# Presentation: 560381

## Nuclear  Cities Initiative

- Program Overview

- May 2003

## Russian Federation

- Nuclear Weapons Complex

- Center of weapons production capacity
- Largest amount of weapons-usable material in the world
- 150,000 workers
- 700,000 residents
- Core of the nuclear complex

- The Nuclear Cities Initiative works to enhance U.S. and global security by supporting weapons complex reduction in the Russian nuclear cities

**Notes:**
         Why should the Russian nuclear complex matter to us?  Because it has that uniquely Russian ability to be both vastly oversized, decrepit and starving for resources on the one hand, and inherently, dangerously capable of performing its core functions on the other.  And the GAO’s newest report on NCI, due out this week, says without equivocation that NCI’s efforts are “clearly in our national security interest.”
         The GAO says this because it knows that a nuclear-armed Iran is a real, not pretend, a real threat to the US, and it would pose an existential threat to some of our closest allies and interests in the Middle East.  
         Anybody familiar with the intelligence knows that Iran can’t pursue its WMD program entirely on its own.  It needs fuel cycle technologies in order to get its hands on the fissile materials needed for a weapon, it needs weapons design information, and it needs weapons assembly expertise.
         Russia’s vastly oversized nuclear complex has 120,000-plus workers looking for work.  There are some 700,000 other residents of these cities, (wives, children, elderly parents), who are the motivation for some of those workers to steal, sell what they know, offer what they have access to, if the price is right.  And I can assure you that dealing with the Iranians, the price won’t be very high.
         NCI is a small program; we’re only operating in 3 of the ten cities so far (the 3 you see highlighted).  But just in these three cities, Iran could find the crown jewels it’s looking for; could find what it needs for its nuclear weapons program.

## NCI’s Relevance in Today’s World

*“**The most urgent unmet national security threat to the United States today is the danger that weapons of mass destruction or weapons-usable material in Russia could be stolen and sold to terrorists or hostile nation states, and used against American troops abroad, or citizens at home...” *
- Special Bi-Partisan Task Force,
- January 2001

## About NCI

**Russian Federation**
*Oversized Weapons Complex*

**Gov-to-Gov Agreement**

**Reduced Russian Complex**
**Increased U.S. & International Security**

*Functions with Initiatives for Proliferation Prevention (IPP) as part of NNSA’s Russian Transition Initiatives*

**United States**
*Expertise and National Security Interest*

- Reduce physical footprint

- Remove functions and equipment

- Create market opportunities

- Create sustainable employment

## What NCI Does

- Infrastructure Development
- Physical Improvements
- Moving fences, renovating buildings
- Upgrading telecommunications
- Installing utilities
- Business Development
- IDCs
- Management Training
- Marketing Support
- Commercial
- Developing self-sustaining business
- Focusing on core competencies and resources in each city

- Business training at the Zheleznogorsk IDC

- Building renovation for Spektr Conversion

## Producing Results

_**Enterprises on  the Road to Market**_

- ITEC
- SarovLabs
- Strela Open Computing Center
- Open Science Centers
- SPEKTR-CONVERSION
- Delphi Shock Absorbers
- 12 small start-up companies

-  Medical Technology
-  Information Technology
-  Energy & Environment
-  Security & Counter Terrorism
-  Metallurgical Processes
-  Industrial Engineering

- Telecommunications/Internet Support
- Technoparks
- Building upgrades

_**Project Areas**_

_**Business Infrastructure**_

- Business Training – 1800 trained in 2002
- Access to non-USG capital - $52M in leveraged funds
- Nonproliferation Centers
- International Development Centers
*	**(marketing, business expertise)*
- Civilian Engineering Design Centers
*	**(designing production lines)*
- Innovation Technology Center
*	**(rapid prototype design)*

_**Physical Infrastructure**_

_**Commercial Partners**_

- Adapco
- Animatek
- Delphi
- Gazprom
- General Electric
- Livermore Software Technology Corp.

- Motorola
- Novosoft
- Oracle
- VDI

**Notes:**
NCI uses two approaches to self-sustainability:  Developing businesses, or attracting the resources for others to develop businesses.

