 
likely would be domestic consumption within Russia that would 
be affected rather than foreign consumption, but we certainly 
have seen information indicating that--as you know, Gazprom is 
primarily involved in the transport of oil and gas, and we have 
seen information indicating that they do have many stations 
embedded with microprocessors that are located in Siberia and 
would have difficulty accessing those.
    So I remain concerned that there will be interruptions, 
despite the fact that Gazprom certainly is well-capitalized at 
this stage.
    Chairman Bennett. So if there is--just to pick a number out 
of the air, if there is 25 percent loss in ability to produce 
and deliver, that will all come out of the Russians' hide, and 
the 75 percent that works will still be exported to the west.
    Mr. Conn. I would think that would be tempered somewhat by 
the political pressures that would be brought to bear, but 
generally the pattern has been that oil exports, both legal and 
illegal depending on the regime in place at the time in Russia, 
have continued due to the market forces at work there, and I 
would expect that continue.
    Mr. McHenry. Yes. No more comment.
    Chairman Bennett. You may not be the ones to ask this 
question of. I perhaps should have asked it to the previous 
panel, but given the amount of time that they had taken and my 
desire to get to this panel, I didn't want to prolong their 
being here.
    The American news media has talked about ``Moonlight 
Maze''. This is a classified event, and so I have to be very 
careful about how much I talk about it publicly, but it has 
been identified in Newsweek and other sources as an attempt on 
the part of the Russians--they assume the Russians--to break 
into a variety of computers in the United States. And very 
recently, in the midst of Y2K and the lack of resources and the 
discussion of how much money they need from the west to help 
them, the prime minister recently signed an order authorizing--
if I pronounce it correctly--Goskomtelekom to seek $50 million 
in credits to buy hardware and software in the west with the 
expected delivery in October or November.
    It is hard to believe that that will go to Y2K remediation, 
but may be an attempt to increase--well, specifically they are 
saying they want to increase the number of Russian connections 
with the American internet and the amount of Russian 
involvement with the internet. That would suggest--and I don't 
want to go any farther than that because it is total 
conjecture, but that would suggest that their priority in the 
high-tech area has more to do with some kind of intelligence-
gathering information with respect to American industry than it 
does with Y2K remediation and workarounds in their own society.
    Do you have any reactions to that or comments about that? 
Is this just paranoia that is left over from the cold war that 
we need to put behind us? Or is this, indeed, another 
demonstration that the Russian leadership might be willing to 
allow their population to continue to suffer as they try to 
pursue some geo-political goal? You can answer better than the 
folks from the Government because you can speculate and they 
don't dare.
    Mr. McHenry. Well, one thing I can say about that is that 
when this purchase was originally discussed in the press, at 
least back in July, the head of the State Committee on 
Telecommunications indicated that this might be a risky 
purchase for Russia because, in fact, Americans might try to 
embed intelligence-related functions in the computers that they 
would purchase. So I think that was a theme that was also 
struck by some of the military people who were setting up the 
joint early warning system.
    So I think that there may be more paranoia or at least the 
same amount of paranoia on our side as there is on our side.
    Chairman Bennett. I have never underestimated the Russian 
capacity for paranoia.
    Mr. McHenry. But by the same token, I do think that this 
represents a serious attempt to plug holes in critical systems 
because, as I have indicated in my writings, there are a 
certain number of old Soviet-era mainframe computers that are 
hanging around from the late 1980's that are in functions that 
would seem to need to be replaced, and I think that this 
funding may have more to do with replacing those and plugging 
some holes in critical systems than it does in increasing 
capacity to get to the internet.
    So I would tend to think it is more not as serious a 
concern, but I would also say that any funding that we give 
them, any aid that we give them in this area, should be 
carefully monitored, just as we may have been or should have 
been doing in the past to see that it gets where it is 
supposedly going.
    Mr. Conn. I would only add, although this is certainly far 
afield from the area that I normally focus upon, that in 
preparation for my testimony today, I certainly spoke with 
contacts in Russia regarding Y2K compliance issues and was 
struck by the amount of information that seemed to be 
coordinated by FAPSI and by the FSB, the successor to the KGB, 
which certainly, when you are dealing with Russia and Y2K and 
dealing with computers and technology, does take a leadership 
role.
    Having said that, I would simply urge the same caution that 
my colleague mentioned in taking a close look at the 
transaction, but I would not have a view as to whether any 
level of paranoia is appropriate in this specific case.
    Chairman Bennett. OK. You talked of silver linings. One of 
the silver linings that we have found in this committee with 
respect to domestic situations is that some of the least 
prepared sectors of the economy, as they react to the Y2K 
challenge, are in fact making investments that they should have 
been making and were postponing. The original thought, which 
was that all Y2K expenses would simply be sunk costs and 
produce no return on investment, has given way to a recognition 
that, in fact, there will be some return on investment because 
of the modernization impact.
    Can you comment on how much if any of that phenomenon will 
occur in the Russian activity?
    Mr. McHenry. Yes. I think there is not going to be a very 
large silver lining effect of that at all in Russia, and the 
reason for that is the installation of new information systems 
has to go hand in hand with other parts of the economy that 
exist to support them, and there is a good reason why very 
little of the Russian economy is currently set up with just-in-
time manufacturing or the kinds of real-time information 
exchanges that we fear will be destroyed by the Y2K bugs in the 
United States, and that is because the economy simply isn't 
functioning at that level of sophistication for the most part.
    So I think, as my colleague said, at a certain time in the 
future when it becomes more attractive for investment that it 
will be necessary to invest in information systems along with 
the rest of the infrastructure and simply build whatever new 
industry is going to be built from scratch at that time. So 
investing in the information systems now, in fact, could be 
counterproductive in a lot of those places except in supporting 
small businesses that, in my opinion, have already made that 
leap and are functioning on a capitalistic basis, which is 
largely in Moscow and St. Petersburg and just a few other 
places.
    So I don't see much of a silver lining from that kind of 
investment. I do see the potential silver lining from increased 
contingency planning, from bringing the conditions that have 
been created that will go across ministry boundaries, may 
actually help the Russians to deal with some of the more severe 
problems in the future.
    Mr. Conn. Yes. I could concur and just add that I think the 
opportunity here, the silver lining, is in the area of 
engagement that Senator Lugar spoke of as did the previous 
panel. Those opportunities certainly should be seized upon and 
built upon and make the best of obviously a difficult 
situation.
    Chairman Bennett. Thank you very much. I appreciate the 
outside kind of view that you give here that complements the 
inside bureaucratic view that we have had. Bureaucratic is not 
necessarily bad. That is why we have bureaucracies, to get us 
some of this information.
    I am grateful and thank you again for your participation 
and your preparation. The committee stands adjourned.
    [Whereupon, at 12:23 p.m., the committee was adjourned.]
                            A P P E N D I X

