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The Locomotive of Severstaltrans Economics
// Russian Machinists Buy Latvian Factory
Foreign Investments
Kommersant has learned that Severstaltrans has purchased 84.5% of shares in the Latvian Lokomotive factory. Yesterday, its shareholders held a special meeting, electing a new board of directors from Russian company representatives. The new shareholders have already decided to rename the enterprise Daugavpils Lokomotivesremonta Lupnica, its old name, and begin to develop an investment program.
Severstaltrans Group was founded in 1996, and it deals with railroad shipping (ZAO Severstaltrans, OOO Balttransservis, and OOO Sevtenkhnotrans carry more that 5% of Russian freight), sea shipping (OAO Vostochny Port, ZAO Pervy Konteinerny Terminal, ZAO Neva-Metall, OOO NUTEP – more that 19% of port turnover of goods), railroad machinery construction (OAO Kolomensky Zavod). The Group's income in 2003 was $996 million, EBITDA - $130 million.
The Daugavpilssky locomotive repair plant was founded in 1866 as the Riga – Orlovsk railroad workshops. In the beginning of 1990s, the enterprise issued shares and was renamed Lokomotive. The factory carries out major repairs on diesel locomotives, electric trains; diesel-multiple unit train wheel pairs and generators, as well as different parts for them. Sales volume for 2003 exceeded $20 million.
Kommersant has information that Severstal purchased 84.5% of Lokomotive shares from the company's management on July 15. Formally, they are owned by the Estonian branches of the Group, Skinest Project and Spacecom. Yesterday, a special Lokomotive shareholders' meeting was held, where all places on the board of directors were taken by Severstaltrans representatives. Oleg Ossinovsky, Skinest Project president, became chairman of the board. Beside that, shareholders unanimously decided to rename the enterprise Daugavpils Lokomotivesremonta Rupnica (DLR).
Severstaltrans considers the repair market of rolling stock promising. Russian Railraods (RZhD) alone has about 19,660 locomotives, their average wear-out factor is 73.3%. “We are forced into thorough repairs with full modernization of major components in order to prolong locomotives' service life,” RZhD president Gennady Fadeev reported to President Putin in December 2003. In 2003, the company spent 3 billion rubles on locomotive repair (1,200 diesel locomotives and 1,300 electric locomotives). In 2004, it plans to spend 6 billion rubles. It plans to increase this figure by 1.5 times each succeeding year. The total income of Russian locomotive repair plants is more than 10 billion rubles a year.
However, the Kolomenskaya plant, owned by the Group does not provide repair works, therefore, in order to have access to the fast growing market for locomotive repairs, Severstal had to buy a new enterprise. Last year, DLR repaired 356 cars and locomotives (in the middle of the 1980s, the enterprise was fixing about 1000 units of rolling stock a year), 65% of its orders were received from Russia, 15% from Latvia and 5% from Kazakhstan. At the same time, it has been affirmed in the Group that DLR has serious problems with quality and meeting deadlines for repairs. In the first half of the year, the factory had a $1.2 million loss. That is why Severstal experts have started an examination of DLR. “It will take millions of euros' investments to bring the situation to normal and develop it further,” the Group says. “The exact volume of investments needed will be determined with the results of the examination.”
Let us emphasize that most Russian locomotive repair plants today belong to RZhD. That is where the company repairs its rolling stock, so Severstaltrans will encounter difficulties in convincing it to transfer some orders to DLR. However, the Group has a lobbying resource: RF Transportation Minister Igor Levitin entered public service after being Severstaltrans deputy general director.
Renata Yambaeva
All the Article in Russian as of Aug. 05, 2004
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