    Nuclear Safety: Construction of the Protective Shelter for the
    Chernobyl Nuclear Reactor Faces Schedule Delays, Potential Cost
    Increases, and Technical Uncertainties (19-JUL-07, GAO-07-923).

    In 1986, an explosion at the Chernobyl nuclear power plant in
    Ukraine destroyed the reactor building and released massive
    amounts of radioactive contamination. A temporary shelter was
    built over the damaged reactor to prevent further contamination.
    The United States is a major donor to an international project to
    build a new shelter to replace the existing one, which is badly
    deteriorating. GAO was asked to (1) assess the progress toward
    completing the new shelter, (2) review the cost estimates to
    complete the project, and (3) assess the U.S. role in overseeing
    and funding the project. To carry out its work, GAO analyzed
    program documents, interviewed U.S. and international program
    officials, and visited the Chernobyl nuclear power plant.
    -------------------------Indexing Terms-------------------------
    REPORTNUM:   GAO-07-923
        ACCNO:   A72948
      TITLE:     Nuclear Safety: Construction of the Protective Shelter
    for the Chernobyl Nuclear Reactor Faces Schedule Delays,
    Potential Cost Increases, and Technical Uncertainties
         DATE:   07/19/2007
      SUBJECT:   Cost analysis
    	     Cost overruns
    	     Foreign governments
    	     Funds management
    	     International cooperation
    	     Nuclear reactors
    	     Program evaluation
    	     Program management
    	     Radiation accidents
    	     Schedule slippages
    	     Chernobyl Nuclear Powerplant (USSR)
    	     Ukraine (Russia)

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    GAO-07-923

         * [1]Results in Brief
         * [2]Background
         * [3]Construction of the New Shelter Is about 7 Years behind Sche

              * [4]Work to Prepare the Chernobyl Site and Stabilize the Existin
              * [5]Frequent Project Leadership Changes, Management Difficulties

                   * [6]Lack of Stable Project Leadership
                   * [7]Complex Project Management Structure
                   * [8]Technical Uncertainties

         * [9]Estimated Costs to Complete the Project Are $1.2 Billion and

              * [10]Cost Estimates to Construct the New Chernobyl Shelter Have I
              * [11]Estimates Are Likely to Increase Due to Continued Delays in
              * [12]Other Internationally Funded Construction Projects Have Expe

         * [13]State Has No Direct Management Responsibilities for the Cher

              * [14]The State Department Relies on EBRD to Oversee and Manage th
              * [15]Additional U.S. Funding Will Likely Be Requested to Complete
              * [16]Decreasing FREEDOM Support Act Funding Could Impact Future U

         * [17]Conclusions
         * [18]Recommendations for Executive Action
         * [19]Agency Comments and Our Evaluation

              * [20]Nuclear Reactors
              * [21]The Reactor Design
              * [22]Safety Margin Test of the ChNPP Unit Four Reactor

         * [23]GAO Contact
         * [24]Staff Acknowledgments

              * [25]Order by Mail or Phone

    Report to the Ranking Member, Subcommittee on National Security and
    Foreign Affairs, Committee on Oversight and Government Reform, House of
    Representatives

    United States Government Accountability Office

    GAO

    July 2007

    NUCLEAR SAFETY

    Construction of the Protective Shelter for the Chernobyl Nuclear Reactor
    Faces Schedule Delays, Potential Cost Increases, and Technical
    Uncertainties
    GAO-07-923

    Contents

    Letter 1

    Results in Brief 6
    Background 9
    Construction of the New Shelter Is about 7 Years behind Schedule and Could
    Face Further Delays 11
    Estimated Costs to Complete the Project Are $1.2 Billion and Will Likely
    Increase, and Final Costs Are Uncertain 22
    State Has No Direct Management Responsibilities for the Chernobyl Shelter
    Project but Has Played a Key Role in Providing Funding 34
    Conclusions 40
    Recommendations for Executive Action 41
    Agency Comments and Our Evaluation 42
    Appendix I An Analysis of the Chernobyl Nuclear Power Plant Accident 45
    Appendix II Objectives, Scope, and Methodology 52
    Appendix III Donor Governments' Contribution Agreements with the Chernobyl
    Shelter Project, as of September 2006 57
    Appendix IV Comments from the Department of State 59
    Appendix V Comments from the U.S. Agency for International Development 64
    Appendix VI GAO Contact and Staff Acknowledgments 66

    Tables

    Table 1: ChNPP Director's Analysis of Schedule Delays and Cost Increases
    for Other Internationally Funded Construction Projects at Chernobyl, as of
    October 2006 31
    Table 2: U.S. Pledges to the Chernobyl Shelter Project 37

    Figures

    Figure 1: The Damaged Reactor Building and the Existing Shelter Built over
    It 2
    Figure 2: Design of the Proposed New Chernobyl Shelter 3
    Figure 3: Completed Change Facility at the Chernobyl Site 13
    Figure 4: Stabilization Work for the Western Wall 14
    Figure 5: The Interim Spent Fuel Storage Facility at Chernobyl 33
    Figure 6: Chernobyl Project Contribution Agreements from the European
    Commission, United States, other G-7 countries, Ukraine, and 21 other
    countries, as of September 2006 38

    Abbreviations

    ChNPP Chernobyl Nuclear Power Plant
    CSF Chernobyl Shelter Fund
    DOE U.S. Department of Energy
    EBRD European Bank for Reconstruction and Development
    IAEA International Atomic Energy Agency
    G-7 Group of Seven major industrialized countries
    MOU memorandum of understanding
    NRC U.S. Nuclear Regulatory Commission
    PMU project management unit
    RBMK reactor bolshoy moshchnosty kanalny
    SIP Shelter Implementation Plan
    State U.S. Department of State
    USAID U.S. Agency for International Development

    This is a work of the U.S. government and is not subject to copyright
    protection in the United States. It may be reproduced and distributed in
    its entirety without further permission from GAO. However, because this
    work may contain copyrighted images or other material, permission from the
    copyright holder may be necessary if you wish to reproduce this material
    separately.

    United States Government Accountability Office
    Washington, DC 20548

    July 19, 2007

    The Honorable Christopher Shays
    Ranking Member
    Subcommittee on National Security and Foreign Affairs
    Committee on Oversight and Government Reform
    House of Representatives

    Dear Mr. Shays:

    On April 26, 1986, the worst accident in the history of civilian nuclear
    power occurred at the Chernobyl nuclear power plant in Ukraine, where an
    explosion destroyed the core of reactor unit four containing approximately
    200 tons of nuclear fuel.1 The explosion also destroyed much of the
    reactor building, severed the reactor's cooling pipes and spewed hot
    fragments of reactor fuel from the core, igniting at least 30 fires in
    nearby buildings. The explosion and heat from the reactor core propelled
    radioactive material as much as six miles high, where it was then
    dispersed mainly over 60,000 square miles of Ukraine, Belarus, and Russia.
    Smaller amounts of radioactive material spread over eastern and western
    Europe and Scandinavia and were even detected in the United States. About
    6 months after the accident, the construction of a 21-story-high metal and
    concrete shelter was completed to enclose the damaged reactor and confine
    the remaining radioactive material. This shelter--which was never intended
    to serve as a permanent solution for confining the long-lived and highly
    radioactive material--is badly deteriorating, and rain entering through
    holes and cracks is corroding and further weakening the structure.
    International nuclear safety experts, including officials from the
    International Atomic Energy Agency (IAEA), are concerned that the weakened
    shelter could collapse and release a radioactive dust cloud that could,
    among other things, create a health and safety hazard, complicate
    continuing accident recovery efforts, and have further adverse
    environmental impacts on the region. Figure 1 shows the impact of the
    explosion on the reactor building and the hastily built shelter that needs
    to be replaced.

    1The Chernobyl Nuclear Power Plant had four operating reactors, designated
    as units one through four. Each reactor has a core designed to contain
    uranium fuel and control elements that are held within a sealed metal
    container. Additional information on the root causes and impact of the
    Chernobyl accident can be found in appendix I.

    Figure 1: The Damaged Reactor Building and the Existing Shelter Built over
    It

    The United States and other countries sponsored the development of a
    Shelter Implementation Plan (SIP), finalized in 1997, that outlined the
    steps to create safe conditions for the damaged reactor and the existing
    shelter. The SIP is the basis for an ongoing project to replace the
    existing shelter with a new one. The new shelter is technically known as
    the New Safe Confinement. For the purposes of this report, we refer to
    project activities performed under the SIP as the Chernobyl Shelter
    Project and refer to the New Safe Confinement as the new shelter.

    The new shelter is designed to be an arch-shaped structure enclosed by
    flat walls at each end, standing roughly 32 stories high and wider than
    two football fields at its base. To minimize the workers' exposure to
    radiation, the new shelter will be built at a distance from the existing
    shelter and then slid over it on concrete tracks. After it is in place,
    the new shelter is designed to reduce the exposure of the existing shelter
    to weather and minimize the release of radioactive dust resulting from a
    possible collapse of the existing shelter. This structure, which has an
    expected service life of at least 100 years, is also intended to support
    the deconstruction of the unstable upper portions of the existing shelter
    and the eventual removal of the remaining highly radioactive material that
    contains fuel from the damaged reactor core. As currently envisioned, the
    removal of this material will not be undertaken until a long-term storage
    repository is available, likely decades after the end of the shelter
    project. Ukraine will be responsible for removing this material and
    storing it, as this activity is outside the scope of the Chernobyl Shelter
    Project.

    Figure 2 shows the conceptual design of the new shelter.

    Figure 2: Design of the Proposed New Chernobyl Shelter

    In addition to replacing the shelter, the project has two other main
    construction components--preparing the site for construction and
    stabilizing the existing shelter to prevent its collapse. The project is
    financed by 29 countries and the European Commission, primarily through
    donations to the Chernobyl Shelter Fund (CSF).2 As of September 2006,
    payments to CSF, earned interest, and in-kind contributions had reached
    about $930 million.3 At that time, almost $380 million from CSF had been
    spent for administrative costs and project contracts. Thus far, the United
    States has contributed about $154 million ($169 million adjusted for
    inflation) of the total $203 million it has pledged since 1997.4 As the
    largest single-country donor, the United States has provided roughly 19
    percent of total contributions to CSF, whereas the European Commission has
    contributed the largest portion, about 26 percent of all contributions.

    U.S. funding has come from appropriations under the FREEDOM Support Act,
    which broadly supports economic and political reforms in Ukraine and other
    newly independent countries following the 1991 dissolution of the Soviet
    Union.5 The United States and other countries gave the responsibility to
    administer the Chernobyl Shelter Fund to the European Bank for
    Reconstruction and Development (EBRD), a multilateral bank that invests in
    countries from central Europe and the former Soviet Union to help build
    market economies and democracies.6 EBRD subsequently established a
    framework for the project, including the CSF rules that defined the roles
    for the bank and donor governments. In addition, a Framework Agreement
    between EBRD and Ukraine was ratified by the Ukrainian government, which
    created a legal basis for the project in Ukraine.

    2The European Commission is the European Union's executive body. The
    union's member countries are Austria, Belgium, Bulgaria, Cyprus, Czech
    Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary,
    Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland,
    Portugal, Romania, Slovakia, Slovenia, Spain, Sweden, and the United
    Kingdom. Some of these countries also donate independently to the
    Chernobyl Shelter Fund.

    3The total does not include pledges that have not been paid into the fund.
    The European Bank for Reconstruction and Development (EBRD), which
    administers the fund, reports the total payments into CSF, expenditures,
    and other amounts in euros. The amounts reported here are derived from its
    most recent Project Progress Report of October 10, 2006, which reported
    these amounts as of September 30, 2006. We used the third-quarter 2006
    exchange rate to convert the fund total and expenditures to U.S. dollars
    from euros.

    4We adjusted the U.S. contributions for inflation using a gross domestic
    product price index. The proportions of U.S. and European Commission
    contributions are based on the contributions agreements from each country
    in euros, as reported by EBRD in its October 10, 2006, Project Progress
    Report.

    5The act is more specifically named the Freedom for Russia and Emerging
    Eurasian Democracies and Open Markets (FREEDOM) Support Act of 1992, Pub.
    L. No. 102-511, 106 Stat. 3320.

    6In addition to the Chernobyl Shelter Fund, EBRD administers the Nuclear
    Safety Account, a multilateral fund designed to address safety
    improvements in Soviet-designed nuclear power reactors. This account also
    supports other projects such as the construction of two facilities at
    Chernobyl that are needed to decommission the three other reactors at the
    site.

    In addition to EBRD, at least 10 organizations play a role in the
    Chernobyl Shelter Project, including a joint committee of high level
    officials from EBRD and the government of Ukraine, and Ukrainian
    ministries and regulators.7 An assembly of contributors--composed of
    representatives from the donor governments that pledged about $3 million
    or more--acts similar to a board of directors and approves the overall
    policy direction for the project.8 EBRD provides its expertise to manage
    the fund and, among other things, provides grants to the state-owned
    Chernobyl Nuclear Power Plant (ChNPP), the Ukrainian organization that is
    ultimately responsible for the project. ChNPP established a management
    team--known as the project management unit (PMU)--with a staff of about
    160 employees. The PMU, which is responsible for the day-to-day
    implementation of the project, is staffed by ChNPP employees and a
    consortium of consultants from three western companies: (1) Bechtel
    International Systems Incorporated, which provides the PMU's managing
    director and has lead responsibility for project management; (2) Battelle
    Memorial Institute, whose main tasks involve environmental, health, and
    safety issues; and (3) Electricite de France, a French company that
    provides technical expertise.9

    As a major donor country, the United States plays a prominent role in the
    project's assembly of contributors. Although the Department of Energy
    (DOE) and the U.S. Nuclear Regulatory Commission (NRC) participated in
    various safety and regulatory tasks for the Chernobyl Shelter Project
    early on, they no longer have any direct responsibility for the project.
    The Department of State (State) serves as the primary U.S. government
    agency for Chernobyl shelter-related matters. In addition, the U.S. Agency
    for International Development (USAID) supports State and, among other
    things, administers payments to the shelter fund.

    7Organizations and other entities include the Assembly of Contributors (or
    donor governments, including the European Commission); the Project
    Management Unit, including the western consultant consortium; the
    Chernobyl Nuclear Power Plant; EBRD's International Advisory Group;
    Ukraine's State Nuclear Regulatory Committee; the Licensing Consultant
    that assists the Nuclear Regulatory Committee; Ukraine's Ministry of
    Emergency Situations that has responsibility for Chernobyl issues; and the
    Ukraine-EBRD Joint Committee.

    8The following countries and organizations have formally pledged at least
    the minimum amount of funding to become members of the assembly of
    contributors: Austria, Belgium, Canada, Denmark, the European Commission,
    Finland, France, Germany, Greece, Ireland, Italy, Japan, Kuwait,
    Luxembourg, the Netherlands, Norway, Poland, the Russian Federation,
    Spain, Sweden, Switzerland, Ukraine, the United Kingdom, and the United
    States. Additional donors to the shelter fund include Iceland, Israel,
    Korea, Portugal, the Slovak Republic, and Slovenia.

