October 22, 1997

The Honorable James Harmon
Chairman
Export Import Bank
811 Vermont Avenue
Washington, D.C.

Dear Jim:

I was contacted today by Senators D'Amato and Brownback regarding the Bank's support for Gazprom which has agreed to help develop Iran's gas fields. Let me review my understanding of the transactions to date so it is clear what I think needs to be done to assure the Bank's compliance with both the letter and spirit of U.S. law regarding Iran.

In 1994, the Chairman of Ex-Im and the Chairman of Gazprom signed a memorandum of understanding to provide up to $750 million in guarantees of commercial loans for the purchase of American equipment and services to improve the efficiency and productivity of Russian gas fields. To date, $338 million in financing has been approved or is under consideration. I do not have reason to believe at this point that any of the U.S. exports or services have been transhipped or made available directly to Iran, however, I would appreciate you written assurances on this specific point.

The more general concern that I share with my colleagues is the wisdom of our support for a Russian company willing to engage in a major initiative which clearly provides hard currency to the terrorist regime in Tehran. The Iran Libya Sanctions Act (ILSA) requires the President to select and impose sanctions against companies which invest more than $20 million in Iran's energy sector, a threshold significantly surpassed by Gazprom's participation in $2 billion agreement with Iran to develop the South Pars fields.

As you are aware, the Bank has had a very difficult two year stretch in its relations with Congress. I have been impressed by your commitment and effort to reverse this slide, restore the Bank's integrity and rebuild our working relationship. To that end, I very much appreciated your letter of September 22, 1997 establishing a procedure for my Subcommittee to review specific transactions which cause us concern relative to the Banks's support for surplus commodities, a mechanism which I now intend to take advantage of.

The Honorable James Harmon
Chairman Export Import Bank
October 22, 1997
Page Two

I believe the Bank should immediately suspend all pending transactions involving Gazprorn and should not agree to any further financing unless the contract with Iran is terminated. I will offer language in the Foreign Operations conference to be included in the Statement of Managers reflecting this position. There is no question that Gazprom's operational capabilities are enhanced by U.S. exports which could indirectly improve the efficiency and productivity of Iran's fields. This is absolutely unacceptable. Moreover, I want you to understand that I will take whatever steps are necessary consistent with the procedures outlined in your September letter to oppose the provision of financing, given my view that oil production falls into the category of supporting a surplus commodity.

The Subcommittee's renewed confidence in the Bank is directly related to your assuming the Chairmanship and is reflected in our willingness to extend your authorization and increase the subsidy over the fiscal year 1998 request level. The Bank's mission is vital to the U.S. trading position and our economic growth. I do not wish to see congressional support for your activities compromised because you have financed transactions which many believe not only violate the intent of ILSA but also represent a threat to U.S. national security interests.

I hope you will take prompt action to suspend the Bank's support for transactions involving Gazprom and that you will advise me as soon as possible of your decision.

Sincerely,

MITCH MCCONNELL
CHAIRMAN
SUBCOMMITTEE on FOREIGN OPERATIONS

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