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An Interview With The President Of RSC Energia

Nikolai Sevastianov

Moscow, Russia (SPX) Dec 14, 2005
Ambitious space projects such as a mission to Mars often provoke criticisms from skeptics is it really worth spending billions of dollars? Nikolai Sevastianov, who took the helm of Russian space corporation Energia this spring is confident that it won't be long before missions to space become profitable.

In the interview he gave to Vedomosti Sevastianov, he talked about when a Russian cosmonaut may step on the Moon, about the project to develop the new manned spacecraft Clipper, as well as about the corporation's relations with stockholders.

- Energia's stockholders, first and foremost the state, might get a better idea of the price of their stock, if it were listed on the stock market. Do you have any plans to get the stock listed on the stock market?

- In principle, there are such plans, but first we must make the company attractive to investors. I think that we can enter the stock market within five years.

- In your opinin, would it be worthwhile for the state to increase its ownership in Energia from the current 38%, up to a majority ownership, or, perhaps, even up to 100% ownership?

- I believe that the state may get a controlling interest in the company, since Energia is of strategic importance to the state as the prime enterprise in the Russian space industry. This would also be helpful to us, since it would provide additional guarantees of the company's stability to other investors and stockholders.

- The second largest holder of Energia's stock is Investment Company Razvitie, which owns more than 17.25%. What is this company?

- This company is Energia's 100%-owned subsidiary. When, in the late 1990s, agents of foreign companies started to aggressively buy up Energia's shares from its employees, Razvitie bought back some of that stock. This stock is now, in fact, owned by Energia, albeit through its subsidiary.

- Does Razvitie have any plans to further increase its share in Energia?

- For the moment, we do not see any need to invest money in our own stock. What we need to invest in now are new technologies. Our stock, together with the state-owned share, add up to more than the control packet of shares, which permits control of the company in the interests of the state.

- In that case, wouldn't it make sense for the state to buy out Energia's own share?

- This might be one of the options for increasing the state's share. Another option would be to issue additional stock. This is a method for attracting additional capital. But we realize that the state, just as any other investor, will only be willing to buy our stock after we have shown what projects we're going to invest the money in. First of all, we must develop new technologies, which will allow us to enter the space market with new products that satisfy customers' demands, and thus return the money to the investors.

- And who owns the rest of the stock?

- Private investors, the largest of them being Kaskol, a company operating in the aviation market. At stockholders' meetings, Kaskol consolidates a packet of several minority stockholders and, consequently, Kaskol representatives have been on Energia's board of directors for several years now. It is nice to see commercial companies like this one taking an active interest in the space industry.

- Do you have any joint projects with Kaskol?

- Not yet, but we maintain good relations with them. Generally speaking, we try to maintain good and trusting relations with all of our stockholders. After all, in order to be successful in the market, we have to think about attracting investments for the development of new technologies.

- They say in Roskosmos that Energia is in a difficult financial situation. How can this situation be remedied?

- In order to achieve Energia's economic recovery, one must adhere to three principles. Firstly, it is not sufficient to consider new projects from the standpoint of their engineering feasibility, one should also look into whether this project will be interesting and profitable for the user. After all, the amount of received orders depends on it.

Secondly, in spite of the fact that since 1994 Energia has been a stock company, and therefore a commercial company, until recently it was managed using the old methods based on redistribution of money from centralized funds and spending regardless of economic efficiency.

We are now introducing a project-oriented management principle: each project will have its own budget, and each project will have to strive for economic efficiency. Thirdly, we must realize that the world is moving forward and one cannot live forever off the old technologies developed back in 1970s and 1980s. The only new technology that Energia has now is Yamal communications satellite system. Manned projects are being implemented using technologies developed 20 or 30 years ago.

- For the first six months of this year the company suffered net losses of 449 million rubles, while for the first nine months it reported a net profit of 36 million rubles. How did you manage to achieve this?

- We started supervising budget performance and sped up the implementation of the work for customers. We are continuously monitoring the economic efficiency of current projects.

- Are there any plans to start paying out dividends?

- First we've got to achieve the smaller task of getting the company out of the red in 2005. But I believe that in the next year we shall propose paying out dividends, albeit small ones. The most important thing, here, is to set a trend, because I believe that a stock company must pay out dividends.

Generally speaking, we have set a goal of doubling the company's profitability within five years, and to begin paying out dividends which would amount to at least 15% of the face value of the shares.

- What is the proportion of government contracts vs. commercial contracts in Energia's business?

- About fifty-fifty. The government contracts are mostly related to ISS, where we are responsible for construction and operation of the Russian segment, for delivery of crew and cargoes to ISS, as well as for providing support for conducting experiments in space. On the commercial side, we develop Yamal communications satellites and Earth remote sensing satellites and provide launch services. Also, we participate as a contractor in the development of the European logistics spacecraft ATV, and we are gradually entering the commercial manned spacecraft market.

