VZCZCXRO3195
RR RUEHDBU RUEHHM RUEHLN RUEHMA RUEHPB RUEHPOD RUEHVK RUEHYG
DE RUEHMO #1241/01 0820349
ZNR UUUUU ZZH
R 230349Z MAR 07
FM AMEMBASSY MOSCOW
TO RUEHC/SECSTATE WASHDC 8491
INFO RUCNCIS/CIS COLLECTIVE
RUEHZN/EST COLLECTIVE
RHEBAAA/DEPT OF ENERGY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC
RHEHAAA/WHITE HOUSE WASHDC
RHEHNSC/NSC WASHDC

UNCLAS SECTION 01 OF 03 MOSCOW 001241 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
DEPARTMENT FOR OES/STAS (DR. ATKINSON), OES/STC (DAUGHARTY) 
EUR/RUS (GUHA) 
WHITE HOUSE FOR OSTP (DR. MARBURGER) 
DOC FOR CRESANTI 
 
E.O. 12958: N/A 
TAGS: TSPL PGOV ECON ETRD PINR TNGD RS
SUBJECT: RUSSIAN NANO COMPANIES LEAVE ACADEMY BEHIND 
 
REF: O6 MOSCOW 12192 
 
¶1.  (SBU) Summary:  EST recently visited two nanotech ventures based 
in Moscow-region "science cities."  The scientists who head these 
entities reinvented themselves after the fall of the Soviet Union. 
In the process, they have provided a new model for Russia science, 
one centered on an extremely disciplined enterprise whose management 
is focused on an area that rarely captures the attention of Russian 
scientists -- the bottom line.  Zelenograd's NT-MDT is a private 
company with strong ties to federal and regional officials.  The 
Institute of Superhard and Novel Carbon Materials (ISNCM) in Troitsk 
generates millions in annual revenue and is funded partially by the 
Federal Agency for Science and Innovations.  Not coincidentally, 
neither entity is affiliated with the Russian Academy of Sciences 
(RAS).  End summary. 
 
--------------- 
The Bottom Line 
--------------- 
 
¶2.  (SBU) EST visited NT-MDT, a nanotech firm based in the former 
closed city of Zelenograd, on March 6 to discuss the company's 
activities and its perspective on GOR efforts to stimulate the 
development of nanotech in Russia.  NT-MDT was established in 1989 
by Dr. Viktor Bykov in cooperation with two other scientists.  The 
company was transformed into a commercial enterprise in 1993, 
focused on the development of nano-instruments.  Boasting a staff of 
more than 250 -- including representatives in Western Europe -- 
NT-MDT is planning to launch an IPO in 2011.  Dr. Bykov and his son 
Aleksander (the latter is now the company's CEO) provided EST with 
an overview of the company's evolution from a small firm to one 
whose products meet international standards and hold European Union 
certificates.  NT-MDT manufactures "big tools" such as 
nano-microscopes.  The firm's clients include institutes under the 
Russian Academy of Sciences (RAS) and universities across Russia, as 
well as European and American companies. 
 
¶3.  (SBU) Bykov credits his success to the company's market-based 
philosophy.  NT-MDT ferrets out information about the needs of 
clients (and potential clients) and directs its research efforts 
towards meeting those needs.  According to Bykov, the main 
difference between his approach and that of RAS scientists is how he 
defined success: a concept that can travel from the theoretical to 
production to sale, rather than a paper published in a journal. 
Noting his single-minded focus on commercializing a concept, Bykov 
stated that NT-MDT invests 20 percent of its budget into R&D, which 
is two or three times the Russian average. 
 
¶4.  (SBU) Likewise, Troitsk's ISNCM invests heavily in R&D.  Its 
Director, Dr. Vladimir Blank, said that while the institute did not 
treat R&D as a special budget category, of its nine million dollars 
in 2006 revenue, 2.4 million was allocated for salaries, two million 
for maintaining and modifying existing equipment, $200,000 for staff 
participation in international conferences ("very important") and 
the remainder for designing, building and/or buying new equipment -- 
which he considers critical to remain competitive.  Blank said he 
regards Russian-made high-tech instruments as generally of mediocre 
quality, thanks to "15 years of problems."  ISNCM imports most of 
the equipment it uses from U.S. and Western Europe and claimed to 
have had "no problems" with either U.S. export controls or Russian 
customs importing such instruments. 
 
