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

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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 [email protected]. 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 [email protected]
			  
			  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
[email protected].

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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  30. mailto:[email protected]
  31. mailto:[email protected]
*** End of document. ***