Volkswagen picks Vizag for Rs 5,800 cr plant

German automobile major Volkswagen has finally decided to set up shop in the port city of Visakhapatnam, in Andhra Pradesh. A decision to this effect will be formally taken at its board meeting in Germany on January 17.

The proposed manufacturing project at a cost of Rs 5,800 crore (euro1 billion) will be a joint venture between Volkswagen and an Indian partner.

The project will see an investment of around Rs 1,500 crore (Rs 15 billion) in the first phase before the facility is expanded.

Helmuth Schuster, Volkswagen's India operations head, and senior officials from the state government met Chief Minister Y S Rajasekhara Reddy later in the evening after a marathon six-hour meeting on modalities and other issues. "We are going to make the official announcement (on Volkswagen's plans) on January 18," a beaming senior government official told Business Standard.

The incentives offered by the state government for the Volkswagen project include, power supply at concessional rates for the first three years, a tax holiday, water supply at concessional rates beside providing around 300 acres of land at no cost.

Volkswagen will hold 51 per cent stake and the Indian partner the rest. No information is available yet on the Indian partner and, according to state government officials, the government of Andhra Pradesh has also agreed to take a nominal stake in the project.

"The company has insisted that the state government take a minority stake in their project and we said fine. The government has agreed to take a nominal equity in the venture," a senior government official told Business Standard on Friday.

Speaking to media persons after a meeting at the chief minister's office with the Volkswagen team, Botcha Satyanarayana, the state industries minister, said that all the issues with the Volkswagen on setting up of the car manufacturing plant in Vizag have been cleared in the meeting.

"They had some doubts and issues to be clarified and all of them were addressed in today's meeting to their satisfaction," he said. The minister admitted that the company was apprehensive about the proposed site of the plant in the port city on account of the recent Tsunami devastation.