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Reference ID Created Released Classification Origin
07MOSCOW3684 2007-07-27 14:57 2011-08-30 01:44 CONFIDENTIAL Embassy Moscow

DE RUEHMO #3684/01 2081457
P 271457Z JUL 07 ZFF4

C O N F I D E N T I A L SECTION 01 OF 03 MOSCOW 003684 
E.O. 12958: DECL: 07/27/2017 
REF: A. MOSCOW 2927 
     B. MOSCOW 1637 
     C. 06 MOSCOW 12582 
Classified By: EST Deputy Counselor Kristina Kvein. Reason 1.4 (b), (d) 
1. (SBU) SUMMARY:  On June 22 the president of Energia, one 
of the major Russian space corporations, was suspended by the 
Board of Directors at the instigation of the Federal Space 
Agency Roskosmos in a reported dispute over the direction of 
space exploration.  He had urged more market-oriented 
policies aimed at increasing revenues, and he promoted 
exploration of the Moon and future flights to Mars in 
contrast to the current Federal Space Program 2006-2015, 
which emphasizes continued operation of the International 
Space Station.  This dispute arose as Roskosmos reorganizes 
the Russian space industry to consolidate more than 100 
enterprises into 6 to 10 holding companies by 2010.  The 
process of consolidation challenges the space industry to 
become a major competitor on the global market for products 
and services. END SUMMARY 
Reconfiguring the Space Industry 
2. (U)  Roskosmos,the Federal Space Agency, has been working 
since last July to implement the government-approved plan of 
reorganization for the Russian space industry to consolidate 
by 2010 over 100 manufacturers, research centers and design 
bureaus into a small number of joint stock holding companies 
whose stock is owned by the government and private investors. 
 The initial holding companies will be created from a merger 
and reconstitution of the six existing major space 
enterprises and four new enterprises that will encompass 
nearly 60 percent of the space industry.  The six current 
enterprises are the Rocket Space Corporation Energia, 
Khrunichev Research and Production Space Center, 
Mashinostroeniye Research and Production Association, the 
Russian Institute of Space Device Engineering (RIISD), 
Progress Design Bureau and Information Satellite Systems. 
3.  (SBU)  Prime Minister Fradkov said the consolidation was 
designed to bring state unitary enterprises together with 
private investors to double Russia's share of the global 
space equipment market--estimated by Roskosmos head Anatoliy 
Perminov at $20 billion-- from its current 11 percent to over 
21 percent by 2015.  The first efforts consolidated 
Khrunichev from a state unitary enterprise to a 100 percent 
government-controlled joint stock company that will primarily 
produce heavy rocket launch vehicles.   Later in the year, 10 
enterprises were consolidated into Information Satellite 
Systems, with the Reshetnev Research and Production 
Association for Applied Mechanics (NPO PM) as the parent 
enterprise.  By December Perminov announced that the other 
four enterprises-- Mashinostroeniye ("Machine-Building), 
Progress, Energia and RIISD --had been consolidated. 
4.  (U)  At the outset of the consolidation, representatives 
of Roskosmos, the Russian Academy of Sciences and business 
and academic leaders met in Moscow August 27-31 at the 
spanking-new Presidential Center for Administration Studies 
for the Fifth International Aerospace Congress, which was 
dedicated to the 20th anniversary of the orbital launch of 
Space Station Mir.  Scientists and promoters presented papers 
on exploration of the Moon and Mars in the near future and 
specialized topics of aerospace technology.  The Aerospace 
Congress hailed the achievements of Soviet and Russian space 
exploration and pointed to a bright future, but concerns 
emerged at Roskosmos soon afterward as the GOR planned for 
the next decade in space. 
