The Zastava factory at Kragujevac in Serbia currently builds the Fiat Punto Classic (above); under the terms of the contract between Fiat and the Serbian government, two new models will be built at the facility.

Serbian Economy Minister Mlađan Dinkić and Fiat Group Vice-President Alfredo Altavilla have finally signed the annex to the contract on making joint investments in the Zastava factory in Kragujevac after a year's delay, reports B92.

With the payment of 100 million euros of founding capital, the Serbian carmaker essentially has become a part of the Fiat Group, according to officials at the press conference held after the signing. Fiat is bound by the agreement to produce two new car models in Kragujevac, in addition to the Punto, which is already being manufactured at the Zastava factory. Fiat will modernize the factory with an announced investment totaling 700 million euros, it was also said.

Dinkić said that the order will be given for the transfer of the property of Zastava to the joint company of Fiat Automobiles Serbia, and that in six days, the transfer of property and 100 million euros from Fiat will be completed. He added that the two new cars that will be produced in Zastava will sold in European and American markets. The minister said that the agreed capacity of production was 200,000 cars annually, from which, he said, 2 billion euros in exports is expected.

Altavilla addressed journalists to say that President Boris Tadić played a very important role in this project. “Tadić gave us great support and I am very thankful to him,” Altavilla said, adding that he wanted to thank the entire Serbian government, especially Dinkić, for the cooperation an efforts, as well as the expert teams that worked on the realization of the process. He added that half of the founding capital of Fiat will be paid by the end of the year, and that the remaining 100 million euros will be invested during 2010.

Ahead of the signing yesterday, economic analyst Milan Kovačević said that this was good news, because it was a confirmation that Fiat was not backing down from its plans in Kragujevac. “This will end the push surrounding our Zastava, which we have invested a lot of money in, and which practically fell through and was not able to be restored as an automobile factory. On the other hand, what we did now works mostly to the advantage of Fiat, and we can be happy that we will in some period of time, maybe in a year or two, have significant exports. But if we do not activate domestic components and parts as well, there will be increased imports along with the exports. Everything depends on how things will progress,” Kovačević said.

As the minority owner, the government will be providing property and equipment for the joint company, and while Fiat is expected to pay 100 million euros, Serbia will pay 50 million euros as its founding capital. Kovačević said that it would be better for that money not to come from the budget. “It is not the best solution for the state to create new capital with the money of taxpayers. It would be good for the government to think about how it will privatize this, and to have domestic private capital co-participate in the automobile factory with Fiat,” he said. Fiat’s business plan will depend on how the situation on the international car market progresses, this analyst said.

The total investments of Fiat in Zastava was expected to be 700 million euros. The deadline for paying this sum was the end of this year, which was postponed due to the economic crisis.

Report courtesy of B92