Russia » Economics
Author`s name Michael Simpson

Moscow Authorities Enterprising, But Impatient

Moskvich joint-stock company bankrupted to avoid payment of the Soviet debt
The head of the Moscow government department for science and industrial policy, Yevgeny Panteleyev, has commented upon forthcoming bankruptcy proceedings at Moscow joint-stock company Moskvich, saying that the situation was not that tragic. He also said with certainty, at the end of last year, that the enterprise would start rolling cars off the assembly line. It was reported that a general investor would come to the enterprise. It is already spring, and the Moscow city government has asked the Moscow Arbitration Court to initiate bankruptcy proceedings at the Moskvich automaker (also known as Lenin Komsomol Automobile Plant [AZLK]). It seems that the previously slated plans have failed.

AZLK, where the cheapest Soviet minicar was produced, has already been standing idle for two years. Only its Avtoframos joint enterprise, set up with Renault on the base of AZLK, is operating at present. If Moskvich is declared bankrupt, what happens next will be boring and predictable: Introduction of external control, financial auditing and debt adjustment. Afterward, Panteleyev says, the city government will announce its plan for reviving the carmaker.

Such a plan has been already developed; however, it cannot be realized under the present-day situation at the enterprise. Only a final bankruptcy may save the situation.

At the end of last year, the Moscow authorities actually hoped that the car maker was still active and could be revived. It was at that time that Panteleyev promised that the production line would start up in three to four months. A commission of the Industry and Science Ministry of the Russian Federation inspected Moskvich at the end of 2002. The ministerial experts arrived at the conclusion that "the AZLK enterprise is technologically ready for car production."

In addition, the enterprise at that time actually had a very serious and effective prospective investor. The SOK industrial group, from the Russian city of Samara, was evincing great interest in the re-activation of the Moscow enterprise. It was this very company that had managed to revive the Izhmash carmaker.

However, the plans for Moskvich's revival collapsed, because the federal government (the holder of the enterprise's controlling interest) has been reluctant for several years to hand the enterprise over to control of the Moscow authorities. An order to hand the enterprise over to the authorities of the Russian capital was signed in 1997 by then-President Boris Yeltsin, and the same directive was signed by then-Prime Minister Sergei Kirienko in 1998.

One more problem hampering revival of the AZLK enterprise is its debt to the state budget, the $714 million that the car maker has owed since the Soviet era. The debt is still unsettled. The federal government is ready to hand the enterprise over to the Moscow authorities, but only on condition that the authorities settle the debt the carmaker owes to the state budget. Moscow Mayor Yury Luzhkov has refused to fulfill the condition, which is the reason the joint-stock enterprise is standing idle now.

In fact, to start reviving the bankrupt carmaker, the Moscow government will nevertheless have to enlist the consent of the Russian government and the creditors' committee. Panteleyev seems sure, for some vague reason, that, after the bankruptcy proceedings, the federal authorities will forget about the $714 million debt and give the go-ahead. If it this is true, readjustment of the enterprise may take two-and-a-half to three years, the Moscow administration official believes.

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