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FIGURE 3 Structure of budget revenues for the closed city of
Zheleznogorsk.
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economic status stipulating the participation of enterprises in the
socioeconomic development of the city. This special status program was
established to attract additional investments to develop for the
city's economy, promote conversion projects, create new jobs, and
aid in the implementation of social programs.
For the purpose of supporting the city-forming enterprises and saving
jobs, in 1998–1999 the city governing bodies and enterprises
entered into taxation agreements according to which the enterprises
were to be granted tax privileges if they preserved jobs and paid
their current taxes. This became possible, as you know, thanks to
Article 5 of the Russian Federation Law on Closed
Administrative-Territorial Zones, according to which all taxes and
other revenues within these zones go directly into local government
budgets.
Moreover, the establishment of the investment zone has energized the
business environment in the city and attracted new enterprises and
plants. Revenues from investment zone participants made it possible to
establish an internal source of support for investment projects, the
nonbudgetary City Fund, which provides funds on preferential terms to
top-priority investment projects. These have included no small number
of innovation projects carried out by the city-forming enterprises.
For example, during its existence the fund has supported the following
activities:
development of production of bandaging materials (MCC)
creation of a pilot facility for producing biologically
pure substances (MCC)
creation of a unit for producing the SILK plant growth
stimulator (MCC)
construction of a rare-earth metals plant (MCC)
production of new construction materials (vermiculite,
peat blocks) and improvement of construction technologies
(Sibkhimstroi)
production of Versa Module Europa (VME) —standard
modules (NPO PM)
production of power-saving equipment (heat exchangers)
(NPO PM-EnergyDevice)
creation of cable television and radio broadcasting
networks (NPO PM-Development)
The total amount of financing is about 106.2 million rubles, while the
amount of funds allocated for the support of innovation projects
totaled only 8.3 million rubles (or 7.9 percent). Of the remaining
funds, 84.7 percent were allocated to investment projects and 7.4
percent were used as floating assets.
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Program for the Development of the Closed
Administrative-Territorial Zone ofZheleznogorsk: Support for
Conversion and Other Major City Projects
In 2000 the government of the Russian Federation decided to
allocate 475 million rubles in targeted funds to the city budget to
support the Program for the Development of the Closed
Administrative-Territorial Zone of Zheleznogorsk. This was done as
compensation for federal taxes normally paid to the federal
treasury. During debate over this program in Minatom, it was noted
that the Zheleznogorsk program was characterized by its orientation
toward the development of new industries that would ultimately
bring in additional tax revenues.
The funds destined to support the closed city development program
for the year 2000 were allocated according to the following
priorities:
reconstruction of heating supply systems (MCC boilers):
112 million rubles
MCC conversion projects: 70.7 million rubles
city projects aimed at developing and creating new
manufacturing facilities and repairing and
reconstructing the heating and water supply systems:
284.7 million rubles
Among the conversion projects carried out by MCC, I have already
mentioned the following innovation-oriented activities:
creation of a complex of facilities for manufacturing
medical supplies, gel-based bandages and dressings, and
isotopic materials and providing radiation-based
materials processing services
development of a machine-building complex to produce
equipment and spare parts for the aluminum industry
creation of a facility that manufactures automated
security and fire alarm systems and development of
technologies for producing new fire protection
equipment
creation of a plant for manufacturing thermoelectric
materials and modules, developing and improving TEMO
automated assembly technologies, and manufacturing a
wide variety of TEMO-based refrigeration and heating
units
One city project that merits special mention is entitled Creation
and Development of a Request-Response Data Transmission System for
the Needs of Airlines. The project is of national significance and
is intended to integrate Russia into the global Aircraft
Communications and Reporting System (ACARS), which transmits data
on the in-flight status of aircraft. The project is described later
in this paper.
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The Role of International Programs in
Supporting Innovation Activities
The main objective of the city's policy is to provide favorable
conditions for business development and to facilitate the creation
of new enterprises and the expansion of existing ones. It should be
noted that international programs play a substantial role in this
regard.
One such international program is the Nuclear Cities Initiative
(NCI). In September 1998 the Russian Federation and the United
States entered into an intergovernmental agreement on the
implementation of NCI, with the activities carried out under the
program being financed by the American side. The primary goal of
cooperation between Minatom and the U.S. Department of Energy under
the NCI program is to create new jobs in the civilian manufacturing
and services spheres, as well as to develop the necessary
infrastructure and create a climate favorable for business growth
in the closed nuclear cities.