$17M in Russian Government conversion grants at Z-gorsk, which the IDC played a significant role in securing.
 approx. $2M from MinAtom co-funding of NCI projects
 approx. $1.7M in EBRD loans
 approx. $900K in leveraged community development activities
 approx. $700K in commercial contracts/in-kind contributions:  LSTC $80K, Adapco $80K, CSFB $50K, Luxoft $25K, Fresenius (in-kind) $400K, Motorola (in-kind) $50K

## Sarov

- NCI Goals:
- Eliminate Nuclear Weapons production capacity at Avangard by 2004 - Accomplished
- Absorb excess capacity - people and facilities -  of VNIEFF and Avangard into civilian enterprises

- Population: 83,000
- Location: about 255 miles southeast of Moscow in the Nizhny Novgorod oblast and about 90 miles south of the city of Nizhny Novgorod itself
- Main Facilities:  All-Russian Scientific Research Institute of Experimental Physics (VNIIEF) with a workforce of 18,000 and the former Avangard Electromechanical Plant with a workforce of approximately 3,500
- Functions: weapons design and weapons assembly/disassembly
- The birthplace of the Russian atomic bomb; became a closed city in 1946
- A provincial center famed as the site of Sarova Monastery, closed by the Soviets in 1923; a high bell tower, originally part of the monastery, still visible from much of the city

## Facility Downsizing in Sarov

- Avangard Weapons Assembly Plant closed and military work ceased Feb 2003
- 550,000 sq.ft. of Technopark created in former Avangard buildings
- High speed computers removed from VNIIEF design institute
- 600 workers involved in civilian jobs

## Improved data, cell telephone connectivity
Built rapid prototyping, production engineering centers
Improved marketing capabilities, business management, quality assurance
Renovated commercial space/buildings for commercial projects
Access to $1.4M in micro and small loans for over 90 entrepreneurs

- Built rapid prototyping, production engineering centers
- Improved marketing capabilities, business management, quality assurance
- Renovated commercial space/buildings for commercial projects
- Access to $1.4M in micro and small loans for over 90 entrepreneurs

- Infrastructure in Sarov

**Notes:**
More than half our effort in Sarov is devoted to developing the infrastructure needed to create civilian businesses.  This infrastructure development work includes both physical improvements and dedicated business development.  In the case of Sarov, the much greater portion of this infrastructure development work is given over to making physical improvements, because we are focused on converting the physical plant at Avangard and creating the facilities needed for civilian manufacturing.  
Our efforts at commercialization, which is what will sustain these businesses in the long run, are focused on learning from IPP’s success and taking advantage of fleeting opportunities.  For example, RadSource, a Florida company, has signed license and purchase agreements with VNIIEF to buy a Russian-designed x-ray irradiator for the food and medical industries, but it also has obvious counter-terrorism applications.  The company is planning to conduct beta testing.  They don’t need FDA certification, they only need to notify the FDA.
NCI building on experience the Russian facilities already have with civilian activities.  Significant opportunities in oil and gas industry.  A VNIIEF spin-off called “Research and Production Complex” NPK, has entered into a joint venture with Gazprom – called “Volgogaz” to commercialize VNIIEF instruments for use in the Russian market.  NPK and Avangard have themselves formed a company called Avtek, to produce these instruments (controllers, transducers, sensors, and systems) at the Avangard Technopark.  NCI is assisting NPK and Avtek to set-up the production. 

The beta phase of software design exposes a new product, which has just emerged from in-house (alpha) testing, to a large number of real people, real hardware, and real usage.

