U.S. GOVERNMENT PRINTING OFFICE

62–345 CC WASHINGTON : 2000

S. HRG. 106–343

Y2K & RUSSIA:

WHAT ARE THE POTENTIAL IMPACTS AND

FUTURE CONSEQUENCES?

HEARING

BEFORE THE

SPECIAL COMMITTEE ON THE

YEAR 2000 TECHNOLOGY PROBLEM

UNITED STATES SENATE

ONE HUNDRED SIXTH CONGRESS

FIRST SESSION

ON

UNDERSTANDING HOW THESE Y2K POTENTIAL FAILURES, BOTH IN

THE SHORT AND LONG TERM, MAY IMPACT ON CURRENT U.S. POLICY

INITIATIVES AND WHAT WE CAN DO TO ADDRESS THESE POTENTIAL

PROBLEMS WITH RESPECT TO RUSSIA

SEPTEMBER 28, 1999

Printed for the use of the Committee

(

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For sale by the U.S. Government Printing Office

Superintendent of Documents, Congressional Sales Office, Washington, DC 20402

SPECIAL COMMITTEE ON THE

YEAR 2000 TECHNOLOGY PROBLEM

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

ROBERT F. BENNETT, Utah, Chairman

JON KYL, Arizona

GORDON SMITH, Oregon

SUSAN M. COLLINS, Maine

TED STEVENS, Alaska, Ex Officio

CHRISTOPHER J. DODD, Connecticut,

Vice Chairman

JOHN EDWARDS, North Carolina

DANIEL PATRICK MOYNIHAN, New York

ROBERT C. BYRD, West Virginia, Ex Officio

ROBERT CRESANTI, Staff Director

T.M. (WILKE) GREEN, Minority Staff Director

(II)

(III)

CONTENTS

STATEMENT BY COMMITTEE MEMBERS

Robert F. Bennett, a U.S. Senator from Utah, Chairman, Special Committee

on the Year 2000 Technology Problem ............................................................... 1

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

CHRONOLOGICAL ORDER OF WITNESSES

Hon. Richard G. Lugar, a U.S. Senator from Indiana .......................................... 6

John R. Beyrle, Deputy for the Ambassador at Large and Special Advisor

to the Secretary, Department of State ............................................................... 14

Dr. Edward Warner, III, Assistant Secretary, Strategy and Threat Reduction,

Department of Defense ........................................................................................ 17

Kenneth Baker, Principal Deputy Assistant Secretary, International and National Security, Department of Energy .............................................................. 22

Dr. William K. McHenry, Associate Professor, McDonough School of Business,

Georgetown University ........................................................................................ 32

Richard A. Conn, Jr., U.S.-Russia Business Council, Partner, Latham & Watkins ........................................................................................................................ 35

ALPHABETICAL LISTING AND MATERIAL SUBMITTED

Baker, Kenneth:

Statement .......................................................................................................... 22

Prepared statement .......................................................................................... 43

Bennett, Hon. Robert F.:

Opening statement ........................................................................................... 1

Prepared statement .......................................................................................... 49

Beyrle, John R.:

Statement .......................................................................................................... 14

Prepared statement .......................................................................................... 50

Conn, Jr., Richard A.:

Statement .......................................................................................................... 35

Prepared statement .......................................................................................... 54

Dodd, Hon. Christopher J.:

Statement .......................................................................................................... 3

Prepared statement .......................................................................................... 60

Lugar, Hon. Richard G.:

Statement .......................................................................................................... 6

Prepared statement .......................................................................................... 61

McHenry, Dr. William K.:

Statement .......................................................................................................... 32

Prepared statement .......................................................................................... 64

Page

IV

Warner III, Dr. Edward:

Statement .......................................................................................................... 17

Prepared statement .......................................................................................... 77

(1)

Y2K & RUSSIA: WHAT ARE THE POTENTIAL

IMPACTS AND FUTURE CONSEQUENCES?

TUESDAY, SEPTEMBER 28, 1999

U.S. SENATE, SPECIAL COMMITTEE ON THE YEAR 2000

TECHNOLOGY PROBLEM, Washington, DC.

The committee met, pursuant to notice, at 10:02 a.m., in room

SD–192, Dirksen Senate Office Building, Hon. Christopher J. Dodd

(vice chairman of the committee), presiding.

Present: Senators Bennett, Dodd, and Lugar.

OPENING STATEMENT OF HON. ROBERT F. BENNETT, A U.S.

SENATOR FROM UTAH, CHAIRMAN, SPECIAL COMMITTEE ON

THE YEAR 2000 TECHNOLOGY PROBLEM

Chairman BENNETT. The committee will come to order. We appreciate your being here this morning. Senator Dodd, the vice

chairman of the committee, will be chairing the hearing, and he is

on his way. Prior to his arrival, I would like to make a comment

or two about the subject of today’s hearing.

A serious social, economic, and political crisis began when Russia

devalued the ruble and then defaulted on its debts. That was in

August 1998. Little work has been done to investigate the longterm consequences that Y2K would bring to a Russia already on

the edge. That, of course, troubles this committee since Y2K failures in key infrastructures such as power, banking, telecommunications, and defense could have some serious negative impacts on

the stability of the Russian economy and on their political environment which already is wrought with enough problems.

The international monetary fund announced last Friday that it

would offer special loans to countries suffering serious economic

damage from Y2K. The IMF certainly hopes that this financial assistance won’t be needed, but they say in their statement: ‘‘There

are uncertainties, and the potential consequences for international

trade and growth of possible interruptions to production and shipment may be significant.’’ I think these uncertainties and potential

consequences resulting from Y2K apply to Russia as much as they

do to any nation.

Now, Russia is not as highly networked and interconnected as is

the United States, but it still relies on information systems and

microchips. In fact, the information systems that survived the Soviet Era and remain in use are extremely critical. As many as

4,000 Soviet-era mainframes are estimated to support the operation of Russia’s industrial and defense enterprises. It is believed

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that several hundred million dollars would be needed to repair

these systems.

The failure, disruption or corruption of these systems in a short

span of time could create a unique and unexpected challenge to the

economy. In the short term, the shock from serious Y2K failures

could exacerbate Russia’s downward economic spiral. Since such an

event would unquestionably affect U.S. policy, we must proactively

consider how we should respond to these failures if and when they

should occur.

From a long-term perspective, no one knows what the impact of

Y2K inefficiencies will mean for the Russian economy as a whole.

We must decide soon what our foreign policy will be with respect

to Y2K failures. We cannot engage in diplomatic shell games until

November 1999 and then glibly announce the U.S. foreign policy on

Y2K. What is more, I fear that whatever policy the White House

has arrived at may crumble when the first CNN footage hits the

air, because very often the CNN footage determines the policy.

What should U.S. policy be with respect to foreign Y2K failures?

How will we prioritize national security, the needs of our allies, the

needs of critical trading partners, and of course humanitarian

needs? These will be very difficult decisions, and there will be no

time for ‘‘spinning’’ decisions. Different decisions will demand

prompt and careful attention.

The U.S. does not have the resources to save the world. Indeed,

if it weren’t for the rapid actions of a member of this committee,

Senator Stevens, who happens to double as the chairman of the Appropriations Committee, we would not have had the emergency

funds to meet emergency requirements here at home.

It is vital to remember that Y2K problems unfold over time. They

do not all occur on January 1st. We, here in Washington, have expended a lot of effort to examine the immediate impact of Y2K,

from sharing nuclear information to collecting information about

telecommunications. However, we have given little consideration to

what happens if and when problems emerge in late January or in

March, and as our recent report makes clear, we expect the majority of those problems to emerge overseas.

Now, since the dissolution of the Soviet Union, America has

reached out to try to help the Russian Federation wherever it was

prudent to do so. We are most fortunate to have one of the Senate’s

foremost Russian experts and a valuable member of the committee,

who normally sits up here with us and today is sitting there, as

our first witness.

In 1991, Senator Lugar recognized the urgent need to help Russia move its nuclear and chemical weapons back within its sovereign borders. So he has been an early warning system, if you

will, on these problems and what needs to be done to prepare ourselves and protect ourselves.

Through Cooperative Threat Reduction, the U.S. and Russia collaborated to dismantle launchers and destroy chemical weapons in

the newly independent states. It is precisely because of this expertise that we have invited him here today to share his thoughts

about how assisting the Russians with Y2K fits into the broad

goals of threat reduction.

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My only regret about this hearing is that I will be unable to stay

for most of it. This hearing comes as a result of the initiative and

energy of Senator Dodd who has on the committee provided the

leadership to focus on these very problems. So Senator Dodd, the

vice chairman of the committee, will chair this hearing today. I will

do my best to get back as often as I can and stay as long as I can.

Senator Dodd, the gavel and the hearing are now yours. I have

said all I know about this.

[The prepared statement of Chairman Bennett can be found in

the appendix.]

OPENING STATEMENT OF HON. CHRISTOPHER J. DODD, A U.S.

SENATOR FROM CONNECTICUT, VICE CHAIRMAN, SPECIAL

COMMITTEE ON THE YEAR 2000 TECHNOLOGY PROBLEM

Vice Chairman DODD. Well, thank you very much, Mr. Chairman, and I appreciate the gavel. My only regret is this committee

does not have legislative authority. But I thank you very, very

much, Mr. Chairman, and let me join you in welcoming our colleague on this committee, and also the Senate, who we will hear

from shortly on this issue. And he does bring, as you pointed out,

a tremendous amount of expertise and has devoted a good part of

his Senate career in the latter years, particularly on the Russian

issue, working with Sam Nunn, our former colleague, on a number

of proposals that I think have made a difference already, maybe

not that have lived up to even his expectations of what we might

accomplish, but without them, I think we would have been in a lot

worse shape today.

And while there is much to be concerned about within Russia,

there is good news there too. We have a tendency to focus on all

that is wrong, and there are a lot of problems, but today we hope

to focus, if we can, on some of the critical Y2K issues, and certainly

it is not the chairman’s intention nor mine to engage in any beating up on Russia or embarrassing them. Quite to the contrary.

Russia is now emerging as an important ally. We have a lot of

common interests we need to work on together, and we need to find

out ways in which we can be helpful in a positive and constructive

way. So I am particularly anxious to hear what my colleague from

Indiana has to say.

And let me just share, if I can, a few thoughts of my own on this

subject matter. The goal of the hearing, if I may say so, is to try

to understand how these Y2K potential failures, both in the short

and long term, may impact on current U.S. policy initiatives and

what we can do to address these potential problems with respect

to Russia.

Home to almost 150 million people, Russia spans 12 time zones.

It is the thirtieth largest trading partner of the United States.

There is some 11,000 of our fellow citizens who live in Russia. Certainly, it is not the largest trading partner nor the biggest host to

U.S. citizens, but we all recognize that Russia continues to be an

important U.S. foreign policy concern for more than 50 years.

Since the end of the cold war, U.S. policy goals with respect to

Russia have broadly fallen into two categories: reducing the threat

of nuclear weapons, and supporting Russia’s efforts to transform its

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political and economic system. Both of these, I would stress, are

long-term goals that admittedly will take years to achieve.

Russians struggle with many difficult issues including the 80

percent devaluation of the ruble in 1998. The government and financial instability has spurred capital flight of $1 billion a month

to leave Russia. In the past year alone, Russia has lost some $15

billion in capital to foreign banks.

Now, the country must, in the midst of all of this and there are

many issues, confront the Y2K challenge. In March, the Department of State testified that the U.S. would need, and I quote them,

‘‘a robust policy framework in order to prioritize responses to international Y2K failures’’. I am interested to learn today what this

policy framework will be with respect to Russia.

Many policy experts have viewed Y2K as a short-term problem,

one best left to ‘‘techies’’ and not likely to impact enduring policy

concerns. Unfortunately, according to the Gartner Group, many

Y2K problems will only emerge in the weeks and months beyond

January 1, 2000, as the chairman just alluded to.

Today the committee seeks to better understand Russia’s highly

unique situation and whether Y2K could erode stability that we

take for granted in our ongoing bilateral initiatives. Before I go any

further, I want to specify what I mean by long-term Y2K concerns.

Many organizations responsible for key Russian infrastructures

lack the financial resources to make the necessary fixes. For example, Rostelecom, Russia’s long distance and international carrier, is

reportedly unable to upgrade its seven gateway switches and is

choosing to implement, and I quote, ‘‘workarounds’’. Meanwhile, regional carriers have only just begun testing their networks.

Lack of funding will force many to create their own ad hoc fixes,

and while these ‘‘workarounds’’ are likely to prevent immediate

failures and keep connectivity, they could degrade capacity. In

short, Russia could lose communications capacity, stability, and

profitability. In fact, you will hear testimony today about the fact

that six out of seven direct communication links from Moscow to

Washington that are used in times of crisis would experience—

would experience—Y2K failures. Let me emphasize: That is six out

of seven key national security links could fail and will fail if the

fixes are not implemented.

These critical links will be fixed, we are told, but what about the

bulk of commercial communications? The United States has to

carefully consider the impact of Russian infrastructure failures in

our relations with them.

Today we will also consider the concerns of the Department of

Defense and State, along with Energy. On September 13th, the Department of Defense and the Russian Ministry of Defense signed

an agreement indicating their intent to establish the Center for

Year 2000 Strategic Stability during the year 2000 transition period, a subject we have discussed many times in this committee. In

this center, U.S. and Russian military personnel will sit side by

side and continuously monitor U.S.-provided missile and space

launches information. I would like to remind the audience that

Russia still has approximately 6,000 strategic nuclear weapons and

over 1,000 delivery systems.

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The center will also provide an important link to communicate

other defense-related events that could be potentially destabilizing

such as an aircraft going off course due to navigation or communication system Y2K failure. Last week, nine military officials from

Russia were in Colorado to discuss the details of this proposal, and

I am very optimistic and heartened by this turn of events in the

last few weeks.

Also last week, the Congress passed the Defense Authorization

Bill. It is now waiting to be signed into law, which may happen,

in fact, even today or tomorrow or the next day. This bill provides

for over $475 million for Cooperative Threat Reduction programs.

In August, the Russian Ministry of Defense requested $15 million

to address Y2K-related security risks for the control and protection

of weapons-grade nuclear materials. This bill requires Russia be recertified by the administration. I am told that will be a part of this

effort and part of this bill. So that is good news. Unfortunately, it

can take several months, but we hope that we won’t lose any time

in this matter.

Reliable energy is of key importance to the entire nation. In August, with unified energy systems, the Russian electrical monopoly

cut power to some 20,000 customers just to save fuel for the winter.

What this means is that fuel reserves for Russia’s electrical power

monopoly will be as low as the country heads into Y2K. The Department of Energy is working closely with Russia as it develops

the necessary contingency plans that will be needed to maintain

grid stability.

Nuclear power plants are a serious concern for Russia. Russia

has 29 nuclear power reactor units in operation at 9 different sites.

Western-style nuclear power plants employ an uncompromising set

of in-depth safety elements, including a massive reinforced concrete

structure called the containment facility, to prevent the release of

radioactivity. Most Soviet-designed reactors do not have such a containment structure. The most infamous plant without a containment structure is the Chernobyl-style reactor, and there are 11 of

these reactors at three locations in Russia.

While these plants do not have direct Y2K vulnerabilities, they

can only withstand a loss of power for approximately 90 to 120

minutes before they begin to have core damage. In a country where

disruptions of power supply are common before Y2K, special consideration needs to be paid to the months and years beyond Y2K

to reduce the chances that sudden power loss could compromise the

power plant safety.

Primary plant safety systems are on the front line of defense

against accidents, and no Y2K issues have been found here. However, other systems important to safety and plant operations are of

concern, such as plant process computer and information display

systems. A Y2K-related malfunction in these systems would complicate operations and increase the chances of operator error. Operator error, as we all know, ultimately led to the Chernobyl accident. The combination of human error and computer error is one

of the greatest Y2K challenges for Russia and the rest of the world.

So with those initial thoughts, again I want to thank the chairman for holding the hearing, for his untiring efforts on these

issues, but particularly this one as well, and to thank our witnesses

6

in advance for their participation today and to particularly thank

you, our colleague from Indiana, for his presence here this morning, and Senator Lugar, we are anxious to hear your thoughts.

[The prepared statement of Vice Chairman Dodd can be found in

the appendix.]

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

INDIANA

Senator LUGAR. Thank you very much, Mr. Chairman. It is a

privilege to be with you today. I want to talk about U.S.-Russian

cooperative activities in response to the Y2K computer problem.

Since the end of the cold war, I have taken a great deal of interest in U.S. policy toward the former Soviet Union. As the Soviet

Union began to break apart in 1991, Russian leaders came to

former Senator Nunn of Georgia and me and pointed out the dangers of the dissolution of a nuclear superpower.

The viability of the entire Soviet weapons custodial system was

in doubt. There were tons of weapons and materials of mass destruction spread across hundreds of sites in Russia and other

former Soviet states. Russia requested our cooperation in securing

and dismantling its nuclear arsenal and weapons-usable materials,

and this was the genesis of the Nunn-Lugar Cooperative Threat

Reduction Program.

This was not a problem that Congress wanted to deal with in

1991. The atmosphere was decidedly against any initiative that focused on a foreign problem. Americans were tired from the cold

war and the Gulf War, and yet we brought together a nucleus of

Senators who saw the problem as we did. The Nunn-Lugar program was passed in the Senate by a vote of 86 to 8 and went on

to gain approval in the House and was signed into law by President Bush.

While much remains to be done, the Nunn-Lugar scorecard is impressive. It has facilitated the destruction of 365 ballistic missiles,

343 ballistic missile launchers, 49 bombers, 136 submarine missile

launchers, 30 submarine-launched ballistic missiles. It has sealed

191 nuclear test tunnels, and, most notably, 4,838 warheads that

were on strategic systems aimed at the United States have been

deactivated, all at the cost of less than one-third of a percent of the

Department of Defense’s annual budget.

Without Nunn-Lugar, Ukraine, Kazakstan, and Belarus would

still have thousands of nuclear weapons. Instead, all three countries are nuclear weapons-free.

I offer this as a useful example to cope with another problem

that has arisen in our post-cold war relationship, namely the impact of Y2K. The atmosphere surrounding the current RussianAmerican relationship and its implications for our national security

are not unlike those that existed in 1991. I believe that it is in the

United States’ national security interest to again cooperate with

the former Soviet Union to reduce the threats our country may

face.

Mr. Chairman, we do not know what is going to happen to Russian computer systems when we pass into the millennium, and neither do they, but initial estimates do not appear to be promising.

In May, the American Chamber of Commerce in Russia pointed to

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a study that paints a disturbing picture of the impact of Y2K in

Russia, and I quote: ‘‘Utilities will operate at 40 percent of capacity

for the first 2 months of the year 2000. Transportation will be disrupted 80 percent of the time and telecommunications 50 percent

of the time for a 3-month period. Hospitals will be forced to treat

only emergencies for at least 2 months. Financial markets will be

disrupted for 30 trading days, and banks will be disrupted for 20

business days.’’ Obviously, these estimates are disturbing and beg

the question of whether similar problems will affect the Russian

military and strategic forces.

I am not going to push the panic button. In my visits to Russia

and in briefings and conversations with experts on these subjects,

I have been convinced that the chances of an accidental missile

launch as a result of a Y2K problem are almost nonexistent, but

Y2K may cause other problems in Russian strategic systems.

It is in our interest to take out a kind of insurance policy to ensure that the transition to the new millennium does not exacerbate

the situation. Cooperative activities and programs that reduce

these threats are in our national security interest, that of the

United States and that of Russia, provided they are implemented

in a responsible manner.

Experts agree that cooperation over the transition period needs

to center on three specific areas: early warning systems, nuclear

weapon security, and nuclear power plants.

Our Department of Defense began discussing the potential impact of Y2K with Russian counterparts in June 1998. These efforts

culminated in an agreement to establish a Center for Y2K Strategic Stability in Colorado Springs, Colorado. The center will ensure that for the last few weeks of December 1999 and the first

weeks of January of the year 2000, U.S. and Russian military officers will sit side by side and monitor early warning data generated

by satellites observing missile activity around the world to ensure

that potential mishaps caused by Y2K do not lead to strategic miscalculations and mistakes.

Mr. Chairman, it is in the interest of the United States to ensure

that Russia understands the kinds of problems they may encounter

with strategic systems so that there are no surprises or confusion

on January 1. We want them to understand that their problems

are Y2K-related and not a result of U.S. hostile action for which

they need to respond. This requires consultation, awareness of potential Y2K failures, and training of key personnel, and this kind

of cooperation is clearly of as much value to the United States as

it is to the Russians.

Russian early warning operators may not be able to tell the difference between a peaceful rocket and a military rocket from their

computer screens. Russian early warning capabilities continue to

deteriorate, and this deterioration will be compounded by the transition to the year 2000. Russian Major General Dvorkin recently

suggested that the Y2K problem could lead to incorrect information

being transmitted, received, displayed, or complete early warning

system failures. We should heed those concerns.

I am sure we remember the convulsions the Russian command

and control system endured several years ago when a peaceful NorVerDate 20-MAR-2000 08:48 Mar 31, 2000 Jkt 010199 PO 00000 Frm 00011 Fmt 6633 Sfmt 6633 W:\DISC\62345 txed02 PsN: txed02
8

wegian rocket launch activated President Yeltsin’s nuclear briefcase. Fortunately, the Russians realized their mistake.

The center in Colorado is meant to create an atmosphere for both

sides to work together to resolve any missile launch detection, false

alarms, or other ambiguities that may arise. I am hopeful the Russian military officers serving on the second floor building of 1840

at Peterson Air Force Base will, in the event of a Russian malfunction, be able to provide Moscow with the accurate information and

data necessary to eliminate misperceptions.

The continuous safe and secure storage of the Russian nuclear

stockpile is the second area that will be complicated by Y2K. Over

the last six or 7 months, the Department of Defense has sought to

engage its Russian counterparts on the nuclear warhead protection,

control, and accounting systems. Early in the discussions, the Russian Ministry of Defense admitted it had not considered the impact

Y2K could have on their systems. The need for U.S. assistance in

the area is clear. As members of the Senate, we have had countless

briefings on the groups of individuals attempting to illicitly acquire

these weapons.

More recently, the Russians have made substantial progress in

acknowledging and responding to these potential problems. The

Russian Ministry of Defense is committed to establishing and

maintaining special Y2K monitoring stations at their largest warhead storage facilities. Stations will be manned 24 hours a day by

officers specially trained to monitor physical security, environmental controls within the facility, telecommunications, and power

levels. These efforts and establishments mark a tremendous improvement.

At Pentagon urging, the Russian have conducted capability assessments to gauge their ability to respond to an emergency. Unfortunately, the results of the assessments were not encouraging. Due

to the lack of appropriate response equipment, it is clear there are

significant deficiencies in their capabilities to respond to intrusions

and other potential threats. Our Defense Department is seeking to

assist Russia in these efforts through other Nunn-Lugar programs.

The Russian Ministry of Defense has requested approximately

$15 million in equipment to upgrade their ability to respond to an

emergency. I understand that Assistant Secretary of Defense Warner will testify later, so I will not attempt to describe the details

of that assistance, but I have been told that the Pentagon has reviewed the request and has determined it to be reasonable and consistent with the Nunn-Lugar conditions and restrictions.

Mr. Chairman, the Pentagon reports that a portion of the request

can be fulfilled immediately using prior year Nunn-Lugar monies.

However, the remainder of the Y2K assistance must await a recertification requirement in the Fiscal Year 2000 Defense Authorization Conference Report. The executive branch is hopeful the process

will be completed on or around October 1.

Mr. Chairman, this committee must watch the situation closely.

I believe the delivery of this assistance to be in United States’ interests. Delays and the recertification process might possibly slow

Y2K assistance to the point where the equipment arrives after the

first of the new year. The Senate must view this additional and redundant recertification as a self-inflicted wound that must not be

9

permitted to interfere with important national security goals. This

committee, the Senate Armed Services Committee, and the Committee on Appropriations must be prepared to expunge such duplicative requirements should American interests dictate.

Mr. Chairman, I have learned this morning, and you related that

there is optimism that the recertification certificates can be signed,

that it can be a part of the Presidential signature of the Authorization Bill, and we hope and pray that that will occur as promptly

as possible.

The potential threats emanating from Y2K problems in Sovietdesigned nuclear reactors is a third area of concern. Historically,

safety mechanisms and procedures at these reactors are poor. The

reactors suffer from deficiencies in design, operator training, and

safety procedures. Reactor operations and support staff face low

and erratic pay, training shortfalls, and deficiencies in safety procedures.

Unfortunately, these problems are compounded by a very late

start in preparing for the transition to the new millennium by the

states of the former union and central and eastern Europe. Although neither a melt down or a failure of primary safety systems

is likely, it is in our interests to continue to work to prevent these

potential threats.

Many believe that Soviet-designed reactors are immune to Y2Kgenerated problems because they utilize older analog systems, but

this is incorrect. Digital overlays were installed to improve performance, monitoring, and safety response and are susceptible to

Y2K problems. If these systems were to malfunction, operators

could be blind to some reactor functions or receive erroneous data

that could lead to improper actions. In U.S. reactors, this would not

pose a problem because of built-in redundancy of our systems. Unfortunately, redundancy is not present in most Soviet-designed

plants.

Reviews of Soviet-designed reactor susceptibility to Y2K-induced

problems revealed that host countries lacked the resources to conduct threat evaluations, and significant safety issues were at stake.

Officials of the Department of Energy worked closely with their

counterparts to develop assessment guidelines in order to determine potential problems that might arise during the millennium

transition.

U.S. expert assistance was crucial in overturning initial complacency expressed by these nations. The Department of Energy

played an important role in completing the detailed risk assessments of the various Soviet-designed reactors and providing assistance to begin remediation of hardware and software problems. It

is clear that without the Department of Energy’s efforts, the risks

of an accident would have been much higher.

Given the existing timeframe, it is too late to fix every Russian

system. Our efforts must continue to concentrate on reactor safety

systems, contingency planning, and engagement with the Russian

Ministry of Atomic Energy on these subjects. Transparency and

consultation in these areas are in U.S. interests. Furthermore, I believe our country must make every effort to warn Americans

abroad, living or working near these reactors, of the problems they

may face as a result of Y2K.

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One of my personal concerns is the impact of local and Federal

Government pressure to keep Soviet design reactors on line in the

face of strain and uncertainty. It will be the dead of winter with

temperatures propping far below freezing. Local and state Governors and mayors in Russia, as well as officials in national capitals, will be loathe to permit nuclear reactors to shut down. Political pressure, in addition to monitoring failures and the loss of offsite power, may contribute to failures in judgment which could lead

to accidents.

Recently, Russian Atomic Energy Minister Adamov reported to a

conference in London that he believed that Russia had achieved

‘‘the same level of safety as western units, end of quote’’. He went

to explain that the rate of unplanned shutdown at Russian reactors

were equal to that of Germany and lower than France and the

United States. I am hopeful his confidence is borne out, but it is

in our interest to continue to cooperate in alleviating the problems

inherent in the 65 nuclear reactors at 20 sites in 9 countries of the

former Warsaw Pact and former Soviet Union. If not handled properly, these reactors could prove threatening to American interests.

We must not forget that one of these sites is less than 130 miles

from Alaska.

Mr. Chairman, I began my testimony with the recommendation

that we view efforts to eliminate potential threats to U.S. security

from Y2K-generated problems in Russia as an insurance policy. In

my opinion, an insurance policy in this area is a good investment.

