Volkswagen project to take final shape in 45 days

The Andhra Pradesh government on Saturday said that all the remaining issues pertaining to the memorandum of understanding (MoU) between the government and the German car major, Volkswagen, on the latter's manufacturing plant at Visakhapatnam have been finalised and the project is expected to take a final shape in the next 45 days.

"During the discussions in Germany, the company asked the state government to ensure special economic zone (SEZ) status to its Vizag plant.

We have assured them that the state government will impress upon the Government of India to issue necessary orders following the finalisation of the business plan of the project," Botcha Satyanarayana, minister for major industries, told mediapersons. According to him, the only other point that remained to be discussed in Germany was the place of arbitration.

"While the Volkswagon wanted it to be London, we wanted it to be India. Finally, we came to an agreement on this issue too," the minister said without disclosing the actual agreement.

In another related development, Volkswagen group, which now proposes more than 90 per cent indigenisation of its car manufacturing facility in India, has initiated the process by inviting 90-odd ancillary makers for discussions to enter necessary tie-ups, the minister said.

A team of senior Volkswagen officials is expected to visit India this month to take part in the proposed vendor meet.

According to Somayajulu, advisor to the state government, the company's changed plan with regard to ancillarisation has led to last minute delay in firming up plans until now.

Somayajulu was also a member of the team that visited Germany. Wolfgang Bernhard, new chief executive officer of Volkswagen, is understood to have told the visiting team of Andhra officials that the original plan of importing intermediaries from the company's manufacturing facility in Brazil was an unviable proposition.

"In terms of the proposed indigenisation, the company's confidence levels rose after it saw the Hyundai's manufacturing operations in India. This inspired the Volkswagen management to opt for a full-fledged manufacturing facility by ancillarising more than 90 per cent spares locally, in place of CKD or an SKD unit," Somayajulu said.

The Vizag facility will essentially be a car manufacturing plant with the production of LCVs remaining a secondary consideration.

The MoU and business plan of the Vizag project are expected to be approved by the Volkswagen board, which is scheduled to meet in the third week of June, 2005. According to the minister, the investment for the project would be around €1 billion.