Introduction

Thc Department of Energy, as Executive Agent for the Nuclear Citiesinitiative with in the United States (U.S.) interagency structure, isworking to implement this Initiative to address the economic issuesfacing the institutes and entities which form the basis of the RussianFederation nuclear weapons complex. The Nuclear Cities initiative providesa framework to address these economic issues and the resultant threat of"brain drain" from these cities to countries of proliferation concern. Inthis way, the Initiative serves U.S. national security interests. TheNuclear Cities Initiative concept, as noted in this Report, has developedrapidly beginning in the Fiscal Year 1998, but has been out-of-sequencewith the budget development and approval process. Nevertheless, theNuclear Cities initiative envisions a number of focused activities whichcan be implemented in Fiscal Year 1999 and which will lead to success inincrements both immediately and in the long term.

The Nuclear Cities Initiative has been conceived as a joint U.S.-Russiancooperative effort. The challenges to success facing this Initiative aremany and are now exacerbated by the current political and financial crisisin Russia. On September 22, 1998, the United States and Russian Federationsigned an Agreement which establishes the legal and procedural frameworkfor the Nuclear Cities Initiative. The Agreement includes undertakingsthat provide: exemptions from Russian taxes and customs duties; expeditedUnited States access to the closed cities; the right of U.S. Governmentorganizations to perform audits and inspections on assistance provided;and, intellectual property and legal liability protection. Ultimately, thesuccess of the Initiative will depend upon the willingness of the RussianFederation to implement the provisions of the Agreement fully and provideresources and other support necessary to ensure that near term activitiesresult h tangible and sustainable jobs creation in a collaborative manner.

(A) Objectives of the Nuclear Cities Initiative

At the Tenth Session of the United States-Russian Federation Commissionfor Economic and Technical Cooperation (GCC-10) h March 1998, VicePresident Gore and Russian Prime Minister Chernomyrdin agreed to explore aprogram involving the ten closed Russian "Nuclear Cities" (Appendix A).Since March, the negotiations detailing the scope and parameters ofNuclear Cities Initiative have been the subject of four high-levelmeetings involving Secretary of Energy Pena (March 31), Under Secretary ofEnergy Moniz (May 29), Vice President Gore (Jury 24), and discussionsbetween Secretary Richardson and Minister Adamov at the PresidentialSummit in Moscow on September 1-2, 1998. A first Joint Steering CommitteeMeeting, preliminary to the subsequent Gore/Kiriyenko meeting on July 24,was held July 7-10, 1998, in Washington, D.C. It was hosted by theDepartment of Energy, and included high-level representation from theDepartments of Commerce, Defense, and State, the National SecurityCouncil, the Office of Science and Technology Policy, and the U.S. Agencyfor International Development. The Russian Federation was represented bythe Ministries of Atomic Energy and Foreign Affairs, and the scientificinstitutes in the cities of Sarov and Zhelznogorsk (Appendix B,Participants List). These efforts, assisted by negotiations conducted at aworking level, culminated in a Government-to-Government Agreement(Appendix C), which Secretary Richardson and Minister Adamov signed inVienna at the International Atomic Energy Agency (IAEA) ConferenceSeptember 22, 1998.

The Nuclear Cities Initiative is a bilateral nonproliferation effortbetween the United States and the Russian Federation. The purpose of theNuclear Cities Initiative, as set out by Article 1 of the September 22agreement, is ". . . to create a framework for cooperation in facilitatingcivilian production that will provide new jobs for workers displaced fromenterprises of the nuclear complex in the "nuclear cities" controlled bythe Ministry of the Russian Federation for Atomic Energy."

The goals of the Initiative may be stated more broadly as follows:

- Assisting the Russian Federation in its announced intention of reducingthe size of its nuclear weapons establishment to accord with its post-ColdWar budgeting plans and smaller nuclear arsenal; and

- Promoting nonproliferation goals through redirecting the work of nuclearweapons scientists, engineers and technicians in the ten closed Russian"nuclear cities" to alternative, non-military scientific or commercialactivities.

The Initiative serves U.S. national security objectives by:

- Assisting the Russian Federation in reducing its nuclear weaponsestablishment, which still is significantly larger than that of the UnitedStates;

- Facilitating movement of Russian scientists, engineers, technicians andother specialists from weapons development or production to civilian workin order to reduce financial temptations to transmit their weaponsknowledge to criminal elements, rogue states, or other undesirablecustomers. This objective already is being pursued on a bilateral ormultilateral basis through the Department of Energy Initiatives forProliferation Prevention program, the Department of State Science CentersProgram, the U.S. Civilian Research and Development Foundation, andothers;

- Extending into the ten nuclear cities, formerly the most privilegedsector and the heart of the Soviet nuclear establishment, U.S. efforts toassist Russian science to turn from weapons development to civilianactivities; and

- Helping to promote stability in Russia at a time when Russia isconfronting growing financial and political challenges.