- Why have space tourists turned out to be so few in number?

- Experts estimate that at present there are several hundreds wealthy persons in the world, who could potentially become space tourists. Why don't they fly into space? They are either turned down by physicians, or they don't want to go themselves because of long flight training schedules. Today it takes from year to a year and a half. And normally a person cannot afford to drop out of his or her business life for such a long time. This raises a question of developing a new transportation vehicle, which could lower the cost of manned space flight and reduce the g-loads for the crew. This would immediately increase the commercial space flight market to several hundred tourists.

- Apparently, you are talking about the Clipper spacecraft?

- In developing the Clipper, we're creating a new concept for the manned space vehicle. Although the Soyuz is economically more efficient than the Space Shuttle, its manufacturing costs recur with each new mission. But in the case of the Clipper the descent vehicle is to be reusable and to have glider-like properties. Propulsion and utility modules are to be non-returnable, but reusable, that is, they are to permanently stay within the space station. Clipper will be launched on an upgraded Soyuz launch vehicle and will land as a glider on a runway, which had been originally constructed for Buran.

- How many people will the Clipper carry?

- The Clipper will allow between 500 kg to 1.5 tons of cargo to be delivered and returned from space. It can carry a crew of six: two professional cosmonauts and four non-professionals. We plan to launch the first regular mission in 2012 and to start using it as the main transportation system from 2015 onwards. We want to make Clipper a self-subsidizing project, just as Yamal communications satellites are. This project will allow Russia to keep its dominance in the commercial space flight market.

- What are the most promising areas of space business?

- Manned space flight is, firstly. Not only does it stimulate technological development in our country, but it will soon also start bringing economic returns. Development of satellite communications allows solving the "last mile" problem, which costs a huge amount of money. In the late 1990s, the domestic production of communications satellites almost came to a stand still. But in the early 2000s we made a leap forward, and two major programs, Yamal and Express satellites, are now being implemented. A very important area is the development of Earth remote sensing satellites. Unfortunately, Russia hasn't got any such satellites left. At present, Energia builds a BelKA satellite within the framework of a joint project between Russia and Belarus. There isn't yet enough awareness in Russia of the importance of such satellites, given the country's large size. In our estimate, in five years, the profitability of this segment is going to overtake that of the communications satellites.

- And what are the benefits of manned space flight?

- There must be a permanent human presence in space, and that's the principal purpose behind the construction of the ISS. The space station will address a number of tasks. Firstly, it will be an international spaceport. Secondly, ISS allows basic research to be conducted in space. Space helps us to answer many questions ranging from weather forecasts to power issues. Thirdly, on board ISS we can try out many new technologies, which are either too expensive or outright impossible to experiment with on Earth. Besides, using ISS, it is possible to develop long-term manned space missions, the mission to Mars being one example. ISS can become an industrial facility for constructing an orbital transfer system for lunar missions.

- So, when is Russia going to fly a mission to the Moon?

- We could make a landing as early as 2012-2014 using the Soyuz-type technology. Had this country adopted a program with a budget within $2 billion, we could land on the Moon in three missions. The first would be just a lunar fly-around mission, the second would involve a circumlunar orbit injection with automatic landing of the lunar module, and the third would be the manned landing on the Moon. Today, a lunar mission can only be funded by the state, but no such task has currently been set. As for the industrial transportation system to support regular missions to the Moon and lunar mining operations, we could develop it by as early as 2020.

- When shall we be able to say that the real industrialization of the Moon and Mars has begun?

- We must do this within the lifetime of our generation, firstly because of the limited nature of energy resources. Eventually, we'll have to go beyond our planet for power sources. A good candidate is isotope helium-3 to be used for nuclear power. It is available on the Moon. The earth's reserves of helium-3 are so negligible that their industrial use is absolutely out of the question. According to some estimates, our natural satellite contains no less than 1 million tons of helium-3, which can fully meet the entire Earth's power demand for more than 1000 years.

- And what is the use of Mars?

- A mission to Mars is to be an international project. Mars is a potential new habitat for humans. The problem of closed space, which is what the Earth is for us now, will sooner or later lead to conflicts during civilization's development. The manned space flight is needed to solve this problem. A mission to Mars will also allow the development of advanced technologies which will make it possible to fly long-distance missions through the solar system, to harness the energy resources of Jupiter and Uranus.

Nikolai Sevastianov was born in 1961 in Chelyabinsk. In 1984 he graduated from the Aerodynamics and Space Exploration Department of the Moscow Physical and Technological Institute. In 1984 he took a job at NPO Energia as an engineer and rose through the ranks to the position of a deputy general designer. Since 2000 he has been director general of Gascom joint-stock company. In May 2005 he was elected President of Energia corporation.

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Bremen, Germany (SPX) Dec 14, 2005
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