## Sarov Projects

| Industries | Projects |
| --- | --- |
| Security and Counter Terrorism | Physical Security Systems for MPC&A (SATIS)
Irradiator Technology Commercialization |
| Energy and Environmental | Volgogaz (Instrumentation for Oil and Gas Industry)
Elegas (sulfur hexafluoride switches for the electric distribution industry)
Mobile Elegas (servicing equipment for Elegas switches) |
| Information Technology |  Open Computing Center
SarovLabs |
| Physical Infrastructure | Avangard Technoparks
Telecommunications upgrade
Mobile phone network  |
| Business Infrastructure  | Innovative Technology Center
Civilian Engineering Design Center
Marketing support
ISO 9000 Certification/Training |
| Industrial and Metallurgical Processes | Production of Metro Equipment
Rotary Compressors
Sheet Metal Fabrication
Production of Shock Absorbers 
 |

## Commercial Successes in Sarov

- SarovLabs: combined Open Computing and Science Centers under new management
- Satis: distributes MPC&A equipment, 2 pending US partnerships
- Delphas: US Joint Venture partner, manufacture auto parts for Russian industry
- Mobile Elegas: 4 related ventures service the Russian power distribution industry
- Road Repair Vehicles:  Over $1M in in contracts outstanding for new award-winning truck design

## Avangard Closure

- Reducing Production Capacity

- All military work ceased as of Feb 2003
- Avangard will be dissolved as legal entity
- Residual functions and workers transferred to VNNIEF
- Conversion projects in Avangard Technopark to continue without Disruption
- One of four Russian weapons assembly facilities.  Closed six months ahead of schedule.
- Fulfills NCI Closure Agreement signed in Sept 2001

**Notes:**
NCI’s mission is to downsize the Russian nuclear weapons complex.  That’s the mission that was accepted by the interagency group led by the NSC last year when the Administration was reviewing its nonproliferation programs.  
The Russians want to close a couple of their weapons assembly plants and convert those facilities and workers over to civilian production
They use a couple of measures of merit to evaluate their progress -- number of jobs created and value of production.  We try not to use those measures because they are not within our control – we only have limited influence in those areas and are unwilling to be held accountable for the full variation of those measures.
However, we can increase U.S. national security by helping the Rusians remove functions and equipment from the weapons complex; reducing the physical footprint of their facilities; and helping to create sustainable, commercial work for displaced weapons workers.
Important to note that what we do is different from what the Russians do; our focus is on know-how transfer, improving infrastructure, commercialization, bringing in Western partners, etc. all these things help the Russians do their job better.  Without our significantly smaller but qualitatively different contribution, the Russian effort would not be successful.

## Snezhinsk

- NCI Goals:
- Absorb planned excess capacity of VNIITF, which will remain the central weapons design institute
- Ensure sustainability of established civilian spin-off enterprises employing former weapons workers

- Population: 48,000
- Location: about 850 miles southeast of Moscow and about 50 miles south of Yekaterinburg, near the Ural Mountains and in the Chelyabinsk oblast
- Main Facility:  All-Russian Scientific Research Institute of Technical Physics (VNIITF) with a current workforce of 9,500
- Functions: nuclear weapons design, HEU and Pu storage
- Russia’s second weapons research and design institute; city developed around the institute, which opened in 1955
- Located along the shores of Lake Sinara; U.S. pilot Francis Gary Powers shot down by a missile fired from a nearby location

## Facility Downsizing in Snezhinsk

- High speed SGI computers removed from VNIITF
- 4000 downsized weapons workers from VNIITF involved in civilian jobs
- Expansion of civilian industries created under RTI including
- ITEC  expands to windows/doors manufacture capitalizing on  same physical security technology used in man-trap booths
- SEST  Pipe Coating adds oil and gas pipeline manufacture to production of insulated pipes used in heating systems.
-  SPEKTR-Conversion expands to medical devices beyond prostheses

## Certification, management and strategic planning assistance, marketing outreach 
Upgrading of physical plant, telecom support, machine tools, packaging equipment and IT hardware and software
Building of second story onto SPEKTR-conversion facilities
Building of expanded facility (additional 80 places) for OCC-Strela 
Renewed and two-fold increase in  interest from Russian investors 
Access to $760K in micro and small loans for over 20 entrepreneurs
Collaboration with Russian side on development of Area 21 (Sokol) as less-intensive access site for businesses and demonstration facilities. 