The Nuclear Cities Initiative serves other U.S. interests by:

- Facilitating the involvement of U.S. companies in the commercializationof Russian Science;

- Leveraging and developing existing success in bilateral and multilateral"brain drain" programs to advance the new Russian goal of downsizing itsnuclear weapons complex; and

- Providing new understanding of the status and situation within thenuclear cities.

(B) Methods and Processes for the Implementation of the Initiative

The September 22, 1998, Government-to-Government Agreement established ajoint U.S.-Russian Steering Committee to provide overall guidance on theNuclear Cities Initiative. The Executive Agent for the Russian Federationis the Ministry for Atomic Energy. The Department of Energy is the U.S.Executive Agent. The Steering Committee will, inter alia, develop JointAction Plans, and oversee the establishment and work of Joint WorkingGroups based on geographical (city) and functional (e.g., legal) concerns.The Steering Committee will also review and coordinate the financing andimplementation of projects. A close, continuing cooperative workingrelationship is envisioned with Russian partners, who are expected tocontribute their own resources to the Initiative.

As Executive Agent for the United States, the Department of Energy willuse Departmental funds authorized for the Nuclear Cities Initiative tosupport specific projects and activities. In addition, the Department willcoordinate these activities with other U.S. Government agencies and may,as necessary, involve other U.S. agencies, private firms, non-governmentalorganizations, and other institutions in joint activities under theagreement. The Department of Energy will canvass the range of U.S.Government commercial, training and assistance programs to identify provenmodels and best practices to ensure program success. Experience gained inthe Initiatives for Proliferation Prevention program, the Science CentersProgram, the U.S. Civilian Research and Development Foundation, the U.S.Information Agency, the U.S. Agency for International Development, andother programs, will be drawn on.

The Department of Energy will coordinate closely with the U.S. SteeringCommittee members. During the first quarter of Fiscal Year 1999, a meetingof principals from the U.S. Steering Committee will be held to build ondiscussions and progress made since July and in light of the September 22Agreement. Toward this end, a State Department officer has been assignedto the Department of Energy to assist in interagency coordination. TheDepartment of Energy national laboratories are expected to play a role infacilitating the development of relationships, identifying projects, andhelping to bring them to commercial fruition. Experience in downsizing theDepartment of Energy nuclear weapons complex, as well as the Department ofDefense base closure experience, will be shared.

Within the Department of Energy, responsibility for the Nuclear CitiesInitiative is assigned to the Director of the Office of Nonproliferationand National Security. Operational responsibility will be handled by theInitiatives for Proliferation Prevention program of the Office of ArmsControl and Nonproliferation. Staff from the Initiatives for ProliferationPrevention program will supply the principal liaison within the U.S.interagency, and with Nuclear Cities Initiative participants.

Article 3 of the September 22, 1998, Agreement, Section 1, sets forth theproposed areas of cooperative activity, to include:

a) Sharing experience in diversification of production;

b) Facilitating the selection of promising projects for productiondiversification and creating the conditions that will enable them to be implemented;

c) Developing entrepreneurial skills in employees displaced fromenterprises of the nuclear complex, training them in how to write a business plan,and facilitating development of such plans;

d) Facilitating creation of the conditions necessary for attractinginvestment in the "nuclear cities" for purposes of implementing the projects withinthe framework of this Agreement;

e) Facilitating the search for investors for productiondiversification projects, market analysis, and the marketing of products and services produced as aresult of the implementation of those projects;

f) Facilitating access to existing investment mechanisms, includinginvestment funds; and,

g) Identifying mechanisms for the funding of projects under thisAgreement.

Department of Energy planning for instituting the Nuclear CitiesInitiative envisions, as a first step, sending three Working Groupmissions to Russia, including scientists, experts in commercialization ofscientific endeavors and small business development, and members of theU.S. business and finance community. These missions, currently planned forthe first quarter Fiscal Year 1999, will go to Sarov (Arzamas -16),Snezhinsk (Chelyabinsk-70) and Zheleznogorsk (Krasnoyarsk-26). They willconsuls with Russian counterparts and report on opportunities for businessdevelopment and accomplishing other objectives of the program. These threecities will be the focus of programming during Fiscal Year 1999, withactivity expanding to additional cities in the following years.

Based on the findings of these missions and a planned Steering Committeemeeting during the first quarter of Fiscal Year 1999, it is anticipatedthat initial Department of Energy funded projects, as well as other agencyprojects, can be developed and launched in Fiscal Year 1999, assumingCongressional reporting requirements are satisfied. Given the currentfinancial crisis in Russia, the Department of Energy believes it iscritical that evaluation and launch of projects be expeditious, givingtrope to the cities involved and their scientific personnel. Projects,however, must be carefully chosen and effective. While actual choice ofactivities must await the findings of the missions, a range of activitiesis under consideration for the Nuclear Cities Initiative. Delineated underbroad objectives, possible projects and activities are listed below:

Objective 1: Provide civilian non-weapons-related employmentopportunitiesfor displaced weapons scientists, engineers, technicians and otherspecialists.