The cost of efforts to address potential threats today will be minuscule in comparison to the cost of responding to future tragedy

should an accident occur.

I understand that the atmosphere today may not be all that conducive to engagement and cooperation with Russia. Congressional

committees are investigating allegations of corruption of Russian

government officials. As I indicated in my introduction, the Senate

has faced similar circumstances before, and there are many parallels between the mood today and that which Senator Nunn and

I faced in 1991, but I would encourage my colleagues to once again

look to the future and to examine the benefits of cooperating with

Russia on Y2K versus the potential costs of inaction.

In 1991, the Senate courageously supported the Nunn-Lugar program in the face of widespread discontent with foreign affairs. That

investment has paid tremendous dividends in our national security.

I would urge this committee and the Congress to once again provide our country with the leadership necessary to protect that national security. I am not suggesting a blank check for Moscow, but

our government must again engage the Russian people through the

auspices of the Department of Defense and Energy and our private

sector. Strict management and accountability of cooperative efforts

with Russia will protect our investments. We have made important

progress. It is clear there is much work to be done.

I praise your foresight and that of the chairman in examining

these issues, and I look forward to working with you as a member

of the committee on the threats facing our country.

Vice Chairman DODD. Thank you very, very much, Senator

Lugar. That is excellent testimony, and I just want to pick up on

your last comments. I think it is very, very important, and this is

11

not—we are not talking about a blank check here, obviously. That

would be unacceptable, but the important notion of staying engaged here during this critical period, even if the Y2K issue were

not an issue here, I would make the same case, as I am sure you

would.

But this does give us an opportunity to reconnect in a way, because I think so much of what we hear of our country deciding

we’re going to disengage or spend our time investigating what is

going on in Russia, while it has legitimacy to it, if that is the only

news that is coming out of Washington, then I think it is going to

be harder to build those necessary bridges that are going to be essential for the kind of cooperation on a whole host of other areas.

And while Y2K poses some serious problems, as you have pointed

out, it also creates some significant opportunities.

So I am hopeful in light of what we have heard now, by the way

of the signing of the DOD Authorization Bill, that the recertification package can go forward, and we don’t have to wait these

necessary weeks and months, I think is positive news and will

allow us to provide some necessary assistance.

I just wonder if you might comment on the progress of NunnLugar with regard to the 6,000 warheads, the 1,000 launch systems

that still exist. What prospects do we have of continuing to reduce

these kinds of numbers, in your view, in the coming months and

years?

Senator LUGAR. I think the prospects are substantially in our

favor on both sides. Clearly, the Senate has been discouraged because we ratified Star II some time ago. Duma has not done so, despite numerous delegations approaching our colleagues in Russia

and elsewhere. At the same time, as the chairman is aware, delegations of distinguished Russian military officers have come to this

country, and many of us have visited with them, discussing what

they see as a potential outline for a Star III treaty or a Star IV

or something beyond.

Sometimes radical ideas are given of reduction of warheads to

2,000, each level, or maybe 1,500, or some suggesting even 1,000

as opposed to the 3,500 level more or less that Star II contemplated. As a practical matter, both sides are reducing their

weapons because of obsolescence factors, and one of the factors for

the nuclear weapons—as well as the Y2K steps that we are talking

about accidents, accidents that could envelope citizens in the homeland, and as time goes on the problems of maintenance are more

and more acute. So this is leading in a practical way to constructive destruction of these situations. Hopefully, it will be the proper

framework the Star regime has given, because that gives assurance

to both sides and some degree of verification that is more satisfying

than an ad hoc reduction sort of outside that framework.

Vice Chairman DODD. I wonder if you might—I wish I could tell

you this was an original idea I had had, but so often Senator Moynihan proposes suggestions and ideas that are a bit ahead of their

time, and when this proposal dealing with the Colorado Springs facility first surfaced, he made the casual comment that it might not

be a bad idea to examine the possibility—obviously, you want to set

up this framework first, but the possibility of having a permanent

facility beyond the Y2K issue.

12

And I wonder if you might just give your own thoughts on that

prospect, realizing of course, one step at a time, we have got an initial problem we have the deal with. But do you think, one, it is a

good idea? Two, what do you think the possibilities are that we

might be able to establish such a permanent facility?

Senator LUGAR. I think the possibilities are excellent. It depends

very largely upon Russian cooperation. The Cooperative Threat Reduction programs we are talking about are a very substantial intrusion into Russian space and into Russian planning. Often Americans ask why are Americans involved in destroying Russian missiles, warheads containing Russian material, and the good answer

is obviously that Russia understands the potential proliferation for

accidents, for maintenance problems. Without the money, without

the resources in their defense budget to do these things they would

not be done, or they would be done poorly with very great risk to

the Russians and the world.

Now, this has meant that even in the ups and downs of the Russian political relationship, the Cooperative Threat Reduction program has flowed on annually because both sides realize this is really crucial. It is not that the politics of the country are inessential,

but when it comes down to it, human life, large portions of the

country are at stake. So this leads, it seems to me, toward more

and more cooperative watching of what we are all doing, the building of confidence in this situation, and it is something that I think

we ought to foster.

I agree. The Colorado Springs situation, this may be a blessing

of Y2K that has brought us together in this very constructive maneuver there.

Vice Chairman DODD. There are obviously significant differences

when expending potential membership in these cooperative efforts,

but clearly, although China deals with its nuclear weapons in a

very different way than Russia does, Pakistan and India come to

mind immediately as potentially other nations that we could draw

into Cooperative Threat Reduction efforts, and I wonder if you

might just share thoughts on whether or not does that complicate

the primary task of dealing with United States and Russia’s relationship in this area? It is premature to be talking about that?

Senator LUGAR. No. I don’t think it is premature. It requires cooperation. To take the case of India and Pakistan, invitations on

their parts for us to be a part of their situation, those invitations

have not been forthcoming, but nevertheless, they might be given

the right circumstances. I suspect, too, the Russians are interested

in a cooperative effort with the United States vis-a-vis other situations, and our agenda in Russia is with treaties we have already

ratified such as a chemical weapons convention in which the Russians have ratified this.

We all have testified. There are 40,000 metric tons of chemicals

at seven locations. They are fairly well defined, and we believe fairly secure given cooperative work, but almost none of those chemicals are being destroyed in Russia. The budgetary resources simply

are not there. So, once again, we are going to have to make some

judgments. It is not a question of intrusion on Russian space but

as a practical matter.

13

Is it dangerous or not for 40,000 metric tons to continue, even

as we here in this country for our own protection wrestling with

this destruction of the chemical weapon stock?

Vice Chairman DODD. And, as you point out, of course the first

nation to suffer with deterioration was Russia itself.

Senator LUGAR. Yes.

Vice Chairman DODD. We could probably just spend the day just

on these issues alone, and obviously we have got a Y2K issue to

look at. So, again, I thank you for your testimony. It has been very,

very helpful, and your continuing efforts in this regard, you are

really recognized by both sides of the aisle, as we say, Democrats

and Republicans, as truly the leader in the Senate on these issues,

and we respect your judgment and thoughts immensely.

So you are more than welcome to join us up here. You may have

a busy schedule, but I hope you will spend some time with us.

Senator LUGAR. Thank you.

Vice Chairman DODD. Thank you very much.

[The prepared statement of Senator Lugar can be found in the

appendix.]

Vice Chairman DODD. And now we will go immediately to our

next panel. Panel II consists of three agencies dealing with Russia.

Our witnesses include—and I will ask them to join us—John

Beyrle—did I pronounce that correctly?

Mr. BEYRLE. That is right, Senator. Thank you.

Vice Chairman DODD. John, we welcome you. John is the Deputy

for the Ambassador at Large and Special Advisor to the Secretary

of State for Russia and the newly independent states. We thank

you for being with us.

The Honorable Edward Warner, III is the Assistant Secretary for

Strategy and Threat Reduction at the Department of Defense, and

we thank you for joining us.

And Ken Baker is the Principal Deputy Assistant Secretary for

International and National Security at the Department of Energy,

and, Mr. Baker, we thank you for joining us as well.

Why don’t I ask you to begin in the order that I have introduced

you, if that is appropriate. And I have got this annoying clock up

here, but you have all testified on numerous occasions, and you will

appreciate that Senator Lugar and I would urge you to try to get

these reports down as tight as you can, but I will leave the clock

on only as sort of a trigger in your own mind. I know I have used

it periodically as sort of where we are here.

What do we have that clock set to? Seven minutes. Why don’t we

do it at seven, but don’t feel obligated. If you need to go on a few

more minutes, don’t stop, but that might be of some help.

Again, I thank all of you for your continuing cooperation, and we

are very interested to hear what you have to say this morning

about where things stand as we are at 94 days, 23 hours, 50 minutes, and 24 seconds.

Mr. Beyrle, your testimony.

14

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

Mr. BEYRLE. Thank you very much, Mr. Chairman. I would like

to say it is a real honor to follow Senator Lugar on this panel. As

one who has spent much of his adult life thinking about and dealing with problems of the Soviet Union and Russia, I have tremendous respect and admiration. I have to say that, Senator Lugar,

what you have done has been a real inspiration of many of us in

government. So it is an honor to follow you, sir.

I am pleased to have the opportunity to discuss the potential impacts and the consequences for the Russian Federation of the year

2000 computer problem here. I have a longer statement, Mr. Chairman, which I will ask be entered into the record, and I will summarize it here in the interest of the time.

I think that the fact that focus of this hearing is solely on Russia

and Y2K is evidence of the justifiable concern of the Congress and

the American people on just how the potential for disruption associated with this change over to the millennium might affect our national security. Now, the two areas that pose probably the greatest

potential risk to our national security are those being nuclear

weapons and related questions, and nuclear power will be addressed by my colleagues from the Departments of Defense and Energy.

For my part this morning, I would like to open our discussion by

providing a brief overview from the perspective of the State Department of our current assessment of some of Russia’s Y2K preparations. I would like to emphasize at the outset that our assessment

of Russia’s vulnerability to Y2K is an ongoing iterative process. We

have been and remain continually engaged with Russia, the Russian Government, in an effort to gather the information we need

to make a definitive assessment in the areas of greatest concern or

those that have the most direct impact on American interests.

In general, the amount and the quality of information available

has not been optimal, but it has been sufficient for us to make

some evaluative judgments in these key areas, and these are judgments that we are continually reassessing or refining as the situation on the ground changes or as new data become available. But

the year 2000 technology problem is, as this committee well knows,

without precedent in history and uncertainty shadows all of our efforts to deal with it.

With regard to Russia, especially the challenge lies in assessing

how this uncertainty translates into risk. We don’t underestimate

the potential disruptions that Y2K may bring to Russia, but at the

same time we need to evaluate such problems realistically. Russia’s

success in navigating the Y2K transition throughout its society

rests in large part on its ability to minimize its electricity and communications disruptions, and thus I would like to concentrate this

brief overview on our analysis of the electrical and telecommunications sectors.

Russia is likely to experience disruptions in its electrical grid and

telecommunications infrastructure with subsequent effects on its financial, industrial, and government sectors. At this time, we do not

foresee severe long-term disruptions. Our analysis of Russia’s elecVerDate 20-MAR-2000 08:48 Mar 31, 2000 Jkt 010199 PO 00000 Frm 00018 Fmt 6633 Sfmt 6633 W:\DISC\62345 txed02 PsN: txed02
15

tricity sector indicates the larger cities, Moscow in particular, are

likely to be much less affected by outages than will be the countryside. We attribute this partially to the Russian government’s traditional concern and attention to urban populations which dates back

many decades, as you know. In fact, as we understand the electrical sector priorities, power to the countryside might be reduced

temporarily in order to ensure that the cities are not deprived. If

the overall integrated power system is not fully functional, this

could result in power deficits, perhaps lasting several days to

smaller towns and villages.

The power utility’s ability to supply electricity will likely vary

from region to region. For example, the far east will likely face the

greatest risk of power loss or shortages. On the other hand, because of the economic contraction of the past decade, many areas

are currently using much less power than previously was the case,

and when combined with the extended holiday period which decreases electricity demand, this should result in some excess generation capacity. In turn, this should reduce the stress on the electrical grid and provide a bit more flexibility to the power generation and distribution operators to work around the problems that

may develop in individual plants.

It is not secret that Russian winters are cold. Most of us have

spent time in them. Any disruption of the heating systems in Russia thus could have serious and potentially life threaten consequences. The reliability of the heating systems is tied closely to

the availability of electricity.

In larger cities such as Moscow, heat is provided mostly by natural gas-operated heating plants. Coal-fired plants are more common in the small cities and towns. These plants are analog and

shouldn’t be affected by Y2K, but once again, electricity is required

to run the pumps that pump the water through and return it.

A somewhat greater potential for disruption, in our view, lies

with the Russian telecommunications sector. There are two to three

thousand domestic telephone companies around the country, and

they use a wide variety of equipment produced both domestically

and abroad. We believe that some of that equipment contains embedded microprocessors that aren’t Y2K compliant. The consequences of this are that some of the systems will likely fail, disrupting normal telecommunication services, and it could take the

telecommunication companies days, maybe even weeks, to track

down and repair all the failures.

Russia has access to updated telecommunication satellites which

we believe to be Y2K compliant. Less clear, however, is the status

of the ground-based links, some of which may rely on embedded

chips. The government and telecom providers are working to minimize disruptions, but we doubt that they have sufficient time or resources to resolve all the problems in time.

Many vital industries and government entities have one or more

backup communications systems. We believe, for example, the Soviet-era internal phone system that connects many government

ministries and the Kremlin should continue to function. The electricity monopoly UES has its own communications system using

power lines as well as other backup systems, and key energy players like Gazprom, for example, also have doubly redundant

16

backups which should provide some measure of security in these

key sectors.

Given the efforts that Russia has made in remediating potential

Y2K disruptions and in making contingency plans, at this time we

are hopeful that we will not need to reduce staff in our embassy

and three consulates in Russia. We expect to make a final determination on this in mid-October. Nonetheless, we are advising U.S.

citizens who will be in Russia over the millennial transition to be

prepared for possible disruptions, especially in key sectors like electricity, heat, and telecommunications. And as always, we strongly

urge all U.S. citizens to register at one of our missions and remain

in contact for updated information.

The U.S. has worked closely with key sectors in Russia to prepare for transition. We focus particularly on those areas related to

national security, as my colleagues will relate. In addition, however, thanks to funds appropriated by Congress, we have carried

out a number of activities with and inside of Russia. Beginning earlier this year, we cooperated with the Russian Government, the

World Bank, and the International Energy Agency, and the American Chamber of Commerce in Russia to conduct a series of workshops and seminars in Russia on the Y2K issue. We have sent U.S.

experts to Russia, and we funded the travel of Russian experts to

various international meetings and conferences.

USIA has also developed a Russian language web site on Y2K to

provide basic public information about the problem. However, a recent poll indicated that only 50 percent of Russians surveyed had

even heard of Y2K. I think that compares with something like 70

to 80 percent in our own country. So clearly the Russian Government still has a way to go in bringing the reality of Y2K to its own

citizens, and we want to continue to be able to help them to do

that.

Our experience in attempting to help or even obtain information

on the extent of the problem in some sectors has been mixed. Some

agencies, such as the electricity monopoly, have been open to technical exchanges, but for much of the Russian Government, transparency still comes hard. To illustrate, one key ministry refused to

meet with the U.S. embassy officials to discuss their Y2K preparations because they didn’t want to ‘‘spread rumors’’. We will continue to seek satisfactory answers on behalf of the many Americans

who live in or do business with Russia.

Mr. Chairman, in conclusion, allow me to make a very few brief

general points. First, in assessing Russia’s overall vulnerability, it

is important to bear in mind, as Chairman Bennett noted in his

opening statement, that much of the country’s infrastructure is less

dependant on computer technology than is the case in the west.

This fact tends to lessen the risk of large-scale systemic failures in

favor of more localized problems that can be fixed more easily and

more quickly. Unfortunately, this has also led to a certain complacency on the part of some in the government and financial community and tendency to understate the actual risk potential.

Second, the level of technical and engineering expertise in Russia

is relatively high. Programmers and engineers are prepared to deal

with the shocks and aftershocks as the millennium rolls over.

These experts were schooled in the communist era of shortages

17

when the unavailability of replacement systems meant fixing and

re-fixing and re-fixing again, and thus they have been compelled to

become intimately familiar with their systems, and they can be creative and resourceful in dealing with novel or unanticipated problems.

But it is also important to remember that the Y2K problem is

unprecedented, and it is of potentially large-scale magnitude. So

even with the best will and capabilities, there are going to be too

many problems to deal with immediately, and it is far from clear

to us that Russia has sufficient resources to deal effectively with

all the consequences.

How long might disruptions last? Russia may continue to experience Y2K-resulting problems in some sectors for months after the

new year, as was noted earlier, and it could take some time for any

temporary fixes to be replaced by permanent solutions. It is going

to be prudent for us to view post-Y2K Russia in a similar way that

we are viewing pre-Y2K Russia, as a country that may continue to

rely on U.S. and other international help in overcoming computer

related disruptions. We intend, of course, to maintain close contact

with key Russian sectors before and after the new year to continually assess new developments.

Mr. Chairman, I want to thank you again for the opportunity to

address the committee and for the leadership you and your colleagues have shown in maintaining a focus on what is really a critical issue that probably hasn’t gotten the attention it needs, and we

look forward to keeping in touch with you and the committee and

your staff to help ameliorate the impact of Y2K on American national interests.

Thank you.

Vice Chairman DODD. Thank you very much.

[The prepared statement of Mr. Beyrle can be found in the appendix.]

Vice Chairman DODD. Mr. Warner.

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

Mr. WARNER. Thank you, Senator. I am also very pleased to be

here today to discuss the cooperation on Y2K issues between the

Department of Defense and the Russian Ministry of Defense. I

share with Mr. Beyrle the great respect for Senator Lugar. I am

the latest of a number of individuals that have had the opportunity

to administer the Nunn-Lugar Cooperate Threat Reduction program. It is a terrific program. It has played an important role. It

has much wider scope, as the two of you discussed just a few minutes ago, and I would be happy to respond to any of your questions

on that set of issues as well.

We have also appreciated the support of your committee, of both

the members and the staff that from the very outset have helped

provide us with the resources and certainly with the encouragement that we ought to be working with the Russians in this crucial

area.

What I would like to do is I have provided a much more detailed

statement, and I would really like to simply highlight some of the

18

areas in which we are engaged in cooperation with the Russians on

Y2K. In your letter inviting me here, one of the questions you

asked was what is the relative role of this cooperation in our overall pattern of cooperation with the Ministry of Defense, and let me

say it has become one of the flagships of that cooperation during

this year, which has been, thanks to our differences over Kosovo,

a difficult year, but as I will note, we got underway our discussions

with the Russians beginning as early as last fall.

We began to gather serious momentum with a meeting in February that scheduled a series of follow-up meetings later in the

spring. Unfortunately, of course, given our strong national differences over the events in the Balkans, most of our cooperation

with Russia was put on hold for several months. A single exception

to that, by the way, was the Cooperative Threat Reduction program

where, even in the midst of strong differences, the Russians found

it most certainly worth their while to continue this very constructive and important cooperation.

Nevertheless, the re-engagement with Russia more broadly on

defense matters didn’t begin to occur until August, and again in

the lead in that re-engagement with a couple of meetings on Y2Krelated matters, as I will note in just a couple of minutes. By late

August, we had a secured agreement from the Ministry of Defense

to begin our broad agenda of cooperation once again and led to an

important event on the 13th of September when Secretary Cohen

visited Moscow and signed with Minister Sergeyev the joint statement to set up the Center for Strategic Stability for Y2K out at

California Springs, and I will speak to that more in a moment.

We have a series of further engagements with Russian expert

counterparts scheduled throughout the rest of this year, leading

right up to the transition, and given the fact the transition itself

will really not culminate only on the first of January, I am sure

we will remain in touch with them in the months following that because the Russians, like us, have identified the opening quarter of

calendar year 2000 as a critical one in this area.

Let me speak briefly about the five areas in which we are cooperating with the Russians through the Department of Defense. One

of them is on direct communications or hot lines, first of which

dates back to the one installed in the wake of the Cuban Missile

Crisis in the sixties and others that have been added in more recent years. Another has been the discussion of the overall management of Y2K problems within our respective ministries, if you will.

A third has been the question of nuclear weapon stockpile security,

the one that Senator Lugar already referred to and I will speak a

bit on this issue as well. A fourth had been the command and control of nuclear forces, and a fifth is the establishment of the Center

for Y2K Strategic Stability that will be created in Colorado

Springs.

On the question of hot lines, we have had a continuing relationship with the Russians, and we have increased the number of both

data and voice links between the top leaders in our governments

and between risk reduction centers that were instigated by the

Congress in the mid–1980’s. That work began almost a year ago.

It has gone on with periodic meetings.

19

As we now reach the point here of the early fall, we have agreed

on a series of measures. We are working with them to replace key

software associated with the hot lines at our end and their end of

these communications links. We are also, over the next couple of

months, going to set up alternative circuits to sustain communication, including INMARSAT potential to be invoked if in fact the hot

lines themselves were not to perform effectively and were needed

in the time following the transition.

With regard to the overall management of Y2K matters, that is

how we as a department have come to address the manifold challenges of Y2K, we began discussions with the Russians on this

matter last February. It was disrupted by the Kosovo events. We

resumed discussions in late August. It is clear that the Russians

are interested not only in comparing notes on the manner in which

one addresses, identifies, remediates, tests various systems with

potential Y2K failures, but it is also clear that this is going to become an element of our sustained cooperation past Y2K.

The question of the management of information technology in

this dynamic period, I think is going to become one of the elements

of continuing discussion and cooperation between our two sides. On

the nuclear weapon stockpile security matter, the discussions on

that began as early as last fall, and they did so in the context of

the Cooperation Threat Reduction contacts that we have between

the Department of Defense on one hand and the Twelfth Main Directorate of the Ministry of Defense of Russia which is the one responsible for the safekeeping and storage of nuclear weapons. So

we got off to an early start in talking with them.

As Senator Lugar noted, one of the things we encouraged them

to do is to do a far-reaching assessment of their potential

vulnerabilities to Y2K and to also identify appropriate means to

deal with the potential charges. The Russians briefed us in August

about the results of that assessment and their measures that they

are currently undertaking and will have in place by the time of the

Y2K rollover at the first of the year. They noted that they had

come to believe that they needed to be attentive to the role of Y2K,

particularly in how it might affect the microenvironments, if you

will, and their nuclear weapons storage facilities.

They have agreed to set up—I mean they have set for themselves

a goal of setting up some 50 monitoring stations at all of their

main nuclear weapons storage area. They are also developing response capabilities on what they could do in case there is difficulty

and they would need to have an emergency response to a problem

that might arise. It is in this context that the Russians raised the

issue that you, Senator Lugar, referred to a few minutes ago, the

potential for direct financial aid from the United States in order to

help them to procure variation types of equipment. Some are sort

of office-related equipment for the 50 monitoring centers, but the

majority are related to the question of emergency response, and

they have talked to us about radio communications and various

types of vehicles, fire trucks ambulances, weapons handling trucks,

and the like.

As noted in my prepared statement, due to circumstances about

the availability of funds at the moment, up to this time we have

been able to locate $3 million, a million out of uncommitted CooperVerDate 20-MAR-2000 08:48 Mar 31, 2000 Jkt 010199 PO 00000 Frm 00023 Fmt 6633 Sfmt 6633 W:\DISC\62345 txed02 PsN: txed02
20

ative Threat Reduction [CTR], monies from 1999 and about two

million from the Y2K supplemental. If we can succeed in having recertification relevant to releasing the CTR funds and the signing

of the Defense Authorization Bill, we will have other monies available to add to the three million.

Right now, we have prioritized within their request on how the

use the three million.

If we are able to use additional monies, we will, in fact, dedicate

those to the remainder of their list in order to provide them with

these capabilities. We have already begun working with them on

the contracting vehicles to be able to get this material in place as

rapidly as possible, if at all possible by the time of the turnover.

If not then, within weeks or days after that. We will continue to

work on that program. We will look forward to working together

within the administration and working with the Congress on the

recertification issue here in the days ahead.

On the command and control of nuclear forces, when our large

delegation on Y2K matters went to Moscow in February, we opened

a dialog with them about the approaches we have been taking to

ensure secure and reliable communications within nuclear forces.

We resumed that dialog just last week when a senior officer from

the strategic command went down the Colorado Springs and spoke

with the visiting Russian delegation that had come to see the new

center that will be established.

We are looking forward to sending individuals to Russia within

the next month or so to really compare notes on the manner in

which we have been doing operational evaluations of mission-critical systems and on the way we have developed operational contingency plans to address any possible failures in any systems that

one identifies as at risk. We have had discussions with figures

within the Russian Strategic Nuclear Forces, Major General

Dvorkin and others, over the past many months.

It is clear Russia has been focused on this problem since late last

fall. It remains to be seen to have more detailed discussions on precisely how they have handled it. It certainly has been a focus of

their attention.

We do not believe—I share Senator Lugar’s conclusion. We believe the chances are virtually nonexistent that Y2K failure would

lead to the loss of control and the potential launch of a nuclear

weapon. If anything, the system would probably lock up and make

it less capable of launching weapons rather than more capable of

doing so. But, nevertheless, we want to engage in a dialog with the

Russians on this crucial matter.

Finally, let me say just a couple of words about the Center for

Y2K Strategic Stability being established in Colorado Springs. You

two gentlemen have already described the center in much the same

words that I would. It is designed in order to have American and

Russian military personnel sitting side by side from the latter part

of December into the middle of January, monitoring data on the potential launch of long-range missiles or space vehicles from around

the world. The data to be monitored will be provided by the American side.

Let me say for a moment and really answer a question you posed

earlier, Senator Dodd, on whether this isn’t a good idea over the

21

longer term. You may remember at the summit in Moscow a year

ago, President Yeltsin and President Clinton, as a matter of fact,

signed a joint statement to commit the two sides to develop and

field a jointly manned warning center of a permanent nature between Russia and the United States that will be located in Moscow.

We have had—had had productive initial negotiations with the

Russians in February and again in March on the road toward the

establishment of that center, and that center will, as a matter of

fact, display data developed by the warning sensors of both sides.

In the case of the temporary facility for Y2K in Colorado Springs,

we will be using U.S.-provided data only because we hadn’t gotten

far enough to be able to convince the Russians to provide their data

to our center. On the joint warning center, we are looking forward

to the resumption of negotiations on that matter within the next

couple of weeks or few weeks. We have agreed with the Russians

that this should take place. Both of us are preparing draft memoranda associated to the functioning of that center and a pre-launch

notification regime that is going to be of an international character.

So I believe we will pioneer this concept of jointly monitoring

launches and having then secure communications from that joint

warning center, in this case from the temporary center in Colorado

Springs to our own military authorities and then back into Moscow.

I believe that the permanent joint warning center, it is likely we

will complete the negotiations over the next 6 months or so, and

we will work very hard to get it established sometime during the

year 2000.

On a final note on the warning center in Colorado Springs, it will

not only serve the purpose of monitoring the situation of global

launches and having communications means to communicate with

either side, and therefore keep any mishaps from becoming strategic miscalculations, it will also, because of the assured communications link, be a place where the defense establishments of both

sides can rapidly be in contact with one another if any other Y2Krelated issues may arise during the transition. So if the Russians

prove, because of difficulties with their power sector or others, to

have events that would be of military consequence, if they simply

want to inform us of this or if they want to seek our assistance or

expert advice on this, this will be a prime channel of communications to serve that purpose over the Y2K transition.

