Elena Sokova
August 17, 2008
Closed Cities vs. Nuclear Facilities
The life and interests of Russia’s closed cities (ZATOs, using the Russian acronym) revolve around nuclear facilities, as the cities themselves were created for the sole purpose of supporting these facilities and the families of their employees. In the early and mid-1990s, both the facilities and cities experienced their most difficult period, with federal funding dropping precipitously in a situation where virtually no other sources of funds were available. The year 1997-99 were the so-called “off-shore” period, when ZATOs were allowed to keep all taxes collected on their territories and could grant federal tax breaks to businesses registered there; the financial situation in many cities improved quickly, and in a number of instances the city administrations helped facilities by granting credits and subsidies, reversing the traditional scheme in which the cities had been totally dependent on the nuclear facilities.
Another major change is the introduction of elected executive and legislative authorities in closed cities and the subsequent delineation of powers between the facilities and the cities. Although in most ZATOs economic and social life continues to be oriented toward the facility, directors of nuclear facilities are no longer the sole decisionmakers in the cities. In many closed cities, local administrations have become quite independent, especially where the role of the nuclear facility as a major employer and tax contributor has declined, while city administrations have acquired an independent source of revenue. The level of cooperation or confrontation between the facility and city varies from city to city, with Zarechnyy (Penza-19) being the extreme case: there, the director complained that he was not even part of the discussion and approval process for the city’s economic and social development program in 2001.
Closed Cities and Facilities vs. the Regions
Since 2000, the delineation of powers between the federal and regional levels with regard to nuclear facilities and the closed cities has been more or less resolved in favor of the federal government. Yet, “gray” areas of joint or underdefined responsibility remain, including responsibilities and rights of the regions in matters pertaining to ecology (e.g., construction, transit of radioactive materials, etc.). Regions have the right to veto new nuclear construction, for example, but there is no clear mechanism for resolving such disputes between the federal and the regional levels. Federal financial obligations to oblasts for environmental cleanup or compensation for environmental risks are another area that still awaits resolution.
While the federal government enjoys the lion’s share of rights and responsibilities with regard to nuclear facilities and closed cities, regions often continue to play a considerable role as well, although often informally, since neither the cities, nor the nuclear facilities are isolated from life outside the fences. The relationship with regions is determined to a large degree by economic considerations, including economic benefits or losses, as well as an oblast’s spending on nuclear safety and security in its territory and investment losses associated with high environmental risks.
At a broader level, the well being and the prospects of closed cities are increasingly affected by the state of the economy and existing business practices and legislation, crime levels, power and water supplies, transport infrastructure, the political aspirations of governors, and many other variables. Early on, the cities and the nuclear facilities realized the importance of becoming engaged in regional politics and of coordinating certain activities with regional governments. Most of Minatom’s closed cities have representatives serving in their regional legislatures. The leader among them is Seversk, with four representatives in their oblast legislature.
Except for Ozersk and Zheleznogorsk, which pay 12.5 and 25 percent, respectively, of their proceeds from foreign spent nuclear fuel reprocessing to their regions’ budgets, the closed cities do not make direct contributions to regional budgets. The role of nuclear cities in regional economies is not limited to direct financial contributions, however. Among the considerations that shape the relationship between oblasts, on the one hand, and cities and facilities, on the other, are: the current or future nuclear energy supply, contracts for the local construction and machine-building industries, the presence of profitable civilian nuclear and other conversion projects, and the presence of potential large-scale high-tech businesses.
In general, regional governments and administrations have become more supportive of Minatom’s policies and have good working relations with both Minatom and its facilities. These relationships are particularly good when two factors hold: when they are not asked to contribute to the operation of the nuclear facilities and closed cities, and when they can benefit from a particular Minatom program. In such cases, regions turn into strong supporters of Minatom and even lobby the federal government for new programs, for example, for construction or modernization of nuclear power plants. Compared to the early 1990s, the relevance of environmental considerations in local politics has diminished, although they continue to serve as a powerful bargaining chip vis-à-vis Minatom.
Closed Cities and Facilities vs. Moscow: Current Developments
Federal financing of nuclear facilities has stabilized in the last two-three years. Salaries have increased and are paid on time. Facilities, especially with significant defense and civilian contracts, associate themselves closely with Minatom and Moscow.
In the past two years, the federal government has made several significant changes in the financing of ZATOs. The federal government ended their “off-shore zones” status and tax breaks. All of the value added tax (VAT) collected in ZATOs (one of the largest taxes in terms of revenue and the ease of collection) now goes to the federal government. Part of that money returns to closed cities in the form of federal subsidies.
