CGS Publications: Fuller & Leek Debt for Ecology: A Concept to Help Stabilize Russian Nuclear Cities
Debt for Ecology:
A Concept to Help Stabilize Russian Nuclear Cities
James L. Fuller and K. Mark Leek
Pacific Northwest Center for Global Security
Pacific Northwest National Laboratory
PNNL-SA-34546
International Forum on Energy and Environmental Opportunities
in the Russian State Research Centres and Nuclear Cities
Como, Italy
April 2001
Prepared for the U.S. Department of Energy under Contract DE-AC06-76RLO 1830
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Introduction:
Debt-for-Ecology, Economic Stabilization, and Nonproliferation
During the fifty years of the Cold War the Soviet Union and the United States developed the largest nuclear
weapons complexes in the world. One of the greatest post-Cold War challenges for both countries has been
the drawing down of their nuclear weapons complexes. This has entailed the irreversible dismantling of
thousands of nuclear warheads and cessation of production of nuclear materials. It has also required
remediating extreme environmental problems and converting scientists and a specialized workforce to
non-weapons-related employment. In the United States, the Government has played a leading role in
financing economic diversification and environmental remediation efforts around its own nuclear cities.
Environmental remediation in places like the Hanford nuclear reservation has been the foundation of
economic stabilization of the U.S. nuclear city of Richland, Washington. The so-called "Richland Model" for
nuclear city economic stabilization involves many factors, but primarily focuses on ecological remediation of
cold war nuclear wastes and facilities. Environmental clean-up activities at Hanford have not only provided
new jobs and skills for nuclear workers, they are also making the city and the region much more desirable for
commercial development (Mayne, 1998; O'Neil, 2000).
In Russia, however, the task of restoring the ecology and stabilizing the economy of a downsized nuclear
weapons complex is more daunting. The magnitude of the problem is greater, while the resources and
capacity to deal with the problem less available. Studies over the last 10 years on radioactive waste
contamination show that the world's largest amounts of radioactively discharged to surface waters have
clearly occurred in the Russian Federation. Three of Russia's nuclear materials production sites, referred to
historically as Chelyabinsk-65, Tomsk-7, and Krasnoyarsk-26, have accounted for over 95 percent of the
world's radioactive waste released to surface and subsurface water systems (Bradley, 2000).1 Radiological
contamination has had a devastating effect on the health and environment of localized regions of the country,
which will take decades to remediate (Feshbach and Friendly, 1992). Yet, with the collapse of the Russian
economic system in 1998, the Russian Federation has been unable, and to some extent unwilling, to finance
the necessary drawdown and remediation programs. Nevertheless, the world has a vital interest in the
economic stability of Russia's closed cities. Ecological restoration and economic stabilization at the Russian
Federation's nuclear sites is both necessary for economic revitalization and for creating alternative
re-employment for weapons scientists and engineers. To become economically competitive, help is needed
in addressing a public health crisis of staggering proportions and making nuclear communities attractive for
external commercial development.
1The
present-day names, corresponding to each site, and the names used in this paper are: Ozersk for
Chelyabinsk-65 (location of the Mayak Production Association), Tomsk 7 for Seversk (location of the Siberian
Chemical Combine), and Krasnoyarsk-26 for Zheleznogorsk (location of the Mining and Chemical Combine).
Given the magnitude of the problems facing Russian nuclear cities, creativity involving both public and
private sectors will be necessary to achieve substantive solutions. Debt conversion offers one avenue for
obtaining both the public and private capital required to address some of Russia's most pressing needs. Debt
conversion, or debt swap, is a financial transaction where debt that is not expected to be recovered is
exchanged¾essentially sold back to a debtor nation¾at a discount into local currency, with the proceeds
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going to a designated domestic program (Gugler, 1997; Kaiser and Lambert, 1996; Thapa, 1998; Vaggi,
1993). Debt swap dates to the early 1980s when debt-for-nature exchanges were introduced as a means to
fund environmental preservation programs while relieving developing nations of a portion of their foreign
debt. Debt swaps create a win-win situation for creditor and debtor nation alike. Creditor nations are able to
obtain commitments of domestic expenditures for programs that can have local, regional, and international
benefits. Debtor nations engage in debt swap to reduce their debt burden while supporting programs with
currency that remains in the country, and preserving their hard currency reserves.