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              ALPHABETICAL LISTING AND MATERIAL SUBMITTED

                                 ______
                                 

                  Prepared Statement of Kenneth Baker

    Thank you Mr. Chairman and members of this Committee for the 
opportunity to appear before you today to present this statement for 
the record on the Department of Energy's activities to address the year 
2000 (Y2K) computer problems of Soviet-designed nuclear power reactors.
    I commend the work this Committee is doing to highlight the 
importance of the year 2000 issue in both the United States and 
internationally. I look forward to working closely with this Committee, 
particularly as it relates to the 68 Soviet-designed power reactors 
located in the New Independent States (NIS) and in Eastern European 
Countries. Today, I will briefly review our ongoing activities to 
improve the safety of Soviet-designed nuclear power reactors to provide 
you the context for today's year 2000 discussion. I will then discuss 
our understanding of year 2000 problems that exist at these plants and 
review the actions we have already taken to assist in reducing the risk 
of an accident. Finally, I will describe our path forward through the 
end of this year.
    AT the outset, however, I wish to emphasize that the Department is 
providing assistance to countries, not managing their Y2K remediation 
efforts. The Department's experts have held many meetings with the host 
country's experts and visited several of their nuclear power plants to 
evaluate their Y2K needs. Although some Soviet-designed nuclear power 
plants continue to be at higher risk of a nuclear accident due to 
difficulties in design and operating conditions, based on our current 
information and the ongoing Y2K-related work being done at the nuclear 
facilities, we conclude that there is not a significantly increased 
risk of a nuclear accident due to a Y2K event. The Department's experts 
expect the primary safety systems to continue to function properly to 
shut down the plants safely, if needed, during a Y2K event. However, 
there are Y2K issues with other systems important to safety and normal 
plant operations that, if left uncorrected, could compromise nuclear 
safety. We are continuing to work with the host countries to address 
these issues.
    Ongoing Activities to Improve Safety
    The 1986 disaster at the Chornobyl nuclear power plant revealed 
many flaws in the Soviet approach to nuclear power. The reactors and 
nuclear infrastructures left behind by the Soviet government continue 
to operate in nine countries. These reactors, including one that still 
operates at the Chornobyl site, suffer from deficiencies in training, 
safety procedures, design, and equipment. Some problems have been 
exacerbated by the breakup of the Soviet Union--equipment shortages are 
commonplace and many nuclear professionals suffer from low or erratic 
pay. If not corrected, these conditions pose a continued risk of a 
reactor accident in Ukraine, Russia, Armenia, Kazakhstan, Lithuania, 
Slovakia, Czech Republic, Hungary, and Bulgaria. The current year 2000 
concerns are only a portion of our continuing concerns.
    If another major nuclear accident occurred, the United States and 
the international community would be forced to deal with the political, 
economic and environmental destabilization of politically sensitive 
regions. This concern led the U.S. Government to conclude that 
enhancing the safety of Soviet-era nuclear reactors and establishing 
improved safety infrastructures in the countries that operate them is a 
vital national security interest of the United States. The U.S. and 
other Western countries have the technologies and skills to work with 
these nations to address nuclear safety challenges with a relatively 
modest investment. Rather than providing billions of dollars in foreign 
aid to correct all of the problems directly, the safety program helps 
the host countries structure their nuclear industry to address safety 
issues, to prevent accidents, and, as their economies improve, to 
increase their own funding for nuclear safety. These activities are 
critical to preserving these emerging, democratic, free market 
economies.
    I am proud of the progress the Department of Energy has made to 
improve the safety of Soviet-designed nuclear power plants and in 
establishing self-sustaining nuclear safety infrastructures in these 
countries. The Department is working with the host countries and the 
personnel at all 68 nuclear power reactors, which are located at 23 
sites. There are several different designs, including the RBMK, or 
Chornobyl-type, the VVER-440 and the VVER-1000. The greatest safety 
concerns pertain to the RBMK and early models of the VVER-440. We are 
addressing the most serious risks at these reactors by improving the 
plants' physical operating conditions, installing safety equipment, 
developing improved safety procedures, establishing regional centers 
for training reactor personnel, and conducting in-depth safety 
assessments of the operating plants.
    Some understanding of the actual risk can be achieved based on 
recently completed probabilistic risk assessments performed by 
international experts at two RBMK plants; one at the Ignalina plant in 
Lithuania and another at the Leningrad plant in Russia. Regardless of 
the year 2000 situation, if no safety upgrades were performed, risk 
experts calculate that the frequency of a core meltdown accident at an 
RBMK reactor is approximately one-hundred times higher than at a 
typical U.S. nuclear power plant.
    Unlike U.S. plants, RBMK reactors do not have containment 
structures, making the consequences of a core meltdown even more 
severe.
    The Department is also working to convert the operating modes of 
the three nuclear production reactors located at Seversk and 
Zhelenogorsk in Russia to enable the reactors to continue operations 
without producing weapons grade plutonium. These plants are old and 
have some of the same serious safety issues associated with RBMKs.
    Accomplishments of the Department's program range from installation 
of safety parameter display systems at the Chornobyl plant in Ukraine 
and the Kursk plant in Russia, to completing training for thousands of 
reactor staff at the Balakovo training center in Russia and the 
Khmelnytskyy training center in Ukraine. Equipment, such as pipe lathe 
and welding equipment, firedoors, back-up generators, dry cask spent 
fuel storage systems and additional safety equipment and materials, has 
been delivered to plants throughout the former Soviet Union. The list 
of accomplishments to date is extensive, and the equipment and other 
activities are having very positive impacts on the safety of operations 
at these plants.
    The Year 2000 Problem at Soviet-Designed Nuclear Power Plants
    The U.S. Department of Energy is working closely with the 
International Atomic Energy Agency (IAEA) to help resolve year 2000 
(Y2K) issues associated with Soviet-designed reactors. The Department 
has received requests from Russia, Ukraine and other countries for Y2K 
assistance in the nuclear power sector. The Department is responding to 
these requests by assisting these countries in their efforts to address 
safety-related Y2K issues at their reactors. Let me briefly state the 
objectives of our Y2K initiative for Soviet-designed reactors and 
outline our accomplishments thus far. Then, I will summarize the 
current status of the ongoing work and the path forward.
    Purpose and Objectives
    the goal of the Department's program is to assist countries with 
Soviet-designed reactors address safety-related Y2K issues. We are 
helping to ensure that Y2K events will not cause an accident or 
significant challenge to plant safety. We have been working in 
cooperation with the host countries since 1998.
    Accomplishments
    Most of the contributions we made early on were in the form of 
workshops and training, sometimes bilaterally with the host country, at 
other times in conjunction with the International Atomic Energy Agency 
(IAEA). The IAEA has developed guidance for conducting Y2K evaluations 
at nuclear power plants based on the Nuclear Energy Institute Y2K 
assessment guidelines used in the United States. The Department 
initially conducted an October 1998 workshop in Moscow on Y2K issues 
for nuclear power plants in Russia. This workshop was hosted by the 
Russian utility that manages nuclear power plants, Rosenergoatom. A 
similar workshop was conducted in March 1998 in Kyiv, Ukraine. This 
workshop was hosted by the utility responsible for Ikraine's nuclear 
plants, Energoatom.
    We supported a training workshop on the IAEA's Y2K Guidance 
Document for member countries in Vienna, Austria on January 25 through 
29, 1999. The guidance helps to standardize the efforts across all the 
nuclear power plants. We sponsored the development of software to 
assist plants with using the IAEA Y2K Guidance and in sharing 
information gathered via the Internet.
    Transmission and distribution of electric power is another 
significant Y2K issue. We conducted Transmission and Distribution Year 
2000 Information Exchange Workshops in Moscow, Russia in February 1999 
and in Kyiv, Ukraine in March 1999 to assess current Y2K programs 
within the Russian and Ukrainian transmission and distribution systems.
    To assist in implementing the IAEA guidance, we sponsored the 
development of draft procedures to conduct an IAEA Y2K Guidance-based 
assessment process.
    To gain a plant perspective of how the Y2K assessments were going, 
we participated in Russian reviews of the ongoing Y2K evaluation work 
at the Beloyarsk and Kola nuclear power plants. In addition, we have 
visited the Leningrad, Chornobyl, Zaporizhzhya, and Armenian nuclear 
power plants and have met with representatives from almost all the 
Soviet-designed reactor facilities during meetings in Moscow, Kyiv, 
Vienna, and the U.S.
    A technique that proved valuable in our other safety work was 
arranging visits to U.S. nuclear plants to observe how US plant 
managers dealt with specific issues. In this instance, we sponsored 
visits in July to the Surry and Calvert Cliffs plants for Russian Y2K 
specialists and the San Onofre and Palo Verde for Ukrainian 
representatives. During the visits, they reviewed U.S. Y2K assessments, 
the remediation work completed, and the process of developing 
contingency plans. Part of the team was made up of Y2K specialists from 
the Russian and Ukrainian nuclear regulatory organizations.
    Also in July, we supported an IAEA Information Exchange Workshop 
for member countries in Vienna. This provided an opportunity for 
discussions of the ongoing Y2K work in each country.
    The week of July 26, we sponsored the training of Russian, 
Ukrainian, and Lithuanian personnel in automated software scanning 
tools. Such tools can much more rapidly and accurately scan lines of 
computer codes than laborious manual reviews during assessment and 
remediation efforts. The Department has provided a countrywide license 
for this tool for use at nuclear plants and transmission and 
distribution centers throughout Ukraine. The Department also provided 
funding to Ukraine for the computers and personnel to operate the 
software. These actions will improve the manual process that was being 
used in Ukraine to review and change the date-sensitive parts of the 
computer programs. Software licenses for the scanning tools also were 
provided for both units at Ignalina plant in Lithuania.
    Summary of Our Current Knowledge of the Situation
    I am pleased to say that initial complacency in some countries with 
Soviet-designed nuclear plants has greatly improved. Although some Y2K 
response efforts were only begun within the last year, significant 
progress is now being made. Most of the host countries are following 
the IAEA guidance closely when conducting Y2K assessments of their 
nuclear plants and electrical transmission and distribution facilities.
    Equipment provided by the United States has been carefully 
evaluated for Y2K safety concerns. This evaluation and follow-up 
remediation has ensured that no equipment provided by the United States 
will cause a Y2K safety problem.
    Based on recent information, Russia, Ukraine and other host 
countries have established adequate Y2K programs. We have categorized 
their programs into four phases. Phase one is inventory/preliminary 
assessments; phase two is detailed assessment/testing; phase three is 
remediation; phase four is contingency planning. Of the 68 nuclear 
reactor units in the nine countries of the former Soviet Union, 50 have 
completed their phase two detailed assessments and testing activities. 
Each of the 50 is underway with its phase three remediation activities. 
The remaining nuclear units are proceeding to complete their detailed 
assessments and testing activities. Of the total, 45 have begun 
developing their phase four contingency plans.
    Our understanding of each country's Y2K program for its nuclear 
power plants is shown in the attached Table, ``Summary of Y2K 
Compliance at Soviet-Designed Reactors, September 1999.''
    While much work remains to be done, let me emphasize that current 
information indicates that there are no known Y2K problems with the 
primary reactor safety systems. These systems detect problems and 
automatically shut down the plant. Therefore, if something goes wrong 
at the plant, we expect that the primary safety system will continue to 
function properly and shut down the plant safely.
    Not all the countries are at the same stage of readiness, however, 
Russia has established a well-organized and aggressive, if under-
funded, Y2K program. Each plant has reported that it has completed its 
preliminary and detailed assessments, although the depth and accuracy 
of these assessments are not completely known by us. The nuclear power 
plants in Russia plan to complete remediating their important systems 
in October 1999. On the other hand, Ukraine has developed an assessment 
plan, but until lately had only completed limited assessments. The 
Department of Energy is partnering with the Science and Technology 
Center in Ukraine to work with the Ukrainian utility and nuclear power 
plants to conduct systematically a slightly varied implementation of 
the methodology described in the IAEA Y2K Guidance document. Ukraine 
plans to complete its remediation activities by November 1999.
    There are Y2K safety concerns with nuclear power plants in Russia 
and Ukraine. Specifically, systems without direct safety impact, but 
that are important to safety, have known Y2K problems. Common to both 
RBMK and VVER reactors are monitoring computers, such as the plant 
process computer. This computer monitors conditions within the reactor 
and provides information to the operator. The operator uses this 
information to make various adjustments to the plant, such as moving 
control rods or changing flow rates. Failure of the plant process 
computer is not an immediate safety concern, but regulations require 
that the plant be shut down within a few hours or less, if the computer 
is not restored to full operation. RBMK plant process computers are 
known to suffer from both hardware and software Y2K vulnerabilities, 
while at VVERs problems are generally confined to software issues.
    The radiation monitoring system, which is a system important to 
safety, is another system at Soviet-designed reactors with known Y2K 
vulnerabilities. The operator of the nuclear facility would be required 
to shut down the reactor if it failed. The security access system, 
which allows personnel access to parts of the nuclear plant to check on 
the performance of equipment and instruments, is also known to have Y2K 
vulnerabilities. Other systems that are Y2K vulnerable, for example, 
are the ancillary systems connected to the plant process computer to 
calculate the state of the reactor core. The core monitoring software 
that calculates the power distribution in the nuclear core and the fuel 
management system that calculates the nuclear fuel that is burned are 
also Y2K vulnerable. Failure of each would require the operator to shut 
down the reactor.
    There is concern that, if not fixed, these problems could result in 
the simultaneous shut down of several nuclear plants, causing 
disruption of power supplies in the middle of winter. In 1997, the 
nuclear power plants in Russia produced 14 percent of the nation's 
electricity; in the far western parts of Russia, the share was nearly 
25 percent. The Kola, Leningrad, and Smolensk nuclear power plants 
supply half of northwest Russia's electricity requirements. In 1997, 
Ukrainian nuclear power plants produced 47 percent of the nation's 
electricity. Thus, shutting down these reactors could have a serious 
impact on the populace. Alternatively, there may be pressure to keep 
the plants running, even without the plant process or other monitoring 
computers, which would then create a safety problem. In general, the 
Russians report that they have remediated their plant process computer 
software vulnerabilities using a manual review process. Work is in 
progress in Ukraine to remediate these same problems using tools 
provided by the Department.
    Moreover, the following Y2K safety concern exists in all the host 
countries. Y2K problems may originate within the electrical 
transmission and distribution system and cause an unplanned reactor 
shut down (referred to as a loss of off-site power accident).
    Russian and Ukrainian transmission and distribution experts have 
stated that they have found Y2K problems with their automated systems; 
however, they are confident that they can operate their systems in a 
manual code and avoid any unplanned disruption of electricity supplies 
to the nuclear power plants. The situation in the other host countries 
is expected to be similar. Host-country experts are more concerned that 
Y2K would cause the nuclear power plants to shut down which would in 
turn cause disruption of electric supplies. Any unplanned shut down due 
to a loss of off-site power poses risks to the safety of the nuclear 
power plants, because emergency battery and diesel power systems must 
function properly to ensure plant safety.
    The Department has discussed with Russian and Ukrainian government 
officials the importance fur sufficient supplies of diesel fuel to 
power the back-up electrical generators, if there were a loss of off-
site power event caused by Y2K. Our experts also are meeting with the 
nuclear power plant staffs to better assess the adequacy of diesel fuel 
supplies.
    The host countries in conjunction with the Department of Energy are 
working to develop contingency plans to address these Y2K concerns. 
These plans help plant operators understand possible Y2K problems that 
may occur and establish procedures to address potential problems. The 
plans would help prevent operators from inadvertently creating a worse 
situation due to inappropriate operator actions.
    Path Forward
    Based on meetings at the IAEA and discussions with the host 
countries, the countries of Bulgaria, Czech Republic, Hungary, 
Lithuania, and Slovakia appear to be adequately addressing Y2K issues. 
Kazakhstan has permanently shut down its BN350 reactor, limiting Y2K 
assistance to equipment for monitoring the plant during shut down and 
its spent fuel. Therefore, the Department is focusing its assistance in 
the countries of Armenia, Russia and Ukraine, with limited assistance 
to Kazakhstan.
    In most countries, the preliminary and detailed assessments are 
complete or are nearly complete. In Russia, the Department's efforts 
complement the efforts of the International Science and Technology 
Center. The Center is pursuing a program at Russian nuclear power 
plants to help verify the preliminary and detailed Y2K assessments that 
the Russian nuclear power plants had completed before using systematic 
guidelines. The Center plants to complete those assessments that are 
either deficient or incomplete according to their established Y2K 
guidelines. The Russian utility, Rosenergoatom, provides the results of 
the assessments sponsored by the Center directly to the Department 
which in turn develops a Y2K remediation assistance strategy for the 
nuclear power plants. The Department's remediation assistance 
complements the existing Y2K programs at the nuclear power plants.
    In addition, the Department has participated in two Russian reviews 
of the Y2K evaluations conducted at Russian nuclear power plants. These 
reviews were held at the Beloyarsk and Kola plants. The Department 
experts will also participate in a review at the Bilibino plant (near 
Alaska) in mid-October.
    Similarly in Ukraine, efforts will continue under the partnership 
with the Science and Technology Center in Ukraine, Ukrainian 
institutes, and nuclear power plants to implement, with slight 
variances, the IAEA Y2K guidance at all the plants. This will 
complement the work already completed with the IAEA's help at Chornobyl 
Unit 3, Zaporizhzhya Unit 6, and South Ukraine Unit 3. The Department 
works closely with the IAEA during its ongoing reviews of the 
assessment efforts in the host-countries.
    The Department is providing assistance in remediating identified 
Y2K problems in Russia, Ukraine, Kazakhstan and Armenia. Because of the 
assessment efforts, specific problems have been identified and the 
plants have requested assistance to remediate these problems. In 
Russia, the utility and nuclear power plants have requested assistance 
in purchasing replacement hardware and software for systems that will 
be important in maintaining continued operations. Similar requests have 
been received from the Chornobyl and Zaporizhzhya nuclear power plants 
in Ukraine and the nuclear power plants in Kazakhstan and Armenia. 
Efforts are underway to provide these requested materials and 
assistance. In addition, it is expected that the rest of the nuclear 
power plants will also have similar requests as their detailed 
assessment work progresses. When these additional deficiencies are 
discovered and prioritized at other plants, consideration will be given 
to providing assistance to correct the deficiencies.
    Regarding the reliability of the electrical transmission and 
distribution systems and their impacts on nuclear safety, this issue is 
being addressed primarily by the development of Y2K contingency plans. 
The Department sponsored a contingency planning workshop during the 
week of September 19, 1999 in Prague for Armenian, Bulgarian, Czech 
Republic, Hungarian, Lithuanian, and Slovakian nuclear power plant and 
transmission and distribution personnel. Similar contingency planning 
working sessions are scheduled this week in Russia and in October for 
Ukraine. The working meetings are intended to assist the plants and 
utilities of the host countries in completing their contingency 
planning. These meetings are being coordinated with similar 
International Energy Agency meetings in Paris and Prague in late 
September and early October. Personnel from U.S. plants and utilities 
will attend in order to share their contingency plans and experiences. 
In addition, Ukrainian and Russian representatives visited the United 
States earlier this month to observe the nationwide North American 
Electric Reliability Council year 2000 drill on September 9, 1999.
    The Department is coordinating with the U.S. Nuclear Regulatory 
Commission to provide assistance to host-country regulatory bodies as 
requested. The nuclear regulatory bodies in the host-countries have 
participated in meetings with the Department's experts. They have 
advised the Department's experts, based on information obtained from 
IAEA meetings and visits to the U.S., on Y2K issues related to their 
regulations. The regulatory body in Russia, for example, was a major 
contributor to the development of the Russian version of the IAEA Y2K 
guidance document.
    Conclusion
    We are relying on the host countries to assess their Y2K issues 
properly, remediate problems, and develop contingency plans using 
established guidelines. We have provided information and assistance at 
each step along the path to Y2K readiness. The initial complacency that 
was expressed by some host country representatives has given way to 
significant efforts on their part to resolve Y2K problems. In light of 
the relatively late start of these Y2K activities, we cannot be 
completely certain that they will be successful. On the other hand, as 
I stated earlier, we do not anticipate failure of primary safety 
systems. Therefore, the Department's experts believe that there is not 
a significantly increased risk of a nuclear accident at Soviet-designed 
nuclear power plants due to a Y2K event. We are helping to remediate 
the monitoring systems, such as the process computers, which if they 
failed should lead to an orderly shut down of a plant according to 
safety procedures. We are providing assistance with contingency 
planning and will continue to work toward resolution of Y2K issues at 
Soviet-designed nuclear power plants.
    Nonetheless, some known Y2K problems that do not directly affect 
plant safety or continued operation of the plant probably will not be 
corrected before the end of 1999.


                               __________

            Prepared Statement of Chairman Robert F. Bennett

    A serious social, economic, and political crisis began when Russia 
devalued the ruble and defaulted on its debts in August 1998. Little 
work has been done to investigate the long-term consequences Y2K could 
bring to a Russia already on the edge. This troubles the Committee, 
since Y2K failures in key infrastructures such as power, banking, 
telecommunications, and defense might have serious negative impacts on 
the stability of the Russian economy and political environment.
    The International Monetary Fund (IMF) announced on Friday that it 
would offer special loans to countries suffering serious economic 
damage from Y2K. The IMF certainly hopes this financial assistance 
won't be needed, but states, ``there are uncertainties, and the 
potential consequences for international trade and growth of possible 
interruptions to productions and shipment may be significant.'' I think 
these uncertainties and the potential consequences resulting from Y2K 
apply as much to Russia as to any nation.
    While Russia is not as highly networked and interconnected as the 
United States, it still relies on information systems and microchips. 
In fact, the information systems that survived the Soviet era and 
remain in use are extremely critical. As many as 4,000 Soviet-era 
mainframes are estimated to support the operation of Russia's 
industrial and defense enterprises. It is believed that several hundred 
million dollars is needed to repair these mainframes. The failure, 
disruption, or corruption of these systems in a short span of time 
could create a unique and unexpected challenge to the economy. In the 
short term, the shock from serious Y2K failures could exacerbate 
Russia's downward economic spiral. Since such an event would 
unquestionably affect U.S. policy, we must proactively consider how we 
should respond to these failures if and when they occur.
    From a long-term perspective, no one knows what the impact of Y2K 
inefficiencies will mean for the Russian economy as a whole. We must 
decide soon what our foreign policy will be with respect to Y2K 
failures. We cannot engage in diplomatic shell games until November 
1999 and then glibly announce ``The U.S. Foreign Policy on Y2K.'' 
What's more, I fear that whatever policy the White House has arrived at 
will crumble when the first CNN footage hits the air. What should U.S. 
policy be with respect to foreign Y2K failures? How will we prioritize 
national security, the needs of our allies, the needs of critical 
trading partners, and humanitarian needs? These will be very difficult 
decisions and there will be no time for ``spinning' rhetoric and 
political posturing. Difficult decisions will demand prompt and careful 
attention. The U.S. does not have the resources to save the world. 
Indeed, if it weren't for the fast actions of Senator Stevens, we might 
not have had the emergency funds to meet emergency requirements here at 
home.
    It is vital to remember that Y2K problems will unfold over time. We 
here in Washington have expended a lot of effort to examine the 
immediate impact of Y2K--from sharing nuclear information to collecting 
information about telecommunications--but we've given little 
consideration to what happens if and when problems emerge in late 
January or in March.
    Since the dissolution of the Soviet Union, America has reached out 
to try and help the Russian Federation wherever it was prudent to do 
so. We are most fortunate to have one of the Senate's foremost Russian 
experts--and a valuable Committee member--with us today. In 1991, 
Senator Lugar recognized the urgent need to help Russia move its 
nuclear and chemical weapons back within its sovereign borders. Through 
Cooperative Threat Reduction, the U.S. and Russia collaborated to 
dismantle launchers and destroy chemical weapons in the newly 
independent states. It is precisely because of this expertise that we 
have invited him here today to share his thoughts about how assisting 
the Russians with Y2K fits into the broad goals of threat reduction.
                               __________

