UKRAINE: SPACE DEAL WITH BRAZIL UNCERTAIN

C O N F I D E N T I A L SECTION 01 OF 02 KYIV 002182 SIPDIS STATE FOR EUR/UMB AND OES COMMERCE FOR 4231/ITA/OOEENIS/NISD/CLUCYK E.O. 12958: DECL: 12/21/2019 TAGS: TSPA ETRD ECON BR UP SUBJECT: UKRAINE: SPACE DEAL WITH BRAZIL UNCERTAIN Classified By: Economic Counselor Edward Kaska for reasons 1.4(b) and ( d) ¶1. (C) Summary. During his December visit, Brazilian President Lula de Silva announced that Ukraine and Brazil would move ahead to launch the Ukrainian-designed and built Cyclone-4 space launch vehicle from Brazil's Alcantara launching pad. Ukraine and Brazil signed a cooperation agreement in 2003 to conduct the first launch in 2006. However, lack of political will and unresolved financing and intellectual property issues repeatedly threw the project off track. Lula de Silva's December visit has reportedly helped resolve issues surrounding the project, and according to Ukrainian President Yushchenko, the first launch now is to be completed in 2010. Insiders, however, doubt that the parties will be able to secure a necessary agreement with Russia, which partners with Ukraine in building the launch vehicle, and do not expect the project to become operational before 2013, if ever. End Summary. CYCLONE-4 -------------- ¶2. (C) The Cyclone is a family of space launch vehicles derived from the SS-9 Intercontinental Ballistic Missile. Originally introduced in 1967, its last flown derivative, the three-stage Cyclone-3 was reportedly retired in January 2009. The Cyclone-4 is a new derivative, which is to be built specifically for Brazil's Alcantara launching pad. It has three stages and can carry a payload of 1.5 tons into Geo-Synchronous Orbit and 5.0 tons into Low Earth Orbit. The first stage engine for the Cyclone-4 is produced by the Russian state-owned company Energomash. UKRAINE,S SPACE POTENTIAL -------------- ¶3. (SBU) Ukraine has a long tradition as a major space industry player, chiefly based on the activities of Dnipropetrovsk-based Yuzhnoye Design Bureau and Yuzhmash Machine Building Plant. (Note: The two companies, often referred to simply as Yuzhnoye/Yuzhmash closely cooperate in designing and building space launch vehicles, and their tradition of joint work dates back to the Soviet Intercontinental Ballistic Missile program. End Note.) Yet, despite Ukraine's technical capabilities, the country has no launching base of its own and has to use other countries' launching facilities. Ukraine has most often used Russia's Plesetsk and Kazakhstan,s Baikonur as launch sites. The agreement with Brazil would allow Ukraine to diversify its launching bases and make better use of its space program. Brazil, on the other hand, strives to build out its own space program and make use of the advantageous position of its launching pad near the equator, according to Ukrainian media. UKRAINE-BRAZILIAN SPACE PARTNERSHIP -------------- ¶4. (U) Ukraine and Brazil signed an agreement in October 2003 to launch the Ukraine-produced Cyclone-4 space launch vehicles from Brazil's Alcantara launch facility. In 2006, the two countries formed Alcantara Cyclone Space, a 50-50 joint venture to spearhead the cooperation program. With the help of Yuzhnoye Design Bureau, which had developed the Cyclone-4 along with other launch vehicles, Brazil planned to redesign the launching facilities at Alcantara to accommodate the Ukrainian rocket. The original agreement foresaw the first Cyclone-4 launch in 2006. However, the project repeatedly went off track as a result of political changes in Ukraine, lack of available financing, and unresolved intellectual property rights issues with Russia. The cost of the project was initially estimated at $180 million, to be shared equally by Ukraine and Brazil. According to press reports, however, the cost has since ballooned to a multiple of the original sum. ¶5. (U) Amid rumors that the Alcantara Cyclone Space project may be scrapped altogether in favor of cooperation with Russia, Lula de Silva's visit to Ukraine in December provided the project with new momentum. Both presidents announced that the countries successfully resolved all obstacles, and the project was ready to take off. According to Yushchenko, the first launch of the Cyclone-4 from the Alcantara Space Center would take place by 2010, before the end of Lula de Silva's presidential term. Brazil also reportedly agreed to KYIV 00002182 002 OF 002 provide Ukraine with a loan to fund its part of the project. INSIDERS SKEPTICAL -------------- ¶6. (C) Local insiders have largely dismissed the "breakthrough" announcement as a mere political ploy. According to Borys Atamanenko, the head of international relations of the National Space Agency of Ukraine (NSAU),the agreement has not brought the two countries any closer to implementing the project. A launch in 2010 was not realistic and 2013 was more feasible, Atamanenko told us. RUSSIAN INVOLVEMENT -------------- ¶7. (C) The issue is less Ukraine's technological prowess but unresolved intellectual property issues with its Russian partners. According to Atamanenko, "Ukraine owns 95% of the Cyclone-4 design and Russia owns the remaining 5%," since the Cyclone-4 is the result of Soviet-era space research. Ukraine knows how to build the Cyclone-4 without Russia, and could even get required "Russian" parts from others, such as China, if needed. However, a move to complete the deal with Brazil without Russia's acquiescence would upset Ukraine's space relationship with Russia, Atamanenko noted. ¶8. (C) While working-level relations between Ukrainian and Russian scientists continue to be good, "politics often gets in their way," Atamanenko told us. According to him, the future of Cyclone-4 is a political decision that Ukraine's leaders will need to weigh carefully. Given historical and geographical considerations, Russia is Ukraine,s most important space cooperation partner, and maintaining a good relationship is crucial for Ukraine. According to Atamanenko, Ukraine cannot afford to trade its relationship with Russia for a single project like the Cyclone-4. ¶9. (C) Atamanenko said the Cyclone-4 project would be most feasible as a commercial project that would include Russia as a partner. As an example of a successful commercial space partnership, he showcased SeaLaunch, a space launching venture, comprised of Russian, Ukrainian, Norwegian and U.S. partners. (Note: The venture's future is uncertain as SeaLaunch declared bankruptcy in June 2009 and is currently seeking a financial backer to restart operations. End Note.) ¶10. (SBU) The Ukrainian Agency for International Investments has included the Cyclone-4 venture among the ten strategic projects, for which the country hopes to attract international investors, according to a list unveiled on December 21. According to the agency's head Sergei Taran, "the project has been selected for consideration by the NSAU --- that means that (the NSAU) believes the project requires additional investment." COMMENT -------------- ¶11. (C) The recent political announcement of the Cyclone-4 revival may again turn out to be premature. Until Ukraine is able to improve its relationship with Russia and resolve intellectual property rights issues left over from Soviet times, Russia has the ability to play the role of "spoiler" in Ukraine's endeavors to turn its considerable space research and development potential into commercial benefit. Ukraine well recognizes that Russia still remains Ukraine's most important strategic partner in the space sphere. As a result, Ukraine will not likely sacrifice the partnership in favor of projects with other countries. TEFFT