We have done a lot in this area. We have work to be done in

these next few months to run up to and through the transition. It

is thanks to the support of this committee, including the financial

support made possible by the Y2K supplemental, that we have

been allowed to do this. So we thank you for that, and we will continue in this effort.

Vice Chairman DODD. Thank you very much, Mr. Warner.

[The prepared statement of Mr. Warner can be found in the appendix.]

Vice Chairman DODD. Mr. Baker.

22

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

Mr. BAKER. Thank you very much, Mr. Chairman and members

of the committee for the opportunity to appear before you today.

Vice Chairman DODD. You have to bring the microphone right

over to you.

Mr. BAKER. Thank you for the opportunity to appear before you

this morning to discuss the Y2K problems at Soviet-designed nuclear reactors. In the interest of time and with your permission,

Mr. Chairman, I would like to submit my full statement for the

record and make abbreviated remarks.

I would also like to echo what has already been stated about

Senator Lugar. He has been a leader to the Department of Energy

of securing these nuclear materials, and also his Russian leadership has really paved the way for us already to secure over 100

metric tons of loose nuclear materials that is secured today.

This committee is to be commended for its work on Y2K issues

in the United States and internationally. I look forward to working

with the committee members to assist in Y2K problems that Soviet-designed nuclear power plants located in the new independent

states and eastern European countries. These Y2K efforts are conducted as part of ongoing safety improvement activities at 68 reactors and 23 nuclear power plant sites.

I want to emphasize first that the department is providing assistance to these countries; however, we are not managing the Y2K remediation efforts. Department experts have held meetings with

host country experts and visited several of the nuclear power

plants to evaluate Y2K needs. Based on our experiences and observations of Y2K-related work being done at these nuclear plants, we

conclude there is not a significantly increased risk of a nuclear accident at any of these Soviet-designed nuclear power plants due to

the Y2K event.

Department experts anticipate that the primary safety systems,

outlined on the board over here, at these plants will continue to

function properly, and if needed, safely shutdown the plants during

a potential Y2K event. There are, however, Y2K issues with other

systems important to safety and normal plant operations, as Senator Lugar just discussed.

Also, I would like to stress that, irrespective of Y2K issues, there

are many important safety problems that need to be resolved at Soviet-designed nuclear power plants. Our common goal is to help

these countries ensure that Y2K events will not cause an accident

or significant problem regarding plant safety.

The department’s Y2K assistance addresses all the nuclear

power plants and focuses on three main designs: the RBMK, the

old Chernobyl-type reactor; the VVER–440; and the last, the

VVER–1000. These reactors are located in nine countries: Russia,

Ukraine, Lithuania, Armenia, Kazakhstan, the Czech Republic,

Bulgaria, Slovakia, and Hungary. Russia, Ukraine and the other

seven host countries have established Y2K programs.

We have categorized these programs into four partially overlapping phases: one inventory and preliminary assessments of what

they have that could be Y2K incompatible, a detailed assessment;

23

phase two, analyzing these and find out what really needs to be

fixed. The third phase is remediation, replacing hardware, software; and the final phase and probably most important phase is

contingency plans, how do we plan and make contingencies against

the worse case.

Of the 68 nuclear reactor units in nine countries of the former

Soviet Union, 50 have been completed with Phase II assessments

and testing. The remaining nuclear units are in the process of completing the detailed assessments and testing activities. Of the 68

reactor units, 45 have begun their contingency plans. Based on current information, there are no known Y2K problems with a primary reactor safety systems at these plants. These systems detect

problems and automatically shut down the plant. We expect that

the primary safety systems will function properly and shut down

the plants safely without regard to Y2K issues.

The countries are at various stages readiness. Russia has established a well-organized and aggressive but underfunded Y2K program. Each plant reports that it has completed its preliminary and

detailed assessments, although we are not certain of the death and

comprehensiveness of those assessments. The nuclear power plants

in Russia plan to complete remediation of their important safety

systems next month. Ukraine has developed an assessment program but until recently has only completed limited assessments.

The department is partnering with the science and technology

center in Ukraine to work with a Ukrainian utility and nuclear

power plants to implement Y2K assessment methodology similar to

the one described in the IAEA guidance document. And here is a

copy, sir, of the IAEA guidance document that has been passed out

to all countries. It lays out all those four phases which I just talked

about.

Y2K concerns do exist in systems that are important to safety at

Russian and Ukrainian power plants, however. One concern is the

plant processing computer common to both the RBMK and VVER

reactors. This computer monitors the reactor and gives information

to the operator. The operator uses this information to make needed

adjustments to the plant, such as moving control rods and closing

and opening valves to control flow rates of cooling water to the reactor. Failure of the plant process computer is not an immediate

safety concern, but regulations require that the plant be shut

down, like Senator Lugar said and you said Senator Dodd, in 90

to 120 minutes, within a few hours, if this computer is not restored

to normal.

RBMK plant process computers are known to suffer from both

hardware and software Y2K vulnerabilities. The VVER problems

are, however, only to the software side of Y2K. There is concern

that if not fixed, these and other problems could result in simultaneous shutdown of several nuclear plants, causing disruption of

power supplies in the middle of winter. The shutting down of the

reactor could have serious impact on the populous.

Russians report that they have assessed the plant process computer software vulnerabilities and can use a manual process. Work

is in progress in Ukraine to assess the same problems, using special software tools provided by the department. The department is

24

working with both countries to remediate Y2K problems with the

plant process computers by the first of November.

The department has discussed with Russian and Ukrainian Government officials the need for sufficient supplies of diesel fuel to

power the generators needed to be operated safely in the event of

offsite power loss for Y2K. U.S. experts are meeting with the nuclear power staff to assess the adequacy of diesel fuel supplies and

to help prepare against potential offsite power loss. Host countries

are working with the department to develop contingency plans to

address this concern. These plans are intended to help plan operators under potential Y2K problems and establish the procedures to

address them. The plans would help prevent operators from inadvertently making a situation worse through the inappropriate operator actions which happened in Chernobyl.

Based on the meetings at the International Atomic Agency

[IAEA], discussions with the host countries, the countries of Bulgaria, the Czech Republic, Hungary, Lithuania, appear to be adequately addressing Y2K issues. Kazakhstan has permanently shut

down their BM–350 reactor, limiting the need for Y2K assistance;

hence, the department is focusing on the countries of Russia,

Ukraine, and Armenia.

In Russia, the department’s efforts complement those of the

International Science and Technology Center. The center is pursuing a program at Russian nuclear power plants to help verify

Y2K assessments that Russian nuclear plants will have completed

the guidelines. The center plans to complete those assessments

that are either deficient or completed in the month of October.

The department’s Y2K effort in Ukraine is conducted in partnership with the Science and Technology Center, the Ukraine Institutes, and the nuclear power plants. Based on these assessments,

the department is currently responding to requests for remediation

assistance from Chernobyl.

Nuclear power plants in Ukraine: We anticipate that the remaining nuclear power plants in Ukraine will have similar requests for

remediation assistance, and as their detailed assessment work progresses, we will provide assistance and correct the most serious deficiencies needed for remediation. Now that remediation actions are

under way, the department has begun to assist host countries in

completing their contingency plans. During this phase of the department’s assistance, we expect the highest priority vulnerabilities

of the Soviet-designed reactors to the Y2K event.

Our contingency information is that the loss of offsite power is

at the top of the list. The department’s contingency planning support will address this issue. We are relying on host countries to assess the Y2K issues properly and remediate these problems and develop contingency plans within the last few months. We have provided information and assistance at each step along the path to

Y2K readiness.

The initial complacency that was expressed by the host country

representatives has given way to significant efforts to help resolve

this problem. We have got their attention. In the light of a relative

late start of the Y2K activities, we cannot be completely certain

that they will be successful, but we do anticipate the failure of the

primary—we do not anticipate the failure of the primary systems,

25

therefore the department believes that there is not a significant

risk, increased risk, of a nuclear accident at a Soviet-designed nuclear power plant due to a Y2K event.

We will, however, continue to work with the committee and others to help resolve Y2K issues that have been identified at Sovietdesigned nuclear power plants. We will continue to provide other

types of assistance to improve the safety of these plants since deficiencies remain in the design, as Senator Lugar said, equipment

training, and operational procedures.

This concludes my statement, sir. I would be happy to answer

any questions.

Vice Chairman DODD. Well, thank you very, very much.

[The prepared statement of Mr. Baker can be found in the appendix.]

Vice Chairman DODD. I thank all three of you for your contribution to this hearing this morning. The chairman of the committee,

Senator Bennett, is up at the Banking Committee on a hearing

there of some importance. I am a member of that committee as

well, and I am going to ask one or two questions and then quickly

turn to my colleague from Indiana. I will slip out and go up to the

Banking Committee. Senator Bennett, I think will come down, and

we will try to keep this moving here so as not to disrupt the flow

and hopefully not be repetitive in our questions.

One question comes to mind immediately, Mr. Baker. I saw

where the secretary is in Russia today, in fact, and is there until

Friday on energy-related matters and is touring nuclear non-proliferation programs set up to deal with vast stockpiles of nuclear

material. Is the Y2K issue on that agenda of that trip? I hope it

is.

Mr. BAKER. The Y2K issue is on that agenda, sir. He is talking

to Prime Minister Makolov about the Y2K issue. It is very high on

his list. Of course, he is there looking at facilities, the work we are

doing with the Russian Navy and the other materials, protection,

control, and accounting, but the Y2K issue is very high with the

secretary, and we are really working very hard with the Russians.

We have over 45 programs that we have worked with the Russians

in the Y2K area, and it is very high on the secretary’s list.

Vice Chairman DODD. Well, great. Well, you, I am sure, will be

in touch with the office this week, and you might communicate

through the appropriate channels that this committee is deeply interested in what he learns during these next few days, and we

would love to be briefed, if we could through staff or otherwise, as

to what he learns as a result of this. And there may be some questions that come up today that would be appropriately transmitted

to him as a level of concern being expressed by members of this

committee.

Mr. BAKER. Yes, sir. I will pass that on.

Vice Chairman DODD. Let me jump, if I can, very quickly, and

then I will ask this one question, and then I will let my colleague

from Indiana pick up, and I will come back. This report that was

done under contract with the Department of Energy, the Pacific

Northwest National Laboratory report in May, I presume you are

familiar with this.

26

Mr. BAKER. I am familiar with a lot of contracts with Pacific

Northwest Labs, sir.

Vice Chairman DODD. This is one they did, the worldwide assessment, the vulnerability of nuclear power plants and electric power

grids to the Y2K bug, was the report that was done. I can just tell,

without you turning around, there are some heads behind you saying, yes, we are familiar with this. So I know that feeling. My staff

does that as well.

Mr. BAKER. Yes, sir. He is my engineer.

Vice Chairman DODD. Well, and again I appreciate the comments

here, the level of optimism you have expressed both at the outset

and the conclusion of your remarks about any kind of serious potential failure here due to the Y2K issue.

I would like to clarify, though, and you touched on it here, the

RBMK reactors or the Chernobyl-type reactors, which I have mentioned and you have mentioned, and again human error played

such a critical role there in that tragedy, there are 11 of these at

three different locations. According to experts in this report, anyway, they can only withstand, as you point out and I mentioned in

my opening remarks, a power loss of 90 to 120 minutes. What precautions are the Russians taking so that this doesn’t happen? Because we have heard there may be these disruptions that will occur

in the grids, and if you lose power for an hour and a half or 2

hours, then you do have a serious problem.

Mr. BAKER. What we are doing, sir, as you say in this type reactor, we are fixing two things right now. We are fixing the process

computer. We are building new software. We have got scanning

tools to make sure that software, that process computer in that

Chernobyl-type reactor is fixed. We also are putting in a new hardware system, computer system, in the data system in the

Chernobyl-type computer, and what that does is monitors the core

at all times to make sure that if there is anything wrong, these

things will be compatible, and the operator will have—providing

everything goes the way we are doing it right now, will have readable gauges that are accurate.

Now, what are we doing in case offsite power is lost? Well, first

of all, the plant operators have assured us that the populous will

lose power before the reactors will lose power. That is one. We have

got that assurance from the Russian Government. No. 2, we are

putting in extra diesel fuel for these diesels to operate so if something is shut down, the diesels will startup.

What we are looking at right now in the contingency plan is to

start these diesels 2 days before the year 2000 to make sure they

are running when the Y2K hour comes. So we are doing a lot of

this contingency. Operators are being trained. We are looking at

operators’ procedures. So the things that happened in Chernobyl,

like operator error, they failed to read gauges, I think all of this

has been trained out, and the contingencies we are building right

now will safeguard against this as much as one can.

Vice Chairman DODD. OK. And very quickly, Mr. Beyrle, if I

could, your testimony indicates that depending upon the severity of

Y2K problems in Russia, the U.S. will need to, and I quote, come

to a decision on the most effective response. I wonder what threshVerDate 20-MAR-2000 08:48 Mar 31, 2000 Jkt 010199 PO 00000 Frm 00030 Fmt 6633 Sfmt 6633 W:\DISC\62345 txed02 PsN: txed02
27

olds or policies currently exist which would expedite the kind of decisionmaking.

Mr. BEYRLE. Well, Senator, thank you. As we look at the problems that, you know, are starting to come into sharper focus, we

are trying to get as much information we can in the first instance

from the Russian Government, Russian agencies, on what they see

the scope of the problem as being.

Vice Chairman DODD. Can you bring that microphone a little

closer to you?

Mr. BEYRLE. And how they are set up to deal with it. At the

same time, we are consulting internally, inside the U.S. Government obviously, as part of the committees and the commissions

that have been set up to deal with this and also multilaterally with

our allies, with the EBRD, with the international financial institutions to try to come up with strategies and policies to deal with

this.

For instance, I think beginning next week or the next 2 weeks

in Prague and culminating in mid-November in Vienna, there will

be a series of meetings in which we are bringing together the operators of electricity grids in central and eastern Europe and the energy providers to try to get them together to share expertise and

solutions, put them together with our experts to give them a sense

of how we think that ought to deal with the problems. We use

those forums as a way to get a better sense of what the problems

might be, but I have to say at this point we are still gathering as

much information as we can, and we are going the need to continue

in that effort through the millennium rollover and after.

We need to prioritize. We need to come up with strategies to deal

with the disruptions that are going to hit our national security interests first and foremost. Those are the priority things that we

have to deal with, the nuclear questions that my colleagues have

talked about.

The second order of priorities, the economic and humanitarian

considerations, we will also have to deal. There are finite resources,

obviously, that we have to bring the bear on that, but we probably

are going to need to work out a fairly well-thought-out policy

framework, prioritized policy framework for responding to these

problems.

Vice Chairman DODD. We have got about 66 working days, I

count. I mean 94 days, but working days, and then we are going

to be out of session here, some would hope earlier than later, but

fairly soon, I presume sometime around the first of November or

shortly thereafter. So we will be, in terms of the Congress’s ability

to initiate, to enact legislation and things that may be needed—

now, obviously, there may be contingency funds and other ways of

getting around it, but you can appreciate my sense of some concern

here.

I will let you comment as I go out the door on this, but my concern is that coming to a decision process with so few working days

left on how you prioritize, and I think you have stated it well. I

agree with your initial prioritization that you have made here as

to what is important. I just get a little uneasy about our ability to

actually respond, to the extent that we want to be able to respond,

28

to provide the necessary assistance. It is just getting so short in

terms of time.

Mr. BEYRLE. No. I agree with you entirely, Senator, and a lot of

it depends on the Russian Government and Russian agencies, how

forthcoming they are going to be in being up front with us on the

problems that they haven’t addressed yet, and the problems that

they foresee coming down the road may be, as we have talked

about, 30 to 40 days after January 1, 2000.

This is an iterative process. We are not going to have anything

close to all the answers even on January 1st. We will need to stay

in touch with the committee, obviously, because there may be resource implications for us. Clearly, we are going to want to try to

help the Russians deal with this problem through continually providing expertise, hardware, and training, but there aren’t unlimited

resources for that.

Vice Chairman DODD. I apologize. Thank you.

Chairman BENNETT. I told the Banking Committee Senator Dodd

and I are doing tag team. I stayed there until I questioned, and

then I am down here, and he is back up there. I apologize not having been here. I have no brilliant questions.

Senator LUGAR. Senator LUGAR. Well, Mr. Chairman, I would

like to ask Mr. Warner, we have had a great deal of discussion

about the value of Russian and American military officers sitting

side by side in Colorado Springs or in the more ambitious program

that you have been negotiating, but what assurance can you give

the American people that while they are sitting there side by side,

that strategic interests of the United States, our early warning capabilities and what have you, are not compromised?

Mr. WARNER. We are ensuring both in the temporary center to

be established in Colorado Springs and as we negotiate the modalities for the permanent facility, if we do reach closure on that, that

will be established in Moscow, that in both cases we will provide

in a sense what we call filtered data from our sensors, both spacebased and ground-based radars and infrared detectors.

Senator LUGAR. Filtered data?

Mr. WARNER. Filtered data means that it will be adequate to

most certainly say there has been a launch, approximately where

it is been, what is the direction in which the missile in question

seems to be proceeding, and even a broad projection of the potential

impact area. We can do that in ways, and we have worked closely

with the space command and other military experts on this matter

to ensure that the filtering means that it is adequate to the task,

but it does not by any means reveal internal critical characteristics

of our sensors.

Senator LUGAR. Mr. Beyrle, in your testimony, you have pointed,

I think correctly, that power generation and telecommunications

are the areas of greatest concern, but can you give some idea is the

State Department continuously planning a risk assessment of what

these failures may mean? I cited the American Chamber of Commerce estimates that as much as 40 percent of transportation could

be affected for a period of time, likewise, the chunks in telecommunications, banking system, the securities markets.

In the event that these situations come to pass in that degree

with that large of a portion of the Russian economy or the Russian

29

people being poorly served, this is likely to have a lot of implications as to life in the country during those weeks and months, that

is the ability of local governments to maintain control or even more

difficult ramifications as life becomes so grim people take desperate

measures of all sorts. What kind of thinking is the State Department doing, or what sort of discipline are you applying now to try

to think through what happens in Russia if these things come to

pass, leaving aside whether the Y2K thing is being remediated in

as rapid a way as possible?

Mr. BEYRLE. Well, Senator, we are obviously concerned about

some of the worse-case scenarios that you have alluded to there. I

think in the first instance, we have tried to impress upon the Russian Government the importance of communicating with its own

people what the realities of Y2K may be and what the worse-case

potentials are.

Senator LUGAR. To what extent are they doing that? What evidence do you see of that?

Mr. BEYRLE. Frankly, as I mentioned earlier, the fact that a recent poll indicates that 50 percent of the Russian people aren’t

even aware of the Y2K problem is indicative of the fact that they

have a lot of work to do. We understand from our contacts with entity in the Russian Government which is charged with civilian disasters, civilian emergencies and natural disasters, that some areas

of the country are beginning to stockpile fuel, for example. We

heard about stockpiling diesel fuel in connection with nuclear

plants.

But it is, frankly, to our judgment at this point, not enough.

Much more has got to be done on this. I think with respect to your

question about disruptions in telecommunication and the effects

that this could have on business transactions, on essential services,

health, security, communications, there is also, obviously, a tremendous potential for disruption. I don’t think that we won’t see

this necessarily leading to unrest in Russian society.

Russians are somewhat accustomed to dealing with failure, to

making due through hardship. That is a somewhat glib response

that maybe ignores the reality that we may be looking at a situation, where for two or 3 weeks people don’t have telephones, people

don’t have electricity in their homes.

Senator LUGAR. There are, as we have cited, maybe as much as

11,000 American citizens who are in Russia presently. Perhaps this

understates the number. What is to happen to them in this period

of time? Would your advice be to leave the country, or how do they

cope?

Mr. BEYRLE. We have recently put on a consulate information

sheet to the general public and made it available to citizens living

in Russia, and also on the State Department web site, which advises citizens to take precautions and to prepare to cope with the

disruptions that may come to pass. We have tried to be very

straightforward with the U.S. public living in Russia that disruptions are likely, but as someone has pointed out, the Y2K problem

is somewhat the mirror image of a natural disaster, as with an

earthquake. You know what is going to happen. You may not know

when, but you know what is going to happen.

30

Y2K is the opposite. We know when it is going to happen, but

the consequences aren’t exactly clear. So we are trying to warn

American citizens simply that there is a potential for disruptions

and that they need to take precautions accordingly.

We do have every intention of keeping our embassies open and

staffed to provide the information services that Americans are

going to need during this time. There is no plan at present for any

draw-down of staff in Russia or any of our consulates. We are still

assessing the situation. If there were changes on the ground that

forced us to reconsider that, we would still maintain our embassies

and consulates open, and we would still maintain a level of essential services and essential staffing to deal with American problems.

Senator LUGAR. Well, that is very important. Obviously, you try

to communicate with each one of these citizens, and the Russian

Government is apparently beginning to try to communicate with its

citizens, but as you pointed out, those outside of Moscow, St. Petersburg, or urban areas, may be the most vulnerable, and these

may be the last to get the word in terms of the Russian communication system.

Likewise, what thought has the State Department given as to in

the event that these remote areas have extraordinary suffering or

even seemingly are cutoff by communications from other parts? Are

Governors of those areas capable of managing on their own? In

other words, if the central government fails in this sense or really

is ineffective, what is the status of the rest of Russia, the components as people try to deal with this?

Mr. BEYRLE. Well, obviously inherent in your question is the realization and the reality that the decentralization that has taken

place in Russia since the fall of communism has helped the situation in that the regions are a bit more self-reliant now and have

more autonomy and probably more independent decisionmaking capability. Whether they will have the wherewithal to cope with

these problems is another question.

Frankly, these are questions that we are only now beginning to

wrestle with. These are the kind of worse-case scenarios that we,

in the first instance, need to engage with the Russian Government

on. We need to ensure that they have thought through the worsecase scenarios themselves and are beginning to put plans in place

to deal with them. It is not a problem that we can solve for them.

We can provide help and assistance, but we need to make sure that

they are focused on the problem.

Senator LUGAR. Hopefully, if the Russian Government is monitoring this hearing, this will be helpful to indicate that we are concerned, and we believe they ought to be, because it is a very serious

matter, and they should be.

Mr. BEYRLE. I think you are right. This is one of many ways we

have of getting the message to the Russian people and the Russian

Government.

Senator LUGAR. Mr. Baker, just one follow-up question of Senator

Dodd’s query about nuclear plant failure. What are the problems

or the increased risks of radiation release in all of this? At some

stage, that is not the only fear people have of these instruments,

but it is a major one, and after a certain amount of shutdown, the

31

danger of that obviously increases substantially. What is your own

analysis?

Mr. BAKER. Well, Senator, you know, the RBMK-type reactor

does not have a containment device. The VVERs do have containment devices, so radiation, you know, cannot escape if something

went wrong, but we hope—and we have been working, like I say,

day and night with all these committees involved. There is over 45

committees involved with the IEA and involved with the Department of Energy on making sure that reactors operators have the

current procedures, that they have been trained, that the software

and the hardware will be fixed in these two units that I just talked

about so if something goes wrong, they can shut it down immediately.

We have the primary system that is an analog system that will

shut down immediately. So we think the radiation would be controlled, that if something goes wrong with the system, all it takes

the pin rods going right down into the reactor, and it stops instantaneously.

The big concern, of course, like the worse case-type concern, is

where you lose offsite power, and power is not provided to the reactor and the diesels do not startup or the batteries do not work and

then the cooling system does not get to the reactor and the reactor

melts down, but that is the worse-type scenario which we don’t

think there is hardly probability of that right now, but what went

wrong with Chernobyl was about everything. They didn’t follow

their gauges. The reactor, they tried to bypass some gauges that

gave different readings. So it was a training problem. It was a procedure problem, and it was a reactor problem, and hopefully those

type things have been overcome.

As I mentioned to you before, the reason—reactors in Russia do

have—are more dangerous than in the United States. We say in

our opinion they are 100 times more dangerous, but, again, we are

doing the same things at the Department of Energy as, you know,

in our nuclear safety program, and as you mentioned, design equipment, training, operational procedures. So we are saying this Y2K

event on top of it does not increase the risk, but we need to keep

working like we have been working on nuclear safety because we

need to fix the Y2K problem, and I think we have.

We are not saying, sir, we will be finished in January, because

you have got other safety systems that don’t have such a high priority as these that will not be fixed complete by 1 January; however, the primary and the backup systems, so that we won’t have

some type of catastrophic failure, we think have been fixed.

Senator LUGAR. Well, I thank you, Mr. Baker. Your testimony

and that of the other witnesses underlines the fact that rapidly in

this room we have gotten over whether the United States and Russia should be cooperating. The question is will the intensity of all

that cooperation, every safeguard we are attempting to institute at

the Department of Energy or Department of Defense get there in

time, but I congratulate the chairman again for simply pointing out

that this is the issue, the quality of the engagement, not whether

there should be engagement, because this is a crucial time for both

of our countries.

32

Mr. BAKER. I agree with you, sir. The worst enemy is time right

now.

Chairman BENNETT. Thank you very much, Senator Lugar.

I may have some additional questions, but I will submit them to

you in writing because I was not here to hear your testimony, and

thank you very much for being here today.

We will now proceed to the final panel. We have heard from Senator Lugar as our first panelist, the global overview. Then we have

heard the governmental view from State, Defense, and Energy.

Now we are going the hear from some private citizens who have

expertise in the area.

We welcome to the committee Mr. William McHenry who is an

associate professor at Georgetown. He has been studying Russian

information systems since 1978 and is joined by Mr. Richard Conn

who chairs the legal committee of the U.S. Russia Business Council, and is a lawyer as a partner at the firm of Latham & Watkins.

Gentlemen, we appreciate your patience, and we appreciate your

willingness to be with us and share your expertise.

Mr. McHenry, we will start with you.

STATEMENT OF WILLIAM MCHENRY, ASSOCIATE PROFESSOR,

MCDONOUGH SCHOOL OF BUSINESS, GEORGETOWN UNIVERSITY

Mr. MCHENRY. Chairman Bennett, Vice Chairman Dodd, and

members of the committee, thank you for inviting me to testify. In

the interest of time, I will abbreviate my remarks and ask that my

whole statement be included in the record.

Chairman BENNETT. That will be done.

Mr. MCHENRY. Thank you.

This problem in Russia is taking place against the backdrop of

extraordinary economic problems, as we have been discussing, and

considerable political uncertainty. Indeed, the outlook of Politician

Gregory Yavlinski was heard remarked that Russia’s real Y2K

problem is actually Boris Yeltsin, but we have to think really what

impact and potential failures have against such events as the gross

domestic product declining 4 percent since 1991 or, for example,

the unified electrical system saying it only has 60 percent of the

fuel oil it needs for the fall and winter season of this year.

Let me begin with my overall assessment. I agree with the assessments that have been made so far today that there will be a

certain number of outages in various systems, but I also believe

they will be local and contained and will not have an immediate

dramatic long-term effect on the economy, especially in comparison

with the other sources of problems that we have. I liken the impact

to the number of blows that are coming during the boxing match.

Many other blows are coming from other sources, and it is difficult

to say just which blow might knock out the fighter.