    9Electricite de France has nuclear expertise from operating 58 nuclear
    power plants.

    Because of the significant U.S. investment in this project and an interest
    in seeing its timely completion, you requested that we undertake a review
    of U.S. and international efforts to construct a new shelter. In response
    to your request, this report (1) assesses progress toward completing the
    new shelter and factors that impact completion, (2) reviews the cost
    estimates to complete the project, and (3) assesses the U.S. role in
    overseeing and funding the project.

    To examine the Chernobyl Shelter Project's progress, we analyzed
    documentation and interviewed EBRD officials in London and Ukraine,
    Ukrainian officials in Kyiv and at the Chernobyl site, and officials with
    the PMU in the United States and at Chernobyl. We also reviewed project
    progress reports, management audits, project schedules, and risk
    assessment documents. To review the project's estimated costs, we obtained
    data from and discussed these cost issues with officials from the United
    States and other donor governments, EBRD, and the PMU. We also reviewed
    project cost estimates and EBRD summaries of project contributions by the
    donor governments. To determine the United States' role in overseeing and
    funding the project, we interviewed and obtained documentation from State
    and USAID. We also interviewed DOE and NRC officials to obtain information
    about their agencies' roles in providing assistance to Chernobyl. We
    performed our work from May 2006 through June 2007 in accordance with
    generally accepted government auditing standards. Further details of our
    scope and methodology are presented in appendix II.

    Results in Brief

    Although two of three construction components--site preparation and
    stabilization of the existing Chernobyl shelter--are nearly finished,
    completion of the project's final major and most visible component--the
    new shelter--is about 7 years behind schedule. The schedule to complete
    the new shelter has slipped from 2004 to no sooner than 2011. Over the
    past couple of years, the main reason for schedule slippage has been the
    failure to award a contract to construct the new shelter, which has
    developed into a lengthy and contentious issue between Ukraine and EBRD
    and raised concerns among the donors about when and at what cost the
    project will be completed. Specifically, Ukraine disagreed with the likely
    selection of a French contractor to construct the new shelter, but EBRD
    contended the selection process could not deviate from the bank's
    procurement rules. By the fall of 2006, the disagreement had so strained
    relations between Ukraine and EBRD that the Chernobyl plant director told
    us the donors should not make additional contributions until contracting
    issues are resolved. More recently, however, an EBRD official said that
    relations were improving. In addition, frequent changes in Ukrainian
    leadership responsible for the project, overall project management
    complexity, and technical uncertainties associated with the construction
    of the new shelter have also contributed to schedule slippages and
    threaten to further delay the project:

               o The lack of stable leadership and continuity among key Ukrainian
               organizations and officials has and could continue to create
               delays. For example, in the last 6 years, there have been four
               plant directors who are responsible for all major Ukrainian
               decisions for the project. According to a senior PMU official, the
               frequent change of directors affects the schedule because the
               project is forced to adjust to each director's new approach.

               o The many organizations that impact the project's
               performance--including the assembly of contributors, EBRD, as well
               as Ukrainian ministries and regulators--have made it difficult to
               reach unanimous and quick agreement on project decisions.

               o Technical uncertainties associated with constructing a
               one-of-a-kind structure at a radioactively contaminated site could
               also result in delays. The new shelter's final design will require
               the approval of Ukraine's regulatory agencies. If the final design
               deviates significantly from the already approved conceptual
               design, the regulators may require additional time to review and
               clarify new design issues. Moreover, if unexpectedly large amounts
               of high-level radioactive waste are found on site, work could be
               stalled while details for removal and storage are resolved.

               The estimated costs of completing the Chernobyl Shelter Project
               are currently $1.2 billion and will likely increase. In 1997, a
               preliminary estimate of $758 million was developed to allow
               fund-raising for the project to begin. This estimate excluded a
               variety of costs that were later added to make a more thorough
               estimate--such as reserve funds to provide for project
               uncertainties and risks as well as rising material and labor
               prices. When these costs were added in 2003, the total estimated
               cost increased to over $1 billion. The estimate rose again to $1.2
               billion in 2006, which primarily reflected reconciling the
               estimated cost of constructing the new shelter with actual
               contractor bids. EBRD officials told us that the final project
               cost continues to be difficult to estimate because the single most
               expensive project task--the construction of the new shelter,
               estimated to cost over $500 million--has not begun. However, a
               higher cost estimate than $1.2 billion is likely because of, among
               other factors, rising prices for labor and materials during the
               delay in awarding the new shelter contract, according to a PMU
               cost expert. PMU officials and representatives from several donor
               governments, including the United States, stated that many other
               factors, such as expanding the project's scope to include the
               removal of the radioactive fuel from the reactor, could lead to
               further cost increases. Many of these representatives are also
               concerned that shelter costs are likely to rise because
               internationally funded construction projects often experience
               significant cost overruns. For instance, Chernobyl's plant
               director said the project could repeat the pattern of schedule
               delays and rising costs found in other Chernobyl projects. One of
               those projects--the construction of a facility to store spent
               nuclear fuel--was suspended in 2003 because of design flaws. An
               additional $150 million to $200 million--on top of the $96 million
               already spent--may be needed to modify or completely rebuild the
               facility.

               The U.S. State Department, which has the lead role for the U.S.
               government, does not directly manage or oversee the Chernobyl
               Shelter Project, but it does provides funding through EBRD.
               Similar to the other contributors, State relies on EBRD to provide
               oversight and management of the Chernobyl shelter fund. The
               project's management structure limits State's role, but the agency
               primarily seeks to exert influence on the project's direction and
               performance through the assembly of contributors. However, State's
               role in influencing the project's direction is constrained because
               all major decisions must be based on consensus of assembly
               members. Despite these limitations, State recently played a key
               role in trying to move the project forward. Specifically, State
               took the lead at an October 2006 assembly meeting to address
               issues between EBRD and Ukraine about the selection of a
               contractor to complete the new shelter. State's proposal--to have
               a Ukrainian-selected observer monitor continuing contract
               negotiations--was accepted by the contributors and Ukraine as an
               interim step toward awarding the final contract. Regarding State's
               role in providing project funding, State officials said the
               department intends to pay the remaining $49 million of the $203
               million pledged by the United States to the Chernobyl Shelter
               Project, even though FREEDOM Support Act funds, which are State's
               exclusive source for funding the project, have been decreasing.
               The United States will likely be requested to provide funds beyond
               those already pledged because, under current project cost
               projections of $1.2 billion, additional funds totaling about $190
               million will be needed from the donors. According to State and
               United Kingdom officials, some donor governments may not have the
               resources--or may no longer be willing--to provide funds beyond
               those already pledged. To date, the United States has not placed
               conditions on the contributions made to the Chernobyl Shelter
               Fund--that is, specific benchmarks tied to tangible progress
               toward project completion. Moreover, since State may need to
               approach the Congress for additional funds, the Congress, in our
               view, will need more information than currently provided. State
               has not systematically provided the Congress with detailed
               information about the project's status, including cost estimates
               and schedule slippages. Rather, in its annual congressional budget
               justification for foreign assistance, it only provides a brief
               statement about its continuing financial support of the shelter
               project.

               To help ensure that the United States has a clear and consistent
               strategy, as well as a sound basis for continuing to support the
               Chernobyl Shelter Project, we are recommending that, among other
               things, the Secretary of State consider, in consultation with
               other donor governments and the European Bank for Reconstruction
               and Development, establishing benchmarks for the project that need
               to be met before additional pledges of funds are made. In
               addition, to increase State's accountability and transparency for
               funding the project, the Secretary of State should provide a
               detailed annual report to the Congress about the status of the
               project, including project costs, project milestones, and
               estimated completion dates.

               We provided the Department of State and the U.S. Agency for
               International Development with draft copies of this report for
               their review and comment. In their written comments, both State
               and USAID agreed with our main findings and State generally agreed
               with our recommendations to the Secretary of State. However, both
               State and USAID raised some concerns regarding the establishment
               of specific benchmarks for the project. Both agencies asserted
               that linking additional funds to specific performance benchmarks
               requires careful consideration because it could lead to further
               project delays or increase costs. We strongly believe that
               benchmarks could encourage timely project completion at agreed
               upon costs.

    			  Background

               The Chernobyl accident left Ukraine with a costly legacy of
               population displacement as well as a host of health care and
               economic problems. Approximately 116,000 area residents in 1986,
               and another 220,000 in subsequent years, were evacuated and in
               need of resettlement from the most heavily contaminated areas in
               the region. Although international nuclear safety and health
               experts report that 30 workers died in 1986 from the explosion or
               severe radiation exposure, the magnitude of longer-term health
               consequences resulting from the accident is still being
               investigated. According to the United Nations' Chernobyl Forum,
               the regional health impacts of the Chernobyl accident remain a
               concern 20 years after the accident. Of particular concern is the
               large number of thyroid cancer cases among children who drank milk
               that was contaminated by radioactive fallout from the Chernobyl
               accident. In addition, in a 2006 United Nations sponsored report,
               international health experts predicted that radiation could cause
               up to 4,000 eventual cancer deaths among the higher exposed
               Chernobyl populations, such as the emergency workers who helped
               put out the fires and build the original shelter.

               In addition to the human toll, the Chernobyl accident has resulted
               in significant economic costs to Ukraine. These costs, which are
               difficult to quantify, include the removal of agricultural land
               and timber forests from production as well as the closure of
               agricultural and industrial facilities to protect people from
               further radioactive contamination. One major concern to Ukraine
               has been the displacement of about 6,000 workers who were employed
               by the ChNPP. Finally, costly government expenditures to remediate
               contaminated areas, provide medical services and social benefits
               for the affected populations, and restore the region's social and
               economic well-being have placed a heavy burden on Ukraine's
               national budget. Ukraine still devotes 5 percent to 7 percent of
               total government expenditures to Chernobyl-related benefits and
               programs.

               U.S. participation in the Chernobyl Shelter Project began as part
               of a larger U.S. and international effort to improve the safety of
               Soviet-designed civilian nuclear power reactors. This effort,
               which was established in the early 1990s, targeted the
               highest-risk Soviet-designed reactors for short-term safety
               upgrades until they could be permanently shut down.10 As part of
               this effort, in 1995 Ukraine, the European Commission, and the
               "Group of Seven" major industrialized countries (G-7), including
               the United States, signed a memorandum of understanding (MOU)
               about the closure of the remaining operating reactors at the
               ChNPP.11 The MOU--which led to the closure of the last operating
               reactor at Chernobyl in late 2000--also stated that a
               cost-effective and environmentally sound approach to address the
               damaged shelter would be cooperatively developed.

    10For more information about this assistance, see GAO, Nuclear Safety:
    Concerns with the Continuing Operation of Soviet-Designed Nuclear Power
    Reactors, GAO/RCED-00-97 (Washington, D.C.: Apr. 25, 2000).

               U.S. assistance with Chernobyl-related problems has also evolved
               within broader policy objectives to forge a political and economic
               relationship with Ukraine. Since the Soviet Union's dissolution
               led to Ukraine's independence in 1991, the United States has
               sought to support its transition to a democratic society with a
               market-based economy that is more closely integrated with Europe
               and the United States. As part of this assistance, the United
               States has been a major contributor of funds to help Ukraine
               address social, economic, and health problems associated with the
               accident and its aftermath. For example, State reports its
               programs for Ukraine have funded the delivery of $582 million in
               humanitarian assistance since 1992, which were collected from
               private donations and the Department of Defense. Approximately
               one-half of this assistance was targeted to those affected by the
               Chernobyl accident. The United States has also invested nearly $12
               million in health programs. These programs included screening and
               treatment for childhood physical and mental illnesses related to
               Chernobyl radiation, breast cancer awareness, and access to modern
               cancer treatment.

               Construction of the New Shelter Is about 7 Years behind Schedule
    			  and Could Face Further Delays

               Two of the Chernobyl Shelter Project's three major construction
               components--site preparation and existing shelter
               stabilization--were nearly finished at the end of 2006, about a
               decade after the project's plan was developed. However, the
               project's largest construction task--building the new shelter--is
               not expected to be completed until about 7 years after the
               original scheduled completion date of 2004. As a result of
               protracted delays in awarding the contract to design and build the
               new shelter, construction has not yet begun. Furthermore, problems
               surrounding the project have strained relations between EBRD and
               Ukrainian officials, raising concerns among the donors, including
               the United States, about the prospects for completing the project.
               Moreover, frequent leadership changes among Ukrainian ministries
               and officials, management difficulties associated with the many
               organizations participating in the project, and technical
               uncertainties related to constructing a one-of-a kind structure
               have delayed and could continue to delay the completion of the new
               shelter.

    11The G-7 consists of the governments of Canada, France, Germany, Italy,
    Japan, the United Kingdom, and the United States.

               Work to Prepare the Chernobyl Site and Stabilize the Existing
    			  Shelter Is Nearing Completion, but Construction on the New Shelter
    			  Has Not Yet Begun

               Two major activities integral to the Chernobyl project are nearing
               completion--providing infrastructure improvements at the Chernobyl
               site and stabilizing the existing shelter to prevent its possible
               collapse. Both of these activities are essential precursors to
               replacing the existing deteriorating shelter with a new one.
               Specifically, site preparation was necessary to create facilities
               and infrastructure services to support the construction work on
               both the existing and new shelters. Some infrastructure tasks
               remain to be done, such as an Integrated Automated Monitoring
               System, which monitors structural movements, seismic vibrations,
               radiation, and nuclear measurements within the existing shelter.
               Also, a decision to refurbish or construct a sewage treatment
               plant is still under consideration. Nevertheless, many support
               facilities and infrastructure services were operational by early
               2005. The completed site preparation work includes refurbishing
               power, water, and drainage infrastructure as well as providing
               road and rail connections to two operations areas that support
               existing shelter stabilization and new shelter construction. In
               addition, a building with change rooms, showers, and radiological
               monitoring facilities--known as a change facility--has been
               constructed for controlling the access of workers to the
               construction site. This building will allow up to 1,430 workers
               involved in the construction of the new shelter to change their
               work clothes daily as a precaution against a possible spread of
               radioactive contamination. This building also includes medical and
               ambulance facilities for responding to medical emergencies. Figure
               3 shows the change facility that will support the health and
               safety needs of the Chernobyl construction workers responsible for
               building the new shelter.

