In space, no one can hear Russia’s auditors scream

By bne IntelliNews May 29, 2015

Nick Allen in Berlin -


There’s no bad without good, as the silver-lining philosophy goes in Russian. Meaning the uproar around the May 27 detention of FIFA officials in Switzerland and Russia’s hasty defence of its hosting of the 2018 World Cup has diverted attention away from recent launch disasters and a cosmic level of “misspending” uncovered in the national space programme.

A May audit of the Roscosmos federal space agency revealed financial violations of RUB92bn ($1.75bn) in 2014, capping a wave of corruption scandals and technical blunders that has prompted a government shake-up in the space sector.

“At first, I didn't believe my inspectors because the value of the financial violations identified [at Roscosmos] was RUB92bn,” Audit Chamber head Tatyana Golikova told a press briefing on May 22. “First I reviewed the budget implementation for 2013, and then in 2014, and the number of violations had increased dramatically,” added the official, whose report named the space sector as a main source of financial irregularities among all the federal organisations checked.

Three days later, Deputy Prime Minister Dmitry Rogozin said that for the sake of efficiency and oversight the agency will be reorganised by the year’s end into a corporation called… Roscosmos.

The agency “still has staff at its design bases standing by drawing boards with pencils in their hands” when rockets should be being built with digital models, said Rogozin, who blamed a series of crashes and failures on moral failure of the leadership of the space programme.

Meanwhile, the deputy premier, who is President Vladimir Putin’s chief enforcer in the supervision of aerospace work, reportedly threatened to “rip off the heads” of anyone else caught thieving funds during construction of the Vostochny spaceport in the far eastern Amur region. With an estimated cost of $3bn, the huge complex is essential to making Russia independent in its launching capacity instead of leasing Soviet-era launch facilities in neighbouring Kazakhstan.

Still a space giant

The recent scandals and failures do not change the fact that Russia is a giant of manned and unmanned space exploration. As the space race grew as a substitute for direct military conflict with the West from the 1950s, the Soviet Union beat the US to a succession of milestones, from first satellite to first human in space, first space walk, first orbital docking of two space craft, first probe landed on Venus and many more. All of this was rather unfairly eclipsed in the annals of space exploration by Nasa’s human Moon landing in 1969 (although Soviet pennants had been remotely dropped on the Moon’s surface ten years earlier).

The space race yielded to cooperation between the rivals after the 1991 Soviet collapse, with numerous joint missions and cooperation in building and operating the $150bn International Space Station (ISS). But as relations with the US nose-dived in 2014 with the Ukraine crisis, Russia is preparing to go its own way again. Putin recently ordered the construction of a separate all-Russian space station, and in a few years the Russians plan to simply undock their sections of the ISS and fly off on a new independent space mission. Russia and China are also discussing making their space equipment compatible to facilitate joint missions in the future.

Moscow “is ready to work hand in hand” with Beijing on manned space projects, joint deep space exploration and joint exploration of the solar system, the Moon and Mars, Rogozin said during a visit to China last year.

Out come the skeletons

But the skeletons toppling out of the sector’s closet have slowed its impetus and invited intense scrutiny by the authorities. The catalyst was the corruption scandals that erupted last year at Vostochny, where two successive heads of construction were fired as it emerged that more than RUB1.8bn ($36mn) had vanished.

In April, the Prosecutor General's office said it had opened 20 criminal cases and prosecuted 228 officials at Vostochny, which Putin has said must be completed by December. The president even gave orders to allocate an extra $1bn to speed up the work during a visit last September. But the project is now lagging so much that the government hired hundreds of students to help finish the construction.

When completed, the complex will accommodate 30,000 people, have an airport, train station, hotels, parks, schools, a business centre and a site for training cosmonauts and space tourists.

At the moment, Russia launches most of its rockets for the civil programme from the Baikonur space centre that it leases from Kazakhstan. Military satellite launches are performed at the northern Plesetsk space centre near Arkhangelsk, which is now being enlarged to perform manned civilian launches.

What goes up…

Problems in the sector were highlighted by two failed launches in a month, one of a commercial communications satellite for Mexico on May 18, the other of an unmanned Progress cargo ship for the ISS, which had to be burned up in the atmosphere on May 7 when it couldn’t dock with the orbiter.

Russia currently has two main heavy launch vehicles: the Proton rocket, used for satellites, and the Soyuz rocket, which brings crews and supplies to the ISS. The Proton, long considered reliable, has now crashed seven times in five years, including the May failure. It and the Progress space craft (which is launched on a Soyuz) are suspended from service pending investigations, paralysing a programme that had generally been regarded as unstoppable, whatever the problems. “You can compare it to the fall of the Roman Empire,” space industry analyst Pavel Luzin told the Moscow Times in a notably pessimistic appraisal. “The Russian space industry is collapsing.”

For now, the space chiefs may win some time as Roscosmos is allowed to reorganise and reforms are made. “It will take maybe another two to three years to intensively technically re-equip the rocket and space industry,” Rogozin said on the Rossia-1 federal television channel.

In its new, corporate identity, Roscosmos will be responsible for setting mission goals and also managing wages for space workers and modernising production facilities. But Russia cannot afford any more launch disasters. The deputy premier has warned that the country risks losing its 40% share of the global commercial satellite launch market to new private firms emerging from the US, such as the California-based SpaceX, if the problems are not fixed with reforms.

Elusive profit margin

Recent events and frayed tempers have also reignited an old discussion about whether space exploration can actually be profitable. Russia’s lower house of parliament seems to think so, if not right away.

The federal space programme for 2016-2025 and the use of newly-created space technologies in the social, economic and research spheres will yield economic benefits of RUB1.58 trillion (around $32bn), according to aerospace experts under the parliament’s industry committee. Federal space financing to 2025 under the revised budget draft stands at RUB2 trillion ($40bn), having been cut from RUB2.8 trillion as the recession caused by Western sanctions and low oil prices hit the federal coffers.

Broken down by items, TASS reported the projected revenues as: RUB945bn from space communication and television and radio broadcasting; RUB122bn from meteorology; RUB99bn from exploration for natural resources; RUB51bn from geodesy; RUB87bn from ice cap monitoring;  RUB53bn from forest fire monitoring, and another RUB222bn from “dual purpose complexes”, or systems and equipment that have both military and civil application. Space rocket industry enterprises will also contribute RUB452bn from commercial space project revenues, experts calculated.

Russia occupies slightly more than 1% of the global market of commercial space services, Oleg Frolov, a member of Russia’s Military Industrial Commission, recently told a conference at the Duma. “All in all, the world market of space services stands at around $300bn today and 2% of that amount is occupied by launch services,” Frolov said. “We occupy about 60% of that niche,” he claimed, far exceeding earlier estimations of 40%, including by Rogozin.

Investment opportunities in the sector remain limited, though, because it is regarded as being of strategic importance and the state retains control and ownership over most key elements, including the main rocket builders.

However, some private enterprises sprang up around the periphery of the industry and made a name for themselves. Dauria Aerospace and Sputnix are two Russian companies that built, launched and operated commercial satellites for gathering agricultural, construction and natural disaster response data.

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