Get the latest updates as we post them — right on your browser

. Last Updated: 07/27/2016

GM Moves Toward Russian Partnership

After a year of tough negotiations, the Yelabuga car factory in Tatarstan may have finally found a foreign partner to organize the production of a small car for the Russian market, factory and government officials said Tuesday.

The factory management will meet with representatives of the U.S.-based General Motors corporation Friday to sign a protocol of intent, a first step toward signing a contract, said Vadim Lomtev, head of the Economics Ministry's engineering department.

The car factory, located 900 kilometers southeast of Moscow in the Russian republic of Tatarstan and known by the acronym YELAZ, has been under construction since 1984. The Soviet government never completed it due to a chronic lack of funds.

YELAZ has been involved for months in an active search for a foreign company that would participate in the $1.2 billion to $1.5 billion project to complete the factory and start producing cars.

Viktor Tsitko, the plant's technical director, said that YELAZ has not altogether given up on a deal with the South Korean company Daewoo, under discussion since last year, and that management was also considering proposals from the Italian carmaker Fiat and the French company Renault.

However, Lomtev said General Motors has made YELAZ the first "decent" offer.

He dismissed Daewoo's earlier proposal as unacceptable.

"They demanded exploitative terms," Lomtev said, adding that Daewoo asked the Russian government to restrict the import of cars of the same class as the ones the Korean company planned to produce in Yelabuga.

"We are simply not in the business of supporting the Korean auto industry," Lomtev said. He added that Daewoo also demanded tax breaks that made the deal unprofitable for the Russian side.

Konstantin Park, a Moscow representative of Daewoo, said his office was not planning any deal with YELAZ. But a Fiat representative, who did not wish to be named, said his company had held some preliminary meetings to discuss a possible partnership with the Tatarstan carmaker and that he thought more discussions would follow.

Interfax reported last week that Tatarstan's Prime Minister Mukhammat Sabirov said he thought the GM deal was likely to come through.

GM Moscow representative Victor Smirnov said the negotiations with YELAZ were still in their preliminary stages. According to Smirnov, the U.S. company is currently conducting a feasibility study.

The GM representative said that his company was interested in assembling cars in Russia and that talks are currently going on with AutoVAZ and AZLK, two of the biggest Russian automakers.

Tsitko of YELAZ said that according to the GM proposal, during the first stage of the project the factory would assemble cars from parts provided by GM. In the second stage, some parts would be made at former defense factories in Russia, and during the final stage the cars would be made entirely from Russian-produced parts.

Tsitko could not say how fast the project would develop or what type of car the plant would manufacture, but he said YELAZ would produce 50,000 cars at the first stage and eventually expand production to 300,000 cars a year.

According to Tsitko, GM or any other foreign partner will in any case not be the principal investor in YELAZ. Most of the finance for the car plant will be provided by YELAZinvest, a consortium formed by the governments of a number of former Soviet republics which plan to purchase the Yelabuga cars.

The consortium, formed last year and currently inactive, will start investing in YELAZ as soon as the deal with a foreign partner is clinched. Russia will put in 50 percent of the project costs with Tatarstan providing half of that amount. Ukraine, Belarus, Kazakhstan and Uzbekistan hold 10 percent stakes in the consortium and Moldova has committed itself to provide 5 percent of the costs.

Tsitko said that the foreign partner will need to provide some capital, but expertise and spare parts would be the foreign company's main contributions to the project.

Even if YELAZ signs a deal with GM or any other company, the agreement will have to be approved by a Russian government commission.

-- Tatyana Zuyeva contributed to this article.