               Figure 3: Completed Change Facility at the Chernobyl Site

               The second major construction component--the measures to stabilize
               and thus minimize the likelihood of the existing shelter's
               collapse--was essentially completed at the end of 2006. According
               to a PMU official, the main remaining tasks are a monitoring
               period through about September 2007, which will lead to a
               determination about the possible need for some additional work,
               and the commissioning of the stabilization measures. Although
               emergency stabilization of the shelter's roof structures and an
               adjacent ventilation stack was completed in the late 1990s, the
               bulk of the stabilization activities started in December 2004 and
               was completed 2 years later. Analysis of the risks of radiation
               exposure to workers from the stabilization work and the
               probability and consequences of shelter accidents led to a project
               decision to pursue only 9 stabilization measures, instead of the
               original 29 measures recommended by a PMU contractor. These 9
               measures focus on strengthening the existing shelter's walls and
               roof support beams in particular places. For example, the last of
               these measures was to transfer about half the weight of the heavy
               roof load from the western wall of the reactor building onto
               support towers. Figure 4 shows a portion of the metal support
               towers that are intended to stabilize the main roof beams.

               Figure 4: Stabilization Work for the Western Wall

               Despite the progress achieved on the two construction activities,
               the schedule for completing the new shelter--the third and most
               visible construction component--has slipped by about 7 years. The
               1997 SIP established a preliminary schedule for completing the new
               shelter construction in March 2004. However, by late 2006, the
               Chernobyl PMU had extended the completion date to January 2011.12
               The 1997 implementation plan had included unrealistic schedule
               assumptions. For example, according to an EBRD official
               responsible for the Chernobyl Shelter Fund (CSF), the SIP assumed
               the western contractors providing project management (Bechtel
               International Systems Incorporated, Electricite de France, and
               Battelle Memorial Institute) would be in place immediately.
               However, this did not occur until early 1999, after Ukrainian
               decrees were finally developed to support the project.
               Specifically, in February 1999, the Ukrainian Cabinet of Ministers
               issued a decree releasing contractors from civil liability for
               nuclear damage, a prerequisite before contractors would consider
               working at Chernobyl.13 Moreover, according to EBRD, the emergency
               repair to the shelter in 1999 showed it would be impossible to do
               significant work at the Chernobyl site without major investment in
               site infrastructure. Major portions of the support facilities and
               infrastructure, such as roads and water services, did not become
               operational until early 2005.

               In addition, according to EBRD, the SIP did not allocate
               sufficient time for the technical and regulatory reviews and
               subsequent Ukrainian government approvals. The review process
               added 2 years to the project's schedule. PMU officials stated that
               other reasons contributed to delays. They indicated the largest
               single delay was the start of the conceptual design about 3 years
               after its original schedule. These officials attributed the delay
               to the time needed after the breakup of the Soviet Union to create
               a sufficiently mature Ukrainian infrastructure--such as banking
               and legal systems--to support a contract for the conceptual
               design. As a result of the unrealistic assumptions and
               on-the-ground conditions, by July 2004, the project had only
               advanced to the point of having the new shelter's preliminary
               design, known as a conceptual design, approved by the Ukrainian
               Cabinet of Ministers--about 3 months after the date that the SIP
               had forecast completing construction of the new shelter.

    12According to the 1997 plan, the total project was scheduled to be
    completed after the deconstruction of the roof and unstable parts of the
    existing shelter, which was expect to be finished about a year and a half
    after completion of the new shelter.

    13In Ukraine, various government agencies generally use decrees to
    establish and promulgate orders and regulations.

               An EBRD official told us, however, that the SIP was never expected
               to provide a precise schedule because major project questions such
               as the design for the new shelter had yet to be addressed.
               Moreover, the official said that the SIP had established an
               artificial start date of January 1997. According to an EBRD
               report, the project had a largely defined scope and schedule by
               2003. Nevertheless, we found that the new shelter's completion
               date has continued to slip even after the new shelter's design was
               significantly clarified and the schedule was revised to reflect
               project refinements. As of late 2006, the scheduled completion of
               the new shelter was more than 2 years later than estimated in
               2003.

               Over the past couple of years, the primary reason for further
               schedule slippages of the Chernobyl project has been the failure
               to award a contract for the final design and construction of a new
               shelter. Until this contract is awarded, the project cannot go
               forward. In 2003, the PMU estimated that the contract for final
               design and construction would be awarded in 2004. As of early July
               2007, however, the contract has not been awarded. As a result, the
               final design and construction of the new shelter has not yet
               begun.

               Several procurement-related problems have delayed the contracting
               process from the beginning. For example, the request for contract
               bids was released in March 2004, which was about 2 months later
               than forecasted at the time. In addition, the proposal submission
               deadlines for both the technical and commercial evaluations of
               bids were each extended over a month. Moreover, despite lengthy
               clarifications of contract requirements with potential bidders,
               the two bidding consortiums--one led by a U.S. firm CH2M Hill and
               another called Novarka headed by a French firm--submitted
               proposals that did not comply with the requirements. The
               noncompliant proposals tendered by the two consortiums had to be
               resubmitted for consideration by the proposal evaluation
               committee.

               More recently, the likely awarding of the contract to the
               French-led consortium as the lower bidder has created controversy,
               as Ukraine has raised objections and CH2M Hill filed a bid protest
               with EBRD.14 The ChNPP director and an official from the Ministry
               of Emergency Situations told us they believe the Novarka bid
               proposal contains significant deviations from contract
               requirements, which runs contrary to the majority view expressed
               in the proposal evaluation committee's report.15 Ukraine began
               disagreeing with EBRD over the selection process in March 2006
               when Ukraine sought to reopen the proposal evaluation process or
               restart the contracting process. In response to a Ukrainian
               request to overturn EBRD's nonobjection to the evaluation
               committee's report, a bank official refused, responding that no
               new information had been provided for consideration.16 When CH2M
               Hill filed a bid protest shortly thereafter, EBRD halted the
               contracting process and initiated a 6-month investigation to
               ensure that the contract processing had been conducted in
               accordance with EBRD procurement rules. Based on its examination,
               EBRD concluded in September 2006 that CH2M Hill's complaint could
               not be upheld and the contracting process could continue. Then,
               Ukraine again raised objections about the contracting process and
               its likely outcome. As of May 2007, a PMU official told us that
               PMU and Novarka officials were still negotiating open points about
               the Novarka proposal that must be settled before the contract is
               awarded.

    14In April 2007, a PMU official informed us that CH2M Hill was no longer
    participating in the competition for the shelter contract.

               EBRD must certify the contract as being in accordance with bank
               procurement rules and the ChNPP director must approve the contract
               before it can be executed. However, based on our discussions with
               both EBRD and the ChNPP director in October 2006, it was clear
               that relations between both sides were extremely strained. For
               example, the ChNPP director told us that the donors should not
               make additional contributions to the shelter fund until
               contracting issues are resolved. An EBRD official told us that the
               bank would consider withdrawing from administering the project if
               the assembly of contributors approved Ukrainian proposals that
               conflict with EBRD procurement rules. However, in May 2007 an EBRD
               official told us that relations with Ukrainian officials have been
               gradually improving.

    15We were unable to examine the specifics of the Ukrainian complaint, the
    bid protest, or the contract proposals because the contracting process is
    confidential under EBRD rules until the contract is awarded.

    16EBRD describes an affirmative outcome of a bank review of a project
    document as providing a "nonobjection," which it distinguishes from an
    approval of the document. For example, EBRD said that its nonobjection to
    a contract certifies that the procurement processes and proposals are in
    accordance with governing policies and rules but is not an approval of the
    contract. According to an EBRD official, approval of a contract is the
    responsibility of the recipient of the CSF grant, such as ChNPP.

               Officials from several donor governments told us they were growing
               increasingly concerned about the delays in awarding the contract
               for the new shelter's final design and construction. European
               Commission officials asserted that the donors were losing patience
               with the project and that it was becoming more difficult to
               justify continued financial support. The officials noted that the
               European Commission had to convince its approximately 400 million
               taxpayers that their investment was worthwhile. Given the growing
               concerns over costly delays, State officials said that the
               overarching need is the timely completion of a fair and
               transparent contracting process, regardless of which qualified
               bidder is selected. In their view, it is important to keep the
               project moving forward to demonstrate that all parties involved
               are serious about completing the new shelter as expeditiously as
               possible.

    			  Frequent Project Leadership Changes, Management Difficulties, and
    			  Technical Uncertainties Have Delayed and Could Further Delay the
    			  Completion of the New Shelter

               In addition to the problems associated with awarding the new
               shelter contract, several factors have also contributed to
               schedule slippages and threaten to further delay the project even
               after the contract is awarded. These factors include (1) frequent
               changes in the Ukrainian leadership responsible for the project,
               (2) overall project management complexity, and (3) technical
               uncertainties associated with constructing the new shelter.

      			    Lack of Stable Project Leadership

               Frequent project leadership changes have created, and could
               continue to create, schedule delays. For example, ChNPP directors
               are politically appointed and responsible for major Ukrainian
               decisions for the Chernobyl Shelter Project, including approving
               the construction contract for the new shelter. In the last 6
               years, there have been four ChNPP directors, the latest appointed
               in mid-2005. According to a senior PMU official, the frequent
               changing of ChNPP directors created delays because the project had
               to adjust to accommodate each director's new approach to
               implementing the project. Furthermore, the project was stalled for
               months in 2005 as a result of a major Ukrainian government
               reorganization following a presidential election that shifted
               authority over ChNPP from the Ministry of Fuel and Energy to the
               Ministry of Emergency Situations.

               Two former high-ranking Ukrainian officials told us that the
               changes in leadership have had a negative impact on the Chernobyl
               Shelter Project. A former official from the Ministry of Fuel and
               Energy told us the change was disruptive to the shelter project's
               progress because the Ministry of Emergency Situations wanted to
               revisit past project decisions and no personnel from the Ministry
               of Fuel and Energy were transferred to the newly responsible
               ministry to maintain continuity of expertise. Similarly, the
               former head of Ukraine's regulatory organization asserted that the
               recent change in government resulted in the loss of many capable
               regulatory officials who had institutional knowledge of the
               project. As a result, some past decisions were overturned and many
               new questions were being raised about regulatory matters that had
               been previously addressed.

               The possibility of continuing leadership changes creates
               uncertainties for the project's schedule. According to a senior
               PMU official, the current project schedule does not account for
               the risks of delays arising from political leadership and policy
               changes--not because such risks do not exist but because they are
               difficult to assess. EBRD has indicated that sustaining high-level
               Ukrainian government attention and a stable institutional
               environment is particularly crucial in this project phase, where
               any delay is costly. EBRD established the Ukrainian and EBRD Joint
               Committee in 1998 to promote government attention and to ensure
               that Ukrainian policies and institutions support the project's
               progress. Over the years, the joint committee has addressed
               various project issues requiring Ukrainian government actions,
               including tax and customs exemptions and Ukrainian contributions
               to the project. However, the joint committee has had mixed
               experiences in maintaining good cooperation. According to an EBRD
               official, the joint committee has been effective at creating some
               periods of good cooperation with the Ukrainian government,
               including occasions when the Ukrainian president has intervened to
               resolve project issues. However, frequent changes in Ukrainian
               officials have made it hard to maintain the continuity of the
               joint committee and to schedule meetings. An EBRD official told us
               that political and institutional instability has had a crucial
               impact on the progress of the project. He said that since 1998 the
               bank has worked with nine Ukrainian ministers involved with
               Chernobyl, eight vice prime ministers, six prime ministers, and an
               even higher number of deputy ministers or officials in charge of
               the ChNPP.

    			    Complex Project Management Structure

               A second risk to the schedule is the complex nature of the
               Chernobyl Shelter Project's management structure, which has slowed
               decision making.17 There are many organizations that impact the
               project's performance--including the assembly of contributors,
               EBRD, the western contractors, the PMU, ChNPP, as well as
               Ukrainian ministries and regulators. Numerous officials from these
               organizations told us that the multiple organizations involved in
               the project creates a cumbersome structure that has made it
               difficult to reach timely and unanimous agreement on project
               decisions. From the PMU managing director's perspective, although
               the PMU structure provides EBRD and the donors with transparency
               for shelter fund spending, it involves more time-consuming
               accountability for even minor expenditures than he has experienced
               on other international construction projects. For awarding a
               contract, a series of steps, each of which can take a week or
               longer, must be completed. EBRD must provide nonobjections to the
               PMU on the contract request, on the contractor selection, and for
               signing the contract. In addition, contracts must be approved by
               the ChNPP director, which can also be time consuming. The PMU
               managing director also noted that decision making is also
               complicated because he must obtain concurrence from both EBRD
               officials and the Chernobyl plant director. This can prove
               difficult because the PMU serves both clients and must sometimes
               resolve contradictory directions from the two project
               participants.

               A root cause of the management difficulty we identified is the
               unresolved issue of how much control the PMU should have in
               managing the project on behalf of the ChNPP. In 2002 and 2005,
               independent audits contracted by EBRD concluded that the ChNPP
               manager's efforts to exert greater control over the PMU led to
               inefficient decision making and project delays. Those efforts had
               negative effects because ChNPP management became overly involved
               in detailed project decisions or duplicated PMU reviews before
               approving decisions. ChNPP officials told us that a plant work
               group was established to review decisions made by the PMU. They
               view this duplication of effort as necessary because the decisions
               prepared by the PMU for the ChNPP director's approval do not
               always reflect the full interests of the plant.

    17We have reported on other international construction projects with
    complex management structures. Specifically, a DOE-funded construction
    project to build fossil fuel plants to replace plutonium production
    reactors in Russia had 17 U.S. and Russian organizations participating in
    the project. DOE officials told us that the numerous organizations
    involved in managing the complex program made coordination difficult,
    which has led to delays. For more information, see GAO, Nuclear
    Nonproliferation: DOE's Efforts to Close Russia's Plutonium Production
    Reactors Faces Challenges, and Final Shutdown Is Uncertain, GAO-04-662
    (Washington, D.C: June 4, 2004).

               Ukrainian ministerial and ChNPP officials told us they want
               greater control over the PMU--and the shelter project in
               general--rather than having the PMU managed by a western
               consultant, as is specified under the ChNPP's current contract
               with the consortium of consultants from three western companies. A
               senior official at the Ministry of Emergency Situations told us
               that there were too many western consultants in senior management
               positions in the PMU. He asserted that Ukraine should be treated
               like an equal partner in the project because Ukraine is legally
               responsible for the project and thus ultimately responsible for
               the safety of the site once the shelter is completed.

               In contrast, EBRD believes that the current management arrangement
               corresponds with shelter fund agreements and reflects the findings
               of the two management audits, which recommended against more
               intervention by ChNPP management into PMU operations. In EBRD's
               general model for administrating funds, western consultants ensure
               the PMU has the necessary management, procurement, financial, and
               other skills. EBRD has described Ukrainian proposals to assembly
               members as marginalizing the important role of western
               consultants. However, changes to the PMU structure have been made
               as the result of recommendations in previous audits. For example,
               the co-leadership in all PMU management positions--a western
               consultant and a Ukrainian manager for each position to provide
               training for Ukrainian staff--was discontinued to speed up
               decision making. Currently, about half of the PMU management
               positions are filled by Ukrainian managers developed under the
               earlier co-leadership structure.