¶5.  (SBU) Like NT-MDT, ISNCM has produced healthy profits despite 
initial skepticism from RAS leadership.  As EST learned during a 
March 21 visit, twelve years ago Blank was told by RAS management 
that the Academy would no longer pursue research into super-hard 
materials; his funding would be eliminated.  Dr. Boris Saltikov, 
then Minister of Science, believed in Blank's work and recommended 
that he break with the RAS and create his own institute, which 
Saltikov vowed to support.  Blank established the ISNCM under the 
aegis of the Federal Agency for Science and Innovations, more 
commonly known as "Rosnauka."  Since then, Rosnauka has funneled 
millions of dollars into ISNCM's research.  Last year, Rosnauka 
provided one million dollars and ISNCM turned a profit of nine 
million dollars, belying the RAS's earlier disdain for Blank's 
research. 
 
¶6.  (SBU) ISNCM produces lenses for lasers and microscopes and 
materials for semi-conductors created from artificial diamonds. 
With a permanent staff of 160 and between 40 and 50 contractors, 
ISNCM's foreign clients include the Massachusetts Institute of 
 
MOSCOW 00001241  002 OF 003 
 
 
Technology, the National Institute of Standards and Technology and 
Germany's Max Planck Institute.  In 2006, ISNCM sold three 
atomic-force microscopes to U.S. customers; this year, it has 
already sold between 10 and 12.  Most of ISNCM's clients are from 
the U.S., Japan and Europe, while business with China remains 
minimal.   Echoing what others have previously told EST, Blank said 
the Chinese are interested in purchasing ISNCM's technology and 
processes rather than its products.  "It's a very strange 
situation," Blank observed, adding later that China is a "dangerous 
country." 
 
----------- 
Young Minds 
----------- 
 
¶7.  (SBU) As a Professor at the Dolgoprudniy Physical Technical 
Institute, Bykov uses his position to aggressively recruit promising 
young researchers and graduate students on a contract basis, 
essentially replacing the RAS institutes as a training ground.  He 
characterized the students' work as a sort of for-profit internship, 
benefiting both NT-MDT and the students, who supplement their meager 
RAS stipends with a more bountiful salary from the private sector. 
Bykov said that the quality of students is better than ten years 
ago, though not as strong as during the Soviet era.  In terms of 
IPR, the company's policies are clear-cut: NT-MDT owns the patent to 
any product created by a full-time employee.  It shares the patent 
with a scientist if that researcher is based elsewhere and is 
performing part-time contract work with the company. 
 
¶8.  (SBU) ISNCM has also had great success in attracting and 
retaining young scientists.  The Institute's average salary is $950 
a month, with laboratory chiefs earning $2000.  Blank noted that the 
cost of living is less than half of that in Moscow.  In addition, 
ISNCM has received special grants from the Ministry of Finance to 
provide free housing to all of its scientists under the age of 35. 
Since its creation 12 years ago, not a single scientist has left 
ISNCM, according to Blank.  Blank credited ISNCM's cutting edge 
work, state-of-the-art equipment and the opportunity to attend 
international conferences as part of the institute's attraction for 
young scientists.  Indeed, during a tour of the Institute only a 
handful of staff appeared to be older than 35. 
 
---------------------- 
Friends in High Places 
---------------------- 
 
¶9.  (SBU) Meanwhile, NT-MDT has received "not bad support" from 
Government programs, totaling approximately 400 million rubles (over 
$14.5 million) over the last three years, according to Bykov.  Such 
a sum is due to NT-MDT's deep knowledge of nano-materials and the 
firm's "good contacts," he said. (Note: NT-MDT has been approved as 
one of the first resident companies in the Zelenograd Special 
Economic Zone (SEZ), for which the Agency for Management of Special 
Economic Zones has budgeted almost $800 million for infrastructure 
development over the next five years. End note.)  Indeed, Bykov 
referenced his close ties to Dr. Sergey Mazurenko, head of Rosnauka. 
 ISNCM's Blank noted his connections to Mazurenko as well.  Rosnauka 
recently awarded a 12 million dollar grant to ISNCM that will be 
disbursed over a three-year period. 
 