To carry out these tasks, the International Development
Center-Zheleznogorsk (IDC) Fund was established in November 1999.
Its primary tasks are as follows:
render services for conversion-oriented enterprises,
entrepreneurs, and municipal projects
promote the development of the city by assisting in the
preparation of business plans for local enterprises;
provide expert review and analysis of business plans
that will serve as a basis for elaboration of city
development programs. IDC specialists have reviewed all
investment projects included in the city development
program.
provide information and technical support for various
projects and programs (Internet)
arrange educational activities. In 2000–2001, IDC
trained 38 students under the Presidential Program for
the Training of Management Specialists. Those
activities are of great importance, as the city is
encountering a shortage of management specialists.
arrange activities in the area of social programs
coordinate activities within the framework of the
Technopark project
The city administration and the Mining and Chemical Combine have
recently developed a project to create a technological incubator
(the Technopark project) within the framework of the NCI program,
which will make it possible to provide office and industrial space
for MCC innovation projects. The project will facilitate efforts on
a number of important city objectives, including the following:
creation of additional jobs for highly qualified MCC
specialists
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development and improvement of new technologies developed
under MCC's conversion programs
creation of new production enterprises using innovative
technologies to provide innovative products or services or to
commercialize innovative projects
attraction of investments for the establishment of production
facilities
promotion of innovative technologies and products on the
market
The first stage of the Technopark project has already been completed,
including preparation of a package of documents outlining the strategy
and nature of proposed technopark activities, procedures for the
selection of innovative projects to be based on the site, and
technical and economic background information on the feasibility of
the project's operations. The site for the technopark has been
selected, and several MCC pilot innovation projects have been chosen
for initial placement at the site. The next stage will involve the
actual “transplantation” of those projects from MCC along
with the necessary personnel and equipment.
To sum up activities conducted by the city administration in support
of innovation and investment work, I would like to focus your
attention on two important points.
1. Direct financial support from internal and external city
resources. As you have probably noticed, the majority of
investment projects supported by the administration cannot be
considered as innovative. The initial policy of the administration was
aimed at supporting the undertakings that could provide the quickest
returns to the budget in the form of increased tax revenues (as with
the distillery) or that were of great social importance for the city
(for instance, construction of the Red October candy plant, which
provided jobs for about 500 people, mostly women). We should mention
that this policy proved to be correct. The distillery is now
considered one of the main enterprises in the city, as the volume of
tax revenues it produces is comparable with the volume of revenues
derived from the city's traditional main entities, MCC and NPO PM.
I would like to note that the financing of innovation projects entails
a high risk for whether the investments will be recouped or whether
the project itself will ever be carried out, because such projects, as
a rule, involve lengthy payback terms and great difficulties in market
demand evaluation. Therefore, I believe that at a time when free
financial resources are in short supply, the local authorities must
focus mainly on creating a favorable environment for innovation
projects.
2. Creation of a comfortable infrastructure for business
development. I think that this activity is no less important
than direct financial
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support. Experience gained over the course of many projects shows that
without the necessary infrastructure—qualified managers,
information technology, business support systems—many projects
that had seemed promising will not meet expectations. This is
particularly true with regard to innovation projects. After all, their
founders are frequently scientists and highly qualified engineers
without the skills needed to work in rapidly changing market
conditions and create and organize effectively operating businesses.
Hence, the Techopark project has been developed to bring scientists
and qualified managers together.
Concluding the issue of support for innovation activities by the local
authorities, I would like to note that, in my opinion, support for
such projects should be based on well-considered policies of the
federal government. This means not only financing, but also the
creation of favorable conditions for project implementation.
EXPERIENCE OF SMALL INNOVATIVE
ENTERPRISES
I would now like to discuss the experience of small innovative
firms in the city.
Applied Mechanics Telecom Open Joint-Stock
Company: The Successful Spin-off of a Project from a
City-forming Enterprise
In June 1998 Applied Mechanics Telecom (Prima Telecom) was
established as an affiliate of NPO PM, which was established in
September 1992. The founders of the closed joint-stock company
NPO PM are approximately 10,000 employees of the Academician
M.F. Reshetnyov Federal State-owned Unitary Enterprise NPO PM.