The March 1991 Polish-Paris Club Agreement is often cited as an example of a successful debt swap
arrangement involving official bilateral debt. In this arrangement, Paris Club members agreed to forgive 50
percent of Poland's U.S.$35 billion bilateral debt. The Paris Club authorized members to forgive an
additional 10 percent of Polish debt through debt-for-nature swaps. The U.S. government went beyond these
provisions by agreeing to reduce bilateral debt by 70 percent, with 10 percent devoted to debt swap (Sher,
1993). Unlike most previous debt-for-nature swaps, the debt swap agreement between the Polish government
and its creditors focused on environmental cleanup programs instead of environmental preservation
(Angresano, 1996; Wertman, 1991). A key to success was the 1992 establishment of a well-managed Polish
EcoFund, set up exclusively for managing debt-swap proceeds. Along with the Polish Government,
representatives of governments that contribute to the fund participate directly in decisions about the choice
of projects and how they are administered. A 1998 report by the Organization for Economic Co-Operation
and Development (OECD) describes the Polish EcoFund as a model for other environmental financing
institutions (OECD, 1998).
Debt-for-ecology is a program designed, in part, to promote economic stabilization and diversification in
Russia's closed nuclear cities. It focuses on the public health and environmental conditions that must be
addressed to make closed cities attractive for commercial development. Russia's nuclear cities possess an
unusually high concentration of technical talent and scientific facilities that cannot be easily relocated or
reproduced. Therefore, the best course of action is to make nuclear cities more attractive to investment by
cleaning them up and using to the fullest advantage the resources and expertise already present. The aim is to
creatively underwrite and manage activities in ways that substantially leverage and increase the funds
available to help solve U.S. and world environmental and security problems while at the same time
improving economic, security, social, and health conditions.
This paper describes the processes and elements of a debt-for-ecology program. The closed nuclear city of
Ozersk, site of the Mayak Production Association (MPA), is presented as a site to demonstrate the viability
of the debt-for-ecology approach. Ozersk-Mayak was chosen because of its pressing ecological problems,
and the interest expressed by local administrators in collaborating with the United States on such a project.
Like Hanford and Richland in the United States, Mayak and Ozersk have a highly trained scientific and
technical workforce that make them prime candidates for engaging in a program of economic diversification
based on remediating cold-war legacy wastes.
Successful Applications of Debt Swapping
Debt-for-nature swaps were conceived in 1984 by the World Wildlife Fund (Lovejoy, 1984). In these
exchanges, a portion of a country's foreign debt is cancelled or forgiven in return for local currency which is
applied to an environmental project. Debt swaps can involve official bilateral debt or commercial debt.
Commercial debt becomes available for debt swap when banks sell debt that is not expected to be recovered
on a secondary market in debt paper. Banks may also donate debt they do not expect to recover, typically in
order to generate good will (Gibson & Curtis, 1990), although U.S. tax code allows banks to write-off debt
when donated to a not-for-profit (Dionne, 1988). Governments may swap debt as an instrument of foreign
policy to channel domestic resources in directions a country might otherwise not be able to afford. Dept
swaps have been applied to a variety of fields, including debt-for-health, debt-for-charity, debt-for-child
development, and debt-for-sustainable development (Genberg, 1992; Thapa, 1998).
There are three fundamental models to effect debt conversion:
1. Official Debt Forgiveness. In this model, creditor nations, working through the Paris Club, agree to
forgive a portion of a debtor nation's outstanding bilateral debt. A portion of bilateral debt, with terms
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agreed upon by the Paris Club, is then converted into domestic currency to fund domestic programs. In
certain circumstances individual members may go beyond these terms.
- Philippine-USAID/WWF-US Agreement. In1991, the U.S. Agency for International Development
(USAID) provided an initial endowment of U.S. $10 million, from a total commitment of U.S. $25
million, to fund several debt-for-nature transactions in the Philippines. The Foundation for Philippine
Environment was established by a partnership among Philippine NGOs and People's Organizations,
the Philippine Government, World Wildlife Fund-U.S., and the USAID. The endowment was invested
in Philippines Central Bank notes, with projects and programs funded exclusively from interest
income earned from the notes (Gugler, 1997).
