Caterpillar may suspend its joint-venture agreement with Uralvagonzavod because of sanctions

According to an article, dated 24 July 2014, in Kommersant.ru, American sanctions are causing Caterpillar to delay progress for a few weeks on its joint-venture agreement with Uralvagonzavod (UVZ) to assemble the SD70ACe locomotive. The deal, which is worth RUB 7 billion, is to include a new facility in Chelyabinsk scheduled to begin production in 2015. The news comes just as Caterpillar is about to deliver two sample locomotives to Russia.

Caterpillar may continue with the joint venture because the locomotives, which run on liquid natural gas, will pull ore and will not serve military purposes. The results depend on the success of Caterpillar’s behind-the-scenes lobbying efforts in Washington.

Andrew Shlenskii, the deputy general director of UVZ, hopes that the deal will not collapse. According to the Kommersant.ru article, however, if the joint venture does not go forward, UVZ will seek a new partner in Southeast Asia, perhaps even the Chinese corporation CNR Corporation Ltd.

The article reported that Kirill Dozmarov, an associate of the ART DE LEX law firm, saw little chance of salvaging the joint venture between Caterpillar and UVZ but expected that UVZ will find another partner. Other alternatives, according to Mr. Dozmarov, may be registering the joint venture in an offshore zone or continuing cooperation through affiliates or subsidiaries that are difficult to trace.

In related news, a release from ITAR-TASS, dated 17 July 2014, speculated that sanctions against Russia may harm not only business relations between Caterpillar and UVZ but also the joint venture between UVZ and Bombardier Inc., located in Canada, to produce light-rail trains.

The Kommersant.ru article by Julia Gallyamova is at //www.kommersant.ru/doc/2531295. The ITAR-TASS press release is at http://en.itar-tass.com/world/741083.