From its founding, Prima Telecom has pursued two main areas of
activity: finance and investments and manufacturing. As a
production entity, Prima Telecom specializes in providing
equipment for professional satellite television reception,
manufacturing and supplying antennas, feeder devices, and
equipment for television and radio broadcasting and
communications, and creating and operating cable television
networks that meet all modern requirements.
Since 1994, in order to outfit satellite television reception
stations with state-of-the-art electronic equipment, Prima
Telecom has maintained direct contacts with leading foreign
equipment manufacturers and major domestic suppliers (Universal
Communications Corporation of Moscow, General Satellite
Corporation of St. Petersburg, etc.). This has made it possible
not only to reduce the cost of the equipment but also to provide
high-quality performance, which was confirmed in certification
testing in 1996.
With the growing demand in the regions for capabilities of
broadcasting their own programs to a wider audience, Prima
Telecom used its
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experience to begin designing and creating regional satellite TV
systems. Major deliveries of satellite TV equipment have been made to
Yakutia and Buryatia and to TV centers in Primorye and Khabarovsk
territories. Also, large-diameter TV receiving-transmitting stations
have been installed in the cities of Chita and Khabarovsk. Prima
Telecom has been actively involved in upgrading the Yenisei satellite
TV receiving system in Krasnoyarsk by providing automated satellite
tracking capabilities. The company has also upgraded receiving
stations of the Moscow and Ekran systems for the All-Russia State
Television and Radio Company.
In 1997 Prima Telecom successfully fulfilled a prestigious order for
installing a satellite TV receiving system at the Sosna presidential
residence in Udachny, Krasnoyarsk Territory. During the meeting of the
Russian president with the Japanese prime minister, this system
provided reception of 17 satellite channels as well as a pool feed to
the head receiving station WISI (Germany) that was distributed to 100
subscriber stations in and around the residence.
In 1999 and 2000 the major central television companies began
transmitting their programs via satellite in digital format. At the
request of these companies, Prima Telecom measured the digit signal
level and then, for the first time in the region, began supplying and
servicing equipment for receiving programming in the MPEG-2 DVB-S
digital standard.
The establishment of close contacts with the majority of regional
television transmitting centers in Siberia, the Baikal area, and the
Russian Far East, as well as practically all the newly established
independent broadcasting companies, revealed several problems. The
then-existing radio and television towers were overloaded; antennas
were worn and technically obsolete. There was no possibility of
installing antennas for transmitting new channels, and indeed there
were no antennas available at an acceptable cost with characteristics
that would satisfy the increased demands of customers.
In 1994 Prima Telecom established its own facility to manufacture
tracking filters and transmission antennas for radio and television
broadcasting. The use of tracking filters eliminates the need for
installing costly additional feeders and antennas while broadcasting
in one frequency band and even in adjacent bands, which substantially
cuts the cost of modernizing and expanding broadcasting centers.
Prima Telecom entered the international market in 2000, when it
supplied a $72,000 antenna-feeder complex to the Turkmenistan Radio
and Television Production Association. A new contract for $80,000 has
recently been signed, and there are good prospects for future
cooperation.
To increase production output and cut production time, Prima Telecom
acquired additional facilities in late 1999, which are now being
renovated to provide space for a pilot plant.
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In July 2001 Prima Telecom won an open competition to supply 16
million rubles worth of equipment to be used for projects under the
regional targeted Program for Modernization and Development of Radio
and Television Broadcasting in Krasnoyarsk Territory in
2001–2005.
Having begun creating its own cable television systems in various
cities of Krasnoyarsk Territory in 1998, Prima Telecom is now one of
the largest cable television operators in Siberia. As of August 1,
2001, Prima Telecom and its five affiliates had 29,924 cable
subscribers.
Cross-polar Flight Development
Project
The next enterprise I would like to cover is the Northern Air
Bridge Management Company, an open joint-stock company. This
enterprise has developed a federal-level project for creating a
fundamentally new infrastructure for regular flights along
cross-polar air routes from North America to South and Southeast
Asia by way of the North Pole and Siberia.
