Miffed AP warns Volkswagen

HYDERABAD: A miffed Andhra Pradesh has shot off a letter to Volkswagen warning that it cannot switch states for its proposed car project in India.

The move comes after the reported decision by the German automobile giant to locate the Rs 2,500 crore greenfield project at Chakan in Maharashtra on the outskirts of Pune.

“We have responded to the Volkswagen that it cannot take that line,” AP chief minister Y S Rajasekhara Reddy said on Wednesday. “We have written a strong letter to the company in this respect as the memorandum of understanding had been finalised when Schuster himself was there,” he said, referring to the advanced stage of negotiations between the Volkswagen and the state government to locate the project in the state.

Volkswagen is reportedly set to sign an agreement with the Maharashtra government and announce its plans in a few weeks.

The German car maker had toured Visakhapatnam and Tada in AP close to Chennai for a possible location for the project last year. 

However, the proposal was mired in controversy right from the start after the formation of an illegal front company allegedly to siphon off funds from the state government (See timeline below)

The controversy even led to the shifting of the then heavy industries minister Botcha Satyanarayana from the department.

Asked if there was a legal option for the state in case Volkswagen did not heed to the state’s demand, the chief minister it was a hypothetical question and it was not the time to consider such an option.

The Volkswagen twists & turns

• Sept 23, 2003: A Volkswagen team led by Helmut Schuster and Ashok Jain hold talks with then chief minister N Chandrababu Naidu, inspects site in Visakhapatnam.
• The new Rajasekhara Reddy government continues wooing Volkswagen.
• Jan 10, 2005: Fearing competition from other states, AP invests Rs 11.2 crore into an SPV, Vashishta Wahan, in a hurry, to execute the project.
• May 2005: Volkswagen and AP finalise draft MoU to set up the project in Vizag
• June 2005: Volkswagen writes to the state saying Schuster had quit and Ashok Jain was not authorised to sign.
• July 2005: It comes to light that Vashista Wahan is a fake company set up by Schuster, MD, Volkswagen India, in his personal capacity. The money is allegedly embezzled by Schuster and his associates.
• Reddy is forced to move industries minister Botcha Satyanarayna
• Volkswagen appoints former German ambasador to India. Frank Elbe. as special envoy to placate the state. It offers to return the money.
• Sept 2005 The state refuses the money, saying the CBI was investigating the matter. It tries to force Volkswagen to pursue the possibility of still setting up the project.
• CBI arrests Ashok Jain, and Jagdish Algar Raja, another director in Vashishta.
  CBI probe reveals that Schuster has siphoned off Rs 3.6 crore, while Raja gave a loan of Rs 5 crore to V G Joseph, chairperson of Garden City College in Bangalore, and paid another Rs 2 crore to his relative Gayatri in Chennai.
• July 2005-Aug 2006 Volkswagen says India project still alive, but does not commit on location.