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Tech Companies Feel Putin Pinch as Medvedev’s Hub Falters

Photographer: Sasha Mordovets/Getty Images

Russian President Vladimir Putin (R), Prime Minister Dmitry Medvedev attend a wreath laying ceremony at the Tomb of the Unknown Soldier near the Kremlin on May, 8 2013 in Moscow, Russia. Close

Russian President Vladimir Putin (R), Prime Minister Dmitry Medvedev attend a wreath... Read More

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Photographer: Sasha Mordovets/Getty Images

Russian President Vladimir Putin (R), Prime Minister Dmitry Medvedev attend a wreath laying ceremony at the Tomb of the Unknown Soldier near the Kremlin on May, 8 2013 in Moscow, Russia.

When Russian agents stormed the downtown offices of the Skolkovo technology hub being built near Moscow on April 18, a startled Intel Corp. (INTC) executive got caught up in the raid.

Dusty Robbins, head of global programs for the world’s largest chipmaker, was forced to surrender his mobile phone and was only allowed to leave the building escorted by officers after Skolkovo officials appealed to investigators, two people familiar with the matter said. Robbins flew back to the U.S. without holding a planned meeting with Skolkovo’s billionaire president, Viktor Vekselberg, said the people, who asked not to be identified because the information is confidential.

What happened to the 48-year-old American had nothing to do with technology and everything to do with a turf war between backers of Prime Minister Dmitry Medvedev, who made crafting a Russian version of Silicon Valley the cornerstone of his presidency, and allies of President Vladimir Putin who see the premier as a rival and want him out, said Masha Lipman, an analyst at the Moscow Carnegie Center.

“This group of influential people are doing what they can to accelerate a decision to dismiss Medvedev because he has encroached on their interests,” Lipman said.

Putin’s spokesman, Dmitry Peskov, said reports of Skolkovo being targeted for political reasons are “not true.” Medvedev’s spokeswoman, Natalya Timakova, didn’t respond to requests for comment on Skolkovo, nor did Intel’s Robbins.

Microsoft to Siemens

Since announcing the creation of Skolkovo in 2010 as part of a drive to wean the economy off oil and gas, which account for half of state revenue, Medvedev has lured almost $500 million of investment pledges from companies including Intel, Microsoft Corp. (MSFT), Siemens AG (SIE) and Samsung Electronics (005930) Co. He’s also won a $1 billion commitment for Russian technology projects, much of it in Skolkovo, from Cisco Systems Inc. (CSCO), the biggest maker of networking equipment.

The pledges have become increasingly tenuous since Putin wrested back the Kremlin from his former protege last year. Two criminal cases against Skolkovo executives have been opened and Putin has overturned a Medvedev order directing state companies, the biggest of which are run by Putin loyalists, to contribute more than $900 million to the Skoltech institute that the Massachusetts Institute of Technology is helping to establish.

IBM Investment

Three of Medvedev’s ministers were fired or forced out in the past nine months, including Deputy Prime Minister Vladislav Surkov, who was also Medvedev’s point man for Skolkovo. Surkov’s departure in May came just days after he publicly criticized probes into how state funds were being spent on the project.

International Business Machines Corp. (IBM), the world’s largest computer-services provider, wants the government to show that it’s serious about building Skolkovo into a world-class technology park.

“People need to feel that’s it’s backed by the government at large and not just by an individual,” Ian Simpson, a Canadian who’s run IBM’s software center in Russia for more than five years, said in an interview. IBM, based in Armonk, New York, plans to invest almost $100 million in Skolkovo and move its Russian research and development center there by 2015.

Medvedev became the first Russian leader to visit Silicon Valley in June 2010. He toured the offices of Apple Inc. (AAPL), Twitter Inc. and Cisco, where he secured the $1 billion investment pledge. The 47-year-old former corporate lawyer was one of Russia’s first iPad owners and is an active Twitter user.

Technology Aversion

Putin, 60, by contrast, is a former KGB colonel who said at a campaign meeting last year that he doesn’t use social networking sites because he doesn’t have the time. Medvedev was president from 2008 to 2012 while Putin, who was barred from serving a third-straight term, bided his time as prime minister.

