Uralvagonzavod eyes partnership with Caterpillar

Uralvagonzavod (UVZ), Russia’s largest designer and manufacturer of various types of railway cars, has chosen Caterpillar as its partner to develop and produce engines, road-construction equipment and a freight car service center.

Oleg Sienko, General Director of UVZ, said the details of the partnership are still being worked out, but adding that it could include a joint venture.“As an option for partnership relations a joint venture could be created. A specially created team is working on other co-operation schemes. We are on the stage of negotiations for establishment of the partnership on legal grounds, there is no clear answer whether it is joint venture or licensed production. Investments in joint projects are not fully defined.”The partnership will include 13 billion roubles of investment into the UVZ ‘Uraltrack’ facility in Chelyabinsk, which UVZ will finance and Caterpillar share and apply its production technology. Caterpillar produces a wide range of road construction equipment from tractors to dump trucks and diesel engines and power equipment, and it has an existing production facility at Tosno, in the Leningrad region. The companies will focus on production of diesel engines up to 4 thousand horsepower, which are installed on ships, locomotives, mine trucks and other heavy road construction equipment.  Semen Mlodik, General Director of the Uraltrack Machine Tool Plant in Chelyabinsk says he hopes production will start in the coming year.  “We hope to start the production in 2012, targeting 70-80% of localization level. Given the high costs of equipment we do not project the production to be more than 1000 engines per year. The cost per one unit of high power engine can reach $100.000. In parallel with high power engines production we will be working on production of our own engines of 100 to 2.500 horsepower.”Uraltrack is producing two models of medium power pipe-laying equipment and expects to expand its range using Caterpillar technology.   Vladimir Bespalov from VTB Capital says the companies will benefit from their partnership. “The Russian market of high power engines production is very small assuming that it is a niche product with strong demand UVZ and Caterpillar can count on stable contracts” and adding “The growth of pipeline construction underpins high demand for pipe-laying equipment.” Bespalov says the Russian company can benefit form partnership with world leader but it will still require direct investment from the Russian side“UVZ and Uraltrack will certainly gain advantages from Caterpillar brand and image. But I doubt Caterpillar will outlay funds to modernize the facility likewise with AvtoVaz and Renault. It will rather provide technology and equipment than money”