                  Prepared Statement of John R. Beyrle

    Thank you, Mr. Chairman and members of the Committee. I am pleased 
to have the opportunity to discuss the potential impacts and 
consequences for the Russian Federation of the Year 2000 computer 
problem. That the focus of this hearing is solely on Russia and Y2K is 
evidence of the justifiable concern of the Congress and the American 
people on what the potential for disruption associated with the 
millennial change may mean for our national security. Addressing 
potential problems connected with Russia's strategic arsenal and safety 
questions raised by its aging nuclear power infrastructure has been the 
priority focus of our engagement with Russian officials and agencies: 
concern for our own well-being would dictate nothing less. Accordingly, 
Assistant Secretary of Defense Warner is prepared to brief you on our 
efforts to continue and enhance cooperation in the areas of nuclear 
weapon security, the sharing of missile launch data, and in ensuring 
open communications among our leaders during the Y2K transition. And my 
colleague Ken Baker, Deputy Assistant of Energy, will be discussing his 
Department's efforts to ensure that Russia's many nuclear power plants 
are not adversely disrupted during Y2K.
    I would like to open our discussion today by providing a brief 
overview, from the perspective of the Department of State, of our 
current assessment of some of Russia's Y2K preparations. It seems easy 
to predict Russian difficulties resulting from the possible effects of 
Y2K. The country is only slowly recovering from the financial collapse 
it suffered over a year ago, a situation which inevitably distracted 
the government from its efforts to deal with potential Y2K disruptions 
and left less in the budget for remediation efforts. Frequent changes 
at the top of the Russian government over the past year have further 
complicated the picture. Moreover, by the first of January Russia will 
be experiencing a transitional political situation. A new Duma will 
have just been elected, and presidential elections will be just a few 
months off.
    I would like to emphasize from the start that our assessment of 
Russia's vulnerability to Y2K is an ongoing, iterative process. We have 
been and remain continually engaged with the Russian government at a 
variety of levels in a range of areas in an effort to gather the 
information we need to make definitive assessments in the areas of 
greatest concern or most direct impact on American interests. In 
general, the amount and quality of information available, while not 
optimal, has been sufficient for us to make evaluative judgments in 
these key areas--judgments that we are continually reassessing or 
refining as the situation on the ground changes, or new data become 
available. But as this Committee knows all too well, the Year 2000 
technology problem is without precedent in history, and uncertainty 
attends all of our efforts to deal with it. With regard to Russia 
especially, the challenge lies in assessing how this uncertainty 
translates into risk. We do not underestimate the potential disruptions 
that Y2K may bring to Russia, but at the same time we need to evaluate 
such problems realistically.
    Russia's success in navigating the Y2K transition throughout its 
society rests in large part on its ability to minimize electricity and 
communications disruptions, and thus I would like to concentrate this 
overview on our analysis of the electrical and telecommunications 
sectors. Russia is likely to experience disruptions in its electrical 
grid and telecommunications infrastructure, with subsequent effects on 
its financial, industrial, and government sectors. At this time we do 
not foresee severe, long-term disruptions. Our analysis of Russia's 
electricity sector indicates the larger cities, Moscow in particular, 
are likely to be much less affected by outages than the countryside. 
Depending on how effective the authorities' Y2K remediation efforts are 
in the three remaining months, it appears that Moscow and the other 
cities might emerge relatively unscathed by the transition.
    We attribute this partially to the Russian government's traditional 
concern and attention to the urban populations, dating back many 
decades. In fact, as we understand the electrical sector priorities, 
power to the countryside might be reduced in order to ensure that the 
cities are not deprived. If the overall integrated power system (IPS) 
is not fully functional, this could result in power deficits, perhaps 
lasting several days, to the smaller towns and villages.
    The power utilities' ability to supply electricity will likely vary 
from region to region. The Far East, for example, will likely face the 
greatest risk of power loss or shortages. On the other hand, because of 
the economic contraction of the past decade, many areas are currently 
using much less power than previously. Coupled with the extended 
holiday period, which decreases electricity demand, this should result 
in significant excess generation capacity. This in turn should reduce 
the stress on the electrical grid, and provide more flexibility to the 
power generation and distribution operators to work around problems 
that may develop in individual plants.
    Russia presently derives seventy percent of its power from fossil 
fuel plants, mostly natural gas; fifteen percent from hydropower; and 
fifteen percent from nuclear plants. With respect to the non-nuclear 
plants, we understand that many of them use older, analog systems that 
should not be affected by the Y2K rollover. We are still collecting 
information on how many of these plants have been upgraded with more 
modern plant process controllers, which could have non-compliant 
embedded microprocessors.
    With respect to the nuclear plants, my colleague Ken Baker from DOE 
can provide you with more information about the dedicated Y2K programs 
that his organization has undertaken, and their cooperative efforts 
with the IAEA and the U.S.-supported International Science and 
Technology Center.
    It is no secret that Russian winters are cold. Any disruption of 
the heating systems in Russia could have serious, potentially life-
threatening consequences. The reliability of the heating systems is 
tied closely to the availability of electricity. In larger cities such 
as Moscow, heat is provided mostly by natural gas-operated water 
heating plants, while coal-fired plants are more common in the small 
cities and towns. The plants are analog and should not be affected by 
Y2K, but once again, electricity is required to pump the water through 
the pipes and return it.
    A somewhat greater potential for disruption, in our view, lies with 
the Russian telecommunications sector. There are two to three thousand 
domestic telephone companies around the country. They use a wide 
variety of equipment, produced both domestically and abroad. We believe 
some of that equipment contains embedded microprocessors that are not 
Y2K-compliant. The consequence of this is that some of the systems will 
likely fail, disrupting normal telecommunications services. It could 
take the telecommunications companies days and perhaps weeks to track 
down and repair all the failures.
    Russia has access to updated telecommunications satellites, which 
we believe to be Y2K-compliant. Less clear is the status of ground-
based links, some of which may rely on embedded chips. Cellular systems 
are also up-to-date but they too frequently rely on landlines to relay 
conversations beyond the local cell. The government and telecom 
providers are working to minimize disruptions, but we doubt that they 
have sufficient time or money to resolve all problems in time.
    Many vital industries and government entities have one or more 
backup communications system. We believe the Soviet-era internal phone 
system that connects many government ministries and agencies should 
continue to function. The electricity monopoly, UES, has its own 
communications system using power lines, as well as other backup 
systems. Key energy players like Gazprom, Transneft, Transgas, and 
RosEnergoAtom, also have one or more backup systems. It is not clear 
that the backup systems are entirely reliable, but having doubly 
redundant backups provides some measure of security in these key 
sectors.
    Regarding air traffic safety, we understand that national systems 
such as the Moscow area control center, the Rostov air traffic control 
center, the data transmission system, and the automated planning system 
on airspace use, have all undergone extensive Y2K testing. Potential 
Y2K problems have been or soon will be corrected. Russia's national 
aviation authority requires that regional air traffic control centers 
test their equipment and implement contingency plans in case of Y2K 
disruptions; most of these centers have complied, and the remaining few 
are expected to do shortly. In addition, the authority will order the 
grounding of any aircraft that has not provided a statement of Y2K 
compliance by December 1.
    Given the efforts that Russia has made in remediating potential Y2K 
disruptions and in making contingency plans, at this time we are 
hopeful that we will not need to reduce staff in our embassy and three 
consulates in Russia. We expect to make a final determination in mid-
October. Nevertheless, we are advising U.S. citizens who will be in 
Russia over the millennial transition to be prepared for possible 
disruptions, especially in key sectors like electricity, heat, and 
telecommunications. As always, we strongly urge all U.S. citizens to 
register at one of our missions and to remain in contact for updated 
information.
    The U.S. has worked closely with key sectors in Russia to prepare 
for the transition. We have focused particularly on those areas related 
to national security, as my colleagues will relate. For example, in the 
nuclear safety area, the Energy Department began an active program a 
year ago, which has been well received in Russia.
    In addition, however, thanks to funds appropriated for this purpose 
by Congress, we have carried out a number of activities with and inside 
Russia. Beginning earlier this year we cooperated with the Russian 
Government, the World Bank, the International Energy Agency (IEA) and 
the American Chamber of Commerce in Russia to conduct a series of 
workshops and seminars in Russia on the Y2K issue. We have sent U.S. 
experts to Russia and have funded the travel of Russian experts to 
various international meetings and conferences. We have also conducted 
videoconferences between U.S. and Russian officials and opinion leaders 
to increase awareness of Y2K issues.
    In these outreach efforts, we have tended to focus on those 
government agencies that provide key services. For example, two groups 
of mid-level Russian government officials have visited the U.S. in the 
past year under the USIA international visitors' program to discuss 
preparations for Y2K at the sectoral level. We are preparing another 
group of Russians to visit the U.S. under the same program to look at 
how U.S. utilities prepare contingency plans for Y2K. The State 
Department, USIA, and the Department of Commerce also co-sponsored two 
conferences in Russia for small and medium enterprises. Hundreds of 
Russian-language CD-ROMs to assist these businesses in making Y2K 
contingency plans were distributed at these conferences. USIA has also 
developed a Russian-language website.
    Our efforts and those of the world press have heightened awareness 
of the problem in Russia. The Russian Government published a plan for 
tackling Y2K as early as May 1998. Moscow's efforts have been hampered 
by lack of money, however. Since the August 1998 economic crisis in 
particular, there have been insufficient funds to deal with known 
problems.
    Our experience in attempting to help, or even in obtaining 
information on the extent of the problem in some sectors, has been 
mixed. Some agencies, such as the electricity monopoly United Energy 
Systems, have been open to technical exchanges with Western experts. 
But for much of the Russian government transparency still comes hard.
    Some in the Russian bureaucracy view Y2K as a national security 
issue and are reluctant to reveal any information that could betray 
weakness or vulnerability. This reticence has hundreds of years of 
tradition behind it, but makes it more difficult for Russian 
interagency remedial work, and definitely more difficult for foreigners 
to assess the problem accurately. To illustrate, one key ministry 
refused to meet with U.S. Embassy officials to discuss their Y2K 
preparations because they did not want to ``spread rumors.''
    This reluctance also complicates our ability to forecast accurately 
what additional steps might be necessary to protect Americans living 
and working in Russia. We have posed a number of questions to the 
Russian authorities concerning basic service during the transition but 
have received few answers. Some of these lists of questions were put to 
them as long ago as June. We will continue to seek satisfactory answers 
on behalf of the many Americans who live in or do business with Russia.
    In conclusion, Mr. Chairman, please allow me to make a few general 
points.
    First, in assessing Russia's overall vulnerability, it's important 
to bear in mind that much of the country's infrastructure is less 
dependent on computer technology than in some Western countries. This 
fact tends to lessen the risk of large-scale, systemic failures--the 
kind that are more complicated and take longer to repair--in favor of 
more localized problems that can be fixed more easily and quickly. 
Unfortunately, it has also led to a certain complacency on the part of 
some in the government and financial community and a tendency to 
understate the actual risk potential.
    Second, the level of technical and engineering expertise in ratio 
to the problems anticipated is relatively high. Programmers and 
engineers are at work on remediation efforts now, and are prepared to 
deal with the shocks and aftershocks as the millennium rolls over. 
Schooled in the communist era of shortages, when the unavailability of 
replacement systems meant fixing and re-fixing, they have been 
compelled to become intimately familiar with their systems, and can be 
creative and resourceful in dealing with novel or unanticipated 
problems. But it's important to remember that Y2K is an unprecedented 
problem of potentially large-scale magnitude. Even with the best will 
and capabilities, there may be too many problems to deal with, 
requiring prioritization of the effort. Furthermore, it is far from 
clear that Russia will have sufficient resources to deal effectively 
with the consequences.
    Third, many elements of the Russian Government are working 
diligently to prevent disruptions in the key electrical sector, and in 
other areas that my colleagues will discuss. Most Russians recognize 
that this problem is not hypothetical. They do not have their heads in 
the sand, but they are struggling to do what is needed as the clock 
ticks down. In our assessment, as I have mentioned, the failures are 
not likely to be severe or long lasting. If that is the case, then we 
should not expect significant economic fallout. However, the Russian 
Government has stated that certain financial resources--estimates vary 
widely--will be necessary to upgrade or replace deficient equipment. 
DOE, IAEA, and ISTC are helping provide this equipment in the nuclear 
area, and Dr. Warner will discuss the potential for similar assistance 
in DOD programs. To date, Russia has neither asked for nor received 
significant aid in other Y2K problem areas. This means Russia must 
allocate the money internally, a difficult process in their current 
financial situation. If the resources are not made available, they 
would likely fall short of their planned remediation. This in turn 
could result in more disruptions at the transition.
    How long might disruptions last? Russia may continue to experience 
Y2K-related problems in some sectors for months after the New Year. It 
could take some time for any temporary fixes to be replaced by 
permanent solutions. It will be prudent to view post-Y2K Russia in a 
similar way that we are viewing pre-Y2K Russia--as a country that may 
continue to rely on the U.S. and other countries for help in overcoming 
computer-related disruptions. We will, of course, maintain a close 
contact with key Russian sectors after the New Year to continually 
assess developments.
    Depending on the severity of these problems and their effects on 
ordinary Russians, we will need to come to a decision on the most 
effective U.S. response. Continued visits by U.S. experts likely will 
be essential. After the New Year we will have the advantage of knowing 
where Y2K disruptions have occurred, making us better able to direct 
our help accordingly.
    Cooperating with Russia in these areas, as we've done in the run up 
to Y2K and as we will continue to do after the New Year, is in the 
interest of both our countries. By overcoming the vulnerabilities that 
come to light during the Y2K transition, Russia may, in the longer 
term, emerge with a stronger basic infrastructure, enhancing the 
country's economic potential. Our cooperation in the nuclear energy 
sector will ensure the continued safe operation of those power plants. 
Perhaps most importantly, the close collaboration between our 
militaries to minimize Y2K problems will result in both our countries 
being less vulnerable to accidental missile launches, in better 
communication links between the leaders of our countries, and in 
enhanced security of Russia's nuclear stockpile.
    Mr. Chairman, thank you again for the opportunity to address the 
committee, and for the leadership you and your colleagues have 
demonstrated in maintaining a focus on this complicated but vital 
issue. We look forward to keeping in touch with you as we continue to 
work with Russia to ameliorate the impact of the Y2K problem on 
American interests.
                               __________

               Prepared Statement of Richard A. Conn, Jr.

