AP to take $6.6m stake in VW plant

The Andhra Pradesh government has issued orders which would see it take an equity stake worth €5 million ($6.6 million), in the Volkswagen's proposed automobile plant in the port city of Vizag.

The state government issued the orders after Helmuth Schuster, head of Volkswagen's India operations, wrote to the government and confirmed that the company was setting up its Indian operations at Vizag.

The state government will hold the stake in the company through the Andhra Pradesh Industrial Infrastructure Corporation (APIIC). The move, as was insisted upon in the last meeting with the state government officials by Helmuth Schuster, is expected to help expedite the implementation of the project in Vizag.

Senior government sources said that a 'Bhumi Pooja' would be conducted some time in the last week of this month for the €1-billion car project.

Volkswagen representatives from Germany will participate in the ceremony, which is expected to be conducted by chief minister Y S Rajasekhara Reddy. The VW facility in Vizag is expected to manufacture cars, LCVs and other vehicles for both the Indian and foreign markets.

"In his letter dated 7 January, 2005, Helmuth Schuster has stated that, after detailed deliberations, a decision has been taken by VW-AG to set up the project in Vizag," the government has stated in its order (GO Ms No 12), admitting for the first time that the decision from Volkswagen was in favour of setting up the plant in Vizag.

"It (the letter) has also been mentioned that VW-AG will have at minimum 51 per cent equity stake in the project and government of Andhra Pradesh may consider to take a nominal equity position which can be redeemed at the discretion of the government in the project to affirm its commitments. The project shall be implemented immediately," the government order stated.

When contacted, Botcha Satyanarayana, minister for major industries, said that the company wanted the government to take a nominal stake in the project to enable the immediate implementation of the project as there was a delay in finalisation of the Indian partner for the proposed joint venture.

As per the above orders, the state government will participate in the equity through APIIC, a wholly-owned government undertaking. Out of €5 million, €2 million will be released by APIIC immediately after confirmation from VW-AG of the equity structure of the project.

The company proposes to invest over Rs 1,500 crore in the project during the first couple of years and expand the facility at a total investment of over Rs 5,800 crore going ahead. Lot of ancillary units and other downstream industries are expected to develop on account of the first ever car manufacturing plant in Andhra Pradesh.

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On a roll

• Govt to hold the stake in the company through APIFC
• APICC to release €2 million immediately after confirmation from VW-AG of the equity structure of the project
• Bhumi Pooja for the €1-billion project to be conducted in the last week of January