RUSNANO'S CHUBAYS SEEKS "NEW LEVEL" OF BILATERAL

C O N F I D E N T I A L SECTION 01 OF 03 MOSCOW 000884

SIPDIS

E.O. 12958: DECL: 04/06/2019
TAGS: PREL PGOV PHUM SOCI TNGD ETRD ECON RS IS
SUBJECT: RUSNANO'S CHUBAYS SEEKS "NEW LEVEL" OF BILATERAL
ECONOMIC RELATIONS

REF: 2008 MOSCOW 2909

Classified By: Ambassador John R. Beyrle for reasons 1.4 (b) and (d).


1. (C) Summary: In an April 2 meeting with the Ambassador,
Rusnanotech head Anatoliy Chubays spoke optimistically of a
"new window of possibility in bilateral economic relations"
that he intends to cultivate during his upcoming May visit to
the U.S. Goals for the trip will include learning more about
the U.S. innovation economy, tapping into the large
Russian-speaking diaspora, and building political support for
increased U.S.-Russian cooperation on science and business.
Chubays discussed his firm's hardships in securing government
and private funding during the economic crisis, while also
lamenting that he has "a lot of money, but few projects."
With the economic crisis leading to increased social
disquiet, Chubays concluded that he preferred the status quo
to the prospect of "bloody consequences" should the current
authoritarianism give way to totalitarianism. End Summary.


2. (C) In an April 2 meeting with the Ambassador, Rusnano
head Anatoliy Chubays spoke optimistically of a "new window
of possibility in bilateral economic relations" that he
intends to cultivate during his upcoming May travels to the
U.S. Rather than simply seek signatures on new deals,
Chubays announced his hope that politicians in both countries
will build a new way of looking at relations. Accompanying
Chubays in the meeting were Aleksandr Losyukov (Deputy
Director General for International Cooperation and a former
Deputy FM); Vladislav Chernov; and longtime advisor Leonid
Gozman (who also co-chairs the new Right Cause party).

U.S. Trip Aims To Raise Relations, Engage Diaspora
-------------- --------------


3. (C) Chubays described grand ambitions for his May 2-9
visit to the U.S., which he hoped will increase cooperation
and further illuminate for Russia how an innovation economy
works. Citing the "colossal potential" of working with the
U.S. in nanotechnology and other fields, Chubays declared
that his overall goal is to bring U.S.-Russian economic
relations to "a new level." "All the pre-conditions are
there," he observed.


4. (C) Chubays and his 17-member delegation will head first
to Houston for the 12th Nanotech Conference and Expo (May
3-5); to Silicon Valley for meetings May 6-7 with the
nanotech and business community; and finally to Washington on
May 8. Thanking the Embassy and Washington for assistance in
arranging meetings, Chubays added that a few high-level
meetings (VP Biden, National Economic Council head Larry
Summers, and Science Advisor/OSTP head John Holdren) had not
been confirmed yet.

Increasing Cooperation With the U.S., Israel, and Others
-------------- --------------


5. (C) Despite Russia's inexperience with an innovation
economy, Chubays declared that "now is the time to develop
it" through dedicated public funding and broader cooperation
with the U.S. and other partners. Chubays pointed to a
Rusnano non-paper as a first step toward increased
cooperation with the USG, which the Ambassador responded was
under review in Washington. (Note: Embassy EST e-mailed the
non-paper to the Desk March 31.) Ambassador concurred that
such an agreement would offer a "symbol of cooperation" to
hasten the meshing of science and business, but he cautioned
that there is no USG equivalent to Rusnano to sign a
cooperation agreement.


6. (C) To expand U.S.-Russian cooperation during his visit,
Chubays described plans to reach out to the Russian diaspora
in the U.S. as a "key asset." The diaspora is substantial,
Chubays remarked with hands stretched wide in emphasis, "and
not just in Brighton Beach." As an example, Chubays pointed
to the American Business Association of Russian-speaking
Professionals (AmBAR),which boasts 2,000 dues-paying
members, and - according to Chubays - some 40,000
Russian-speakers in Silicon Valley alone. These
Russian-speakers constitute an untapped resource for Russian
business, Chubays reasoned, since they understand American
business culture, infrastructure, and innovation. The
intention is not to lure them back to Russia, but to "build a
bridge" for them to identify prototype projects that can be
built in Russia. Heaping further praise on U.S. business
acumen and education, Chubays boasted that Rusnano employs
specialists who have worked in Silicon Valley as well as
graduates from Harvard and Stanford.


MOSCOW 00000884 002 OF 003



7. (C) Before the meeting, Rusnano executives described a
recent visit to Finland ("the best organized scientific
program") and an upcoming trip to Canada that they hoped
would lead to broader international cooperation. Rusnano
also aspires to develop deeper cooperation with Israel,
tapping into a Russian-speaking diaspora that Chubays
calculated as constituting two-thirds of Israeli
nanotechnology workers. Chubays acknowledged, however, that
such nanotechnology cooperation with Israel would be
impossible without USG approval.

