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. Last Updated: 07/27/2016

Renault Initials ZiL Truck Agreement

The Moscow municipal government and French automaker Renault initialed an agreement Monday to build trucks at the ZiL auto plant in Moscow, the second project undertaken by the two sides in recent months.

Renault said it was committing $100 million to the project to assemble heavy Renault trucks and produce Renault engines in Russia.

Under the accord, signed by Renault president Patrick Faure, Moscow Mayor Yury Luzhkov and ZiL chief Valery Nosov, Renault will start assembling Premium and Kerax trucks in Russia in 2000.

The companies are looking to build 2,000 vehicles a year as well as annually produce 50,000 to 60,000 Renault engines with mostly Russian components.

ZiL, an ailing, unrestructured Soviet enterprise that builds trucks and limousines, is controlled by the Moscow city government.

Renault said it would now conduct a feasibility study and expected a deal to be signed by year's end.

The project with Renault follows ZiL's ill-fated joint venture with Volvo of Sweden.

The project, which was mulled over last year, never got off the ground because the Swedish giant wanted to penetrate the Russian market without giving much in return, Nosov said after the signing ceremony.

The company was keen to assemble its trucks in Russia but not to share the technology, Nosov said.

Volvo said the project fell through because the company did not get tax breaks from the city government, without which it deemed the venture unprofitable.

Unlike Volvo, Renault will help produce engines in Russia, Nosov said.

"I am letting [Renault] into the Russian market, so I need the know-how, I need the engine," he said.

Engines produced at ZiL will contain Russian parts at the initial stages and their share will eventually be brought to at least 80 percent, Nosov said.

Renault was won over by guarantees from the city of Moscow and the fact that the components could be produced locally, Faure said.

"The local industries will enjoy the protection of the government," he said. "And the mayor of Moscow will be a power in the coming years" no matter who has the job.

Renault reached the agreement with ZiL just two months after launching production of Megane cars using space provided at the Moskvich plant in Moscow. Some 2,000 cars are expected to be produced this year. Moskvich is also controlled by the Moscow city government.

Renault's plan to enter the Russian market with trucks looks promising, since demand for heavy trucks is far from satisfied, analysts said.

However, Alexei Vasilyev, an analyst with Skate financial information agency, was skeptical about the plan to equip ZiL light trucks with engines made partially from foreign parts.

ZiL's truck Bychok already has a higher price tag than its rival Gazelle, produced by GAZ, and the plant cannot afford to make the truck any more expensive, Vasilyev said.