EDB mulls $132mn loan for Russian carmaker Avtovaz's planned plant in Kazakhstan

EDB mulls $132mn loan for Russian carmaker Avtovaz's planned plant in Kazakhstan
AvtoVaz sold about 70,000 Lada cars in Kazakhstan in 2015.
By bne IntelliNews March 25, 2016

The Eurasian Development Bank (EDB) could invest $132mn in Avtovaz’s planned car assembly plant in Kazakhstan, EDB’s chief executive Dmitry Pankin said in an interview with RIA Novosti on March 23. Pankin said that the first stage of the $530mn project was estimated at $330mn, of which “$230mn will come from loans, including $132mn is our part”. The rest would be provided by the Development Bank of Kazakhstan, Pankin said.

The news confirms previous reports about Avtovaz’s intensions to establish an assembly plant in Kazakhstan. Earlier in March, a spokesman for Avtovaz said the carmaker would supply knock-down kits to its Kazakh partner, Bipek, instead of selling ready-made cars in Kazakhstan.

Russian car exports to Kazakhstan have become uncompetitive since the beginning of 2016, forcing Avtovaz, lorry-maker Kamaz and Honda to completely halt deliveries. Ford Sollers, Nissan and Renault have also had problems with exporting their cars to Kazakhstan. The reason is the introduction of higher recycling and registration fees from January 1 on cars from fellow Eurasian Economic Union members Russia and Belarus, which is being used to support local production and curb “grey” imports as the weakening of the Russian currency encouraged Kazakhs to buy cars directly in Russia. The recycling duty was set at a basic rate of KZT106,050 (nearly €300) with coefficients ranging from 3 to 23 depending on the vehicle, which has led to an increase in the price of a Russian car by RUB150,000 (€1,920) on average. 

The number of cars brought in to Kazakhstan from Russia by the population bypassing official dealerships, hence dubbed as “grey” imports, surged from 79,332 units in 2014 to 151,085 vehicles in less than first six months of 2015. For comparison, official dealerships sold 163,530 cars in 2014 and 97,446 cars in 2015, of which 32,281 cars and 16,878 cars sold were assembled in Kazakhstan in 2014 and 2015 respectively. AvtoVaz and its Kazakh partner Bipek sold 45,234 and 24,545 Russian-imported and Kazakh-made Lada cars in 2015.

The “grey” car imports from Russia slowed down after Kazakhstan allowed the tenge to float freely in August 2015, letting it depreciate by over 40% against the dollar. The tenge’s depreciation has somewhat equalised the prices of cars sold in Kazakhstan and Russia. The reduction in car imports from Russia to Kazakhstan has also been helped by a Kazakh government programme to issue cheap loans for purchases of Kazakh-made cars with an annual 4% interest rate: the government allocated KZT15bn in 2014 and KZT11bn in 2015 for the programme.

There remain few details about the possible Avtovaz investment in Kazakhstan. The EDB chairman said only that the “project is complicated and we approach to it carefully”. He also mentioned that Avtovaz applied for EDB funding as early as in 2015.

The potential investment by Avtovaz has been welcomed by Andrey Lavrentyev, head of the Association of Kazakh Auto Business (AKAB). “Indeed, it is great and already expected news. Now we will be able to develop the construction base, expand production capacity and increase staff,” he told the Kazakh version of Forbes. Lavrentyev said that car production capacity in Kazakhstan might even double from the current level of 40,000 per year.

Meanwhile, Erik Sagymbayev, president of the Bipek’s car manufacturing company in Oskemen (also spelt as Ust-Kamenogorsk), has promised a sufficient supply of Avtovaz’s Lada models on the Kazakh market. “The assembly of new models on the premises of the local plant will be launched within the current year, so no long-term shortage of Lada cars is expected on the domestic market,” he said.

In addition to Lada cars, Bipek has been assembling Chevrolet, Kia and Skoda cars at its Azia Avto plant in Oskemen since 2002.