Geographically the territory of Russia (and specifically
Krasnoyarsk Territory) is optimally located along the shortest
international air routes, including cross-polar routes from North
America to the countries of southern and southeastern Asia via the
North Pole. Modern equipment and technologies provide for the
necessary safety conditions for regular passenger flights over the
North Pole along the shortest possible routes.
I would like to outline the history of the project and the idea
behind it.
1. The initiative on opening the shortest routes from
North America to Southeast Asia was proclaimed at the
Second International Economic Congress in St. Petersburg
in 1997. In August the Krasnoyarsk-based airline
Sibaviatrans made a demonstration flight along the
following route:
Krasnoyarsk—Dikson—Spitsbergen—Greenland—Montreal—Washington
on the outbound leg and
Washington—Montreal—Edmonton—Cape
Barrow— Khatanga—Krasnoyarsk on the
return. The official delegation on board the flight
included V.M.Zubov, deputy chair of the Federation Council
and governor of Krasnoyarsk Territory, and G.N.Zaitsev,
director of the Russian Federal Aviation Service.
2. August 1997. Talks were held at the headquarters of the
International Civil Aviation Organization (ICAO) in
Montreal. During the negotiations, which included
G.N.Zaitsev, ICAO President Assad Kotaite, and
representatives of Canadian and U.S. airlines, the project
received ICAO approval, and working groups were created to
handle various aspects.
3. October 1997. By decree of Russian President
B.N.Yeltsin, activities associated with creation of the
cross-polar routes were initiated.
4. April 1998. A high-level coordinating group chaired by
the ICAO president held a meeting in Moscow.
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5. June 1998. The first nonstop demonstration flight with
passengers on board was made by Cathay Pacific Airlines on the
New York-Hong Kong route.
6. The Russian government officially opened international
cross-polar routes.
7. 1998–1999. Approximately 60 test flights were made on
cross-polar routes.
The project consists of the following stages:
creation of an aircraft tracking system using shortwave
and ultra-shortwave frequency bands in the interests of
the airlines (creation of the ACARS system)
creation of a space-based communications system using
satellites in highly elliptical orbit (HEO). Russia still
maintains the necessary scientific-technical potential in
this branch of the space industry and is presently the
only country that uses HEO.
creation of navigational, information, service
infrastructure at airports and related facilities to serve
the cross-polar flight traffic and ensure appropriate
distribution of cargo shipments within Russia and abroad
creation of Russian and joint airlines to implement
regularly scheduled flights along cross-polar routes by
aircraft based at Siberian airports
creation of an infrastructure for airline operations
(including modernization and construction of additional
facilities for jet fuel production at refineries in
Angarsk, Achinsk, and Omsk for refueling planes at
Siberian airports)
Notwithstanding that the project is strategically important for Russia
and has received support at all levels, its implementation began only
in late 2000 because of a lack of real financing. The first part of
the project, Creation and Subsequent Operation of the Russian Network
for the Global ACARS System, began with the allocation of 15 million
rubles from the Program for the Development of the Closed
Administrative-Territorial Zone of Zheleznogorsk, which I mentioned
earlier. Northern Air Bridge has recently entered into contracts with
the American company ARINC, which operates the global system.
Activities associated with equipment delivery are currently under way.
Plans call for creating a segment of 8 stations (out of 40) with a
central satellite communications station and a data processing and
control center to be located in Zheleznogorsk. From there, information
will be transmitted to the ARINC data processing center in Annapolis,
Maryland.
I would like to reemphasize that the project is very important for
Russia, since it facilitates the development of international services
for the
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use of airspace. Without the coordinated support of federal
organizations, especially financial support, the project will be
unable to proceed. Russia could then lose this market for aerospace
industry services related to supporting cross-polar flights.