               In October 2006, the assembly of contributors requested an update
               of the last management audit as a basis for determining whether
               further management improvements are needed. The resulting May 2007
               audit report did not support ChNPP managers' proposal to restrict
               western consultants' functions to mainly providing advice to
               ChNPP. Instead, the audit recommended that the project should
               continue to be managed by the PMU on behalf of ChNPP and that PMU
               functions and responsibilities should be gradually transferred to
               Ukrainians as qualified candidates are found.

    			    Technical Uncertainties

               The Chernobyl Shelter Project faces a number of technical
               uncertainties associated with constructing a one-of-a-kind
               structure at a highly radioactively contaminated site. These
               uncertainties could contribute to project delays. For example, the
               new shelter's final design will require approval from Ukraine's
               regulatory agencies, including those responsible for regulating
               nuclear materials and approving construction projects. To avoid
               the delays that have occurred in past reviews, Ukrainian law
               limits the duration of the regulatory review process for the new
               shelter. However, licensing consultant officials who provide
               support services to Ukraine's nuclear regulator under an EBRD
               grant told us that the law requires only a review, and not
               approval, within that duration. If the approval documents are of
               poor quality, such as missing supporting information, or raise
               technical questions, then the review process could be prolonged
               while the documents are revised and resubmitted. Technical
               questions are particularly possible during the review because the
               contractor may propose alternatives to meet the technical
               requirements of the conceptual design. As a result, the shelter's
               final design could be different from the conceptual design that
               the regulator had already approved. Regulators may then require
               additional time to review and clarify new design issues, which
               could delay the authorization to begin construction on the new
               shelter.

               Moreover, if unexpectedly large amounts of high-level radioactive
               waste are found on site, work could be stalled while removal and
               storage issues are resolved. According to the PMU's managing
               director, the main concern is the amount of radioactive waste that
               may be uncovered during the excavation for the new shelter's
               foundation. PMU officials report that ChNPP is currently expanding
               its capacity for on-site storage of high-level radioactive waste.
               Nevertheless, if the amount of high-level radioactive material
               discovered during the construction of the new shelter is higher
               than expected, the amount of waste may exceed the limited
               available space for storing this material. According to another
               PMU official, although the ChNPP is responsible for removing and
               storing the high-level radioactive waste, these tasks would have
               to be done in a timely manner in order to allow the new shelter
               contractor to stay on schedule.

    			  Estimated Costs to Complete the Project Are $1.2 Billion and Will
    			  Likely Increase, and Final Costs Are Uncertain

               As of 2006, the costs to complete the Chernobyl Shelter Project
               were estimated at over $1.2 billion and are likely to increase due
               to, among other things, ongoing project delays. In 1997, a
               preliminary estimate of $758 million was developed that excluded
               certain cost factors such as reserve funds to provide for project
               uncertainties and risks, as well as increased material and labor
               costs. Final project costs are currently difficult to estimate
               because the most expensive project task--the construction of the
               new shelter--has not started. Officials from several donor
               governments are concerned that the costs of the Chernobyl Shelter
               Project will exceed the current $1.2 billion estimate. These
               concerns are based in part on their experiences with other
               internationally funded construction projects, including ones at
               Chernobyl, that have significantly exceeded original cost
               estimates.

    			  Cost Estimates to Construct the New Chernobyl Shelter Have Increased
    			  Since the Initial Estimate

               Current cost estimates to complete the Chernobyl Shelter Project
               total $1.2 billion, which is higher than the preliminary estimate
               developed about 10 years ago. The 1997 project estimate of $758
               million was prepared by international experts from Ukraine, the
               United States, Europe, and Japan to provide a target amount for
               the international pledging of funds. This estimate was preliminary
               because many project decisions that impact costs, such as the
               number of stabilization measures and the design for the new
               shelter, were not yet determined. This initial estimate also
               excluded certain cost factors--such as reserve funds to cover
               costs from project uncertainties and risks and the escalation of
               materials and labor prices.18 When the PMU estimated the necessary
               reserve funds in 2003, these cost factors added $194 million to
               the project, bringing the total estimated cost to about $1.06
               billion. The estimate also rose because some work tasks were added
               or expanded that had not been considered in the 1997 plan, such as
               the removal and replacement of the vent stack adjacent to the
               existing shelter and expanding the PMU's role through the end of
               the project.

               The estimate for total project costs was increased to $1.2 billion
               in 2006 by the PMU primarily because the estimate had to be
               reconciled with the higher-than-expected bids submitted by the two
               competing contractors in late 2005. The lower of the two bids for
               the new shelter contract--about $505 million--was about $163
               million higher than the project's 2003 estimate for this work. In
               responding to contributors' requests for an explanation of the
               increase, EBRD officials said that prior cost estimates were based
               on the best available data at that time.

               A PMU cost analysis indicated that the higher-than-expected
               contractor bid was mainly attributable to the effect of price
               escalations and different proposed methods for constructing the
               shelter. First, the analysis indicated that almost half of the
               $163 million increase was due to increases in material, labor, and
               other costs that had occurred between 2003 and mid-2005 or were
               anticipated through the project's completion. In particular, large
               price increases in steel and Ukrainian labor--the latter costs
               having roughly tripled between 2003 and 2006--contributed
               significantly to the increase in estimated costs. Second, roughly
               another $50 million in costs was attributable to construction
               approaches in the bid proposal that were different from those
               assumed in the conceptual design. For example, the bid proposal's
               approach required more expensive construction equipment than had
               been included in the PMU's prior cost estimates. However, the rise
               in total project costs between 2003 and 2006 was moderated by
               reduced cost estimates for some other project tasks, including for
               stabilizing the existing shelter.

    18The 1997 estimate did include an amount to partially account for project
    uncertainties. However, it did not identify an amount for cost
    contingencies specifically related to the construction of the new shelter.

               According to EBRD and PMU officials, accurately estimating costs
               is difficult because the most expensive component of the
               project--constructing the new shelter--has not begun. In general,
               project cost estimates become more precise as project designs that
               define contracted activities are finalized, bids from firms
               competing for the contracts are received, and a contract is
               awarded. As work under the contract progresses, the adequacy of
               reserve funds becomes known, which increases the level of
               certainty in project cost estimates until the work and contract
               are completed and final costs are known. In the case of the
               shelter project, a PMU official told us that completed and ongoing
               contracts account for less than one-third of the estimated project
               costs.19 Consequently, most of the project's estimated costs hinge
               on future contracts. For example, the single most expensive future
               contract is for the final design and construction of the new
               shelter, currently estimated to cost about $505 million based on
               the lower of the two bids.

               Even if the Chernobyl shelter construction contract is awarded
               based on this price, the final costs are uncertain because only
               about half of the estimated costs will be associated with a
               fixed-price contract. Under this fixed-price contract, the
               contractor is generally responsible for paying any
               higher-than-anticipated costs.20 For the remaining contracted
               activities, ChNPP bears some or all of the risk for paying for
               higher-than-anticipated costs through the Chernobyl Shelter Fund
               (CSF). Some of these costs will not be clarified until the final
               design is completed. For instance, the design will finalize
               specifications for the amounts of materials, such as the amount of
               steel and concrete needed for the new shelter and its foundation.
               Further, the final design will specify some types of equipment and
               materials, such as the material used for the new shelter's
               internal and external covering. Pricing for these materials at the
               time of procurement is less certain because, although prices are
               assumed to typically rise over time, the price can be increasing
               or decreasing at any particular time.

    19The calculated proportion of cost estimates for completed and ongoing
    contracts is based on total direct project costs (that is, estimated
    project costs minus reserve funds of $161 million). The calculation also
    excludes $73 million of contributions that are outside of the Chernobyl
    Shelter Fund but are included in the overall project estimate of $1.2
    billion. Specifically, these excluded amounts are Ukrainian in-kind
    contributions valued at about $61 million and about $12 million for U.S.
    and Canadian funded projects in the late 1990s.

    20According to PMU officials, under the fixed-price portion of the new
    shelter contract, the contractor can claim reimbursements for additional
    costs beyond its bid under certain conditions, such as for delays or
    increased work scope that result from the other party's actions. Such
    claims would be accepted, denied, or negotiated down.

               Estimates Are Likely to Increase Due to Continued Delays in Awarding
    			  the New Shelter Contract, and Additional Factors Could Also Increase
    			  the Costs to Complete the Project

               The current cost estimate of $1.2 billion to complete the
               Chernobyl Shelter Project will likely increase because of the
               costs of the protracted delay in awarding the contract for the new
               shelter. In late 2006, a PMU official involved in estimating costs
               told us that he was fairly confident that the cost estimate of
               $1.2 billion would be sufficient to complete the project because
               it included reserve funds of $161 million. He expected these
               reserve funds would provide a sufficient buffer against the cost
               impacts of project uncertainties and escalating prices for
               materials and labor. Around that time, EBRD notified CSF
               contributors that costs were increasing with each day the
               construction contract was delayed. The bank indicated, however,
               that the delay had not yet affected the project's cost estimate,
               but the available reserve funds were being eroded. The same PMU
               official told us in March 2007 that, based on the protracted
               delay, the total project's cost estimate would likely need to be
               increased by tens of millions of dollars.

               Also according to this PMU official, when the total cost estimate
               is revised after the new shelter contract is awarded, it will
               likely increase for the following three reasons:

               o First, tens of millions of dollars will likely be needed to
               adjust the contract costs for price escalations that have
               occurred. The contracting process for the new shelter allows for
               adjusting costs to account for changing prices of materials, fuel,
               and labor, and those prices must be updated from the time of the
               bid submission in late 2005 to the time of contract award,
               expected in 2007.

               o Second, the delay means a longer, and therefore a more costly,
               operation period for the PMU. For example, the western consultants
               in the PMU have been maintaining their staffing level recently in
               anticipation of the new shelter contract being awarded. This
               staffing level costs about $1 million per month.

               o Third, the delay in awarding the new shelter contract also
               delays other future project contracts and thereby raises their
               costs. Specifically, contracts totaling an estimated $59 million,
               which are primarily to support the deconstruction of the existing
               shelter after the new shelter is in place, will probably be
               delayed. According to the PMU official, delays are typically
               assumed to increase the estimated costs at an escalation rate of
               about 3 percent per year.

               Furthermore, a number of risk factors could increase the costs of
               the Chernobyl Shelter Project. Many of these factors were
               identified by donors to the shelter fund and PMU officials.
    	        Whether these factors will result in increased project cost
               increases depends on whether the revised estimate contains
               sufficient reserve funds. For example, a 2005 analysis by the PMU
               estimated the most likely costs of almost twenty risks and
               uncertainties for the new shelter's design and construction, which
               resulted in adding reserves of $51 million to the current
               estimate. However, these risk estimates are based on experts'
               opinion of probable outcomes and can vary significantly from the
               project's actual experience.

               The adequacy of the reserve funds also depends upon PMU officials'
               ability to successfully mitigate the cost impacts of these project
               uncertainties. PMU officials said they have a mitigation plan for
               identified risks. A former PMU official told us the amount of cost
               increases that could potentially be prevented could vary
               widely--from zero to perhaps $100 million, depending upon the
               PMU's ability to mitigate the risk. Mitigating project risks could
               be challenging, particularly for potential events that are outside
               of the PMU's direct control. For example, according to a PMU
               official, if Ukraine revises regulations to require the new
               shelter to meet higher earthquake or tornado standards, then the
               amount of steel required for the new shelter--and the associated
               costs--would increase.

               Other possible risks that could increase project costs identified
               by CSF contributors and PMU officials include the following:

               o Delays may occur in Ukrainian regulatory approval of the new
               shelter design.

               o The price of steel, fuel, or labor might escalate faster than
               anticipated.

               o The needed Ukrainian labor force may not be available in
               sufficient numbers. Past medical screening for workers in high
               radiation areas found about half were not in acceptable health due
               to smoking, bad diet, ulcers, or other medical reasons. Also,
               ChNPP will have to find additional dosimetrists, who measure
               radiation levels, for the construction of the new shelter.

               o The Ukrainian labor force may not be available at the costs
               anticipated. PMU officials said the project has to pay premium
               wages to attract construction workers to the Chernobyl site
               because the workers prefer to work elsewhere and a building boom
               in Ukraine has heightened competition for workers with other
               employers.

               o The contaminated site exacerbates the question of whether a
               sufficient number of qualified workers can be found. Workers at
               Chernobyl must be replaced when they reach an annual radiation
               exposure limit, as specified by radiation safety standards. Also,
               more workers than anticipated might be needed if a partial
               collapse of the existing shelter were to increase the level of
               radioactive contamination level at the site.

               o Safety infractions by workers could delay the project. In 2005,
               for example, work was stopped when some workers were found to have
               internal radioactive contamination because they were breaking
               safety rules, such as smoking and eating in contaminated areas.

               o Transporting about 1,500 workers to Chernobyl and processing
               their access to the work site could create possible choke points
               that could potentially delay work.

               In addition, other risks and uncertainties associated with the
               Chernobyl shelter, although beyond the scope of the current
               project, could have long-term technical and cost implications.
               Specifically, while Ukraine has responsibility for remediating the
               large quantity of radioactive waste inside the destroyed reactor
               and maintaining the site, it is unclear whether Ukraine has the
               resources to complete these tasks. In the course of our technical
               evaluation of the Chernobyl Shelter Project, we identified several
               activities that will have to be addressed in the future--either by
               Ukraine or with continuing assistance from other countries.
               Specifically, we found the following:

               o The planned new shelter is just one part of an overall effort to
               make the Chernobyl reactor site environmentally safe. The existing
               shelter and the remains of the destroyed reactor must be
               dismantled and decommissioned. Radioactive waste from the site
               will need to be placed in both high-level and low-level storage
               locations. Until these facilities are built with sufficient
               capacity, waste--both liquid and solid--will have to be kept
               within the confines of the new shelter once it has been completed.

               o Ukraine will be responsible for dismantling the shelter.
               However, the final design for the actual process for dismantling
               the existing shelter is not complete. Furthermore, processes for
               keeping the radioactive dust stable while the existing shelter is
               being dismantled and limiting the impact of removing the roof of
               the existing shelter, including possible radiation exposure, are
               only conceptual in nature. Ukrainian experts told us they are
               concerned that removing the roof could be risky in terms of the
               possible contamination levels present at the time. These experts
               also noted that the technical challenges they may face are not
               well known and the costs of completing this task cannot be well
               quantified at this time.

               o Although dismantling the existing shelter will remove the
               important risk of the shelter collapsing, without a plan for
               dismantling and removing the waste from the site, the risk of
               collapse and release of radioactive materials will pass to the new
               shelter, which will be constructed to confine--not
               contain--radioactive material. The new shelter is designed to
               confine dust and keep the weather out, but it will not serve as a
               radiation shield.