I think over the longer term, the key question is whether or not

there is any silver lining effect that comes from doing the remediation work. I believe that the Y2K problem may lead to greater economic efficiency, so I think on the one hand we may see some

short-term visible effects. In the longer term, the effects that could

be more serious would be more economic inefficiency. So let me talk

about why I believe this is true.

33

First of all, as I have outlined in my statement, there have been

delays in getting the work started. I have gone into considerable

detail about that. By July, the estimate was that there are 150,000

systems in the government as a whole, and about 30,000 of these

needed to be remediated, of which about 10,000 or 30 to 35 percent

had already been remediated at that point in time. So if you look

at the systems that they are going to be repairing by January 1st,

it immediately leaps to mind the fact that there are a number of

systems that they are simply skipping remediation work now that

they don’t consider to be critical. and that is one of the main

sources of the fact that I believe there will be more economic inefficiency that comes about in the months after the year 2000 comes

when they will have to deal with addressing those systems as well.

Second, in addressing the effectiveness of government policies, I

want to mention that there has been enormous amount of work

that is being done now and especially since the beginning of 1999.

You can see a mobilization that has occurred, and the mobilization

is in the area of sort of an administrative approach to the question.

It sort of resembles the old campaigns that they had in Soviet

times, and one of the things that they did was that organized a

network of centers of competency which were designed to provide

a visible place where organizations could go to get help for the Y2K

problems.

They have been certifying all sorts of different software packages. They have been certifying hardware, especially personal computers, but the one thing the government couldn’t do was to provide a lot of funding to these organizations, and since the centers

required payment, this reduced the number of clients dramatically

who were willing to come to them.

They also represent a mix. Some of leading systems integrators,

but others are remnants of the Soviet system and do not have a

particularly good reputation. By June 1999, they were present in

only about 51 percent of the administrative regions of Russia. So

I also—you know, this is additional evidence that there are some

regions that have not received the necessary attention, and there

has also been some movement to provide incentives, legal incentives. This has been a second crippling factor that has stopped the

Russians from really taking a timely approach to this.

But in July, Boris Yeltsin rejected a law that had been passed

by the Duma and the Federation Council about the Y2K situation.

So that leaves just an order that he signed in June and a lot of

orders that have been signed by the State Committee on Telecommunications which is now the lead body that is working on

this.

The third is the question of financing. I think it is interesting

that the government has consistently given very different estimates

about the costs. First, it was 500 million. Then they said it would

be two to three billion dollars. Then in May, they said it was $657

million. In June, they said it was $471 million. In July, they said

it was $538 million. Now, what this says to me is that a lot of work

is going on. It says that ministries have been refining their estimates. They have been getting more precise information. They

have been carrying out the inventories of the systems. But also, of

34

alarm is the fact that as of July, only 15 percent of the funds or

about $80 million had been spent.

Just a couple of days ago, the Duma approved a new bill to ap- propriate $800 million—I am sorry—up to $80 million for Y2K remediation, and that is awaiting the approval of the Federation

Council and Yeltsin’s signature. So this is the first time that the

legislature has actually appropriated money. All throughout 1999,

the monies have had to come from the budgets of the ministries

themselves.

Also, a recent development is the State Committee on Telecommunications has finally been given the green light to seek a

$50 credit to buy hardware and software in the west for possible

delivery in October or November. This is something that has been

discussed for many months, but it is different to believe that any

systems based on this equipment would be able to be ready by January 1, 2000.

And, as we have discussed, very limited information is available

about private firms, how much they have taken up they problem.

However, a representative from Novell recently told me that they

have seen a very large rise in business from government institutions and industrial enterprises in the second and third quarter of

1999, and that official at least believes that 90 to 95 percent of

their customers will actually be ready.

Now, in terms of the energy area, the unified energy system has

taken a very serious approach, in my opinion. As of July 1999, they

were saying that 35 percent of their critical systems had been modernized or put back into service, but they had only spent about 20

percent of the $30 million they felt was necessary. The oil and gas

companies seemed to be in better shape with much lower percentages of unremediated systems.

The central bank has reported that 80 percent of banking organizations have now remediated and are testing their systems, and

evidence of that is that they have been able to carry a large-scale

integrated test involving four different regions of the country. I believe that there is enough work going on there, and it has been

going on for long enough and that the package software has been

remediated that we don’t expect a major meltdown there.

In the telecommunications sector, I agree that there are major

potential problems there; however, again, the FAPSI which is the

sort of former KGB arm for telecommunications, stepped in in July

and began testing local telecommunications systems, and in this

administrative approach, the pressure is being put on, and typically, you know, the history of the Soviet system is when attention

is focused on certain problems in a very specific and very focused

way, that they tend to fix those problems. They can’t fix all of the

problems that arise in the economy, but they can do the ones that

are the most highest priority.

So I am a little bit more optimistic than what has been said so

far in the hearing today. I believe that in measure of the risks that

are involved, that they will be able to remediate the major systems

that need to. So let me finish by talking about the longer term impact on the economy.

I believe that there are less noticeable effects which will increase

inefficiency due to local infrastructure problems, due to manual

35

processing that may be necessitated by internal systems that don’t

work or insert bad data or because new systems haven’t been purchased and that there will be the continued need for those other

systems that won’t be ready that they have had to put to the side

for the time being.

So I believe that we should focus in our policy area in first of all

making sure that we do the kinds of things that we have talked

about, in forestalling catastrophic failures for areas like nuclear

power plants, but then we have to choose what kind of silver lining

we might want to provide for them. and I am of the opinion that

a lot of economic activity in Russia takes place through barter. It

is helping to keep alive a lot of enterprises which are not providing

positive economic benefit for the economy. So if we were to provide

resources to replace the computers that are in those enterprises, we

might actually simply be prolonging the agony of that sector of the

Russian economy.

On the other hand, giving help to small businesses that have no

means to carry out remediation could be a way to provide the same

kind of silver lining that a lot of western firms have been getting

from this, and these include the most aggressive users of the internet, which may number about 1.5 million right now, and businesses that are more vulnerable to economic shocks because they

are dealing in case rather than in bartered goods.

So, in conclusion, let me say that any time we speak about the

longer term impact of policies in Russia, we have to think about

how to encourage the formation of the necessary conditions for true

economic reform. Many believe that an important part of the answer is building the civil society based on the rule of law that protects business activities in a stable climate. Investment in basic institution-building, such as education, may be a better long-term use

of funds than supporting Y2K remediation expect in the most critical areas. Without stronger fundamental institutions, the Russian

economy may still be lurching along from one crisis to the next long

after the Y2K problem has faded from memory.

Thank you.

Chairman BENNETT. Thank you very much.

[The prepared statement of Mr. McHenry can be found in the appendix.]

Chairman BENNETT. Mr. Conn.

STATEMENT OF RICHARD A. CONN, JR., U.S.-RUSSIA BUSINESS

COUNCIL, PARTNER, LATHAM & WATKINS

Mr. CONN. Good morning, Mr. Chairman and Senator Lugar. I

am appearing before you today in my capacity as the chairman of

the Legal Committee of the U.S.-Russia Business Council, an organization made up of approximately 250 U.S. companies active in

Russia. It is a great pleasure and honor to provide a perspective

on the potential effects of Y2K upon business in Russia in the short

term and long term based on my years living in Russia in the early

1990’s through the mid–1990’s and my work on behalf of clients

since then.

It is important, in my view, to begin by putting in context Y2K

problems as they affect Russia. Since we have been discussing different analogies, I would look at Y2K as simply a part of a tidal

36

wave that has hit Russia over the past several years and would

note that whether that tidal wave is 31 feet or 30 feet may not

make that much of a difference to the typical Russian.

It is difficult to keep track of the number of governments that

Russia has had come and go over the past 2 years. During that

same timeframe, Russia suffered a knock-out economic blow which

you, Senator Bennett, alluded to. With the simultaneous difficulty

of its government debt and massive devaluation of its currency,

Russia’s banking system, which never had been particularly robust,

was left in a shambles, causing even greater reliance upon barter,

an inefficient economic system.

The world came quickly to see what happened to those involved

in Russia for some time, namely that the Russian Government was

virtually bankrupt, living off of borrowed funds, and Russia had an

insufficient economic base from which to service its debt. Russia

simply had not sorted out precisely how it was going to make a living, and to date it has still not succeeded in producing significant

goods and services either for its own consumers or for foreign consumers to buy.

More recently, Russian governmental structures have suffered a

crisis of confidence as the world has come to see with ever greater

skepticism that information provided by Russian governmental entities is questionable. On top of this, regional disputes in Russia

have boiled over into the heart of Russia’s capital as terrorist

bombs have turned Moscow into an anxious city, cracking down on

people whose physical appearance categorizes them in the minds of

law enforcement as sympathetic to the views of southern republics.

It isn’t hard to understand why Y2K issues have not registered

in Russia with the residents that they have in more developed

western countries. Indeed, as a matter of priority, that the U.S.-

Russia business council itself attempted to establish with Russia,

Y2K has not in all candor been near the top of the list. This is not

due to our view that Russia will avoid hardship as a result of Y2K.

It will not. But rather, because of the political reality is such that

Russia simply cannot focus significant attention on this issue, due

in part of the press of other matters and also to the lack of financial wherewithal to address the problem, even if it wished to do so.

For these reasons it is perhaps surprising that Russia has done

as much as it has to address Y2K matters. As noted in my written

statement, there are certain sectors of the Russian economy in

which Russia has made some progress, particularly with respect to

large companies where financial resources and understanding of

Y2K issues are greater.

I concur with the assessment of my colleagues at the American

Chamber of Commerce in Moscow which were quoted at length by

Senator Lugar. These provide a sense of the gravity of the situation. In addition, I view the State Department’s perspective as a

fair prognosis of Y2K’s effect in Russia. The State Department

noted that the country appears to be somewhat prepared to deal

with Y2K problems but anticipated disruptions in key sectors of

electrical power, heat, telecommunications, transportation, financial, and emergency services.

In response to these reports, Russian officials characteristically

played down the potential for disruptions. They continue to mainVerDate 20-MAR-2000 08:48 Mar 31, 2000 Jkt 010199 PO 00000 Frm 00040 Fmt 6633 Sfmt 6633 W:\DISC\62345 txed02 PsN: txed02
37

tain that computers which support Russia’s vast infrastructure continue to be checked and worked upon to prevent the bug from disabling key sectors. The credibility of these reports, in my judgment,

is weakened by inconsistencies and lack of verification.

Let me turn, then, to likely steps that we can see in the final

days of this year from Russia. As outlined in my written statement,

there are a variety of steps that Russia can take to continue the

preparations it has already undertaken to deal with Y2K matters.

These include, for example, setting up a committee to coordinate

emergency measures as they arise now and in the beginning of the

year 2000.

I believe it unlikely, however, that Russia will significantly gear

up its efforts at this time. The reasons for this are essentially the

same reasons that explain Russia’s failure to act decisively to date.

These include five factors: first, the lack of financial resources

which were alluded to by my colleague. Russia has already reduced

its estimates with respect to the cost of Y2K compliance from somewhere in the area of one to three billion, down—at least the latest

I have heard—to below $200 million at this stage and without explanation as to why those estimates have been reduced; No. 2, ongoing lack of governmental leadership and coordination; No. 3, lack

of political rewards for dealing with Y2K issues; four, other issues

that are perceived as more pressing from Russia’s perspective; and

five, a cultural bias against reacting until a problem is clearly

manifested.

Accordingly, while we can all hope to see greater progress during

the next couple of months, we should not expect any type of additional effort over that time. Again, I would except from that the

matters that Senator Lugar was alluding to previously dealing

with security and energy-related matters having to do with nuclear

safety issues.

As to short-term effects upon the Russian economy and potentially upon U.S. business, Russia’s severe and economic political

difficulties unquestionably pose the greatest threat to its citizens

during the cold and dark winter months ahead. Last year, for example, there were many regions of Russia that were simply unable

to obtain the basic necessities of food and heat during the winter

months. The last thing that Russia needs is a Y2K bug that can

only make matters worse. Unfortunately, that is precisely what

Russia is going to get.

Accordingly, I believe that in the short term the combination of

existing difficulties and the added Y2K-related failures will make

more severe and more widespread the electrical power, heat, telecommunications, transportation, financial, and emergency service

failures that had been visited upon Russia in the past. It is, however, noteworthy that since all of these sectors traditionally suffer

period failures within Russia, it is probably not likely that Russians themselves will perceive the failures as magnitudes more severe than during last winter or that they will ascribe failures to

Y2K.

Moreover, the ability of Russia to deal with inefficiencies and political and economic failures through working around problems,

combined with their pride and being able to withstand hardship,

will work to minimize the manifestations of Y2K within Russia. In

38

addition, the effect upon Russia will, in some small way, be cushioned by the fact that some Russian technology was purchased

from the west in recent years and is Y2K compliant.

More significantly and on the other hand, a part of Russia is simply not linked in with the high-tech world, and therefore is unlikely

directly to feel the effects of Y2K. The country, of course, will indirectly feel those effects through the lack of basic supplies as an already highly inefficient economy grinds even more slowly.

Turning then to long-term effects, after adjusting during the first

half of the year 2000 to the effects of the Y2K bug, it would not

be surprising to see the issue largely disappear from the political

and economic extreme in Russia as it is overtaken by more high

profile issues. Russia may well find itself paying the price for creating an unattractive investment environment that has driven

away domestic and international investors, as well as domestic and

international talent from Russia. This may translate into a lengthy

period of time during which is difficult for Russia to acquire the expertise and investment needed to truly solve Y2K problems after

they have gone through a period of ‘‘workarounds’’. In addition, it

will, in all likelihood, delay and extend the time period Russia

needs to become aware of Y2K-compliant computer technology from

the west in the future.

In sum, I would anticipate that the effects of Y2K will linger far

longer in Russia than they will in western countries that are better

prepared on all levels to effectuate long-term solutions. In conclusion, while other countries no doubt will feel the economic effects

of Russia’s failure to prepare adequately for Y2K, sadly for Russia

and its citizens, it itself will feel the brunt of the blow most dramatically. Ironically, given the heavy burdens that Russia already

carries and the difficult life being led by its people today, it is not

likely that Y2K will be identified as the source of the hardships.

Rather, Russians will, in all likelihood, see little relationship between Y2K and their difficulties and will, accordingly, continue not

to place a high priority on solving Y2K problems.

Mr. Chairman, thank you very much for affording the opportunity to join Professor McHenry and sharing my thoughts with

you today.

[The prepared statement of Mr. Conn can be found in the appendix.]

Chairman BENNETT. Thank you very much for your insight. Let

me ask you a totally personal question. The last time I was in Moscow, I dealt with Richard Werthlen of Latham and Watkins. Were

you there on station the same time he was there?

Mr. CONN. Actually, Mr. Chairman, Mr. Werthlen, a good friend,

came in to relieve me. I founded our office in 1991, end of 1991,

and stayed there until Richard and his many children joined us in

1995.

Chairman BENNETT. OK. Well, he was very helpful on the issue

that I was in Russia trying to deal with, and I am grateful to him

and to Latham & Watkins for having him there. Is he still there?

Mr. CONN. Actually, he just recently left to return to Los Angeles. We have a new head of our office, one of my other partners,

Sonia Golden.

39

Chairman BENNETT. Well, maybe it is a good sign for the long

term that you keep office there. You assume that sooner or later

Latham & Watkins will make some money out of Russia.

Mr. CONN. We would like to think that. We and all the other

U.S. businesses over there tend to be a fairly hearty group that are

ready for the rough roads.

Chairman BENNETT. For a long time.

Your testimony reminds me of a summary that we received on

this committee. We sent two consultants to Russia, and to a number of countries around the world. They came back with their summary country by country, and the written summary, of course, was

appropriately couched, but in the personal briefing, the lead consultant said to me, Nothing is going the work in Russia, and nobody is going to notice because nothing works now.

And that is kind of what I am hearing from the two of you. We

could get into Chekov and Dosdieski and so on about their capacity

for suffering. You have referred to that. But let us pick up on the

comment about the connections with the rest of the world.

Gazprom not only provides natural gas for Russia but provides

a very substantial amount of natural gas for western Europe. We

can’t get any answers as to what is going to happen in Russia beyond what I think the two of you have given us in your formal

statement. But let us talk for just a minute about the impact a

Y2K failure could have on eastern Europe and western Europe and

other people who are more dependant on Russia for natural resources than, say, the United States is. Do either of you have a reaction to that?

Mr. MCHENRY. The only thing that I can say about that is that

Gazprom has been working on the problem since at least the beginning of 1998, if not earlier, and now reports that only 7 percent of

its systems are remaining to be remediated and also using a lot

less computerization in general and is one of the richest organizations in Russia and has been installing SAPR–3, which is a

major—it is called an enterprise resources planning package. It has

been a similar solution adopted by a lot of western large multinational corporations to deal with their Y2K problem. So I am pretty hopeful about Gazprom and the fact that they are not going to

have serious reductions in shipments.

I also say this: If anybody is going to reduce shipments because

of Y2K, it will be inside the country. It won’t be outside. So I am

not seeing that as a significant threat. You might have a different

opinion.

Mr. CONN. I would concur particularly with that final point that

given desirability of raising hard currency, that it most likely

would be domestic consumption within Russia that would be affected rather than foreign consumption, but we certainly have seen

information indicating that—as you know, Gazprom is primarily involved in the transport of oil and gas, and we have seen information indicating that they do have many stations embedded with

microprocessors that are located in Siberia and would have difficulty accessing those.

So I remain concerned that there will be interruptions, despite

the fact that Gazprom certainly is well-capitalized at this stage.

40

Chairman BENNETT. So if there is—just to pick a number out of

the air, if there is 25 percent loss in ability to produce and deliver,

that will all come out of the Russians’ hide, and the 75 percent that

works will still be exported to the west.

Mr. CONN. I would think that would be tempered somewhat by

the political pressures that would be brought to bear, but generally

the pattern has been that oil exports, both legal and illegal depending on the regime in place at the time in Russia, have continued

due to the market forces at work there, and I would expect that

continue.

Mr. MCHENRY. Yes. No more comment.

Chairman BENNETT. You may not be the ones to ask this question of. I perhaps should have asked it to the previous panel, but

given the amount of time that they had taken and my desire to get

to this panel, I didn’t want to prolong their being here.

The American news media has talked about ‘‘Moonlight Maze’’.

This is a classified event, and so I have to be very careful about

how much I talk about it publicly, but it has been identified in

Newsweek and other sources as an attempt on the part of the Russians—they assume the Russians—to break into a variety of computers in the United States. And very recently, in the midst of Y2K

and the lack of resources and the discussion of how much money

they need from the west to help them, the prime minister recently

signed an order authorizing—if I pronounce it correctly—

Goskomtelekom to seek $50 million in credits to buy hardware and

software in the west with the expected delivery in October or November.

It is hard to believe that that will go to Y2K remediation, but

may be an attempt to increase—well, specifically they are saying

they want to increase the number of Russian connections with the

American internet and the amount of Russian involvement with

the internet. That would suggest—and I don’t want to go any farther than that because it is total conjecture, but that would suggest

that their priority in the high-tech area has more to do with some

kind of intelligence-gathering information with respect to American

industry than it does with Y2K remediation and workarounds in

their own society.

Do you have any reactions to that or comments about that? Is

this just paranoia that is left over from the cold war that we need

to put behind us? Or is this, indeed, another demonstration that

the Russian leadership might be willing to allow their population

to continue to suffer as they try to pursue some geo-political goal?

You can answer better than the folks from the Government because

you can speculate and they don’t dare.

Mr. MCHENRY. Well, one thing I can say about that is that when

this purchase was originally discussed in the press, at least back

in July, the head of the State Committee on Telecommunications

indicated that this might be a risky purchase for Russia because,

in fact, Americans might try to embed intelligence-related functions

in the computers that they would purchase. So I think that was a

theme that was also struck by some of the military people who

were setting up the joint early warning system.

So I think that there may be more paranoia or at least the same

amount of paranoia on our side as there is on our side.

41

Chairman BENNETT. I have never underestimated the Russian

capacity for paranoia.

Mr. MCHENRY. But by the same token, I do think that this represents a serious attempt to plug holes in critical systems because,

as I have indicated in my writings, there are a certain number of

old Soviet-era mainframe computers that are hanging around from

the late 1980’s that are in functions that would seem to need to be

replaced, and I think that this funding may have more to do with

replacing those and plugging some holes in critical systems than it

does in increasing capacity to get to the internet.

So I would tend to think it is more not as serious a concern, but

I would also say that any funding that we give them, any aid that

we give them in this area, should be carefully monitored, just as

we may have been or should have been doing in the past to see

that it gets where it is supposedly going.

Mr. CONN. I would only add, although this is certainly far afield

from the area that I normally focus upon, that in preparation for

my testimony today, I certainly spoke with contacts in Russia regarding Y2K compliance issues and was struck by the amount of

information that seemed to be coordinated by FAPSI and by the

FSB, the successor to the KGB, which certainly, when you are dealing with Russia and Y2K and dealing with computers and technology, does take a leadership role.

Having said that, I would simply urge the same caution that my

colleague mentioned in taking a close look at the transaction, but

I would not have a view as to whether any level of paranoia is appropriate in this specific case.

Chairman BENNETT. OK. You talked of silver linings. One of the

silver linings that we have found in this committee with respect to

domestic situations is that some of the least prepared sectors of the

economy, as they react to the Y2K challenge, are in fact making

investments that they should have been making and were postponing. The original thought, which was that all Y2K expenses

would simply be sunk costs and produce no return on investment,

has given way to a recognition that, in fact, there will be some return on investment because of the modernization impact.

Can you comment on how much if any of that phenomenon will

occur in the Russian activity?

Mr. MCHENRY. Yes. I think there is not going to be a very large

silver lining effect of that at all in Russia, and the reason for that

is the installation of new information systems has to go hand in

hand with other parts of the economy that exist to support them,

and there is a good reason why very little of the Russian economy

is currently set up with just-in-time manufacturing or the kinds of

real-time information exchanges that we fear will be destroyed by

the Y2K bugs in the United States, and that is because the economy simply isn’t functioning at that level of sophistication for the

most part.

So I think, as my colleague said, at a certain time in the future

when it becomes more attractive for investment that it will be necessary to invest in information systems along with the rest of the

infrastructure and simply build whatever new industry is going to

be built from scratch at that time. So investing in the information

systems now, in fact, could be counterproductive in a lot of those

42

places except in supporting small businesses that, in my opinion,

have already made that leap and are functioning on a capitalistic

basis, which is largely in Moscow and St. Petersburg and just a few

other places.

So I don’t see much of a silver lining from that kind of investment. I do see the potential silver lining from increased contingency planning, from bringing the conditions that have been created that will go across ministry boundaries, may actually help the

Russians to deal with some of the more severe problems in the future.

Mr. CONN. Yes. I could concur and just add that I think the opportunity here, the silver lining, is in the area of engagement that

Senator Lugar spoke of as did the previous panel. Those opportunities certainly should be seized upon and built upon and make the

best of obviously a difficult situation.

Chairman BENNETT. Thank you very much. I appreciate the outside kind of view that you give here that complements the inside

bureaucratic view that we have had. Bureaucratic is not necessarily bad. That is why we have bureaucracies, to get us some

of this information.

I am grateful and thank you again for your participation and

your preparation. The committee stands adjourned.

[Whereupon, at 12:23 p.m., the committee was adjourned.]

(43)

APPENDIX

ALPHABETICAL LISTING AND MATERIAL SUBMITTED

PREPARED STATEMENT OF KENNETH BAKER

Thank you Mr. Chairman and members of this Committee for the opportunity to

appear before you today to present this statement for the record on the Department

of Energy’s activities to address the year 2000 (Y2K) computer problems of Sovietdesigned nuclear power reactors.

I commend the work this Committee is doing to highlight the importance of the

year 2000 issue in both the United States and internationally. I look forward to

working closely with this Committee, particularly as it relates to the 68 Soviet-designed power reactors located in the New Independent States (NIS) and in Eastern

European Countries. Today, I will briefly review our ongoing activities to improve

the safety of Soviet-designed nuclear power reactors to provide you the context for

today’s year 2000 discussion. I will then discuss our understanding of year 2000

problems that exist at these plants and review the actions we have already taken

to assist in reducing the risk of an accident. Finally, I will describe our path forward

through the end of this year.

AT the outset, however, I wish to emphasize that the Department is providing assistance to countries, not managing their Y2K remediation efforts. The Department’s experts have held many meetings with the host country’s experts and visited

several of their nuclear power plants to evaluate their Y2K needs. Although some

Soviet-designed nuclear power plants continue to be at higher risk of a nuclear accident due to difficulties in design and operating conditions, based on our current information and the ongoing Y2K-related work being done at the nuclear facilities, we

conclude that there is not a significantly increased risk of a nuclear accident due

to a Y2K event. The Department’s experts expect the primary safety systems to continue to function properly to shut down the plants safely, if needed, during a Y2K

event. However, there are Y2K issues with other systems important to safety and

normal plant operations that, if left uncorrected, could compromise nuclear safety.

We are continuing to work with the host countries to address these issues.

Ongoing Activities to Improve Safety

The 1986 disaster at the Chornobyl nuclear power plant revealed many flaws in

the Soviet approach to nuclear power. The reactors and nuclear infrastructures left

behind by the Soviet government continue to operate in nine countries. These reactors, including one that still operates at the Chornobyl site, suffer from deficiencies

in training, safety procedures, design, and equipment. Some problems have been exacerbated by the breakup of the Soviet Union—equipment shortages are commonplace and many nuclear professionals suffer from low or erratic pay. If not corrected,

these conditions pose a continued risk of a reactor accident in Ukraine, Russia, Armenia, Kazakhstan, Lithuania, Slovakia, Czech Republic, Hungary, and Bulgaria.

The current year 2000 concerns are only a portion of our continuing concerns.

If another major nuclear accident occurred, the United States and the international community would be forced to deal with the political, economic and environmental destabilization of politically sensitive regions. This concern led the U.S.

Government to conclude that enhancing the safety of Soviet-era nuclear reactors

and establishing improved safety infrastructures in the countries that operate them

is a vital national security interest of the United States. The U.S. and other Western countries have the technologies and skills to work with these nations to address

nuclear safety challenges with a relatively modest investment. Rather than providing billions of dollars in foreign aid to correct all of the problems directly, the

safety program helps the host countries structure their nuclear industry to address

safety issues, to prevent accidents, and, as their economies improve, to increase

44

their own funding for nuclear safety. These activities are critical to preserving these

emerging, democratic, free market economies.

I am proud of the progress the Department of Energy has made to improve the

safety of Soviet-designed nuclear power plants and in establishing self-sustaining

nuclear safety infrastructures in these countries. The Department is working with

the host countries and the personnel at all 68 nuclear power reactors, which are located at 23 sites. There are several different designs, including the RBMK, or

Chornobyl-type, the VVER–440 and the VVER–1000. The greatest safety concerns

pertain to the RBMK and early models of the VVER–440. We are addressing the

most serious risks at these reactors by improving the plants’ physical operating conditions, installing safety equipment, developing improved safety procedures, establishing regional centers for training reactor personnel, and conducting in-depth safety assessments of the operating plants.

Some understanding of the actual risk can be achieved based on recently completed probabilistic risk assessments performed by international experts at two

RBMK plants; one at the Ignalina plant in Lithuania and another at the Leningrad

plant in Russia. Regardless of the year 2000 situation, if no safety upgrades were

performed, risk experts calculate that the frequency of a core meltdown accident at

an RBMK reactor is approximately one-hundred times higher than at a typical U.S.

nuclear power plant.

