The Commercial Space Sector and Russia’s Space Strategy

Even as the commercial space sector grows quickly in the United States as well as in Europe, China, Japan, India and other countries, Russia continues to lack a robust approach to advancing in this area. The Russian government has for years been declaring an interest in developing space startups (NTI News, July 30, 2019; Roscosmos, January 9, 2021). The main reason here is political: space affairs are important for Russian society raised on heroic stories of Sputnik and Yuri Gagarin, and they signal the ostensible strength of Russia as a political and economic actor on the world stage. Successes in outer space generate national pride and feelings of greatness; whereas failures cast doubt on the capacity of Russia’s political economy system (see EDM, July 15).

Briefly speaking, the national space program provides inter alia legitimacy for the Russian authorities. And in the face of growing pressure from the private space sector—particularly US companies like SpaceX, Planet Labs, Rocket Labs, Blue Origin, Axiom and many others—Russia’s state-run corporation Roscosmos as well as the government are trying to demonstrate their competence and pay greater attention to domestic private space activity. Another reason for this renewed focus is economic: Moscow is interested in sharing the burden of space-related spending among Russian firms from other economic sectors to balance the governmental space budget while still maintaining Russia’s role as one of the world’s leading space powers.

Both the current environment of Russia’s political and economic institutions as well as Moscow’s confrontational foreign policy make the prospects for jump-starting any meaningful (or profitable) domestic private space business almost impossible, however. US and other international private space-sector actors are creating significant pressure on Russia’s space strategy. Moscow needs to more fully take this reality into consideration when developing strategic plans in this sphere.

Russia’s first attempt at creating a friendly environment for private space companies dates back to the early 2010s with the establishment of the Skolkovo innovation center, just outside Moscow. The most prominent startup based there was Dauria Aerospace, established by Russian multi-millionaire Mikhail Kokorich. The company developed and launched three small commercial satellites in 2014 and even secured a contract to produce two satellites for Roscosmos (then still a federal space agency, but transformed into a state-owned corporation in 2015). Those business successes came despite criminal charges and a trail launched against the firm (Izvestia, March 6, 2015). However, after the failed launch of these satellites in 2017, Roscosmos filed a lawsuit against Dauria Aerospace (RIA Novosti, December 23, 2018), Kokorich emigrated to the US, and the company was finally shut down. Other Russian space startups have suffered from years of anemic investments and adverse legal frameworks that prevent any sustainable business strategy or achieving any significant results in advanced technologies and manufacturing. At the same time, the Russian authorities have sought to exploit the current “space rush” to gain access to necessary (but sanctioned) aerospace and electronic components from abroad. For example, Cosmos Complect, another Skolokovo startup, was found to be engaging in illegal imports of such components from the United States during 2014–2020 (Justice.gov, December 18, 2020).

Another illustrative example of the role for private space businesses in Russia involves the corporation S7 Group, which paid $100 million to RSC Energia, a subsidiary of Roscosmos, for the bankrupt Sea Launch project in 2017. The company S7 “Space” was originally established to restore that project, which aims to launch rockets from buoyant platforms in equatorial Pacific waters (S7space.ru, accessed October 20, 2021). But in reality, the deal mostly looked like a vehicle for helping solve the long-running financial troubles of the state-owned space company in return for protection of the airline business (S7 “Airlines”) and easing of administrative pressure on the corporate group. Moreover, because of the 2020 COVID-19 pandemic crisis, S7 “Space” only had enough resources to carry out the conservation of the Sea Launch platform in Vladivostok; the Russian authorities agreed to establish a joint venture between S7 “Space” and the state-owned firms Roscosmos and Rosatom for maintenance and modernization of the platform (RBC, August 24, 2020; RIA Novosti, December 14, 2020). In other words, the investments of a private Russian company were funneled into the activities of state-owned industry.

The ongoing crisis in Russia’s state-owned space industry, driven by problems of long-term planning (Kremlin.ru, September 29, 2021), raises questions of how to cut costs related to space activities, especially in civil satellite services. Considering the limited financial resource base, obstructive institutional and business environment, relatively small volume of the domestic space market, and Russia’s foreign policy being detrimental to significant international space-sector cooperation (prospects for collaboration with China notwithstanding—see EDM, March 31), few options exist.

The Russian government’s latest approach to developing commercial space activity that is crystallizing today is based on engaging leading Russian enterprises that already enjoy massive financial flows into entering the space sector. This policy is demonstrated by, for example, the creation of Gazprom Space Systems (GSS), a subsidiary of Russia’s natural gas and oil major Gazprom. GSS already operates several commercial communication satellites and began construction of a satellite assembly plant in 2020. The planned capacity of this plant will be 100 small satellites annually (Gazprom-spacesystems.ru, April 19), with key electronic components imported from abroad. That will allow Russia to circumvent some sanctions (at least as long as GSS itself does not end up on an international sanctions list) and to share the financial burden of space-related activities among a number of Russian state-owned giants, like Sberbank, Rosneft and Rosatom, or even some large-scale private high-technology corporations, like Yandex or Sistema.

Such collaboration should allow Roscosmos to develop a suite of modern communications (including the “internet of things”), Earth-observation and, perhaps, commercial navigation satellite constellations in low-Earth orbit—that is, Russian-produced counterparts to SpaceX’s Starlink, OneWeb and Amazon’s Kuiper satellites (TASS, June 5). It is not clear exactly which companies will share the burden of space activity with Roscosmos, but 800 billion rubles (almost $11 billion) of the planned project’s cost implies that the partners will, by necessity, have to be some of Russia’s largest companies.

What all this means is that the Russian government’s strategy for bolstering private space activity will, by design, avoid any significant changes to domestic political and economic institutions—even though this is detrimental to the long-term development of Russia’s private space sector. But for Moscow, the more important goal is to neutralize the challenges stemming from Western sanctions and Russia’s exclusion from global commercial ties in the area space operations.