Russian nano-industry got stuck in the bureaucratic swamp

18.10.2011 — Analysis

The RUSNANO Corporation has refused to provide financing to Ekaterinburg's technological center aimed to develop new materials. The official version states that the Sverdlovsk regional government authorities failed to guarantee that invested funds would be paid back. Experts, however, point out unavailability of an efficient system that would foster the growth of innovation-driven business in Russia. The RusBusinessNews columnist has found it out that the bureaucratic barriers built by the RUSNANO Corporation can be overcome only by very few entrepreneurs who should be given an award for their efforts, through which they were able to get money from the government to develop new technologies.

The project aimed at opening a nano-technological center was launched in Ekaterinburg in 2010. The RUSNANO Corporation promised to allocate 700 million rubles; the Ural Scientific Research Technological Institute (UralNITI), OJSC, the Institute of Physics of Metals at the Ural Department of the Russian Academy of Sciences and the Ural Federal University were to contribute an approximately equal amount to the authorized capital, in the form of equipment and real property. It was planned that, following recommendations given by the Expert Board, institute and university facilities and equipment would serve for development and fine-tuning of cutting-edge technologies and samples of new materials. The request for public funds includes eight promising inventions: diamond-like films, materials capable of memorizing their previous shape, etc. Scientists pinned their hopes on the government, believing that they will be able to bring their design effort to commercial production.

One year had passed, and RUSNANO decided to close down the project in Ekaterinburg. The corporate Supervisory Board of the Fund for Infrastructural and Educational Programs stated that the applicants were not ready "to accept the terms and conditions of the standard investment agreement". It was clear that the project did not get off the ground during the year.

Vladimir Kruzhayev, the director of the Institute of Natural Sciences at the Ural Federal University, explained to RusBusinessNews that at the outset RUSNANO offered the technological center to attract investors to reach the break-even point. However, no one agreed to give money - probably, because investors failed to understand what should be expected at the output; in other words, they did not see any commercial benefit. "The problem sprang up at the very beginning, during preparation of the business plan, pointed out V. Kruzhayev. - I can say nothing about today's status of the project".

Vladimir Shokhirev, Deputy General Director of UralNITI, which was planned to serve the backbone for the nano technological center, refused to give any comment: "There is no center. Ask the government for information".

According to Valery Turlayev, First Deputy Minister of Industry and Science of the Sverdlovsk Region, RUSNANO got aggrieved that it took so much time for the region to look for a payback guarantee. Under the investment agreement, the corporation was to allocate 700 million rubles for purchasing of new equipment; however, in the event of its failure, the technological center was to return the allocated funds. The government authorities were to guarantee the repayment of these funds, but they failed to do that. However, collaboration with RUSNANO is still in progress: V. Turlayev says that the government has found the investor who is ready to give the required guarantee. The extensive organizational work that was performed during the year was not for nothing: The selected projects are being implemented, though slowly.

Vladimir Shur, Director of the Modern Nano-Technologies Multiple Access Center, thinks that it is too early to discuss implementation of the projects: "First of all, the center has not been opened yet; secondly, I cannot guarantee that these very projects that are specified in the request are going to be implemented. The government allowed replacing them; therefore, it is quite possible that we may reconsider our plans". Vladimir Shur informed that at the moment there is a shortened version of the request that will be forwarded to RUSNANO to take the second round. The procedure is entirely formal, and the scientist has no doubt that the corporation will approve allocation of funds.

In the meantime, the participants of the innovation market are not as optimistic. Boris Zyryanov, Chairman of the Council of the Business Russia Sverdlovsk Regional Division, thinks that venture companies created to support start-up projects are not able to perform their functions. Bureaucratic hurdles make access to financing extremely difficult. The application review process can last half a year: The entrepreneur is required to submit numerous additional documents, comply with the regulations that have come out of the blue, spend a lot of efforts and time, - just to be told that his application has been turned down. Entrepreneurs are at a loss: whether money holders try to secure themselves, being scared by endemic theft and fraud, or they are intentionally impeding innovation development. Boris Zyryanov thinks that the innovators, who succeeded in tearing a way through the bureaucratic wall and getting money from RUSNANO or from a venture fund, should be awarded with a medal for tenacity.

Bureaucracy in Skolkovo is not as thriving due to availability of private capital, but grants are still difficult to win. The refusal can be explained by "unfitness of the proposed project to the cluster foresight", which, actually, means "you do not suit us, because we have different objectives". Therefore, there is no assurance that the projects that will be implemented in Skolkovo will result in substantial modernization of Russia: as it can be easily assumed that the free economic zone and the country can have very different foresights, i.e. perception of the future.

Entrepreneurs have to look for investment in other countries due to unavailability of the venture funding system in Russia. Dmitry Baskov, General Director of Urals Nickel, LLC, giving up all hopes on obtaining funds from RUSNANO and Vnesheconombank, turned to Intesa Sanpaolo, an Italian banking group, for financing of nano-structured nickel powders and the related filters.

The intuition suggests that the Ekaterinburg nano-technological center will also have to apply to western banks for money.

Vladimir Terletsky