Explosive Fuel and Volatile Personalities 
5.  (SBU)  The space program suffered several devastating 
losses in the past year.  On July 27,2006,a Dnepr rocket 
crashed seconds after launch from the Baikonur cosmodrome, 
destroying 18 satellites and spilling toxic rocket fuel over 
Kazakh territory. (NOTE: Russia accepted liability and paid 
Kazakhstan about $1,000,000 in damages after Kazakhstan cut 
off launches from Baikonur, which is the only manned-vehicle 
launch site for Russia. END NOTE)  In October President Putin 
issued a decree firing Alexander Medvedev, the director of 
Khrunichev.  According to sources at Khrunichev, this was a 
result of the October 8 disintegration of the European Space 
Agency CryoSat satellite and other failures of Khrunichev 
MOSCOW 00003684  002 OF 003 
products.  On January 30 a Zenit rocket exploded on the Sea 
Launch commercial satellite platform in the Pacific Ocean, 
only the second failed launch by the Sea Launch consortium of 
Russia, the United States, Ukraine and Norway.  An 
investigation panel determined in March that the fault 
appeared to be in the upper stages of the RD-171M rocket 
engine, which is manufactured by Energomash, the Russ
rocket production company. 
6. (SBU)  On January 17, Roskosmos took the unusual step of 
singling out Nikolay Sevastyanov, President and chief 
designer of Energia, for harsh criticism for promoting 
"untried technical ideas, contrary to the national space 
policy."  Sevastyanov has a reputation as a voluble booster 
of Russian space efforts, often going beyond the official 
Space Program 2006-2015 announced by Roskosmos, which favors 
further development of the International Space Station, even 
if Russia goes alone after the international program ends. 
At the Aerospace Congress Sevastyanov presented his proposal 
for flights to and exploration of the Moon and mining of 
helium-3 from the lunar surface as a potential fuel for 
earth-based nuclear reactors.  Sevastyanov's ideas still held 
sway as Roskosmos meanwhile continued to push forward with 
the European Space Agency on plans to study the effects of 
500 days isolation on a team of volunteers, replicating a 
human voyage to Mars. 
7.  (SBU)  On Friday June 22 Roskosmos, which controls 38 
percent of the shares of Energia, engineered a late night 
vote of the Board of Directors to suspend the powers of 
Sevastyanov.  The newspaper Kommersant reported that the 
ostensible reason was disagreement with Perminov on the 
direction Energia wanted to take in developing space 
programs. Nevertheless, Sevastyanov defended his expansive 
programs in a June interview with Izvestiya and cited his 
record of nearly doubling the revenues of Energia during his 
two years at the helm.Sevastyanov's suspension was 
controversial.  Seventeen top managers of Energia signed a 
letter to the Board of Directors protesting that the action 
"contradicts the law and violates the charter of the 
corporation."   The official government newspaper 
Rossiysskaya Gazeta reported on June 26 that Putin had signed 
off on the Roskosmos decision. 
8.  (SBU)  An extraordinary meeting of shareholders is 
scheduled for July 31 to vote on a new head of Energia, and 
Roskosmos is expected to have the votes to install its 
choice.  On June 18 the GOR advised the Energia general 
assembly of stockholders to select Dr. Vitaliy Lopota. 
Lopota is the General Director-Designer of the Central 
Scientific and Research Institute of Robotic Engineering and 
Cybernetics in St. Petersburg. 
GLONASS Strives for Liftoff 
9. (SBU)  The other major thrust of the Russian Space Program 
is the Global Navigation Satellite System (GLONASS), which is 
the Russian response to the U.S. Global Positioning System 
(GPS). (Ref B)  The first satellites of GLONASS were launched 
in 1982, but by the late 1990s the system was no longer 
functional, as many satellites had reached obsolescence and 
were not replaced.  In 2001 Roskosmos began a renewed program 
to deploy satellites of the GLONASS type, and by 2006 had 
deployed between 12 and 15 satellites.  In December, three 
satellites were placed in geostationary orbit, bringing the 
current total to 14 or 15 operating satellites.  (NOTE: 
Several Russian newspapers reported in April that as many as 
seven of the satellites had operational problems, raising 
questions about the overall configuration of the system.  END 
NOTE)  The director of Reshetnev NPO PM, which manufactures 
the GLONASS satellites, told EST in June that with two 
launches of three newer model GLONASS-M satellites in 
September and December, respectively, 18 navigational 
satellites will be deployed by the end of 2007, sufficient 
for initial operation of the GLONASS system. (Ref A)  In 2008 
Roskosmos will launch six more satellites of the GLONASS M 
category, effectively providing global coverage. 