- Upgrading of physical plant, telecom support, machine tools, packaging equipment and IT hardware and software
- Building of second story onto SPEKTR-conversion facilities
- Building of expanded facility (additional 80 places) for OCC-Strela
- Renewed and two-fold increase in  interest from Russian investors
- Access to $760K in micro and small loans for over 20 entrepreneurs
- Collaboration with Russian side on development of Area 21 (Sokol) as less-intensive access site for businesses and demonstration facilities.

- Infrastructure in Snezhinsk

**Notes:**
More than half our effort in Sarov is devoted to developing the infrastructure needed to create civilian businesses.  This infrastructure development work includes both physical improvements and dedicated business development.  In the case of Sarov, the much greater portion of this infrastructure development work is given over to making physical improvements, because we are focused on converting the physical plant at Avangard and creating the facilities needed for civilian manufacturing.  
Our efforts at commercialization, which is what will sustain these businesses in the long run, are focused on learning from IPP’s success and taking advantage of fleeting opportunities.  For example, RadSource, a Florida company, has signed license and purchase agreements with VNIIEF to buy a Russian-designed x-ray irradiator for the food and medical industries, but it also has obvious counter-terrorism applications.  The company is planning to conduct beta testing.  They don’t need FDA certification, they only need to notify the FDA.
NCI building on experience the Russian facilities already have with civilian activities.  Significant opportunities in oil and gas industry.  A VNIIEF spin-off called “Research and Production Complex” NPK, has entered into a joint venture with Gazprom – called “Volgogaz” to commercialize VNIIEF instruments for use in the Russian market.  NPK and Avangard have themselves formed a company called Avtek, to produce these instruments (controllers, transducers, sensors, and systems) at the Avangard Technopark.  NCI is assisting NPK and Avtek to set-up the production. 

The beta phase of software design exposes a new product, which has just emerged from in-house (alpha) testing, to a large number of real people, real hardware, and real usage.

## Snezhinsk Projects

| Industries | Projects |
| --- | --- |
| Medical Technology | Pharmaceutical Repackaging , PET Scan, SPEKTR-Conversion medical device manufacture |
| Security and Counter Terrorism |  ITEC  |
| Energy and Environmental |  Spektr Conversion,  SP-Oil Well Perforator,  Pipe Coating |
| Information Technology |  Strela OCC, ITEC, SPEKTR-Conversion |
| Physical Infrastructure | Klon  and Cable-ISP (telcom), Spektr Conversion Building,
Newest OCC-Strela Building |
| Business Infrastructure | International Development Center,  Spektr Conversion business development, ISO-9000 training, Experienced Russian consultants matched by expertise for one-on-one tutorials |
| Industrial | SP-Machine Tools/Shop, High –Temperature Ovens, Pipe Coating Production, Polyethylene Terphlalate Blanks production (for plastic bottles) |

## Commercial Successes 

- in Snezhinsk

- ITEC: Independent business, distributes and supports physical security clientele. Works with MPC&A.
- Spektr-Conversion: Flagship RTI project. Example of how RTI works best: NCI physical and business infrastructure support, IPP continues and expands projects.
- Pipe-coating: District heating pipes and expansion in off-season  to oil pipelines. Co-funded by NCI and Snezhinsk : NCI $2 M and Russian side $2.2M.
- OCC-Strela: Two profit centers: LS-Dyna  crash code dynamic Licensing and service support; and Art-Strela animation plug ins. In 03: $20K in in-kind from LSTC to Dyna in leveraged funding.  Will deliver Oracle based shipping logistics to Western client.

## Registered company in Snezhinsk

Identification devices for security at industrial facilities

Headed by former VNIITF leadership

Supplies broad range of security services,including MPC&A equipment
Over $100K in sales

Developing non-nuclear market
Promising contacts throughout Russia
Completed first export

- Registered company in Snezhinsk
- Identification devices for security at industrial facilities
- Headed by former VNIITF leadership
- Supplies broad range of security services,including MPC&A equipment
- Over $100K in sales
- Developing non-nuclear market
- Promising contacts throughout Russia
- Completed first export

**Notes:**

ITEC Currently employs 10 former weapons scientists full time, and 60 on an ad hoc basis 

Hirsch Electronics Corporation manufactures high security systems that control human access to property and information.  Located in Southern California, Hirsch provides a full line of high security technology from a ScramblePad single door system to an enterprise-wide network connecting hundreds of doors for thousands of users. 

