Fiat abandons plans to build Nizhny Novgorod plant

Italy's auto giant Fiat has given up plans to construct a car plant in the central Russian city of Nizhny Novgorod and is considering the Caucasus or St. Petersburg as alternative production sites, Kommersant business daily reported on Monday. The paper quoted market sources saying Russia's top lender Sberbank, Fiat's potential creditor, has proposed reviving the Derways plant plant in the Karachayevo-Cherkessia republic in the north Caucasus. Fiat wants to build the plant in St. Petersburg, where Ford, Toyota, General Motors, and Nissan have already placed their Russian operations. Fiat abandoned the Nizhny Novgorod plan after failing to agree with Russian auto maker GAZ Group, which has contracts from Volkswagen and GM. Fiat signed a $1 billion agreement in late June with Russia's Economic Development Ministry to produce 120,000 cars a year and construct an engine plant in the country. "Fiat is considering various sites, including the north-western region," Dmitry Levchenko, head of special economic zones and project finance department at the Economic Development Ministry, told the paper. Sberbank, GAZ Group and Fiat declined to comment. One market source told Kommersant that Sberbank insisted on Derways because the bank's investment subsidiary Sberbank Capital owns a 51 percent share in the plant, received in exchange for a 1 billion ruble loan. "This is one of Sberbank's major conditions for providing financing," the source said.