10. (U)  At the Nineteenth SvyazExpoCom held May 14-18 in 
Moscow, among the advanced telecommunications offerings, 
numerous manufacturers displayed GLONASS- and/or GPS-based 
receivers, including the Russian Institute of Radionavigation 
and Timing (RIRV) and exhibitors from various foreign 
countries .  They quoted prices to us from $220 for a 
MOSCOW 00003684  003 OF 003 
Taiwanese GPS receiver to 15,000 rubles (approximately $600) 
for the basic Hyundai model with a 2-inch display screen. 
The foreign models are offered in Russia on the Internet and 
through local distributors, but no foreign manufacturer has 
established a presence in the country.  The RIRV models are 
available at electronic stores in major cities.  Only the GPS 
receivers are currently functional in Russia, and 
representatives of the manufacturers told us that due to 
limitations in Russian mapping capabilities, they were 
operational only in the European sections of Russia and in a 
narrow strip of Siberia stretching to Chita. (NOTE: 
Then-Defense Minister Sergey Ivanov lifted restrictions on 
use of global navigation systems at the beginning of 2007, 
ending the longstanding prohibition on locating objects 
within a range of 30 meters.  END NOTE)  Several exhibitors 
told us they had not yet designed a GLONASS receiver because 
they were not certain when the system would be deployed. 
Changes at Roskosmos? 
11.  (SBU)  The changes at the top of Energia and Khrunichev 
presage future changes in a unified space industry.  The 
Russian space industry employs approximately 243,000 workers, 
according to Roskosmos head Perminov, but he has stated that 
their number will be reduced as reforms proceed.  He reported 
in December that the federal budget allotted 24.4 billion 
rubles ($980 million) for the space program in 2007 out of an 
overall budget of 36 billion rubles ($1.3 billion) for 
Roskosmos.  The Federal Space Program contemplated spending 
305 billion rubles ($12 billion) in the period 2006 to 2015. 
At the present time, 70 percent of Russian space exports are 
reported to be in the segment of launching services, where 
they hold an estimated 40 percent of the $2.5 to $3 billion 
world market.  However, the primary area of growth in space 
products by 2010 is expected to be commercial satellites, 
navigation equipment and services, satellite communications 
and remote Earth observations, with the total market growing 
from nearly $100 billion up to $300 billion.  In contrast, 
the market for launching services is expected to grow slowly 
or to remain stagnant.  The consolidated Russian space 
industry will be trying to break into a market that is 
growing most strongly in the areas where it is weakest. 
12.  (C)  In May 2006, several newspapers ran a story that 
Perminov would be replaced as head of Roskosmos by a 
relatively unknown middle level official.  Contacts at 
Roskosmos scoffed at the idea, and the head of the protocol 
office told EST "there have been rumors that Perminov would 
be fired since he walked in the door."  Since that time, 
Perminov has seemingly lined up support from Sergey Ivanov, 
First Deputy Prime Minister, who is in charge of the space 
program.  In Ma
rch Ivanov told assembled officials of 
Roskosmos that the space industry would lead Russia into a 
future of technological achievements, but he has coupled such 
predictions with stringent requirements for successful 
performance. Several newspapers reported that Perminov 
consulted with Ivanov before suspending Sevastyanov. It is 
likely at this point that Perminov depends on Ivanov to 
retain his position at Roskosmos. 
13.  (C)  COMMENT:  Roskosmos has been a reliable partner in 
the International Space Station and other joint ventures, 
such as space medical and biological experiments. (Ref C) 
Under Kremlin orders to reform, the Russian space industry is 
facing severe challenges as it converts from a centrally 
controlled and government-supported collection of related 
enterprises to a market-driven group of public entities with 
sometimes competing interests and a limited claim on the 
federal budget.  The new structure does not ensure 
transparency, nor does it respond readily to market forces. 
In addition to the inherent dangers of rocket launches, the 
industry must contend with the vagaries of the marketplace 
and the political climate,  These changes come as Roskosmos 
is designing the Russian space program for 2016 to 2025. 
Thus far, the forces of orthodox thinking have won out over 
more radical risk-takers. 


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