I will talk about is how the nuclear safety assistance programs fit into our overall foreign policy structure. And in particular, there are sort of four key areas I think: first is our economic policy; second is our energy policy; third is nuclear energy, which is a different policy as you can imagine; and the nuclear non-proliferation policy and how all of these impact on what we can do.

I will focus this morning on the work that we do in the new independent states and in Central and Eastern Europe, but not completely because nuclear safety is becoming an issue that is much broader for all of us; and that is in the Asian context in particular. There is a growing interest and growing activity in this area.

But first in the context of economic policy, as I'm sure you're all aware, the G-7 process is an economic policy process, and the summits that began this whole nuclear safety endeavor in 1992 with the Germans who were at that time the presidents of the G-7 process, determined that in order to ensure that the countries of the former Soviet Union and Eastern Europe, in order to ensure their economic prosperity there needed to be something done with respect to nuclear safety.

That issue has now been on the agenda of the summits every year since and I'm sure you're aware that this year in Denver, again, nuclear safety was part of the overall Denver summit communique.

The reason is really the interconnections that one sees between economics, energy, and the overall reform efforts that we are trying to undertake in these countries. With respect to the summit process, you may be aware we're about to have a formalization of a new member of our G-7 process, and that is Russia.

This year the British are in charge of the G-7--well, it will now be called /G-8 process. I say "slash" because not everything is going to be G-8. As you can imagine, when it comes to economic policy there's a few things that the G-7s still share that Russia is not engaged in.

And when it comes to nuclear safety, it's another area where I don't think we exactly see eye-to-eye, and there's generally speaking, amongst the G-7, a view that we still don't see eye-to-eye with the Russians on this issue.

Therefore, we will continue to meet in the context of the G-7 process at 7 on the issues of nuclear safety, and again, we will meet with the Russians in the context of nuclear safety, and this year in particular, for a very important reason.

You may be aware that at the Denver summit President Yeltsin asked and the leaders agreed, to an Energy Ministerial to be held in Moscow this year. It is now scheduled for the last couple of--I guess the last day of March and the first day of April.

On the agenda for the Energy Ministerial is the issue of nuclear safety. It was determined that the nuclear safety working group of the G-7 process should provide a report to the Energy Ministerial. And so we are working with our Russian colleagues in putting together a paper.

That paper will focus back on this issue of how economic and energy policies are important and integral to nuclear safety. And that is to look at, as the electricity sector restructuring goes on, not just in Russia but in fact, in our country and in most of the G-7 countries, for a variety of reasons including reform, including deregulation, whatever the reason is.

There will be, potentially, an opportunity for operators to look at nuclear safety as an excess burden as they try to compete against other power sources in that process.

And so we, as the Nuclear Safety Working Group, will be informing the Energy Ministers that as competitiveness grows in these sectors, in the electricity sectors, that it will be important for both industry and government to keep their eye on the importance of keeping nuclear safety as the absolute priority in all nuclear power operations.

This might sound familiar to you as a message because when the G-7 last met with the Russians at the Moscow Nuclear Safety and Security Summit in 1996, the primary message coming out of that summit was that we, the eight countries, would indeed make nuclear safety the absolute priority in our nuclear power operations.

This process for the Russians in the Energy Ministerial will focus more specifically on the issue of reform of the power sector and how to ensure that the nuclear plants are fully engaged once there is a competitive power market up and running in Russia.

You may be aware in the last year, that Deputy Prime Minister Nemtzov and Deputy Prime Minister Chubais have taken on an effort to restructure some of the major industries in Russia and one of those is the power industry. And through that effort they have managed to get a consensus at very senior levels in the government to work towards creating a competitive power market.

The focus of their efforts has been on the non-nuclear side of the house--on the thermal sector in particular--and on oil and gas and coal, and how do you ensure that the thermal plants can in fact, buy fuel. And as you may be aware, there's not much money in the overall Russian economy, but certainly it's a very big problem in the energy sector.