Next, I would like to review the most widespread problems encountered
by the enterprises I have mentioned while carrying out their
innovation projects.
access to investments in the necessary amounts and for the
necessary length of time (for the overwhelming majority of
the innovation projects)
the unstable economic and political situation in Russia
and its regions
the unstable nature of laws and regulations, especially
with regard to taxation, and the frequently changing tax
rates and collection procedures, which make it difficult
to forecast expenses
the extremely unfavorable conditions for obtaining loans
for innovation projects in the Russian banking system:
high interest rates
lack of a system of investment bank lending on a long-term
low-collateral basis
impossible collateral requirements for loans
unattractiveness of Russia and its regions from an investment
standpoint, which makes foreign investors extremely unwilling
to invest in new spheres of activity, especially in the
regions
bureaucratization of the economy and resulting duplication
and confusion regarding the authorities of the federal and
regional executive-branch agencies, as well as the frequent
changes that are made in their organizational structures. The
need to obtain varied and numerous permits causes substantial
difficulties in carrying out high-tech innovation projects,
especially those that are new for Russia. Moreover, existing
laws and regulations on these matters are often conflicting
and ambiguous. Various federal agencies can be assigned the
same authorities.
imperfection (or practical absence) of laws and regulations
that would facilitate prompt and efficient development and
implementation of joint targeted programs at various levels
(federal, regional, interregional, and local, especially in
closed zones)
undeveloped public utility infrastructure (particularly with
regard to communications), especially in Siberia and the
Russian north
In summary I would like to share my thoughts on the steps that must be
taken to create a favorable climate for the development of innovation
projects.
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Support for innovation activity must come primarily from
the federal government at the state policy level. I am
referring to the passage of the federal law and
appropriate regulatory acts regarding innovation
processes. Furthermore, I believe that such a package of
legislation must not be of a merely declaratory character;
it must create a real mechanism for implementing this
policy.
A targeted policy must be pursued to maintain and
stimulate development of innovative technologies and
products developed at city-forming enterprises. These
projects must be developed individually but with the
active participation of the base enterprises, including
the provision of the necessary space, equipment, and
specialists. I believe that this work must be done with
the focused support and incentives of the industry's
ministry (Minatom). As a start, Minatom could propose that
specialists from the city-forming enterprises develop
their ideas and mechanisms by spinning off innovative
projects into separate independent businesses that could
then form the basis for the appropriate legal acts and
targeted programs.
Support is needed from various
structures—technoparks, technology incubators,
science cities—to develop and promote linkages among
innovation projects. Special preferential tax advantages
need to be created for such structures.
My next recommendation concerns sources of financing for
innovation projects. I would suggest creating special
innovation funds that would have rights as investors to
participate in the implementation of projects. This plan
should include a system of incentives and benefits for
such financing organizations. Furthermore, existing
resources could be used, namely the federal Program for
the Development of Closed Administrative-Territorial
Zones. Existing budget legislation places strict limits on
the use of these funds, which makes it impossible to use
them to finance innovation projects with long recoupment
terms and increased risks regarding completion.
In conclusion I would like to note that despite the lack of favorable
conditions for harnessing innovation potential, this process is
beginning to gain momentum, as directly confirmed by the examples I
have cited. A great deal depends on our efforts and on initiatives at
the local level.
Representative terms from entire chapter:
prima telecom
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FIGURE 1 Breakdown of tax revenues for the first half of 2001.
Besides its scientific potential, the city also has other necessary
conditions for the development of innovative businesses, including the
following:
a well-developed system of human resource training. There
are four branch campuses of Krasnoyarsk state higher
educational institutions: the Krasnoyarsk Technical
University, the Siberian Aerospace Academy, the
Krasnoyarsk Pedagogical University, and the Krasnoyarsk
Academy of Nonferrous Metals and Gold. About 1,310
students are currently enrolled at these institutions, 835
of whom attend regular daytime classes. Specialized
secondary educational institutions (trade schools and an
industrial college, with a total of 2,180 students
enrolled) prepare specialists for work in the city-forming
enterprises.
a well-developed financial infrastructure. There are six
lending institutions in the city, which have a great deal
of experience in interacting with the city-forming
enterprises. They provide credit for the ongoing
activities of the enterprises and are implementing
programs to provide credit to their employees.
a good social support structure for citizens. The amount
of public funds spent per citizen is several times higher
here than in neighboring regions. The social support
system is functioning.
acceptable living conditions. The city economy is
maintained at a good level. Work is constantly under way
to repair and upgrade public utilities, beautify the city,
and maintain green spaces. There is a good system for
intra- and intercity freight transport and a
well-developed telephone system. Residents of the city
have never encountered problems with shutdowns of the
local water and power supply systems.
Thus, to my mind, the task of the city administration and the
enterprises is to use this potential and create successful businesses
on the basis of innovative technologies and products.
