U.S. Senate Y2K Report: Serious Problems Ahead

September 28, 1999

Contact:  Stephen M. Apatow
President & Executive Director, Humanitarian Resource
Institute
Eastern USA: (203) 668-0282   Western USA: (775)
884-4680
Internet:  http://www.humanitarian.net  Email: 
sma@humanitarian.net

DOWNPLAY OF Y2K RELATED DISRUPTIONS CAN CAUSE SERIOUS
HARM

Review of the key points outlined in the U.S. Senate
Special Committee on the Year 2000 technology Problem
100 Day Report:
http://www.senate.gov/%7Ey2k/documents/100dayrpt/

EXECUTIVE SUMMARY: 100 DAY REPORT

There is currently widespread awareness that Y2K
involves more than the failure of an individual’s
personal computer, or an incorrect date in a
spreadsheet. Potential Y2K problems increase
exponentially upon examination of the multiple layers
of computer systems, net-works and technologies
supporting individuals’ everyday lives.

However, the Committee’s hearings, interviews, and
research reveal that many organizations and industries
remain unprepared. The Y2K prob-lem still has the
potential to be very disruptive, necessitating
continued, intensive preparation in the time
re-maining. Y2K risk management ef-forts must be
increased to avert seri-ous disruptions.

While the Committee has become increasingly confident
about U.S. Y2K preparedness, it has become
increasingly concerned about inter-national Y2K
preparedness. Some of our important trading partners
are months behind in addressing the Y2K problem and
are not likely to avoid significant disruptions.

Sectors critical to the safety and well-being of
Americans, as well as to the economy, have made
significant progress in the last eight months;
concerns remain in health care, local governments,
small business, and education.

Un-fortunately, nearly half of small- and medium-sized
businesses across all sectors are taking a
wait-and-see approach to Y2K.

Many local governments and some public safety
answering points used to process 911 calls remain at
risk of Y2K disruptions; as of June 1999, only 37%
points were compliant. Most school districts,
colleges, and universities are not prepared; sur-veys
this summer indicate that less than one-third were Y2K
ready.

Heightened concern exists with re-gard to
organizations and industries that project readiness
dates in the last quarter of 1999.

Approximately 500 of the 8,000 oil and gas
companies--and 30 of the 103 nuclear power
plants--project completion dates after September 30,
1999. Original completion dates were planned in the
first quarter to allow plenty of time 
to complete end-to- end testing and to address
unex-pected anomalies. However, these projected
completion dates continue to be deferred.
Organizations with late completion dates are not
leaving sufficient time to address unex-pected
problems, which also height-ens the importance of
adequate con-tingency planning.

The international Y2K picture is more disturbing. The
Y2K preparations in many countries of economic and
strategic importance to the U.S. are inade-quate. Of
greatest concern are Rus-sia, China, Italy, and
several oil-producing countries. The Y2K prob-lem has
highlighted the economic interdependence of nations. A
sig-nificant potential exists for the Y2K-induced
problems of other nations to wash up on our
shores--whether in the form of recession, lost jobs,
or requests for international assistance.

SECTOR ASSESSMENTS:

Utilities:

Nearly 500 companies do not plan to com-plete repairs
until late 1999, which makes disruption possible for
some domestic oil and gas billing, produc-tion,
transportation, and distribution. In addition, the
likelihood of disrup-tion in oil imports is high due
to the lack of preparedness in key oil-producing
countries.

Healthcare:

Conversely, ru-ral and inner city hospitals, nursing
homes, and physicians’ offices have particularly high
Y2K risk exposure due to limited technical/managerial
resources and lack of awareness.

Telecommunications:

Still, unpredictable infrastructure fail-ures, sudden
changes in consumer behavior, or customer premise
equipment and private network problems could adversely
impact telecommunications. Increased call volume and
ad hoc “testing” could congest networks and erode
stability. Full interoperability between compli-ant
and non-compliant elements and their impact on the
public switched network remains unknown. The lag-ging
Y2K readiness of small and medium-sized domestic
carriers could impact services in rural com-munities.
Finally, there has been no attempt to assess whether
the rush to implement Y2K fixes on a global scale will
having a lingering impacton the stability of global
communica-tions networks over the next year.

The Committee remains concerned about customer premise
equip-ment— the telephone equipment used to route
calls within most busi-nesses. Failed customer premise
equipment could have a severe im-pact on business
operations if not adequately addressed.

Transportation:

The Federal Aviation Administration has successfully
completed its effort to make the nation’s air traffic
control systems ready. Notwithstanding this
considerable progress, it appears that some of the
nation's 670 do-mestic airports remain at risk in
ar-eas such as jetway security systems and runway
lighting. It is likely there will be disruptions
resulting in delays at some U.S. airports. The
situation with international air traffic control and
airports is much more worri-some.