               The international commitment to Chernobyl may not end with the
               completion of the new shelter, and expansions of the project's
               scope could be costly. For example, two donor officials noted that
               Ukraine has regularly raised the issue of assistance in removing
               the radioactive fuel within the shelter. This task is not within
               the shelter project's scope, although the new shelter is intended
               to facilitate Ukraine's ability to remove it in the future. A 1996
               study sponsored by the European Commission indicated that removing
               the radioactive fuel could increase estimated project costs by
               about 45 percent to 100 percent. In commenting on a draft of this
               report, State indicated its consistent position has been that the
               United States would not agree to a scope expansion for the
               Chernobyl Shelter Project.

               In addition, although Ukraine has agreed to fund the
               deconstruction of the existing shelter, the donors are responsible
               for funding the deconstruction design, equipment, and a
               radiological waste processing building as part of the Chernobyl
               Shelter Project. However, the undetermined scope of the
               deconstruction effort impacts the needed size and cost of the
               radiological waste processing facility for packaging the
               radioactive waste. Furthermore, there is a potential that
               additional stabilization measures for the existing shelter will
               have to be undertaken, which would raise costs. The Ukrainian
               regulatory agency approved the limited number of stabilization
               measures subject to the understanding that the new shelter would
               be completed on schedule, and therefore future delays in schedule
               may create the need to implement additional stabilization
               measures.

    			  Other Internationally Funded Construction Projects Have Experienced
    			  Significant Cost Overruns

               Officials from the United States, the European Commission, the
               United Kingdom, and Ukraine expressed concerns that the Chernobyl
               Shelter Project could follow the path of other internationally
               funded construction projects, including ones at Chernobyl, that
               experienced significant cost overruns. For example, a European
               Commission official told us it is common knowledge that all
               large-scale construction projects cost more than their original
               estimates. A United Kingdom official said he could not remember an
               internationally funded project that was completed under budget.
               Our own work in the area of large-scale construction projects
               bears out these concerns. For example, we have reported on the
               following recent instances of projects that have significantly
               exceeded cost estimates and experienced schedule delays and other
               construction-related problems:21

               o In 2004, we found that DOE estimates to build fossil fuel plants
               in Russia to replace aging and unsafe plutonium production
               reactors were likely to significantly exceed original cost
               estimates, possibly by over $500 million.

               o The United States has had difficulties with past major
               construction projects in Russia, such as the Chemical Weapons
               Disposal Facility at Shchuch'ye. Further, many of these projects
               have experienced dramatic cost increases, significant delays, or
               other major setbacks. At Shchuch'ye, for example, the estimated
               cost for the project increased from about $750 million to over $1
               billion.

               o DOE's costs to finish the partially constructed Chernobyl heat
               plant, which was needed to supply space heat to facilities to
               support the decommissioning of the other Chernobyl reactors, rose
               significantly. In 1997, based on a cost estimate from an earlier
               European Commission-sponsored study, DOE signed a cost-sharing
               agreement with Ukraine to complete the construction of the heat
               plant. The cost-sharing agreement stipulated that the United
               States would provide a maximum of $10.5 million to support the
               project. Subsequently, DOE found it necessary to conduct extensive
               project assessments to better estimate the total project's cost.
               Based on the assessments, DOE estimated the U.S. share of the heat
               plant project to be $29 million to $30 million--rather than the
               $10.5 million in the original agreement. Final U.S. costs were
               $32.5 million when the project was completed in 2001. According to
               the Pacific Northwest National Laboratory, which served as the
               project manager for the heat plant, its team had to overcome
               tremendous challenges to minimize schedule slippages and contain
               costs. The challenges included delays in design approvals by
               various Ukrainian agencies, delays in the purchase and delivery of
               various plant components, and less than aggressive support for the
               schedule by ChNPP.

    21GAO, Nuclear Nonproliferation: DOE's Effort to Close Russia's Plutonium
    Production Reactors Faces Challenges, and Final Shutdown Is Uncertain,
    GAO-04-662 (Washington, D.C.: June 4, 2004); Weapons of Mass Destruction:
    Effort to Reduce Russian Arsenals May Cost More, Achieve Less Than
    Planned, GAO/NSIAD-99-76 (Washington, D.C.: Apr. 13, 1999); and Nuclear
    Safety: Concerns with the Continuing Operation of Soviet-Designed Nuclear
    Power Reactors, GAO/RCED-00-97 (Washington, D.C.: Apr. 25, 2000).

               Ukrainian officials' concern with cost overruns is based on their
               conclusions about problems with internationally funded projects at
               Chernobyl. According to the ChNPP director, the Ministry of
               Emergency Situations tasked him with identifying and eradicating
               the root causes of the cost overruns and schedule delays occurring
               with all of the Chernobyl projects. In addition to the shelter
               project, his subsequent analysis covered three ongoing
               internationally funded projects that support the decommissioning
               of reactor units one, two, and three. Table 1 indicates the
               international funding and purposes of the three other projects, as
               well as the ChNPP director's data on schedule delays and cost
               increases.

    Table 1: ChNPP Director's Analysis of Schedule Delays and Cost Increases
    for Other Internationally Funded Construction Projects at Chernobyl, as of
    October 2006

                                                                      Increase
                                                          Initial     from
                                                          completion  initial
                                                          date        cost
                     Source of                            (current    estimate to
                     international                        estimated   current
    Project       funding         Project's purpose    date)       cost
    Interim spent Nuclear Safety  To decommission      2003        39 percenta
    fuel storage  Account         reactor units one
    facility      administered by through three, spent (no earlier ($85
                     EBRD            nuclear fuel must be than 2010)  million to
                                     removed from them.               $113
                                     The interim spent                million;
                                     fuel storage                     additional
                                     facility provides a              $150
                                     place to prepare the             million to
                                     removed fuel                     $200
                                     assemblies for                   million may
                                     storage and store                be needed
                                     them for up to 100               to complete
                                     years.                           project)
    Liquid        Nuclear Safety  To support           2001 (2008) 87 percent
    radioactive   Account         decommissioning,
    waste         administered by this plant is                    ($22
    treatment     EBRD            intended to process              million to
    plant                         liquid radioactive               42 million)
                                     waste currently
                                     stored at Chernobyl.
                                     The processing
                                     prepares the liquid
                                     for storage by
                                     transforming it into
                                     solid waste.
    Industrial    Program through Also to support      2004 (2008) 44 percent
    complex for   the European    decommissioning,
    solid         Commission      this complex will                ($42
    radioactive                   serve to manage                  million to
    waste                         solid waste                      $61
    management                    generated by reactor             million)
                                     operations, such as
                                     radioactively
                                     contaminated metal,
                                     concrete, plastic,
                                     wood, and paper. It
                                     will include a solid
                                     waste retrieval
                                     facility, a solid
                                     waste processing
                                     plant, and a
                                     repository for the
                                     disposal of
                                     short-lived
                                     radioactive waste.

    Source: ChNPP.

    aThis contract included both dollars and euros amounts. When we calculated
    it in only dollars using a 2006 exchange rate, the increase was 33 percent
    rather than the 39 percent indicated by the director's analysis. The
    differences may reflect the use of different exchange rates, which
    fluctuate over time.

    The ChNPP director concluded that these projects shared a common flaw that
    led to delays and cost overruns--a contract combining design and
    construction. He said this type of contract can result in a project
    proceeding to construction with a faulty design that results in costly
    changes during construction. Another ChNPP official, who had served as the
    deputy project manager for the interim spent fuel storage project, told us
    that a French company did not staff the project with the needed experts to
    design the spent fuel storage facility. Moreover, to save time and costs,
    building was begun before a final design was completed.22 When the ChNPP
    officials questioned this strategy, the contractor replied that they
    should not be concerned because under the design and construct contract,
    the contractor had ultimate responsibility for the project's success.
    Although ChNPP officials were not provided with final design documents to
    review, they finally recognized design deficits in the facility being
    constructed. The contractor had designed the facility to hold mock fresh
    fuel rather than real spent fuel, which takes on different dimensions
    during use.

    As a result of the design flaws built into the interim spent fuel storage
    facility, the project's estimated costs were about $28 million over its
    original budget when physical work was suspended in 2003. The
    facility--for which about $96 million has already been spent--is still not
    operational. According to the ChNPP director, another $150 million to $200
    million is needed to modify or completely rebuild the facility. Figure 5
    shows the incomplete spent fuel storage facility at Chernobyl.

    22GAO has noted that this can be a risky strategy. We have reported on the
    construction of a nuclear waste treatment plant in the United States that
    similarly experienced high cost overruns because, among other things,
    construction was started before design and technology development was
    completed. The U.S. Department of Energy's project management guidance
    cautions that concurrent design and construction should only be used in
    limited situations, such as when work scope requirements are well defined,
    projects are not complex, and technical risks are limited. GAO, Hanford
    Waste Treatment Plant: Contractor and DOE Management Problems Have Led to
    Higher Costs, Construction Delays, and Safety Concerns, GAO-06-602T
    (Washington, D.C.: Apr. 6, 2006).

    Figure 5: The Interim Spent Fuel Storage Facility at Chernobyl

    The Chernobyl director told us he is concerned that the construction of
    the new shelter will experience the same cost increases and delays as the
    other Chernobyl projects. One reason for his concern is that the new
    shelter contract combines design and construction, as did the contracts
    for the other three projects. Moreover, he stated that some companies in
    the Novarka consortium are the same companies that failed to complete the
    other Chernobyl projects on time and within budget.

    Although they acknowledge that the interim spent fuel storage facility
    project suffered from technical design flaws, insufficient project
    oversight, and rising costs, EBRD and PMU officials told us the new
    shelter contract was structured to avoid repeating these problems.
    According to the PMU managing director, the bidding consortiums have the
    technical capacity to successfully complete the project. The proposal
    evaluation committee reviewed qualifications and designated both bidding
    consortiums as technically qualified to fulfill the contract. Moreover,
    despite combining design and construction tasks, the new shelter contract
    requires the contractor to provide the full scope of the design before
    construction begins, with the exception of some site preparation. ChNPP
    officials will review the design and either give preliminary approval or
    require it to be revised. After the ChNPP officials preliminarily accept
    the design, it will be sent to the Ukrainian regulators to determine
    whether it is compliant with Ukrainian laws, rules, and regulations. Only
    after the regulators authorize construction will ChNPP officials give
    approval to start construction. In addition, the contract includes some
    incentives for the contractor to minimize the new shelter's costs, such as
    optimizing the design to limit the amount of needed steel and concrete.

    State Has No Direct Management Responsibilities for the Chernobyl Shelter
    Project but Has Played a Key Role in Providing Funding

    State, which is the lead U.S. government agency for the Chernobyl Shelter
    Project, has no formal role in directly managing the project. In addition,
    State's ability to control the project's activities is restricted because
    all major decisions must be based on a consensus of the assembly of
    contributors. However, State has had a key role in funding the project,
    which may be more difficult in the future. Appropriations to the FREEDOM
    Support Act, which provide U.S. funding for the project, have been
    decreasing, and current pledges from all donor governments and interest
    earned on the CSF are insufficient to cover the current estimated cost of
    $1.2 billion. As a result, an additional request for funding by the donors
    is likely. Because some donor governments are not expected to increase
    their pledges beyond what they have already provided, the United States
    and other donors might be asked to contribute an even larger share of
    funds in the future. Even though costs have been increasing and the
    project is experiencing delays, State has not reported detailed
    information about the project's status and cost estimates to Congress.

    The State Department Relies on EBRD to Oversee and Manage the Project

    State does not have a direct management or oversight role on the project
    and, similar to other contributors, depends on EBRD to oversee and manage
    the CSF. State's role is defined by the international structure of the
    project that was agreed to by the donors at the beginning of the project.
    Responsibility for administering and overseeing the CSF was assigned to
    the EBRD in 1997 by the donors, limiting the United States and other
    donors' role. EBRD oversees and manages the project, as specified in bank
    rules for the CSF and bank agreements with Ukraine and ChNPP. Although the
    PMU has overall responsibility for day-to-day project management, the PMU
    regularly reports to EBRD on project progress and seeks its nonobjection
    for any decision or change that might impact the project's cost or
    schedule.

    Although State does not directly oversee and manage the project, the
    agency seeks to exert influence, to the extent possible, as the lead U.S.
    representative to the assembly of contributors. The assembly is the formal
    interface between donor governments and the EBRD and provides the forum
    for receiving official updates on the status of the project and the CSF.
    The assembly also provides approval for contract awards, major funding
    allocations and transfers, and any changes to the CSF structure and rules.
    However, despite State's efforts, the assembly structure makes it
    difficult for State to exert greater control because, among other things,
    a consensus of the voting assembly members is required for all major
    decisions.

    State also seeks to address Chernobyl shelter issues by monitoring
    developments that affect the project and works closely with the EBRD and
    other donor governments to try to anticipate and resolve issues affecting
    project performance. For example, State officials told us they provided
    critical leadership for encouraging donor support during the 2005 pledging
    event, and continue to work closely with EBRD and the other G-7
    governments to support the project.

    A key aspect of State's role is to support the allocation of U.S. funds to
    the CSF.23 These funds are provided as a grant and do not contain any
    conditions on their use. The CSF rules prohibit donors from specifying how
    their governments' payments will be spent on the project. As a result,
    donor governments rely on EBRD to monitor project expenditures and ensure
    that the funds are used to support legitimate project objectives. In the
    view of State officials, the Chernobyl Shelter Project does not differ
    from other multilateral nuclear safety projects administered by EBRD. For
    example, State also donates funds to the multilateral nuclear safety
    account that provides funding to improve the safety of Soviet-designed
    nuclear reactors. That account is also administered by EBRD, and State
    officials told us they cannot place specific conditions on the use of the
    funds it provides. However, State officials told us that establishing
    benchmarks that would link any additional pledging of funds to specific
    progress in meeting the project's performance goals would be a useful
    management tool. They also noted that the other major donor governments
    would have to concur and cooperate with such an approach for it to be
    successful.

    23Within State, the Office for U.S. Assistance for Europe and Eurasia has
    responsibility for determining the level of FREEDOM Support Act funding to
    CSF. To make funding decisions, that office coordinates with State's
    Office of Nuclear Energy, Safety and Security, which has responsibility
    for the policy and subject matter related to nuclear safety for the
    project and CSF and has the lead for U.S. representation in the assembly
    of contributors.

    Despite these limitations on its formal role in the project, State, in
    concert with the U.S. Embassy in Kyiv, has taken steps to try to keep the
    Chernobyl project moving forward. The U.S. Embassy plays a critical role
    in monitoring the SIP progress and takes a lead in working with the other
    major donor countries' embassies to engage Ukrainian officials in
    resolving project issues. Additionally, within the assembly of donors,
    State took the lead in identifying a strategy to mediate an impasse
    between EBRD and Ukraine over the next steps in awarding the contract for
    the new shelter. Specifically, at an October 2006 assembly meeting, State
    proposed the participation of four observers, including one selected by
    Ukraine, to monitor contract negotiations between the PMU and the Novarka
    consortium. This strategy, which was adopted by the assembly, was designed
    to allow the contracting process to proceed in accordance with EBRD
    procurement rules, while encouraging greater Ukrainian trust in the
    process and acceptance of its outcome.

