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    Severstal-Avto, Fiat set to produce diesel engines in Russia

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    Severstal-Avto (RTS: SVAV) and Italy's Fiat Powertrain Technologies signed Thursday a Memorandum of Intentions (MOI) to form a joint venture to manufacture F1A diesel engines in Russia, the Russian automaker said in a news release.

    NIZHNY-NOVGOROD, December 21 (RIA Novosti) - Severstal-Avto (RTS: SVAV) and Italy's Fiat Powertrain Technologies signed Thursday a Memorandum of Intentions (MOI) to form a joint venture to manufacture F1A diesel engines in Russia, the Russian automaker said in a news release.

    Vadim Shvetsov, director general of Severstal-Avto, a subsidiary of Severstal [RTS: CHMF], said about $100 million will be invested in the joint venture, without specifying investment figures for each party.

    The venture, to be based at the Zavolzhsky Motor Plant, a Severstal-Avto asset near the city of Nizhny-Novgorod on the Volga River, will manufacture 90,000 engines annually, with production set to start in early 2008.

    Severstal-avto is Fiat's Russian partner since late 2005, when the Russian automaker signed a licensing agreement with Fiat Auto for the production of Fiat cars in Russia. Under the deal, Severstal will also import and sell Fiats in Russia.

    Production of Fiat's Albea sedan was launched in early December at a plant owned by Severstal, and production of the Doblo, Ducato and Linea models will start in January, November and December of 2007, respectively, bringing the total number of Fiat cars produced annually in Russia to 175,000, according to Ezio Barra, Fiat Auto deputy CEO.

    The Russia-produced F1As are primarily designed for the Fiat Duñato to be assembled at a Tatarstan-based plant in Yelabuga, about 500 miles southeast of Moscow, with an annual design capacity of 75,000 cars. Fiat plans to sell the Ducato mainly overseas.

    Severstal-Avto and Fiat have obligations as residents of the special economic zone in Alabuga to raise the level of Russian components in production of cars to 50% in seven to eight years. The current localization level is 30%.

    A number of foreign companies, including giants such as America's Ford Motor Company, Germany's Volkswagen and Japan's Toyota, have either already opened plants in Russia in the last few years or are planning to.

    The Economic Development and Trade Ministry said earlier that up to 900,000 foreign cars a year will be assembled in Russia by 2010, and that investment will hit $2 billion.

    With foreign automakers starting to produce moderately priced vehicles - the Renault Logan for example retails at around a no-frills $8,000 - ordinary Russians are increasingly taking them out of the showroom in preference to similarly priced domestic models, which are not always seen as being wholly reliable.

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