Medvedev’s plan for Skolkovo calls for the 400-hectare (1,000-acre) site to have 25,000 permanent residents, including employees and their families, by 2020, as well as schools and rail links to central Moscow. So far $2.6 billion of a planned $4.3 billion in state funding has been approved. Investors still have the option to pull out.

Microsoft is continuing to “monitor the situation” around Skolkovo, the Redmond, Washington-based company said in an e-mailed reply to questions. The world’s biggest software maker said it remains “committed” to the project.

Modernization Milestone

German industrial group Siemens plans to carry out R&D activities at Skolkovo in energy efficiency, biomedicine, IT solutions and hardware development.

The Munich-based company firmly believes in the tech hub as “an important milestone on the path of the country’s modernization,” Dietrich Moeller, head of Siemens in Russia and Central Asia, said by e-mail.

Global companies are attracted to Skolkovo because it offers an “alignment with a flagship project and a safe harbor where they can locate their R&D and receive protection for intellectual property,” Conor Lenihan, a former Irish science minister hired to promote the venture, said in an interview.

The first public warning that Skolkovo was in trouble came in December, when Putin rejected Medvedev’s plan to waive state building permits for the project. A week later, Putin told reporters that Skolkovo wasn’t the only research center that deserved state support and spurned Medvedev’s proposal to host the Group of Eight summit at Skolkovo in 2014.

Independent ‘Anathema’

“The idea of the project itself is anathema to the Russian leadership because of its special status and independence,” said Gleb Pavlovsky, a former Kremlin adviser who heads the Moscow-based Effective Policy Foundation. “Without Medvedev there to protect it, it can’t survive.”

In February, a top law enforcement agency, the Investigative Committee, said it was looking into the possible misuse of $106 million of state funds for Skolkovo that had been deposited in a bank controlled by Vekselberg. The committee also said it had opened a criminal case into two Skolkovo managers, including finance chief Kirill Lugovtsev, over the alleged theft of $720,000. Both Vekselberg and Lugovtsev declined to comment.

On April 19, a day after the raid, investigators opened a second case, accusing a vice president, Alexei Beltyukov, of making $750,000 of illegal payments to an opposition lawmaker, Ilya Ponomarev, for a series of lectures about Skolkovo. Beltyukov, 42, a graduate of France’s INSEAD business school who worked at McKinsey & Co. for five years, declined to discuss the case because it hasn’t been resolved.

‘Great Loss’

“It doesn’t make sense to damage the project itself,” Beltyukov said by phone. “It would be a great loss for the country if it was shut or wound down.”

Ponomarev said he spent more than 90 percent of the $750,000 in question on travel expenses and hiring experts, including from the New York Academy of Sciences, to help him with the lectures. Ponomarev helped organize protests against Putin in 2011 and 2012 that were the largest he has faced since coming to power in 2000.

“The case is politically motivated, linked to the conflict between the Putin and Medvedev camps,” Ponomarev said.

Putin’s chief of staff, Sergei Ivanov, met with Skolkovo investors at the annual St. Petersburg Economic Forum last month in a bid to reassure them that the Kremlin supports the project. Days later, the Vedomosti newspaper reported that Putin had rescinded Medvedev’s funding directive to state companies for the Skoltech school.

For now, Intel and other investors say they’re committed to Skolkovo, though the Russians need to do a better job of meeting their needs for the project to succeed.

Intel is aware of “these fluctuations” and is monitoring the situation, Chuck Mulloy, a spokesman at Santa Clara, California-based Intel, said in an e-mail. Authorities need to “clearly define” the way forward for Skolkovo, he said.

To contact the reporters on this story: Henry Meyer in Moscow at hmeyer4@bloomberg.net; Irina Reznik in Moscow at ireznik@bloomberg.net; Jason Corcoran in Moscow at jcorcoran13@bloomberg.net

To contact the editor responsible for this story: Balazs Penz at bpenz@bloomberg.net

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