¶10.  (SBU) Bykov also mentioned his "good friend" Ivan Bortnik, the 
head of the Russian Foundation for Assistance to Small Innovative 
Enterprises (FASIE).  Bykov now sits on FASIE juries and judges 
grant applications.  Both Blank and Bykov have close ties to Dr. 
Mikhail Alfimov, who heads the experts committee advising the GOR 
taskforce on nanotech.  Alfimov, with whom Bykov has been friends 
since 1977 when they attended the same institute, has invited Bykov 
to join the expert committee as well.  Bykov judged the GOR program 
to be both ambitious and "hard to implement."  The most promising 
areas for nano's development in Russia include the nano-dispersion 
of drugs, according to Bykov.  NT-MDT is cooperating with 
laboratories under the purview of the Russian Academy of Medical 
Sciences (RAMS) and the Ministry of Health to develop instruments 
for such research. 
 
------------------- 
Why Nano?  Why Now? 
------------------- 
 
¶11.  (SBU) When asked why the GOR is suddenly so interested in 
nanotech's possibilities, Bykov noted that Russia's old production 
 
MOSCOW 00001241  003 OF 003 
 
 
capabilities have literally fallen apart and have lost any tenuous 
connection to market demand that they once might have had. The 
Kremlin is trying to predict what areas present the greatest 
potential for development and revenue.  According to Bykov, nano is 
the natural choice.  "Nanotech will meet modern needs.  Nano is the 
future," he stated.  He critiqued the approach of Dr. Mikhail 
Ananyan, head of competitor Nanoindustriya.  Ananyan, Bykov said, is 
lost in his "personal fantasies" and unable to focus on the market's 
needs.  Whereas Ananyan argues that the Kremlin has tasked the wrong 
Ministry with oversight for the GOR nanotech program, Bykov believes 
that the issue of who heads it is insignificant.  Bykov professed 
not to know Aleksander Khlunov, the Ministry of Education and 
Science (MES) official designated by the Kremlin as the GOR Working 
Group's secretary.  He mentioned NT-MDT's ties to Deputy MES 
Minister Dmitriy Livanov, however, and noted Livanov's February 22 
election as Rector of the Moscow Institute of Steel and Alloys, an 
institute which is a key NT-MDT client.  (Note:  Blank told us that 
Livanov will soon leave the MES to take up his new post as Rector 
full-time.  Blank also said he was scheduled to meet with Khlunov 
later that day.  End note.) 
 
¶12.  (SBU) Like Bykov, Blank believes that the GOR is sincere in its 
interest in supporting nanotech's development.  However, he argued 
that there are few individuals or organizations within Russia that 
have real nano expertise.  "Everyone is new to it," Blank observed. 
GOR funding for nano has only been at "serious levels" for the last 
year or two.  In order to illustrate how the standard bearers of 
Russian science have been more reactive than proactive when it comes 
to nanotech innovation, Blank shared an anecdote about how ISNCM 
obtained a new atomic microscope.  Two years ago, Blank told 
Mazurenko that ISNCM's work was hindered by the lack of this 
microscope.  Mazurenko agreed to fund its procurement, at which 
point RAS institutes and ones affiliated with the Federal Agency for 
Atomic Energy (Rosatom) complained loudly that they also did not 
have such a microscope.  Rubles were allocated and microscopes 
purchased.  The implication is that, absent Blank's activism, the 
RAS and Rosatom institutes would still be without this vital piece 
of equipment. 
 
---------------------- 
Comment:  Academy Who? 
---------------------- 
 
¶13.  (SBU) As both NT-MDT and ISNCM demonstrate, working outside the 
system of RAS institutes need not hinder a venture's progress.  Both 
entities have parlayed government support into profitable -- and 
self-sustaining -- projects, providing useful evidence for MES 
officials in their crusade to focus RAS scientists on meeting market 
demand.  Both have provided the three necessities to their young 
staff: relevant work, the latest equipment, and sufficient financial 
incentives, in the form of livable wages and housing.  Russian 
officials are betting on nanotechnology as the field with the most 
promise for Russian science.  Scientists would do well to bet on the 
NT-MDT/ISNCM paradigm as the model with the best chance for 
success. 
BURNS