Activities: Working in cooperation with other U.S. Governmentprograms,

- Identify fast-track projects to create jobs in "nuclear cities."

- Work with other bilateral or multilateral programs (Initiatives forProliferation Prevention, Science Centers Program, U.S. Civilian Researchand Development Foundation, U.S. Agency for International Development,BISNIS, and others) involving redirection of Russian scientific effortaway from weapons research and toward commercially viable andscientifically valid ends.

- Inform the U.S. industry and investment communities of the investmentopportunities and incentives in the nuclear cities.

- Engage business investment experts in evaluating proposedcommercialization projects to determine suitability and probability ofbusiness success.

- Identify resources available as seed money to evaluate projects andtopackage them to attract private investment capital.

Objective 2: Promote Russian economic development anddiversification bysharing United States expertise in areas such as diversificationstrategies, venture capital, market analysis, and marketing of productsand services.

Activities: Working in cooperation with other U.S. Governmentprograms,

- Obtain information on infrastructure and expertise profiles of thenuclear cities to focus planning process.

- Build on existing information networks and link them to bringinformation and competencies on various topics to the cities.

- Establish information resource centers, business development centers,and/or business parks as a means of facilitating and encouragingcommercial development.

- Identify potential industries with interest in participating in theNuclear Cities Initiative and engage the United States business andfinancial community.

- Conduct exchanges among the nuclear cities, the scientific andtechnicalinstitutes, U.S. businesses, and non-governmental organizations.

- Work with the cities to develop/expand Internet web sites in RussianandEnglish to promote commercial and other needed activities. Establish orenhance "open" and direct communication links.

- Share market analysis capabilities.

- Invite Russian delegations of mayors, institute leaders, and otherstothe March 1999 meeting of Energy Communities Alliance in Washington, D.C.,and to meet with Congressional members and staff.

- Develop informational materials in English and Russian on thestrengthsand opportunities in the "nuclear cities" for distribution to potentialpartners and investors.

Objective 3: Support and enhance non-weapons-related expertise bydeveloping entrepreneurial skills in displaced employees to mitigate thesocial and economic impacts of downsizing the Russian nuclear weaponscomplex.

Activities: Working in cooperation with other U.S. Governmentprograms,

- Survey each city to determine relevant assets and capabilities withpotential for Nuclear Cities Initiative opportunities and needs andprioritize.

- Perform strength, weaknesses, opportunities, threats analysis onidentified assets and/or capabilities in the cities.

- Identify barriers to investment specific to the nuclear cities andsuggest methods to remove.

- Recruit and develop local entrepreneurs.

- Provide assistance in the Russian development of business plans forinitial, intermediate, and longer-range business viability planning.

- Formulate a business educational dimension.

- Determine immediate business expansions, startups, and attractionopportunities.

Objective 4: Assist in creation of the conditions necessary foreconomicdevelopment and conversion in the "nuclear cities."

Activities: Working in cooperation with other U.S. Governmentprograms,

- Develop incentives to attract domestic industrial participation.

- Encourage/facilitate greater communication among Russiancities/institutes/facilities.

- Leverage existing U.S./Russian sister-city relationships for buildingmunicipal and business contacts.

- Research, develop, and use the legal infrastructure tosupport/enforceactions.

- Identify and build on existing U.S. assistance programs, successes,andcompetencies to shorten learning curve; bring established Russian andinternational expertise to bear on complex social, financial and legalissues associated with restructuring the Russian nuclear weapons complex.

(C) Milestones

First Quarter, Fiscal Year 1999

- Formally establish at Department of Energy Headquarters a "programstaff," to manage and coordinate Nuclear Cities Initiative programs andactivities. This includes the development of a Strategic Program Plan, andother program support documents, development of budgetary and otherresources and tracking of program implementation.

- Send Working Group to the three focus cities to assess the economicstrengths, weaknesses, opportunities and threats within the cities. Theseteams, composed of experts with backgrounds in technology, workertransition and base closure, finance and new business creation, willinteract with the institutes, city and regional governments and otherparties in the cities to assess the current situation and to makerecommendations for future action. The teams will assess communicationrequirements within the nuclear cities to promote business and commercialdevelopment and to create links to the "outside" world. Infrastructureneeds within the cities will be assessed to determine opportunities andbarriers to success.

- Conduct workshops on community transition using lessons learned fromU.S. nuclear weapons complex downsizing and military base closureexperience.

