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. Last Updated: 07/27/2016

Russian Technologies Blocks VEB Loan to Engine Maker

VedomostiWorkers looking at an engine at the Avtodizel plant in the Yaroslavl region.
Russian Technologies, a minority shareholder in engine maker Avtodizel, on Monday blocked a move to let the factory take a 5.8 billion ruble ($190 million) loan from Vneshekonombank to start production of a new engine for heavy-duty commercial trucks.  

A shareholders meeting at the Yaroslavl-based company, which is part of Oleg Deripaska's GAZ Group, was supposed to approve a 10-year loan from the state development bank to develop production of the new engine, the 4.43-to-6.45-liter YaMZ-530.

But the head of Russian Technologies' office in the Yaroslavl region, Yury Shagin, voted against the measure, GAZ Group deputy chief Yelena Matveyeva told Vedomosti. She said he did not explain his reason, saying only that before the vote he received a verbal order to vote against the loan with the state corporation's 31 percent stake in the company.

GAZ Group has spent several years developing the YaMZ-530 along with the Austrian company AVL. The company began building a plant to produce the new engine in 2008 and also ordered equipment for the facility, which would have an initial capacity of 40,000 to 50,000 engines per year.

The company approached VEB for financing for the project in October 2008, initially asking for a 10 billion ruble loan. In December 2008, Prime Minister Vladimir Putin said during a trip to Yaroslavl that the project needed to be supported.

But consideration of the loan application ran into obstacles: First VEB requested that GAZ approve the project with its partner, Russian Technologies, and then it tried to decide between the Avtodizel project and another, between truck maker KamAZ and U.S.-based Cummins.

After some wavering, Russian Technologies approved the Avtodizel project, sources in the state corporation and GAZ have said. In October, VEB's supervisory board, chaired by Putin, approved the 5.8 billion ruble loan for Avtodizel.

"It looks like at Russian Technologies the right hand doesn't know what the left one is doing, and this decision is being made in direct opposition to the decision of VEB's supervisory board," Matveyeva said. "It's surprising that a state corporation created to promote innovative technologies is, itself, slowing their development."

Spokespeople declined to comment on why Russian Technologies suddenly changed its position. Both GAZ and Russian Technologies were to offer their stakes in Avtodizel as collateral, and the state corporation is not entirely convinced of the project's prospects, a source close to Russian Technologies said.

The source said the corporation was willing to discuss the situation with GAZ.

But VTB Capital analyst Yelena Sakhnova said she thought there was another reason. Russian Technologies, which owns 37 percent of KamAZ, does not want to turn Deripaska's GAZ into a competitor for the KamAZ project, which got under way late last month.

The joint venture between KamAZ and the U.S.-based Cummins is producing an engine of 1.4 to 3 liters. The venture has an annual capacity of 25,000 units, which the partners would like to increase to 40,000. VEB has approved a 1.2 billion ruble loan for the project, but the venture has not yet decided whether to take it, a KamAZ spokesperson said.

Matveyeva, of GAZ, said she hoped that Russian Technologies would reconsider its vote and approve the loan at a new shareholders meeting, which GAZ will call.

A VEB spokesman declined comment. Putin's press secretary, Dmitry Peskov, said he was sure that the state corporation was not planning to put the factory's investment plan in danger.

He said that from what he had heard, the terms for attracting the loan contradicted Russian Technologies' working rules.