RUSSIA MOVING INTO HIGH GEAR ON NANOTECHNOLOGY; ACTIVELY

UNCLAS SECTION 01 OF 08 MOSCOW 000333

DEPARTMENT FOR OSTP J.ROLF
USDOC/MAC FOR J. BROUGHER/M EDWARDS
SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: TNGD TPHY ETRD BTIO TSPL PREL KIPR KTIA RS
SUBJECT: RUSSIA MOVING INTO HIGH GEAR ON NANOTECHNOLOGY; ACTIVELY
SEEKING COOPERATION WITH U.S.

REF A: Moscow 3586, REF B: Moscow 3641

MOSCOW 00000333 001.2 OF 008


Sensitive but Unclassified, Not for Internet Distribution


1. (SBU) Summary: Since Russia's preeminent manager Anatoliy
Chubays became Director General of Russia's Corporation of
Nanotechnologies (Rusnano) on September 22, 2008 Rusnano has both
bolstered its international reputation and begun investing in
nanotechnology in Russia. To showcase Russia's commitment to and
accomplishments in nanotechnology, Rusnano organized its first
annual International Nanotechnology Forum on December 3-5, attended
by more than 3,000 scientists, investors, businesspeople and
officials from all over the world. High-level Russian government
officials joined Chubays to emphasize Russia's interest in using
nanotechnology to spur overall innovation and to diversify the
Russian economy. While the Forum highlighted Rusnano's desire for
international cooperation, many Rusnano officials noted in public
and in private that the United States, with its lead in
nanotechnology, is Rusnano's would-be partner number one. Chubays
personally expressed his appreciation for the United State's
high-level support for the Forum to Special Representative for
Commercial and Business Affairs J. Frank Mermoud.


2. (SBU) In light of the economic crisis, Chubays is aggressively
keeping Rusnano focused on demonstrating concrete commercial success
as quickly as possible. Rusnano has already invested at least 6
billion rubles (USD 168 million, using today's rate 35.6 ruble = 1
dollar),and plans to invest some 20 billion rubles (USD 562
million) in more than 20 projects by March, and up to USD 10 billion
more "in the near future." We learned during a January 30 visit to
the nanotechnology cluster at the Special Economic Zone in Dubna
that it will almost certainly take more time than Rusnano is
anticipating for its projects to be realized. Chubays and a large
delegation plan to visit the United States from May 3-9 to attend
the Nanotech Conference and Expo 2009 in Houston, consult with
business leaders in Silicon Valley, and meet with officials in the
new administration in Washington. They expressed interest in
developing a joint statement to capture our bilateral cooperation on
nanotechnology. MFA officials proposed agreeing on an "action
framework" to ensure that bilateral cooperation has specific
results, such as exchanging technology and creating joint ventures.
To avoid potential dual use and export control concerns, one MFA
official argued that it is necessary to conclude a Technology
Safeguards Agreement. End Summary.

Rusnano Forum Proclaims Russia Serious About Nano...
-------------- --------------


3. (U) Deputy Prime Minister Sergey Ivanov opened the December 3-5
Forum Plenary Session with an address from President Medvedev
declaring that Russia has "all the necessary conditions to make
future breakthroughs in the field of nanotechnologies, including
government support, the interest of business, and strong
intellectual potential." Ivanov quoted experts who expect the world
nanotechnology market to grow from today's USD 147 billion to USD
3.1 trillion by 2015 and that global government, corporate and
venture investment in nanotechnology totaled USD 13.5 billion in

2008. He confirmed that the Russian government will invest about
USD 10 billion to develop nanotechnology in the next few years, half
in research and development (R&D) and half through Rusnano in
commercialization. Ivanov and later speakers, including Minister of
Economic Development Elvira Nabiullina, stressed to the hundreds of
plenary session attendees that by developing nanotechnology, Russia
overcome the consequences of the global financial crisis more
quickly, develop the spectrum of R&D and innovation, bring
manufacturing to a new level, and improve people's lives.


