8 Oct 2019 10:54

Russian ministry drops idea of differentiating industrial subsidies in favor of upping burden on imports - paper

MOSCOW. Oct 8 (Interfax) - Russia's Industry and Trade Ministry has abandoned the idea of differentiating compensation for the vehicle scrapping fee for automakers with production facilities in the country that a number of the biggest companies lobbied for, national daily Kommersant reported on Tuesday, citing sources.

A working group with input from industry representatives that was set up on orders from Deputy Prime Minister Dmitry Kozak at the end of September was supposed to establish the parameters of differentiation by October 15. Industry players expected this issue to actually be discussed, but the Industry Ministry said at the working group meetings that there will not be differentiation and that full compensation would be guaranteed to all who signed special investment contracts (SPIC), the paper's sources said.

The SPIC were signed specifically to gain access to compensation for the scrapping fee, without which production in Russia is unprofitable, but later, on the initiative of Renault, it was proposed to distribute compensation based on localization commitments.

Now another idea is being considered in the baseline scenario, to increase the burden on imports and use this extra revenue to stimulate localization, the paper said. Representatives of the Industry Ministry and Kaliningrad automaker Avtotor proposed increasing the barrier for imports - restrictions in the form of duties and the scrapping fee - to 40%-45% for cars from the current level of about 30%. Avtotor made the proposal in order to prevent BMW from leaving the Kaliningrad plant and switching to imports, the paper's industry sources suspect.

The idea of raising the scrapping fee by 70%-120%, proposed by the Industry Ministry, has been discussed for about a month already. The fee will total 54 billion rubles from imports and 204.2 billion rubles from local production in 2019, but the latter is compensated. The draft budget for 2020 already factors in the proposed increase, with revenues expected to grow by 150.2 billion rubles in 2020 and 48 billion rubles in 2021. The government expects to collect 77.3 billion rubles on imported vehicles in 2020.

The paper reported one source as saying that the Industry Ministry probably dropped the idea of differentiation because it was tasked with the impossible job of reaching an agreement on this with an industry in which there are diametrically opposed positions on the issue. There is a greater chance of reaching an agreement on increasing the burden on imports, the source said. But most market players are opposed to this option as well, the paper said.

The Industry Ministry declined to comment.