- Meet with Ministry of Atomic Energy officials to identify projectscurrently under development which could be implemented quickly to createjobs. Develop focus on several major projects for each city and beginassessment of business viability.

- Inventory existing U.S. Government assistance programs which have apotential role under the Nuclear Cities Initiative. Hold second U.S.Interagency Steering Committee meeting.

- Establish Program Guidance and Management Policies and Procedures.Establish an accounting and tracking system for the Nuclear CitiesInitiative. Develop program success metrics.

- Hold Nuclear Cities Initiative Information Briefing for industry andnon-governmental organizations with interest in the program. The objectiveis to leverage the Department of Energy effort through attraction ofinvestment by foundations, non-governmental organizations, and,eventually, venture capital organizations.

- Conduct targeted strategic planning education for scientificmanagementof nuclear enterprises at U.S. business schools.

- Complete an inventory of U.S. Government-provided business educationandtraining programs for possible consideration under the Nuclear CitiesInitiative.

Second through Fourth Quarters, Fiscal Year 1999

- Implement business and entrepreneurial training programs with the inputof city participants to determine needs and desired outcome.

- Use existing expertise and seek support from other U.S. Governmentprograms within the U.S. Government to examine options for sustainingemployee benefits, such as health care, during the transition period.Begin steps to encourage employees to work for private sector firms.

- Begin to assess the viability of small business start-up companiesandwork to secure necessary funding to Bet some of these new enterprisesstarted.

- Establish commercialization centers or high technology incubators, asappropriate, to facilitate the development of new businesses.

- Develop plan to market technological and educational capabilities ofthepersonnel in the cities to outside investors. Promote workshops toshowcase potential products and technologies to United States investors.

- Review and approve moderate sized, high technology developmentprojectswhich have a high probability of job creation for former weaponsspecialists.

- Begin implementation of major projects or commit additional funds foradditional assessment of project viability under Western financingcriteria. Establish methodology of project review, assessment andapproval.

- Establish communication needs and begin installation of informationinfrastructures within the open part of the cities. Supply support equipment as needed topromote small business development.

- Provide assistance to plan and implement transfer facilities fromwithinthe nuclear weapons complex to the municipal areas. This may entailproviding Western expertise on perimeter security, and it may entailmoving fence lines to provide access to facilities now working on civilianactivities.

- Develop reporting materials and prepare a first year Nuclear CitiesInitiative Report of Progress.

- Begin preparation, refinement, and distribution of trainingmaterials.

Fiscal Year 2000

In the second year, the Department of Energy expects that the program willexpand to additionalcities using the methodology cited above, but adjusted to consideruniqueness of the cities and lessons learned. Activities will include:

- Continue to develop methods to convert facilities to civilian commercialactivities.

- Develop marketing and success story materials to be used inattractingprivate investors. Include materials which show the Russian tax advantagesof investing within the closed cities.

- Continue to solicit and fund major projects with good economicpotentialto create lasting jobs within the targeted cities.

- Conduct focused training for local specialists on business riskanalysis.

- Begin to support development of collateral small businesses andmicroenterprises.

- Develop plans for expanding the Nuclear Cities Initiative toencompassenvironmental and nuclear safety and clean-up activities when theseactivities have commercial application and when new jobs will be created.

- Explore the expansion of the Nuclear Cities Initiative from abilateralprogram to a multilateral program. Initial new participants are likely tocome from the European Community and, perhaps, Japan, although this hasnot been discussed multilaterally and participation would be open to anyinterested nations that share United States objectives and commitment tononproliferation principles.

(D) Funding Profile

Fiscal Year 1999 funding for the Nuclear Cities Initiative remainsuncertain. The Department ofEnergy has identified a programmatic budget requirement for the NuclearCities Initiative in theamount of $30 million in Fiscal Year 1999. The Act, establishing therequirement for this Report, provides funding in Fiscal Year 1999 of up to$20 million for the Initiatives for Proliferation Prevention program andno specific funding for the Nuclear Cities Initiative. The Energy andWater Appropriations Act of 1999 includes $25 million for the Initiativesfor Proliferation Prevention and S15 million for the Nuclear CitiesInitiative. However, these resources are to come from within availablefunds and prior year balances. The Fiscal Year 2000 budget submission hasnot been approved by the Office of Management and Budget.

The overall program cost is currently being developed; the amount thatwill be required can be estimated based on the Russian stated requirementthat 30,000 to 50,000 new jobs need to be created. While the United Stateswill not fund all these jobs, these numbers provide an order of magnitudeestimate of the cost of the endeavor. Based upon Department of Energyactual experience in the reduction of the U.S. nuclear weapons complex, itcosts approximately $11,000 to create one job. Applied to the RussianFederation, this equates to approximately $550 million. Some of the costsin Russia are lower than in the United States, but the Russians start at amuch lower level of business knowledge, infrastructure and market drivenexperience than that domestically. It should be noted that the estimate isbased on the assumption that U.S. funding for the initiative will beleveraged with other funding sources to help solve the nonproliferationproblem created by extensive downsizing of the Russian nuclear weaponscomplex.

