Tim Gosling in Moscow -
Russia's modernisation drive is beset by obstacles, not least those blocking the capital that's needed to turn the country's scientific knowledge-base into innovation. The launch of the country's first clean technology fund, arm in arm with one of the most progressive regional governments in the country, is set to help overcome this.
With over 13 years experience and $1bn of assets under management in the country, Wermuth Asset Management knows the Russian regions better than most. However, even they were stunned at how receptive the Republic of Tatarstan government was when they approached them with the idea of establishing Russia's first clean tech fund. "We were very pleasantly surprised by how ready the Tatarstan authorities were to accept such a new idea," says Wermuth CEO Maarten van den Belt. "Everyone knows that it's one of the most progressive regions in Russia, but the speed with which we've been able to set up Tatarstan Clean Tech Fund (TCTF) has been amazing. We'd normally expect it to take six to 12 months, but it's taken just three."
The opportunities for clean tech in Russia are clearly huge. The country's economy is one of the most inefficient in the world in terms of energy use. According to the International Energy Agency, the energy intensity of Russia's GDP is 11 times higher than in Germany; 6 times higher than in Canada; and 4 times higher than in Poland. President Dmitry Medvedev has insisted that the country's goal is to improve the energy efficiency of the economy by 40% over the next 20 years.
However, while clean technology has grown rapidly in developed markets - US company Clean Tech claims the segment accounted for $2.6bn in venture capital, $2.1bn in IPOs and $15.3bn in M&A in just the first quarter of the year - Wermuth claims its TCTF will be the first of its kind in Russia.
With €100m provided by the Tatarstan government, and another €10m from Wermuth, TCTF is just embarking on a campaign to raise a further €90m from investors, which will be used to power innovation both originating in Tatarstan and international technology that can be imported by the region's large industrial operators. "In the regional rankings, Tatarstan is always amongst the top places for attractive investment destinations," points out van den Belt.
Meanwhile, for projects that aim to help industry improve efficiency and environmental impact, the region has plenty of potential targets, including oil company Bashneft, petrochemicals producer Kazanorgintez, truck maker Kamaz and the Kazan Helicopter Plant.
Van den Belt says the fund has several projects earmarked already: development of a renewable jet fuel; next-generation batteries for electric cars; technology to help make oil extraction more environmentally friendly; and a CO2-negative chemical production process. "There are two main potentials for Tatarstan," van den Belt suggests. "Firstly, its oil extraction industry could save ten's of billions of dollars with more efficient operations."
In terms of new technologies, he claims, the mandate of the fund to invest internationally means the region's industry will also gain access to global best practice and development. "The regional government understands that if the fund were just to focus on local innovative development, then there's the danger that they end up reinventing the wheel," he says.
Obstacles to modernisation
At a national level, although Wermuth hasn't spoken with the Russian federal authorities, van den Belt points out that the deal was signed in the presence of Medvedev at a recent summit with German Chancellor Angela Merkel, so the launch of Russia's first clean tech fund is clearly in line with the modernisation agenda coming out of the president's office. "Clean tech will become a much bigger topic as energy prices continue to rise - it's a natural stimulus."
Nevertheless, it may not cheer up the Kremlin to hear that Wermuth felt the country's major financial centres were out of bounds when setting up the fund. Although van den Belt claims that investors have no qualms that the TCTF is outside the country's biggest cities, his justification is that they're impressed with Wermuth's track record in the regions. There aren't that many international investment managers with the same profile, however, which means such projects will need to move to harness the might of Moscow eventually. It's another potential roadblock that the Kremlin's modernisation drive doesn't need.
The obstacles to attracting capital to innovation in Russia remain serious - outside the IT sector anyway - with venture capitalists complaining about a lack of business acumen in innovative projects and a lack of business infrastructure to help launch them commercially. On top of that, the weakness of Russian institutions that are meant to drive the policy and deep-seated corruption do little to help either. "We never thought of trying to set up this fund in Moscow or St Petersburg," says van den Belt. "It can be very difficult in those cities, much more complex. In a place like Tatarstan, the decision-making process is so much simpler - and of course they work that much harder to attract investors."
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