2. Commercial Debt Purchase on the Secondary Market. In this model an international
nongovernmental organization (INGO) purchases commercial debt on the secondary market, often at a
steep discount. Typically the INGO negotiates with the debtor nation to exchange the debt note into
local currency, at some amount above the purchase price, to be invested in interest earning bonds to
support local programs.
- Ecuadorian Debt-for-Nature Swap. In 1987, the World Wildlife Fund purchased U.S. $1 million in
Ecuadorian debt and assigned the debt to an Ecuadorian environmental NGO. The Ecuadorian
government issued bonds which paid interest in local currency into an environmental fund. Proceeds
of the fund were distributed to the local NGO which used the money to finance protection of nature
reserves (Dogse & Droste, 1990; Sundaram, 1990).
3. Commercial Debt Donation. In this model banks donate commercial debt that they do not expect to
recover to INGOs which in turn negotiate with the debtor nation to convert the debt note into local
currency. Debt swaps allow banks to realize a return on investment where otherwise there would be
none through provisions in the U.S. tax code that allow banks to write-off charitable donations to
not-for-profit organizations.
- J.P. Morgan-Bolivian Debt Agreement. In 1992, J.P. Morgan donated U.S. $11.5 million in Bolivian
bank debt to fund conservation and environmental programs. The donation, organized by The Nature
Conservancy and the World Wildlife Fund, represented the entire amount of J.P Morgan's Bolivian
debt. In another example involving Bolivia, an affiliate of Chase Manhattan Bank donated
approximately U.S. $400,000 of Bolivian debt to Conservation International in 1988 for conservation
programs (Gibson & Curtis, 1990).
Prior to 1990 most debt swaps involved relatively small amounts of debt and were primarily organized by
international nongovernmental organizations (Page 1990; Sarkar 1994). In the 1990s, a second generation of
debt-for-nature swaps evolved that relied much more on governments to play a lead role in sponsoring
exchanges (Visser and Mendoza, 1994; von Moltke, 1991). They involved much larger amounts of debt, thus
offering greater leverage in effecting environmental change. Because government was a central player,
greater emphasis was given to enforcement of contractual arrangements. These transactions have shown the
importance of strong local NGO and debtor government involvement in creating and monitoring
transactions. They also highlight the need for oversight and enforcement of agreements by creditor
governments to make debt swaps acceptable to the taxpayers and governments of creditor nations (Sher,
1993).
Russia's Paris and London Club Debt
In 1999, Russia was unable to meet its U.S.$17.8 billion debt service obligations. The collapse of the ruble
made servicing the dollar-denominated debt unsustainable. Full debt servicing would have absorbed over 80
percent of the total projected federal revenue. Therefore, Russia chose to default on most of the Soviet
inherited debt, representing two-thirds of its total debt obligations (Hardt, 1999).
The International Monetary Fund (IMF), Paris Club, and London Club provided some debt relief to Russia.
In July 1999, a Russian/IMF agreement was signed providing for U.S.$4.5 billion to be used primarily to
service the debt from that multilateral organization. In August 1999, the Paris Club provided a "framework"
agreement that postponed payment of debt principal until after the presidential election, i.e., 2001, but
continued interest obligations. In February 2000, the London Club agreed to forgive 36.5% of Russian
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Federation debt to commercial lenders. In this agreement, U.S.$31.8 billion of claims held by commercial
creditors was exchanged for U.S.$21.0 billion in new Eurobonds. When combined with an eight-year grace
period on payment of principal, plus a lower interest rate, total debt forgiveness, measured in present value
terms, amounted to 52 percent (Hardt, 2000).