Well, the nuclear plants have been left out of that process, probably because of internal politics. But generally speaking because as many of you I'm sure are aware, the Minister of Atomic Energy in Russia, Minister Mikhailov tries to run his shop as a very tightly closed organization that he retains full responsibility for. In the end he may be hurting his own sector by not involving them right now in the very beginnings, in the overall effort to create a power market.

We have the dire sense that if that power market takes off that's going to be the mechanism through which the power plants will indeed be able to sell electricity, get cash payments for that electricity, and then use those funds to pay salaries, to make investments, to carry out maintenance; the kinds of things that we worry at this point--not just in Russia--aren't being paid for because there's so little cash in the system.

The next element that relates directly to this is energy policy, and I'm sure that you are aware that we have two commissions at the level of the vice president. Vice President Gore has a special commission with Prime Minister Chernomyrdin, and also with President Kuchma of Ukraine.

And in the context of those commissions there are energy groups, energy working groups that are focused on how we can work together--through assistance, through cooperation--to ensure that the energy sectors in Russia and Ukraine receive the attention--the policy attention, the financial attention--of the international community that's needed in order to ensure economic prosperity.

In the context of Gore/Chernomyrdin, nuclear safety has been an issue since the commission began in 1993. It has been an issue in which we have had many a discussion and many a tough discussion with the Russians as we work with them on trying, not just to, as you all do, provide safety improvements to improve the operating life--not the operating life, the operational safety of the reactors, but on making institutional changes in the way Russia does business on nuclear safety to ensure that once we put in these improvements that there's actually going to be follow-through.

This has to do with of course, the Nuclear Regulatory Authority and ensuring that the regulator has the financial and legal wherewithal to oversee operations, to call the plant if there is a problem. And this also has to do again, feeding back into, does the plant have the money that it needs in order to make the investments to do maintenance, to buy fuel, etc.?

The issue of institutional change is not an easy one with the Russians. As you can imagine in the old superpower-to-superpower relationship, what do we have to say to the Russians on anything? They are our equivalent; we shouldn't be teaching them; we should be listening to them. This should be a total information exchange in which we learn from them and they learn us.

And there are in fact, I'm sure you're all aware of, things that we're learning daily on what they do in their nuclear sector and what, in some cases, could be valuable back home.

But I think generally speaking we still view this as a one-way street; that there is a lot more going to them than coming back, and it creates some diplomatic problems and some difficulties, and we aren't making as much progress, frankly, as I think we wish we could.

I don't know how much experience you have in working with GAN--Gosatomnadzor, the Russian regulator--but generally speaking, GAN does whatever the Ministry of Atomic Energy asks and that's the way things operate. That's not exactly the way we would hope in looking at it; the importance of having an independent oversight over the nuclear sector.

In the context of Ukraine and the Gore/Kuchma Commission, we have a very different relationship. We have with Ukraine a very fundamental and valuable relationship that is not based on old superpower politics, but it's based on Ukraine's interest in becoming closer to the West.

And in this context it's a lot easier to have the nuclear safety programs be assistance, not an information exchange, and in fact I think it is one of the strongest programs that we have--is our program of assistance in Ukraine.

In this context our energy focus with Ukraine covers, again, the whole gamut of issues in terms of the fuel supply in the thermal sector, energy efficiency, the importance of least cost investments in the energy sector, and with respect to the nuclear sector, nuclear safety. There the conversations are also are very much under the umbrella of the G-7 process.

I think I spoke last year about the G-7 Ukraine Memorandum of Understanding on the closure of Chornobyl. That memorandum has in fact, become an umbrella for our overall discussions with Ukraine in the nuclear sector because it is focusing on, not just Chornobyl, but on the whole issue of: what is the future of Ukraine's nuclear sector and what is it that they will be able to do once Chornobyl closes down to ensure efficient, reliable, electricity supplies which they read as nuclear energy to a very large extent.

The reason being, I'm sure you're aware, that in the thermal area, Ukraine has to buy oil and gas from Russia and has to buy it at top-dollar. And in an economy that's as weak as Ukraine's, that's a very hard thing to do, and in order to get those supplies, therefore, there have to be diplomatic compromises and those mean Ukraine gets extra pressure from Russia politically.