    Mr. Chairman and members of the Senate Special Committee on the 
Year 2000 Technology Problem. Thank you for inviting me to discuss 
potential effect of Y2K disruptions upon business in Russia. My name is 
Richard Conn. I am a partner at Latham & Watkins, former managing 
partner of its Moscow office and former head of the foreign bar of 
Russia. I am here today as Chairman of the Legal Committee of the U.S. 
Russia Business Council, the leading U.S. based trade organization 
representing the private sector's interests in Russia. It is a non-
profit organization dating back to 1993 with 250 members ranging from 
entrepreneurs to the most prominent Fortune 500 companies. I would like 
to thank the American Chamber of Commerce in Russia and the Russia 
Chamber of Commerce and Industry for their analyses of these important 
matters. They have graciously allowed me to provide this Committee with 
many of the findings and suggestions outlined in their recent White 
Paper, ``The Russian Impact of the Year 2000 Problem on Citizens, 
Businesses and Governments.''
    In the context of Russia's many problems, Y2K issues appear 
relatively small. Today, Russia is on the brink of internal unrest as a 
result of recent bombings in Moscow, its currency remains unstable, its 
government lacks credibility internally and internationally, and its 
banking system remains weak. In short, as serious as Y2K issues are, 
they simply are not perceived as sufficiently serious and immediate to 
warrant the attention that we in the West feel they deserve.
    It is likely that Y2K will cause disruptions in much of the 
infrastructure of Russia.
      Recent assessments indicate that significant disruptions 
and negative economic impacts are likely in the short-term though 
uncertainty exists regarding the extent of the disruptions.
      While awareness has increased, the amount of remediation 
still required is daunting. The problem continues to be underestimated 
and full-scale actions to address the problem have only recently begun 
in some industry sectors and in the government.
      The Russian government faces a major administrative 
challenge in the face of significant stumbling blocks to promote active 
remediation economy-wide.
      Russia's unique environment and societal considerations 
will mitigate the long-term consequences of Y2K disruptions.
    The Russian government's response has been weak due to political 
and economic turmoil. At this late date, remediation efforts should 
focus on contingency planning. Even if Russia had unlimited funds, all 
problems could not be corrected in time as the deadline for compliance 
is fixed. Given its poor financial condition and weak institutional 
controls, few steps likely will be taken over the next 100 days. 
Russia's lower dependence on technology for day-to-day operations and a 
historic strategic working around potentially debilitating crises, 
however, will reduce the harmful effects of Y2K upon Russia.
    I. STATUS
    Although authorities in Moscow offer repeated assurances that Y2K 
will not cause disruptions, recent reports indicate that the Russian 
infrastructure is at risk for failure. Despite declarations of 
compliance, the cash-strapped government has offered little evidence of 
the scope and success of their efforts.
    The Gartner Report produced by the Gartner Group, an IT industry 
analyst organization, forecasts that Russia will experience a severe 
Y2K problem:
      Utilities will operate at 40 percent of capacity for the 
first two months of 2000;
      Transportation will be disrupted 80 percent of the time 
and telecommunications 50 percent of the time for a three-month period;
      Hospitals will deal with nothing but emergencies for at 
least two months;
      Financial markets will be disrupted for 30 trading days; 
and
      Banks will be disrupted for 20 business days.
    A. Status by Sectors:
    1. Power:
    RAO UES (``UES''), an electricity production, distribution and 
transmission monopoly in Russia reports that its system will remain 
fully operative throughout the start of the New Year. In an April 1999 
conference, UES's deputy director noted that the Russian system is 
operating at excess capacity and that the system could afford to lose 
some plants or stations and still provide full service. UES also 
reported to have safety measures to avoid a complete grid malfunction.
    As the Gartner Report indicates, however, and as the U.S. State 
Department and British Foreign & Commonwealth office note, the Russian 
power grid is likely to suffer widespread and prolonged power outages. 
For most businesses and individuals in Russia, power failure is the 
most significant risk of Y2K.
    2. Oil & Gas:
    Transneft, which is responsible for oil pipelines, and Gazprom, the 
large gas monopoly, have assured the EU Presidency that there will be 
no disruptions with the transport of gas and oil to Western Europe. 
Reported nonetheless exist noting that the Russian natural gas pipeline 
will be interrupted.\1\
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    \1\ See ``The Millennium Reckoning,'' September 1999 Update at 
http://www.trendmonitor.com. Russia Gazprom Natural Gas Pipeline 
network uses IBM 360 and 370 series computers, which likely contain 
bugs. Further, monitoring systems were purchased years ago with Y2K 
problems. Many of the equipment stations containing embedded 
microprocessors are located in remote locations in Siberia.
---------------------------------------------------------------------------
    3. Transportation:
    Official reports note that the Russian Federal Air Transport 
Service has tested 9,000 systems. According to the Deputy Director of 
the Federal Air Transport Service only five percent have reported 
problems and that 30 percent have developed contingency plans.
    As of September 21, 1999, Russia had failed to report to the 
International Civil Aviation Organization (ICAO) on measures to deal 
with the Y2K bug. Compliance is accordingly doubtful. The Deputy 
Director of the Russian Federal Air Transport Service, stated that its 
agency's experts have checked all computer systems and located the 
components that could cause problems. Early this month, another 
spokesman for the Russian Federal Air Transport Service said that the 
sector had spent more than $100 million dollars to ensure the bug would 
not affect the sector. Aeroflot also released a statement that 
``company specialists guarantee that Aeroflot will have no troubles as 
a result of the arrival of the year 2000.'' The British Foreign and 
Commonwealth Office however, reported that two-thirds of Russian 
airports ``are sure to have some Y2K difficulties'' and advised 
citizens to avoid Russian airports.
    Russia's extensive and much used railway system is based on an 
extensive range of small and relatively antiquated computers, which are 
also vulnerable to Y2K.
    4. Communications:
    There are more than 2000 local service providers in Russia using a 
large variety of hardware and software. According to Goskomtelekom, 
Moscow's phone system has been completely upgraded. Systems testing is 
scheduled for completion in September. However, the deputy head of 
Goskomtelekom said at a Russia/World Bank seminar in April, that each 
of the local operators must have a plan estimating the risk of failure. 
Disruptions are anticipated, however, in the communications due to the 
cost and complexity of the system.
    The British Foreign and Commonwealth Office published the first 
part of a global guide to each country's Y2K preparations. The report 
states that there is a high likelihood of widespread failure in Russian 
communications. The Gartner Group also reports anticipated failures in 
this sector.
    5. Financial Sector:
    Industry sources in Moscow expect most of the Y2K problems with 
Russia's securities market to occur in the banking and stock transfer 
sectors. On June 23, 1999, the Russian paper Sevodnya reported that 
there are 133,745 computer systems in Russian economic sectors. Of 
these, more than 42,000 are at risk of malfunctioning. Major banks have 
the latest technology and have used the best programming expertise to 
make themselves compliant, but smaller banks are using extremely dated 
technology.
    The central clearing and accounting system for major banks was 
installed in 1997. There has been no official statement from the 
Ministry of the Economy regarding readiness. In July 1999, at a Cabinet 
hearing, Alexander Ivanov, head of the State Communications Committee 
reported that the Russian Central Bank was prepared. The main Central 
Bank branch in Moscow, however, is informing its bank clients that 
reports show approximately 20 percent of banks may suffer Y2K failures.
    Sources also report that Russia's largest exchange, the Russian 
Trading System, is already compliant. The problem will be in 
determining whether registrars responsible for maintaining shareholder 
records, who are far from the main business hubs of Moscow and St. 
Petersburg, are prepared. Most of the large brokerages appear to be 
prepared.
    6. Status Summary:
    In short, developing a picture of Russia's Y2K status requires 
piecing together often-contradictory pieces of information from 
numerous sources. We believe that the U.S. State Department's analysis 
of the current status anticipating disruptions in key sectors of 
electrical power, heat, telecommunications, transportation, and 
financial and emergency services is probably the most reliable 
information available.
    II. RUSSIAN GOVERNMENTAL AND PRIVATE RESPONSES
    A. Russian Government Response
    The Russian governmental performance has been mixed.\2\ Its first 
significant step toward Y2K readiness occurred in May 1998 when former 
Prime Minister Sergei Kiriyenko demanded that all government systems be 
made Y2K compliant by the end of the year. No serious effort was made 
to carry out his order. In January 1999, Russian Prime Minister Yevgeny 
Primakov set up a government commission (``Commission'') to coordinate 
efforts by central and local government, state, and private 
institutions to combat the millennium bug. In January 1999, the Russian 
Government assigned Goskomsvyaz, the Ministry responsible for 
information systems and communications standards, to be responsible for 
Y2K.\3\ The Commission was also to coordinate efforts by central and 
local government, state, and private institutions. The order required 
every Russian state organization to submit quarterly reports to the 
government commission on it preparedness. However, little reporting has 
actually occurred. The lack of reporting makes it very difficult to 
gauge how key infrastructures have progressed and whether reports of 
compliance are credible. Alexander Ivanov, head of the State 
Communications Committee reported, for example, that of the 28,000 
vital computer systems of government agencies, only one-third are ready 
for the changeover.
---------------------------------------------------------------------------
    \2\ For a detailed analysis of Russian governmental action see 
William McHenry, ``The Russian Federation's Y2K Policy: Too Little, Too 
Late?'' Communications of the Association for Information Systems, Vol. 
2, Art. 10. (August 1999). See, www.msb.edu/faculty/mchenryw/personal/
pubs/cais210.htm.
    \3\ In June 1999, Goskomsvyaz was reorganized into Goskomtelekom.
---------------------------------------------------------------------------
    Just months after the Commission was created, it announced a 
``National Plan of Actions for Solving the Year 2000 Problem in the 
Russian Federation.'' The plan outlined nine areas for remediation \4\ 
and attempted to create a national bureaucratic infrastructure, 
methodologies, and timelines to help organizations develop and 
implement remediation plans. The response by agencies has been slow. 
Vladimir Bulgak, acting deputy prime minister, reported that as of May 
7, 1999, not a single ministry or department had applied for money to 
finance remediation. In addition, twenty departments had not even 
submitted plans on how they would handle the problem.
---------------------------------------------------------------------------
    \4\ See www.ptti.gov.ru/gk-doc/2000/natplan.doc.
---------------------------------------------------------------------------
    One of the elements of the plan was the development of ``Competency 
Centers.'' This was an ambitious plan to have technical consulting 
centers all over Russia. Establishment of these centers has been 
relatively successful. As of June 11, 1999, about 162 centers were 
certified. The centers provide information and consulting for technical 
and administrative questions. Many private organizations utilized these 
services and became compliant in March and April of 1999. However, 
there continues to be a shortage of funds and competent personnel to 
provide needed technical assistance.
    Full implementation of the plan was thwarted, however, as funding 
was limited, no enforcement mechanisms existed to ensure action, and 
little accountability was assigned. Benchmarks for compliance and calls 
for reports were continually postponed or ignored by various agencies.
    President Boris Yeltsin added his voice to Y2K compliance by 
issuing a presidential decree on June 17, 1999, requiring that personal 
supervision be established for enacting measures for Y2K compliance at 
all levels of government and ``other organizations.'' In addition to 
executive action, the Russian State Duma attempted to enact a 
legislative framework for Y2K remediation by enacting on June 24, 1999 
a Year law. The law had provisions which made government agencies 
responsible to take measures to avoid system failures, established the 
right of users of technology to demand compliance statements from 
providers, established rules requiring certifications of compliance 
from computer system owners, and assigned penalties for noncompliance 
in accordance with existing laws. President Yeltsin rejected the law, 
however, in late July 1999 on the grounds that it violated separation 
of powers.
    The failure to establish a legal framework for Y2K has hindered 
remediation efforts. Such a law could have created mandatory 
obligations for cooperation and information sharing. There continues to 
be little direct accountability for government officers to develop and 
implement economy-wide remeidation plans. This lack of accountability 
and organization is exacerbated by the frequent changes in governmental 
leadership.
    On a local level, administrations of large cities such as Moscow, 
St. Petersburg and Novosibirsk have established Y2K related departments 
to help businesses solve Y2K problems. The upcoming governors' 
elections and the elections to the Duma in December 1999 have served as 
an impetus for this activity in the regions. Current political leaders 
hope to gain credit for their work to solve Y2K problems or at least be 
able to avoid blame for failures.
    Lack of funds is a major impediment to Y2K remediation. The costs 
of achieving governmental compliance vary widely. Although Russian 
Finance Minister Mikhail Kasyanov estimates that the government will 
budget $187 million for Y2K remediation, some experts estimate that 
Russia needs to exceed that figure tenfold to meet its requirements. 
Minister Kasyanov's figure was dramatically lower than the previous 
figure of $1 to $3 billion and no explanation as to the reduction was 
provided. High-end estimates place the cost of compliance at $12-15 
billion, almost half the entire 1999 State Budget. This, of course, 
assumes that time was available to act.
    Due to the lack of funds, the government stated that its focus is 
upon strategically important branches of the economy, such as defense, 
transport and energy. In an effort to find more money to address 
crucial issues, on September 24, 1999, Russian Prime Minister Vladimir 
Putin signed an authorization to borrow $50 million outside Russia for 
the Y2K needs in federal organization.\5\ In addition, the State Duma 
passed a bill on September 17, 1999 requested two billion rubles, 
roughly $80 million dollars, for Y2K problems.
---------------------------------------------------------------------------
    \5\ The Federal Ministry of Finance and Vnesheconombank are to 
negotiate with international lenders. The Ministry of Trade is to 
control payments and pricing, while Goskomtelekom is to report on the 
efficiency of the loans' use. Funds from the federal budget will be 
used to repay the loans.
---------------------------------------------------------------------------
    B. Private Responses
    Certain sectors of the Russian economy have done very well in Y2K 
remediation. Financial institutions, large enterprises and 
multinational organizations are relatively compliant. Larger companies 
have been able to secure funding, but their remediation efforts may not 
be entirely complete. For example, in St. Petersburg, the phone 
company's service is anticipated to work well, but the billing system 
is not compliant due to lack of resources.
    Smaller companies face greater problems because they do not possess 
the resources to address the problem. Many of these companies are 
simply planning to have their offices fully staffed at the New Year to 
manually work around the problem. These small companies receive little 
assistance from the government since their compliance is not considered 
critical.
    Fortunately, among small businesses, computers are relatively new 
and cutting edge, or non-existent. The business sector is relatively 
young (12-15 years), so the level of information technology in the 
sector as a whole is low. It consists primarily of firms engaged in 
selling-buying businesses in food products and consumer goods. These 
small and medium-sized businesses may experience problems in 
accounting, financial management, sales, client service, information 
management, and product supply shortages as computers are used in 
inventory and distribution management systems and for accounting 
purposes. Some embedded chips may exist, but a private business' 
primary vulnerability to the Y2K problem is their reliance on 
utilities. When asked about their own remediation efforts, one U.S. 
company doing in business in Russia responded, ``We have done 
everything to make our own internal systems compliant. We have received 
compliance verification from those with whom we do business and from 
the banking system. However, our greatest vulnerability is the 
infrastructure of the country. All we can do is hope for the best.''
    III. FACTORS LEADING TO Y2K INACTION
    Russia has exhibited a low level of awareness to Y2K problems. Its 
ability to respond adequately has been limited by a number of factors.
    A. Continued Crisis in Russia
    The slow response may be attributed to the fact that Y2K issues are 
dwarfed by the ongoing crisis in Russia. Almost a decade after reforms 
began, the economy is still ailing. The August 1998 default and 
simultaneous devaluation devastated the country. The banking system 
failed and is now just beginning to be reorganized. The cabinet is 
frequently reshuffled. Roughly 60 million people, almost half the 
population, live below the poverty line. Income inequality has risen; 
life expectancy has plummeted. Violence in Moscow related to regional 
conflicts threatens to reopen conflicts in Russia's southern provinces. 
In the context of these issues, Y2K problems do not garner serious 
attention.
    B. Lack of Awareness and Appreciation of the Problem
    As recently as 1998, there was considerable skepticism in Russia as 
to the risks imposed by Y2K. Vladimir Bulgak, head of the Commission 
for the Y2K problem was of the opinion that those who wished to market 
technical equipment and services exaggerated the threat. A Nuclear 
Ministry spokesman said in June 1999 that his agency would ``deal with 
the problem when we get to 2000.''
    C. Lack of Funds
    Many Russian companies are already months behind in payroll and 
taxes, lack working capital or have had funds frozen in Russian banks. 
The public sector fares no better with severe budgetary constraints. As 
time continues to run out, the costs of making systems compliant rise 
proportionately and exacerbate the funding problems.
    D. Lack of Experienced Y2K Professionals
    Since Russian companies have not had adequate capital to address 
these problems, many companies have reduced their IT staff, causing 
former employees with technical skills to leave the country for more 
financially rewarding opportunities. These skills have been in demand 
in the West for years. Other companies have transferred their staff to 
assist in operations abroad. The net result is that Russia has lost a 
significant amount of personnel to work on the problem.
    E. Antiquated Computer Systems
    Vivek Wadhwa, the CEO of Relativity Technologies, a North Carolina 
company that sold the Russian government the software to fix its Y2K 
problems explains the situation: ``There are, I think, about 4000 
mainframes in Russia. All of those mainframes have a year 2000 problem, 
without exception. The Y2K problem, from a technical point of view, is 
probably more intense in Russia than it is here, because in addition to 
having the American hardware and American computer languages, they also 
have Russian hardware, and languages that are not used in the West 
anymore.''
    F. Lack of Cooperation
    Distrust is pervasive in Russia. Russia initially resisted the idea 
of international cooperation. When the U.S. approached the Russian 
about sharing early warning data to help prepare the Russians for Y2K, 
a faction in the Russian military believed it was simply an attempt by 
the U.S. to infiltrate Russian security.
    Fear and misunderstanding has led to little trading of information. 
For instance, one bank with Y2K bugs refused to let consultants look at 
its computer code, calling it a trade secret. This distrust and lack of 
cooperation has frustrated remediation efforts as each institution is 
required to assess the problem itself and attempt to solve it with 
limited resources.
    G. Difficulties in Identifying Non-Compliant Systems
    In the West, manufacturers of technology often will contact 
customers if systems are non-compliant or otherwise make information 
available. Organizations often cannot rely on manufacturers to inform 
them of noncompliance in Russia. Much high-tech equipment was either 
imported by middlemen who are no longer in business, imported through 
third countries in order to avoid export controls, or purchased by 
centralized government buying agencies who did not reveal the end 
destination of the equipment. Users of technology, therefore, either 
struggle to identify the producer of a system or attempt to determine 
compliance without the manufacturer's assistance.
    Similar problems exist for domestic equipment produced by 
government or former government factories and institutes. Many 
factories are no longer in existence. In the past, secrecy prevented 
some companies from maintaining accurate records. To further complicate 
the issue, many employees who designed the system have left the area or 
even the country.
    Whether associated with foreign or domestic systems, piracy also 
makes assessment of Y2K problems difficult. Many companies use a 
pirated version of software. Accordingly, the manufacturer cannot or 
will not contact the company to recommend upgrades for compliance, 
since the company with pirated software is not a registered owner.
    The net result of these factors is that it is difficult to identify 
the components and manufacturers of different systems. Even if an 
organization is able to locate a manufacturer, poor telecommunications 
and a language barrier discourage contact.
    IV. RUSSIA'S MITIGATING CIRCUMSTANCES
    The potential Y2K failures outlined above would be disastrous for 
the United States, but the history and present economic situation of 
Russia suggest that Y2K will not have as catastrophic an impact on 
Russia. First, technology is not as pervasive; there are fewer system 
to fix. Russia has far fewer digital control systems and computers used 
in industry and government than in the West. While the West has 
computerized most systems, most in Russia are analog and 
electromechanical. For example, most elevators, heating and ventilation 
systems, and shop floor equipment in Russia are electromechanical. 
Further, in the West, most desks in an organization are centered on a 
personal computer with business processes conducted via software. In 
Russia, it is not standard to have a computer at a work desk. During 
Soviet times, personal computers were strictly limited. And indeed in 
many areas of Russia, it is a rarity. For instance, clerks in many 
Russian shops continue to use an abacus. In addition, few government 
services are computerized. Functions such as welfare rolls and the 
military draft are still carried out manually on paper.
    The second advantage for Russia organizations is that they are well 
versed in working around the type of disruptions that Y2K will create. 
In the West, most companies have built their organization around 
stability and predictability. Most Western factories have precise 
supply chains and do not keep large inventories. For instance, recently 
when one important supplier of General Motors went on strike it bought 
production to a standstill. In Russia, businesses operate with 
unreliable supplies of everything from power, water and other raw 
materials to transportation. Many, if not all, Russian companies, and 
especially smaller companies, have experienced loss of contact with 
distributors and retails, supply chain breakdowns, disruptions in 
transportation and utility services, or frozen accounts for years. Most 
Russian managers have developed the expertise to quickly adjust and 
work around problems.
    In addition, most individual Russians are familiar with 
interruptions in power, telecommunications, transportation and other 
major utilities. There is reason to believe they will not experience 
the anxiety and potential overreaction that threatens Western nations.
    A final factor cushioning Y2K's effects in Russia is that some 
computer systems that have been purchased by businesses are relatively 
new. Many were either purchased Y2K compliant or are easily converted 
to compliance.
    V. RECOMMENDATIONS FOR ACTION
    A. The Russian government should identify systems of national and 
international importance and ensure there are ``triage'' plans for 
them. A Ministry, e.g., the Ministry of Emergency Situations, should be 
assigned the responsibility to coordinate the plans that are developed. 
These may include but are not limited to:
            Communications--telecommunications and data 
        networks, Rostelekom and Svyazinvest
            Emergency Services--police, ambulance and fire, 
        Ministry of Emergency Situations
            Energy--generation and supply, Gazprom, RAO-UES, 
        Transeft
            Finance--banking and trading, Central Bank, 
        Sberbank
            Food Supply--shipping, storage and distribution
            Manufacturing--supply chains and automated process 
        control systems
            National Security--defense and intelligence 
        services, Ministry of Defense
            Public Health--hospital equipment and systems, 
        medications and supplies
            Finance Ministry--tax collection, customs and 
        excise, and pension payments
            Transport--air and rail traffic control systems, 
        mass transit systems, navigation systems
            Utilities--water supply and waste management
    B. Each Ministry and organ should immediately allocate sufficient 
financial and human resources to fix the most essential Year 2000 
problems for its own systems, and take appropriate actions to 
incentivize regional (oblast, krai, autonomous regions) and local 
governments to do the same.
    C. The Russian Government should take appropriate action to make 
the state enterprise sector aware of the need to assess a high priority 
to the Year 2000 computer problem.
    D. Progress should be publicly reported at regular intervals.
    E. In addition to the suggestions above, we would encourage 
cooperation between the Russian and U.S. Governments and coordinating 
agencies with the following recommendations:
            Ensure active involvement by the Ministry of 
        Emergency Situations and its Minister Sergei Shoygu and 
        coordination with his counterpart at the United States Federal 
        Emergency Management Agency (FEMA)
            Encourage greater involvement in Y2K between the 
        Russian Deputy Prime Minister Bulgak and the American Y2K 
        Director Koskinin.
            Develop a map/diagram of all key infrastructures in 
        both Russia and the United States and show how they interact 
        and interface with each other. Utilize the information for 
        high-level scenario planning.
            Develop an economic scenario for the loss of 
        revenues from exports and imports and determine the potential 
        economic impact on both the Russian and American economies.
            Set up a meeting for all First Deputies of all the 
        Ministries to review scenario planning, contingency planning 
        and business continuity planning for Y2K in Russia with which 
        corresponding departments in the United States can assist.
    VI. CONCLUSION
    Russia's limited commitment to Y2K will result in a significant 
economic cost to Russia. The cost of fixing problems as systems fail, 
in terms of direct costs and damage to the Russian economy, will be 
much higher than the cost of fixing problems prior to the deadline. In 
addition, ``work around'' solutions will prove inefficient by 
prolonging the life of obsolete systems. In the short-run, the ``work 
arounds'' will provide continuity. In the long run, Russia's journey 
towards a healthy economy will be all the more arduous due to Y2K non-
compliance.
                               __________