Unlike U.S. plants, RBMK reactors do not have containment structures, making

the consequences of a core meltdown even more severe.

The Department is also working to convert the operating modes of the three nuclear production reactors located at Seversk and Zhelenogorsk in Russia to enable

the reactors to continue operations without producing weapons grade plutonium.

These plants are old and have some of the same serious safety issues associated

with RBMKs.

Accomplishments of the Department’s program range from installation of safety

parameter display systems at the Chornobyl plant in Ukraine and the Kursk plant

in Russia, to completing training for thousands of reactor staff at the Balakovo

training center in Russia and the Khmelnytskyy training center in Ukraine. Equipment, such as pipe lathe and welding equipment, firedoors, back-up generators, dry

cask spent fuel storage systems and additional safety equipment and materials, has

been delivered to plants throughout the former Soviet Union. The list of accomplishments to date is extensive, and the equipment and other activities are having very

positive impacts on the safety of operations at these plants.

The Year 2000 Problem at Soviet-Designed Nuclear Power Plants

The U.S. Department of Energy is working closely with the International Atomic

Energy Agency (IAEA) to help resolve year 2000 (Y2K) issues associated with Soviet-designed reactors. The Department has received requests from Russia, Ukraine

and other countries for Y2K assistance in the nuclear power sector. The Department

is responding to these requests by assisting these countries in their efforts to address safety-related Y2K issues at their reactors. Let me briefly state the objectives

of our Y2K initiative for Soviet-designed reactors and outline our accomplishments

thus far. Then, I will summarize the current status of the ongoing work and the

path forward.

Purpose and Objectives

the goal of the Department’s program is to assist countries with Soviet-designed

reactors address safety-related Y2K issues. We are helping to ensure that Y2K

events will not cause an accident or significant challenge to plant safety. We have

been working in cooperation with the host countries since 1998.

Accomplishments

Most of the contributions we made early on were in the form of workshops and

training, sometimes bilaterally with the host country, at other times in conjunction

with the International Atomic Energy Agency (IAEA). The IAEA has developed

guidance for conducting Y2K evaluations at nuclear power plants based on the Nuclear Energy Institute Y2K assessment guidelines used in the United States. The

Department initially conducted an October 1998 workshop in Moscow on Y2K issues

for nuclear power plants in Russia. This workshop was hosted by the Russian utility

that manages nuclear power plants, Rosenergoatom. A similar workshop was conducted in March 1998 in Kyiv, Ukraine. This workshop was hosted by the utility

responsible for Ikraine’s nuclear plants, Energoatom.

We supported a training workshop on the IAEA’s Y2K Guidance Document for

member countries in Vienna, Austria on January 25 through 29, 1999. The guidance

helps to standardize the efforts across all the nuclear power plants. We sponsored

the development of software to assist plants with using the IAEA Y2K Guidance

and in sharing information gathered via the Internet.

45

Transmission and distribution of electric power is another significant Y2K issue.

We conducted Transmission and Distribution Year 2000 Information Exchange

Workshops in Moscow, Russia in February 1999 and in Kyiv, Ukraine in March

1999 to assess current Y2K programs within the Russian and Ukrainian transmission and distribution systems.

To assist in implementing the IAEA guidance, we sponsored the development of

draft procedures to conduct an IAEA Y2K Guidance-based assessment process.

To gain a plant perspective of how the Y2K assessments were going, we participated in Russian reviews of the ongoing Y2K evaluation work at the Beloyarsk and

Kola nuclear power plants. In addition, we have visited the Leningrad, Chornobyl,

Zaporizhzhya, and Armenian nuclear power plants and have met with representatives from almost all the Soviet-designed reactor facilities during meetings in Moscow, Kyiv, Vienna, and the U.S.

A technique that proved valuable in our other safety work was arranging visits

to U.S. nuclear plants to observe how US plant managers dealt with specific issues.

In this instance, we sponsored visits in July to the Surry and Calvert Cliffs plants

for Russian Y2K specialists and the San Onofre and Palo Verde for Ukrainian representatives. During the visits, they reviewed U.S. Y2K assessments, the remediation work completed, and the process of developing contingency plans. Part of the

team was made up of Y2K specialists from the Russian and Ukrainian nuclear regulatory organizations.

Also in July, we supported an IAEA Information Exchange Workshop for member

countries in Vienna. This provided an opportunity for discussions of the ongoing

Y2K work in each country.

The week of July 26, we sponsored the training of Russian, Ukrainian, and Lithuanian personnel in automated software scanning tools. Such tools can much more

rapidly and accurately scan lines of computer codes than laborious manual reviews

during assessment and remediation efforts. The Department has provided a countrywide license for this tool for use at nuclear plants and transmission and distribution

centers throughout Ukraine. The Department also provided funding to Ukraine for

the computers and personnel to operate the software. These actions will improve the

manual process that was being used in Ukraine to review and change the date-sensitive parts of the computer programs. Software licenses for the scanning tools also

were provided for both units at Ignalina plant in Lithuania.

Summary of Our Current Knowledge of the Situation

I am pleased to say that initial complacency in some countries with Soviet-designed nuclear plants has greatly improved. Although some Y2K response efforts

were only begun within the last year, significant progress is now being made. Most

of the host countries are following the IAEA guidance closely when conducting Y2K

assessments of their nuclear plants and electrical transmission and distribution facilities.

Equipment provided by the United States has been carefully evaluated for Y2K

safety concerns. This evaluation and follow-up remediation has ensured that no

equipment provided by the United States will cause a Y2K safety problem.

Based on recent information, Russia, Ukraine and other host countries have established adequate Y2K programs. We have categorized their programs into four

phases. Phase one is inventory/preliminary assessments; phase two is detailed assessment/testing; phase three is remediation; phase four is contingency planning. Of

the 68 nuclear reactor units in the nine countries of the former Soviet Union, 50

have completed their phase two detailed assessments and testing activities. Each of

the 50 is underway with its phase three remediation activities. The remaining nuclear units are proceeding to complete their detailed assessments and testing activities. Of the total, 45 have begun developing their phase four contingency plans.

Our understanding of each country’s Y2K program for its nuclear power plants

is shown in the attached Table, ‘‘Summary of Y2K Compliance at Soviet-Designed

Reactors, September 1999.’’

While much work remains to be done, let me emphasize that current information

indicates that there are no known Y2K problems with the primary reactor safety

systems. These systems detect problems and automatically shut down the plant.

Therefore, if something goes wrong at the plant, we expect that the primary safety

system will continue to function properly and shut down the plant safely.

Not all the countries are at the same stage of readiness, however, Russia has established a well-organized and aggressive, if under-funded, Y2K program. Each

plant has reported that it has completed its preliminary and detailed assessments,

although the depth and accuracy of these assessments are not completely known by

us. The nuclear power plants in Russia plan to complete remediating their important systems in October 1999. On the other hand, Ukraine has developed an assessment plan, but until lately had only completed limited assessments. The DepartVerDate 20-MAR-2000 08:48 Mar 31, 2000 Jkt 010199 PO 00000 Frm 00049 Fmt 6601 Sfmt 6621 W:\DISC\62345 txed02 PsN: txed02
46

ment of Energy is partnering with the Science and Technology Center in Ukraine

to work with the Ukrainian utility and nuclear power plants to conduct systematically a slightly varied implementation of the methodology described in the IAEA

Y2K Guidance document. Ukraine plans to complete its remediation activities by

November 1999.

There are Y2K safety concerns with nuclear power plants in Russia and Ukraine.

Specifically, systems without direct safety impact, but that are important to safety,

have known Y2K problems. Common to both RBMK and VVER reactors are monitoring computers, such as the plant process computer. This computer monitors conditions within the reactor and provides information to the operator. The operator

uses this information to make various adjustments to the plant, such as moving control rods or changing flow rates. Failure of the plant process computer is not an immediate safety concern, but regulations require that the plant be shut down within

a few hours or less, if the computer is not restored to full operation. RBMK plant

process computers are known to suffer from both hardware and software Y2K

vulnerabilities, while at VVERs problems are generally confined to software issues.

The radiation monitoring system, which is a system important to safety, is another system at Soviet-designed reactors with known Y2K vulnerabilities. The operator of the nuclear facility would be required to shut down the reactor if it failed.

The security access system, which allows personnel access to parts of the nuclear

plant to check on the performance of equipment and instruments, is also known to

have Y2K vulnerabilities. Other systems that are Y2K vulnerable, for example, are

the ancillary systems connected to the plant process computer to calculate the state

of the reactor core. The core monitoring software that calculates the power distribution in the nuclear core and the fuel management system that calculates the nuclear

fuel that is burned are also Y2K vulnerable. Failure of each would require the operator to shut down the reactor.

There is concern that, if not fixed, these problems could result in the simultaneous shut down of several nuclear plants, causing disruption of power supplies in

the middle of winter. In 1997, the nuclear power plants in Russia produced 14 percent of the nation’s electricity; in the far western parts of Russia, the share was

nearly 25 percent. The Kola, Leningrad, and Smolensk nuclear power plants supply

half of northwest Russia’s electricity requirements. In 1997, Ukrainian nuclear

power plants produced 47 percent of the nation’s electricity. Thus, shutting down

these reactors could have a serious impact on the populace. Alternatively, there may

be pressure to keep the plants running, even without the plant process or other

monitoring computers, which would then create a safety problem. In general, the

Russians report that they have remediated their plant process computer software

vulnerabilities using a manual review process. Work is in progress in Ukraine to

remediate these same problems using tools provided by the Department.

Moreover, the following Y2K safety concern exists in all the host countries. Y2K

problems may originate within the electrical transmission and distribution system

and cause an unplanned reactor shut down (referred to as a loss of off-site power

accident).

Russian and Ukrainian transmission and distribution experts have stated that

they have found Y2K problems with their automated systems; however, they are

confident that they can operate their systems in a manual code and avoid any unplanned disruption of electricity supplies to the nuclear power plants. The situation

in the other host countries is expected to be similar. Host-country experts are more

concerned that Y2K would cause the nuclear power plants to shut down which

would in turn cause disruption of electric supplies. Any unplanned shut down due

to a loss of off-site power poses risks to the safety of the nuclear power plants, because emergency battery and diesel power systems must function properly to ensure

plant safety.

The Department has discussed with Russian and Ukrainian government officials

the importance fur sufficient supplies of diesel fuel to power the back-up electrical

generators, if there were a loss of off-site power event caused by Y2K. Our experts

also are meeting with the nuclear power plant staffs to better assess the adequacy

of diesel fuel supplies.

The host countries in conjunction with the Department of Energy are working to

develop contingency plans to address these Y2K concerns. These plans help plant

operators understand possible Y2K problems that may occur and establish procedures to address potential problems. The plans would help prevent operators from

inadvertently creating a worse situation due to inappropriate operator actions.

Path Forward

Based on meetings at the IAEA and discussions with the host countries, the countries of Bulgaria, Czech Republic, Hungary, Lithuania, and Slovakia appear to be

adequately addressing Y2K issues. Kazakhstan has permanently shut down its

47

BN350 reactor, limiting Y2K assistance to equipment for monitoring the plant during shut down and its spent fuel. Therefore, the Department is focusing its assistance in the countries of Armenia, Russia and Ukraine, with limited assistance to

Kazakhstan.

In most countries, the preliminary and detailed assessments are complete or are

nearly complete. In Russia, the Department’s efforts complement the efforts of the

International Science and Technology Center. The Center is pursuing a program at

Russian nuclear power plants to help verify the preliminary and detailed Y2K assessments that the Russian nuclear power plants had completed before using systematic guidelines. The Center plants to complete those assessments that are either

deficient or incomplete according to their established Y2K guidelines. The Russian

utility, Rosenergoatom, provides the results of the assessments sponsored by the

Center directly to the Department which in turn develops a Y2K remediation assistance strategy for the nuclear power plants. The Department’s remediation assistance complements the existing Y2K programs at the nuclear power plants.

In addition, the Department has participated in two Russian reviews of the Y2K

evaluations conducted at Russian nuclear power plants. These reviews were held at

the Beloyarsk and Kola plants. The Department experts will also participate in a

review at the Bilibino plant (near Alaska) in mid-October.

Similarly in Ukraine, efforts will continue under the partnership with the Science

and Technology Center in Ukraine, Ukrainian institutes, and nuclear power plants

to implement, with slight variances, the IAEA Y2K guidance at all the plants. This

will complement the work already completed with the IAEA’s help at Chornobyl

Unit 3, Zaporizhzhya Unit 6, and South Ukraine Unit 3. The Department works

closely with the IAEA during its ongoing reviews of the assessment efforts in the

host-countries.

The Department is providing assistance in remediating identified Y2K problems

in Russia, Ukraine, Kazakhstan and Armenia. Because of the assessment efforts,

specific problems have been identified and the plants have requested assistance to

remediate these problems. In Russia, the utility and nuclear power plants have requested assistance in purchasing replacement hardware and software for systems

that will be important in maintaining continued operations. Similar requests have

been received from the Chornobyl and Zaporizhzhya nuclear power plants in

Ukraine and the nuclear power plants in Kazakhstan and Armenia. Efforts are underway to provide these requested materials and assistance. In addition, it is expected that the rest of the nuclear power plants will also have similar requests as

their detailed assessment work progresses. When these additional deficiencies are

discovered and prioritized at other plants, consideration will be given to providing

assistance to correct the deficiencies.

Regarding the reliability of the electrical transmission and distribution systems

and their impacts on nuclear safety, this issue is being addressed primarily by the

development of Y2K contingency plans. The Department sponsored a contingency

planning workshop during the week of September 19, 1999 in Prague for Armenian,

Bulgarian, Czech Republic, Hungarian, Lithuanian, and Slovakian nuclear power

plant and transmission and distribution personnel. Similar contingency planning

working sessions are scheduled this week in Russia and in October for Ukraine. The

working meetings are intended to assist the plants and utilities of the host countries

in completing their contingency planning. These meetings are being coordinated

with similar International Energy Agency meetings in Paris and Prague in late September and early October. Personnel from U.S. plants and utilities will attend in

order to share their contingency plans and experiences. In addition, Ukrainian and

Russian representatives visited the United States earlier this month to observe the

nationwide North American Electric Reliability Council year 2000 drill on September 9, 1999.

The Department is coordinating with the U.S. Nuclear Regulatory Commission to

provide assistance to host-country regulatory bodies as requested. The nuclear regulatory bodies in the host-countries have participated in meetings with the Department’s experts. They have advised the Department’s experts, based on information

obtained from IAEA meetings and visits to the U.S., on Y2K issues related to their

regulations. The regulatory body in Russia, for example, was a major contributor to

the development of the Russian version of the IAEA Y2K guidance document.

Conclusion

We are relying on the host countries to assess their Y2K issues properly, remediate problems, and develop contingency plans using established guidelines. We

have provided information and assistance at each step along the path to Y2K readiness. The initial complacency that was expressed by some host country representatives has given way to significant efforts on their part to resolve Y2K problems. In

light of the relatively late start of these Y2K activities, we cannot be completely cerVerDate 20-MAR-2000 08:48 Mar 31, 2000 Jkt 010199 PO 00000 Frm 00051 Fmt 6601 Sfmt 6621 W:\DISC\62345 txed02 PsN: txed02
48

tain that they will be successful. On the other hand, as I stated earlier, we do not

anticipate failure of primary safety systems. Therefore, the Department’s experts believe that there is not a significantly increased risk of a nuclear accident at Sovietdesigned nuclear power plants due to a Y2K event. We are helping to remediate the

monitoring systems, such as the process computers, which if they failed should lead

to an orderly shut down of a plant according to safety procedures. We are providing

assistance with contingency planning and will continue to work toward resolution

of Y2K issues at Soviet-designed nuclear power plants.

Nonetheless, some known Y2K problems that do not directly affect plant safety

or continued operation of the plant probably will not be corrected before the end of

1999.

49

PREPARED STATEMENT OF CHAIRMAN ROBERT F. BENNETT

A serious social, economic, and political crisis began when Russia devalued the

ruble and defaulted on its debts in August 1998. Little work has been done to investigate the long-term consequences Y2K could bring to a Russia already on the edge.

This troubles the Committee, since Y2K failures in key infrastructures such as

50

power, banking, telecommunications, and defense might have serious negative impacts on the stability of the Russian economy and political environment.

The International Monetary Fund (IMF) announced on Friday that it would offer

special loans to countries suffering serious economic damage from Y2K. The IMF

certainly hopes this financial assistance won’t be needed, but states, ‘‘there are uncertainties, and the potential consequences for international trade and growth of

possible interruptions to productions and shipment may be significant.’’ I think

these uncertainties and the potential consequences resulting from Y2K apply as

much to Russia as to any nation.

While Russia is not as highly networked and interconnected as the United States,

it still relies on information systems and microchips. In fact, the information systems that survived the Soviet era and remain in use are extremely critical. As many

as 4,000 Soviet-era mainframes are estimated to support the operation of Russia’s

industrial and defense enterprises. It is believed that several hundred million dollars is needed to repair these mainframes. The failure, disruption, or corruption of

these systems in a short span of time could create a unique and unexpected challenge to the economy. In the short term, the shock from serious Y2K failures could

exacerbate Russia’s downward economic spiral. Since such an event would unquestionably affect U.S. policy, we must proactively consider how we should respond to

these failures if and when they occur.

From a long-term perspective, no one knows what the impact of Y2K inefficiencies

will mean for the Russian economy as a whole. We must decide soon what our foreign policy will be with respect to Y2K failures. We cannot engage in diplomatic

shell games until November 1999 and then glibly announce ‘‘The U.S. Foreign Policy

on Y2K.’’ What’s more, I fear that whatever policy the White House has arrived at

will crumble when the first CNN footage hits the air. What should U.S. policy be

with respect to foreign Y2K failures? How will we prioritize national security, the

needs of our allies, the needs of critical trading partners, and humanitarian needs?

These will be very difficult decisions and there will be no time for ‘‘spinning’ rhetoric

and political posturing. Difficult decisions will demand prompt and careful attention. The U.S. does not have the resources to save the world. Indeed, if it weren’t

for the fast actions of Senator Stevens, we might not have had the emergency funds

to meet emergency requirements here at home.

It is vital to remember that Y2K problems will unfold over time. We here in

Washington have expended a lot of effort to examine the immediate impact of

Y2K—from sharing nuclear information to collecting information about telecommunications—but we’ve given little consideration to what happens if and when

problems emerge in late January or in March.

Since the dissolution of the Soviet Union, America has reached out to try and help

the Russian Federation wherever it was prudent to do so. We are most fortunate

to have one of the Senate’s foremost Russian experts—and a valuable Committee

member—with us today. In 1991, Senator Lugar recognized the urgent need to help

Russia move its nuclear and chemical weapons back within its sovereign borders.

Through Cooperative Threat Reduction, the U.S. and Russia collaborated to dismantle launchers and destroy chemical weapons in the newly independent states.

It is precisely because of this expertise that we have invited him here today to share

his thoughts about how assisting the Russians with Y2K fits into the broad goals

of threat reduction.

PREPARED STATEMENT OF JOHN R. BEYRLE

Thank you, Mr. Chairman and members of the Committee. I am pleased to have

the opportunity to discuss the potential impacts and consequences for the Russian

Federation of the Year 2000 computer problem. That the focus of this hearing is

solely on Russia and Y2K is evidence of the justifiable concern of the Congress and

the American people on what the potential for disruption associated with the millennial change may mean for our national security. Addressing potential problems connected with Russia’s strategic arsenal and safety questions raised by its aging nuclear power infrastructure has been the priority focus of our engagement with Russian officials and agencies: concern for our own well-being would dictate nothing

less. Accordingly, Assistant Secretary of Defense Warner is prepared to brief you on

our efforts to continue and enhance cooperation in the areas of nuclear weapon security, the sharing of missile launch data, and in ensuring open communications

among our leaders during the Y2K transition. And my colleague Ken Baker, Deputy

Assistant of Energy, will be discussing his Department’s efforts to ensure that Russia’s many nuclear power plants are not adversely disrupted during Y2K.

51

I would like to open our discussion today by providing a brief overview, from the

perspective of the Department of State, of our current assessment of some of Russia’s Y2K preparations. It seems easy to predict Russian difficulties resulting from

the possible effects of Y2K. The country is only slowly recovering from the financial

collapse it suffered over a year ago, a situation which inevitably distracted the government from its efforts to deal with potential Y2K disruptions and left less in the

budget for remediation efforts. Frequent changes at the top of the Russian government over the past year have further complicated the picture. Moreover, by the first

of January Russia will be experiencing a transitional political situation. A new

Duma will have just been elected, and presidential elections will be just a few

months off.

I would like to emphasize from the start that our assessment of Russia’s vulnerability to Y2K is an ongoing, iterative process. We have been and remain continually

engaged with the Russian government at a variety of levels in a range of areas in

an effort to gather the information we need to make definitive assessments in the

areas of greatest concern or most direct impact on American interests. In general,

the amount and quality of information available, while not optimal, has been sufficient for us to make evaluative judgments in these key areas—judgments that we

are continually reassessing or refining as the situation on the ground changes, or

new data become available. But as this Committee knows all too well, the Year 2000

technology problem is without precedent in history, and uncertainty attends all of

our efforts to deal with it. With regard to Russia especially, the challenge lies in

assessing how this uncertainty translates into risk. We do not underestimate the

potential disruptions that Y2K may bring to Russia, but at the same time we need

to evaluate such problems realistically.

Russia’s success in navigating the Y2K transition throughout its society rests in

large part on its ability to minimize electricity and communications disruptions, and

thus I would like to concentrate this overview on our analysis of the electrical and

telecommunications sectors. Russia is likely to experience disruptions in its electrical grid and telecommunications infrastructure, with subsequent effects on its financial, industrial, and government sectors. At this time we do not foresee severe,

long-term disruptions. Our analysis of Russia’s electricity sector indicates the larger

cities, Moscow in particular, are likely to be much less affected by outages than the

countryside. Depending on how effective the authorities’ Y2K remediation efforts are

in the three remaining months, it appears that Moscow and the other cities might

emerge relatively unscathed by the transition.

We attribute this partially to the Russian government’s traditional concern and

attention to the urban populations, dating back many decades. In fact, as we understand the electrical sector priorities, power to the countryside might be reduced in

order to ensure that the cities are not deprived. If the overall integrated power system (IPS) is not fully functional, this could result in power deficits, perhaps lasting

several days, to the smaller towns and villages.

The power utilities’ ability to supply electricity will likely vary from region to region. The Far East, for example, will likely face the greatest risk of power loss or

shortages. On the other hand, because of the economic contraction of the past decade, many areas are currently using much less power than previously. Coupled with

the extended holiday period, which decreases electricity demand, this should result

in significant excess generation capacity. This in turn should reduce the stress on

the electrical grid, and provide more flexibility to the power generation and distribution operators to work around problems that may develop in individual plants.

Russia presently derives seventy percent of its power from fossil fuel plants, mostly natural gas; fifteen percent from hydropower; and fifteen percent from nuclear

plants. With respect to the non-nuclear plants, we understand that many of them

use older, analog systems that should not be affected by the Y2K rollover. We are

still collecting information on how many of these plants have been upgraded with

more modern plant process controllers, which could have non-compliant embedded

microprocessors.

With respect to the nuclear plants, my colleague Ken Baker from DOE can provide you with more information about the dedicated Y2K programs that his organization has undertaken, and their cooperative efforts with the IAEA and the U.S.-

supported International Science and Technology Center.

It is no secret that Russian winters are cold. Any disruption of the heating systems in Russia could have serious, potentially life-threatening consequences. The reliability of the heating systems is tied closely to the availability of electricity. In

larger cities such as Moscow, heat is provided mostly by natural gas-operated water

heating plants, while coal-fired plants are more common in the small cities and

towns. The plants are analog and should not be affected by Y2K, but once again,

electricity is required to pump the water through the pipes and return it.

52

A somewhat greater potential for disruption, in our view, lies with the Russian

telecommunications sector. There are two to three thousand domestic telephone

companies around the country. They use a wide variety of equipment, produced both

domestically and abroad. We believe some of that equipment contains embedded

microprocessors that are not Y2K-compliant. The consequence of this is that some

of the systems will likely fail, disrupting normal telecommunications services. It

could take the telecommunications companies days and perhaps weeks to track

down and repair all the failures.

Russia has access to updated telecommunications satellites, which we believe to

be Y2K-compliant. Less clear is the status of ground-based links, some of which may

rely on embedded chips. Cellular systems are also up-to-date but they too frequently

rely on landlines to relay conversations beyond the local cell. The government and

telecom providers are working to minimize disruptions, but we doubt that they have

sufficient time or money to resolve all problems in time.

Many vital industries and government entities have one or more backup communications system. We believe the Soviet-era internal phone system that connects

many government ministries and agencies should continue to function. The electricity monopoly, UES, has its own communications system using power lines, as

well as other backup systems. Key energy players like Gazprom, Transneft,

Transgas, and RosEnergoAtom, also have one or more backup systems. It is not

clear that the backup systems are entirely reliable, but having doubly redundant

backups provides some measure of security in these key sectors.

Regarding air traffic safety, we understand that national systems such as the

Moscow area control center, the Rostov air traffic control center, the data transmission system, and the automated planning system on airspace use, have all undergone extensive Y2K testing. Potential Y2K problems have been or soon will be

corrected. Russia’s national aviation authority requires that regional air traffic control centers test their equipment and implement contingency plans in case of Y2K

disruptions; most of these centers have complied, and the remaining few are expected to do shortly. In addition, the authority will order the grounding of any aircraft that has not provided a statement of Y2K compliance by December 1.

Given the efforts that Russia has made in remediating potential Y2K disruptions

and in making contingency plans, at this time we are hopeful that we will not need

to reduce staff in our embassy and three consulates in Russia. We expect to make

a final determination in mid-October. Nevertheless, we are advising U.S. citizens

who will be in Russia over the millennial transition to be prepared for possible disruptions, especially in key sectors like electricity, heat, and telecommunications. As

always, we strongly urge all U.S. citizens to register at one of our missions and to

remain in contact for updated information.

The U.S. has worked closely with key sectors in Russia to prepare for the transition. We have focused particularly on those areas related to national security, as my

colleagues will relate. For example, in the nuclear safety area, the Energy Department began an active program a year ago, which has been well received in Russia.

In addition, however, thanks to funds appropriated for this purpose by Congress,

we have carried out a number of activities with and inside Russia. Beginning earlier

this year we cooperated with the Russian Government, the World Bank, the International Energy Agency (IEA) and the American Chamber of Commerce in Russia

to conduct a series of workshops and seminars in Russia on the Y2K issue. We have

sent U.S. experts to Russia and have funded the travel of Russian experts to various

international meetings and conferences. We have also conducted videoconferences

between U.S. and Russian officials and opinion leaders to increase awareness of

Y2K issues.

In these outreach efforts, we have tended to focus on those government agencies

that provide key services. For example, two groups of mid-level Russian government

officials have visited the U.S. in the past year under the USIA international visitors’

program to discuss preparations for Y2K at the sectoral level. We are preparing another group of Russians to visit the U.S. under the same program to look at how

U.S. utilities prepare contingency plans for Y2K. The State Department, USIA, and

the Department of Commerce also co-sponsored two conferences in Russia for small

and medium enterprises. Hundreds of Russian-language CD-ROMs to assist these

businesses in making Y2K contingency plans were distributed at these conferences.

