ROSNANO losses are not critical

The audit by the Accounts Chamber of the Russian Federation1 at ROSNANO OJSC led to a great deal of articles and news releases in mass media about alleged large-scale violations revealed during the audit.

In pursuit of sensation and yet another effort to compromise the management of ROSNANO OJSC, as well as challenge the need for having an institute designed to finance nanotechnologies in Russia, criticism was focused basically towards potential investment-related losses, as well as high wages of the state-owned company's personnel.

Regarding the potential losses, on the one hand, ROSNANO OJSC jointly with co-investors financed 100 different projects (93 production-related projects and seven financial infrastructure projects) at more than Rb 263bn (ROSNANO OJSC alone spent Rb 133bn) as of the beginning of April 2013. It should be noted that sales volumes of nanotechnological products totaled Rb 11.3bn in 2011 against Rb 23.4bn in 2012, though state-owned Rosnanotech's strategy contains no sale scheduled for the period until 2012, whereas Rb 10bn was expected in 2012. Thus, the target was outstripped 2.3 times in 2012, let alone the previous periods. Total sales volume amounted to Rb 35.79bn since 2009, thereby outstripping the target more than 3.5 times. In addition, ROSNANO OJSC successfully supported three projects whose internal rate of return amounted to more than 27% on everage2.


On the other hand, ROSNANO OJSC refused to implement 41 previously approved projects. No losses were incurred because of the refusal (save for expertise costs) though.


 It is the amount of scheduled losses from unsuccessful investments, Rb 21.843bn, or 16.42% of the total investment portfolio, that is the basic argument of those who oppose ROSNANO's policy. However, it should be noted that this is not the amount of already incurred losses, the company reserved it for certain projects3.


To this end, the following should be emphasized. First, any market movement may lead to an opposite situation, in which case ROSNANO OJSC would incur no losses whatsoever.


Second, a share of unsuccessful investments is quite small for a high risk-bearing innovative activity even under a scenario of adverse developments. For example, Innovation Investment Fund in Australia which finances small and medium-sized innovative enterprises, estimates its maximum losses of up to 25% of total investments.


Third, to compensate for potential losses, the return from other investments of ROSNANO OJSC must be at least 19.6%, which is a feasible value.

In general, irrespective of the fact that the situation with ROSNANO's investment portfolio raises concerns about government's money spending, the amount of losses is not critical, provided that the portfolio target has been achieved in general.

Eryomkin V.A. - a researcher of Innovation Economy Department

1 Though the audit results were disclosed on April 26, most of the information provided in the Accounts Chamber's audit report was available on ROSNANO's website and financial statements 3-2/

2 А.Б. Чубайс. Законодательное обеспечение функционирования институтов развития Российской Федерации. РОСНАНО: итоги первой пятилетки. 15.04.2013. г. Москва. (Chubais A.B. Legal support to development institutions of the Russian Federation. ROSNANO: the first five-year results. 15.04.2013. Moscow)

3 Net losses of the company fell from Rb 4.2bn to Rb 2.5bn (2012) against the previous accounting period (2011). The losses also can be covered (basically) by cutting too high wages (corporate wages and social contributions reached Rb 7bn in 2012, or Rb 593,000 per employee).