Many public transit systems have also failed to
aggressively address the Y2K problem, which makes
service disruptions likely for some transit systems.
services is not likely to occur.

General Government:

The federal government will spend in excess of $8
billion on Y2K. Whole-sale failure of federal
government services is not likely to occur. In
ad-dition, FEMA is now engaged in na-tional emergency
planning in the event of major and minor Y2K
dis-ruptions. State and local government preparedness
remains a concern for the Committee.

Surveys indicate that 65% of state critical systems
were ready as of May 1999, and only 25% of counties
reported being ready as of June 1999. Of greatest
concern at the local level is the readiness of the 911
Public Safety Answering Points, and the ability to
provide adequate response in the face of a potential
increase in demand for service due to Y2K problems.

General Business:

Many small- and medium-sized businesses are extremely
unprepared for Y2K disruptions. One survey shows that
28% of small businesses do not plan to take any
action.

The cost to regain lost operational capability for any
mission-critical failure will range from $20,000 to
$3.5 million, with an average of 3-15 days necessary
to re-gain lost functions.

International:

The Committee is greatly concerned about the
international Y2K picture. Several countries of
strategic and economic importance to the U.S. are
severely behind in Y2K remediation efforts. Regions of
the world of most concern to the Committee are
East-ern Europe, Africa, and parts of Asia and South
America. When consid-ering strategic and economic
factors, and the status of Y2K remediation efforts
within specific countries, the Committee’s greatest
concerns lie with China, Russia, Italy, and several of
the countries from which the U.S. imports oil.

Severe long- and short-term disrup-tions to supply
chains are likely to occur. Such disruptions may cause
a low-to-moderate downturn in the economy,
particularly in those in-dustries that depend on
foreign sup-pliers. In addition, there may be a
request for humanitarian relief from developing
countries that have not addressed the Y2K problem.


INTERNATIONAL PREPAREDNESS: 100 DAY REPORT

Trade, which represents more than one-fifth of global
output, is essential to the economic development and
growth of all national economies.1 No part of the U.S.
economy is unaf-fected by international affairs, and
significant Y2K-related disruptions suffered by any of
our major trading partners have the potential to cause
disruptions here at home.

Significant Y2K-related disruptions suffered by our
international friends and neighbors have the potential
to raise the issue of humanitarian aid on an
unparalleled level.

One leading economic forecasting group, WEFA (formerly
Wharton Econometric Forecasting Associ-ates),
identifies six risk factors for countries: hardware
risk, aging capital stock risk, industrial structure
risk, import supply chain risk, export financing risk
and infrastructure risk. Ultimately, the riskiest
countries are those with high vulnerability accord-ing
to the risk factors and 
low spending (effort) for fixing Y2K problems.

WHAT IS BEING DONE

U.S. Department of State

DOS has con-ducted ongoing surveys among its 260 posts
around the world to as-certain and monitor the Y2K
status of host countries.  DOS earlier issued an edict
stating that all embassies must be prepared to be
self-sufficient for 30 days by January 1, 2000.

September 14 DOS posted biannual consular advisory for
172 nations which included, for the first time,
Y2K-related information. These consular advisories are
posted at http://travel.state.gov. The Y2K-related
language in this initial wave of advisories is rather
general, with little to distinguish one country from
another.

In contrast, DOS’s Office of the In-spector General
(OIG), which is engaged in Y2K assessments of numerous
countries, has provided valuable testimony to the
Committee in two hearings this year, most re-cently in
a July 22 hearing on global corporations. At that
time, the OIG had assessed 161 countries, with the
following summary results:

· About half of the 161 countries assessed were at
medium to high risk of having Y2K-related failures in
their telecommunications, en-ergy, and/or
transportation sectors.

· Industrialized countries were generally at low risk
of having Y2K-related infrastructure failures,
particularly in the finance sector. Still, nearly a
third of these countries (11 of 39) were at medium
risk of failure in the transportation sector, and
almost one-fourth (9 of 39) were at a medium or high
risk of failure in the telecommunications, energy, or
water sectors.

· Between 52-68 developing coun-tries of 98 had a
medium or high risk of Y2K-related failure in the
telecommunications, transporta-tion, and/or energy
sectors. However, the relatively low level of
computerization in key sectors of the developing world
may re-duce the risk of prolonged infrastructure
failures.

· Key sectors in the newly inde-pendent states and the
other former eastern bloc nations are a concern
because of the relatively high probability of
Y2K-related failures.