Germany, with 48 percent of the estimated U.S.$42.0 billion Russian/Paris Club Soviet era debt, will chair
the upcoming (though as yet unscheduled) Paris Club meeting and have substantial influence on the
outcome. The United States' share, an estimated U.S.$2.6 billion, is about 6 percent of the total debt. Italy,
France, and the United Kingdom appear to take their guidance for debt negotiations from overall policy
established by the IMF and major creditor nations, otherwise known as the Group of Seven or G-7. The
United States' influence on the Paris Club negotiations may thus accrue from its influential position in
G-7/IMF deliberations.
In deciding whether to grant debt forgiveness and under what terms, the Paris Club will take several factors
into consideration. Along with the cost of debt forgiveness to creditor nations, the Paris Club will consider
the importance of precedents from previous debt agreements, the Russian Federation's long-term economic
sustainability, and the appropriateness of non-economic considerations such as the implications of debt
forgiveness on foreign and security policy. The initial German position on debt forgiveness, formally
announced by the German Paris Club representative after the London Club agreement, was that no previous
debt settlement, especially the London Club agreement, established a precedent for Paris Club negotiations.
In the German view, the Russian Federation should be able to support their debt with improved economic
performance, a better use of natural resources, and a return of flight capital. Germany does not emphasize
publicly the benefits from a liberal debt relief agreement that might accrue to arms agreements, foreign
policy cooperation, and other non-economic issues. While Germany's official position may be an initial
negotiating posture and may change, it will likely set the tone of the negotiations.
President Putin of Russia is making the Paris Club debt negotiations a centerpiece of the Russian
Federation's economic relations with the West, and the United States in particular (Hardt, 2000). Putin and
Prime Minister Kasyanov announced in February 2000 that London Club relief was welcome and necessary
but insufficient, and that they expected the Paris Club to match the same 50% degree of forgiveness. The
Russian Government failed to include debt payments in its FY01 budget in order to induce western creditors
to restructure foreign debt. When the Paris Club, western creditors and the IMF made it clear that full
payment was expected, President Putin and Prime Minister Kasyanov acknowledged full responsibility for
the debt and agreed to timely payment. Nevertheless, some rescheduling and perhaps forgiveness of debt is
almost inevitable given the accelerating impact of debt payments on the Russian budget over the near term
and its implications for continuing economic reform, including as Kasyanov noted, the prospect of default.
Russia's Cold War Nuclear Legacy
The closed nuclear cities of the Russian Federation date to the end of World War II when the Soviet
government established places where they brought together nuclear scientists, engineers, and their families to
live and apply their expertise to developing the Russian nuclear weapons arsenal. These cities were designed
to be self-contained, self-sufficient centers of scientific and technical excellence. They had their own
government, schools, public transportation, housing, shops, etc. Inhabitants were afforded a very comfortable
lifestyle compared with the rest of the country, but contact with the world outside of the cities was extremely
limited. For the most part, the nuclear cities were in fairly remote areas, many in Siberia, and access typically
consisted of one main road and one railroad line. Double rings of barbed-wire fences, frequently patrolled by
heavily armed military units secured their perimeters. Ten cities were created, each with a specific role and
mission in the Russian nuclear weapons complex. Today, these cities retain much of their closed character.
The fences still exist and access is still controlled, although to a lesser extent than during the Soviet regime.
The United States, and indeed the world, has a vital interest in engaging the Russian Federation to prevent
the spread of nuclear weapons materials, technology, and expertise from the closed nuclear cities within its
borders. One goal of these efforts is to assist Russia in continuing on a path of economic "rightsizing,"
whereby reductions in nuclear weapons production and technical capability are offset by increases in
non-military production and employment. Not only is rightsizing a way to ensure the economic viability of
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Russia's nuclear cities, but it also facilitates parity as the United States and the Russian Federation downsize
their nuclear arsenals through the creation of alternative sources of employment for Russia's nuclear
scientists and technicians.
The other major nuclear legacy issue to be dealt with from the Cold War era is the large inventories of
radioactive waste. In both the former Soviet Union and the United States, the primary contaminated areas are
located at, or near, facilities that reprocessed nuclear fuel from production reactors. The Russian
reprocessing facilities are at Ozersk, Tomsk, and Zheleznogorsk, all in Siberia. Soviet waste management
practices in the early years included direct discharges into lakes and rivers, and were later followed by
large-scale injections of waste into the ground, which continues today. The nuclear facilities at Mayak and
Tomsk discharged about equal quantities to surface waters, while facilities at Tomsk and Zheleznogorsk
became the primary users of deep-well injection to dispose of their radioactive wastes (Bradley, 1998; 1997).