## Zheleznogorsk

- NCI Goals:
- Plan to absorb excess capacity from reactor shutdown
- Facilitate a city, MCC, and MinAtom partnership in conversion

- Population: 100,000
- Location: about 2000 miles east of Moscow and about 35 miles downstream from the city of Krasnoyarsk in Siberia
- Main Facility:  Mining and Chemical Combine (MCC) with a workforce of 9,000
- Functions: Five Pu production reactors, Pu reprocessing, and waste management
- Situated on the east bank of the Yenisei River, and constructed in the 1950s to house the plutonium facility; the town was built to resemble St. Petersburg
- The third and last Russian military plutonium production site; took years to carve MCC into a mountain so deep that it was thought that production could continue even after a nuclear strike

## Facility Downsizing 

- in Zheleznogorsk

- Removed old plutonium processing equipment from the MCC for use in commercial rare earth metals processing
- Creating open access area for commercial production work out of defense security area of MCC
- Removed CO2 extraction equipment from MCC for use in making extracts for commercial personal care products

## Business incubator site, renovate and equip software center, telecommunications upgrades
Operate business support center, Internet service provider
Develop workforce transition plans, commercial marketing strategies.
Access to $2M in micro loans for over 170 entrepreneurs

- Operate business support center, Internet service provider
- Develop workforce transition plans, commercial marketing strategies.
- Access to $2M in micro loans for over 170 entrepreneurs

- Infrastructure in Zheleznogorsk

**Notes:**
More than half our effort in Sarov is devoted to developing the infrastructure needed to create civilian businesses.  This infrastructure development work includes both physical improvements and dedicated business development.  In the case of Sarov, the much greater portion of this infrastructure development work is given over to making physical improvements, because we are focused on converting the physical plant at Avangard and creating the facilities needed for civilian manufacturing.  
Our efforts at commercialization, which is what will sustain these businesses in the long run, are focused on learning from IPP’s success and taking advantage of fleeting opportunities.  For example, RadSource, a Florida company, has signed license and purchase agreements with VNIIEF to buy a Russian-designed x-ray irradiator for the food and medical industries, but it also has obvious counter-terrorism applications.  The company is planning to conduct beta testing.  They don’t need FDA certification, they only need to notify the FDA.
NCI building on experience the Russian facilities already have with civilian activities.  Significant opportunities in oil and gas industry.  A VNIIEF spin-off called “Research and Production Complex” NPK, has entered into a joint venture with Gazprom – called “Volgogaz” to commercialize VNIIEF instruments for use in the Russian market.  NPK and Avangard have themselves formed a company called Avtek, to produce these instruments (controllers, transducers, sensors, and systems) at the Avangard Technopark.  NCI is assisting NPK and Avtek to set-up the production. 

The beta phase of software design exposes a new product, which has just emerged from in-house (alpha) testing, to a large number of real people, real hardware, and real usage.

## Zheleznogorsk Projects

| Industries | Projects |
| --- | --- |
| Energy and Environmental | Energy Efficiency Products (insulated pipes, windows)
MCC Technologies, Inc. (waste remediation) |
| Information Technology and Scientific Services | Novosoft-Zheleznogorsk Software Development Center |
| Physical Infrastructure | Atomlink Telecommunications
Technopark (business incubator)
MCC Open Access Area |
| Business Infrastructure | International Development Center 
Strategic Plans for MCC Worker Transition and City Development
Revolving Fund |
| Medical Technologies | Medical Bandages Production
 |
| Industrial and Metallurgical Processes  | Aluminum Equipment Production
Wood Plant Production
CO-2 Extraction Products (health and agricultural)
Rare Earth Metals (Niobium) Production |