U.S. Agency for International De-velopment (USAID)

USAID has made a tremendous contribution to our
understanding of the potential impact of Y2K in
devel-oping countries. For many in the Administration,
Y2K problems in de-veloping nations are shrugged off
with comments that “Country X“ has problems with
electric power on a good day; why would Y2K be any
worse. This oversimplification dem-onstrates the lack
of an understanding of margins, i.e. the difference
between having a failure and having the technical and
finan-cial resources to fix the failure.

Developing nations are more vulner-able to Y2K
failures not because they are as reliant on IT as
industri-alized nations, but because they have smaller
margins. For example, failures and disruptions in key
sys-tems such as those used to control electric power
or to deliver pension checks becomes longer lasting
and, thus, more serious if the country does not have
the resources to de-tect and fix the problem.
According to the Institute of Electrical and
Electronics Engineers (IEEE), “Y2K is a long-term, not
a short-term problem . . . Y2K computer problems will
be causing computer systems malfunctions and failures
into the next decade.” This may be espe-cially true in
developing nations where the expertise to fix such
sys-tems is not readily available. Further, developing
nations are often unable to compete with developed
nations in buying “rapid” IT solutions.

United Nations

There was a great deal of discussion of “publicizing”
Y2K and the appro-priate public relations. There was
notable progress in trying to address the transborder
issues that could re-sult from individual countries
exercising contingency plans. Un-fortunately, many
countries appointed Y2K coordinators with little
political power. So it was difficult to assess the
success of these 
discus-sions.

There was also a significant differ-ence between the
public and private conversations that were taking
place between country coordinators—the public picture
of Y2K readiness al-ways rosier than the private one.
The end result of the conference was that the world
knows more about what is happening, but not enough to
obtain a clear picture of the worldwide Y2K situation.

EUROPEAN COMMISSION

While steady progress was reported overall within the
EU, there were indications that not all sectors in all
member states ex-pected to be totally ready and fully
compliant in time. A major problem was the lack of
available verifiable information on the situation,
particu-larly in relation to the potential spillover
effects between member states.

In addition, every sector reported that smaller
organizations lagged significantly behind larger
companies in addressing the Y2K problem, and all
organizations were dependent upon their information
technology systems suppliers to accurately dis-close
Y2K compliance and deliver timely compliant upgrades.

Electricity:

There may be failures, likely to be localized, which
in the middle of winter could have serious
consequences for the areas con-cerned.

Gas:

The cross-border effect for natural gas was
significant, since 43% of natural gas originates from
outside the EU. Moreover, 22% of the total energy
demand is covered by gas. These external supplies are
obtained primarily from Russia, Alge-ria, and Norway,
and the gas must flow across several countries through
major pipelines to reach the various destinations. The
report concluded that contingency plans were essential
to assure uninter-rupted and safe gas delivery.

Oil: Substantial oil stocks should exist, but the
dependence on non-EU oil supplies, at nearly 80%, is
high, and it is not possible to be certain of the
effect of Y2K on exter-nal producer countries.

Nuclear safety:

Member states of the EU have action plans to address
the issue, and most reactor opera-tors report they
will be Y2K ready by mid-1999. As for outside the EU—
the Central and Eastern European countries and the
Newly Independ-ent States--there is a lack of
confidence that concerns have been appropriately
checked, including contingency plans. No guarantees
can be given that assessments will be performed in
time or that contin-gency plans will be ready. No
international organization is pres-ently able to
coordinate an assessment of the risk presented by grid
failure in these countries. In view of the potential
risk to nuclear power plants; to imports from the
Newly Independent States such as gas; and the general
risk to citizens in the these countries, urgent
atten-tion needs to be paid to this issue.

Water supply and wastewater treat-ment:

The main risk identified is the possibility of
pollution of surface waters used for drinking water
ab-straction intake from major rivers as a consequence
of the Y2K problem.

Telecommunications:

The strong possibilities of network saturation give
rise to the clear need to en-sure a continuing
priority to emer-gency and other essential services.
It is considered that operators out-side the EU may
not be equally well prepared and that disruption to
the international telephone and fax net-works cannot
be excluded.

Healthcare:

No international body is addressing the sector and no
ex-change of information is taking place between
countries. The main prob-lem is the difficulty in
obtaining information from suppliers on the compliance
of products, especially electronic machines for
medical and health purposes containing embed-ded
chips, in use within hospitals.

-------

FOR CONTINUAL UPDATES & INFORMATION VISIT THE
HUMANITARIAN RESOURCE INSTITUTE
GLOBAL Y2K INFRASTRUCTURE RISKS WEB SITE:
http://www.humanitarian.net/y2keconomic.html
Updated:  September 28, 1999:  9:30 a.m. EDT


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