May 14, 2014, 12:00 AM

The Ukrainian crisis has reached Kaliningrad

The Canadian government demanded that Magna withdraw from the joint project with the Russian Avtotor, says its co-owner Vladimir Shcherbakov. Magna has never heard of this Vladimir Shtanov Maxim Tovkaylo Big politics intervened in the relationship between Avtotor and Magna / I. Zarembo / RIA Novosti

Chairman of the board of directors of Avtotor Vladimir Shcherbakov informed Prime Minister Dmitry Medvedev in Kaliningrad about the recommendation of the Canadian government. According to Shcherbakov, the Austrian division of Magna received a letter from the Canadian government demanding that it terminate the contract with Avtotor. However, the European representative office of the company responded that there was no ban from the EU to work with Avtotor and they intend to continue working “without noise and fuss,” Shcherbakov said.

Avtotor did not ask the Russian Prime Minister for anything; the situation with the letter from the Canadian authorities “was successfully resolved a month ago,” Avtotor Holding President Valery Draganov explained to Vedomosti. Nevertheless, Medvedev instructed Minister of Industry and Trade Denis Manturov to keep the situation under control, and Deputy Prime Minister Arkady Dvorkovich to prepare a letter with possible response measures by the Russian authorities. “We need to look and send some kind of letter,” the prime minister said. According to Medvedev, Russia may reconsider economic ties with Canada, but he did not specify details.

A Magna representative did not comment on Shcherbakov’s statements, explaining that he was not aware of such a recommendation from the Canadian government. A request to the Canadian government remained unanswered.

Avtotor and Magna have a joint venture - Avtotor-Magna in Nizhny Novgorod (Magna has 60%). Magna is also helping Avtotor in creating an automobile cluster in the Kaliningrad region of five full-cycle automobile plants with a capacity of at least 250,000 cars per year (in 2016, the first stage is planned to be commissioned with a capacity of 150,000 units per year), as well as 15 factories for the production automotive components. “We need Magna primarily for its content functions. Because it is difficult to optimally link six different production and management systems <...> I don’t know who else, besides Magna, has practical experience in such work,” Shcherbakov explained in the summer of 2012 in an interview with Vedomosti.

Magna has completed a feasibility study for the project, Draganov said yesterday. The possibility of the company entering the project as an investor is now being discussed, he added. It will be difficult for Avtotor to implement a project of this scale alone, so if Magna leaves, it will have to find a new partner, comments VTB Capital analyst Vladimir Bespalov. If the situation worsens, the company could leave Russia altogether and sell local enterprises, but this is unlikely, he says.

At the company's annual shareholders meeting last week, CEO Don Walker said Magna was closely monitoring the situation in Russia but was not changing plans, according to a Magna spokesman. A source close to the Russian representative office of Magna says that there have been no instructions to reduce supplies to Russian car plants. The company has several factories in the country for the production of automotive components, the bulk of which is shipped to automobile factories built by foreign automakers, he adds. There are no joint ventures with Russian companies other than Avtotor.

Magna did not report the possibility of leaving the Russian market, Draganov noted. “At the moment we have not had any problems with Magna,” a GAZ spokesman said. According to an AvtoVAZ representative, “the plant did not receive any warnings from Magna about the suspension of deliveries.” A representative of PSA Peugeot Citroen (the concern has a plant in Russia, built jointly with Mitsubishi) said that it purchases front and rear bumpers from Magna, the supply volume “is generally unchanged, but is periodically adjusted depending on production plans for specific models.” The plant did not receive any messages about possible changes in the terms of cooperation, he added.