USIA has also developed a Russian-language website.

Our efforts and those of the world press have heightened awareness of the problem in Russia. The Russian Government published a plan for tackling Y2K as early

as May 1998. Moscow’s efforts have been hampered by lack of money, however.

Since the August 1998 economic crisis in particular, there have been insufficient

funds to deal with known problems.

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Our experience in attempting to help, or even in obtaining information on the extent of the problem in some sectors, has been mixed. Some agencies, such as the

electricity monopoly United Energy Systems, have been open to technical exchanges

with Western experts. But for much of the Russian government transparency still

comes hard.

Some in the Russian bureaucracy view Y2K as a national security issue and are

reluctant to reveal any information that could betray weakness or vulnerability.

This reticence has hundreds of years of tradition behind it, but makes it more difficult for Russian interagency remedial work, and definitely more difficult for foreigners to assess the problem accurately. To illustrate, one key ministry refused to

meet with U.S. Embassy officials to discuss their Y2K preparations because they did

not want to ‘‘spread rumors.’’

This reluctance also complicates our ability to forecast accurately what additional

steps might be necessary to protect Americans living and working in Russia. We

have posed a number of questions to the Russian authorities concerning basic service during the transition but have received few answers. Some of these lists of questions were put to them as long ago as June. We will continue to seek satisfactory

answers on behalf of the many Americans who live in or do business with Russia.

In conclusion, Mr. Chairman, please allow me to make a few general points.

First, in assessing Russia’s overall vulnerability, it’s important to bear in mind

that much of the country’s infrastructure is less dependent on computer technology

than in some Western countries. This fact tends to lessen the risk of large-scale,

systemic failures—the kind that are more complicated and take longer to repair—

in favor of more localized problems that can be fixed more easily and quickly. Unfortunately, it has also led to a certain complacency on the part of some in the government and financial community and a tendency to understate the actual risk potential.

Second, the level of technical and engineering expertise in ratio to the problems

anticipated is relatively high. Programmers and engineers are at work on remediation efforts now, and are prepared to deal with the shocks and aftershocks as the

millennium rolls over. Schooled in the communist era of shortages, when the unavailability of replacement systems meant fixing and re-fixing, they have been compelled to become intimately familiar with their systems, and can be creative and resourceful in dealing with novel or unanticipated problems. But it’s important to remember that Y2K is an unprecedented problem of potentially large-scale magnitude.

Even with the best will and capabilities, there may be too many problems to deal

with, requiring prioritization of the effort. Furthermore, it is far from clear that

Russia will have sufficient resources to deal effectively with the consequences.

Third, many elements of the Russian Government are working diligently to prevent disruptions in the key electrical sector, and in other areas that my colleagues

will discuss. Most Russians recognize that this problem is not hypothetical. They do

not have their heads in the sand, but they are struggling to do what is needed as

the clock ticks down. In our assessment, as I have mentioned, the failures are not

likely to be severe or long lasting. If that is the case, then we should not expect

significant economic fallout. However, the Russian Government has stated that certain financial resources—estimates vary widely—will be necessary to upgrade or replace deficient equipment. DOE, IAEA, and ISTC are helping provide this equipment in the nuclear area, and Dr. Warner will discuss the potential for similar assistance in DOD programs. To date, Russia has neither asked for nor received significant aid in other Y2K problem areas. This means Russia must allocate the

money internally, a difficult process in their current financial situation. If the resources are not made available, they would likely fall short of their planned remediation. This in turn could result in more disruptions at the transition.

How long might disruptions last? Russia may continue to experience Y2K-related

problems in some sectors for months after the New Year. It could take some time

for any temporary fixes to be replaced by permanent solutions. It will be prudent

to view post-Y2K Russia in a similar way that we are viewing pre-Y2K Russia—

as a country that may continue to rely on the U.S. and other countries for help in

overcoming computer-related disruptions. We will, of course, maintain a close contact with key Russian sectors after the New Year to continually assess developments.

Depending on the severity of these problems and their effects on ordinary Russians, we will need to come to a decision on the most effective U.S. response. Continued visits by U.S. experts likely will be essential. After the New Year we will have

the advantage of knowing where Y2K disruptions have occurred, making us better

able to direct our help accordingly.

Cooperating with Russia in these areas, as we’ve done in the run up to Y2K and

as we will continue to do after the New Year, is in the interest of both our countries.

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By overcoming the vulnerabilities that come to light during the Y2K transition, Russia may, in the longer term, emerge with a stronger basic infrastructure, enhancing

the country’s economic potential. Our cooperation in the nuclear energy sector will

ensure the continued safe operation of those power plants. Perhaps most importantly, the close collaboration between our militaries to minimize Y2K problems will

result in both our countries being less vulnerable to accidental missile launches, in

better communication links between the leaders of our countries, and in enhanced

security of Russia’s nuclear stockpile.

Mr. Chairman, thank you again for the opportunity to address the committee, and

for the leadership you and your colleagues have demonstrated in maintaining a

focus on this complicated but vital issue. We look forward to keeping in touch with

you as we continue to work with Russia to ameliorate the impact of the Y2K problem on American interests.

PREPARED STATEMENT OF RICHARD A. CONN, JR.

Mr. Chairman and members of the Senate Special Committee on the Year 2000

Technology Problem. Thank you for inviting me to discuss potential effect of Y2K

disruptions upon business in Russia. My name is Richard Conn. I am a partner at

Latham & Watkins, former managing partner of its Moscow office and former head

of the foreign bar of Russia. I am here today as Chairman of the Legal Committee

of the U.S. Russia Business Council, the leading U.S. based trade organization representing the private sector’s interests in Russia. It is a non-profit organization dating back to 1993 with 250 members ranging from entrepreneurs to the most prominent Fortune 500 companies. I would like to thank the American Chamber of Commerce in Russia and the Russia Chamber of Commerce and Industry for their analyses of these important matters. They have graciously allowed me to provide this

Committee with many of the findings and suggestions outlined in their recent White

Paper, ‘‘The Russian Impact of the Year 2000 Problem on Citizens, Businesses and

Governments.’’

In the context of Russia’s many problems, Y2K issues appear relatively small.

Today, Russia is on the brink of internal unrest as a result of recent bombings in

Moscow, its currency remains unstable, its government lacks credibility internally

and internationally, and its banking system remains weak. In short, as serious as

Y2K issues are, they simply are not perceived as sufficiently serious and immediate

to warrant the attention that we in the West feel they deserve.

It is likely that Y2K will cause disruptions in much of the infrastructure of Russia.

• Recent assessments indicate that significant disruptions and negative economic

impacts are likely in the short-term though uncertainty exists regarding the extent

of the disruptions.

• While awareness has increased, the amount of remediation still required is

daunting. The problem continues to be underestimated and full-scale actions to address the problem have only recently begun in some industry sectors and in the government.

• The Russian government faces a major administrative challenge in the face of

significant stumbling blocks to promote active remediation economy-wide.

• Russia’s unique environment and societal considerations will mitigate the longterm consequences of Y2K disruptions.

The Russian government’s response has been weak due to political and economic

turmoil. At this late date, remediation efforts should focus on contingency planning.

Even if Russia had unlimited funds, all problems could not be corrected in time as

the deadline for compliance is fixed. Given its poor financial condition and weak institutional controls, few steps likely will be taken over the next 100 days. Russia’s

lower dependence on technology for day-to-day operations and a historic strategic

working around potentially debilitating crises, however, will reduce the harmful effects of Y2K upon Russia.

I. STATUS

Although authorities in Moscow offer repeated assurances that Y2K will not cause

disruptions, recent reports indicate that the Russian infrastructure is at risk for

failure. Despite declarations of compliance, the cash-strapped government has offered little evidence of the scope and success of their efforts.

The Gartner Report produced by the Gartner Group, an IT industry analyst organization, forecasts that Russia will experience a severe Y2K problem:

• Utilities will operate at 40 percent of capacity for the first two months of 2000;

• Transportation will be disrupted 80 percent of the time and telecommunications 50 percent of the time for a three-month period;

55

1See ‘‘The Millennium Reckoning,’’ September 1999 Update at http://www.trendmonitor.com.

Russia Gazprom Natural Gas Pipeline network uses IBM 360 and 370 series computers, which

likely contain bugs. Further, monitoring systems were purchased years ago with Y2K problems.

Many of the equipment stations containing embedded microprocessors are located in remote locations in Siberia.

• Hospitals will deal with nothing but emergencies for at least two months; • Financial markets will be disrupted for 30 trading days; and • Banks will be disrupted for 20 business days.

A. Status by Sectors:

1. Power:

RAO UES (‘‘UES’’), an electricity production, distribution and transmission monopoly in Russia reports that its system will remain fully operative throughout the

start of the New Year. In an April 1999 conference, UES’s deputy director noted

that the Russian system is operating at excess capacity and that the system could

afford to lose some plants or stations and still provide full service. UES also reported to have safety measures to avoid a complete grid malfunction.

As the Gartner Report indicates, however, and as the U.S. State Department and

British Foreign & Commonwealth office note, the Russian power grid is likely to

suffer widespread and prolonged power outages. For most businesses and individuals in Russia, power failure is the most significant risk of Y2K.

2. Oil & Gas:

Transneft, which is responsible for oil pipelines, and Gazprom, the large gas monopoly, have assured the EU Presidency that there will be no disruptions with the

transport of gas and oil to Western Europe. Reported nonetheless exist noting that

the Russian natural gas pipeline will be interrupted.1

3. Transportation:

Official reports note that the Russian Federal Air Transport Service has tested

9,000 systems. According to the Deputy Director of the Federal Air Transport Service only five percent have reported problems and that 30 percent have developed

contingency plans.

As of September 21, 1999, Russia had failed to report to the International Civil

Aviation Organization (ICAO) on measures to deal with the Y2K bug. Compliance

is accordingly doubtful. The Deputy Director of the Russian Federal Air Transport

Service, stated that its agency’s experts have checked all computer systems and located the components that could cause problems. Early this month, another spokesman for the Russian Federal Air Transport Service said that the sector had spent

more than $100 million dollars to ensure the bug would not affect the sector.

Aeroflot also released a statement that ‘‘company specialists guarantee that Aeroflot

will have no troubles as a result of the arrival of the year 2000.’’ The British Foreign and Commonwealth Office however, reported that two-thirds of Russian airports ‘‘are sure to have some Y2K difficulties’’ and advised citizens to avoid Russian

airports.

Russia’s extensive and much used railway system is based on an extensive range

of small and relatively antiquated computers, which are also vulnerable to Y2K.

4. Communications:

There are more than 2000 local service providers in Russia using a large variety

of hardware and software. According to Goskomtelekom, Moscow’s phone system has

been completely upgraded. Systems testing is scheduled for completion in September. However, the deputy head of Goskomtelekom said at a Russia/World Bank

seminar in April, that each of the local operators must have a plan estimating the

risk of failure. Disruptions are anticipated, however, in the communications due to

the cost and complexity of the system.

The British Foreign and Commonwealth Office published the first part of a global

guide to each country’s Y2K preparations. The report states that there is a high

likelihood of widespread failure in Russian communications. The Gartner Group also

reports anticipated failures in this sector.

5. Financial Sector:

Industry sources in Moscow expect most of the Y2K problems with Russia’s securities market to occur in the banking and stock transfer sectors. On June 23, 1999,

the Russian paper Sevodnya reported that there are 133,745 computer systems in

Russian economic sectors. Of these, more than 42,000 are at risk of malfunctioning.

Major banks have the latest technology and have used the best programming expertise to make themselves compliant, but smaller banks are using extremely dated

technology.

The central clearing and accounting system for major banks was installed in 1997.

There has been no official statement from the Ministry of the Economy regarding

readiness. In July 1999, at a Cabinet hearing, Alexander Ivanov, head of the State

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2For a detailed analysis of Russian governmental action see William McHenry, ‘‘The Russian

Federation’s Y2K Policy: Too Little, Too Late?’’ Communications of the Association for Information Systems, Vol. 2, Art. 10. (August 1999). See, www.msb.edu/faculty/mchenryw/personal/

pubs/cais210.htm. 3 In June 1999, Goskomsvyaz was reorganized into Goskomtelekom.

4See www.ptti.gov.ru/gk-doc/2000/natplan.doc.

Communications Committee reported that the Russian Central Bank was prepared.

The main Central Bank branch in Moscow, however, is informing its bank clients

that reports show approximately 20 percent of banks may suffer Y2K failures.

Sources also report that Russia’s largest exchange, the Russian Trading System,

is already compliant. The problem will be in determining whether registrars responsible for maintaining shareholder records, who are far from the main business hubs

of Moscow and St. Petersburg, are prepared. Most of the large brokerages appear

to be prepared.

6. Status Summary:

In short, developing a picture of Russia’s Y2K status requires piecing together

often-contradictory pieces of information from numerous sources. We believe that

the U.S. State Department’s analysis of the current status anticipating disruptions

in key sectors of electrical power, heat, telecommunications, transportation, and financial and emergency services is probably the most reliable information available.

II. RUSSIAN GOVERNMENTAL AND PRIVATE RESPONSES

A. Russian Government Response

The Russian governmental performance has been mixed.2 Its first significant step

toward Y2K readiness occurred in May 1998 when former Prime Minister Sergei

Kiriyenko demanded that all government systems be made Y2K compliant by the

end of the year. No serious effort was made to carry out his order. In January 1999,

Russian Prime Minister Yevgeny Primakov set up a government commission (‘‘Commission’’) to coordinate efforts by central and local government, state, and private

institutions to combat the millennium bug. In January 1999, the Russian Government assigned Goskomsvyaz, the Ministry responsible for information systems and

communications standards, to be responsible for Y2K.3 The Commission was also to

coordinate efforts by central and local government, state, and private institutions.

The order required every Russian state organization to submit quarterly reports to

the government commission on it preparedness. However, little reporting has actually occurred. The lack of reporting makes it very difficult to gauge how key infrastructures have progressed and whether reports of compliance are credible. Alexander Ivanov, head of the State Communications Committee reported, for example,

that of the 28,000 vital computer systems of government agencies, only one-third are

ready for the changeover.

Just months after the Commission was created, it announced a ‘‘National Plan of

Actions for Solving the Year 2000 Problem in the Russian Federation.’’ The plan

outlined nine areas for remediation 4 and attempted to create a national bureaucratic infrastructure, methodologies, and timelines to help organizations develop and

implement remediation plans. The response by agencies has been slow. Vladimir

Bulgak, acting deputy prime minister, reported that as of May 7, 1999, not a single

ministry or department had applied for money to finance remediation. In addition,

twenty departments had not even submitted plans on how they would handle the

problem.

One of the elements of the plan was the development of ‘‘Competency Centers.’’

This was an ambitious plan to have technical consulting centers all over Russia. Establishment of these centers has been relatively successful. As of June 11, 1999,

about 162 centers were certified. The centers provide information and consulting for

technical and administrative questions. Many private organizations utilized these

services and became compliant in March and April of 1999. However, there continues to be a shortage of funds and competent personnel to provide needed technical assistance.

Full implementation of the plan was thwarted, however, as funding was limited,

no enforcement mechanisms existed to ensure action, and little accountability was

assigned. Benchmarks for compliance and calls for reports were continually postponed or ignored by various agencies.

President Boris Yeltsin added his voice to Y2K compliance by issuing a presidential decree on June 17, 1999, requiring that personal supervision be established

for enacting measures for Y2K compliance at all levels of government and ‘‘other

organizations.’’ In addition to executive action, the Russian State Duma attempted

to enact a legislative framework for Y2K remediation by enacting on June 24, 1999

a Year law. The law had provisions which made government agencies responsible

to take measures to avoid system failures, established the right of users of techVerDate 20-MAR-2000 08:48 Mar 31, 2000 Jkt 010199 PO 00000 Frm 00060 Fmt 6601 Sfmt 6621 W:\DISC\62345 txed02 PsN: txed02
57

5The Federal Ministry of Finance and Vnesheconombank are to negotiate with international

lenders. The Ministry of Trade is to control payments and pricing, while Goskomtelekom is to

report on the efficiency of the loans’ use. Funds from the federal budget will be used to repay

the loans.

nology to demand compliance statements from providers, established rules requiring

certifications of compliance from computer system owners, and assigned penalties

for noncompliance in accordance with existing laws. President Yeltsin rejected the

law, however, in late July 1999 on the grounds that it violated separation of powers.

The failure to establish a legal framework for Y2K has hindered remediation efforts. Such a law could have created mandatory obligations for cooperation and information sharing. There continues to be little direct accountability for government

officers to develop and implement economy-wide remeidation plans. This lack of accountability and organization is exacerbated by the frequent changes in governmental leadership.

On a local level, administrations of large cities such as Moscow, St. Petersburg

and Novosibirsk have established Y2K related departments to help businesses solve

Y2K problems. The upcoming governors’ elections and the elections to the Duma in

December 1999 have served as an impetus for this activity in the regions. Current

political leaders hope to gain credit for their work to solve Y2K problems or at least

be able to avoid blame for failures.

Lack of funds is a major impediment to Y2K remediation. The costs of achieving

governmental compliance vary widely. Although Russian Finance Minister Mikhail

Kasyanov estimates that the government will budget $187 million for Y2K remediation, some experts estimate that Russia needs to exceed that figure tenfold to meet

its requirements. Minister Kasyanov’s figure was dramatically lower than the previous figure of $1 to $3 billion and no explanation as to the reduction was provided.

High-end estimates place the cost of compliance at $12–15 billion, almost half the

entire 1999 State Budget. This, of course, assumes that time was available to act.

Due to the lack of funds, the government stated that its focus is upon strategically

important branches of the economy, such as defense, transport and energy. In an

effort to find more money to address crucial issues, on September 24, 1999, Russian

Prime Minister Vladimir Putin signed an authorization to borrow $50 million outside Russia for the Y2K needs in federal organization.5 In addition, the State Duma

passed a bill on September 17, 1999 requested two billion rubles, roughly $80 million dollars, for Y2K problems.

B. Private Responses

Certain sectors of the Russian economy have done very well in Y2K remediation.

Financial institutions, large enterprises and multinational organizations are relatively compliant. Larger companies have been able to secure funding, but their remediation efforts may not be entirely complete. For example, in St. Petersburg, the

phone company’s service is anticipated to work well, but the billing system is not

compliant due to lack of resources.

Smaller companies face greater problems because they do not possess the resources to address the problem. Many of these companies are simply planning to

have their offices fully staffed at the New Year to manually work around the problem. These small companies receive little assistance from the government since their

compliance is not considered critical.

Fortunately, among small businesses, computers are relatively new and cutting

edge, or non-existent. The business sector is relatively young (12–15 years), so the

level of information technology in the sector as a whole is low. It consists primarily

of firms engaged in selling-buying businesses in food products and consumer goods.

These small and medium-sized businesses may experience problems in accounting,

financial management, sales, client service, information management, and product

supply shortages as computers are used in inventory and distribution management

systems and for accounting purposes. Some embedded chips may exist, but a private

business’ primary vulnerability to the Y2K problem is their reliance on utilities.

When asked about their own remediation efforts, one U.S. company doing in business in Russia responded, ‘‘We have done everything to make our own internal systems compliant. We have received compliance verification from those with whom we

do business and from the banking system. However, our greatest vulnerability is the

infrastructure of the country. All we can do is hope for the best.’’

III. FACTORS LEADING TO Y2K INACTION

Russia has exhibited a low level of awareness to Y2K problems. Its ability to respond adequately has been limited by a number of factors.

A. Continued Crisis in Russia

The slow response may be attributed to the fact that Y2K issues are dwarfed by

the ongoing crisis in Russia. Almost a decade after reforms began, the economy is

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still ailing. The August 1998 default and simultaneous devaluation devastated the

country. The banking system failed and is now just beginning to be reorganized. The

cabinet is frequently reshuffled. Roughly 60 million people, almost half the population, live below the poverty line. Income inequality has risen; life expectancy has

plummeted. Violence in Moscow related to regional conflicts threatens to reopen conflicts in Russia’s southern provinces. In the context of these issues, Y2K problems

do not garner serious attention.

B. Lack of Awareness and Appreciation of the Problem

As recently as 1998, there was considerable skepticism in Russia as to the risks

imposed by Y2K. Vladimir Bulgak, head of the Commission for the Y2K problem

was of the opinion that those who wished to market technical equipment and services exaggerated the threat. A Nuclear Ministry spokesman said in June 1999 that

his agency would ‘‘deal with the problem when we get to 2000.’’

C. Lack of Funds

Many Russian companies are already months behind in payroll and taxes, lack

working capital or have had funds frozen in Russian banks. The public sector fares

no better with severe budgetary constraints. As time continues to run out, the costs

of making systems compliant rise proportionately and exacerbate the funding problems.

D. Lack of Experienced Y2K Professionals

Since Russian companies have not had adequate capital to address these problems, many companies have reduced their IT staff, causing former employees with

technical skills to leave the country for more financially rewarding opportunities.

These skills have been in demand in the West for years. Other companies have

transferred their staff to assist in operations abroad. The net result is that Russia

has lost a significant amount of personnel to work on the problem.

E. Antiquated Computer Systems

Vivek Wadhwa, the CEO of Relativity Technologies, a North Carolina company

that sold the Russian government the software to fix its Y2K problems explains the

situation: ‘‘There are, I think, about 4000 mainframes in Russia. All of those

mainframes have a year 2000 problem, without exception. The Y2K problem, from

a technical point of view, is probably more intense in Russia than it is here, because

in addition to having the American hardware and American computer languages,

they also have Russian hardware, and languages that are not used in the West anymore.’’

F. Lack of Cooperation

Distrust is pervasive in Russia. Russia initially resisted the idea of international

cooperation. When the U.S. approached the Russian about sharing early warning

data to help prepare the Russians for Y2K, a faction in the Russian military believed it was simply an attempt by the U.S. to infiltrate Russian security.

Fear and misunderstanding has led to little trading of information. For instance,

one bank with Y2K bugs refused to let consultants look at its computer code, calling

it a trade secret. This distrust and lack of cooperation has frustrated remediation

efforts as each institution is required to assess the problem itself and attempt to

solve it with limited resources.

G. Difficulties in Identifying Non-Compliant Systems

In the West, manufacturers of technology often will contact customers if systems

are non-compliant or otherwise make information available. Organizations often

cannot rely on manufacturers to inform them of noncompliance in Russia. Much

high-tech equipment was either imported by middlemen who are no longer in business, imported through third countries in order to avoid export controls, or purchased by centralized government buying agencies who did not reveal the end destination of the equipment. Users of technology, therefore, either struggle to identify

the producer of a system or attempt to determine compliance without the manufacturer’s assistance.

Similar problems exist for domestic equipment produced by government or former

government factories and institutes. Many factories are no longer in existence. In

the past, secrecy prevented some companies from maintaining accurate records. To

further complicate the issue, many employees who designed the system have left the

area or even the country.

Whether associated with foreign or domestic systems, piracy also makes assessment of Y2K problems difficult. Many companies use a pirated version of software.

Accordingly, the manufacturer cannot or will not contact the company to recommend

upgrades for compliance, since the company with pirated software is not a registered owner.

The net result of these factors is that it is difficult to identify the components and

manufacturers of different systems. Even if an organization is able to locate a manufacturer, poor telecommunications and a language barrier discourage contact.

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IV. RUSSIA’S MITIGATING CIRCUMSTANCES

The potential Y2K failures outlined above would be disastrous for the United

States, but the history and present economic situation of Russia suggest that Y2K

will not have as catastrophic an impact on Russia. First, technology is not as pervasive; there are fewer system to fix. Russia has far fewer digital control systems and

computers used in industry and government than in the West. While the West has

computerized most systems, most in Russia are analog and electromechanical. For

example, most elevators, heating and ventilation systems, and shop floor equipment

in Russia are electromechanical. Further, in the West, most desks in an organization are centered on a personal computer with business processes conducted via software. In Russia, it is not standard to have a computer at a work desk. During Soviet times, personal computers were strictly limited. And indeed in many areas of

Russia, it is a rarity. For instance, clerks in many Russian shops continue to use

an abacus. In addition, few government services are computerized. Functions such

as welfare rolls and the military draft are still carried out manually on paper.

The second advantage for Russia organizations is that they are well versed in

working around the type of disruptions that Y2K will create. In the West, most companies have built their organization around stability and predictability. Most Western factories have precise supply chains and do not keep large inventories. For instance, recently when one important supplier of General Motors went on strike it

bought production to a standstill. In Russia, businesses operate with unreliable supplies of everything from power, water and other raw materials to transportation.

Many, if not all, Russian companies, and especially smaller companies, have experienced loss of contact with distributors and retails, supply chain breakdowns, disruptions in transportation and utility services, or frozen accounts for years. Most Russian managers have developed the expertise to quickly adjust and work around

problems.

In addition, most individual Russians are familiar with interruptions in power,

telecommunications, transportation and other major utilities. There is reason to believe they will not experience the anxiety and potential overreaction that threatens

Western nations.

A final factor cushioning Y2K’s effects in Russia is that some computer systems

that have been purchased by businesses are relatively new. Many were either purchased Y2K compliant or are easily converted to compliance.

V. RECOMMENDATIONS FOR ACTION

A. The Russian government should identify systems of national and international

importance and ensure there are ‘‘triage’’ plans for them. A Ministry, e.g., the Ministry of Emergency Situations, should be assigned the responsibility to coordinate

the plans that are developed. These may include but are not limited to: • Communications—telecommunications and data networks, Rostelekom and

Svyazinvest

• Emergency Services—police, ambulance and fire, Ministry of Emergency

Situations

• Energy—generation and supply, Gazprom, RAO–UES, Transeft

• Finance—banking and trading, Central Bank, Sberbank

• Food Supply—shipping, storage and distribution

• Manufacturing—supply chains and automated process control systems

• National Security—defense and intelligence services, Ministry of Defense

• Public Health—hospital equipment and systems, medications and supplies

• Finance Ministry—tax collection, customs and excise, and pension payments

• Transport—air and rail traffic control systems, mass transit systems, navigation systems

• Utilities—water supply and waste management

B. Each Ministry and organ should immediately allocate sufficient financial and

human resources to fix the most essential Year 2000 problems for its own systems,

and take appropriate actions to incentivize regional (oblast, krai, autonomous regions) and local governments to do the same.

C. The Russian Government should take appropriate action to make the state enterprise sector aware of the need to assess a high priority to the Year 2000 computer problem.

D. Progress should be publicly reported at regular intervals.

E. In addition to the suggestions above, we would encourage cooperation between

the Russian and U.S. Governments and coordinating agencies with the following

recommendations:

• Ensure active involvement by the Ministry of Emergency Situations and

its Minister Sergei Shoygu and coordination with his counterpart at the United

States Federal Emergency Management Agency (FEMA)

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• Encourage greater involvement in Y2K between the Russian Deputy Prime

Minister Bulgak and the American Y2K Director Koskinin.

• Develop a map/diagram of all key infrastructures in both Russia and the

United States and show how they interact and interface with each other. Utilize

the information for high-level scenario planning.

• Develop an economic scenario for the loss of revenues from exports and imports and determine the potential economic impact on both the Russian and

American economies.

• Set up a meeting for all First Deputies of all the Ministries to review scenario planning, contingency planning and business continuity planning for Y2K

in Russia with which corresponding departments in the United States can assist.

