№ 8 (August 2006)
Russian Venture Fund - A Step in the Right Direction
Pat Davis Szymczak
Russia's leadership this month signaled just how serious it is about diversifying the economy away from commodities. Vladimir Putin's Cabinet pledged to provide seed funding of 15 billion ruble ($560 million) to set up a state venture company to invest in growing new businesses in the high tech sector.
Though targeted across the spectrum of R&D and not just oil and gas, the energy sector will surely benefit from this new "Russian Venture Co." It is no secret that step-changes occurring in today's oil and gas technologies are being driven by advances in digital technology generally, including consumer electronics. Basic iPOD technology is at the core of most automation systems, to cite just one example.
The Russia Venture Company will create eight to 15 venuture funds to be managed by private equity companies, Interfax quoted Economic Development and Trade Minister German Gref as saying. The aim, Gref said, is to "attract more than 30 million rubles ($1.12 billion) to the Russian high-tech sector by the end of 2007."
A Great Idea, Let's Hope it Works
Oil&Gas Eurasia salutes this initiative but hopes the government does more than just throw money at the problem. Russia needs to pump money into R&D, finding venture capital for new business start-ups. At the same time, however, scientists need to be partnered with private business people who can turn good ideas into saleable products and business systems that create new companies and well-paid jobs.
Though government money forms the core of the program, the idea is to attract private VC financing, which usually means that those investing also take an active management role in seedling companies. That's one problem solved.
But even more worrisome is the state of Russia's intellectual property rights enforcement. Without such guarantees, some start-ups simply patent their inventions abroad. On the surface the enforcement of intellectual property rights seems to be not all that complicated. But if it were not a problem, why would Russia allow it to remain in the way of its joining the World Trade Organization (WTO)? Obviously, someone makes money when intellectual property is a free-for-all - but Russia stays forever on the back foot.
Cheap DVD Today, No Job Tomorrow
I guess one question patriotic Muscovites might want to ask themselves is whether the right to buy cheap, pirated CDs and DVDs in the metro is more important than living in a country whose economy is not dictated by changes in commodity prices. Russia right now is drunk on high oil and gas prices. But should those prices fall, the hangover next morning won't be so pleasant. That's probably why the government is taking such an interest.
Mikhail Gamzin, managing partner of the investment fund Russian Technologies, told the English language daily Moscow Times in August: "Without government support, venture capital investment (in technology start-ups) will emerge in 10 years at best." With such investment, the process will be accelerated.
In the oil and gas industry, foreign providers of technology and equipment should not equate this development with any barring of entry to the Russian economy. On the contrary, technology transfer and collaboration will be enhanced by a more active, investment oriented atmosphere. Also, from the perspective of the investment community, it is important to note that start-up companies chase venture capitalists in the west, whereas in Russia, venture capitalists are chasing start-up companies. It's about time the two got together.
If You're Into Tech, Don't Forget SPE in October
Meanwhile, I'd like to take this opportunity to make a pitch for what is certain to be the high point of autumn gatherings between Russian and Western technology specialists in the oil and gas industry - the 2006 SPE Russian Oil&Gas Technical Conference and Exhibition organized by the Society of Petroleum Engineers (SPE). SPE has 70,000 active members in 110 countries and its Moscow chapter is the fastest growing in the world.
To be held October 3-6 at Crocus Expo in Moscow, this keynote SPE event will highlight the best in Russian oil and gas technical advances (and those in the west) in 200 papers which were selected for presentation. In an interview in OGE in July, LUKOIL's chairman, Valery Graifer, who is also general director of RITEK and chairs the executive committee for the SPE conference, pointed out that Russia's influence on oil and gas technologies worldwide is worth noting. The first hydrofrack was done in Russia in the 1950s, the first multilateral well was drilled in Bashkiria, and the inventor of the electric submersible pump, ESP, was a Soviet oilman of Armenian background.
In OGE's opinion, it is the job of professional associations, such as SPE and ROSING (the Russian oil engineering society which is involved in the SPE event), to foster dialogue between scientists and engineers out of which new ideas will emerge.
It is then up to private business and the government to make sure those ideas are put into practice for the good of the industry. The government, meanwhile, has yet another role to play. If Russia is to move forward as a modern economy in the 21st century, it must make sure that the next time its scientists invent the moral equivalent of the ESP, multilateral drilling or fracing, that the company taking the new technology globally is a Russian company.
