Government leans on private partners over Avtovaz

The Russian government is demanding that Renault and Nissan, who own 25% of the car maker between them, do more to support troubled car maker Avtovaz.

Earlier on Monday the government warned that it might "revise" the stake if the two car giants didn’t do more to help Avtovaz modernize its plants. It was followed by the announcement on Tuesday that If Renault refused to provide Avtovaz with the $580 million of the needed $2.3 billion, its share in the Russian car producer might be reduced to 6 %.

In return the government is willing to meet all Avtovaz’s social obligations including redundancy packages

Russian daily, Kommersant, on Tuesday gave details of Avtovaz’s needs, saying $1.8 billion out of the total $2.3 billion needed will go to pay current debt , with a new investment programme requiring additional $316.7 million and other $933.3 million to compensate for an expected negative cashflow in 2010. The newspaper also says the $2.3 billion figure doesn’t include $400 million necessary for planned workforce cuts.

It adds that a complicating factor for Renault is that it has received €3 billion in state support through the economic crisis and will need to explain assistance provided to a foreign company, when it has problems of its own. Talks between Renault and Avtovaz about getting the Russian carmaker to assemble Renault’s low cost Logan model remain in play, which could represent an estimated €220 million worth of investment in Avtovaz, and would leave Renault needing to find an estimated $272 million to retain its stake.

Troika Dialog and Rostechnology are the other major shareholders. Neither has indicated a firm position on the issue.

On Monday, Russian Prime Minister Vladimir Putin met Renault's Senior Vice President Christian Esteve and Russian stake holders. He assured them that the state will share the burden of restructuring the company, but he wants to see equal effourt from shareholders.

“I'd very much like to see all shareholders contribute on an equal footing. All of them can be assured that the Russian government will do everything it can to uphold the interests of all shareholders.”

The company's already received more than 830 million dollars support from the state this year, but it's done little to turn problems around. It's expected to post losses of more than a billion dollars by the end of 2009.