        Prepared Statement of Vice Chairman Christopher J. Dodd

    Today is the first country specific hearing of the Special 
Committee. With 94 days to go--actually only about 66 working days and 
13 weekends--we want to understand the potential impacts and future 
consequences Y2K may have on Russian stability. The purpose of this 
hearing is not to ``beat up'' on Russia or embarrass them. On the 
contrary, the goal of this hearing is to understand how Y2K failures, 
short-term and long-term, may impact current U.S. policy initiatives 
and what we can do to address these potential problems.
    Home to almost 150 million people, Russia spans 12 time zones. 
Russia is the 30th largest U.S. trading partner and hosts 11,000 U.S. 
citizens. While it is neither the largest trading partner nor the 
biggest host of U.S. citizens, we all recognize that Russia has 
continued to be an important U.S. foreign policy concern for more than 
fifty years. Since the end of the Cold War, U.S. foreign policy goals 
with Russia have broadly fallen into two categories: reducing the 
threat of nuclear weapons and supporting Russia's efforts to transform 
its political and economic system. Both are long-term goals that, 
admittedly, will take years to achieve. Russians struggle with many 
difficult issues including the 80% devaluation of the ruble in August 
of 1998. In addition, government and financial instability has spurred 
capital flight of nearly one billion dollars each month. In the past 
year Russia has lost $15 billion dollars in capital to foreign banks. 
Now, the country must confront the Y2K challenge.
    In March, the Department of State testified that the U.S. would 
need a ``robust policy framework'' in order to prioritize responses to 
international Y2K failures. I am interested to learn what this policy 
framework will be with respect Russia. Many policy experts have viewed 
``Y2K'' as a short-term problem, one best left to ``techies,'' and not 
likely to impact enduring policy concerns. Unfortunately, according to 
Gartner Group, many Y2K problems will only emerge in the weeks and 
months beyond January 1, 2000. Today, the Committee seeks to better 
understand Russia's highly unique situation and whether Y2K could erode 
stability that we take for granted in our ongoing bilateral 
initiatives.
    Before I go any further, I want to specify what I mean by long-term 
Y2K concerns. Many organizations responsible for key Russian 
infrastructures lack the money available to make the necessary fixes. 
For example, Rostelecom, Russia's long distance and international 
carrier, is reportedly unable to upgrade its 7 gateway switches and is 
choosing to implement ``work arounds.'' Meanwhile, regional carriers 
have only just begun testing their networks. Lack of funding will force 
many to create their own ad-hoc fixes. While these ``work arounds'' are 
likely to prevent immediate failures and keep connectivity, they could 
degrade capacity--in short, Russia could lose communications capacity, 
stability and profitability. In fact, we will hear testimony today 
about the fact that six out of the seven direct communication links 
from Moscow to Washington that are used in times of crisis would 
experience Y2K failures. Let me emphasize that six out of seven key 
national security links could fail--and will fail if the fixes are not 
implemented. These critical links will be fixed, but what about the 
bulk of commercial communications? The U.S. has to carefully consider 
the impact of Russian infrastructure failures in our relations with 
Russia.
    Today, we will consider the concerns of the Department of Defense, 
State and Energy. On September 13, DOD and the Russian Ministry of 
Defense (MOD) signed an agreement indicating their intent to establish 
the Center for Year 2000 Strategic Stability during the Year 2000 
transition period. In this center, U.S. and Russian military personnel 
will sit side-by-side and continuously monitor U.S.-provided missile 
and space launches information. I would like to remind you that Russia 
still has approximately 6,000 strategic nuclear weapons and over 1,000 
delivery systems. The Center will also provide an important link to 
communicate other defense-related events that could be potentially 
destabilizing, such as an aircraft going off course due to a navigation 
or communication system Y2K failure. Last week nine military officials 
from Russia were in Colorado to discuss the details.
    Also last week, the Congress the Defense Authorization bill and it 
is now waiting to be signed into law. This bill provides over to $475 
million dollars Cooperative Threat Reduction. In August, the Ministry 
of Defense requested $15 million dollars to address Y2K related 
security risks for the control and protection of weapons grade nuclear 
materials. As a requirement, Russia must be recertified by the 
Administration October 1 before any funding can continue. 
Unfortunately, this recertification process can often take several 
months. We cannot afford to lose any time in this matter.
    Reliable energy is of key importance to the entire nation. In 
August, the Unified Energy System (UES), the Russian electric monopoly, 
cut power to some 20,000 customers just to save fuel for the winter. 
What this means is that fuel reserves for Russia's electric power 
monopoly will be as low as the country heads into Y2K. DOE is working 
closely with Russia as it develops the necessary contingency plans that 
will be needed to maintain grid stability.
    Nuclear power plants are a serious concern for Russia. Russia has 
29 nuclear power reactor units in operation at nine different sites. 
Western-style nuclear power plants employ an uncompromising set of in-
depth safety elements including a massive reinforced concrete 
structure, called the containment, to prevent the release of 
radioactivity. Most Soviet-designed reactors do not have such a 
containment structure. The most infamous plant without a containment 
structure is the Chernobyl-style reactor, and there are 11 of these 
reactors at three locations in Russia. While these plants do not have 
direct Y2K vulnerabilities, they can only withstand a loss of power for 
approximately 90-120 minutes before they begin to have core damage. In 
a country where disruptions in power supply are common before Y2K, 
special consideration needs to be paid to the months and years beyond 
Y2K to reduce the chances that sudden loss of power could compromise 
power plant safety.
    Primary plant safety systems are the front line of defense against 
accidents and no Y2K issues have been found here. However, other 
systems important to safety and plant operations are of concern such as 
the plant process computer and information display system. A Y2K-
related malfunction in these systems would complicate operations and 
increase the chances of operator error. Operator error ultimately led 
to the Chernobyl accident. The combination of human and computer error 
is one of the greatest Y2K challenges for Russia and the rest of the 
world.
    I would like to thank Senator Lugar for testifying. He has been a 
tremendous asset to the Y2K Committee. His work on Cooperative Threat 
Reduction has been an invaluable contribution to nuclear non-
proliferation and a legacy that U.S. can be very proud of.
                               __________

