Meet on MoU between AP govt, Volkswagen in Germany today

Ashok Leyland in talks with german car major for joint venture

The Hinduja group appears to be focussing on Andhra Pradesh as its potential destination for investments in the automobile and energy sectors.

Besides a recent location search for its new foundry unit in Nellore district bordering Tamil Nadu and revival of interest in its once-shelved 1,000-mega watt thermal power project proposed at Vizag, the group is now said to be in talks with Volkswagen AG of Germany for a joint venture in the latter's project in India. The Andhra Pradesh government has been trying to get the Volkswagen project to the state.

Hours before a high-level delegation representing Andhra Pradesh government left for Germany to discuss with the Volkswagen's management on the memorandum of understanding (MoU) of the proposed project on May 2-3, 2005, Ashok Hinduja met chief minister Y S Rajasekhara Reddy here on Saturday.

Though the details of their meeting have not been disclosed, informed sources in the government told Business Standard that the issue of JV with Volkswagen could be one of the points likely to have come up for discussion.

Sources said that nothing in this regard has reached a decisive stage as yet, for Volkswagen wants Ashok Leyland to be a partner only for its second stage project which will be dedicated to truck manufacturing. The Hinduja group, on the other hand, is willing to be a partner for the entire project, including car manufacturing.

Though it is completely a corporate affair, the Andhra Pradesh government is closely following the issue of JV partner with Volkswagen.

The government is also keeping a close tab on the issue as a few corporates are said to have expressed their willingness to enter the JV provided it was located in the state of their choice other than Andhra Pradesh.

Sources, however, maintain that even the delay in determining a JV partner is not going to affect the schedule for the commencement of work on the Volkswagen project as the company has agreed to fully invest in the venture in case a deal on JV partner is not struck by the time of take off.

"The Volkswagen management has also proposed to change the wording of the draft MoU in this regard by making 51 per cent of equity as a minimum provision," a state government official said. The Andhra Pradesh government has already offered to take a nominal stake of Euro 5 million in the project.

According to sources, the government has agreed to almost all the requirements indicated by Volkswagen to set up the car project in Visakhapatnam including providing land and other support for a separate ancillary park.

Sources also said that the company is willing to ancillarise most of the spares required for its vehicles in the beginning itself as compared to any other earlier car project in collaboration with a foreign company including the Maruti, where the Suzuki did not go beyond 30 per cent of ancillarisation in the beginning. That way, Volkswagen's presence will bring several ancillary automobile units to the state, sources feel.

A four-member delegation led by major industries minister Botcha Satyanarayana is in Germany on the invitation of Volkswagen to "discuss the last open points of the MoU between the government of Andhra Pradesh and Volkswagen AG as well as the next steps in the implementation of the project," as was mentioned in the invitation sent to the government by Detef Witlig and Georg Flendorfer of Volkswagen.