4. (U) Rusnano Director General Anatoliy Chubays promised Opening
Plenary participants that Rusnano will offer the best business
conditions in the world for companies to begin manufacturing
nanotechnology-enabled products in Russia. Rusnano will help
scientists and businesses to work out business plans which will be
reviewed by independent panels to establish both their scientific
and their business viability. Chubays stated that in exchange for a
minority share of stock, Rusnano can offer 90% of the financing for
up to ten years with interest rates starting at 8 percent. When the
time comes for Rusnano to divest itself, it will not seek the
highest possible price for its shares. Chubays welcomed foreign
firms, stressing that Rusnano's conditions would be the same for all
firms. He promised that Rusnano would use its connections with the
Russian government to cut through bureaucracy and corruption.
Chubays declared both in his opening remarks and later in the press
that Rusnano is ready to invest some 20 billion rubles (USD 562

MOSCOW 00000333 002.2 OF 008


million) in more than 20 projects by the end of February.


... And Seeks International, Particularly U.S., Cooperation
-------------- --------------


5. (SBU) Rusnano officials have made it clear that Russia is
looking for international cooperation. Many have noted in public
and in private that the United States, with its lead in
nanotechnology, is partner number one. From Chubays down, Rusnano
actively sought U.S. participants for the Forum (ref A). Rusnano
invited Special Representative for Commercial and Business Affairs

J. Frank Mermoud as the senior U. S. government official and
featured Dr. Paras N. Prasad, Professor of Chemistry and Director of
the Institute for Lasers, Photonics, and Biophotonics at State
University of New York (SUNY),Buffalo, as the only international
speaker at the Opening Plenary. Prasad captivated the audience with
his presentation on the wide scope and tremendous promise of
nanotechnology applications, including some ready for
commercialization. Prasad and other U.S. business and scientific
reps attracted significant attention from Rusnano, would-be private
investors, and a myriad of business "facilitators" seeking to ride
on their coattails.


6. (SBU) Rusnano also lobbied hard for other prominent U.S.
government officials to attend the forum. Since Clayton Teague,
current Director of the Federal National Nanotechnology Coordination
Office, was not available, Rusnano invited James Murday, the first
Director of the U.S. National Nanotechnology Initiative, to give the
keynote presentation and then chaired the afternoon panel on
December 3 on how governments can most effectively help develop
nanotechnology. Murday shared lessons learned from the U.S.
government's experience, cautioning that it takes many years to go
from concept to prototype.


7. (SBU) At the second afternoon panel session on December 3,
Mermoud described U.S. international efforts to develop
nanotechnology. He expressed hope that Russia will participate even
more actively with the OECD Working Party on Nanotechnology as it
develops policy related to commercialization and he urged Russia and
other countries with nano programs to contribute financially to OECD
projects. He welcomed Russia's plans to get involved with testing
in the framework of the OECD's Working Party on Manufactured
Nano-materials. He also reiterated the U.S. government's interest
in exploring bilateral cooperation on areas also explored in July
with the visiting Rusnano delegation:

-- Modeling and simulation of the properties of photonic and
electronic materials at the nano-scale;

-- Modeling and simulation of the properties of engineered
nano-scale materials in a biological environment, including
predictive toxicology;

-- Self assembly of nano-structured materials and devices;

-- Instrumentation and techniques for characterizing physicochemical
properties of materials at the nano-scale, including biological
materials;

-- Instrumentation and methods for detecting and
characterizing engineered nano-scale materials in the body
or the environment, and protocols for evaluating their human health
impacts and environmental effects; and

-- Nano-materials for water purification and environmental
remediation.

A summary of Mermoud's remarks are posted on the Embassy's website
in English and in Russian at:
http://moscow.usembassy.gov/tr-mermoud120308. html.

Chubays: Nano Cooperation Will Help Bilateral Relations
-------------- --------------


8. (SBU) In a private meeting with Mermoud on December 4, Chubays
expressed appreciation for Ambassador Beyrle's and the U.S.
government's support for the Forum. Chubays noted that he was
"extremely upset" by the tenor of bilateral relations and wanted to
avoid a return to the cold war dynamic. He expressed hope that
U.S.-Russian cooperation on nanotechnology and high technology will
help build a new dynamic in the bilateral relationship. He
explained that Russian business and the Russian government have the

MOSCOW 00000333 003.2 OF 008


next ten years to build the high-tech sector and put Russia on the
global map. The resulting economic growth will strengthen Russia's
development and integration with the rest of the world. The United
States is number one in the world on high technology, so Russia sees
the United States as its highest priority partner. Next in priority
is cooperating with Israel, Europe, and Asia. Chubays confirmed he
plans to spend a week in the United States in May 2009 to cement
wide-ranging bilateral cooperation on nano and high technology,
including meetings in Silicon Valley and Washington.