    Additional U.S. Funding Will Likely Be Requested to Complete the Project

    Additional U.S. funding will likely be requested for completing the
    Chernobyl Shelter Project because of an existing funding shortfall and the
    likelihood of continued cost increases. According to a PMU analysis in
    late 2006, a funding gap of about $190 million existed between the total
    amount pledged by donors and the current $1.2 billion estimate to complete
    the Chernobyl Shelter Project. Furthermore, the estimated gap could change
    markedly because of the uncertainties in both the project's estimated
    final costs and the available CSF funds, according to EBRD and PMU
    officials.24

    Typically, the donors have committed additional funding through formal
    funding conferences. To date, there have been three such conferences, and
    the United States has pledged funds at all three of these conferences.
    Table 2 shows the amounts pledged by the United States since the inception
    of the Chernobyl Shelter Project.

    24This funding shortfall is the most current official estimate provided to
    us by PMU officials. However, PMU officials indicated that the estimated
    funding gap will fluctuate up and down with changes in such factors as
    exchange rates, interest earned on the CSF, and revised project cost
    estimates.

    Table 2: U.S. Pledges to the Chernobyl Shelter Project

    Year  Pledge amount (millions)
    1997                       $78
    2000                       $80
    2005                       $45
    Total                     $203

    Source: State Department.

    Regardless of the potential amount of additional funding needed to
    complete the project, the share of funding that will be requested from the
    United States and other donors will likely increase because some donors
    will not make any additional contributions. According to State, United
    Kingdom, and European Commission officials, donor representatives face a
    difficult task justifying to their governments further contributions
    because of the ongoing delays in awarding the new shelter contract, the
    lack of visible progress on the new shelter, and the lack of a firm
    estimate for project costs.

    Officials from State and the United Kingdom also told us that they
    anticipate many donors may not have the resources--or may no longer be
    willing--to provide additional funds. Assuming the past patterns of
    donations shown in figure 6, the loss of funds from some or all the 21
    governments with smaller shares of the contributions could reduce
    donations of additional funds up to 12 percent. If some G-7 countries or
    the European Commission also decide not to provide additional funding,
    then some of the remaining donors would have to provide contributions at a
    significantly higher level than their historic share. The signers of the
    1995 memorandum of understanding regarding Chernobyl--the G-7 countries
    (the United States, Canada, Japan, France, Germany, Italy, and the United
    Kingdom), the European Commission, and Ukraine--have provided the bulk,
    about 88 percent, of the total funding for the Chernobyl Shelter Project.
    More specific data on the percentages of donor governments' contributions
    can be found in appendix III.

    Figure 6: Chernobyl Project Contribution Agreements from the European
    Commission, United States, other G-7 countries, Ukraine, and 21 other
    countries, as of September 2006

    Notes: Ukraine's contribution includes both cash and in-kind
    contributions. Percentages do not total to 100 because of rounding.

    Officials from State and the United Kingdom told us that donors might
    agree to provide additional funds if the prospects of the project's
    successful completion appear more certain. According to a United Kingdom
    official, his country would likely be willing to pledge more money, but
    only when (1) it has confidence in the project's cost estimates, which
    will not likely occur until the final design of the new shelter is
    complete; and (2) it can expect its contribution to be part of an
    international effort to pledge more. Similarly, a State official told us
    that additional funding would be easier to justify if the project was
    almost complete and only a small amount of additional funding were needed.

    Ultimately, political considerations may play a large part in donor
    governments' decisions, including the United States', on whether to
    continue funding the project. For example, according to a United Kingdom
    official, donor governments want to avoid the negative political attention
    from not assisting Ukraine in completing this project. Further, he said
    that withdrawing support would be difficult for some governments whose
    support is part of a broader foreign policy objective.

    Decreasing FREEDOM Support Act Funding Could Impact Future U.S. Contributions to
    the Chernobyl Shelter Project

    To date, the United States has pledged $203 million to the CSF and has
    contributed about $154 million ($169 million adjusted for inflation)
    through 2006.25 State officials currently plan to allocate about $20
    million for each of fiscal years of 2007 and 2008 and $9 million for
    fiscal year 2009 to fulfill the remaining $49 million of the total $203
    million U.S. commitment. These payments of $49 million may require State
    to reduce funding to other programs supported by the FREEDOM Support Act
    because funding under the act has been decreasing. Under the FREEDOM
    Support Act, State divides appropriations among many programs--including
    efforts to halt the proliferation of nuclear, biological, and chemical
    weapons--across the 12 countries covered by the law, including Ukraine.
    Further, according to State's foreign assistance coordinator for Ukraine,
    there is no alternative funding source for CSF other than the FREEDOM
    Support Act.

    According to State officials, if the FREEDOM Support Act funds continue to
    decline and if additional pledges beyond the $203 million are requested,
    the United States could face three difficult funding options:

               o Maintain Chernobyl Shelter Project funding using a larger
               proportion of the declining FREEDOM Support Act funds.

               o Identify another funding stream. According to State officials,
               since they have not been able to identify any alternative existing
               fund source, State might have to approach Congress for a
               stand-alone appropriation to provide the funds.

               o Determine that the United States will provide no further
               contributions beyond the $203 million pledged.

               Since State may need to approach Congress for additional funding,
               Congress will need more information than currently provided. State
               does not provide Congress with detailed information on the project
               or its financial requirements. State officials told us the
               department does not notify Congress before pledging additional
               funds to the project but makes all pledges subject to the
               availability of funds through the congressional appropriations
               process. State does provide Congress with a brief statement about
               its continuing financial support for the shelter project in its
               annual congressional budget justification for foreign assistance.
               For example, State's budget request documents for fiscal year 2007
               state that a higher proportion of FREEDOM Support Act funds in
               fiscal year 2007 will go to the Chernobyl Shelter Project.
               Although USAID provides Congress with more detailed background and
               status information, its congressional notification memo is for the
               purpose of initiating a payment to the Chernobyl Shelter Fund and
               not for the purpose of identifying appropriation needs.

    25This contribution amount includes installment payments totaling about
    $142 million into the CSF and credit for an in-kind contribution of about
    $12 million, which DOE spent to improve the safety of the Chernobyl
    shelter.

               In our view, it is in the interest of all the major participants
               involved--including the United States--to see the Chernobyl
               Shelter Project completed as soon as possible. However,
               tensions--particularly between Ukrainian officials and EBRD
               representatives, and over the project's lack of progress, its
               potentially higher costs, and management difficulties--could
               result in further delays or even, in a worst case-scenario, the
               termination of the project. Therefore, it is incumbent upon all of
               the major participants to find a cooperative and constructive path
               forward. Failure to advance this project--given the condition of
               the existing shelter and the significant financial investment made
               by the United States and others--is neither desirable nor
               acceptable. We believe the United States--as the largest
               single-country donor to the project--has an important role to play
               in determining the outcome of the project. However, the U.S.
               financial commitment should not be open ended. Thus far, the
               United States has not placed conditions on the contributions made
               to the Chernobyl Shelter Fund--that is, specific benchmarks tied
               to tangible progress toward project completion--and it has not
               placed any caps or limitations on future funding levels. In our
               view, without a set of benchmarks linked to clearly defined
               project outcomes, the chances for project success are diminished
               and the United States is left without a clear idea of when, and at
               what cost, the Chernobyl shelter will be completed.

               Conclusions

               We are also concerned that donors' confidence in the cost
               estimates must be raised to ensure continued international
               support. Validations of major cost estimate revisions would be one
               way to increase the transparency of these estimates and donors'
               confidence in them. While we do not question the expertise of the
               analyses that have been done so far, it would seem reasonable to
               enlist the support of another organization--outside the Chernobyl
               management structure--to undertake an independent review. Given
               that EBRD has already contracted with outside audit groups to
               review project management issues, there is adequate precedent to
               pursue a similar course with respect to future cost revisions.

               For over a decade, the United States has shown a strong financial
               commitment to completing the Chernobyl Shelter Project. However,
               total funds pledged are insufficient to meet the project's current
               cost estimates. Further, if additional money is needed--beyond the
               current $1.2 billion forecast to complete the project--State may
               need to find additional funding because funds provided by the
               FREEDOM Support Act have been diminishing. Moreover, the need to
               rely on additional U.S. funding to meet future shelter commitments
               may be exacerbated because of the uncertainties surrounding
               continued financial support from other donors. At the same time,
               the United States should consider the limits to its commitment if
               the project does not show significant progress and becomes
               excessively expensive. Assessing the project's progress and total
               costs will be important before committing additional funds beyond
               those already pledged, particularly after a more precise estimate
               of total costs is developed following the completion of the final
               new shelter design. As the project moves into the most expensive
               single task of constructing the new shelter, legitimate concerns
               about further schedule delays, cost increases, and funding gaps
               means that State needs to provide more accountability and
               transparency over U.S. contributions. To date, the information
               that State provides to Congress does not give a full accounting of
               the status of the project, including potential cost increases and
               delays. Since State may need to approach Congress for additional
               funding, Congress will need more information than currently
               provided through the department's annual congressional budget
               justification for foreign assistance.

    			  Recommendations for Executive Action

               To help ensure that the United States has a clear and consistent
               strategy--as well as a sound basis for continuing to support the
               Chernobyl Shelter Project--we recommend the Secretary of State,
               working in consultation with other contributors and EBRD, consider
               the following four actions:

               o Establish specific performance benchmarks for the project that
               need to be met before additional pledges of funds are made in the
               future.

               o Periodically review and revise the benchmarks to ensure they are
               relevant and applicable to the project's performance goals and
               time frames.

               o Obtain an independent validation of major revisions to cost
               estimates.

               o Develop a contingency strategy for obtaining the additional
               funding that may be needed to complete the project. The strategy
               should include encouraging other major donor countries and the
               European Commission to also contribute additional funding.

               Furthermore, to increase State's accountability and transparency
               for funding the project, the Secretary of State should provide a
               detailed annual report to Congress about the status of the
               project, including project costs, project milestones, and
               estimated completion dates.

    			  Agency Comments and Our Evaluation

               We provided the Department of State and the U.S. Agency for
               International Development (USAID) with draft copies of this report
               for their review and comment. State's comments are presented as
               appendix IV and USAID's are presented as appendix V.

               In their written comments, both State and USAID generally agreed
               with the draft report. Specifically, State noted that it provided
               useful insights into the complex history and management of the
               Chernobyl Shelter Project and acknowledged that devising a plan to
               meet a certain funding shortfall was needed. Furthermore, State
               generally agreed with our recommendations to help ensure that the
               United States has a clear and consistent strategy and a sound
               basis for continuing to support the Chernobyl Shelter Project.
               USAID concurred with our analysis that the project has experienced
               significant delays and may face potential cost increases.

               However, both State and USAID raised some concerns about our
               recommendation that State--working in consultation with other
               contributors and the European Bank for Reconstruction and
               Development--establish specific benchmarks for the project that
               need to be met before additional funds are made available for the
               project. Both agencies asserted that linking the availability of
               additional funds to specific performance benchmarks requires
               careful consideration because it could lead to further project
               delays or increase costs. While recognizing that benchmarks could
               provide a useful management tool, State also noted that that the
               United States and other donors would need to evaluate whether the
               benefits offset the potential negative impacts. In addition, USAID
               asserted that our recommendation did not clearly identify which
               funds would be subject to the benchmarks.

               We strongly believe that our recommendations regarding the
               establishment of performance benchmarks are prudent given the over
               10-year history of the Chernobyl Shelter Project that has been
               marked by significant project delays and cost increases. In our
               view, performance benchmarks would introduce additional rigor and
               discipline into the Chernobyl Shelter Project, which can only help
               improve the project's
               chances of success and reinforce contractor-related project
               milestones and schedules. We agree, however, with USAID's point
               that our recommendation should more clearly identify which funds
               should be subject to performance benchmarks. We have clarified the
               recommendation to indicate that additional pledges in the future
               should be benchmarked.

               Although State concurred with our recommendation to obtain an
               independent validation of major revisions to cost estimates, it
               asserted that that the United States and other donors would need
               to determine if the benefits of this validation offset the
               potential delays and increased costs. We believe that an
               independent cost validation could strengthen donors' confidence
               that the project costs are realistic and achievable.

               Although State agreed with our recommendation to provide a
               detailed report to the Congress about the status of the Chernobyl
               Shelter Project, it asserted that a two year reporting
               requirement--rather than an annual cycle--should be implemented.
               We believe that the Congress needs timely information about the
               project and think that an annual report would be the most
               appropriate mechanism to achieve this.

               Finally, State provided two technical points in its written
               comments. First, State indicated its consistent position that the
               United States would not agree to a scope expansion for the
               Chernobyl Shelter Project. We have incorporated language in our
               report to reflect State's position. Second, State disputes our
               statement that the U.S. government costs for the Chernobyl heat
               plant rose significantly. As we note in the report, DOE entered
               into this initial agreement with Ukraine for a maximum U.S.
               contribution of $10.5 million. The final U.S. cost for the project
               totaled $32.5 million--a significant increase from the initial
               estimate.

               As agreed with your office, unless you publicly announce the
               contents of this report earlier, we plan no further distribution
               until 30 days from the report date. At that time, we will send
               copies to the Secretary of State, the Acting Administrator of the
               Agency for International Development, interested congressional
               committees, and other interested parties. We will also make copies
               available to others on request. In addition, the report will be
               available at no charge on the GAO Web site at http://www.gao.gov.

               If you or your staff have any questions about this report, please
               contact me at (202) 512-3841 or aloisee@gao.gov. Contact points
               for our Offices of Congressional Relations and Public Affairs may
               be found on the last page of this report. GAO staff who made major
               contributions to this report are listed in appendix VI.

               Sincerely yours,

               Gene Aloise
    			  Director, Natural Resources and Environment

    			  Appendix I: An Analysis of the Chernobyl Nuclear Power Plant Accident

               This appendix provides technical information about the root causes
               and impacts of the Chernobyl Nuclear Power Plant (ChNPP) accident
               that occurred in April 1986.

               There is little controversy as to whether the accident at the unit
               four reactor of the Chernobyl Nuclear Power Plant on April 26,
               1986, still stands as the worst nuclear accident in history. The
               exact reasons for the accident may not ever be fully known, as the
               primary source of evidence-- the reactor itself-- was destroyed,
               and the remaining evidence is still being interpreted. However,
               the failures that led to the explosion and resulting fire at the
               ChNPP unit four reactor fall into two categories: (1) system
               design weaknesses and (2) the numerous overrides of safety systems
               and violations of both written protocols and general principles,
               such as not operating a reactor outside of its licensed design
               parameters. Ironically, the accident at Chernobyl occurred outside
               normal operation of the reactor during a test designed to assess
               the reactor's safety margin in the event of a loss of electricity
               from the external power grid. The test protocol required less than
               full reactor power and was scheduled just prior to a routine
               shutdown of the reactor.