Ozersk-Mayak, a focus of this paper, illustrates the magnitude of the ecological remediation problems facing
Russia as a result of the Cold War legacy of nuclear weapons production. The MPA site ("Mayak") is located
at the western edge of the West Siberian Basin on the southeastern flank of the Ural Mountains in Russia
(Figure 1). The city of Ozersk (City of the Lakes) is located next to Mayak, approximately 60 km north of
Chelyabinsk and 90 km south of Ekaterinburg. Mayak, the site of Russia's first plutonium production reactor,
has also been used for spent fuel processing, waste storage, and waste vitrification. It is a fully integrated
(with the exception of uranium enrichment) nuclear materials production site, with five shutdown graphite
plutonium production reactors, two isotope production reactors, and reprocessing and waste management
facilities.
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Figure 1
Location of the Russian Closed Cities of Ozersk, Tomsk and Zheleznogorsk
Within the Western Siberian Basin
The MPA site is located on generally flat terrain among numerous lakes, marshes, and floodplains of several
rivers. It is generally acknowledged that at least 130 million curies of radioactivity has been released directly
to the environment at Mayak, and as a result, about 500,000 people have received an "elevated radiation
dose" and about 18,000 have been relocated (Bradley, 1997). All the releases of radioactivity at the Mayak
site have been to surface water bodies. Because the water systems are hydrographically connected, this
radioactive contamination is mobile and has an outlet to the Techa river system, thus making possible
transport to the Ob' River and the Kara Sea (Bol'shakov et al., 1991; Bradley and Jenquin, 1995; Drozhko et
al., 1999; Novitsky et al., 1999). Onsite, around 400 million curies of reprocessing wastes are located in
storage tanks. In comparison, the U.S. Hanford reservation has around 220 million curies in tank storage
(Department of Energy, 1991).
As in the United States, finding the solutions to the Russian Federation's radioactive contamination will
require a long-term commitment and strategy to ensure protection of public health and the environment. A
dedicated infrastructure and substantial funding are needed to provide science-based solutions to ensure that
the threats to water systems, human health, and cross-border contamination are minimized.
Structure and Goals of Proposed Debt-for-Ecology Program
Debt-for-ecology is a financial transaction in which debt or currency claims against, in this case, the Russian
Federation are swapped for funding to improve the domestic ecology, focusing on public health issues that
directly affect the health and safety of the region's population, and environmental remediation issues that
must be addressed to make the city and region more desirable to commercial developers. Russia has
significant Soviet-era debt that will be difficult to repay without negative impact to the rebuilding of its
economy. Through debt-for-ecology, Soviet-era debt that may never to be repaid can be used to catalyze
positive change by serving as a focus for attracting additional funding from multiple public and private
sources, including the United States and other Paris Club creditor nations, and commercial creditors
represented by the London Club. The EcoFunds would finance ecological projects to meet Russian,
European and U.S. goals, which include:
Support for defense conversion projects with significant scientific and engineering content, designed
to provide high-quality gainful re-employment of Russian nuclear weapons complex workers.
Improving the environment around the nuclear cities, thus making them more attractive for
international commercial investment.
Improving the health and safety of the local Russian people.
Reducing the likelihood of pollution transport beyond Russian borders.
From the U.S. perspective, at least, reducing the proliferation threat.
Figure 2 presents an overview of the structure of the proposed debt-for-ecology program. The program
builds on lessons learned in previous dept-for-nature swaps, and the U.S. and Russian governments'
continuing work in nonproliferation, including the need for transparency, accountability, enforceability,
sovereignty, and local content. The proposed structure is sufficiently flexible to accommodate swaps of
either bilateral or commercial debt. Some key elements of how this structure would function are summarized
below. The numbers in the diagram correspond to the following explanatory notes.