9. (SBU) Mermoud confirmed that Chubays and others had correctly
understood that Mermoud's attendance at the Forum demonstrates the
importance the Department places on cooperating with Russia on
developing nanotechnology and economic and commercial relations.
Echoing statements made by the President and Prime Minister on
nanotechnology's potential role in lifting the entire economy,
Mermoud welcomed Chubays' May trip, and suggested that Chubays
consider also travelling to Raleigh Durham to meet with industry
associations. When Mermoud indicated that U.S. companies have
concerns with Russian IP practices and customs practices, Chubays
immediately responded that Rusnano will be active and aggressive in
protecting business. It will take time, Chubays added, but he is
committed to get the corporation law and the tax, budget, and civil
codes revised to support innovation. He expressed interest in
hearing from U.S. companies concerning issues that impede
high-technology development.

MFA Wants Concrete U.S.-Russia High-tech Cooperation, TSA
-------------- --------------


10. (SBU) Rusnano arranged for Mermoud and Embassy officers to meet
on December 4 with Ministry of Foreign Affairs North America
Department Deputy Director Nikolay Smirnov and Department for
Security, Technological and Disarmament Affairs Deputy Director
Andrey Krutskikh. Although they hailed Mermoud's attendance at the
Nano Forum as a welcome, positive signal, both Smirnov and Krutskikh
proceeded to give examples of how Russia has gotten "nothing" in
return for its many previous political and economic concessions to
the United States. Smirnov expressed hoped that we would work
together in the months before Chubays's May 2009 visit to the United
States as we did on the July 2008 visit of Rusnano officials.


11. (SBU) Krutskikh cautioned that Russia wants more than just U.S.
speeches and exchanges of delegations on high-tech cooperation -- it
wants concrete results such as exchanging technology and creating
joint ventures with the United States, the world's number one
high-tech power. The United States, however, Krutskikh mused, seems
to have an innate resistance to real high-tech cooperation with
Russia -- it lets cooperation go only to a certain point and then
cooperation inexplicably hits a barrier. So if the United States
does not want to truly cooperate with Russia, Russia has strong
cooperation with Europe on the Eurolaser and other projects.
Krutskikh pointed out that there are also good opportunities with
Brazil, India, and China, albeit not as attractive as with the
United States. (Comment: There is a market component to the
relative lack of U.S.-Russia R&D cooperation. Russia's long and
distinguished history of strong R&D is not market driven and often
does not respond to what the world's industries and markets require.
End Comment) Given the potential dual use and export control
concerns of nanotechnology and high technology, Krutskikh argued
that the United States and Russia should create an "action
framework" for cooperation, including a Technnology Safeguards
Agreement.

Rusnano in a Rush to Find and Fund Viable Proposals
-------------- --------------


12. (SBU) After the Opening Plenary, the Forum bifurcated into
two-and-a-half-day simultaneous business and science programs.
Business presentations ranged from international experience on
forming national innovative systems to measures to stimulate the
development of financial, manufacturing and technology, information
and educational infrastructure, support of the fundamental science,
and improving legislation. Forum participants also discussed
venture capital investment development in Russia, focusing on nano's
applications in electronics, medicine and biotechnologies to
mechanical engineering, oil and gas and chemical industry as well as
to regional development programs in Russia. Rusnano intends to use
its funds to leverage funding from venture capital firms, private
companies, and the Russian Federation's Investment Fund, State
Corporation "Development and Foreign Economic Activity Bank", and
Open Joint Stock Company " Special Economic Zones. Rusnano speakers
assured skeptical Forum participants that by 2015, the portion of

MOSCOW 00000333 004.2 OF 008


the Russian enterprises nano products on the world market will grow
from today's 0.07 to 3 percent.