VI. CONCLUSION

Russia’s limited commitment to Y2K will result in a significant economic cost to

Russia. The cost of fixing problems as systems fail, in terms of direct costs and damage to the Russian economy, will be much higher than the cost of fixing problems

prior to the deadline. In addition, ‘‘work around’’ solutions will prove inefficient by

prolonging the life of obsolete systems. In the short-run, the ‘‘work arounds’’ will

provide continuity. In the long run, Russia’s journey towards a healthy economy will

be all the more arduous due to Y2K non-compliance.

PREPARED STATEMENT OF VICE CHAIRMAN CHRISTOPHER J. DODD

Today is the first country specific hearing of the Special Committee. With 94 days

to go—actually only about 66 working days and 13 weekends—we want to understand the potential impacts and future consequences Y2K may have on Russian stability. The purpose of this hearing is not to ‘‘beat up’’ on Russia or embarrass them.

On the contrary, the goal of this hearing is to understand how Y2K failures, shortterm and long-term, may impact current U.S. policy initiatives and what we can do

to address these potential problems.

Home to almost 150 million people, Russia spans 12 time zones. Russia is the

30th largest U.S. trading partner and hosts 11,000 U.S. citizens. While it is neither

the largest trading partner nor the biggest host of U.S. citizens, we all recognize

that Russia has continued to be an important U.S. foreign policy concern for more

than fifty years. Since the end of the Cold War, U.S. foreign policy goals with Russia

have broadly fallen into two categories: reducing the threat of nuclear weapons and

supporting Russia’s efforts to transform its political and economic system. Both are

long-term goals that, admittedly, will take years to achieve. Russians struggle with

many difficult issues including the 80% devaluation of the ruble in August of 1998.

In addition, government and financial instability has spurred capital flight of nearly

one billion dollars each month. In the past year Russia has lost $15 billion dollars

in capital to foreign banks. Now, the country must confront the Y2K challenge.

In March, the Department of State testified that the U.S. would need a ‘‘robust

policy framework’’ in order to prioritize responses to international Y2K failures. I

am interested to learn what this policy framework will be with respect Russia.

Many policy experts have viewed ‘‘Y2K’’ as a short-term problem, one best left to

‘‘techies,’’ and not likely to impact enduring policy concerns. Unfortunately, according to Gartner Group, many Y2K problems will only emerge in the weeks and

months beyond January 1, 2000. Today, the Committee seeks to better understand

Russia’s highly unique situation and whether Y2K could erode stability that we take

for granted in our ongoing bilateral initiatives.

Before I go any further, I want to specify what I mean by long-term Y2K concerns.

Many organizations responsible for key Russian infrastructures lack the money

available to make the necessary fixes. For example, Rostelecom, Russia’s long distance and international carrier, is reportedly unable to upgrade its 7 gateway

switches and is choosing to implement ‘‘work arounds.’’ Meanwhile, regional carriers

have only just begun testing their networks. Lack of funding will force many to create their own ad-hoc fixes. While these ‘‘work arounds’’ are likely to prevent immediate failures and keep connectivity, they could degrade capacity—in short, Russia

could lose communications capacity, stability and profitability. In fact, we will hear

testimony today about the fact that six out of the seven direct communication links

from Moscow to Washington that are used in times of crisis would experience Y2K

failures. Let me emphasize that six out of seven key national security links could

fail—and will fail if the fixes are not implemented. These critical links will be fixed,

but what about the bulk of commercial communications? The U.S. has to carefully

consider the impact of Russian infrastructure failures in our relations with Russia.

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Today, we will consider the concerns of the Department of Defense, State and Energy. On September 13, DOD and the Russian Ministry of Defense (MOD) signed

an agreement indicating their intent to establish the Center for Year 2000 Strategic

Stability during the Year 2000 transition period. In this center, U.S. and Russian

military personnel will sit side-by-side and continuously monitor U.S.-provided missile and space launches information. I would like to remind you that Russia still

has approximately 6,000 strategic nuclear weapons and over 1,000 delivery systems.

The Center will also provide an important link to communicate other defense-related events that could be potentially destabilizing, such as an aircraft going off

course due to a navigation or communication system Y2K failure. Last week nine

military officials from Russia were in Colorado to discuss the details.

Also last week, the Congress the Defense Authorization bill and it is now waiting

to be signed into law. This bill provides over to $475 million dollars Cooperative

Threat Reduction. In August, the Ministry of Defense requested $15 million dollars

to address Y2K related security risks for the control and protection of weapons

grade nuclear materials. As a requirement, Russia must be recertified by the Administration October 1 before any funding can continue. Unfortunately, this recertification process can often take several months. We cannot afford to lose any time

in this matter.

Reliable energy is of key importance to the entire nation. In August, the Unified

Energy System (UES), the Russian electric monopoly, cut power to some 20,000 customers just to save fuel for the winter. What this means is that fuel reserves for

Russia’s electric power monopoly will be as low as the country heads into Y2K. DOE

is working closely with Russia as it develops the necessary contingency plans that

will be needed to maintain grid stability.

Nuclear power plants are a serious concern for Russia. Russia has 29 nuclear

power reactor units in operation at nine different sites. Western-style nuclear power

plants employ an uncompromising set of in-depth safety elements including a massive reinforced concrete structure, called the containment, to prevent the release of

radioactivity. Most Soviet-designed reactors do not have such a containment structure. The most infamous plant without a containment structure is the Chernobylstyle reactor, and there are 11 of these reactors at three locations in Russia. While

these plants do not have direct Y2K vulnerabilities, they can only withstand a loss

of power for approximately 90–120 minutes before they begin to have core damage.

In a country where disruptions in power supply are common before Y2K, special

consideration needs to be paid to the months and years beyond Y2K to reduce the

chances that sudden loss of power could compromise power plant safety.

Primary plant safety systems are the front line of defense against accidents and

no Y2K issues have been found here. However, other systems important to safety

and plant operations are of concern such as the plant process computer and information display system. A Y2K-related malfunction in these systems would complicate operations and increase the chances of operator error. Operator error ultimately led to the Chernobyl accident. The combination of human and computer

error is one of the greatest Y2K challenges for Russia and the rest of the world.

I would like to thank Senator Lugar for testifying. He has been a tremendous

asset to the Y2K Committee. His work on Cooperative Threat Reduction has been

an invaluable contribution to nuclear non-proliferation and a legacy that U.S. can

be very proud of.

PREPARED STATEMENT OF SENATOR RICHARD G. LUGAR

Mr. Chairman, Senator Dodd, members of the Committee, it is a pleasure to be

here today. I appreciate the opportunity to testify on U.S.-Russian cooperative activities in response to the Y2K computer problem.

Since the end of the Cold War, I have taken a great deal of interest in U.S. policy

toward the former Soviet Union. As the Soviet Union began to break apart in 1991,

Russian leaders came to former Senator Nunn of Georgia and me and pointed out

the dangers of the dissolution of a nuclear superpower. The viability of the entire

Soviet weapons custodial system was in doubt. There were tons of weapons and materials of mass destruction spread across hundreds of sites in Russia and other

former Soviet states. Russia requested our cooperation in securing and dismantling

its nuclear arsenal and weapons-usable materials. This was the genesis of the

Nunn-Lugar Cooperative Threat Reduction Program.

This was not a problem that Congress wanted to deal with in 1991. The atmosphere was decidedly against any initiative that focused on a foreign problem. Americans were tired from the Cold War and the Gulf War. Yet we brought together a

nucleus of Senators who saw the problem as we did. Remarkably, the Nunn-Lugar

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program was passed in the Senate by a vote of 86 to 8. It went on to gain approval

in the House and was signed into law by President Bush.

While much more remains to be done, the Nunn-Lugar Scorecard is impressive.

Nunn-Lugar has facilitated the destruction of 365 ballistic missiles, 343 ballistic

missile launchers, 49 bombers, 136 submarine missile launchers, and 30 submarine

launched ballistic missiles. It also has sealed 191 nuclear test tunnels. Most notably,

4,838 warheads that were on strategic systems aimed at the United States

have been deactivated. All at a cost of less than one-third of one percent of the

Department of Defense’s annual budget. Without Nunn-Lugar, Ukraine, Kazakstan,

and Belarus would still have thousands of nuclear weapons. Instead, all three countries are nuclear weapons-free.

I offer this as a useful example to cope with another problem that has arisen in

our post-Cold War relationship—namely, the impact of Y2K. The atmosphere surrounding the current Russian-American relationship and its implications for our national security are not unlike those that existed in 1991. I believe it is in U.S. national security interests to, again, cooperate with the former Soviet Union to reduce

the threats our country may face.

Mr. Chairman, we do not know what is going to happen to Russian computer systems when we pass into the millennium and neither do they; but, initial estimates

do not appear promising. In March, the American Chamber of Commerce in Russia

pointed to a study that paints a disturbing picture of the impact of Y2K in Russia.

‘‘Utilities will operate at 40% of capacity for the first two months of 2000; transportation will be disrupted 80% of the time, and telecommunications 50% of the time

for a three-month period; hospitals will be forced to treat only emergencies for at

least two months; financial markets will be disrupted for 30 trading days; and

banks will be disrupted for 20 business days.’’ Obviously these estimates are disturbing and beg the question of whether similar problems will affect the Russian

military and strategic forces.

I am not here to push the panic button. In my visits to Russia and in briefings

and conversations with experts on these subjects, I have been convinced that the

chances of an accidental missile launch as a result of a Y2K problem are almost

non-existent. But Y2K may cause other problems in Russian strategic systems.

It is in our interests to take out a kind of ‘‘insurance policy’’ to ensure that the

transition to the new millennium does not exacerbate this situation. Cooperative activities and programs that reduce these threats are in the national security interests

of the United States and Russia—provided they are implemented in a responsible

manner. Experts agree that cooperation over the transition period needs to center on three

specific areas: early warning systems, nuclear weapon security, and nuclear power

plants.

EARLY WARNING:

Our Department of Defense began discussing the potential impact of Y2K with

Russian counterparts in June 1998. These efforts culminated in an agreement to establish a Center for Y2K Strategic Stability in Colorado Springs, Colorado. The center will ensure that, for the last few weeks in December 1999 and the first weeks

of January 2000, a U.S. and Russian military officers will sit side by side and monitor early-warning data generated by satellites observing missile activity around the

world in order to ensure that potential mishaps caused by Y2K do not lead to strategic miscalculations and mistakes.

Mr. Chairman, it is in the interests of the U.S. to ensure that Russia understands

the kinds of problems they may encounter with its strategic systems so that there

are no surprises or confusion on January 1. We want them to understand that their

problems are Y2K-related and not a result of U.S. hostile action or which they need

to respond. This requires consultation, awareness of potential Y2K failures, and

training of key personnel. This kind of cooperation is clearly of as much value to

the U.S. as it is to the Russians.

Russian early warning operators may not be able to tell the difference between

a peaceful rocket and a military rocket from their computer screens. Russian earlywarning capabilities continue to deteriorate, and this deterioration will be compounded by the transition to the year 2000. Russian Major General Dvorkin recently

suggested that Y2K problems could lead to incorrect information being transmitted,

received, displayed, or complete early-warning system failures. We should heed

these concerns. I am sure we remember the convulsions the Russian command and

control system endured several years ago when a peaceful Norwegian rocket launch

activated President Yeltsin’s nuclear briefcase. Fortunately, the Russians realized

their mistake.

The Center in Colorado is meant to create an atmosphere for both sides to work

together to resolve any missile launch detection, false alarms, or other ambiguities

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that may arise. I am hopeful that the Russian military officers serving on the second floor of building 1840 at Peterson Air Force Base will, in the event of a Russian

malfunction, be able to provide Moscow with the accurate information and data necessary to eliminate misperceptions.

NUCLEAR STOCKPILE SECURITY:

The continuous safe and secure storage of the Russian nuclear stockpile is the second area that will be complicated by Y2K. Over the last six or seven months, the

Department of Defense has sought to engage its Russian counterparts on the nuclear warhead protection, control and accounting systems. Early in the discussions,

the Russian Ministry of Defense admitted that it had not considered the impact

Y2K could have on their systems. The need for U.S. assistance in this area is clear.

As members of the Senate, we all have had countless briefings on the groups and

individuals attempting to illicitly acquire these weapons.

More recently the Russians have made substantial progress in acknowledging and

responding to these potential problems. The Russian Ministry of Defense has committed to establishing and maintaining special Y2K monitoring stations at their

largest nuclear warhead storage facilities. Stations will be manned 24 hours a day

by officers specially trained to monitor physical security, environmental controls

within the facility, telecommunications, and power levels. These efforts and accomplishments mark a tremendous improvement.

At Pentagon urging, the Russians have conducted capability assessments to gauge

their ability to respond to an emergency. Unfortunately, the results of the assessments were not encouraging. Due to the lack of appropriate response equipment, it

is clear that there are significant deficiencies in their capabilities to respond to intrusions and other potential threats. Our Defense Department is seeking to assist

Russia in these efforts through the Nunn-Lugar program.

The Russian Ministry of Defense has requested approximately $15 million in

equipment to upgrade their ability to respond to an emergency. I understand that

Assistant Secretary of Defense Warner will testify later, so I will not attempt to describe the details of the assistance. But I have been told that the Pentagon has reviewed the request and has determined it to be reasonable and consistent with

Nunn-Lugar conditions and restrictions.

Mr. Chairman, the Pentagon reports that a portion of the request can be fulfilled

immediately, using prior year Nunn-Lugar monies. However, the remainder of the

Y2K assistance must await a re-certification requirement in the FY 2000 Defense

Authorization Conference Report. The Executive Branch is hopeful that the process

will be completed on or around October 1. But Mr. Chairman, this committee must

watch this situation closely. I believe the delivery of this assistance to be in U.S.

interests. Delays in the re-certification process might possibly slow Y2K assistance

to the point where the equipment arrives after the first of the new year. The Senate

must view this additional and redundant re-certification as a self-inflicted wound

that must not be permitted to interfere with important national security goals. This

committee, the Senate Armed Services Committee, and the Committee on Appropriations must be prepared to expunge such a duplicative requirement should American interests dictate.

NUCLEAR POWER PLANTS:

The potential threats emanating from Y2K problems in Soviet-designed nuclear

reactors is a third area of concern. Historically, safety mechanisms and procedures

at these reactors are poor. The reactors suffer from deficiencies in design, operator

training, and safety procedures. Reactor operators and support staff face low and

erratic pay, training shortfalls, and deficiencies in safety procedures. Unfortunately,

these problems are compounded by a very late start in preparing for the transition

to the new millennium by the states of the former Soviet Union and Central and

Eastern Europe. Although neither a melt-down or a failure of primary safety systems is likely, it is in our interests to continue to work to prevent these potential

threats.

Many believe that Soviet-designed reactors are immune to Y2K-generated problems because they utilize older analog systems. This is incorrect. Digital overlays

were installed to improve performance, monitoring, and safety response and are susceptible to Y2K problems. If these systems were to malfunction, operators could be

blind to some reactor functions or receive erroneous data that could lead to improper

actions. In U.S. reactors, this would not pose a problem because of built-in redundancy of our systems. Unfortunately, redundancy is not present in most Soviet-designed plants.

Reviews of Soviet-designed reactor susceptibility to Y2K-induced problems revealed that host countries lacked the resources to conduct threat evaluations and

significant safety issues were at stake. Officials of the Department of Energy

64

worked closely with their counterparts to develop assessment guidelines in order to

determine potential problems that might arise during the millennium transition.

U.S. expert assistance was crucial in overturning initial complacency expressed by

these nations. The Department of Energy played an important role in completing

the detailed risk assessments of the various Soviet-designed reactors and providing

assistance to begin remediation of hardware and software problems. It is clear that

without the Department of Energy’s efforts, the risks of an accident would have

been much higher.

Given the existing time frame, it is too late to fix every Russian system. Our efforts must continue to concentrate on reactor safety systems, contingency planning,

and engagement with the Russian Ministry of Atomic Energy on these subjects.

Transparency and consultation in these areas are in U.S. interests. Furthermore,

I believe our country must make every effort to warn Americans abroad, living or

working near these reactors, of the problems they may face as a result of Y2K.

One of my personal concerns is the impact of local and federal government pressure to keep Soviet-designed reactors on line in the face of strain and uncertainty.

It will be the dead of winter with temperatures dropping far below freezing. Local

and state governors and mayors, as well as officials in national capitals, will be

loathe to permit nuclear reactors to shut down. Political pressure, in addition to

monitoring failures and a loss of off-site power, may contribute to failures in judgment, which could lead to accidents.

Recently, Russian Atomic Energy Minister Adamov reported to a conference in

London that he believed that Russia had achieved ‘‘the same level of safety as Western units’’. He went to explain that the rate of unplanned shutdowns at Russian

reactors was equal to that of Germany and lower than France and the United

States. I am hopeful that his confidence is borne out, but it is in our interest to

continue to cooperate in alleviating the problems inherent in the 65 nuclear reactors

at 20 sites in 9 countries of the former Warsaw Pact and former Soviet Union. If

not handled properly, these reactors could prove threatening to American interests.

We must not forget that one of these sites is less than 130 miles from Alaska.

CONCLUSION:

Mr. Chairman, I began my testimony with the recommendation that we view efforts to eliminate potential threats to U.S. security from Y2K generated problems

in Russia as an ‘‘insurance policy.’’ In my opinion, an insurance policy in this area

is a good investment. The cost of efforts to address potential threats today will be

minuscule in comparison to the costs of responding to a tragedy should an accident

occur.

Mr. Chairman, I understand that the atmosphere today may not be all that conducive to engagement and cooperation with Russia. Congressional committees are

investigating allegations of corruption by Russian government officials. As I indicated in my introduction, the Senate has faced similar circumstances before. There

are many parallels between the mood today and that which Senator Nunn and I

faced in 1991. I would urge my colleagues to once again look to the future and to

examine the benefits of cooperating with Russia on Y2K versus the potential costs

of inaction.

In 1991, the Senate courageously supported the Nunn-Lugar program in the face

of widespread discontent with foreign affairs. That investment has paid tremendous

dividends to our national security. I would urge this Committee and this Congress

to once again provide our country with the leadership necessary to protect our national security. I am not suggesting that we send Moscow a blank check. But our

government must again engage the Russian people through the auspices of the Departments of Defense and Energy and our private sector. Strict management and

accountability of cooperative efforts with Russia will protect our investments as it

has through the Nunn-Lugar program. We have made important progress, but it is

clear that there is still much work to be done.

Mr. Chairman, Senator Dodd, members of the committee, I praise your foresight

in examining these issues, and I look forward to working with you to address the

threats facing our country.

Thank you.

PREPARED STATEMENT OF DR. WILLIAM K. MCHENRY

I. INTRODUCTION

Chairman Bennett, Vice-Chairman Dodd, and Members of the Committee, thank

you for inviting me to testify. I would like to commend you for the leading role you

and others have played in promoting Y2K readiness here in the United States and

in helping U.S. business and government to prepare for possible effects of the Y2K

65

problem from other countries. I am an Associate Professor at the McDonough School

of Business, Georgetown University, where I am also affiliated with the Center for

Eurasian, Russian, and East European Studies in the School of Foreign Service. For

the past 20 years, I have studied issues of information technology and its diffusion

in the economies of the Soviet Union and Russia,1 and have participated in a number of U.S. government-led panels and studies regarding issues of technology transfer.2 Most recently I performed a study on the Russian Y2K problem for the Mitre

Corporation, and wrote a paper for the Communications of the Association for Information Systems with Leonid Malkov, upon which this testimony is partially based.3

The Y2K problem in Russia is taking place against a backdrop of extraordinary

economic problems and considerable political uncertainty. Indeed, Yabloko politician

Gregory Yavlinsky was heard to remark that Russia’s real Y2K problem is Boris

Yeltsin. What impact can potential computer failures have when GDP has declined

an estimated 43 percent since 1991?4 Or when the Russian Unified Electrical System says that it only has 60 percent of the fuel oil it needs for the fall-winter season?5

II. OVERALL ASSESSMENT

In some respects the situation in Russia is no different than the situation in many

other countries. There will be some systems that fail as a result of the Y2K problem,

but it is difficult to say precisely which ones, or exactly how great an impact this

will have. As you will see from some of the data presented here, the Russian government has frequently changed its assessments of the cost of remediation and the

number of systems affected. I liken the impact to a number of blows during a boxing

match: many other blows are coming from other sources, and it is difficult to say

just which blow may lead to a knockdown.

There are two main reasons for this state of affairs in Russia: first, remediation

efforts started rather late, and second, financing remediation work and purchases

of new hardware and software have been extremely difficult.

The Late Start

The first serious efforts for remediation in Russia came only after a decree by

then Prime Minister Kirienko in May, 1998. By December, 1998, there had been

hearings in the Duma and a strategy for addressing the problem had been initiated.

Practically from the start, Vladimir Bulgak, who was then Deputy Premier and the

highest ranking official tasked with the Y2K problem, stated that not all systems

would be able to be remediated in time. In mid–1998, the government reported that

it had 96,000 computer systems, of which 51,000 were potentially subject to the Y2K

problem.6 Novell reported that as many as 90 percent of all local area networks in

the country used Netware,7 and that there were 300- to 500,000 workers in the Russian government structures using mostly earlier, non-compliant versions.8

In May 1999 the government reported that there were 50,681 computer systems

in its ministries and departments, of which 16,040 (31.6 percent) were critical. It

was planned to fix 17,747 at a cost of $657 million, leaving 65 percent of all 50 thousand systems un-remediated.9 By July the estimated total number of systems had

been increased to 152,200, of which 30,300 (19.9 percent) were considered critical.10

The May 1999 data present the most detailed, comprehensive view of the situation in a number of sectors, and shows the wide disparities in what are considered

‘‘systems’’ and the potential magnitude of fixing them (Appendix One). For example,

the security-related ministries, including the FSB and the Ministry of Internal Affairs, reported only 48 critical systems. The repair cost per system, however, was

$1.3 million versus an average cost of $58,000 for all the other ministries and departments, indicating that remediation of these systems would be significantly more

complicated.

One of the cornerstones of the government’s approach to solving the Y2K problem

was to designate state, private, and academic organizations as ‘‘Centers of Competency.’’ The centers represented a good idea of leveraging the relatively small

amount of available expertise and giving all organizations visible places to get help.

Rather than provide government-financed services to needy organizations, however,

these centers have required payment, which has reduced the number of clients dramatically. Some are leading systems integrators, while others are organizations that

are descended from (perhaps even the remnants of) Soviet institutes. In some quarters their reputation is poor. Furthermore, by June 1999 they were present in only

51 percent of the administrative regions of Russia. Only nine regions, including

Moscow, had more than three centers.11

Throughout the first months of 1999 there was the expectation that Boris Yeltsin

would sign a Y2K Problem decree. He finally did, but only in June. The development

of a National Plan for Y2K Remediation was financed by The World Bank, but was

published only in March. Legislation was expected that would clarify who was responsible for Y2K problems, resolve the question of finances, and mandate remediVerDate 20-MAR-2000 08:48 Mar 31, 2000 Jkt 010199 PO 00000 Frm 00069 Fmt 6601 Sfmt 6621 W:\DISC\62345 txed02 PsN: txed02
66

ation of critical systems. Such a law was finally passed, but Yeltsin rejected it.12

Cooperation with the US Government on the joint monitoring of early warning data

was delayed by the Kosovo conflict.

Financing

Financing has been a key problem. No ministries and departments made specific

line-item requests for Y2K financing for the 1999 budget, and Parliament did not

allocate any funding for it. Throughout most of 1999, most government agencies

were told that they had to reallocate funds from within their existing budgets for

remediation work.

Making sense of the statistics offered by the Russian government and other sources about costs of remediation has been difficult. At first the estimate was $500

million, then it became $2–3 billion in the early months of 1999. Adding up published estimates by individual ministries and departments yielded a total close to

$1 billion. Fixing the 17,747 systems as of May 1999 mentioned above was estimated to cost $657 million.13 In June 1999, the estimate was back to around $471

million.14 In mid-July the government said that 2 billion rubles ($80 million) had already been spent, while another 11 billion rubles ($458 million) would be needed,

or a total of $538 million.15 On September 24, 1999 the Duma approved a bill for a supplemental appropriation of up to 2 billion rubles ($80 million) for Y2K remediation which is now being sent to the Federation Council and then will await President Yeltsin’s signature.16

On September 23rd it was reported that Prime Minister Putin has signed an order authorizing Goskomtelekom to seek a $50 million credit to buy hardware and

software in the West.17 As you know, a great deal of time is needed to check, repair,

test, and re-introduce complex information systems. With the expected delivery of

new hardware in October or November, it is quite difficult to believe that systems

based on this equipment and software will be fully ready by January 1, 2000.

And so, as a whole, the Russian government planned to skip fixing a large number of systems before January 1, 2000. At the end of July it was still estimated that

only 30–35 percent of systems had been remediated. To my knowledge no new overall assessment has yet been published. These data also do not reflect the status of

regional governments and private industry. All indications are that ‘‘the regions’’ for

the most part have lagged behind the central government. Very limited data has

been available about the extent to which private firms have taken up the Y2K problem.

Nevertheless, representatives of important infrastructure components such as energy, banking, and telecommunications continue to assert that the necessary remediation will take place in time. The large amount of work which is now going on

is reflected in the fact that Novell has seen a very significant rise in business from

government institutions and industrial enterprises, particularly in the second and

third quarter of 1999. One of the top managers in the Moscow office believes that

90–95 percent of their customers will be ready.18

III. THREE KEY INFRASTRUCTURE SECTORS

I have been asked to address the Y2K status of the energy, the banking, and the

telecommunications sectors. Sources of information for these assessments rely heavily on self-reported data. If I were to report close to 100 percent remediation, there

would be reason to question the veracity of the data given the late start. However,

most of the data seems to be fairly realistic, even in the way it changes from month

to month.

The Energy Sector

In the electrical power generating sector, the biggest concern has been and continues to be the operation of nuclear power plants. I have written more extensively

about this elsewhere.19 My overall assessment is that nuclear accidents due to the

Y2K problem alone are quite unlikely. The potential that some systems within nuclear plants will have problems cannot be ruled out, especially since some indigenous Soviet technology remains in use. But the plants have been the subject of a

great deal of attention and some funding from a number of Western sources, and

remediation work seems well underway.20

The Unified Energy System (EES) is clearly taking the Y2K problem very seriously, and has defined teams at all levels of its hierarchy to address the problem.

As of May 15, 1999, the energy sector had received information about telecommunications equipment deployed in the sector from 70 percent of the foreign and domestic vendors.21 According to a June 1999 briefing, the energy system had 50,000 computers just in the more critical control functions, of which 17,000 needed to be replaced at a maximum cost of $45 million for the whole sector.22

The EES released extensive data at a presentation in July, 1999 (Appendix

Three). The branch as a whole had about 2,500 computer systems, 66 percent of

which were considered critical. About 35 percent had been modernized or put into

67

service. Required financing was about $30 million, of which about 20 percent had

already been spent (and 80 percent remained to be found). Financing from the budget of the Unified Energy System was provided for the Central Control system, seven

regional control systems, and the main computer center. It was recommended to

other energy firms and electrical stations to seek permission to raise tariffs to cover

Y2K costs, which was granted in some cases.23 It was expected that the whole system would be brought into compliance by October, 1999.24

The Fuel-Energy complex reported in mid-July that it needed $96 million for remediation, including $66 million for hardware and $29 million for software. Only

1/3 of those funds were expected to come from the central government.25 According

to the May 1999 inventory (Appendix One), 26 percent of 8,215 systems were critical, and 34 percent of these had been renovated or put into operation at that time.