Another change concerns redistribution of proceeds from the HEU-LEU deal and export contracts. For many years, cities that hosted facilities involved in the HEU-LEU downblending or certain export-oriented production used to receive substantial tax revenues from these activities. In 2001, Minatom and Tekhsnabexport changed the rules. Now, Tekhsnabexport, instead of getting small percentage from the HEU-LEU deal or other export contracts, receives the full payment, while regional facilities play a role of subcontractors and get reimbursed for the actual work they perform under this new arrangement. Naturally, both facilities and cities lose in this new scheme. Worse, cities now have to bargain with Moscow for subsidies and once again depend on the promptness of federal transfers.
This greater centralization of funds and control of city and facility budgets are a powerful tool for Moscow in ensuring transparency and the lawful use of budget revenues. On the other hand, they hamper economic development and entrepreneurship in the closed cities. To a certain degree, these changes will probably slow down social and economic development, as federal funding for these programs is very small. Still, on balance, it is unlikely that the changes in financial flows can completely reverse the process of economic development in the closed cities over the long run. Instead, the new arrangements could create an incentive for closer cooperation between the closed cities and the regions, as well as for greater reliance on local resources.
Safety and Security Factors: Will the ZATOs Remain Closed?
Two years ago, Vladimir Putin and the federal government made positive comments on the idea of opening the closed cities once nuclear facilities have introduced proper safeguards. However, the attitude towards opening the cities had changed, even before the September 11 events. Several new cities, not necessarily related to nuclear or military production, were added to the list of closed cities. After September 11, chances for opening Minatom’s closed cities in the near future have decreased significantly.
The ability of closed cities to restrict access by unwanted visitors remains under question. The latest reports show that cities’ fences remain porous: it is not that hard to enter a closed city by using a fake ID, by bribing a guard, or simply by using a hole in barbed wire. In February 2002, a group of Greenpeace activists, a State Duma deputy, and a television crew penetrated the city of Zheleznogorsk through a hole in the fence and reached the site of the construction of a reprocessing plant and an adjacent spent fuel storage facility. In March 2002, Sverdlovsk police arrested three armed Chechens for arms trafficking, confiscating explosives, detonators, and remote-control explosive devices. One of the arrested men had a valid pass to Lesnoy, a city where a nuclear warhead assembly/disassembly plant is located. He had kept the pass from a time when his family had lived in Lesnoy many years ago.
On a positive note, after September 11, physical protection of nuclear facilities has become one of the urgent issues addressed by governments at all levels, from central to local. Attention to physical protection at nuclear facilities has increased, and training exercises and reviews of coordination of various law enforcement and emergency services at the regional level is happening across the country. Presidential envoys in the federal districts are also becoming more actively involved in these issues.
Crime Level, Drug Abuse, and Other Negative Factors
Isolation and restricted access to nuclear cities reduces, but does not necessarily eliminate negative influences from the existing conditions outside the cities. The cities are still much better off than cities around them. Outside, crime and drug abuse are on the rise and are spilling into the closed cities. Of particular concern are continuing thefts of metal, especially in the regions with developed metallurgical industries. One of the major concerns, especially in the Urals, is the continuing rise of drug abuse in closed nuclear cities. Ozersk, in Chelyabinsk oblast has the highest drug abuse growth rate among Russia’s closed cities.
Critical Infrastructure
Conflicts at the regional level with power generating companies and delays in payments to the utilities continue to be a major problem. If a power grid fails, as happened in the Southern Urals in September 2000, all enterprises in the area, including nuclear facilities, are affected. The decline of the power-generating infrastructure, as well as the growth of electricity consumption by other industries, requires closer attention.
Recommendations
- Regional and local authorities should be included in both negotiation and implementation of new projects, particularly those that affect safety, environment, and economic development. This is particularly true for the construction of new facilities. Potential social and economic benefits and spin-offs should be clearly spelled out; safety concerns should be properly addressed.
- Local and regional authorities are likely to support conversion programs, especially if they spill over the boundaries of closed cities and contribute to the regional economy.
- Specific features of regions where closed cities are located should be taken into account in the policy-planning stage. These features include economic, social, geographic factors, the role and interests of other industries in the regions, crime and corruption patterns, and others.
- Nonproliferation training programs should aim at reaching more regional officials, federal employees in the regions, city and facility specialists, educational institutions that train nuclear personnel, and non-governmental organizations.