             Prepared Statement of Senator Richard G. Lugar

    Mr. Chairman, Senator Dodd, members of the Committee, it is a 
pleasure to be here today. I appreciate the opportunity to testify on 
U.S.-Russian cooperative activities in response to the Y2K computer 
problem.
    Since the end of the Cold War, I have taken a great deal of 
interest in U.S. policy toward the former Soviet Union. As the Soviet 
Union began to break apart in 1991, Russian leaders came to former 
Senator Nunn of Georgia and me and pointed out the dangers of the 
dissolution of a nuclear superpower. The viability of the entire Soviet 
weapons custodial system was in doubt. There were tons of weapons and 
materials of mass destruction spread across hundreds of sites in Russia 
and other former Soviet states. Russia requested our cooperation in 
securing and dismantling its nuclear arsenal and weapons-usable 
materials. This was the genesis of the Nunn-Lugar Cooperative Threat 
Reduction Program.
    This was not a problem that Congress wanted to deal with in 1991. 
The atmosphere was decidedly against any initiative that focused on a 
foreign problem. Americans were tired from the Cold War and the Gulf 
War. Yet we brought together a nucleus of Senators who saw the problem 
as we did. Remarkably, the Nunn-Lugar program was passed in the Senate 
by a vote of 86 to 8. It went on to gain approval in the House and was 
signed into law by President Bush.
    While much more remains to be done, the Nunn-Lugar Scorecard is 
impressive. Nunn-Lugar has facilitated the destruction of 365 ballistic 
missiles, 343 ballistic missile launchers, 49 bombers, 136 submarine 
missile launchers, and 30 submarine launched ballistic missiles. It 
also has sealed 191 nuclear test tunnels. Most notably, 4,838 warheads 
that were on strategic systems aimed at the United States have been 
deactivated. All at a cost of less than one-third of one percent of the 
Department of Defense's annual budget. Without Nunn-Lugar, Ukraine, 
Kazakstan, and Belarus would still have thousands of nuclear weapons. 
Instead, all three countries are nuclear weapons-free.
    I offer this as a useful example to cope with another problem that 
has arisen in our post-Cold War relationship--namely, the impact of 
Y2K. The atmosphere surrounding the current Russian-American 
relationship and its implications for our national security are not 
unlike those that existed in 1991. I believe it is in U.S. national 
security interests to, again, cooperate with the former Soviet Union to 
reduce the threats our country may face.
    Mr. Chairman, we do not know what is going to happen to Russian 
computer systems when we pass into the millennium and neither do they; 
but, initial estimates do not appear promising. In March, the American 
Chamber of Commerce in Russia pointed to a study that paints a 
disturbing picture of the impact of Y2K in Russia. ``Utilities will 
operate at 40% of capacity for the first two months of 2000; 
transportation will be disrupted 80% of the time, and 
telecommunications 50% of the time for a three-month period; hospitals 
will be forced to treat only emergencies for at least two months; 
financial markets will be disrupted for 30 trading days; and banks will 
be disrupted for 20 business days.'' Obviously these estimates are 
disturbing and beg the question of whether similar problems will affect 
the Russian military and strategic forces.
    I am not here to push the panic button. In my visits to Russia and 
in briefings and conversations with experts on these subjects, I have 
been convinced that the chances of an accidental missile launch as a 
result of a Y2K problem are almost non-existent. But Y2K may cause 
other problems in Russian strategic systems.
    It is in our interests to take out a kind of ``insurance policy'' 
to ensure that the transition to the new millennium does not exacerbate 
this situation. Cooperative activities and programs that reduce these 
threats are in the national security interests of the United States and 
Russia--provided they are implemented in a responsible manner.
    Experts agree that cooperation over the transition period needs to 
center on three specific areas: early warning systems, nuclear weapon 
security, and nuclear power plants.
    EARLY WARNING:
    Our Department of Defense began discussing the potential impact of 
Y2K with Russian counterparts in June 1998. These efforts culminated in 
an agreement to establish a Center for Y2K Strategic Stability in 
Colorado Springs, Colorado. The center will ensure that, for the last 
few weeks in December 1999 and the first weeks of January 2000, a U.S. 
and Russian military officers will sit side by side and monitor early-
warning data generated by satellites observing missile activity around 
the world in order to ensure that potential mishaps caused by Y2K do 
not lead to strategic miscalculations and mistakes.
    Mr. Chairman, it is in the interests of the U.S. to ensure that 
Russia understands the kinds of problems they may encounter with its 
strategic systems so that there are no surprises or confusion on 
January 1. We want them to understand that their problems are Y2K-
related and not a result of U.S. hostile action or which they need to 
respond. This requires consultation, awareness of potential Y2K 
failures, and training of key personnel. This kind of cooperation is 
clearly of as much value to the U.S. as it is to the Russians.
    Russian early warning operators may not be able to tell the 
difference between a peaceful rocket and a military rocket from their 
computer screens. Russian early-warning capabilities continue to 
deteriorate, and this deterioration will be compounded by the 
transition to the year 2000. Russian Major General Dvorkin recently 
suggested that Y2K problems could lead to incorrect information being 
transmitted, received, displayed, or complete early-warning system 
failures. We should heed these concerns. I am sure we remember the 
convulsions the Russian command and control system endured several 
years ago when a peaceful Norwegian rocket launch activated President 
Yeltsin's nuclear briefcase. Fortunately, the Russians realized their 
mistake.
    The Center in Colorado is meant to create an atmosphere for both 
sides to work together to resolve any missile launch detection, false 
alarms, or other ambiguities that may arise. I am hopeful that the 
Russian military officers serving on the second floor of building 1840 
at Peterson Air Force Base will, in the event of a Russian malfunction, 
be able to provide Moscow with the accurate information and data 
necessary to eliminate misperceptions.
    NUCLEAR STOCKPILE SECURITY:
    The continuous safe and secure storage of the Russian nuclear 
stockpile is the second area that will be complicated by Y2K. Over the 
last six or seven months, the Department of Defense has sought to 
engage its Russian counterparts on the nuclear warhead protection, 
control and accounting systems. Early in the discussions, the Russian 
Ministry of Defense admitted that it had not considered the impact Y2K 
could have on their systems. The need for U.S. assistance in this area 
is clear. As members of the Senate, we all have had countless briefings 
on the groups and individuals attempting to illicitly acquire these 
weapons.
    More recently the Russians have made substantial progress in 
acknowledging and responding to these potential problems. The Russian 
Ministry of Defense has committed to establishing and maintaining 
special Y2K monitoring stations at their largest nuclear warhead 
storage facilities. Stations will be manned 24 hours a day by officers 
specially trained to monitor physical security, environmental controls 
within the facility, telecommunications, and power levels. These 
efforts and accomplishments mark a tremendous improvement.
    At Pentagon urging, the Russians have conducted capability 
assessments to gauge their ability to respond to an emergency. 
Unfortunately, the results of the assessments were not encouraging. Due 
to the lack of appropriate response equipment, it is clear that there 
are significant deficiencies in their capabilities to respond to 
intrusions and other potential threats. Our Defense Department is 
seeking to assist Russia in these efforts through the Nunn-Lugar 
program.
    The Russian Ministry of Defense has requested approximately $15 
million in equipment to upgrade their ability to respond to an 
emergency. I understand that Assistant Secretary of Defense Warner will 
testify later, so I will not attempt to describe the details of the 
assistance. But I have been told that the Pentagon has reviewed the 
request and has determined it to be reasonable and consistent with 
Nunn-Lugar conditions and restrictions.
    Mr. Chairman, the Pentagon reports that a portion of the request 
can be fulfilled immediately, using prior year Nunn-Lugar monies. 
However, the remainder of the Y2K assistance must await a re-
certification requirement in the FY 2000 Defense Authorization 
Conference Report. The Executive Branch is hopeful that the process 
will be completed on or around October 1. But Mr. Chairman, this 
committee must watch this situation closely. I believe the delivery of 
this assistance to be in U.S. interests. Delays in the re-certification 
process might possibly slow Y2K assistance to the point where the 
equipment arrives after the first of the new year. The Senate must view 
this additional and redundant re-certification as a self-inflicted 
wound that must not be permitted to interfere with important national 
security goals. This committee, the Senate Armed Services Committee, 
and the Committee on Appropriations must be prepared to expunge such a 
duplicative requirement should American interests dictate.
    NUCLEAR POWER PLANTS:
    The potential threats emanating from Y2K problems in Soviet-
designed nuclear reactors is a third area of concern. Historically, 
safety mechanisms and procedures at these reactors are poor. The 
reactors suffer from deficiencies in design, operator training, and 
safety procedures. Reactor operators and support staff face low and 
erratic pay, training shortfalls, and deficiencies in safety 
procedures. Unfortunately, these problems are compounded by a very late 
start in preparing for the transition to the new millennium by the 
states of the former Soviet Union and Central and Eastern Europe. 
Although neither a melt-down or a failure of primary safety systems is 
likely, it is in our interests to continue to work to prevent these 
potential threats.
    Many believe that Soviet-designed reactors are immune to Y2K-
generated problems because they utilize older analog systems. This is 
incorrect. Digital overlays were installed to improve performance, 
monitoring, and safety response and are susceptible to Y2K problems. If 
these systems were to malfunction, operators could be blind to some 
reactor functions or receive erroneous data that could lead to improper 
actions. In U.S. reactors, this would not pose a problem because of 
built-in redundancy of our systems. Unfortunately, redundancy is not 
present in most Soviet-designed plants.
    Reviews of Soviet-designed reactor susceptibility to Y2K-induced 
problems revealed that host countries lacked the resources to conduct 
threat evaluations and significant safety issues were at stake. 
Officials of the Department of Energy worked closely with their 
counterparts to develop assessment guidelines in order to determine 
potential problems that might arise during the millennium transition.
    U.S. expert assistance was crucial in overturning initial 
complacency expressed by these nations. The Department of Energy played 
an important role in completing the detailed risk assessments of the 
various Soviet-designed reactors and providing assistance to begin 
remediation of hardware and software problems. It is clear that without 
the Department of Energy's efforts, the risks of an accident would have 
been much higher.
    Given the existing time frame, it is too late to fix every Russian 
system. Our efforts must continue to concentrate on reactor safety 
systems, contingency planning, and engagement with the Russian Ministry 
of Atomic Energy on these subjects. Transparency and consultation in 
these areas are in U.S. interests. Furthermore, I believe our country 
must make every effort to warn Americans abroad, living or working near 
these reactors, of the problems they may face as a result of Y2K.
    One of my personal concerns is the impact of local and federal 
government pressure to keep Soviet-designed reactors on line in the 
face of strain and uncertainty. It will be the dead of winter with 
temperatures dropping far below freezing. Local and state governors and 
mayors, as well as officials in national capitals, will be loathe to 
permit nuclear reactors to shut down. Political pressure, in addition 
to monitoring failures and a loss of off-site power, may contribute to 
failures in judgment, which could lead to accidents.
    Recently, Russian Atomic Energy Minister Adamov reported to a 
conference in London that he believed that Russia had achieved ``the 
same level of safety as Western units''. He went to explain that the 
rate of unplanned shutdowns at Russian reactors was equal to that of 
Germany and lower than France and the United States. I am hopeful that 
his confidence is borne out, but it is in our interest to continue to 
cooperate in alleviating the problems inherent in the 65 nuclear 
reactors at 20 sites in 9 countries of the former Warsaw Pact and 
former Soviet Union. If not handled properly, these reactors could 
prove threatening to American interests. We must not forget that one of 
these sites is less than 130 miles from Alaska.
    CONCLUSION:
    Mr. Chairman, I began my testimony with the recommendation that we 
view efforts to eliminate potential threats to U.S. security from Y2K 
generated problems in Russia as an ``insurance policy.'' In my opinion, 
an insurance policy in this area is a good investment. The cost of 
efforts to address potential threats today will be minuscule in 
comparison to the costs of responding to a tragedy should an accident 
occur.
    Mr. Chairman, I understand that the atmosphere today may not be all 
that conducive to engagement and cooperation with Russia. Congressional 
committees are investigating allegations of corruption by Russian 
government officials. As I indicated in my introduction, the Senate has 
faced similar circumstances before. There are many parallels between 
the mood today and that which Senator Nunn and I faced in 1991. I would 
urge my colleagues to once again look to the future and to examine the 
benefits of cooperating with Russia on Y2K versus the potential costs 
of inaction.
    In 1991, the Senate courageously supported the Nunn-Lugar program 
in the face of widespread discontent with foreign affairs. That 
investment has paid tremendous dividends to our national security. I 
would urge this Committee and this Congress to once again provide our 
country with the leadership necessary to protect our national security. 
I am not suggesting that we send Moscow a blank check. But our 
government must again engage the Russian people through the auspices of 
the Departments of Defense and Energy and our private sector. Strict 
management and accountability of cooperative efforts with Russia will 
protect our investments as it has through the Nunn-Lugar program. We 
have made important progress, but it is clear that there is still much 
work to be done.
    Mr. Chairman, Senator Dodd, members of the committee, I praise your 
foresight in examining these issues, and I look forward to working with 
you to address the threats facing our country.
    Thank you.
                               __________

