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Putin Spearheads Innovation Effort

Prime Minister Vladimir Putin said Wednesday that the Cabinet's high-tech commission would take on broad new powers to enforce its modernization agenda, significantly raising the body's profile on his first day as its chairman.

"The scale of the goals to be achieved requires an expansion of its authority," Putin said while opening the meeting. The body's decisions will now be binding on other state agencies, he said.

The commission — created by President Dmitry Medvedev — had been headed by Deputy Prime Minister Sergei Ivanov since its inception last year. Vladislav Surkov, the Kremlin's first deputy chief of staff, said in an interview last month that "consolidated power is the instrument of modernization" and that Putin would be taking the commission's helm.

On Wednesday, the prime minister said the government would spend more than a tenth of its budget on science and innovation this year, with funding for major scientific projects to be carried out on a competitive basis.

"We have assigned about 1.1 trillion rubles [$36.8 billion], or more than 10 percent of the federal budget, for fundamental and applied sciences, higher education, high-tech medicine and specialized federal programs," he said.

The government spent 300 billion rubles more on these goals in 2009 than in the previous year he said.

Weaning the country off its dependence on commodity exports by encouraging a knowledge-based, high-tech economy has been the hallmark issue of Medvedev's presidency, with "modernization" and "innovation" becoming buzzwords on the lips of businessman and officials alike.

Putin's decision to spearhead the efforts at the Cabinet level may help them gain traction, but it also gives him a leading role in something that had exclusively been Medvedev's agenda. The two members of the ruling tandem, as they've come to be known, have said that only one of them will run for president in 2012.

Nearly two years into Medvedev's term and after billions of dollars in spending to promote innovation, the economy has made only gradual steps forward, however.

The INSEAD business school on Wednesday released a global innovation ranking, which evaluates the innovation-readiness of 132 countries. Russia came in 64th in the index, between Kazakhstan and Oman, though up from 68th a year earlier.

"Over the centuries Russia produced a number of scientists and inventors and was among the leaders in science and technology. … But it has slipped from its position as a leader," the report said, criticizing Russia for exporting mostly energy and arms and mistreating foreign investors.

Putin indicated that the measures to promote high-tech businesses would include changes in the way the state buys products and services. Officials must start giving preference to innovative options when they choose winners of tenders, he suggested.

Vneshekonombank, the state development lender, will probably be ordered to spend a certain amount of its funds on high-tech ventures, Putin said.

VEB had primarily invested in infrastructure before the financial crisis in 2008, when it also took on responsibilities as a bailout bank. Another state corporation, Rusnano, was established to stimulate investment in nanotechnology.

Economic Development Minister Elvira Nabiullina said after the meeting that the federal and regional budgets have a combined 4 trillion rubles ($134 billion) annually in spending to buy products and services — even a portion of which could create significant demand for high-tech businesses.

The ministry is drafting legislative amendments that would give agencies legal grounds to pick goods based on the latest technology instead of cheaper but older counterparts, she said.

"It's rather the quality than the price parameters that will play a role," she said.

The government is still discussing how big of a quota VEB will be given, she said.

"We would like VEB to be more vigorous in searching for innovative projects," she said. "It's important to find the best projects that don't exist anywhere else in the world."

Onexim Group chief Mikhail Prokhorov briefed the commission on his project to build hybrid cars at a new facility in cooperation with Yarovit Motors. He said the plan, which he has already discussed with Putin, won general approval from the commission.

The plant, to be built in AvtoVAZ's hometown of Tolyatti and have the capacity to churn out 10,000 cars annually, will start production in mid-2012, he said. Construction will begin in January, he said.

Investment in the project will reach 150 million euros ($204 million) before the first car rolls off the conveyor line, Prokhorov said, adding that the venture was hoping to recoup the investment in four to five years.

"Our country has a chance to compete in this area," he told reporters after the Cabinet meeting. "It's an absolutely rational business project."

Earlier in the day, a government official brushed off Prokhorov's project as "science fiction." He was speaking about the government's strategy to develop the car industry at a pre-Cabinet briefing on condition of anonymity, which is standard policy for such occasions.

Putin said a key focus of the commission would be finding long-term investment in scientific sectors that would not rely on budget funding.

"Of course, we'll tend to increase expenses on development in the future, but this will not have the required effect if we don't learn to make use of existing resources in a more organized and competent way," he said.

Budget expenses should be distributed on a competitive basis, including spending on the projects in fundamental science, he said.

"We should avoid financing scientific institutions on the basis of faceless cost sheets," Putin said. "We can't afford to maintain 'brands' that have nothing but a famous name or maybe even a glorious past. We can't pay for research that is not up-to-date, that duplicates other work and, in some cases, that is literally pulled from dusty closets. This is wrong. This is flawed, costly and inefficient."

Russia has about 4,000 scientific institutions and six academies of sciences, Putin added, warning that quantity does not always mean quality.

He singled out the Kurchatov Institute, a top nuclear research center in Moscow, as the sort of institution that the government would be counting on to lead the way forward.

"The Kurchatov Institute serves as a model to fine-tune all aspects of establishing national research centers," he said.

It will become a new kind of pilot center under the government's project to build major scientific centers, uniting with the St. Petersburg Konstantinov Institute of Nuclear Physics, the Institute of High Energies in Protvino, outside Moscow and the Institute of Theoretical and Experimental Physics in the Moscow district of Cheryomushki.

The Kurchatov Institute will receive 2.5 billion rubles from the budget this year and another 10 billion rubles in the next three years under the project, Putin said in January.

The government will spend a total of 50 billion rubles on the creation of research centers, Putin said Wednesday, and another 90 billion to support the leading universities.

Companies pursuing innovation will also get the government's support that will be granted through tax discounts, Putin said, tasking the Finance and Economic Development ministries with monitoring the efficiency of the existing tax breaks and preparing suggestions on new ways to support innovative sectors.

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