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Prime Minister Vladimir Putin chairs meeting on Izhavto plant development

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Vladimir Putin’s opening remarks:

Good afternoon, colleagues,

Today we are going to discuss the future of the Izhevsk auto plant. As you all know, the company found itself in a very difficult – even critical – situation last year as a result of the economic downturn, and, more importantly, due to the poor practices of certain shareholders and managers at the plant.

The plant introduced a shorter working week in April 2009. In fact, production had to be halted for a short time, and its cooperation with AvtoVAZ was disrupted. The company’s debt reached 13 billion roubles; the plant’s former management transferred over 6 billion roubles to various offshore affiliates.

To resume production, and, more importantly, to keep people on board, the federal government had to interfere. As you remember, almost all of us present here visited the plant in September and studied the situation together with representatives of Sberbank and AvtoVAZ. Sberbank is currently the plant’s biggest creditor, with 9 billion roubles, isn’t it? (to Sberbank head German Gref).

IzhAvto’s assembly line was restarted, boosting production to 4,000 vehicles in September and November of 2010. This is certainly not enough for stable operation and economic efficiency. But, since this plant is important for the country, and especially for the region in which it is located, it must be bailed out.

It is our task to help the plant survive and expand its production capacity and range. This will certainly require additional efforts, new technologies, and strategic partners.

I can tell you that we have found strong and reliable partners. I remember discussing all these problems with you at the plant and how we agreed that we absolutely must find a solution. We also met with the workers and laid out our plans to them. We vowed that we would do all we could to see those plans formalised and, more importantly, implemented.

I expect Sberbank, AvtoVAZ, and Russian Technologies to reach an agreement and sign a formal document today aimed at the joint implementation of the plant’s long-term modernisation and development project.

According to the business plan we propose, the plant may roll out as many as 126,000 vehicles in 2011 and up to 300,000 by 2014. Renault and Nissan models will account for half of those vehicles, since these companies are showing interest in cooperating with Izhavto. We have discussed this possibility with AvtoVAZ’s partners.

It is of principle importance for us that Izhavto use a high percentage of locally manufactured parts: we discussed setting the figure at 50% – 60% with our partners. This is also in line with the Russian government’s plans to develop the national auto industry. These plans largely depend on the inflow of advanced technology and innovation, as well as increased productivity.

As a have said, a renewed Izhavto is an important employer for the region and for the country as a whole. It will provide local residents with productive and rewarding jobs. While at present the plant employs 2,500 people, that number may reach 7,000.

We will look in greater detail at this business initiative in this meeting and discuss the conditions for raising new loans and settling Izhavto’s current debt. I can understand the lenders’ concerns and why they need government support. We’ll discuss that too.

In conclusion, I would ask the project participants to reach an agreement and complete all procedures as soon as possible. I expect stable production to resume at the plant shortly – all the more so now that the situation is favourable. The Russian auto industry is gaining momentum, and production volumes are growing rapidly. Russian-made car sales grew by more than 70% – almost 75% – this year.

Analysts believe this trend will persist. We will continue programmes to encourage demand in 2011. Over 15 billion roubles will be allocated for these purposes. I am confident that the difficult situation at Izhavto will be resolved. Then, we will no longer have to make emergency improvements, but rather, we will follow our strategic development plan.

 * * *

Sberbank, Russian Technologies state corporation, and AvtoVAZ signed a Memorandum of Understanding after the meeting; Prime Minister Vladimir Putin attended the ceremony.

Today’s event was a timely gift for the employees of Izhavto as well as for the Republic of Tatarstan and the national auto industry as a whole, Mr Putin remarked after the document was signed.

This is not a simple project but a multi-step process that also involves the federal budget. We eventually reached an agreement and worked out an arrangement that will benefit all parties,” he said.