    			  Nuclear Reactors

               In most electric power plants, water is heated and converted into
               steam, which drives a turbine-generator to produce electricity.
               Fossil-fueled power plants produce heat by burning coal, oil, or
               natural gas. In a nuclear power plant, the fission1 of uranium2
               atoms in the reactor provides the heat to produce steam for
               generating electricity.

               Several commercial reactor designs are currently in use in the
               United States. The most widely used design consists of a heavy
               steel pressure vessel surrounding a reactor core.3 The reactor
               core contains the uranium fuel.4 The fuel is in the form of
               cylindrical ceramic pellets about one-half inch in diameter that
               are sealed in long metal rods called fuel rods. The rods are
               arranged in groups to make a fuel assembly. A group of fuel
               assemblies forms the core of the reactor.

    1Fission is a nuclear reaction in which a nucleus is split into fragments,
    usually two pieces of comparable mass, accompanied by a release of energy.

    2Uranium is a heavy metallic element that is naturally radioactive. It can
    be processed for use in research, nuclear fuels, and nuclear weapons. Its
    atomic number is 92, and it has 92 protons and 92 electrons. Uranium has
    several isotopes, the most abundant being U-238. However, U-235, as the
    fissile component of uranium, is the most important because it is usable
    as nuclear reactor fuel. U-235 is not very abundant and must be enriched
    for use in most nuclear power plants.

    3The reactor core is the center of a nuclear reactor, and it contains the
    fuel that runs the reactor and the control elements.

               Heat is produced in a nuclear reactor when neutrons5 strike
               uranium atoms and cause them to fission in a continuous chain
               reaction.6 Control elements7 made of materials that absorb
               neutrons, are placed among the fuel assemblies. When the control
               rods are pulled out of the core, more neutrons are available and
               the chain reaction speeds up, producing more heat. When they are
               inserted into the core, more neutrons are absorbed, and the chain
               reaction slows or stops, reducing the heat.

               Most commercial nuclear reactors in the United States use ordinary
               water to slow down, or "moderate," the neutrons that maintain the
               fission process. These are called light water reactors. In this
               type of reactor, the chain reaction will not occur without the
               water to serve as a moderator. The water also serves to remove the
               heat created by the fission process. In the United States, two
               different light water reactor designs are currently in use, the
               Pressurized Water Reactor8 and the Boiling Water Reactor.9

               The nuclear fission reactors used in the United States for
               electric power production are classified as "light water reactors"
               in contrast to the "heavy water reactors" used in Canada. Light
               water (ordinary water) is used as the moderator in U.S. reactors
               as well as the cooling agent and the means by which heat is
               removed to produce steam for turning the turbines of the electric
               generators. The use of ordinary water makes it necessary to do a
               certain amount of enrichment of the uranium fuel before the
               necessary criticality of the reactor can be maintained.

    4Fuel is the fissionable material used in a nuclear reactor. It is
    contained in sealed fuel rods within the reactor core.

    5Neutron is a neutral, or uncharged, particle that is stable when
    contained in the nucleus. It combines with protons, which are positively
    charged subatomic particles, to form the nucleus of nearly any given atom.

    6Chain reaction is a nuclear reaction consisting of a self-sustaining
    series of fissions, in which the average number of neutrons produced
    exceeds the number absorbed or lost.

    7A control element is a device used to control the power level of a
    nuclear reactor by absorbing neutrons and thereby controls the chain
    reaction taking place inside the reactor.

    8Pressurized Water Reactor is a type of power producing reactor that keeps
    the water surrounding the core under pressure. When the pressurized water
    is heated by the reactor, it is sent to a heat exchanger, which boils
    water that is kept at a lower pressure. This steam is then sent to a
    turbine to generate electricity.

    9Boiling Water Reactor is a type of power producing reactor that boils
    water directly in the core; steam is then sent to a turbine to generate
    electricity.

               The Reactor Design

               The ChNPP unit four reactor is a Soviet-designed RBMK (reactor
               bolshoy moshchnosty kanalny, or in English, high-power channel
               reactor). The RBMK is a pressurized water reactor with individual
               fuel channels that uses ordinary water (as opposed to heavy water)
               as its coolant and solid graphite (a form of carbon), a very pure
               form of the same graphite found in pencils, as its moderator. Its
               design is derived from the original reactor design of Enrico Fermi
               that initiated the first sustained and controlled nuclear fission
               chain reaction under Stagg Field at the University of Chicago on
               December 2, 1942. This use of a graphite moderator and water
               coolant is found in no other nuclear power reactors and makes the
               reactor unstable at low power levels, which greatly contributed to
               the unit four accident.

               The RBMK reactors were favored by the former Soviet Union
               primarily because, in addition to producing both power
               (electricity and heat) and plutonium (as do all thermal fission
               reactors that have U-238 in their fuel matrix), they were able to
               be refueled while the reactor was still running and not shutdown.
               This ability was important to the Soviet Union's national
               security.

               Fission reactors, including the RBMK at Chernobyl, contain fuel
               rods. Unit four at Chernobyl used zircaloy tubes 3.65 meters long
               filled with pellets of enriched uranium (U-235) oxide. The fuel
               rods were combined into cylindrical assemblies (10 meters long) in
               a carriage, 2 sets of 18 rods per assembly. To allow the reactor
               to be refueled while still operating, the assemblies could be
               physically put in and taken out of the reactor by a mechanical
               lift. These assemblies were in individual fuel channels, cooled by
               the pressurized water. The channels were within graphite blocks,
               which acted as the moderator. A moderator slows down fission
               neutrons, thereby allowing the fission chain reaction to continue.
               Also, mixed helium and nitrogen gas increased the graphite's heat
               transfer. Boron carbide control rods, which also absorb neutrons,
               were inserted into the core to (1) control the rate of fission;
               (2) maintain an even distribution of energy across the entire
               reactor; and (3) allow automatic, manual, and emergency control.
               Detectors inside the core monitored for any deviation from the
               reactor's normal operations and would indicate whether the control
               rods should be engaged to reduce or stop the fission reaction.
               Some of the control rods would always be engaged during normal
               reactor operations. The entire reactor core is housed in the
               concrete reactor vessel that served as a radiation shield and had
               a steel pile cap that also supported the fuel assemblies.

               All RBMK reactors, such as the ChNPP unit four, have a positive
               void coefficient, which results in the reactors being unstable at
               low power and having a tendency toward power surges. Other reactor
               designs have positive void coefficients as well, but they, unlike
               the RBMKs, have compensating design features to maintain
               stability. A void coefficient can occur in any water-cooled
               reactor. A void is a pocket of steam that forms in a water
               channel. The more steam that is created, the more voids that form;
               the more voids that form, the more the reactor operation varies,
               because steam is not an efficient coolant and can neither serve as
               a moderator nor neutron absorber. Water can serve all three
               functions: cooling, moderating, and neutron absorption. A positive
               void coefficient means that the excess steam increases power
               generation, and a negative void coefficient means that the excess
               steam decreases power generation. RBMK reactors have a high
               positive void coefficient; this means that the power generation
               can increase rapidly and, as a result, generate more steam, which
               in turn increases the power generation in an ultimately
               uncontrollable process. This process cycle can occur very quickly,
               as was seen at Chernobyl, where the reactor power peaked at a
               hundreds of times its normal, full-power rating. The reason for
               the high void coefficient in the RBMK reactors is that the
               moderator (graphite) and the coolant (water) are in separate
               channels. As the steam increases, the reactor gets hotter, but the
               moderator is unaffected by the steam, and the fission reaction
               continues. In fact, since the neutron-absorbing capacity of the
               water is an operating characteristic, the increased amount of
               steam increases the number of free neutrons, which increases the
               fission reaction.

               Moreover, the graphite itself is a design weakness in that, while
               being more efficient for weapons making and a fairly effective
               moderator, it does not endure extreme temperatures very well.
               Graphite, which is carbon based, will burn in the core if it is
               exposed to air. If the graphite burns, the neutrons will hit at a
               greater velocity, causing more heat to be produced. Great care
               must be taken to keep air away from the core. Additionally, there
               was no containment vessel at the Chernobyl plant. In all U.S.
               nuclear power plants, there is a mandatory cement and steel
               reinforced containment "bubble" covering the core and other
               components. Unit four had a pressure seal designed to keep the
               pressure in, but no containment vessel in case of an explosion.
               Containment structures are intended to withstand and contain the
               energy and material released from a reactor during an accident or
               incident. These materials could include radioactive gases (such as
               xenon and krypton), volatilized fission products and other
               elements, and solid material ejected from the core in the event of
               a full-scale core excursion. A core excursion could include, for
               example, a melt-down and loss of reactor vessel or primary system
               integrity.

               Finally, as will be explained in the next section, there were
               errors in operating the reactor, including inadequate knowledge of
               the reactor characteristics, and ignorance or avoidance of
               operating regulations, beginning with the nonroutine operation of
               the reactor.

    			  Safety Margin Test of the ChNPP Unit Four Reactor

               Nuclear power plants need electricity. While the reactor generates
               power, the various systems that support the reactor operation need
               power from outside the plant. Thus, these systems need backup
               power in order to function should the outside power source be
               interrupted. Backup power can come from at least two sources: (1)
               the reactor itself can be used to provide this power and (2)
               backup generators can serve as an alternative power source.
               Problems arise if the reactor is not producing power--as was the
               case at Chernobyl, since it was in the process of routine
               shutdown--or if the time lag between power loss and generator
               startup is too long. The ChNPP safety margin test was designed to
               test this time lag. The reactor's power level was to be lowered to
               see whether the turbine itself would have enough residual inertia
               to pump coolant through the rector core, in combination with the
               existing coolant convection, until the backup generators started
               and provided electricity.

               The test preparation sequence began almost 24 hours prior to the
               accident, at approximately 1 a.m. on April 25, 1986. The reactor's
               power level was gradually reduced to 1600 MW(t) by 2 p.m. the same
               day. This level was maintained until 11 p.m. During this period,
               the emergency core cooling system was isolated so that it would
               not interfere with the test. This did not directly contribute to
               the accident but could have reduced its impact. The power level
               was lowered again starting at midnight, April 26, and about 30
               minutes later, the reactor was at 700 MW(t), which is now
               understood to be the minimum safe operating level for an RBMK due
               to the positive void coefficient. The reactor was then reduced to
               500 MW(t), at which point, either due to human error or system
               failure, the reactor did not hold at its required level and
               dropped quickly to 30MW(t). In response, the operator tried to
               restore power by pulling out some of the control rods. Although it
               is not known exactly how many control rods remained in the
               reactor, there is general agreement that the number left was less
               than 26 and would have required the chief engineer's approval for
               continued operation. By 1 a.m. on April 26, the reactor power was
               up to 200 MW(t). During the next 20 minutes, additional pumps were
               engaged to increase water flow to the reactor core, which
               decreased the water level in the steam separator. The automatic
               trip systems were disengaged in order to continue reactor
               operations. The feed water flow was increased to counter the
               problems in cooling. Some manual control rods were retracted,
               which may have reduced the number of control rods below the
               minimum effective number. The feed water flow was reduced to
               increase the steam separator water level, but this also decreased
               the core cooling, which caused steam generation in the core. All
               evidence suggests that the reactor indicators showed that it was
               stable, although in an abnormal operation state.

               Thus, the actual test began at approximately 1:23 a.m. on April
               26, 1986. The feed valves for the turbine were closed to make the
               turbine continue under its own inertia. Automatic control rods
               were lifted to counter the reduced reactivity due to the valve
               closures. This did not, however, decrease the volume of steam as
               expected. The steam generation increased, which, due to the
               positive void coefficient, increased power. The steam continued to
               increase unabated. The reactor operator engaged the control rods,
               which, due to their inefficient design, concentrated the
               reactivity in the bottom of the core. The reactor power rose to
               approximately two orders of magnitude greater than the reactor was
               designed for, which resulted in the fuel pellets fracturing,
               producing a pressure wave as the fragments reacted with the
               cooling water rupturing the fuel channels. This was followed by
               two explosions, the first of steam, and the second of fuel vapor
               that lifted the pile cap, introducing air that turned into carbon
               monoxide as it reacted with the graphite. Finally, the carbon
               monoxide ignited, starting a reactor fire. This entire sequence
               took approximately 24 hours; however, the time from test
               initiation to explosion took approximately 1 minute. The fire was
               eventually put out after tons of materials were dropped on the
               reactor and after many lives were lost.

               Regarding the release of radionuclides, an International Atomic
               Energy Agency (IAEA) report has a sobering summary. The report
               noted that in the initial assessment of releases made by the
               Soviet scientists and presented at the IAEA Post-Accident
               Assessment Meeting in Vienna, it was estimated that 100 percent of
               the core inventory of the noble gases (xenon and krypton) was
               released. In addition, between 10 percent and 20 percent of the
               more volatile elements of iodine, tellurium and cesium were
               released as well. The early estimate for fuel material released to
               the environment was 3 percent, plus or minus 1.5 percent. This
               estimate was later revised to 3.5 percent, plus or minus 0.5
               percent. This corresponds to the emission of 6 tons of fragmented
               fuel.

               According to IAEA, the accident resulted in more than 5 million
               people living in areas of Belarus, Russia, and Ukraine that are
               classified as "contaminated" with radionuclides (above 37 kBq10
               per square meter of cesium-137). Among them, about 400,000 people
               lived in more contaminated areas--classified by Soviet authorities
               as areas of strict radiation control (above 555 kBq per square
               meter of cesium-137).

               There are wide-ranging estimates from various organizations about
               the death toll from the Chernobyl accident. According to IAEA, the
               World Health Organization, and Greenpeace, people did die at
               Chernobyl and people will continue to die from the effects of
               Chernobyl. This, when coupled with the vast contaminated areas of
               the former Soviet Union, makes Chernobyl the worst nuclear
               accident in history.

    10A becquerel (Bq) is the international unit of radioactivity that equals
    one nuclear decay per second.

               Appendix II: Objectives, Scope, and Methodology

               This report (1) assesses progress in an internationally funded
               project to construct a new shelter over the damaged reactor at the
               Chernobyl Nuclear Power Plant in Ukraine and factors that impact
               the completion of its construction, (2) reviews the cost estimates
               to complete the project, and (3) assesses the U.S. role in
               overseeing the project and in funding it through the Chernobyl
               Shelter Fund (CSF).

