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Russia: Tatarstan Finds Ways To Save Its Truck Factory

Prague, 5 November 1997 (RFE/RL) - The Russian Republic of Tatarstan last week severed its contract with an American company that had promised, but failed, to finance reconstruction of the region's largest industrial plant. The move paves the way for a new share issue for the KamAZ truck factory, which its directors hope will save the plant from bankruptcy.

Located on the Kama river in Naberezhnie Chelny, the second largest city in Tatarstan, the KamAZ factory was the largest producer of heavy trucks in the Soviet Union. In 1991, it manufactured 131,000 trucks. But production plummeted following the collapse of the Soviet Union and the implementation of economic reform throughout Russia.

In 1993 a fire destroyed the entire engine-producing workshop, leaving KamAZ unable to continue production and saddled with millions of dollars of debts. The government of Tatarstan turned to foreign experts, and in 1994 signed a contract with the Wall Street firm Kohlberg Kravis Roberts and Co.(KKR), whereby the firm undertook to raise a total of $3.5 billion to fund the rebuilding. The contract also provided for the creation of a joint venture named KIMCO to manage the plant's operations. In return, the US firm was to receive 32 percent of KamAZ's stock shares at reduced price in June 1998.

But in the fall of 1996, Russian First Deputy Prime Minister Anatoly Chubais threatened to declare KamAZ bankrupt if it failed to pay back taxes (about $24 million ). In order to save the plant from bankruptcy, Tatarstan's President Mintimer Shaimiev agreed that the Tatarstan government would assume responsibility for the plant's debt (about $6 billion) in return for 40 percent of its stock.

In June, 1997, Japan's Kanematsu corporation advanced a $150 million credit to rebuild the main conveyor. This would enable KamAZ to triple its current production of engines (25,000 a year), and meet European standards.

One month later, Tatarstan's First Deputy Prime Minister Ravil Muratov was named chairman of the KamAZ board of directors. One of Muratov's first acts was to suspend the contract with KKR on the grounds that the company had not fulfilled its obligations under the 1994 agreement.

At that juncture KKR said it had raised hundreds (700) of millions of dollars in loans for KamAZ. But in early August, Muratov told the KamAZ board that instead of providing investment, KKR had advanced costly credits. Moreover, under the 1994 contract signed with KKR KamAZ has to pay a high annual consulting fee to KKR.

In early October, the government of Tatarstan created the KamAZ trade-financial company, which is intended to purchase raw materials and spare parts for KamAZ and to help support the plant's links with customers. The government also allocated KamAZ a budget loan to pay suppliers of raw materials and to pay off wage arrears. But this was not enough to prevent workers being laid off for one week in October.

In late October, Muratov traveled to the U. S. for talks with KKR that culminated in the signing a memorandum whereby the management of KamAZ reverts from KIMCO to the plant's board.

Speaking two days ago at a news conference in Kazan, Muratov said he is optimistic that KamAZ can be saved from bankruptcy. He said that the new share issue planned for this year will facilitate the restructuring of the plant's debts, as major creditors will become major shareholders. Muratov also said that the plant's financial crisis was at least partly the result of the misuse and misappropriation of funds by a number of top and medium level managers, who have been arrested following an investigation by the public prosecutor.