Russia's biggest oil company, LUKoil, plans to make a foray into automobile production by setting up a joint venture with Iranian automaker Parsk Hodro in the Crimea.
The oil giant's local subsidiary, LUKoil-Krym, has signed a memorandum of intent with Parsk Hodro and a Crimean shipyard to produce Nissan Patrol four-wheel-drive vehicles. Parsk Hodro has a license to make the cars and already produces them in Tehran.
According to Alexander Nerush, who manages the project at LUKoil-Krym, the oil company buys the Patrols from the Iranian company and is happy with their quality. The no-frills utility vehicles are useful in various oil projects. That is one of the reasons why LUKoil is getting involved in the unusual venture.
The other reason is that the company hopes the assembly line will be profitable, and "LUKoil is always interested in any profitable project," Nerush said in a telephone interview from LUKoil-Krym's headquarters in Simferopol.
It may also turn out to be cheaper for LUKoil to make Nissans in the Crimea than to import them from Iran. The Zaliv shipyard, located in the port city of Kerch, has its own little port, a customs checkpoint and a licensed customs warehouse, and Parsk Hodro can ship parts directly to the factory, Nerush said.
Now, LUKoil managers and representatives of Zaliv are working out how to install the assembly lines in one of the shipyard's shops.
In the next month, according to Nerush, LUKoil will spend $100,000 on a showroom for the Iranian Nissans at one of its gas stations in the Crimea. The purpose is to assess local demand, he said.
Nerush said his company hopes to find customers among farms and emergency services, and possibly to sell the Patrols to the military and the police.
"This is not a car for an affluent city dweller - it's a workhorse," Nerush said.
The price tag, however, is not going to be small. A locally assembled utility vehicle will cost $22,000 to $32,000, depending on the option package. At first, all the parts will be imported from Iran. Parsk Hodro will ship enough parts to make 10 cars a day, Nerush said. Later, some parts will be produced locally, he added.
Parsk Hodro will own a 25 percent equity stake in the venture. The rest of the shares will be divided among LUKoil, the Crimean government and some Ukrainian investors. LUKoil only plans to put in several hundred thousand dollars, Nerush said.
But that is only a minor part of the oil company's planned investment in the Crimea. LUKoil-Krym, set up in 1997, has a good relationship with the Crimean government. The Russian oil major signed a cooperation agreement with the Ukrainian region last August, pledging to invest $150 million to $200 million in the area by 2000. Last November, LUKoil received 20 land plots in the Crimea on which it is building gas stations.
The LUKoil venture will be the second Russian-Ukrainian automobile JV in the Crimea. GAZ, Russia's biggest producer of light trucks, set up a production unit called KrymAvtoGazService in 1997 to produce Volga cars and Gazelle vans with engines made by Britain's Rover and Japan's Toyota. The company's production capacity is 10,000 cars a year.