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Figure 2: Proposed Structure of
Debt-for-Ecology Program
1. U.S. Government: Within the United States, negotiations with the Russian Federation to establish a
formal debt swap agreement would be led by the Departments of State and Treasury. Other U.S.
participants may include the agencies that are currently holding Russian debt, such as the Department
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2.
3.
4.
5.
6.
of Agriculture. The U.S. Department of Energy (DOE) would serve as chief technical advisor for the
U.S. government; work with Russian Federation counterparts to identify, qualify, and plan for specific
ecological projects; and help to design an oversight and management structure.
Formal Debt Swap Agreement: At a bilateral level, the basis of the debt swap is a formal agreement
between the Russia Federation and United States governments. The agreement would define the rate
of conversion of dollars into rubles and establish the framework for protecting funds from erosion due
to inflation. The agreement would also define the respective roles of the two governments, including
their joint responsibilities for overseeing and managing the use of funds and the selection of projects.
Russian Government: Within the Russian Federation, negotiations with the United States would most
likely be led by the Central Bank of Russia and the Ministry of Finance. MINATOM would likely
serve as chief technical advisor for the Russian federal government, working with U.S. counterparts
and Russian technical specialists to identify, qualify, and plan for specific ecological projects and help
in designing an oversight and management structure.
Russian EcoFund: Under the formal agreement, an EcoFund modeled after the Polish EcoFund, would
be established to administer the debt-for-ecology program. The EcoFund would have dedicated
management, financial, and technical expertise adequate to oversee all aspects of the ecological
project. A bilateral policy and executive committee would eventually expand to include
representatives of other participating creditor nations.
Advisory Panel: A formal advisory panel would be established to counsel the DOE on technical and
policy issues and the EcoFund on technical issues. The Advisory Panel would be established early in
the planning process to help design an appropriate project structure, and it would meet periodically to
review project implementation.
Implementation Team: Projects would be directly managed by a Russian team. That team would
provide day-to-day oversight of project activities, ensuring that funds are spent wisely, that ecological
and environmental standards are observed, and that the goals of the specific ecological project are met.
Among its various responsibilities, the implementation team would document the implementation
process through a series of progress reports to the EcoFund.
In the case of U.S. and Russian bilateral debt, existing debt swap authorizing legislation is probably
inadequate to authorize debt swap with Russia. The SEED Act of 1989 contains authority to operate debt
swaps in Hungary and Poland, while the FREEDOM Support Act of 1992 extends that authority to use in the
Independent States of the former Soviet Union. Since the legal interpretation of these statutes has not been
made in practice, before proceeding with debt swap it may be necessary and prudent to obtain the positive
Congressional endorsement that new legislative authority would represent. Even then, neither statute
provides an appropriation to satisfy the requirements of the Credit Reform Act of 1990. The Act requires a
budget offset to compensate the U.S. Treasury for writing down or forgiving a loan asset (Theophile, 1994).
This requirement can be satisfied by one of several financing tools. The U.S. Congress can pass an
appropriation to compensate the U.S. Treasury, Congress can declare a nation and its pre-reform debt exempt
from the Act, a debtor nation may directly 'buy-back' a portion of the debt held by the U.S. government at its
current asset value, or an interested third party, such as an international nongovernmental organization
(INGO), can buy debt on a discounted basis from the U.S. government and then arrange a debt-swap
agreement with the debtor nation (Federal Credit Reform Tutorial, 2000).
Whichever financing tool is considered, several features of debt swap make it an attractive instrument for
effecting change in the Russian Federation's closed nuclear cities from the perspective of a creditor nation,
particularly the United States. One of the advantages of debt swap is that foreign denominated currency that
is converted into domestic funds can be earmarked for specific purposes and programs. The creditor nation
knows beforehand where the money will go, how it will be used, and can monitor compliance. Of special
importance to the United States, debt-for-ecology programs would be structured to avoid diversion of funds
to programs that are unacceptable to it. A structure to ensure the appropriate use of dedicated funds would
provide a significant measure of assurance that Congressional intent will be met. Debt-for-ecology proceeds
would also be used for purposes that are extremely unlikely to be addressed by the Russian Federation on its
own. The environment has been given small and decreasing priority in recent years, and President Putin's
elimination of both the State Ecological Committee and Russian Forestry Committee indicates this trend may
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continue. Without outside help, problems of international and domestic ecological concern will go
unattended, and the risk of diversion of nuclear expertise, materials and technology from some of the world's
most elite nuclear weapons facilities will not be diminished.