"A New Logic" to Secure Reliable Public Financing
-------------- --------------


8. (C) Turning to accounting matters, Chubays confirmed that
the GOR had endowed Rusnano's coffers to the tune of 135
billion rubles (about USD 4 billion); however, the economic
crisis forced Chubays to give 85 billion rubles (USD 2.5
billion) back to the state budget to cover the 2008 deficit,
with the condition that it would be returned. (Note: Rusnano
contacts also have told us separately that they expect
employee salary cuts this year.) Perhaps unconvinced that
Rusnano will see that money again, Chubays revealed details
of a proposal he made to Finance Minister Kudrin for "a new
logic" of financing that would secure reliable funding and
return the 85 billion rubles to Rusnano in installments.
According to the proposed plan, Rusnano would receive 40-50
billion rubles (about USD 1.2-1.5 billion) per year until

2014. Chubays claimed that Kudrin and First DPM Sergey
Ivanov were on board, with the next step to win PM Putin's
support. An additional step to ensure funding would be to
re-invest the firm's earnings into future projects.

Overcoming Soviet Legacies To Find Private Investment
-------------- --------------


9. (C) Chubays lamented that "we have a lot of money, but few
projects" to spend it on because of difficulties in securing
private Russian investment in nanotechnology. To overcome a
Soviet-era framework that separated innovation from market
demands, Rusnano intends to "build a bridge" between the two
by attracting private investment and partners "so the market
determines what to produce, not us." Chubays outlined a goal
to bring in USD 30 billion by 2015, but he later acknowledged
that the economic crisis has made finding investment funding
increasingly difficult.


10. (C) Bemoaning the difficulties of reversing a Soviet
mindset unaccustomed to linking science and business, Chubays
griped that oligarchs remained particularly skeptical of
investing in nanotechnology. However, he noted, many
oligarchs have changed their minds after learning the
quantitative benefits -- for example, that steel is five
times stronger when made with nanotechnologies. Aviation is
another field that Chubays warned would wither without
private nanotechnology investment by Russians. Whereas
Boeing DreamLiner aircraft are made with 55-60 percent
nano-composite materials, Sukhoi aircraft comprise just 5
percent. To keep Sukhoi competitive, Chubays explained, a
company is being created to make nano-composite materials for
its new aircraft. Other fields that will benefit from
nanotechnology investment will be lighting and solar energy
systems.


11. (C) When Ambassador suggested that there has been no
stimulus in energy-rich Russia to encourage private
investment in nanotechnologies, Chubays agreed and pointed to
"monstrous energy inefficiencies" across the entire spectrum
from housing to industry to energy production. Speaking
authoritatively as the former head of the state electricity
monopoly, Chubays concluded tersely that energy prices have
never been at market levels and therefore little incentive
exists to curb its waste through innovation and alternative
energy sources.

In Crisis, Status Quo Preferred To "Bloody Consequences"
-------------- --------------


12. (C) Speaking about the economic crisis, Chubays disagreed
with First DPM Shuvalov's optimism that the worst had passed.
Full recovery within a year is too optimistic, but recovery
in two years is "almost guaranteed." The Russian economic
future will be 100 percent clear, Chubays sighed, only after
the U.S. has fixed its own problems.


13. (C) Chubays also acknowledged that the crisis had led to
increased social problems, but he backpedaled from a comment
he made in a January interview in which he put the odds of
the political system surviving at "50-50." Contemplating

MOSCOW 00000884 003 OF 003


various outcomes for the deepening social distress, he
ominously predicted that there "could be bloody consequences"
if factions attempt to exploit the crisis to hasten political
change. "Crisis cannot be the engine for democracy and
pluralism; it is not realistic." For this reason, he
concluded, democratic opposition leaders such as Garry
Kasparov are misguided in their hope for widespread unrest
because "the alternative to the current authoritarianism" is
not democracy but totalitarianism. Therefore, Chubays
reasoned, it is better to embrace the status quo, "with all
its weaknesses." One "safe" alternative he suggested was the
Kremlin-friendly and pro-business Right Cause party, created
in part by Chubays in 2008 and co-chaired by top Chubays
advisor Leonid Gozman (reftel). "The democrats call us
collaborators" for working with the Kremlin, Chubays noted,
but working with the Kremlin was the safest way to establish
a new political party. (Note: Right Cause's internal rifts
are notoriously manifold, and its leadership has proven
incapable of developing a united platform. In the elevator
after the meeting, Gozman responded to a question about Right
Cause's upcoming April 3-4 Moscow conference by quickly
dismissing it as "a waste of time" that would be dominated by
"chatterboxes." End Note.)


14. (C) On the April 1 meeting in London between Presidents
Obama and Medvedev, Chubays cheered on Medvedev's performance
and lauded what he called Medvedev's "rise" during and after
the meeting.

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


15. (C) Chubays remained upbeat throughout the meeting, even
when discussing financial hardships endured by Rosnano and
the slashing of public funding during the crisis. His
planned outreach to the Russian diaspora confirmed Russia's
shortage of home-grown expertise, and his ambitious May
itinerary (which includes meetings with venture capital firms
and companies such as Intel) confirmed his intention to
duplicate U.S. innovation economy methods as much as
possible. The "new level" of economic cooperation that
Chubays described, with economic and scientific benefits to
both sides of the bilateral relationship, would represent a
significant advancing of U.S.-Russian trade and ties.
BEYRLE