You may have heard there are fights in which the Russians determine at some point they're going to turn off the gas supply to Ukraine because Ukraine's not doing exactly what the Russians want.

That kind of activity is something that we are deeply concerned about and so we are very, very interested in ensuring that the whole energy/power sector in the Ukraine becomes strong enough financially that they can provide, for example, to Russia the hard currency to pay for gas and oil so that they have more political independence.

With respect to Chornobyl and how this relates, you may all be aware that the Ukrainians view the closure of Chornobyl as a deal with the G-7 to complete two new reactors in Ukraine. In essence, Chornobyl Units 1 and 3 are closing by the year 2000 so they should be receiving two new reactors as replacement capacity.

This was not and is not, the basis for the Memorandum of Understanding, but you can imagine that this is an easy way to sell this idea of a Memorandum of Understanding to the Ukrainian hardline community; in particular, those who say why is Ukraine bending under the pressure of the G-7?

Well, Kuchma says to his parliament and to others: we're not bending under the pressure of the G-7; the G-7 are going to make sure we get two new reactors and we can run them for 30 years instead of Chornobyl which might have lasted for five or ten. So that was an easy sell and now it's become the political football in our whole game.

What we're interested in is, how do we ensure that the power sector--in which Chornobyl can contribute and maybe these two reactors in the future--how do we ensure that the Ukrainians are making the best economic decisions for that power sector based on financial constraints that they currently are living with, safety concerns, energy efficiency concerns, and diversification of energy supplies?

That leads to a very different kind of thinking that maybe you can replace Chornobyl capacity by doing a hydro project or working on thermal plant rehabilitation, or working on energy efficiency so there's not so much demand.

And it also includes nuclear safety improvements and it may include at some future time, investments in new capacity such as new reactors. But one needs to look at the whole, particularly given the current economic condition in Ukraine which is at this point, still a very sad story and potentially reaching another crisis this year.

That crisis is in fact, something that worries us a lot, coming back to the whole issue of economic policy, and that is: if indeed, Ukraine's economy becomes as weak as it appears that it may, where are we going to be able to provide, how are we going to be able to get the Ukrainians to have sufficient financial base to their energy sector when their overall economy is depressed and going down further?

It's very difficult to see how you can bring the two together. And as a consequence, in the Gore/Kuchma process we are focusing right now very much on macro-economic policy, on fiscal policy, on what is it that the Ukrainians can do to ensure they have a strong relationship with the International Monetary Fund which will enable them to continue to have a relationship with the World Bank, the European Bank, and not depend only on government grant assistance, which is currently a very large part of the revenues that come in to the government.

Nuclear energy and safety policy. As you know, we have a very strong nuclear energy and safety policy in the U.S. With respect to safety this is driven largely by our G-7 process and our commitments, as well as our own internal thinking on the importance of nuclear safety in an economic and viable nuclear power program.

With respect to nuclear energy, this is going to be an interesting issue as we look post-Kyoto Conference at what the impact is going to be on many governments' thinking with respect to nuclear energy. It could impact our own. It certainly is looking like it's impacting many decisions overseas and we don't yet know fully the consequences of that.

It will be something that we will be watching carefully and you can imagine, we are already hearing from the Russians and Ukrainians how important Kyoto is to the importance of their future nuclear power programs.

Nuclear non-proliferation policy does play a role in what we do. You may be aware that the U.S. has some of the strictest non-proliferation laws in the world. It has restricted many people, many companies from doing things that they might well otherwise have done for commercial reasons. But we feel very strongly that non-proliferation policy --and I think you see this in this administration in particular--is a very, very fundamental basis of what makes America America.

The issue of non-proliferation really affects us in the context of the safety programs in one way and that is, you may be aware that Congress has been restricting the amount of foreign assistance funds that can go to Russia because of Russia's continuing interest in and activities in, helping Iran build a nuclear power plant.

Our concern of course, is that this power plant in Iran may not be used for only peaceful purposes and as a consequence, we would like our allies--and Russia is one, particularly on the non-proliferation side--to not engage in these kinds of activities.