              Prepared Statement of Dr. William K. McHenry

    I. INTRODUCTION
    Chairman Bennett, Vice-Chairman Dodd, and Members of the Committee, 
thank you for inviting me to testify. I would like to commend you for 
the leading role you and others have played in promoting Y2K readiness 
here in the United States and in helping U.S. business and government 
to prepare for possible effects of the Y2K problem from other 
countries. I am an Associate Professor at the McDonough School of 
Business, Georgetown University, where I am also affiliated with the 
Center for Eurasian, Russian, and East European Studies in the School 
of Foreign Service. For the past 20 years, I have studied issues of 
information technology and its diffusion in the economies of the Soviet 
Union and Russia,\1\ and have participated in a number of U.S. 
government-led panels and studies regarding issues of technology 
transfer.\2\ Most recently I performed a study on the Russian Y2K 
problem for the Mitre Corporation, and wrote a paper for the 
Communications of the Association for Information Systems with Leonid 
Malkov, upon which this testimony is partially based.\3\
    The Y2K problem in Russia is taking place against a backdrop of 
extraordinary economic problems and considerable political uncertainty. 
Indeed, Yabloko politician Gregory Yavlinsky was heard to remark that 
Russia's real Y2K problem is Boris Yeltsin. What impact can potential 
computer failures have when GDP has declined an estimated 43 percent 
since 1991?\4\ Or when the Russian Unified Electrical System says that 
it only has 60 percent of the fuel oil it needs for the fall-winter 
season?\5\
    II. OVERALL ASSESSMENT
    In some respects the situation in Russia is no different than the 
situation in many other countries. There will be some systems that fail 
as a result of the Y2K problem, but it is difficult to say precisely 
which ones, or exactly how great an impact this will have. As you will 
see from some of the data presented here, the Russian government has 
frequently changed its assessments of the cost of remediation and the 
number of systems affected. I liken the impact to a number of blows 
during a boxing match: many other blows are coming from other sources, 
and it is difficult to say just which blow may lead to a knockdown.
    There are two main reasons for this state of affairs in Russia: 
first, remediation efforts started rather late, and second, financing 
remediation work and purchases of new hardware and software have been 
extremely difficult.
    The Late Start
    The first serious efforts for remediation in Russia came only after 
a decree by then Prime Minister Kirienko in May, 1998. By December, 
1998, there had been hearings in the Duma and a strategy for addressing 
the problem had been initiated. Practically from the start, Vladimir 
Bulgak, who was then Deputy Premier and the highest ranking official 
tasked with the Y2K problem, stated that not all systems would be able 
to be remediated in time. In mid-1998, the government reported that it 
had 96,000 computer systems, of which 51,000 were potentially subject 
to the Y2K problem.\6\ Novell reported that as many as 90 percent of 
all local area networks in the country used Netware,\7\ and that there 
were 300- to 500,000 workers in the Russian government structures using 
mostly earlier, non-compliant versions.\8\
    In May 1999 the government reported that there were 50,681 computer 
systems in its ministries and departments, of which 16,040 (31.6 
percent) were critical. It was planned to fix 17,747 at a cost of $657 
million, leaving 65 percent of all 50 thousand systems un-
remediated.\9\ By July the estimated total number of systems had been 
increased to 152,200, of which 30,300 (19.9 percent) were considered 
critical.\10\
    The May 1999 data present the most detailed, comprehensive view of 
the situation in a number of sectors, and shows the wide disparities in 
what are considered ``systems'' and the potential magnitude of fixing 
them (Appendix One). For example, the security-related ministries, 
including the FSB and the Ministry of Internal Affairs, reported only 
48 critical systems. The repair cost per system, however, was $1.3 
million versus an average cost of $58,000 for all the other ministries 
and departments, indicating that remediation of these systems would be 
significantly more complicated.
    One of the cornerstones of the government's approach to solving the 
Y2K problem was to designate state, private, and academic organizations 
as ``Centers of Competency.'' The centers represented a good idea of 
leveraging the relatively small amount of available expertise and 
giving all organizations visible places to get help. Rather than 
provide government-financed services to needy organizations, however, 
these centers have required payment, which has reduced the number of 
clients dramatically. Some are leading systems integrators, while 
others are organizations that are descended from (perhaps even the 
remnants of) Soviet institutes. In some quarters their reputation is 
poor. Furthermore, by June 1999 they were present in only 51 percent of 
the administrative regions of Russia. Only nine regions, including 
Moscow, had more than three centers.\11\
    Throughout the first months of 1999 there was the expectation that 
Boris Yeltsin would sign a Y2K Problem decree. He finally did, but only 
in June. The development of a National Plan for Y2K Remediation was 
financed by The World Bank, but was published only in March. 
Legislation was expected that would clarify who was responsible for Y2K 
problems, resolve the question of finances, and mandate remediation of 
critical systems. Such a law was finally passed, but Yeltsin rejected 
it.\12\ Cooperation with the US Government on the joint monitoring of 
early warning data was delayed by the Kosovo conflict.
    Financing
    Financing has been a key problem. No ministries and departments 
made specific line-item requests for Y2K financing for the 1999 budget, 
and Parliament did not allocate any funding for it. Throughout most of 
1999, most government agencies were told that they had to reallocate 
funds from within their existing budgets for remediation work.
    Making sense of the statistics offered by the Russian government 
and other sources about costs of remediation has been difficult. At 
first the estimate was $500 million, then it became $2-3 billion in the 
early months of 1999. Adding up published estimates by individual 
ministries and departments yielded a total close to $1 billion. Fixing 
the 17,747 systems as of May 1999 mentioned above was estimated to cost 
$657 million.\13\ In June 1999, the estimate was back to around $471 
million.\14\ In mid-July the government said that 2 billion rubles ($80 
million) had already been spent, while another 11 billion rubles ($458 
million) would be needed, or a total of $538 million.\15\ On September 
24, 1999 the Duma approved a bill for a supplemental appropriation of 
up to 2 billion rubles ($80 million) for Y2K remediation which is now 
being sent to the Federation Council and then will await President 
Yeltsin's signature.\16\
    On September 23rd it was reported that Prime Minister Putin has 
signed an order authorizing Goskomtelekom to seek a $50 million credit 
to buy hardware and software in the West.\17\ As you know, a great deal 
of time is needed to check, repair, test, and re-introduce complex 
information systems. With the expected delivery of new hardware in 
October or November, it is quite difficult to believe that systems 
based on this equipment and software will be fully ready by January 1, 
2000.
    And so, as a whole, the Russian government planned to skip fixing a 
large number of systems before January 1, 2000. At the end of July it 
was still estimated that only 30-35 percent of systems had been 
remediated. To my knowledge no new overall assessment has yet been 
published. These data also do not reflect the status of regional 
governments and private industry. All indications are that ``the 
regions'' for the most part have lagged behind the central government. 
Very limited data has been available about the extent to which private 
firms have taken up the Y2K problem.
    Nevertheless, representatives of important infrastructure 
components such as energy, banking, and telecommunications continue to 
assert that the necessary remediation will take place in time. The 
large amount of work which is now going on is reflected in the fact 
that Novell has seen a very significant rise in business from 
government institutions and industrial enterprises, particularly in the 
second and third quarter of 1999. One of the top managers in the Moscow 
office believes that 90-95 percent of their customers will be 
ready.\18\
    III. THREE KEY INFRASTRUCTURE SECTORS
    I have been asked to address the Y2K status of the energy, the 
banking, and the telecommunications sectors. Sources of information for 
these assessments rely heavily on self-reported data. If I were to 
report close to 100 percent remediation, there would be reason to 
question the veracity of the data given the late start. However, most 
of the data seems to be fairly realistic, even in the way it changes 
from month to month.
    The Energy Sector
    In the electrical power generating sector, the biggest concern has 
been and continues to be the operation of nuclear power plants. I have 
written more extensively about this elsewhere.\19\ My overall 
assessment is that nuclear accidents due to the Y2K problem alone are 
quite unlikely. The potential that some systems within nuclear plants 
will have problems cannot be ruled out, especially since some 
indigenous Soviet technology remains in use. But the plants have been 
the subject of a great deal of attention and some funding from a number 
of Western sources, and remediation work seems well underway.\20\
    The Unified Energy System (EES) is clearly taking the Y2K problem 
very seriously, and has defined teams at all levels of its hierarchy to 
address the problem. As of May 15, 1999, the energy sector had received 
information about telecommunications equipment deployed in the sector 
from 70 percent of the foreign and domestic vendors.\21\ According to a 
June 1999 briefing, the energy system had 50,000 computers just in the 
more critical control functions, of which 17,000 needed to be replaced 
at a maximum cost of $45 million for the whole sector.\22\
    The EES released extensive data at a presentation in July, 1999 
(Appendix Three). The branch as a whole had about 2,500 computer 
systems, 66 percent of which were considered critical. About 35 percent 
had been modernized or put into service. Required financing was about 
$30 million, of which about 20 percent had already been spent (and 80 
percent remained to be found). Financing from the budget of the Unified 
Energy System was provided for the Central Control system, seven 
regional control systems, and the main computer center. It was 
recommended to other energy firms and electrical stations to seek 
permission to raise tariffs to cover Y2K costs, which was granted in 
some cases.\23\ It was expected that the whole system would be brought 
into compliance by October, 1999.\24\
    The Fuel-Energy complex reported in mid-July that it needed $96 
million for remediation, including $66 million for hardware and $29 
million for software. Only 1/3 of those funds were expected to come 
from the central government.\25\ According to the May 1999 inventory 
(Appendix One), 26 percent of 8,215 systems were critical, and 34 
percent of these had been renovated or put into operation at that time.
    In the oil industry, some companies have published quite a bit of 
information about their situation while others have published little. 
LUKoil, the largest oil company, issued an April 1999 press release in 
which it claimed that only 7 percent of critical systems were not ready 
for the Year 2000. It is among a small number of Russian firms 
installing SAP's R/3.\26\
    Yukos, the second largest oil company behind LUKoil, described its 
Y2K remediation efforts in February 1999. It expected to spend $8 
million. Yukos planned to carry out research, create an inventory, and 
so forth, from Dec. 1998 to March 1999. A planning stage, which 
encompassed a plan for replacement, presenting a budget for the 
project, and planning what to do if there is a crisis situation, was to 
be done in February-March 1999. In March-November 1999, Yukos intended 
to realize the plan for replacement, including replacing ``a rather 
large stock'' of Soviet-era mainframes (Lukoil said that it had already 
eliminated 1980's technology). The final stage of work, handing over 
the work and general verification of safety, is not planned until Dec. 
1, 1999.\27\ It is hard to believe that Yukos will be able to order new 
mainframes, install them, and convert everything with adequate testing 
before Jan. 1, 2000.
    Yuganskneftegaz, another oil and gas concern, posted a preliminary 
analysis of its situation to the Web, noting that they had not had 
centralized control over hardware and software purchases, which alone 
led to the use of around two dozen different accounting packages from 
many different vendors.\28\
    Gazprom reportedly started work in 1997, and by February 1999 was 
reporting that all remediation work had been completed in computer 
networks; drilling, extraction, and delivery of gas; and gas transport 
systems.\29\ However, a May 1999 inventory of just the 
telecommunications equipment at Gazprom found 1,450 pieces of 
communications equipment subject to the Y2K problem. The remediation 
cost was estimated to be $15.7 million.\30\ According to a Gazprom 
presentation in July, 1999, the inventory and testing stages had been 
completed for all its systems. Only 14 percent of systems, including 
process control and telecommunications systems, were critical for the 
Y2K problem. Most of the control systems used older technologies from 
the 1970's and 1980's. As of June 10, 1999, more than 58 percent of all 
critical systems had been modernized, with all the rest planned to be 
finished by October 1, 1999.\31\ In August 1999 Gazprom stated that 
somewhat less than half of these systems had yet to be remediated.\32\ 
In the fourth quarter acceptance of the modified systems is to be 
completed, and most attention is to be paid to working out actions 
based on the contingency plans.\33\
    If any sectors have funds available for Y2K remediation, it is the 
hard-currency producing energy firms. In addition, these sectors are 
receiving obvious and extended scrutiny. There are limits to the 
effectiveness of this administrative approach, but in this area, where 
the stakes are very high, I believe sufficient attention will be paid 
to ensure that severe effects will be avoided.
    The Banking Sector
    During the 1990's the Russian banking sector was one of the leading 
purchasers and users of hardware and software in Russia. Many of the 
best programmers were recruited, and a number of banks wrote their own 
banking software. Other banks bought turnkey packages and modified 
them.
    It appears that this sector was one of the first to become 
concerned about the Y2K problem. Nikolay Egorov, Deputy Head of the 
Central Bank of Russia, gave an interview at the end of 1997 to 
Computerworld Russia, which is one of the earliest statements about the 
Y2K problem by any governmental official that we have been able to 
find.\34\ As of September, 1998, there were 1,500 banks in Russia, 
according the Central Bank head Viktor Geraschenko. The fact that he 
expected no more than 200-300 to survive illustrates the disjunction 
between the magnitude of the Y2K problem, on the one hand, and the 
overarching economic problems in Russia, on the other.\35\ The Central 
Bank of Russia issued an Order in September 1998 which outlined four 
stages of Y2K remediation (Appendix Two), the last of which was to be 
completed by all financial institutions by June 20, 1999.\36\
    In early 1999 it was reported that 50-60 percent of the development 
fund of ordinary banks was being directed toward the Y2K problem.\37\ 
About one-third of the banks used packaged software from the two 
largest providers, Diasoft and R-Style, both of which certified their 
packages compliant.\38\
    The Central Bank reported in August, 1999 that 268 banking 
organizations, including 17 banks that are among the fifty largest and 
14 regional banks, had either not presented the necessary data or had 
stated that they had not fulfilled the fourth stage of remediation, in 
which the results of remediation work is verified and integrated 
testing with external systems is carried out (Appendix Two). Assets of 
these organizations comprised 21.7 percent of all assets of functioning 
banking organizations in Russia. In nine regions the assets of banks 
not fulfilling stage four comprised more than 50 percent of the assets 
in the region. A Central Bank letter of August 17, 1999 outlines a 
series of measures to be taken for organizations that cannot show 
themselves to be compliant, including replacing computerized operations 
with manual ones and replacing chief executives.\39\ Yeltsin's June 
17th governmental order gives the Central Bank the power to withdraw 
licenses of banks that cannot show themselves to be compliant.\40\ This 
August 1999 report stated that 80 percent of banking institutions have 
finished all four stages (Appendix Two). The press picked up on this in 
September, with some highlighting the negatives aspects of 20 percent 
not ready,\41\ and others emphasizing the positive aspects of 80 
percent ready.\42\ This does seem like a rather large improvement in 
comparison with the state of affairs in May 1999, when only 10 percent 
of systems in the finance sector had been renovated or put into 
operation (Appendix One).
    The banking sector is one of the few that has begun to carry out 
larger scale testing. A test of the Automated System of Banking 
Calculations of the Moscow Region (ASBR-Moskva) was carried out on July 
28-30, 1999. According to the list of participants, this involved 24 
Bank of Russia organizations and 455 other organizations in Moscow and 
Moscow Oblast. 449 of 800 registered users of the system exchanged 
38,500 documents, and showed their readiness for Y2K. Nothing is said 
about the 351 organizations that did not take part in the test.\43\ An 
intensive test is planned on October 9, 1999 for all banks associated 
with the Central Bank to exchange documents as if it were February 29, 
2000.\44\
    Russia's banking sector hardly has had a reputation for efficiency. 
Even if some operations have to be switched over to manual processing 
for a time, the net effects are not likely to be particularly visible 
in comparison with much more dramatic economic processes.
    The Telecommunications Sector
    The telecommunications sector in Russia comprises the general 
telephone network, specialized networks run by ministries and 
departments, and newer networks, created with Western firms that 
provided enhanced internal and external services. It is fairly safe to 
assume that Western firms who, with Russian partners, provide long 
distance and more advanced networking services, have the Y2K problem 
well in hand. Sovintel, for example, said that it completed Y2K 
remediation work in August, 1999.\45\ Global One (Sprint) reported that 
testing and modernization of its network was completed in June 1999, 
with all remaining work to be finished by August 1999.\46\ Mobile phone 
operator VimpelCom planned to finish remediation work by October,\47\ 
while Comstar promised that everything would work on January 1, 
2000.\48\ The specialized network of the Russian Trade System was 
tested and said to have no Y2K problems.\49\
    However, the situation may be different for the specialized 
networks and the general-purpose network overseen by the holding firm 
Svyaz'invest. Work also got off to a late start.
    In late 1998 only a few of the more than 3,000 companies in the 
Russia telecommunications sphere had realized the importance of Y2K. 
Rostelekom and Svyaz'invest started working on it only in Autumn of 
1998. These systems are particularly vulnerable to the Y2K problem, as 
100 percent of network control systems and 75 percent of network 
elements in telephone structures are date sensitive.\50\
    At the end of March 1999, a decree of the State Commission on 
Communications examined the status of Y2K work. It reported that an 
inventory by Goskomsvyaz' found that 20 percent of equipment in the 
general purpose communications network was subject to the Y2K problem, 
accounting for some six million connection points. About 15-20 percent 
of the critical systems had been modernized or replaced by this time. 
It was asserted that the international and intercity phone systems 
would most probably work reliably after the Year 2000, but noted that 
the more local the system, the larger the quantity of and variations in 
equipment subject to the Y2K problem. Local telephone companies have 
probably had the hardest time getting financing.\51\
    According to the May 1999 data, this sector had the largest number 
of critical systems at 7,017. Only 11 percent had been remediated or 
put into operation at that time. Goskomsvyaz' planned to remove 141 
systems from service altogether (Appendix One). At the end of July 1999 
the number of critical systems was increased to 10,081, only 76 systems 
were to be turned off, and 8,551 (85 percent) required substantial 
remediation.\52\ At the end of July, the Federal Agency (FAPSI) began 
testing local telecommunications systems itself to help ensure Y2K 
compliance. On September 22-23, Gostelekom was to perform a test 
involving Rostelekom, four regions (Krasnoyarsk, Tyumen', Perm', 
Tver'), Moscow and Moscow oblast, for a total coverage of four time 
zones.\53\
    For the most part these statements do not paint a comforting 
picture for Y2K remediation in telecommunications. Although a portion 
of the systems rely on older technologies that may not be date-
sensitive, a huge amount of capacity has been built in the last few 
years that does. According to one report, it was difficult to get 
responses from Western providers, although eventually agreements with 
almost all of them were signed. Decentralization in the industry means 
that regional companies have chosen their own solutions, have their own 
relationships with various providers, and most significantly, are at 
various stages in their awareness of the problem. At the same time 
investment in new equipment, especially given outstanding debts, may be 
difficult. This is one industry in which hardware upgrades may be the 
only possible path if Y2K problems are embedded in routers, switches, 
etc. Hence there is a fairly high likelihood that not all of this work 
will be completed on time and that some telephone systems will fail on 
Jan. 1, 2000.
    IV. LONGER TERM IMPACT ON THE RUSSIAN ECONOMY
    In each of the three infrastructure sectors examined above, it is 
clear that the Russians have carried out a great deal of work, the work 
started later than it should have to guarantee everything would be 
completed in time, and the situation was exacerbated by delays in 
obtaining financing. In particular, the amounts that the government 
says it will allocate are consistently below those that the ministries 
say they absolutely must have. I expect that there will be some short-
term failures in these sectors, but that they will not be serious 
enough to cause a visible and extended impact in the economy.
    One's view of the longer term implications of potential breakdowns 
due to the Y2K problem depends on how one views the Russian economy in 
general. Regarding the economic sectors left over from Soviet times, I 
tend to agree with the work of Clifford Gaddy and Barry Ickes, which 
states that many Russian enterprises produce negative value and are 
kept alive as a social safety net within a barter-based ``virtual 
economy.''\54\ Many of these enterprises are in the military-industrial 
sphere, and may well be enterprises that are still running old Soviet 
mainframes from the late 1980's. As many as 4,000 of these may still be 
in use. At the Duma hearings of November 1998 it was stated that up to 
$400 million would be needed to replace them. These are machines that, 
according to a very knowledgeable source, will stop running within 3 
months of the Year 2000 because of the operating system software they 
must run.\55\ If manual processing must then be used, this may 
contribute to the general level of economic inefficiency in the 
economy, although these managers already have a huge amount of 
experience in dealing with unforeseen circumstances and difficult 
conditions.
    If Russia is able to arrange the $50 million credit mentioned 
above, part of these funds may go to replace these machines. One could 
argue that it would be better to let these systems die, perhaps 
precipitating deeper and more effective economic reforms. Whether or 
not the social safety net they provide is necessary to ensure stability 
is too difficult for me to judge. So one effect of the Year 2000 
problem may be hastening the decline of enterprises that will require 
massive investments anyway to become competitive or that should be shut 
down anyway. Investing in new computers to shore up the old production 
facilities is economically perverse.
    Another longer term impact may be thought of as raising the general 
level of economic inefficiency. Telephone outages may send people to 
other parts of the city to make calls. The late start and low financing 
of Y2K work meant that the Russian government could address the 
remediation only of critical systems. What of the 40-60 percent of 
systems that are not remediated? It will certainly be more than an 
inconvenience if they stop working or slowly insert incorrect data into 
a data base. Outside the state sector there may be small businesses 
that were barely able to afford a computer in the first place, use 
pirated software and/or software created by an organization that no 
longer supports it, and will not be able to spare the resources needed 
to upgrade hardware and buy legal software. These are the types of 
businesses that will suffer the most from any infrastructure 
disruptions that may occur, because they function in cash and have less 
of a cushion against economic shocks. They may be among the 1.5 million 
users of the Internet, and probably make extensive use of email and 
faxes in their daily business. The amount of resources available to 
them to fix their computers depends on the overall health of the 
economy.
    Russia is hardly spending the billions of dollars that have already 
been and will be spent in the West. Instead of upgrading whole systems, 
they may settle for patching them in any way they can. Thus the Y2K 
problem may cause those assets to be used longer and it will lose the 
economic efficiencies that may have come with upgrading. In this sense 
the Y2K problem also contributes to increased inefficiency in the 
economy.
    V. POLICY IMPLICATIONS
    In the last few months, public pronouncements by the Russian 
government about the state of readiness have become less specific, 
although there were directives to the State Committee for 
Telecommunications to complete a major audit of critical systems by 
August 15, 1999. It would be particularly helpful for U.S businesses 
that do business in Russia or have dealings with Russian companies to 
get a better sense of the true state of affairs. We should encourage 
the State Committee for Telecommunications to release complete 
information from the more recent audits it has done.
    As a corollary, if fewer systems are remediated, Russia may serve 
as a particularly interesting test case to find out what the true 
effects of the Y2K problem were. We should encourage the Russian 
government to collect as much data as possible about the true effects 
of the problem, or to facilitate its collection by objective third 
parties.
    U.S policy should continue to be directed toward forestalling 
catastrophic failures that will harm large populations inside and 
outside of Russia. In conjunction with Russian officials, existing US 
initiatives and programs should be reviewed to ensure that no critical 
facilities have been overlooked and to facilitate the transfer of the 
necessary resources to protect against catastrophic failures.
    Beyond this, policy choices revolve around what kind of ``silver 
lining'' might be provided for the Russian economy in conjunction with 
Y2K remediation. Letting counterproductive older systems die may be an 
unexpected benefit of the Y2K problem provided it does not lead to 
social unrest. Giving help to small businesses that have no other means 
to carry out remediation could also be a way to provide a Y2K silver-
lining along the lines of the boost some Western firms are getting. But 
any time we speak about the longer term impact of any policies in 
Russia, we have to think about how to encourage the formation of the 
necessary conditions for true economic reform. Many believe that the an 
important part of the answer is building a civil society based on the 
rule of law that protects business activities in a stable climate. 
Investment in basic institution building, such as education, may be a 
better long-term use of funds than supporting Y2K remediation. Without 
stronger fundamental institutions, the Russian economy may still be 
lurching along from one crisis to the next long after the Y2K problem 
has faded from memory.
