The Russian Federation has maintained from the outset that this will be aprogram in which Russia will share costs with the United States; however,in light of the current economic crisis in Russia, it is uncertain to whatextent Russia's contribution will involve funding, versus providingbuildings, equipment and other services in kind.

Appendix A

Nuclear Cities of the Russian Federation

Arzamas-16, Sarov	Nuclear Weapons Design, Assembly, Plutonium (Pu) Storage
Penza-l9, Zarechuyy	Nuclear Weapons Assembly, Disassembly, Pu and High enriched Uranium (HEU) Storage
Sverdlovsk~4, Novoyouralsk	Uranium Enrichment, HEU Storage and Blend clown
Sverdlovsk~5, Lesnoy	Nuclear Weapons Assembly, Disassembly, Pu Storage
Chelyabinsk-65, Ozersk, Mayak Site	Fuel Fabrication, Mixed Oxide (MOX), Pu Production Reactors, Reprocessing, Waste Management
Chelyabinsk-70, Snezhinsk	Nuclear Weapons Design, Pu and HEU Storage
Zlatoust-36, Trekhgomyy	Nuclear Weapons Assembly, Disassembly, Pu and HEU Storage
Tomsk-7, Seversk	Uranium Enrichment and Reprocessing, Pu Production Reactors, Waste Management
Krasnoyarsk-26, Zheleznogorsk	Reprocessing, Pu Production Reactors, Waste Management
Krasnoyarsk-45, Zelenogorsk	Fuel Fabrication (Militaty), Uranium Enrichment

Appendix B

List of Participants - July 10. 1998 Steering Committee Meeting

U.S. Participants

Department of Energy

Rose Gottemoeller, Director, Office of Nonproliferation and NationalSecurity
Robert W. DeGrasse, Director, Office of Worker and CommunityTransition
Leonard S. Spector, Director, Office of Arms Control andNonproliferation
William J. Desmond, Director, Initiatives for Proliferation Prevention
Janet E. Hauber, Lawrence Livermore National Laboratory
Stephen V. Mladineo, Pacific Northwest National Laboratory

Department of Commerce

Dana Marshall, Office of the Counselor, International TradeAdministration
Richard J. Brody, Senior Policy Analyst, Technology Administration

Department of Defense

Edward L. Warner, III, Assistant Secretary, Strategy and ThreatReduction
Sarah J. Lennon, Special Assistant to the Assistant Secretary

Department of State

Ambassador Richard L. Morningstar, Special Advisor to the President andSecretary of State on Assistance to the New Independent States
Eric D. Newsom, Assistant Secretary, Political-Military Affairs Bureau
Kim K. Savit, Director, Security Programs, Office of the Coordinator,NIS Assistance
Col. Joe J. Baldwin, Jr., USAF, Office of the Coordinator, NIS Assistance
Anne M. Harrington, Program Director, Science Centers Program, Office ofRegional Nonproliferation

National Security Council

Neil R. Kingsley, Director, Russia, Ukraine, and Eurasia Affairs

Office of Science and Technology Policy

Kerri-Ann Jones, Acting Director
Bruce MacDonald, Assistant Director, Office of National Security andInternational Affairs

U.S. Agency for International DevelopmentBrian Kline, Acting Deputy Assistant Administrator, Europe and NIS Bureau

Russian Federation

Ministry of Atomic Energy

Sergey V. Krysov, Advisor to the Minister
Anatoly N. Abramov, Protection of Information Department
Mikhail P. Shabalov, Foreign Relations Department
Alexandre I. Makarenko, Social and Personal Policy Department

Ministry of Foreign Affairs

Vladimir I. Rybachenkov, Counselor, Department of Security Affairs andDisarmament

SarovVladimir I. Zhigalov, General Director, VNIIEF - Conversion Joint StockCompany

ZheleznogorskGennady A. Fomin, General Director, Joint Stock Company, Silicon Company(SILCO)

Appendix C

Agreement Between The Government Of The United States Of America AndThe Government Of The Russian Federation On The Nuclear CitesInitiative

The Government of the United States of America and the Government of theRussian Federation, hereafter referred to as the Parties,

Taking into account:

- The January 14, 1994, Declaration of the Presidents of the United Statesof America and the Russian Federation on "Nonproliferation of Weapons ofMass Destruction end the Means of Their Delivery";

- The Energy Policy Committee report submitted at the 10th session of theU.S.-Russian Commission on Economic and Technological Cooperation, whichwas held in March 1998,

- The July 24, 1998, Joint Statement on U.S.-Russian Cooperation toImplement the Nuclear Cities Initiative.