As a result of the Administration's position on this--there has been considerable Congressional interest and I think Congress has taken an even stronger position in some ways than we by writing into the legislation again this year, that assistance to Russia through our Freedom Support Act will be limited until the President can certify--or request a waiver--that Russia is not engaged in cooperating with Iran on the reactor.

The issue of non-proliferation policy is really what drives our ability to expand our nuclear safety efforts into other parts of the world. In the context particularly of China, I'm sure everyone has been following very closely the process of the Administration's effort to get a Nuclear Trade Agreement with China. This initial effort began in 1985 and was stymied by China's proliferation policies.

The effort that's been undertaken over the last year-and-a-half has led, we believe, to a very important change in China's policy and as a result, the President, as requested by Congress, has now certified to Congress that we believe China's non-proliferation policies and ours are in sync.

What that means is it opens up, if Congress agrees, the opportunity for nuclear trade. But it also opens up the opportunity for expansion of our nuclear safety work with China. This is going to be an area of increasing interest, particularly as we view China's interest in buying American reactors.

We sure would like to know that they have the infrastructure in place to ensure that those reactors will operate safely. We would hate to see a good U.S. reactor operated poorly and result in an accident that brings difficulties to our own industry.

So we will be working more closely with the regulator in China, as well as with the overall government in ensuring that as this process of expanding their nuclear energy program goes forward that they will be keeping in mind the importance of nuclear safety.

This process has been started more formally in what has been now dubbed by, first the Japanese, as the Conference on Nuclear Safety in Asia. We had the first of these conferences last year in Tokyo--1996 in Tokyo--and in 1997 again, in Seoul.

These meetings are to, in essence, take the G-7 policy framework and put it into the context of Asia, where we work with our colleagues in Japan and China and South Korea--and maybe eventually North Korea; and Indonesia, Malaysia, Vietnam, the Philippines, Thailand, are most of the countries who participate in this process, in looking at what does it take to have a safe, nuclear program.

And the issues revolve around not just safety of the reactors, but the nuclear liability regime, the nuclear regulatory regime, the overall energy regulatory regime and how those all work together and are integral to safe operation of nuclear reactors.

There's been some noises about U.S. involvement in India's nuclear program. As you know, we were the original suppliers of one of the now, very aging reactors in India. Here is a case where our safety assistance programs will be extremely limited because of India's continued proliferation policy.

And despite, I think, a sense that we would like to be further engaged with the Indians on the safety issue because of concerns about the aging of their nuclear reactors and their isolation from the international safety community, there is an overarching concern that they continue to pursue a policy that is not in keeping with the Nuclear Non-proliferation Treaty or in fact, any of the weapons of mass destruction treaties that we have been negotiating as an international community, such as the Comprehensive Test Ban Treaty.

I think I'd like to stop now with respect to the policy framework and just give you a few thoughts on where we are headed in our nuclear safety work this coming year; specifically in the G-7 process as it relates to what you are doing.

We have as the primary relations with the countries in Eastern Europe and the NIS, our focus is on obviously, Russia and Ukraine, but I've already discussed Bulgaria, Lithuania, and Armenia. In all of these cases we are working with the governments across the board in the energy area, across the board in the economic area, and very deeply in the nuclear safety area.

And when I say "we", I don't just mean the United States; I mean the G-7, I mean the European Bank for Reconstruction and Development, the World Bank, etc. This issue of nuclear safety is one that is in fact, having a higher profile within the World Bank. As they look at their overall energy assistance programs, their overall environmental programs, they're beginning to realize that the nuclear safety issue is a very important one that the Bank cannot ignore.

You may be aware that the World Bank has a "no nuclear" policy and we are hoping that as time goes forward there will be an opportunity for greater dialogue with the World Bank on how it can help us in the nuclear safety area.

The specific G-7 issues for this year will focus on three things. First is, again the G-7 Ukraine Memorandum of Understanding. There, as Dennis gave you a very excellent presentation on the Shelter Implementation Plan.

That will be one of the chief priorities that we have as the G-7 as we look to engage the international community, both private and governmental, in further donations to this project and in further support to this project in terms of industry coming in and providing its best to help solve this really, really significant and interesting nuclear problem.