13. (SBU) Chubays is in a hurry to show that he can deliver. Two
days before the Forum, he demanded that Rusnano officials focus on
demonstrating that the Forum was generating concrete results. With
significant fanfare, Chubays, ONEXIM Group Head Mikhail Prokhorov,
and Ural Optical and Mechanical Plant Director General Sergey Maksin
used the Forum as a venue to sign an investment contract to
establish an enterprise to manufacture 120 million solid-state
light-emitting diodes annually. The diodes will eventually replace
incandescent light bulbs. The element base for the light-emitting
diodes will be made in the Saint Petersburg innovation zone in
collaboration with the Ioffes Institute. Prokhorov, who founded the
investment firm ONEXIM Group in May 2007, is on Rusnano's
Supervisory Board. The Ural Optical and Mechanical Plant named
after E.C. Yalamova" (UOMP) is one of the leading Russian
enterprises in the area of designing and manufacturing optical and
electronic devices for military and civilian uses. Under the terms
of the 3.35 billion ruble (USD 94 million) project, Rusnano will
invest 1.7 billion rubles (USD 48 million) for a 17 percent stake,
the plant will invest some 620 million rubles (USD 17 million) for a
33 percent stake, and Onexim will invest 840.5 million rubles (USD
24 million) and control 50 percent together with the scientists who
developed the project. The project is expected to become profitable
by 2011 and earn a profit of up to 6 billion rubles annually by

2013. Hailing the deal, Chubays said the LED lamps, for use in home
and office displays as well as in cell phones, would eventually
account for around 1 percent of the Russian market and consume seven
times less energy than an ordinary electric lamp.


14. (U) The most significant international agreement Russia signed
at the Forum was with Finland to establish an information exchange
on national policy for nanotechnologies, scientific research,
potential markets, certification and standardization of nano
research results and intellectual property rights protection for
nanotechnologies. A key component of the agreement involves
cooperation on commercialization of Russian and Finnish
nanotechnology developments and developing a road map for the way
ahead.

15. (SBU) U.S. businesses received substantial attention. In a
private meeting on December 5, Chubays invited SUNY Buffalo's Paras
Prasad to serve as an International Nanotech Expert Technical
Adviser and agreed to visit Buffalo during his May visit. (Note:
Rusnano officials have since confirmed that this will not be
possible. End Note.) After Chubays expressed interest in
developing and licensing Prasad's firm's technology for medical
diagnostics for manufacturing in Russia (a Flow Cytometry project
and a R&D project on chemical and biosensors with Academician
Professor Alfimov, Director of the Photochemistry Center),Rusnano
assigned a project director and contacted Prasad repeatedly to help
him to apply for Rusnano funding. During their December 5 meeting,
Prokhorov noted that he had been impressed with Prasad's
presentation and also expressed interest in visiting Prasad in
Buffalo. Chubays also met privately to discuss cooperation with the
Chief Executive Officer of Nano-dynamics, a Buffalo firm that
produces nano-cement.


16. (SBU) EST arranged for the U.S. delegation to the International
Science and Technology Center (ISTC) Governing Board and ISTC Acting
U.S. Deputy Executive Director Tim Murray to meet on December 10
with Sergey Mostinskiy, Rusnano Director for International
Cooperation, and Rusnano Senior Advisor Vladislav Chernov to explore
possible mechanisms for Rusnano to fund commercialization of ISTC
nanotechnology projects (ref B). Murray gave an overview of a
nano-titanium and a brachio-therapy bio-seed proposal for which ISTC
had already funded pilot projects. Both ISTC partner companies
have had initial dialogue with Rusnano regarding larger-scale
funding, and are in the process of preparing concrete proposals for
Rusnano's formal consideration. Mostinsky subsequently arranged a
February 12 joint workshop with the ISTC to brief Rusnano officials
about potential opportunities for collaboration, as well as
exploring holding a roundtable with ISTC partners for Chubays in the
United States in May. On February 5, EST Counselor also gave
Rusnano officials a summary from the U.S. Civilian Research and
Development Foundation (CRDF) of its work to determine if Rusnano is
interested in cooperating with CRDF as well.