Have agreed as follows:

Article 1

The purpose of this Agreement is to create a framework for cooperation infacilitating civilian production that will provide new jobs for workersdisplaced from enterprises of the nuclear complex in the "Nuclear Cities"controlled by the Ministry of the Russian Federation for Atomic Energy.

This cooperation shall be in keeping with the Parties' mutualdisarmament and non-proliferation efforts.

The Nuclear Cities Initiative complements other bilateral and mul1ibteralagreements to which the United States and the Russian Federation areParties, and does not supersede them or otherwise affect their terms andconditions.

Article 2

For purposes of this Agreement:

1. The term "nuclear cites" shall mean administrative territorial units,as defined under the Law of the Russian Federation on ClosedAdministrative Territorial Units, that have bodies of local municipalself-government and within which are located nuclear enterprisescontrolled by the Ministry of the Russian Federation for Atomic Energy,not including the territory of the enterprise itself.

2. Diversification of production shall mean the development, in "nuclearcities", of commercially viable enterprises for civilian production atwhich displaced employees of the nuclear complex can be employed withemphasis on former nuclear weapon scientists, engineers, technicians, andotherspecialists.

3. Civilian production shall mean an enterprise of any form of ownership,with an emphasis on private sector ownership development, that is orientedtoward manufacturing or services for civilian use.

Article 3

1. The principal subject areas for the cooperative activities by theParties may include the following' types of activities:

a) Sharing experience in diversification of production,

b) Facilitating the selection of promising projects for productiondiversification and creating the conditions that will enable them to beimplemented,

e) Developing entrepreneurial skills in employees displaced fromenterprises of the nuclear complex, training them in how to write abusiness plan, and facilitating development of such plans;

d) Facilitating creation of the conditions necessary for attractinginvestment in the "nuclear cities" for purposes of implementing theprojects within the framework of this Agreement;

e) Facilitating the search for investors for production diversificationprojects, market analysis, and the marketing of products and servicesproduced as a result of the implementation of those projects;

f) Facilitating access to existing investment mechanisms, includinginvestment funds; and,

g) Identifying mechanisms for the funding of projects under thisAgreement.

Article 4

1. The Parties shall designate Executive Agents to carry out thcprovisions of this Agreement The Executive Agent for the RussianFederation shall be the Ministry of the Russian Federation for AtomicEnergy, and the Executive Agent for the United States of America shall bethe U.S.Department of Energy.

2. The Parties shall establish a U.S.-Russian Joint Steering Committee,which shall coordinate work undertaken under this Agreement. Each Partyshall designate its own members on the Joint Steering Committee. Decisionsof the Joint Steering Committee shall be made on the basis of unanimousconsent.

3. The tasks of the Joint Steering Committee shall include:

a) Development of Joint Action Plans to implement this Agreement;

b) Establishment of joint working groups to carry out specific tasks, andcoordination of their activities. These groups may be formed based uponspecific "nuclear cities", or technical subjects depending on the task tobe accomplished,

c) Coordination and review and the making of recommendations for financingand implementation of projects t under this Agreement,

d) Resolution of disputes and disagreements that may arise in the courseof activities under this Agreement;

e) Review of other matters, as the Executive Agents of the Parties mayagree in writing, that are within the scope of this Agreement.

4. A detailed plan for implementing specific production diversificationprojects within the framework of the Agreement shall be drawn up in theform of specific implementing arrangements.

5. The Parties' Executive Agents may involve other governmentalinstitutions, auditing, marketing, end law firms, research centers,commercial enterprises, universities, institutes, and other organizationsof the Parties in joint activities under this Agreement.

Article 5

1. In the implementation of this Agreement, only unclassified informationwill be exchanged.

2. In order to prevent access by people and organizations notparticipating in the implementation of this Agreement to information thatis provided by the Parties pursuant to, or is obtained or produced as aresult of, implementation of this Agreement and is considered sensitive bythc Parties, such information is to be handled as sensitive information.Such information must be clearly designated and marked. The Partytransmitting the information will designate information as sensitive inaccordance with its laws and regulations. Thc Party receiving thisinformation shall assign it a designation that provides a degree ofprotection at least equivalent to that required by the Party thatfurnished the information.

3. Sensitive information shall be handled in accordance with the laws andregulations of thc Part, receiving thc information, and this informationshall not bc disclosed or transmitted to a third party not participatingin implementation of this Agreement without thc written consent of theParty transmitting the information. According to the Dorms end regulationsof the Russian Federation, such information shall be treated as officialinformation with limited distribution and shall be protectedappropriately. According to the norms and regulations of the UnitedStates, such information shall be treated as foreign governmentinformation provided in confidence. That information shall be protectedappropriately.