Proposed Debt-for-Ecology Pilot Project
A pilot project is proposed to demonstrate the efficacy of the debt-for-ecology model in a Russian closed
nuclear city. The pilot project would use a relatively small amount of debt swap proceeds to start a
debt-for-ecology EcoFund, modeled after the Polish EcoFund that has proven so successful. The EcoFund
would serve as a mechanism for funding one or two pilot projects that could be expanded to other projects
and cities. Achieving London Club, Paris Club, U.S. and Russian Federal Government support for
establishing Russian EcoFunds on a regional basis is an integral part of the proposal. In consideration of the
recent changes in the administrations of United States and Russian Governments, and the fact that Paris Club
and Russian debt negotiations are pending, their views about debt swap are uncertain. The foundation for the
concept is not new, however, and there are many demonstrated debt swap successes. A critical path for
progress on conversion will be the identification of two-to-three impactful, affordable projects that conform
to U.S. and Russian goals.
Work in identifying two or three projects to serve as pilot projects has occurred in the context of a
partnership that is developing between administrators of Ozersk and Mayak and personnel of the U. S.
Department of Energy's (DOE) national laboratories. In early 1999 the Mayor of Ozersk, Sergei Chernyshov,
led a delegation to the Pacific Northwest National Laboratory (PNNL) to learn about economic
diversification activities at Richland and Hanford. Mayor Chernyshov was invited to present DOE with a list
of ecological proposals for consideration under a joint project. After clearing the request with MINATOM,
Mayor Chernyshov presented DOE with a list of seven proposal concepts. In brief, these included:
Reduce downstream contamination on the Techa River, including a water treatment plant.
Reprocess accumulated high-level wastes.
Decommission reactors and other facilities.
Reconstruct solid radioactive waste burial grounds.
Establish a low-level solid waste processing facility and repository.
Deactivate contaminated areas at production sites.
From available information associated with on-going DOE studies of the migration of radioactive
contaminants at the Mayak Site (pursued jointly with the Mayak Production Association and supporting
MINATOM organizations) and a teleconference with Mayak scientific staff, it appears likely that several of
the Russian proposed initiatives could form the basis for Ecofund debt-for ecology activity (Fuller et al.,
2000). PNNL staff concurs with the thrust of the proposals, and offered the following assessment and
alternatives (Bradley et al., 1999):
There is an urgent need for a regional water use plan for the Chelyabinsk-to-Ekaterinburg corridor
that considers the impact of current and future surface and subsurface contamination. No plan
currently exists.
Steps to reduce downstream contamination on the Techa River should rank high on the list of
proposals.
Closing liquid radioactive waste disposal depositories (Lake Karachay and Reservoir 17) is a
necessary step to stem regional contamination sources.
Enhanced monitoring of the solid radioactive waste burial grounds will provide a basis for
prioritizing reconstruction and remediation.
Additional regional proposals should be developed.
In any consideration of projects for a debt-for-ecology Russian EcoFund, several decision and
implementation criteria would predominate. Two of the most important are:
1. The United States and Russian governments would be directly involved in the creation and
implementation of the EcoFund, supported by technical specialists of appropriate knowledge and
experience.
2. No debt-for-ecology funds would be used to support the Ozersk-Mayak defense mission.
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A final consideration is the need to protect the proposed EcoFund from the effects of inflation and preserve
the purchasing power of the monies dedicated to ecological remediation. One way to do this is to structure
the debt-swap agreement so that the EcoFund is not tied to a ruble-denominated account. Rather than
stipulating a single lump-sum payment into such an account, the agreement would call on the Russian
Federation to a make series of annual EcoFund payments. Although these payments would be made in
rubles, the value of the required deposits would be fixed in terms of constant U.S. dollars. Alternatively, the
total amount of money reserved for the EcoFund could be deposited into a dollar-denominated account when
the debt-swap agreement is officially consummated. Funds could then be drawn out of this account each year
and converted to rubles at the prevailing exchange rate. Because the exchange rate would adjust to correct
for the impacts of inflation, the buying power of the fund would be preserved (Leek et al., 2000).