There will be--there are now--I don't know if Dennis went into this--but there are now 22 countries who have been either provided funds for this project or have indicated their interest in doing so; 16 have in fact done so.

And the first meeting of the contributors to the Sarcophagus Project--the Shelter Implementation Plan--was held in December to initiate the process of starting with the contracting for the project management unit--the Early Biddable Projects, the nuclear regulatory assistance, etc.

The other key issue that we'll be working on in that context is finding a way forward with Ukraine on least cost energy investments. This is again, focusing on the Rivnik Mianisk plans, focusing on energy efficiency, thermal plant rehabilitation, and what are the key areas for Ukraine's investments over this period from now until the early part of 2000?

The other key issues that the G-7 will be focused on with respect to Russia is this issue of institutional change. You may be aware through the DOE program that one of the primary projects on institutional change is assisting the Russians in doing in-depth safety assessments at some of their older reactors.

This is then an effort that has taken a great deal of effort on the part of DOE to get started. We've been talking to the Russians about this for nearly two years and the context for this is their Nuclear Safety Account Grant Agreement with the EBRD in which the Russians committed to make institutional changes such as doing in-depth safety assessments on their older reactors in return for grant assistance to provide safety improvements to their reactors.

Well, these in-depth safety assessments were all supposed to be done by now, and they're barely started. And one of the key issues for the G-7 and for the EBRD and the Nuclear Safety Account will be, how do we find a way forward to undertake these in-depth safety assessments to make sure that they're done in a way that makes a difference in the way the Russians look at the safety of their reactors; and how to ensure that the results of these in-depth safety assessments are applied in the future planning in the Russian power sector?

With respect to Lithuania, many of you I'm sure are aware of the in-depth safety assessment that was done over the last year-and-a-half; again through the nuclear safety account at the European Bank for the Ignalina plants.

The results of that have been very valuable I think, to both the Lithuanians and to the international community in terms of raising issues of: what are the safety issues with respect to these plants and what should the Lithuanian government be doing with respect to future energy planning?

The effort here will involve not just undertaking efforts to make the safety improvements that the in-depth safety assessment showed were needed, but also looking at to what degree should those investments in safety be accomplished, or perhaps other investments in the energy sector be undertaken instead, because those will lead to a stronger energy sector and one in which good economic decisions are made.

The last area is Bulgaria. You may be aware that they are on about their 14th government since about 1993, and this government seems to be one which is very dedicated to the nuclear safety agenda. The Bulgarians have had a Nuclear Safety Account Grant Agreement with the EBRD since 1993 that has been focused on trying to help them look at energy investments which could replace Kozloduy's 1 through 4 over a time period that was going to be to 1998 and now is obviously going to be extended into the future. And the question is, how much further?

The Bulgarians are deeply engaged right now in an internal review of energy investments. We and the European Bank and the Nuclear Safety Account are very interested in helping them through that process.

One of the areas that we are very focused on as a government is ensuring that the Kozloduy 5 and 6 reactors are made more reliable as they are a key element of the long-term energy strategy that will enhance Bulgaria's energy sector rather than operating Units 1 through 4 in the long-term.

Just one more note about Armenia. It's not been a major G-7 issue but it is one I think, where we are heavily involved because we have a significant safety assistance program; and that is as Armenia is gaining in economic strength it is looking again, also at its least cost energy investment program.

And one of the things that they need to look at is in the context of the Medzamor reactor which they'd committed to close in 2004. What are the other energy investments that they need to make in order to ensure that when Medzamor closes they have sufficient power?

The European Bank for Reconstruction and Development is engaged in a dialogue with the Armenian government on some of these other energy investments, and nuclear safety remains a very key part of that dialogue.

The example is that the Bank is undertaking a thermal plant rehabilitation project in Armenia, and part of the requirements for undertaking that project are that the Armenians undertake a significant safety improvement program for Medzamor.

The work that you all are doing in Armenia is directly related to that EBRD conditionality and is a very important part of the reason that Armenia will be able to, we hope in the next couple of years, receive additional loans from the international community to strengthen its energy sector.

Thank you very much.

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