4. The Parties shall assure effective protection and allocation of rightsto intellectual property transmitted or created under this Agreement, asset forth in this Agreement and in the Annex to this Agreement which formsan integral put of this Agreement.

5. Information transmitted under this Agreement must be used solely inconformance with the provisions of this Agreement.

6. The number of people having access to sensitive information must belimited to the number necessary to implement a specific program under thisAgreement and shall be determined by the respective Executive Agent.

Article 6

1. In the event that a Party awards contracts for the acquisition ofarticles and services, including construction, to implement thisAgreement, such contracts shall be rewarded in accordance with the lawsand regulations of that Party. All activities carried out in the RussianFederation under such contracts shall be performed consistent with RussianFederation law.

2 . To the extent necessary for effective implementation of thisAgreement, the Executive Agent of the Russian Party shall provideassistance, in accordance with Russian Federation law and the regulatoryand legal acts of the federal authorities of the Russian Federation, fortimely access for those involved in coordinating and implementing thisAgreement to the "Nuclear Cities" and to sites where activities related tothis Agreement are performed.

Article 7

Equipment, supplies, materials, services and activities provided oracquired by thc United States of America, its contractors, subcontractors,and their personnel for the implementation of this Agreement are freetechnical assistance and are thus exempt from customs duties and taxes.The Russian Federation shall take all necessary measures to exempt thisequipment, shipments, materials, services, and work from all taxes,tariffs, customs duties, and levies of the Russian Federation and itsinstrumentalities. In carrying out these obligations the RussianFederation, its ministries, agencies and instrumentalities shall act inaccordance with Russian Federation law.

Article 8

1. With the exception of claims against individuals for premeditateddamage or injury, the Government of the Russian Federation shall bring noclaims or other legal proceedings against the Government of the UnitedStates of America and its personnel or its contractors, subcontractors,consultants, suppliers, or subsuppliers of equipment or services at anytier and their personnel, in any court or forum, for any damage, includingindirect, direct, or consequential damage, arising from activitiesundertaken pursuant to this Agreement, to property owned by the RussianFederation. This paragraph shall not apply to legal actions brought by thcGovernment of the Russian Federation to enforce the provisions ofcontracts to which it or a Russian national or other legal entity is aparty.

2. With the exception of claims against individuals for premeditateddamage or injury, the Government of the Russian Federation shall providefor the adequate defense of, shall indemnify, and shall bring no claims orother legal proceedings against, the Government of the United States ofAmerica and its personnel or its contractors, subcontractors, consultants,suppliers, or subsuppliers of equipment or services at any tier and theirpersonnel, in connection with third-party claims, in any court or forum ,for any injury or damage, including indirect, direct, or consequentialinjury or damage, arising from activities undertaken pursuant to thisAgreement, occurring within or outside the territory of the RussianFederation. Nothing in this paragraph shall be construed as acknowledgingthe jurisdiction of any court or forum over third-party claims to whichthis paragraph applies, nor shall it be construed as waiving the sovereignimmunity of either Party with respect to third-party claims that may bebrought against it.

3. The Parties may, as necessary, conduct consultations regarding claimsand legal proceedings concerning this Article.

4. The provisions of this Article shall not prevent the Parties fromproviding compensation in accordance with their national laws.

5. Nothing in this Article shall be interpreted to prevent legalproceedings or claims against nationals of the Russian Federation orpermanent residents of the Russian Federation.

Article 9

1. The joint activities under this Agreement may be supported by fundsappropriated for those purposes by the Russian Federation and the UnitedStates of America and by materials, equipment, and manpower provided freeof charge by them. The joint activities may also be supported partially orwholly directly from other sources, including non-government and privatesector funds.

2. In all cases, the activities of, and financial support provided by, theUnited States of America. under this Agreement are subject to theavailability of appropriated funds. In all cases, the activities of, andfinancial support provided by, the Russian Federation under this Agreementare subject to the availability of appropriated funds.

Article 10

1. Representatives of the United States of America shall have the right,upon giving notice, to perform coordinated inspections of, and to audit,the use of support or assistance provided by the U. S. Government withinthe framework of cooperation under this Agreement during the life of thisAgreement and for three years thereafter. Such inspections may beconducted at sites or locations that are determined by mutual agreement ofthe Parties' Executive Agents and that are subject to this Agreement.

2. The Parties' Executive Agents shall, within the framework of the JointSteering Committee, develop appropriate procedures for conducting theinspections of the use of assistance and support provided within theframework of this Agreement.

Article 11

All questions regarding the interpretation or application of theprovisions of this Agreement shall be resolved by means of consultationbetween the Parties.

Article 12

1. This Agreement shall enter into force on the date of signature andshall remain in force for five years. The Agreement may be extended forsuccessive five-year periods with the written consent of both Partiesafter joint review before the end of each five-year period. The Agreementmay be amended by written agreement of the Parties.

