FLY ME TO THE MOON, AND MARS; SHAKE-OUT IN RUSSIAN

C O N F I D E N T I A L SECTION 01 OF 03 MOSCOW 003684

SIPDIS

SIPDIS

DEPARTMENT FOR OES/SAT (HODGKINS, WALKER),EUR/RUS
(GREENSTEIN)
STATE PASS TO NASA (BARRY)

E.O. 12958: DECL: 07/27/2017
TAGS: TSPA ESA KSCA TSPL RS
SUBJECT: FLY ME TO THE MOON, AND MARS; SHAKE-OUT IN RUSSIAN
SPACE SECTOR

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

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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 Russian
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 March 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.
RUSSELL