Rusnano Dependent on, but Not Interested in Funding Science
-------------- --------------


17. (SBU) Rusnano officials have made it abundantly clear that
Rusnano is not interested in funding scientific research. Although

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the Forum featured two-and-a-half days of a total of 263 scientific
presentations in 29 areas by 80 firms and organizations from Russia,
Austria, Germany, Latvia, the U.S., Finland, and Iran, Rusnano
International Affairs Department officials told us after the Forum
that they do not expect next year's forum to have a science
component. The science exhibits, covering 18 main nanotechnologies
and nano-material development possibilities, were almost exclusively
in Russian. Few of the exhibitors spoke English. Nano-enabling
technology, such as electron microscopes and atomic force
microscopes that Russia is already commercializing and selling on
the international market was on display. Russia's strength in
material science, in particular metallurgy and ceramics, was evident
by the large number of exhibitors showing various powders and
coatings, such as mono-crystalline and multi-crystalline silicon for
solar cells. Russian companies also supply carbon nanotubes to
international market. In January, Deputy Prime Minister Ivanov
confirmed in a press article that Russia did not display its most
most advanced formulations.


18. (U) The Forum showcased several signing ceremonies. Flanked by
Deputy Prime Minister Ivanov and Minister of Education and Science
Fursenko, Chubays signed cooperation agreements with two of Russia's
leading scientific institutions. In the agreement Chubays signed
with
President of the Russian Academy of Sciences (RAS) Yuriy Osipov, RAS
agreed to assist Rusnano to define the key directions for developing
nano-industry, to cooperate in commercialization projects on
nanotechnologies, nano-materials and nano-systems, and in the
development of competitive scientific and technical schools in
Russia. To achieve these goals, Rusnano and RAS will jointly train
professionals for nano-industry and work to attract young
specialists, post-graduate students and post-doctoral researchers to
the field of nanotechnologies.


19. (SBU) Chubays also signed an agreement with Moscow State
University (MGU) Rector Viktor Sadovnichiy. On December 6,
Professor Yuriy Tretyakov, Dean of MGU's Department of Materials
Science, gave Mermoud a tour of the department and laboratories
which he founded in 1991 on the U.S. interdisciplinary model,
combining chemistry, physics, mathematics, and liberal arts.
Tretyakov and Deputy Department Director Aleksey Lukashin described
the rigorous selection process for the 200 students in their
department. Those that make it through the program are in high
demand by foreign universities and companies. While hardly any
remained in Russia during the 1990s, more have chosen to stay in the
past 2-3 years because of the improvement in the economic situation.
(Numerous MGU students and graduates were featured in the over 300
nano-projects displayed at the Forum by young Russian scientists.
End Comment.)


20. (SBU) Tretyakov agreed with Chubays's Opening Plenary statement
that Rusnano needs to build a bridge between science and business.
But he opposed Rusnano's decision not to fund fundamental research.
(Note: Although USD 5 billion was reported to have been invested in
nanotechnology-related science, it has apparently gone primarily to
the Kurchatov Institute and Special Economic Zone Dubna. As
Tretyakov guided Mermoud through the earnest, but antiquated
laboratories dotted with occasional newer equipment and the low-tech
classrooms, it was evident that MGU is still in serious need of
upgrade. End Note) Without a single nanotechnology international
patent, he argued, it will be hard for Russia to manufacture.
Scientists need over USD 250,000 to get an international patent and
then must manufacture to keep it. Only Rusnano can provide both.
One of the MGU scientists pointed out that only one of the seven
projects Rusnano has agreed to fund has a legitimate nanotechnology
connection. Tretyakov described MGU's close relationship with the
RAS institutes, whose aged researchers need MGU's youth. Like MGU,
RAS has gotten very little money for nanotechnology. But Tretyakov
was hopeful that as Chubays gets better acquainted with the
situation and with MGU, which he has asked to develop a course to
train his personnel, he will direct more funding to MGU.

Emerging Nanotech Cluster at SEZ Dubna
--------------


21. (SBU) On January 30, EST counselor and staff visited Special
Economic Zone (SEZ) Dubna, one of 13 SEZ's in Russia, about 100 km
north of Moscow. Aleksandr Rats, the Head of the Federal Agency for
Management of SEZ's Territorial Directorate, briefed us on Dubna's
history as a closed Soviet science city and expressed hope that
Dubna would one day become Russia's Silicon Valley. Established in
2005, SEZ Dubna's main goal is to provide favorable conditions (such
as tax and customs holidays) to facilitate the development of high

MOSCOW 00000333 006.2 OF 008


technology industries, particularly new products and services in
nanotechnologies, nuclear-physical technologies, and information
technologies. Highlighting the importance of SEZ Dubna to Russia's
plans to develop high-tech, President Medvedev visited in April
2008, declaring that "the projects being implemented here are such
that nobody in the world has tackled..."