2. This Agreement may be terminated by either Party by sending writtennotice through diplomatic channels of its intent to terminate theAgreement, in which case the Agreement shall terminate six months from thedate of the notification.

3. If the Agreement is terminated by either Party, the Parties may agreeupon the full implementation of existing contracts and projects and willsettle any outstanding costs by mutual agreement. If this Agreement isterminated or expires, the Parties agree that all sensitive informationand intellectual property obtained or created in the course ofimplementation of the Agreement shall continue to be treated inconformance with Article 5 of this Agreement, unless other arrangementsare made by written agreement of the Parties.

DONE AT VENNA this 22nd day of September, 1998 in two copies each, in theEnglish and in Russian languages, each text being equally authentic.

FOR THE GOVERNMENT OF THE UNITED STATES:

FOR THE GOVERNMENT OF THE RUSS1AN FEDERATION:

Annex To The Agreement Between The Government Of The United States OfAmerica and The Government Of The Russian Federation on The Nuclear CitiesInitiative

Intellectual Property

Pursuant to Article 5 of this Agreement:

The Parties shall ensure adequate and effective protection of intellectualproperty created or furnished under this Agreement ant relevantimplementing agreements. The Parties agree to notify one another in atimely fashion of any inventions or copyrighted works resulting fromscientific and technological work performed under this Agreement and toseek protection for such intellectual property in a timely fashion. Rightsto such intellectual property shall be allocated as provided in thisAnnex.

I. Scope

a. This Annex is applicable to al cooperative activities undertakenpursuant to this Agreement, except as otherwise specifically agreed by theParties or their Executive Agents.

b. For purposes of this Agreement, "intellectual property" shall have themeaning found in Article 2 of the Convention Establishing the WorldIntellectual Property Organization, done at Stockholm, July 14, 1967.

c. This Annex addresses the allocation of rights and interests between theParties. Each Party shall ensure that the other Party can obtain therights to intellectual property allocated in accordance with this Annex,by obtaining those rights from its own participants through contracts,license agreements or other legal documents, if necessary. This Annex doesnot otherwise alter or prejudice the allocation between a Party and itsnationals or other legal entities, which shall be determined by thatParty's laws end practices.

d. Disputes concerning intellectual property arising under this Agreementshould be resolved through discussions between the concerned participatinginstitutions, or, if necessary, the Parties or their Executive Agents.Upon mutual agreement of the Parties, a dispute shall be submitted to anarbitral tribunal for binding arbitration in accordance with the Agreementand with the applicable rules of international law.

e. Termination or expiration of this Agreement shall not affect rights orobligations under this Annex.

II. Allocation of Rights

a. Each Party shall be entitled to a nonexclusive, irrevocable,royalty-free license in all countries to translate, reproduce, andpublicly distribute scientific and technical journal articles, papers,reports, and books directly arising from cooperation under this Agreement.All publicly distributed copies of a copyrighted work prepared under thisprovision shall indicate the names of the authors of the work unless anauthor explicitly declines to be named.

b. Rights to all forms of intellectual property, other then those rightsdescribed in Paragraph I.A above, shall be allocated as follows:

1. Visiting researchers shall receive intellectual property rights underthe policies of the host institution In addition, each visiting researchernamed as an inventor or author shall be entitled to awards, bonuses,benefits, or any other rewards in accordance with the policies of the hostinstitution.

2. (a) For intellectual property created during joint research, forexample, when the Parties, participating institutions, or participatingpersonnel have agreed in advance on the scope of work, each Party shall beentitled to obtain all rights and interests in its own country. Rights andinterests in third countries will be determined in implementingagreements. If research is not designated as "joint research" in therelevant implementing agreement, rights to intellectual property arisingfrom the research will be allocated in accordance with paragraph .b.1above. In addition, each person named as an inventor or author shall beentitled to receive awards in accordance with the policies of theparticipating institutions.

(b) Notwithstanding paragraph II.b.2(a) above, if a type of intellectualproperty is available under the laws of one Party but not the other Party,the Party whose laws provide for this type of protection shall be entitledto all rights and interests worldwide. Persons named as inventors orauthors of the property shall nonetheless be entitled to awards, bonuses,benefits, or any other rewards in accordance with the policies of theparticipating institution of the Party obtaining rights.

III. Business Confidential Information

In the event that information identified in a timely fashion asbusiness-confidential is furnished or created under this Agreement, eachParty and its participants shall protect such information in accordancewith applicable laws, regulations, and administrative practices.Information may be identified as "business-confidential" if a personhaving the information may derive an economic benefit from it or mayobtain a competitive advantage over those who do not have it, theinformation is not generally known or publicly available from othersources, and the owner has not previously made the information availablewithout imposing in a timely manner an obligation to keep it confidential.