In the oil industry, some companies have published quite a bit of information

about their situation while others have published little. LUKoil, the largest oil company, issued an April 1999 press release in which it claimed that only 7 percent

of critical systems were not ready for the Year 2000. It is among a small number

of Russian firms installing SAP’s R/3.26

Yukos, the second largest oil company behind LUKoil, described its Y2K remediation efforts in February 1999. It expected to spend $8 million. Yukos planned to

carry out research, create an inventory, and so forth, from Dec. 1998 to March 1999.

A planning stage, which encompassed a plan for replacement, presenting a budget

for the project, and planning what to do if there is a crisis situation, was to be done

in February-March 1999. In March-November 1999, Yukos intended to realize the

plan for replacement, including replacing ‘‘a rather large stock’’ of Soviet-era

mainframes (Lukoil said that it had already eliminated 1980’s technology). The final

stage of work, handing over the work and general verification of safety, is not

planned until Dec. 1, 1999.27 It is hard to believe that Yukos will be able to order

new mainframes, install them, and convert everything with adequate testing before

Jan. 1, 2000.

Yuganskneftegaz, another oil and gas concern, posted a preliminary analysis of

its situation to the Web, noting that they had not had centralized control over hardware and software purchases, which alone led to the use of around two dozen different accounting packages from many different vendors.28

Gazprom reportedly started work in 1997, and by February 1999 was reporting

that all remediation work had been completed in computer networks; drilling, extraction, and delivery of gas; and gas transport systems.29 However, a May 1999 inventory of just the telecommunications equipment at Gazprom found 1,450 pieces

of communications equipment subject to the Y2K problem. The remediation cost was

estimated to be $15.7 million.30 According to a Gazprom presentation in July, 1999,

the inventory and testing stages had been completed for all its systems. Only 14

percent of systems, including process control and telecommunications systems, were

critical for the Y2K problem. Most of the control systems used older technologies

from the 1970’s and 1980’s. As of June 10, 1999, more than 58 percent of all critical

systems had been modernized, with all the rest planned to be finished by October

1, 1999.31 In August 1999 Gazprom stated that somewhat less than half of these

systems had yet to be remediated.32 In the fourth quarter acceptance of the modified

systems is to be completed, and most attention is to be paid to working out actions

based on the contingency plans.33

If any sectors have funds available for Y2K remediation, it is the hard-currency

producing energy firms. In addition, these sectors are receiving obvious and extended scrutiny. There are limits to the effectiveness of this administrative approach, but in this area, where the stakes are very high, I believe sufficient attention will be paid to ensure that severe effects will be avoided.

The Banking Sector

During the 1990’s the Russian banking sector was one of the leading purchasers

and users of hardware and software in Russia. Many of the best programmers were

recruited, and a number of banks wrote their own banking software. Other banks

bought turnkey packages and modified them.

It appears that this sector was one of the first to become concerned about the Y2K

problem. Nikolay Egorov, Deputy Head of the Central Bank of Russia, gave an

interview at the end of 1997 to Computerworld Russia, which is one of the earliest

statements about the Y2K problem by any governmental official that we have been

able to find.34 As of September, 1998, there were 1,500 banks in Russia, according

the Central Bank head Viktor Geraschenko. The fact that he expected no more than

200–300 to survive illustrates the disjunction between the magnitude of the Y2K

problem, on the one hand, and the overarching economic problems in Russia, on the

other.35 The Central Bank of Russia issued an Order in September 1998 which outVerDate 20-MAR-2000 08:48 Mar 31, 2000 Jkt 010199 PO 00000 Frm 00071 Fmt 6601 Sfmt 6621 W:\DISC\62345 txed02 PsN: txed02
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lined four stages of Y2K remediation (Appendix Two), the last of which was to be

completed by all financial institutions by June 20, 1999.36

In early 1999 it was reported that 50–60 percent of the development fund of ordinary banks was being directed toward the Y2K problem.37 About one-third of the

banks used packaged software from the two largest providers, Diasoft and R-Style,

both of which certified their packages compliant.38

The Central Bank reported in August, 1999 that 268 banking organizations, including 17 banks that are among the fifty largest and 14 regional banks, had either

not presented the necessary data or had stated that they had not fulfilled the fourth

stage of remediation, in which the results of remediation work is verified and integrated testing with external systems is carried out (Appendix Two). Assets of these

organizations comprised 21.7 percent of all assets of functioning banking organizations in Russia. In nine regions the assets of banks not fulfilling stage four comprised more than 50 percent of the assets in the region. A Central Bank letter of

August 17, 1999 outlines a series of measures to be taken for organizations that

cannot show themselves to be compliant, including replacing computerized operations with manual ones and replacing chief executives.39 Yeltsin’s June 17th governmental order gives the Central Bank the power to withdraw licenses of banks

that cannot show themselves to be compliant.40 This August 1999 report stated that

80 percent of banking institutions have finished all four stages (Appendix Two). The

press picked up on this in September, with some highlighting the negatives aspects

of 20 percent not ready,41 and others emphasizing the positive aspects of 80 percent

ready.42 This does seem like a rather large improvement in comparison with the

state of affairs in May 1999, when only 10 percent of systems in the finance sector

had been renovated or put into operation (Appendix One).

The banking sector is one of the few that has begun to carry out larger scale testing. A test of the Automated System of Banking Calculations of the Moscow Region

(ASBR-Moskva) was carried out on July 28–30, 1999. According to the list of participants, this involved 24 Bank of Russia organizations and 455 other organizations

in Moscow and Moscow Oblast. 449 of 800 registered users of the system exchanged

38,500 documents, and showed their readiness for Y2K. Nothing is said about the

351 organizations that did not take part in the test.43 An intensive test is planned

on October 9, 1999 for all banks associated with the Central Bank to exchange documents as if it were February 29, 2000.44

Russia’s banking sector hardly has had a reputation for efficiency. Even if some

operations have to be switched over to manual processing for a time, the net effects

are not likely to be particularly visible in comparison with much more dramatic economic processes.

The Telecommunications Sector

The telecommunications sector in Russia comprises the general telephone network, specialized networks run by ministries and departments, and newer networks,

created with Western firms that provided enhanced internal and external services.

It is fairly safe to assume that Western firms who, with Russian partners, provide

long distance and more advanced networking services, have the Y2K problem well

in hand. Sovintel, for example, said that it completed Y2K remediation work in August, 1999.45 Global One (Sprint) reported that testing and modernization of its network was completed in June 1999, with all remaining work to be finished by August

1999.46 Mobile phone operator VimpelCom planned to finish remediation work by

October,47 while Comstar promised that everything would work on January 1,

2000.48 The specialized network of the Russian Trade System was tested and said

to have no Y2K problems.49

However, the situation may be different for the specialized networks and the general-purpose network overseen by the holding firm Svyaz’invest. Work also got off

to a late start.

In late 1998 only a few of the more than 3,000 companies in the Russia telecommunications sphere had realized the importance of Y2K. Rostelekom and

Svyaz’invest started working on it only in Autumn of 1998. These systems are particularly vulnerable to the Y2K problem, as 100 percent of network control systems

and 75 percent of network elements in telephone structures are date sensitive.50

At the end of March 1999, a decree of the State Commission on Communications

examined the status of Y2K work. It reported that an inventory by Goskomsvyaz’

found that 20 percent of equipment in the general purpose communications network

was subject to the Y2K problem, accounting for some six million connection points.

About 15–20 percent of the critical systems had been modernized or replaced by this

time. It was asserted that the international and intercity phone systems would most

probably work reliably after the Year 2000, but noted that the more local the system, the larger the quantity of and variations in equipment subject to the Y2K probVerDate 20-MAR-2000 08:48 Mar 31, 2000 Jkt 010199 PO 00000 Frm 00072 Fmt 6601 Sfmt 6621 W:\DISC\62345 txed02 PsN: txed02
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lem. Local telephone companies have probably had the hardest time getting financing.51

According to the May 1999 data, this sector had the largest number of critical systems at 7,017. Only 11 percent had been remediated or put into operation at that

time. Goskomsvyaz’ planned to remove 141 systems from service altogether (Appendix One). At the end of July 1999 the number of critical systems was increased to

10,081, only 76 systems were to be turned off, and 8,551 (85 percent) required substantial remediation.52 At the end of July, the Federal Agency (FAPSI) began testing local telecommunications systems itself to help ensure Y2K compliance. On September 22–23, Gostelekom was to perform a test involving Rostelekom, four regions

(Krasnoyarsk, Tyumen’, Perm’, Tver’), Moscow and Moscow oblast, for a total coverage of four time zones.53

For the most part these statements do not paint a comforting picture for Y2K remediation in telecommunications. Although a portion of the systems rely on older

technologies that may not be date-sensitive, a huge amount of capacity has been

built in the last few years that does. According to one report, it was difficult to get

responses from Western providers, although eventually agreements with almost all

of them were signed. Decentralization in the industry means that regional companies have chosen their own solutions, have their own relationships with various providers, and most significantly, are at various stages in their awareness of the problem. At the same time investment in new equipment, especially given outstanding

debts, may be difficult. This is one industry in which hardware upgrades may be

the only possible path if Y2K problems are embedded in routers, switches, etc.

Hence there is a fairly high likelihood that not all of this work will be completed

on time and that some telephone systems will fail on Jan. 1, 2000.

IV. LONGER TERM IMPACT ON THE RUSSIAN ECONOMY

In each of the three infrastructure sectors examined above, it is clear that the

Russians have carried out a great deal of work, the work started later than it

should have to guarantee everything would be completed in time, and the situation

was exacerbated by delays in obtaining financing. In particular, the amounts that

the government says it will allocate are consistently below those that the ministries

say they absolutely must have. I expect that there will be some short-term failures

in these sectors, but that they will not be serious enough to cause a visible and extended impact in the economy.

One’s view of the longer term implications of potential breakdowns due to the

Y2K problem depends on how one views the Russian economy in general. Regarding

the economic sectors left over from Soviet times, I tend to agree with the work of

Clifford Gaddy and Barry Ickes, which states that many Russian enterprises

produce negative value and are kept alive as a social safety net within a barterbased ‘‘virtual economy.’’54 Many of these enterprises are in the military-industrial

sphere, and may well be enterprises that are still running old Soviet mainframes

from the late 1980’s. As many as 4,000 of these may still be in use. At the Duma

hearings of November 1998 it was stated that up to $400 million would be needed

to replace them. These are machines that, according to a very knowledgeable source,

will stop running within 3 months of the Year 2000 because of the operating system

software they must run.55 If manual processing must then be used, this may contribute to the general level of economic inefficiency in the economy, although these

managers already have a huge amount of experience in dealing with unforeseen circumstances and difficult conditions.

If Russia is able to arrange the $50 million credit mentioned above, part of these

funds may go to replace these machines. One could argue that it would be better

to let these systems die, perhaps precipitating deeper and more effective economic

reforms. Whether or not the social safety net they provide is necessary to ensure

stability is too difficult for me to judge. So one effect of the Year 2000 problem may

be hastening the decline of enterprises that will require massive investments anyway to become competitive or that should be shut down anyway. Investing in new

computers to shore up the old production facilities is economically perverse.

Another longer term impact may be thought of as raising the general level of economic inefficiency. Telephone outages may send people to other parts of the city to

make calls. The late start and low financing of Y2K work meant that the Russian

government could address the remediation only of critical systems. What of the 40–

60 percent of systems that are not remediated? It will certainly be more than an

inconvenience if they stop working or slowly insert incorrect data into a data base.

Outside the state sector there may be small businesses that were barely able to afford a computer in the first place, use pirated software and/or software created by

an organization that no longer supports it, and will not be able to spare the resources needed to upgrade hardware and buy legal software. These are the types

of businesses that will suffer the most from any infrastructure disruptions that may

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occur, because they function in cash and have less of a cushion against economic

shocks. They may be among the 1.5 million users of the Internet, and probably

make extensive use of email and faxes in their daily business. The amount of resources available to them to fix their computers depends on the overall health of

the economy.

Russia is hardly spending the billions of dollars that have already been and will

be spent in the West. Instead of upgrading whole systems, they may settle for

patching them in any way they can. Thus the Y2K problem may cause those assets

to be used longer and it will lose the economic efficiencies that may have come with

upgrading. In this sense the Y2K problem also contributes to increased inefficiency

in the economy.

V. POLICY IMPLICATIONS

In the last few months, public pronouncements by the Russian government about

the state of readiness have become less specific, although there were directives to

the State Committee for Telecommunications to complete a major audit of critical

systems by August 15, 1999. It would be particularly helpful for U.S businesses that

do business in Russia or have dealings with Russian companies to get a better sense

of the true state of affairs. We should encourage the State Committee for Telecommunications to release complete information from the more recent audits it has

done.

As a corollary, if fewer systems are remediated, Russia may serve as a particularly interesting test case to find out what the true effects of the Y2K problem were.

We should encourage the Russian government to collect as much data as possible

about the true effects of the problem, or to facilitate its collection by objective third

parties.

U.S policy should continue to be directed toward forestalling catastrophic failures

that will harm large populations inside and outside of Russia. In conjunction with

Russian officials, existing US initiatives and programs should be reviewed to ensure

that no critical facilities have been overlooked and to facilitate the transfer of the

necessary resources to protect against catastrophic failures.

Beyond this, policy choices revolve around what kind of ‘‘silver lining’’ might be

provided for the Russian economy in conjunction with Y2K remediation. Letting

counterproductive older systems die may be an unexpected benefit of the Y2K problem provided it does not lead to social unrest. Giving help to small businesses that

have no other means to carry out remediation could also be a way to provide a Y2K

silver-lining along the lines of the boost some Western firms are getting. But any

time we speak about the longer term impact of any policies in Russia, we have to

think about how to encourage the formation of the necessary conditions for true economic reform. Many believe that the an important part of the answer is building

a civil society based on the rule of law that protects business activities in a stable

climate. Investment in basic institution building, such as education, may be a better

long-term use of funds than supporting Y2K remediation. Without stronger fundamental institutions, the Russian economy may still be lurching along from one crisis

to the next long after the Y2K problem has faded from memory.

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PREPARED STATEMENT OF DR. EDWARD WARNER III

Introduction

Thank you Mr. Chairman and members of the Committee. I am very pleased to

be here this morning, and welcome the opportunity to discuss the Department of

Defense’s cooperative efforts with the Russian Federation on the Year 2000 problem.

The Department particularly appreciates the interest that this Committee has taken

throughout our engagement with the Russian Federation on our Y2K efforts, and

the continuing support for this endeavor from the members and staff.

Background

Our first substantive Y2K discussions with the Russian Ministry of Defense

(MoD) were held this past February on the margins of the Defense Consultative

Group (DCG). At the conclusion of the DCG I exchanged a letter with my co-chairman Colonel General Valerly Manilov, the First Deputy Chief of the Russian General Staff, inviting the MoD to continue discussions of a range of possible Y2K cooperative activities in Washington DC in the spring. Unfortunately the crisis in the

Balkans intervened, and the strained relations between our nations over the conflict

in Kosovo resulted in cancellation of the scheduled April session. But it was clear

to me when I met with General Manilov in mid-August, and clear to our DoD participants when the working groups from each side reconvened at the end of the

month, that during the pause in discussions, the MoD had continued work, as did

the US, on the three goals of cooperative Y2K engagement agreed to in February:

(1) sharing Y2K management experiences; (2) developing specific procedures to manage the Y2K transition period together; and (3) addressing Y2K challenges associated with ensuring the security, reliability, and control of nuclear weapons and materials. And so, while the loss of time was regrettable, especially since we face an

unmovable deadline, both the US and the Russian Federation were poised for rapid

reengagement, and we are moving out aggressively to implement the initiatives I

will discuss today.

As with all of DoD’s Y2K work, we approached our engagement with Russia not

only from the perspective of ‘‘fixing’’ Y2K computer problems and preparing to manage the consequences of possible Y2K failures, but with an eye towards improving

our bilateral defense cooperative with Russia. In developing specific initiatives to

meet the goals listed above, we sought to leverage the experience and resources of

established programs, and use Y2K as an opportunity to develop additional avenues

for the continued improvement and stabilization of relations between both nations.

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The result is an integrated program involving cooperation in five areas: (1) The Center for Year 2000 Strategic Stability; (2) Nuclear stockpile security; (3) Nuclear command and control; (4) Secure ‘‘hotline’’ communications; and (5) Information technology management. To date, we have reengaged with the Russian Federation on

all of these areas except nuclear command and control, and I expect reengagement

on that issue to begin next month.

Today, I will discuss our progress in establishing the Center for Y2K Strategic

Stability, nuclear stockpile security, assured communications, and overall Y2K Management.

Center for Year 2000 Strategic Stability

I’ll start with the Center for Year 2000 Strategic Stability. This effort has certainly received the bulk of the media attention to date, and I know that it is an

item of particular interest to several of you. As you know, on 13 September in Moscow, Secretary Cohen and Minister Sergeyev signed a joint statement declaring the

intent of the US and Russia to establish the Center for Year 2000 Strategic Stability. The Center, to be located on Peterson Air Force Base in Colorado Springs,

will provide a venue for sharing missile launch detection information collected by

US sensors across the year 2000 date change. In the Center, US and Russian military personnel will sit side by side during the millennium transition period and continuously monitor US-provided information on missile and space launches. US personnel will be in voice contact with operators in the North American Air Defense

Command, and Russian personnel will be in voice contact over highly reliable secure

communications lines with a command center in Moscow. In addition to monitoring

possible missile launches, the Center will provide a direct means for consultations

regarding other defense-related problems that emerge over the Y2K transition period.

Construction of the center is on schedule, with a projected completion date of 1

December. We continued to work out details of the operations concept for this center

with our Russian counterparts when they visited the facility in Colorado Springs

last week. We are awaiting final agreement with Moscow, but generally speaking,

the Center will open for training in late December, and will operate 24 hours a day,

7 days a week, through the opening week or two in January.

Let me stress that experts in both countries agree that the likelihood of Y2K failures in computer systems associated with our nuclear weapons, supporting command and control, and early warning systems is extremely remote. Moreover, sufficient safeguards are in place to protect against the consequences of such failures.

Nonetheless, we are mindful of concerns by some that a Y2K induced failure could

result in the accidental launch of nuclear weapons, and of the potentially severe

consequences of any misinterpretation of early warning information. We have a responsibility to provide the American people with every assurance that such accidents will not occur. The Center can allay the concerns of the public, and provide

additional safeguards appropriate to this period of heightened uncertainty. As such,

the Center is a Y2K application in the spirit of many risk reduction practices developed over the years by the US and Russia to prevent apparent anomalies in military

activities from turning into serious incidents.

The Center for Year 2000 Strategic Stability being set up in Colorado Springs is

not a replacement for the permanent Joint US-Russian Warning Center currently

under negotiation that is slated to be established in Moscow. At the Moscow Summit

in September 1998, Presidents Clinton and Yeltsin agreed to the reciprocal sharing

of early warning date of a threat by both sides of the launches of ballistic missiles

and space vehicles. The Center is a temporary measure, and will display US data

only. The permanent Joint Warning Center will provide side by side displays of data

derived from each nation’s early warning satellites and radars. We will meet with

the Russian Federation next month to continue discussions on implementation of

the long-term shared early warning initiative.

Nuclear Stockpile Security

The security of nuclear materials is another critical issue that requires special attention in connection with the Year 2000 transition. For several years DoD, through

the Nunn-Lugar Cooperative Threat Reduction (CTR) program administered by the

Defense Threat Reduction Agency (DTRA), has pursued programs for improving the

management of nuclear weapons storage sites throughout Russia. Last December

DTRA expanded its efforts, and initiated discussions focused on the continuous safe

and secure storage, transport and accounting of these weapons of mass destruction

(WMD) across the period of Y2K vulnerability.

In March, DTRA continued its Y2K discussions with the 12th Main Directorate

of the MoD, which is responsible for the storage and security of all non-deployed

Russian nuclear warheads. Of special concern are the security systems in nuclear

storage sites affecting access control, perimeter monitoring, fire detection and supVerDate 20-MAR-2000 08:48 Mar 31, 2000 Jkt 010199 PO 00000 Frm 00082 Fmt 6601 Sfmt 6621 W:\DISC\62345 txed02 PsN: txed02
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pression, and warhead inventory and accountability. At that meeting, representatives from the MoD confirmed that there had been no evaluation of computers associated with the physical security and inventory management systems for Y2K vulnerability. MoD welcomed any assistance DoD could offer in this regard.

When DTRA renewed discussions with the MoD in August, it was evident that

substantial progress had been made in the intervening 5 months in the assessment

of, and planning for, possible Y2K disruptions associated with nuclear stockpile

safety and security. The 12th Main Directorate has embarked on a credible and focused plan to monitor computer systems that support nuclear storage and security

during the Y2K rollover. This represents a significant and positive change in posture since our previous discussions of Y2K vulnerabilities and consequences in

March. Beginning in December 1999 and lasting through March 2000, the Russians

will maintain a special Y2K monitoring and control center at each of their 50 main

nuclear storage sites. The centers will operate around the clock, staffed by specially

selected and trained soldiers. The centers will monitor key systems, to include those

linked to physical security; power, water and telecommunications infrastructure;

and the microenvironments within the warhead storage areas.

In conjunction with its planning for the monitoring regime, the 12th Main Directorate has also conducted a comprehensive readiness assessment of its response capabilities. Unfortunately, the result of this assessment has revealed significant

shortfalls in the ability to respond in a timely and effective manner to security or

safety disruptions that the monitoring centers might detect. Within the monitoring

centers, the lack of standard equipment such as personal computers and faxes could

readily produce delays in the decision process. Once decisions are made, the ability

to respond appropriately will be compromised by equipment that is unreliable, obsolete, or in disrepair.

As an outgrowth of our two meetings with the 12th Main Directorate in August,

the Russian Federation has submitted a written request to DoD for equipment to

assist in consequence management of potential Y2K events. Equipment requested

would cost approximately $15.5M; specific items include emergency generators, fire

trucks, warhead handling and medical response vehicles, radios for security response forces and field reporting, and back-up communications capabilities.

DoD has reviewed the Russian request, and agrees that the types of equipment

and quantities requested make sense. Furthermore, we have assessed this Y2K submission relative to types and quantities of equipment already requested and

planned for transfer to Russia under longer term CTR initiatives, and have determined that most of the items—$13M of the $15.5M—fall clearly within the scope

and purpose of the CTR program. The bulk of the requirement for Y2K is a simple

and straightforward request to accelerate and amplify the assistance that is already

being provided or has been planned through the existing Nunn-Lugar program.

DoD is moving quickly to identify funding options for this request. There is very

little available under prior year CTR funding, and FY00 CTR funds are on hold

pending Russia’s recertification for the program. However, we have identified approximately $3 million from the CTR program and the DoD Y2K Supplemental to

pay for the elements of the Russian request that we deem demand the highest priority. The majority of these funds will be used to purchase computers, radio sets,

and other automation equipment that will assist the Russians in maintaining the

security and accountability of their stockpile in the face of the Y2K challenge. We

will be meeting with the Russians in early October to discuss this issue and seek

mutual agreement on the priorities we have set.

Assured ‘‘Hotline’’ Communications

Assured communications between US and Russian leaders is a priority at all

times, and of particular concern over the millennium date change. There are seven

direct communication links, or ‘‘hotlines,’’ between Russia and the United States to

guarantee our leaders immediate communication with one another when necessary.

Among these are the direct links between our Presidents, the foreign affairs link

between the Secretary of State and Minister of Foreign Affairs, and the hotline connecting each country’s Nuclear Risk Reduction Centers. In addition, reliable secure

communications will be essential for the operations of the temporary Center for Y2K

Strategic Stability.

Communications experts from the US and Russia nations started discussions concerning the Year 2000 problem last October. These discussions were continued during the week of 15 February, when representatives from the Defense Information

Systems Agency, White House Communications Agency, Army, Joint Staff, and Department of State met with their counterparts from the Ministry of Defense and

Ministry of Communications in Moscow. Despite events in Kosovo, our communications experts were able to sustain contact during the spring, and during that time

Y2K problems were identified at the Russian ground station, and in commercial

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software on both sides, which would prevent full operation of six of the seven direct

communication links over the Y2K transition.

When talks resumed in August, the Russian Federation agreed with US recommendations regarding Y2K vulnerabilities in the current hotline architecture,

and the US agreed to provide the Russian Federation with Y2K compliant software

and computer workstations to correct program deficiencies in outage reporting, monitoring, and channel reroute operations. Procurement actions for this equipment

have been initiated, and while the schedule is tight we are confident that the fixes

will be installed and tested by December. The August discussions also addressed

possible contingency measures, to include implementation of backup analog circuits,

additional secure phone/facsimile capability, and installation of emergency

INMARSAT devices on both sides. Finalization of Y2K operational and contingency

planning for secure communications will occur at the US-Russia technical experts

group meeting scheduled for 18–22 October.

Information Technology Management

While building on existing relationships for addressing nuclear systems and communications issues, DoD is also pursuing a new initiative with MoD in the area of

information technology management. In the US, the Year 2000 problem has presented new and unique information technology challenges. We have learned a great

deal, both through our own successes and missteps to date, and through the information we have exchanged with our Allies over the past year. Throughout the Federal government, there is a consensus among Chief Information Officers that the

Y2K experience will fundamentally change the way that we manage information

technology in the future. When our technical experts met with MoD last month, we

learned that they have reached the same conclusion.

The Y2K discussions in August provided DoD with our first real insight into the

MoD’s approach to Y2K assessment, remediation, and containment. Taking a functional approach to system definition—and learning from DoD’s mistake in this regard—MoD has identified 1000 total computer-based systems, with approximately

100 systems defined as mission critical. I would note that with this functionally

based definition, a single computer can constitute a system, while an entire aircraft

can be defined as a single system. MoD is responding to Y2K problems in its mission critical systems through a combined approach of retirement, remediation, and

encapsulation, depending on the nature of the problem and complexity of potential

solutions. MoD is bypassing the type of individual system certification and integration testing that characterizes much of the DoD test regime, and is moving directly

into operational testing of its mission critical systems.

I think it is important to note at this point that there is no single right or wrong

way to fix Y2K problems. This is a complicated enterprise, and the best solution for

a particular department or nation is a function of time, resources, criticality, and

engineering discipline. The fact that the Russian MoD is following a different protocol and timetable for addressing its Y2K problem does not man that approach is

deficient—it just means that its different. We emerged from our discussions convinced that the MoD is treating its Y2K problem very seriously, and has designed

and executed a program appropriate to its situation. We look forward to continuing

our discussions with the MoD on Y2K and on more general information technology

management issues, when the US-Russian Information Technology Management

Working Group meets in Washington the week of 18 October. In response to a specific request by MoD, we plan to have representatives from major US software companies participate with us in this session.

Conclusion

In conclusion, I would note that, despite the time lost due to the Kosovo conflict,

our cooperative Y2K activities with the Russian Federation defense establishment

will make a significant contribution to both nations as we transit into the next millennium. The dedication of participants on both sides has helped us to make up for

the lost time rapidly. I am convinced that each of the efforts I’ve discussed is making a long-term contribution to enhanced military-to-military relationships and strategic stability. We will continue to work closely with the President’s Council for

Year 2000 Conversion as we pursue these efforts, and will keep this committee apprised of our progress.

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