Current Status and Next Steps
Following the initial exploration of project ideas between Mayor Chernyshov and PNNL staff, the efforts of
each have focused on the cultivation of support among respective U.S. and Russian government principals
and sponsors. These efforts have met with mixed success. PNNL staff briefed Congressman Norm Dicks,
who encouraged pursuit of the initiative, as well as Department of Energy principals, who also recommended
that the initiative be pursued. U.S. Treasury and the Office of the Vice President under the previous Clinton
Administration offered tentative support. In keeping with joint PNNL and Ozersk/Mayak plans for next
steps, Mayor Chernyshov requested approval from MINATOM for a PNNL team to visit Ozersk to continue
to develop pilot project business plans and assess technical proposals. Mayor Chernyshov's requests have
twice been denied by MINATOM. Subsequent U.S. requests at the Deputy Ministerial level have also been
unfruitful. The U.S. had hoped to hold a meeting in Yekaterinburg in February 2001. Mayor Chernyshov was
unsuccessful in his bid for re-election in December 2000, but is supporting the current administration in its
economic stabilization efforts. While continuing to explore opportunities to work with the MINATOM
technical community, PNNL is shifting its emphasis to working with commercial financial entities and
interested NGOs to explore support from the financial community.
Next steps involve the continuation of efforts to mobilize support for EcoFund initiatives among respective
commercial and bilateral debt principals. On the commercial side, this entails working with the private sector
to advance initiatives that can be presented to Russian government principals and sponsors for their support.
A crucial first step is to identify financial institutions willing to donate or sell discounted notes, and just as
important, U.S. NGOs or INGOs willing to buy or receive discounted notes to swap for nuclear city
ecological projects. Once the source of funds and the NGO-INGO partner are in place, work can begin on
structuring the proposed EcoFund in conjunction with identifying and eliciting the support of appropriate
Russian regional government advocates and partners. The latter will take the lead in conveying the proposal
to the Russian Finance Ministry in order to affect the swap.
With regard to official bilateral debt, next steps entail continuing efforts to engage technical and
administrative officials at Ozersk-Mayak and U.S. Government principals and sponsors for approval. In
regard to Ozersk-Mayak, the PNNL team will continue to work with technical counterparts to obtain a better
understanding of project proposals, identify and discuss alternatives, establish a prioritized list, and develop
detailed business plans. Within the U.S. Government, Bush Administration officials must be fully vetted and
approve of the concept. With administrative support and help of key Congressional sponsors, steps may then
be taken to establish statutory authority for official debt swap with the Russian Federation. These step are
prerequisites to identifying appropriate sources of official bilateral debt and initiating the process of
approaching the Paris Club for support and approval.
Conclusion
The thesis of this proposal is that debt conversion, specifically debt-for-ecology programs at Russian closed
nuclear cities, offers the United States, the Russian Federation, and indeed, the rest of the world a powerful
tool to simultaneously deal with Russian security, environmental, health, and economic stabilization issues.
An NGO infrastructure needs to be developed and mobilized to help undertake these programs, analogous to
the activism focused on bio-diversity worldwide. The issues are so pressing and important that the United
States government needs to very seriously consider writing off bad Soviet-era debt that may never be repaid,
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in a manner that does not require specific appropriations charged against the budget of a U.S. government
agency. This approach would likely require that the Credit Reform Act of 1990 be amended. However, this
approach would give the U.S. Government the same sort of bad-debt flexibility enjoyed by the commercial
sectors. By taking advantage of the lessons learned from highly successful bio-diversity and earlier European
economic restoration debt conversion activities, the U.S. Government has a tool to further reduce the Russian
nuclear threat in a positive and constructive manner that minimizes both the cost to the U.S. taxpayer, and
concerns that U.S. aid is an offset against unfavorable Russian Federation activities.
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