               To address these objectives, we conducted fieldwork in the United
               States and internationally. In the United States, we focused our
               review primarily on the Department of State (State) in Washington,
               D.C., since it is the lead U.S. agency for overseeing and funding
               the project. We also contacted officials and reviewed
               documentation from the U.S. Agency for International Development
               (USAID) in Washington, D.C., which administers the U.S. payments
               to the CSF. For historical and background perspectives, we met
               with officials from the U.S. Nuclear Regulatory Commission in
               Rockville, Maryland, and the Department of Energy in Washington,
               D.C., agencies which had more predominant roles in earlier phases
               of the Chernobyl Shelter Project. In addition, we coordinated with
               representatives from the U.S. Treasury Department, which is the
               federal agency that has oversight responsibilities for the
               European Bank for Reconstruction and Development (EBRD). EBRD,
               which is located in London, is a multilateral bank that, among
               other things, administers the CSF. We also met with officials from
               Bechtel International Systems in Frederick, Maryland, and Battelle
               Memorial Institute in Richland, Washington. These two
               organizations are part of a consortium of three western companies
               that provide staff to the project management unit (PMU)
               responsible for the day-to-day implementation of the Chernobyl
               shelter project.1

               As part of our international fieldwork, during an October 2006
               visit to London, we interviewed EBRD officials as well as the
               United Kingdom's representative to the assembly of contributors, a
               body that acts like a board of directors for the CSF. In June
               2006, we met in Brussels, Belgium, with officials from the
               European Commission, which also has a representative on the
               assembly of contributors and is the single-largest contributor to
               the CSF. We also met with International Atomic Energy Agency
               (IAEA) officials in Vienna, Austria, to discuss the background of
               the project. In July 2006, we interviewed an official from
               Russia's Ministry of Atomic Energy (Rosatom) to obtain Russia's
               views about the project. During October 2006, we met with current
               or former Ukrainian government officials in Kyiv, Slavutych, and
               the Chernobyl site in Ukraine. These officials represented the
               State Nuclear Regulatory Committee of Ukraine, the Ministry of
               Fuel and Energy, the Ministry of Emergency Situations, the
               Accounting Chamber of Ukraine, the Ministry of Foreign Affairs,
               and the Chernobyl Nuclear Power Plant (ChNPP). At the Chernobyl
               site, we observed the deteriorating existing shelter that is
               scheduled to be replaced and interviewed the ChNPP director and
               his managers, as well as PMU officials. In Kyiv, we also met with
               U.S. embassy officials, including the ambassador, an EBRD
               representative, and a contractor assisting the State Nuclear
               Regulatory Committee of Ukraine with regulatory reviews of project
               documents.

    1The third western company in the consortium is Electricite de France,
    which is headquartered in France.

               To examine the Chernobyl shelter project's progress toward
               completing the new shelter and factors impacting its completion,
               we reviewed various project documents and interviewed
               knowledgeable officials from EBRD, PMU, State, the United Kingdom,
               and the European Commission. Specifically, we obtained and
               reviewed 1997, 2003, and 2006 project schedules; EBRD's Project
               Progress Reports and other intermittent reports; PMU reports,
               including its 2005 analysis of risk areas for completing the new
               shelter; and the 2002 and 2005 independent audits of the PMU.

               We generally had access to all needed information to assess the
               project's progress and factors impacting it. However, there were
               certain access limitations pertaining to our review of the delays
               related to the award of the new shelter construction contract.
               Since the contracting process is treated as confidential under
               EBRD procurement rules until the contract is awarded, we were not
               able to examine the bid proposal documents and their evaluations,
               the bid protest and its evaluation, or the open points in the bid
               proposal that were being negotiated during our work. However, we
               were able to examine relevant public documents related to the
               contracting process, such as the materials presented to the
               contractors to aid their preparation of proposals. Also, we were
               able to interview EBRD, PMU, Ukrainian, and State officials about
               the status of the ongoing contracting process.

               To review the cost estimates to complete Chernobyl shelter
               project, we obtained cost estimate summaries and discussed these
               estimates with officials from EBRD, the PMU, and ChNPP as well as
               officials from State, USAID, Ukraine, the United Kingdom, and the
               European Commission. To examine the history of the project cost
               estimates, we obtained and analyzed the original 1997 estimate
               developed by a team of international experts, PMU estimate
               summaries from 2003 to the present, and PMU reconciliations of
               estimates with prior ones. In March 2007, we requested and
               received from a PMU cost analyst an update on cost estimates,
               which provided information on the likelihood of a higher cost
               estimate as the result of delays in awarding the new shelter
               contract. In addition, we examined a 2005 PMU probability analysis
               that quantified the cost impact of about 20 risks for the
               construction of the new shelter. We also discussed the risk of
               further cost increases with PMU officials and CSF contributors.
               For the ChNPP director's cost analysis of three other
               internationally-funded Chernobyl projects, we confirmed the cost
               amounts either with an EBRD official or through a European Union
               document. We also reviewed GAO reports that provided examples of
               other internationally-funded construction projects that
               experienced significant cost overruns.

               We judged that the project cost estimates were sufficiently
               reliable for the purposes of this report. We did not test the
               reliability of the price data used in the project cost estimates
               because we did not have access to the underlying data. However, we
               did judge that the cost estimating methodology used by the PMU
               analysts was reasonable. We reviewed the PMU's cost-estimating
               methodology using generally accepted cost-estimating principles2
               and discussed the methodology and the analyses with PMU officials
               responsible for developing the cost estimates. On this basis, we
               believe that Bechtel's estimates are sufficiently reliable for the
               purposes of this report as estimates of the project's potential
               cost. Further, we did not assess the project cost estimates'
               accuracy, which can only be definitively determined in the future
               after final project costs are known. However, we note in the
               report that the cost estimates may diverge from the project's
               final costs due to price escalations of materials and potential
               project risks, among other factors.

               To assess the U.S. role in overseeing and funding the project, we
               interviewed State and USAID officials and obtained and analyzed
               documentation from them. In addition, we examined EBRD's CSF
               rules, its most recent Project Progress Report with CSF financial
               data, and other bank and PMU documents that described the roles of
               EBRD or the assembly of contributors. We also discussed the roles
               of contributors with assembly representatives from the United
               Kingdom and the European Commission. To examine State's efforts to
               monitor the project, we reviewed pertinent cables and related
               documents exchanged between State representatives in Washington,
               D.C., and U.S. embassy officials in Ukraine. Finally, to
               understand the information about the shelter project provided to
               Congress, we reviewed State's annual congressional budget
               justifications for foreign assistance and USAID's most recent
               congressional notification of payments to CSF.

    2For example, see Construction Management Association of America Inc.,
    Construction Management Standards of Practice, (McLean, Va.: 2002).

               In the report, we present CSF financial information as of
               September 30, 2006, in U.S. dollars. Because the EBRD reports CSF
               amounts in euros, we converted these amounts into U.S. dollars
               using the average exchange rate for the third quarter of 2006, as
               reported by the International Monetary Fund. We used the third
               quarter of 2006 because the most recent EBRD report cites CSF
               financial information that falls within that period. This
               adjustment may not account for relative price changes between the
               date on which countries made their contributions and the third
               quarter 2006. However, to provide an inflation-adjusted amount for
               the total U.S. contribution, we adjusted the U.S. contributions
               that occurred in different years for inflation using a gross
               domestic product price index, with a base year of 2006 (third
               quarter). This adjustment makes the U.S. contributions from
               different years comparable in terms of purchasing power.

               To present the portions of contributions from the United States
               and other fund providers, we calculated percentages based on
               EBRD's data for contribution agreements in euros as of September
               30, 2006. In addition to payments, contributions agreements may
               include formal commitment of funds that have not yet been paid
               into the CSF. For example, the U.S. commitment agreement amount,
               which totaled about $154 million in nominal dollars, included
               about $34 million that the United States had formally committed
               for payment to EBRD but had not yet paid. In contrast, the
               contributions agreement amounts exclude pledges to the CSF that
               have not been formalized. For instance, the United States' 2005
               pledge of $45 million is excluded from the contribution agreement
               amount because it had not yet been formally committed for payment.
               Finally, some reported contribution amounts are affected by CSF
               accounting rules, which require contributions in non-euro
               currencies to be recorded in euro equivalents at historic exchange
               rates. The dollar amount of the U.S. commitment agreement was thus
               recorded in euros at a single historic exchange rate, regardless
               of exchange rates at the time of past or pending U.S. payments.3
               According to an EBRD official, this reporting of the financial
               data is in line with the provisions of the CSF rules and provides
               the most accurate overview of donor commitments at any given time.

               To assess the reliability of the project fund data for the
               purposes of this report, we reviewed the required CSF financial
               controls and two external audits of the fund. CSF rules require
               certain control mechanisms for accounting for the funds.
               Specifically, the assembly of contributors should approve the
               annual budget and financial statements of the fund, and the
               financial statements of the fund should be audited by internal and
               external auditors of EBRD. It was not our objective to--and we did
               not--audit the completeness or accuracy of CSF financial
               statements. However, we examined the external auditor's reports
               for 2003 and 2004 and found that both expressed the opinion that
               the financial statements were fairly presented and properly
               prepared. In addition, we corroborated the amount of U.S.
               contributions to CSF presented in EBRD data by confirming it with
               officials at State and USAID and reviewing USAID payment
               documentation. For these reasons, we believe the fund data is
               sufficiently reliable for the purposes of this report.

               In the report, we describe Ukrainian laws based on secondary
               documents, officials' descriptions, or translated copies. However,
               we did not independently verify descriptions of Ukrainian law.

               We performed our review from May 2006 through June 2007 in
               accordance with generally accepted government auditing standards.

    3Outside of the recording procedure for CSF contribution agreements,
    payments into CSF are recorded at the exchange rate at the day of receipt.

               Appendix III: Donor Governments' Contribution Agreements with the
    Chernobyl Shelter Project, as of September 2006

                                                              Percentage of total
    Donor governments                                            contributions
    European Commission                                                  26.30
    United States                                                        19.16
    Other G-7 countries                                                  35.97
    Germany                                                               8.35
    United Kingdom                                                        6.57
    Japan                                                                 5.91
    France                                                                5.77
    Canada                                                                4.82
    Italy                                                                 4.55
    Ukraine                                                               6.22
    Total European  Commission, United  States, other  G-7
    countries, and Ukraine                                               87.65
    Other countries                                                      12.35
    Switzerland                                                           1.29
    Russian Federation                                                    1.24
    Ireland                                                               1.11
    Austria                                                               1.04
    Norway                                                                0.96
    Sweden                                                                0.92
    Netherlands                                                           0.79
    Kuwait                                                                0.75
    Spain                                                                 0.70
    Greece                                                                0.69
    Denmark                                                               0.69
    Finland                                                               0.62
    Belgium                                                               0.43
    Luxembourg                                                            0.35
    Poland                                                                0.35
    Slovak Republic                                                       0.28
    Korea                                                                 0.05
    Slovenia                                                              0.04
    Israel                                                                0.04
    Portugal                                                              0.02
    Iceland                                                              0.00a
    Total, European Commission,  United States, other  G-7
    countries, Ukraine, and other countries                             100.00

               Source: EBRD.

               Note: The percentages exclude pledges that are not officially
               confirmed. The shares are also impacted by the CSF rules to
               account for pledges in non-euro currencies using set historic
               exchange rates.

               aLess than .005 percent.

    			  Appendix IV: Comments from the Department of State

    			  Appendix V: Comments from the U.S. Agency for International
    			  Development

    			  Appendix VI: GAO Contact and Staff Acknowledgments

               GAO Contact

               Gene Aloise, (202) 512-3841 or aloisee@gao.gov

    			  Staff Acknowledgments

               In addition to the contact named above, Glen Levis (Assistant
               Director), John Delicath, Terry Hanford, Keith Rhodes (GAO's Chief
               Technologist), Mary Welch, and Jennifer Young made key
               contributions to this report. Others who made important
               contributions included Michael Armes, Doreen Eng, and Tim Guinane.

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    (360693)

    [32]transparent illustrator graphic

    www.gao.gov/cgi-bin/getrpt?GAO-07-923.

    To view the full product, including the scope
    and methodology, click on the link above.

    For more information, contact Gene Aloise at (202) 512-3841 or
    aloisee@gao.gov.

    Highlights of GAO-07-923, a report to the Ranking Member, Subcommittee on
    National Security and Foreign Affairs, Committee on Oversight and
    Government Reform, House of Representatives

    July 2007

    NUCLEAR SAFETY

    Construction of the Protective Shelter for the Chernobyl Nuclear Reactor
    Faces Schedule Delays, Potential Cost Increases, and Technical
    Uncertainties

    In 1986, an explosion at the Chernobyl nuclear power plant in Ukraine
    destroyed the reactor building and released massive amounts of radioactive
    contamination. A temporary shelter was built over the damaged reactor to
    prevent further contamination. The United States is a major donor to an
    international project to build a new shelter to replace the existing one,
    which is badly deteriorating. GAO was asked to (1) assess the progress
    toward completing the new shelter, (2) review the cost estimates to
    complete the project, and (3) assess the U.S. role in overseeing and
    funding the project. To carry out its work, GAO analyzed program
    documents, interviewed U.S. and international program officials, and
    visited the Chernobyl nuclear power plant.

    [33]What GAO Recommends

    GAO recommends, among other things, that the Secretary of State consider,
    in consultation with other donor governments and the EBRD, establishing
    benchmarks for the project that need to be met before making additional
    pledges of funds in the future. State generally agreed with our
    recommendations. However, State cautioned that the use of benchmarks could
    lead to further project delays or increase costs. We strongly believe that
    benchmarks could encourage timely project completion at agreed upon costs.

    Although twoof three construction components--site preparation and
    stabilization of the existing shelter--are nearly finished, construction
    of the new shelter has fallen about 7 years behind schedule. Over the past
    couple of years, the main reason for schedule slippage has been the
    failure to award a construction contract. The lack of a contract is partly
    the result of a lengthy disagreement between Ukraine and the European Bank
    for Reconstruction and Development (EBRD). In late 2006, the Chernobyl
    nuclear power plant director told GAO that the donors should not make any
    additional contributions to the project until contracting issues were
    resolved. These problems contributed to donors' concerns about when and at
    what cost the project will be completed. In addition, technical
    uncertainties associated with the construction of the new shelter have
    also contributed to schedule slippages and threaten to further delay the
    project.

    The estimated cost to complete the Chernobyl Shelter Project is currently
    $1.2 billion. However, a higher cost estimate is likely due to, among
    other things, escalating prices for labor and materials. Also, many other
    factors, such as expanding the project's scope to include the removal of
    the radioactive reactor fuel, could raise costs further.

    The Department of State, which has the lead role for the U.S. government,
    relies on the EBRD to directly manage the project, including the
    disbursement of funds. The United States has pledged $203 million for the
    project but still has to provide $49 million to meet its current
    commitment. In addition, the United States will likely be requested to
    provide funds beyond the $203 million pledged because some donor
    governments may not have the resources or may no longer be willing to
    provide additional funds. To date, the United States has not placed
    conditions or benchmarks tied to tangible progress toward project
    completion on its contributions to the Chernobyl Shelter Fund.

    Conceptual Design of the New Shelter

    References

    Visible links
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      31. mailto:AndersonP1@gao.gov
    *** End of document. ***