Russian tire maker Amtel Group has ambitious plans for expanding its business, including a new tire plant in Russia and potentially buying into tire makers in Iran and/or Indonesia.

Amtel-which has controlling interest in former state-owned tire factories in Kirov, Krasnoyarsk and Voronezh, Russia, and Belaya Tserkov, Ukraine-has budgeted $50 million in investments this year, but that could double in the coming months if the group proceeds with tentative plans for a new tire plant, according to Sudhir Gupta, Amtel president and majority owner.

This spending is on top of $100 million Amtel has invested in its tire activities in the last three years and could lay the foundation for annual output of 20 million tires, Mr. Gupta said in a telephone interview from Amtel's Moscow headquarters.

Amtel's tire businesses generated about $400 million in sales last year, and this could grow to as much as $480 million this year, Mr. Gupta said.

In spending a total of $200 million, ``we are creating modern production facilities with the added capacity of 8 million passenger car and van tires,'' he said.

Amtel's first tire project, in 2002, was a new production facility at its plant in Voronezh, ``capable of manufacturing 2.4 million high-quality tires a year,'' he said. Similar equipment was installed in 2003 at Amtel's tire factory in Kirov, adding annual capacity for 2.5 million branded car and van tires.

``We are also in the process of receiving equipment from Western suppliers for an additional 2 million tires in Kirov-Phase-2,'' Mr. Gupta said. The next phase is the greenfield plant project, necessitated by a change in business plans after a planned partnership with Finland's Nokian Tyres P.L.C. fell through amid much public bickering.

Originally, Amtel's 2002 joint venture agreement with Nokian included plans to build a plant in Russia to make Nokian-brand tires, with Nokian as the majority investor.

``Now we are working on our independent greenfield project, with a capacity of 3 million tires,'' he said. ``Amtel will start implementing this project in 2004, and the factory will be up and running by mid 2006.''

Mr. Gupta said Amtel would put the new plant in either Moscow or Voronezh, adding, ``I prefer Voronezh.'' He expects a decision to be made soon and thinks the plant will go up very quickly. A plant in Moscow would take six months longer to build than one in Voronezh, but the tax incentives in Moscow may be greater, he added.

Separately, Nokian has decided to go its own way in Russia, announcing plans earlier this year to build a $65 million greenfield tire plant near St. Petersburg. Nokian aims to start production in 2005, so construction must begin in 2004, the firm said.

Strategic plan in 2001

Amtel started its modernization early in 2001 with ``a goal of creating the most modern production capacity for tires in Russia and the Confederation of Independent States.''

``At the moment we are halfway through,'' Mr. Gupta said. ``Much remains to be done in distribution and marketing, but we have already accomplished most of our finance and production objectives.''

Segmentation of the Russian tire market into a broader spread of tire products is already happening, he said. Amtel has been investing for three years in new technology and is aiming for a large chunk of what it calls B-segment tires. These are not the premium, top-of the-range tires, which sell for about $55 to $60 a unit and have a demand of only about 100,000 a year. B-segment tires are the next rung down-branded tires for imported cars-selling at about $35 apiece.

``In 2003 we manufactured and sold 750,000 branded tires...for the middle market segment,'' Mr. Gupta said. ``Average prices of our tires are 30-percent higher than prices for other locally manufactured tires.

``In 2004, we plan to manufacture and sell 2.2 million, and in 2005 over 5 million tires in the medium price range. We also plan to start manufacturing and selling 200,000 to 300,000 premium tires in 2004.''

Demand for winter tires-a premium-priced product-is expected to climb as the Russian parliament, debating ways to reduce the nation's accident rates, is looking at tougher insurance policies that likely would make the use of winter tires compulsory. This ``will really drive up use of winter tires'' and segmentation of the tire market, Mr. Gupta said.

If winter tire regulations are passed, ``our business will instantaneously grow by 20-25 percent, as happened in Scandinavia,'' he added.

All of Amtel's investment has been in passenger car and light truck tires-``the most bullish and profitable sector'' where Amtel is ``far ahead of the competition,'' Mr. Gupta claimed.

Amtel, through its Amtel Holdings Holland B.V. unit, has approached the European Bank for Reconstruction and Development about long-term financing for its projects.

``Cooperation with the EBRD will bring significant value to Amtel through the provision of long-term financing for plant modernization, as well as through further development of our environmental programs,'' said Alexei Gurion, Amtel's chief financial officer, in a statement on the EBRD finance project.

Amtel's domestic competitors have concentrated more on the bus and heavy truck tire market, Mr. Gupta said, pointing out that Russian demand for truck tires is growing more slowly than that for passenger car and van tires. Lower growth in business traffic compared to personal consumption is a major factor here.

Other Russian tire makers, as well as Group Michelin, are working on all-steel radial truck tires for the Russian market, Mr. Gupta said. Truckers tend to drive their tires hard for 35,000-40,000 miles then dump them, making steel-belted radials somewhat of a luxury. A retreading system and culture has to be developed to make it worthwhile producing such tires in Russia, he said.

Cheaper manufacturer

Discussing the $45 million investment in Kirov, Mr. Gupta said: ``Our Western competitors would have spent at least twice that, despite the fact that Amtel is buying the best available equipment from Krupp, Steelastic, ZF, VMI, Berstorff and other top-notch producers.''

The low cost comes from Amtel's ability to cut administrative and construction costs, he claimed. Amtel also can find local replacements for auxiliary equipment and has a cheaper work force.

``Our lead-time on projects is also significantly shorter,'' Mr. Gupta said. Amtel's tire manufacturing costs are lower than other producers, according to Mr. Gupta: He gave figures of $1.70 to $1.80/kg for Amtel, vs. $2.80 to $2.90/kg for Nokian and $2.60/kg for Bridgestone Poland.

Two aspects count here, he said. Power and utility costs in Russia are low-users pay less for water, electricity and gas than in the rest of Europe. Electricity costs are 16 percent of a tire's costs.

Also, Russia still has much lower wages than the rest of Europe, at about $200 per worker per month, Mr. Gupta said.

Russia's other major advantage is that it is 98 percent self-sufficient in raw material supply. All this gives Russian tire makers an enviable price structure, the Amtel chief indicated.

As for the possibility of involvement in Iran, Mr. Gupta said Amtel has looked at several of Iran's tire plants, which he said are ``very similar to those in Russia in the 1990s,'' but perhaps in better shape.

Most were built with the aid of Russian technology and all are state-owned. The Iranian Central Bank is negotiating with Amtel at present, he said.

Amtel also has a 51-percent interest in the Rosava tire factory in the Ukraine, but Mr. Gupta said this ``is not our top priority in terms of investment.... It is the wrong location,'' he added.

Unlike Russia, the Ukraine has limited raw material resources and requires expensive imports.

However, Mr. Gupta said, ``we now have a very good partner in the Ukraine who has assumed management responsibilities,'' and Amtel is ``very satisfied with the progress that Rosava achieved in terms of profitability in 2003, without any major investment.''

He added that if it becomes possible for Amtel to buy out the state's 49-percent stake in Rosava, ``we might reconsider our approach.''

Tire Business Staff Reporter Bruce Davis contributed to this story.