Question and Answer - U.S. Department of State Perspectives

Q: Multiple-part question. First, when is the EBRD slated to reach a decision on financing Khmelnytskyy to Rivne 4? And the second question is, there's been press reports about the Russian's willingness to come in and assist Ukraine in finishing those two plants. How realistic do you think that possibility is and in your view, are there any implications for U.S. policy in regard to Ukraine if that happens?

MS. KESSLER: Well, you could have asked a harder question but I'm not sure. With respect to Rivne 4/Khmelnytskyy, I think it's very hard to predict when that loan may become the subject of an EBRD Board review. Or if it will. The reasons are many.

As you know, the EBRD has due diligence requirements in four major areas: nuclear safety, environment, economic feasibility, and financial viability of the sector. I think that we will probably find that in the analyses of the first three areas that we can reach conclusions on those in the early part of 1998. My guess is that by February, end of February, we'll have an answer to the least cost question, the environment, and safety questions.

What we won't have is the financial viability and this relates back to what I was indicating earlier with respect to the Ukrainian economy. The fact that their economy is still in deep decline and that in fact, they are here negotiating with the IMF to sustain their current relationship with the IMF says a lot about whether or not the EBRD will believe that it can make a loan to Ukraine that Ukraine can pay back.

And so it will take some time, in my estimation, for the Ukrainians to do enough in their overall economic sector as well as in restructuring their power sector, to convince the bank that they could pay back a loan on the size of the Rivne Khmelnytskyy.

With respect to the Russians, we have heard--as I'm sure you have heard--that the Russians are very interested in coming in to help Ukraine finish the two reactors to a lower level of safety, but as a consequence, a much cheaper project in essence, to complete the existing reactors.

The Russians have a very aggressive export policy right now and it wouldn't surprise me that they are being very aggressive in their attempts to, Ukraine, to undertake the Rivne Khmelnytskyy work.

You may be aware that the Ukrainians recently, in the end of December, passed a requirement for increasing electricity tariffs for the very specific reason of raising funds for the Rivne- Khmelnytskyy project. It's easy to put two and two together and say the purpose of that is to pay the Russians.

Is that their goal? We don't know. Are we worried about that? Absolutely. Our European colleagues are worried even more. They're not interested in having two new reactors in Ukraine that are not raised to internationally-acceptable safety standards. And so it is a big issue.

It's curious to us that the Ukrainians would in fact, want to complete the plants to a level of safety that's not equivalent with the international community. It will have an impact on their ability to join in mechanisms such as the European Union, which makes nuclear safety a very prominent feature of their policy. But we'll have to see over the year how they can move forward on this.

Q: We've seen over the years a very different attitude among our European allies--I think our government would say we consider in a business world, our competitors--towards non-proliferation. And you referred to the Indian situation as being perhaps the most recent where we're seeing a much more restrictive attitude in our export of technology to India than we see our European competitors have to contend with from their governments. The question I have for you is, what consideration if any, does State give to the notion of a level playing field in the formulation of your stance on non-proliferation?

MS. KESSLER: Two thoughts on that question. First is, I'm really surprised to hear that anybody is providing anything to India, because it's my understanding that there's a pretty strong consensus in the international community on India's non-proliferation policy.

That being said, it is of fundamental importance to the State Department to support the competitiveness of American industry. But we do have a law that says that we get to take non-proliferation problems very seriously. And we are restricted in what we can do by--literally by the letter of the law in countries such as India and Pakistan. So we don't have any ability to take any further steps with respect to assisting industry in that because we would be breaking the law.

Q: Okay. The reality however, is that those of us who are competing with French companies, German companies, Italian companies, do find they are able to sell their products, direct competition to ours, to customers through applications that we are not allowed by our government. And currently, India is one of those places where our French competitors are allowed to pretty much sell at its whim and we are not, for your information.

Q: What do you see as the prospects for the 123 Agreement with Ukraine, let's say in the next year? And I don't know how deeply you want to get into it, but obviously if we can start selling nuclear technology to Ukraine we can both improve nuclear safety and possibly help their economy. Because there may be some American companies who are able to leverage some financing.

MS. KESSLER: With respect to the 123 Agreement, does everyone know that's the Nuclear Trade Agreement with Ukraine similar to one that we are just trying to get through Congress now for China? The current situation with that is that the Ukrainian government has not given us sufficient assurances on their non-proliferation policy to enable us to make the certification that we need to make to Congress that Ukraine and U.S. non-proliferation policy is in sync.

Until we can do that we cannot possibly bring an agreement to Congress and ask for their approval to ratify it. I think particularly in the context of how difficult our efforts have been in China and in getting that agreement through the certification process, we don't at this point in time, see an opportunity to push a Ukrainian trade agreement and potentially jeopardize two things: one being the China agreement and our relationship with Ukraine.

We are working very hard at the most senior levels of the U.S. government to find a way forward with Ukraine on the non-proliferation policy problems. We do feel that a nuclear trade agreement with Ukraine is very important; even just because it is a statement that Ukraine is, in our minds and in the minds of the international community, a good actor on the issues of non-proliferation.

I'd like to make one further comment though, and that is with respect to nuclear trade with Ukraine. There is a possibility at this time for considerable nuclear trade with Ukraine. The areas where there are heavy restrictions have to do with nuclear materials, nuclear fuel transfers, reactor coolant pumps, control rod drives, and pressure vessels.

Basic technology, most of the component parts of reactors you can get approval from the U.S. Government for a license for those transfers.

MS. KESSLER: I was informed that one of the things that I should emphasize here is, when you all are overseas there is help available from the U.S. embassies. In each of the countries that you're working in there are economic officers, science officers, or commercial attaches who deal with some of the customs and duties and other issues that come into--that create problems for you in your actions in these countries.

Or you may have some other problem that you face. We keep our embassies regularly informed of what we're doing. DOE in fact, has someone stationed as you all know, in the embassy in Moscow, but the embassies in Kiev, Sophia, wherever--Yerevan--they are there at your disposal.

You're involved in the U.S. Government assistance program; it is something that we care about very deeply and our embassies will help you. If there is interest in doing so we can put together for Dan a list of who the current officers are in each of the embassies who could provide you with help in the event that you need it--or advice even--because they live in these countries and work with these people every day.

Q: You didn't mention anything about Kazakhstan and we had an interesting comment--I think it was by Rich--early on this morning about the transfer of fuel from the reactor there to some safe haven. Does the Department of State have any comment on that with respect to other developments in Kazakhstan?

MS. KESSLER: I think actually in tandem with DOE, we are working in the areas of nuclear safety, nuclear security. We do have considerable interest in ensuring that this reactor, which is a breeder reactor that sits on the Caspian, is physically secure, operated safely, and in event of future energy planning, may be replaced with something else. There is no question that it is an issue that we care a lot about.