## Commercial Successes 

- Wood Processing Plant: expanded international markets and pending US partnership
- Medical Bandages: 5 products for wounds, burns and surgical applications, national market
- Aluminum Equipment Production: serves large regional aluminum industry in Siberia
- Atomlink ISP: local business expands commercial communications and fosters business growth
- CO2 Extraction: Isotope extraction equipment from MCC used to make commercial extracts used in personal care consumer products

- Commercial Successes
- in Zheleznogorsk

## Novosoft Zheleznogorsk Software Development Center

- Employees at work on software contracts

- New software development opened center in Zheleznogorsk on Nov 5, 2002
- Created as a subsidiary of Novosoft-Novosibirsk, and experienced company with 500 successful software contracts

- Partners with IDC, providing revenue stream for sustainability of both organizations
- Novosoft will create 100 high technology jobs for displaced MCC scientists

**Notes:**
Novosoft, a highly successful software development company with headquarters in Novosibirsk won a competitive bid sponsored by NCI to develop a software development center in Zheleznogorsk.  The new company, Novosoft-Zheleznogorsk Software Development Center, is a partnership between the Zheleznogorsk IDC and Novosoft, Inc.  NCI provides a modest level of start-up funding for equipment and office renovation costs, as well as customer marketing support.  These funds are leveraged with additional resources provided by Novosoft and the City Administration.  The new company already has its first commercial contract, and the business infrastructure will be fully in place during the summer of 2002.  When the customer base is established, a self-sustaining Novosoft-Zheleznogorsk will provide high-tech employment opportunities for 100 displaced scientists and engineers from the MCC.

## Cross City Activities:   International Development Centers

- NCI established International Development Centers (IDC) in Zheleznogorsk and Snezhinsk to support new business creation and economic diversification.

- Zheleznogorsk IDC

- Snezhinsk IDC

- Services:
- business planning
- financing options
- business registration
- training, project evaluations
- management consultations
- information resources

- Results:
- Over 300 trained per month
- Facilitated creation of over 350 new jobs
- Project evaluation and support services to the Zheleznogorsk City Administration resulted in the award of $17 million in Russian federal defense conversion funds

## Innovative Directions

- Identifying and developing contracts with Russian consulting resources to provide business plan and marketing expertise for NCI projects
- Bringing in business experts (former Motorola exec) to fill expertise gap in business know-how and provide project mentoring
- Working with the Nuclear Threat Initiative (NTI) on SarovLabs – providing two positions for experienced marketing, operations managers to create “business culture”
- Assisting Zheleznogorsk to create a Revolving Fund, using transparent and auditable bank management procedures to support small and medium enterprise development.
- Creating a Technopark Business Incubator in Zheleznogorsk to support and nurture emerging businesses, leveraging the management enterprise and training available through the International Development Centers.
- Virtual Business network linking five closed nuclear cities and other high-tech sites in  Urals created through Snezhinsk IDC
- Several RTI projects with energy/environmental spin-offs cooperating with British Closed City Partnership Program (e.g., British energy meters complementing insulated pipe production)

## Future Direction:Zarechnyy

- Second assembly/disassembly plant (after Avangard) where MinAtom has indicated it is planning to eliminate nuclear weapons activity
- According to reports,  Zarechnyy has a head start on conversion; already producing actuators for ITEC security equipment
- Involved in the Oil and Gas Industry

- Population: 64,000
- Location: about 340 miles east/southeast of Moscow
- Main Facility:  Production Association Start with a workforce of 10,000
- Functions: nuclear weapons assembly/disassembly, Pu and HEU storage

## Future DirectionSeversk

- Population: 119,000
- Location: about 1100 miles east/southeast of Moscow in Siberia
- Main Facility:  Siberian Chemical Combine (SCC) with a workforce of 15,000
- Functions: uranium enrichment and reprocessing, Pu production reactors, waste management

- Largest nuclear center in the world, Siberian Chemical Combine
- With the planned reactor shutdown,  10,000 people will require alternative employment, the largest requirement for any city