Install

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

. Last Updated: 07/27/2016

Combine Giant Fears End to Promised Loans




Everyone, at least in Russia, knows that the country's industry lies in ashes. But the figures still shock: Only a decade ago Russian combine manufacturers produced about 6,800 harvest combines a month.


This February they made just 15.


While in 1990 Russia made 82,848 combines, this number gradually shrank to 13,827 in 1994, to 3,500 in 1996 and to only 1,045 in 1998.


The industry has practically vanished as two major combine manufacturers that used to employ 62,000 people in Rostov and Krasnoyarsk slowly closed their production lines over the past few years for lack of capital.


Of the combines still out in the fields, 60 percent are worn out, meaning farmers need about 280,000 new machines.


Hopes for new equipment sprouted earlier this year when a series of governmental decrees to revive Russian agriculture were prepared and a special governmental program to revive the nation's largest combine manufacturer, Rostselmash, was signed by then Prime Minister Yevgeny Primakov.


But those expectations have withered when President Boris Yeltsin sacked the government a few weeks ago. Rostselmash officials are worried that the shake-up will mean an end to the millions of rubles promised by Primakov's government.


One of the decrees ordered state-owned Sberbank to provide 7 billion in loans to Russian farm machine plants Rostselmash, Volgograd Tractor Works and Kirovsky Works. About 280 million rubles of this loan were scheduled to be funneled to Rostselmash.


Aigun Magomedov, deputy director of the Agroleasing center of Agroprom, an arm of the Agriculture Ministry, said that loan documents are still being drawn up.


But, he added, while "the government has created a real chance to revive the agriculture industry, the way it will be implemented depends on the sources of finance, namely will the Finance Ministry find the cash or not."


That is the worry. With the change of government, old financial decisions became uncertain.


Government spokesmen could not confirm that the loan decrees will be fully implemented.


"[An end to funding] will mean that we will not have any national combine manufacturing left," Yevgeny Sukhorukov, spokesman for Rostselmash, said by telephone from Rostov.


"Before [Gennady] Kulik [former deputy prime minister in charge of agriculture] took the project under his supervision, there were three presidential orders and one Chernomyrdin decree," Sukhorukov said. "But not a single kopek was provided."


Viktor Chernomyrdin was fired as prime minister in March 1998.


Russian farmers are big fans of Rostselmash's giant Don combines, and they too expressed concern that they would not be able to obtain new machines.


"Dons are much better than their predecessors, they even have an air-conditioning system and noise levels are not that high," said Viktor Sergeyev, head of the Farmers Association of the Krasnodar region, which recently received several new Dons from Rostselmash that were manufactured under the Primakov program.


At $900,000 rubles each, they are also about 10 times cheaper than Western combines, Russian experts said.


Sergeyev said the region - which together with the Stavropol, Rostov, Moscow, Nizhny Novgorod, Leningrad and Orel regions received some of the 66 combines made by Rostselmash this year - needs at least another 920 combines.


"We only have 5,048 combines to harvest our crops while we need 6,421," Sergeyev said.


The Moscow region, which received two new Don combines last week, needs at least 1,500 new ones while the 1,400 combines it now has are nearing the end of their operating life, said Nikolai Dmitrenko, who oversees farm machinery for the regional administration.


Both Sergeyev and Dmitrenko said that the handful of combines their huge regions have received from Rostselmash are not even a drop in the sea.


Supply appears to be having a hard time keeping up with demand. Only 204 combines were manufactured in Russia in the first four months of this year, according to the State Statistics Committee. Rostselmash, which used to fill 80 percent of the demand for combines in Russia, produced 85,000 combines a year before perestroika. Now, despite its aging production lines, it still is able to do about 35,000 a year, Sukhorukov said.


Magomedov said 90 million rubles have been wired to Rostselmash so far.


But this is not enough money for Rostselmash, which expects to get at least 1 billion rubles by the end of 1999 under various government decrees, to restart production lines that were closed in recent years in the absence of funds.


The plant, which is hovering on the brink of closure, planned to make 1,700 combines in 1999 to reach the profitability point by the end of the year. About 1,300 combines were planned to be made for lease and 400 for sale.


Last year Rostselmash, the biggest Russian combine producer with a work force of 47,000 at its peak, accumulated about 1 billion rubles in tax arrears and other debts. It owes its remaining 17,000 employees more than 100 million rubles in back wages.


Those debts have been restructured by the Russian government and Kulik convinced the state to reserve 1 billion rubles in budgetary loans and subsidies for the revival of Rostselmash in 1999, according to a special government decree signed in February.


Sukhorukov said the plant had been deeply relying on Primakov's government to attract working capital for the plant.


So far, Rostselmash has received 350 million rubles of the 1 billion promised under the decree, Prime- Tass reported, but plant officials said they were worried that there may be no more funds coming.


"Unfortunately this decree is being fulfilled badly," Sukhorukov said. "Money is getting here irregularly and we are really worried that because of the dismissal of the government we are not going to get the rest of the money."


With the future of Russian funding up in the air, Rostselmash has opened negotiations with U.S. farm machine producer John Deere to establish production lines to manufacture its combines, general director Pavel Pokrovsky was quoted by Prime-Tass as saying. Pokrovsky said that about $100 million in investment is expected.


Sukhorukov said, however, that the production of John Deere combines would only amount to 1.5 percent of total production at Rostselmash.


Nevertheless, he called the project "very significant."


"Working with the world-class manufacturer will help us to raise the quality of our combines," he said. "We still have a lot of problems with the quality of our parts, which are supplied by more than 400 suppliers.


John Deere declined to comment


Meanwhile, Rostselmash has also started to change its company structure: The huge monolith giant is converting into a holding structure that will include five subsidiaries. Officials could not say when the restructuring would be completed.