AO AvtoVAZ of Russia, the biggest carmaker in Eastern Europe, bid yesterday for a controlling stake in Zaporizhya Aluminium Plant (ZAP) of Ukraine, the first counter-punch against aggressive moves into the auto business this year by metals groups in the former Soviet Union.

In April, it bought AO Pavlovskiy Avtobus (PAZ), the largest busmaker in the ex-USSR. Last week, Sibal declared plans to takeover OAO Gorkovsky Avtomobilny Zavod (GAZ), maker of GAZelle commercial vehicles and Volga cars. AO Zavolzhsky Motorny Zavod (ZMZ), the main engine supplier of GAZ and PAZ, likely would be forged into this mini-empire.

Meanwhile, OAO Severstal, Russia's biggest integrated steel producer, bought in October over 20% of AOOT Ulyanovsky Avtomobilny Zavod (UAZ), a maker of off-road vehicles and vans, southeast of Nizhny Novgorod.

Severstal and Sibal, flush with cash from a boom in metals prices, have been looking to diversify their profiles. Auto companies in Russia have seemed obvious targets, being attractive (poor and undervalued) plus convenient (key buyers of aluminium and steel).

AvtoVAZ, producer of Lada vehicles, seeks to reverse the trend by vying for a 68% stake in ZAP for sale by the Ukrainian state, owner of 93.1% of the aluminium concern, according to Troika Dialog, a brokerage in Moscow. (The rest of ZAP shares is held 5% by managers, 1.9% by staff and workers.)

The automaker submitted its offer with affiliate Arlan Holding. Vneshekonombank, AvtoVAZ's advisor on the deal, would provide loans for the purchase, perhaps $55m, Troika Dialog said.

ZAP sells roughly 30% of its output to AvtoVAZ - 35,000 tonnes worth an estimated $60m a year, according to the brokerage. The automaker said it would boost this percent to 50% as ZAP's owner, valuing its aluminium needs over the next five years at $380m.

AvtoVAZ has been keen to control its raw-material costs, especially aluminium prices, which have quadrupled since Russia's economy collapsed in August 1998, the company said earlier.

Carmakers in Russia have struggled to offset soaring costs of supplies with price hikes on new vehicles because consumer buying power there remains depressed.

The deadline to bid for ZAP was November 20, and a privatisation commission in Kiev is scheduled to meet November 26 to start evaluating offers. (Sibal, rumoured earlier to be eyeing ZAP, apparently did not bid, after deeming its capacity to smelt aluminium sufficient, observers said.)

ZAP, the sole producer of primary aluminium in Ukraine, has installed capacity to smelt 100,000 tonnes a year. It generated 112,400 tonnes in 1999, a 5.5% rise on 1998. The target for 2000 is 115,000 tonnes.

Contact Ryan James Tutak, associate editor of for Eastern Europe:
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