22. (SBU) Two major agreements boosted Dubna's attractiveness to
potential nanotechnology investors: an agreement between SEZ Dubna
and Rusnano, signed on April 25, 2008, forming its nanotechnological
cluster and the creation of the CIS Intergovernmental Center of
Nanotechnologies announced at an October 3, 2008 meeting of the
Heads of the State Authorities on Science from CIS countries.
According to Rats, there are currently 32 resident companies
registered in SEZ Dubna, and space ultimately for up to 300 total
enterprises. Rats and his staff treated EST staff to an insider's
tour of the 300 hectare SEZ territory, pointing out as yet
undeveloped sites which are already earmarked for specific nanotech
companies. One of these companies, U.S.-owned firm and
Russian-registered Bonasana, is awaiting Rusnano approval of funding
for its proposed project to build a pre-clinical trial nanotech
testing facility. Despite SEZ Dubna's clear promise, Rats and his
staff were candid about obstacles to producing innovation,
including: (1) lack of a NASDAQ-type mechanism in Russia that would
allow ordinary citizens to invest in S&T; (2) lack of unified
procedures in patent laws and arcane intellectual property laws; and
(3) lack of a fully developed business culture in Russia. Rats and
colleagues were sanguine that SEZ Dubna will meet its objectives, if
businesses are patient.

23. (U) In November 2008, Rusnano approved a 1.29 billion ruble
investment in SEZ Dubna's Trackpor Technology to establish
commercial production of medical technology for "cascade filtration
of blood plasma" (a high-tech method of cleansing blood using
nano-sized flat track membranes) to remove harmful substances from
and destroy viruses in blood. This project could have enormous
medical value as it is directed towards the treatment of a number of
widespread cardiovascular and other related diseases which
contribute to a high mortality rate in Russia, with 1.5 million
deaths per year from heart disease alone. The project will be
realized in three stages over a 6.5 year period. Emboffs were
fortunate to visit Trekpor's existing small-scale production
facility, see its existing blood cleansing device, and learn
first-hand from its scientists about proposed technological
improvements using Rusnano investment funds which should allow
large-scale production of a third generation "membrane
plasmapheresis" (aka blood plasma filter) device by 2011.
Planning for Chubays's Visit to U.S. - Joint Statement?
-------------- --------------


24. (SBU) On Feb. 5, 2009, ESToffs met with Rusnano International
Cooperation Department officials Sergey Mostinskiy and Vladislav
Chernov to begin coordination for Rusnano Director Chubays's May
3-9, 2009 planned visit to the United States. Mostinskiy described
Rusnano's restructuring plans complete with an increase in
personnel, Chubays's proposal to the government that Rusnano take on
additional functions to catalyze innovation. Chubays will likely
announce soon a new working title "Chairman of the Board, Director
General." Chernov elaborated Chubays's three main goals for the
trip:

-- Science and technical: widening areas for cooperation with the
United States, the leader of the nanotechnology. A key part of this
is Rusnano's participation in the Nanotech Conference and Expo 2009
in Houston for which Chernov said Rusnano is "preparing
intensively." Chubays plans to deliver a keynote speech in Houston
on May 5th and Rusnano plans to have a 40-square-meter exhibition
stand. Rusnano is still discussing internally what to display
because to date, Rusnano hasn't actually produced any commercial
nanotech products;

-- Business/economic: Mostinskiy explained that Chubays is anxious
to attend an "Open Door Conference" in Silicon Valley sponsored by
Intel and Hewlett-Packard to strengthen his contacts with U.S. big
business with a view toward setting up informational exchanges and
possibly joint programs in nanotech safety. They are hoping that
reps from these firms will attend Rusnano's next forum scheduled to
be held in Moscow in October, which they promised would be "much
better" than the first one. Mostinskiy added that they would
welcome any additional help from the U.S. Government to establish
other points of contact in Silicon Valley. Rusnano wishes to send a
small "reconnaissance" delegation to the U.S. in the April
time-frame to try to finalize the Silicon Valley agenda. Post is
working closely with Rusnano to facilitate the visa application

MOSCOW 00000333 007.2 OF 008


process of its delegation members.