                               __________

              Prepared Statement of Dr. Edward Warner III

    Introduction
    Thank you Mr. Chairman and members of the Committee. I am very 
pleased to be here this morning, and welcome the opportunity to discuss 
the Department of Defense's cooperative efforts with the Russian 
Federation on the Year 2000 problem. The Department particularly 
appreciates the interest that this Committee has taken throughout our 
engagement with the Russian Federation on our Y2K efforts, and the 
continuing support for this endeavor from the members and staff.
    Background
    Our first substantive Y2K discussions with the Russian Ministry of 
Defense (MoD) were held this past February on the margins of the 
Defense Consultative Group (DCG). At the conclusion of the DCG I 
exchanged a letter with my co-chairman Colonel General Valerly Manilov, 
the First Deputy Chief of the Russian General Staff, inviting the MoD 
to continue discussions of a range of possible Y2K cooperative 
activities in Washington DC in the spring. Unfortunately the crisis in 
the Balkans intervened, and the strained relations between our nations 
over the conflict in Kosovo resulted in cancellation of the scheduled 
April session. But it was clear to me when I met with General Manilov 
in mid-August, and clear to our DoD participants when the working 
groups from each side reconvened at the end of the month, that during 
the pause in discussions, the MoD had continued work, as did the US, on 
the three goals of cooperative Y2K engagement agreed to in February: 
(1) sharing Y2K management experiences; (2) developing specific 
procedures to manage the Y2K transition period together; and (3) 
addressing Y2K challenges associated with ensuring the security, 
reliability, and control of nuclear weapons and materials. And so, 
while the loss of time was regrettable, especially since we face an 
unmovable deadline, both the US and the Russian Federation were poised 
for rapid reengagement, and we are moving out aggressively to implement 
the initiatives I will discuss today.
    As with all of DoD's Y2K work, we approached our engagement with 
Russia not only from the perspective of ``fixing'' Y2K computer 
problems and preparing to manage the consequences of possible Y2K 
failures, but with an eye towards improving our bilateral defense 
cooperative with Russia. In developing specific initiatives to meet the 
goals listed above, we sought to leverage the experience and resources 
of established programs, and use Y2K as an opportunity to develop 
additional avenues for the continued improvement and stabilization of 
relations between both nations. The result is an integrated program 
involving cooperation in five areas: (1) The Center for Year 2000 
Strategic Stability; (2) Nuclear stockpile security; (3) Nuclear 
command and control; (4) Secure ``hotline'' communications; and (5) 
Information technology management. To date, we have reengaged with the 
Russian Federation on all of these areas except nuclear command and 
control, and I expect reengagement on that issue to begin next month.
    Today, I will discuss our progress in establishing the Center for 
Y2K Strategic Stability, nuclear stockpile security, assured 
communications, and overall Y2K Management.
    Center for Year 2000 Strategic Stability
    I'll start with the Center for Year 2000 Strategic Stability. This 
effort has certainly received the bulk of the media attention to date, 
and I know that it is an item of particular interest to several of you. 
As you know, on 13 September in Moscow, Secretary Cohen and Minister 
Sergeyev signed a joint statement declaring the intent of the US and 
Russia to establish the Center for Year 2000 Strategic Stability. The 
Center, to be located on Peterson Air Force Base in Colorado Springs, 
will provide a venue for sharing missile launch detection information 
collected by US sensors across the year 2000 date change. In the 
Center, US and Russian military personnel will sit side by side during 
the millennium transition period and continuously monitor US-provided 
information on missile and space launches. US personnel will be in 
voice contact with operators in the North American Air Defense Command, 
and Russian personnel will be in voice contact over highly reliable 
secure communications lines with a command center in Moscow. In 
addition to monitoring possible missile launches, the Center will 
provide a direct means for consultations regarding other defense-
related problems that emerge over the Y2K transition period.
    Construction of the center is on schedule, with a projected 
completion date of 1 December. We continued to work out details of the 
operations concept for this center with our Russian counterparts when 
they visited the facility in Colorado Springs last week. We are 
awaiting final agreement with Moscow, but generally speaking, the 
Center will open for training in late December, and will operate 24 
hours a day, 7 days a week, through the opening week or two in January.
    Let me stress that experts in both countries agree that the 
likelihood of Y2K failures in computer systems associated with our 
nuclear weapons, supporting command and control, and early warning 
systems is extremely remote. Moreover, sufficient safeguards are in 
place to protect against the consequences of such failures. 
Nonetheless, we are mindful of concerns by some that a Y2K induced 
failure could result in the accidental launch of nuclear weapons, and 
of the potentially severe consequences of any misinterpretation of 
early warning information. We have a responsibility to provide the 
American people with every assurance that such accidents will not 
occur. The Center can allay the concerns of the public, and provide 
additional safeguards appropriate to this period of heightened 
uncertainty. As such, the Center is a Y2K application in the spirit of 
many risk reduction practices developed over the years by the US and 
Russia to prevent apparent anomalies in military activities from 
turning into serious incidents.
    The Center for Year 2000 Strategic Stability being set up in 
Colorado Springs is not a replacement for the permanent Joint US-
Russian Warning Center currently under negotiation that is slated to be 
established in Moscow. At the Moscow Summit in September 1998, 
Presidents Clinton and Yeltsin agreed to the reciprocal sharing of 
early warning date of a threat by both sides of the launches of 
ballistic missiles and space vehicles. The Center is a temporary 
measure, and will display US data only. The permanent Joint Warning 
Center will provide side by side displays of data derived from each 
nation's early warning satellites and radars. We will meet with the 
Russian Federation next month to continue discussions on implementation 
of the long-term shared early warning initiative.
    Nuclear Stockpile Security
    The security of nuclear materials is another critical issue that 
requires special attention in connection with the Year 2000 transition. 
For several years DoD, through the Nunn-Lugar Cooperative Threat 
Reduction (CTR) program administered by the Defense Threat Reduction 
Agency (DTRA), has pursued programs for improving the management of 
nuclear weapons storage sites throughout Russia. Last December DTRA 
expanded its efforts, and initiated discussions focused on the 
continuous safe and secure storage, transport and accounting of these 
weapons of mass destruction (WMD) across the period of Y2K 
vulnerability.
    In March, DTRA continued its Y2K discussions with the 12th Main 
Directorate of the MoD, which is responsible for the storage and 
security of all non-deployed Russian nuclear warheads. Of special 
concern are the security systems in nuclear storage sites affecting 
access control, perimeter monitoring, fire detection and suppression, 
and warhead inventory and accountability. At that meeting, 
representatives from the MoD confirmed that there had been no 
evaluation of computers associated with the physical security and 
inventory management systems for Y2K vulnerability. MoD welcomed any 
assistance DoD could offer in this regard.
    When DTRA renewed discussions with the MoD in August, it was 
evident that substantial progress had been made in the intervening 5 
months in the assessment of, and planning for, possible Y2K disruptions 
associated with nuclear stockpile safety and security. The 12th Main 
Directorate has embarked on a credible and focused plan to monitor 
computer systems that support nuclear storage and security during the 
Y2K rollover. This represents a significant and positive change in 
posture since our previous discussions of Y2K vulnerabilities and 
consequences in March. Beginning in December 1999 and lasting through 
March 2000, the Russians will maintain a special Y2K monitoring and 
control center at each of their 50 main nuclear storage sites. The 
centers will operate around the clock, staffed by specially selected 
and trained soldiers. The centers will monitor key systems, to include 
those linked to physical security; power, water and telecommunications 
infrastructure; and the microenvironments within the warhead storage 
areas.
    In conjunction with its planning for the monitoring regime, the 
12th Main Directorate has also conducted a comprehensive readiness 
assessment of its response capabilities. Unfortunately, the result of 
this assessment has revealed significant shortfalls in the ability to 
respond in a timely and effective manner to security or safety 
disruptions that the monitoring centers might detect. Within the 
monitoring centers, the lack of standard equipment such as personal 
computers and faxes could readily produce delays in the decision 
process. Once decisions are made, the ability to respond appropriately 
will be compromised by equipment that is unreliable, obsolete, or in 
disrepair.
    As an outgrowth of our two meetings with the 12th Main Directorate 
in August, the Russian Federation has submitted a written request to 
DoD for equipment to assist in consequence management of potential Y2K 
events. Equipment requested would cost approximately $15.5M; specific 
items include emergency generators, fire trucks, warhead handling and 
medical response vehicles, radios for security response forces and 
field reporting, and back-up communications capabilities.
    DoD has reviewed the Russian request, and agrees that the types of 
equipment and quantities requested make sense. Furthermore, we have 
assessed this Y2K submission relative to types and quantities of 
equipment already requested and planned for transfer to Russia under 
longer term CTR initiatives, and have determined that most of the 
items--$13M of the $15.5M--fall clearly within the scope and purpose of 
the CTR program. The bulk of the requirement for Y2K is a simple and 
straightforward request to accelerate and amplify the assistance that 
is already being provided or has been planned through the existing 
Nunn-Lugar program.
    DoD is moving quickly to identify funding options for this request. 
There is very little available under prior year CTR funding, and FY00 
CTR funds are on hold pending Russia's recertification for the program. 
However, we have identified approximately $3 million from the CTR 
program and the DoD Y2K Supplemental to pay for the elements of the 
Russian request that we deem demand the highest priority. The majority 
of these funds will be used to purchase computers, radio sets, and 
other automation equipment that will assist the Russians in maintaining 
the security and accountability of their stockpile in the face of the 
Y2K challenge. We will be meeting with the Russians in early October to 
discuss this issue and seek mutual agreement on the priorities we have 
set.
    Assured ``Hotline'' Communications
    Assured communications between US and Russian leaders is a priority 
at all times, and of particular concern over the millennium date 
change. There are seven direct communication links, or ``hotlines,'' 
between Russia and the United States to guarantee our leaders immediate 
communication with one another when necessary. Among these are the 
direct links between our Presidents, the foreign affairs link between 
the Secretary of State and Minister of Foreign Affairs, and the hotline 
connecting each country's Nuclear Risk Reduction Centers. In addition, 
reliable secure communications will be essential for the operations of 
the temporary Center for Y2K Strategic Stability.
    Communications experts from the US and Russia nations started 
discussions concerning the Year 2000 problem last October. These 
discussions were continued during the week of 15 February, when 
representatives from the Defense Information Systems Agency, White 
House Communications Agency, Army, Joint Staff, and Department of State 
met with their counterparts from the Ministry of Defense and Ministry 
of Communications in Moscow. Despite events in Kosovo, our 
communications experts were able to sustain contact during the spring, 
and during that time Y2K problems were identified at the Russian ground 
station, and in commercial software on both sides, which would prevent 
full operation of six of the seven direct communication links over the 
Y2K transition.
    When talks resumed in August, the Russian Federation agreed with US 
recommendations regarding Y2K vulnerabilities in the current hotline 
architecture, and the US agreed to provide the Russian Federation with 
Y2K compliant software and computer workstations to correct program 
deficiencies in outage reporting, monitoring, and channel reroute 
operations. Procurement actions for this equipment have been initiated, 
and while the schedule is tight we are confident that the fixes will be 
installed and tested by December. The August discussions also addressed 
possible contingency measures, to include implementation of backup 
analog circuits, additional secure phone/facsimile capability, and 
installation of emergency INMARSAT devices on both sides. Finalization 
of Y2K operational and contingency planning for secure communications 
will occur at the US-Russia technical experts group meeting scheduled 
for 18-22 October.
    Information Technology Management
    While building on existing relationships for addressing nuclear 
systems and communications issues, DoD is also pursuing a new 
initiative with MoD in the area of information technology management. 
In the US, the Year 2000 problem has presented new and unique 
information technology challenges. We have learned a great deal, both 
through our own successes and missteps to date, and through the 
information we have exchanged with our Allies over the past year. 
Throughout the Federal government, there is a consensus among Chief 
Information Officers that the Y2K experience will fundamentally change 
the way that we manage information technology in the future. When our 
technical experts met with MoD last month, we learned that they have 
reached the same conclusion.
    The Y2K discussions in August provided DoD with our first real 
insight into the MoD's approach to Y2K assessment, remediation, and 
containment. Taking a functional approach to system definition--and 
learning from DoD's mistake in this regard--MoD has identified 1000 
total computer-based systems, with approximately 100 systems defined as 
mission critical. I would note that with this functionally based 
definition, a single computer can constitute a system, while an entire 
aircraft can be defined as a single system. MoD is responding to Y2K 
problems in its mission critical systems through a combined approach of 
retirement, remediation, and encapsulation, depending on the nature of 
the problem and complexity of potential solutions. MoD is bypassing the 
type of individual system certification and integration testing that 
characterizes much of the DoD test regime, and is moving directly into 
operational testing of its mission critical systems.
    I think it is important to note at this point that there is no 
single right or wrong way to fix Y2K problems. This is a complicated 
enterprise, and the best solution for a particular department or nation 
is a function of time, resources, criticality, and engineering 
discipline. The fact that the Russian MoD is following a different 
protocol and timetable for addressing its Y2K problem does not man that 
approach is deficient--it just means that its different. We emerged 
from our discussions convinced that the MoD is treating its Y2K problem 
very seriously, and has designed and executed a program appropriate to 
its situation. We look forward to continuing our discussions with the 
MoD on Y2K and on more general information technology management 
issues, when the US-Russian Information Technology Management Working 
Group meets in Washington the week of 18 October. In response to a 
specific request by MoD, we plan to have representatives from major US 
software companies participate with us in this session.
    Conclusion
    In conclusion, I would note that, despite the time lost due to the 
Kosovo conflict, our cooperative Y2K activities with the Russian 
Federation defense establishment will make a significant contribution 
to both nations as we transit into the next millennium. The dedication 
of participants on both sides has helped us to make up for the lost 
time rapidly. I am convinced that each of the efforts I've discussed is 
making a long-term contribution to enhanced military-to-military 
relationships and strategic stability. We will continue to work closely 
with the President's Council for Year 2000 Conversion as we pursue 
these efforts, and will keep this committee apprised of our progress.

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