-- Political: establishing contacts with the new Administration
officials and meeting with those he already knows. Chernov joked
that Chubays is a consummate "political animal" who will want to
meet with key U.S. government officials. (Note: A close Chubays
advisor specified to poloff that these officials include the Vice
President.)


25. (SBU) Mostinskiy suggested the U.S. and Russian sides work
together to prepare some kind of "political document" establishing
our joint interest in establishing a high-tech relationship in the
field of innovation of "nano-technology. He suggested this document
might take the form of a joint statement that might possibly be
announced or read at the first ministerial between Secretary Clinton
and FM Lavrov, even before Chubays's U.S. visit. EST offs agreed to
draw up some initial draft working blocks which might be included in
such a statement to send to Washington for review. Although EST
counselor emphasized USG interest in engaging Russia on the
environment, health and safey aspects of nano R&D, Chernov quickly
pointed out that the GOR, not Rusnano, has the natural lead on these
issues. "We are a venture fund, not a research lab," said Chernov.

Other Rusnano News and Goals
--------------

26. (SBU) In January, Chubays publicly pronounced that Rusnano
plans to ramp up its procedures significantly in the coming weeks
with the target of approving 5-6 funding projects monthly from June
2009 onward. Nevertheless, Mostinskiy and Chernov frankly confided
to Emboffs that Rusnano is clearly still in a transition phase, both
in cementing efficient operational procedures and even physically --
they will be relocating their 300 plus staff to a new building by
September. To date, while Rusnano has approved only seven projects
and allocated 6 billion rubles in funding (including the Trekpor
project at SEZ Dubna discussed above),Mostinskiy hinted at the
incredible pressure they are facing to show the public they can
fulfill their goal of helping Russia increase its stake in the
nanotechnology field, and even to minimize the consequences of the
financial crisis in Russia. "We need a success story badly," he
lamented. To that end, Mostinskiy informed us that there are
several proposals, "including from U.S. companies," that are
currently under rewiew and consideration by the Supervisory Council
with the expectation of being approved in the immediate future. And
to make the process more transparent, Rusnano now intends to post
all approved projects on its Internet website for public information
hereafter.

Comment
--------------


27. (SBU) While Rusnano has made great advances since September in
both its public relations and in setting up structures and
procedures, much work must be done if Rusnano seriously aims to
achieve 900 billion (USD 25 billion) rubles worth of nanotech
production by 2015. International Forum presenters were frank - if
Russia wants to become a global nanotech player, it needs to
continually improve its innovation environment by improving
education, the business environment, entrepreneurship, and
developing early stage capital. It also needs to rely on the
market. International presenters were unanimous - to be successful,
Russia needs to develop a realistic country strategy that relies on
Russia's traditional strength in fundamental research and focuses on
expanding industries where Russia has competitive advantage, such as
oil and gas or perhaps construction. Trying to break into a mature
industry with ample global production capacity, such as electronics
and photonics, they pointed out, makes little sense. Finally, they
warned, it can take millions of dollars of investment over more than
a decade for even a prototype to be developed.


28. (SBU) Russian policymakers hail Chubays as Russia's most
effective manager and declaim that if he cannot succeed in bridging
the historical, yawning gap between science and business, no one
else in Russia can. Chubays and Rusnano will need some time to
develop Rusnano's portfolio of nanotechnology-related projects. But
the combined financial and economic crisis puts them under great
pressure to show quick results. Rusnano officials have told us they
are not interested in any investment under USD 10 million and are
seeking projects that can result in production in the next 2-3
years. Time will tell if Chubays will be able to protect his war
chest from the depredations of both frantic budgeteers and those who
don't understand nanotechnology's long time-frame, that markets
should drive R&D, and that top-down, Soviet-style programs to
develop high technology and manufacturing in every sector will be

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counterproductive.

BEYRLE