Volkswagen plant in Sri Lanka: Setting the record straight | Daily News

Volkswagen plant in Sri Lanka: Setting the record straight

Vignettes of the plant opening in Kuliyapitiya.

For seven long years Volkswagen automobiles was to set up an assembly plant in Sri Lanka. This may have been Sri Lanka’s longest talked about development project which involved two successive governments but never took off.

A land vested in BOI in Kuliyapitiya was given on a freehold basis to Western Automobile Assembly for a proposed vehicle assembly plant.   
India’s Volkswagen plant rolling out their 300, 000 car
 

It was eventually Kartin Hohmann of Volkswagen Passenger Cars' corporate communications voice clip to a local TV channel that that there are no plans for Volkswagen brand investment in Sri Lanka at this point of time that ended this five year long episode.

Being a business journalist I clearly remember writing about this seven years ago and if my memory is correct the headline in Daily News was Volkswagen to invest on an assembly plant in Hambantota.

Once again the broker behind this was Senok Automobiles.This company was allocated land in Hambantota by Hambantota District MP Namal Rajapaksa. Plans were announced and even the then President boasted that the South will get a Volkswagen plant.

However for three long years nothing happened. With the change of government the subject was once again opened by Senok Automobiles. However this time around, the company also had the backing of the German Ambassador in Sri Lanka, Dr Jurgen Morhard and Deputy Foreign Minister Harsha de Silva.

Both played and read given to them by Senok Automobiles with a change in venue from Hambantota to Kuliyapitiya.

To make the deal more newsworthy and authentic, in mid-August 2015 BOI and Senok Automobiles signed an agreement to establish an assembly plant for VW in Kuliyapitiya.’

The agreement was signed by Upul Jayasuriya Chairman of BOI and Noel Selvanayagam, President of Senok Automobiles (Pvt) Ltd. He was a former director of Sri Lanka Insurance.

Under this agreement which is a BOI Section 17 agreement, the investor was to assemble vehicles in the 1000 cc to 2000 cc category. These vehicles were to be diesel powered and include passenger cars, Sport Utility Vehicles (SUV), Multi Utility Vehicles (MUV) or commercial vehicles. The total value of this project will be an investment of US$26.5 million of which 21.5 million will be invested in fixed assets within a period of 24 months.

“As Volkswagen is currently the world leader in automobile manufacture, recently overtaking Toyota of Japan, this project is a very high profile one and a statement about Sri Lanka’s growing attractiveness as a destination for investment.

BOI is very keen to attract other leading automobile manufacturers into the country as the industry creates opportunities for the creation of local component manufacturers that can supply the building of a complex product such as passenger car. It is estimated that the assembly plant will be operational within a period of 30 months. Initially these vehicles would be marketed locally for a period of three years and thereafter the vehicles manufactured will be exported to overseas markets, the BOI website said. Though the investment is not on, the BOI still carries this post,” the BOI web post says.

Senior Ministers Malik Samarawickrama, Ravi Karunanayake, Akila Viraj Kariyawasam and Deputy Minister Sujeeva Senasinghe too backed this claim. Not to be out done Prime Minister too said that Volkswagen will invest in Kuliyapitiya.

However Deputy Minister Eran Wickramaratne hinted that Volkswagen plant may not come Sri Lanka's way. But he was snubbed by other Ministers and he kept silent.

The grand finale for the ground breaking was held with both President, Prime Minister, Minister of Development Strategies, Minister of Education, Finance Minister engaged in the ground breaking. Several flags of Volkswagen were displayed at the venue.

BOI Chairman Upul Jayasuriya at the ground breaking said that the Volkswagen plant would be a major leapfrog for the country in the right direction.But soon it turned out be the opposite as Volkswagen in Germany said they have no plans for Sri Lanka.

A senior official from the Ceylon Motor Trader's Association (CMTA) said that the ‘deal’ had taken two successive governments, public as well as the German Embassy for a right ‘Royal’ ride. “Everybody has missed the simple point.Why should Volkswagen invest in Sri Lanka when they have a plant in India? Sri Lanka is not Bangladesh or Pakistan where there is a readymade market to sell cars within these countries.”

Volkswagen India operates a manufacturing plant in Pune (Chakan) Maharashtra which is capable of producing 200,000 vehicles per annum. Along with the manufacturing of Volkswagen Polo and Volkswagen Vento and the newly launched Volkswagen Ameo, the plant is also shared by Škoda Auto India Private Limited for manufacturing the Škoda Rapid.)

The CMTA member says that the record of Volksvagen has now changed to the manufacture of European cars. “So why were there no banners of any European car models at the venue?” he asked.

After the deal did not take off in a evidence based, fact-filled message posted on Facebook the Deputy Minister of Foreign Affairs, Dr. Harsha De Silva explained as follows…

‘1. Given I was responsible for the initiation of this project I would like to place the following facts before the public.

2. In my new job as the Deputy Minister of Policy Planning and Economic Affairs I met with the then Ambassador of Germany, Dr Jurgen Morhard in early January 2015. At this meeting the Ambassador indicated that Volkswagen had attempted to set up a plant in Sri Lanka since 2008 but failed due to ‘various’ reasons.

3. I indicated to him that we would be delighted to have VW set up a plant in Sri Lanka and we initiated discussions between the Government and the company.’

Of the signing Deputy Minister de Silva said,

‘1. Having initiated the possible investment, the Ambassador and I moved out.

2. We were told the discussions continued among various stakeholders locally.We were informed that Volkswagen’s local agent Senok Automobiles representing the carmaker negotiated terms with several government authorities to get necessary clearances.

The Deputy Minister quoted the German Embassy Deputy Head of Mission Dr. Michael Dohman as having said during the signing ceremony in August, “It is important for the German Embassy to have a big company like Volkswagen in Sri Lanka. Germany is always talking to enterprises to attract them here. People will have to be trained and educated, and many other components are needed, so it will boost the local economy,”

On why the deal did not go through, Deputy Minister Harsha de Silva offered this argument:

‘1. In just a matter of a couple of weeks after signing the agreement, on 3 September 2015, Volkswagen, after months of denial, admitted to the EPA in the US that they had cheated on emissions tests on some of their diesel models in the US. On 18 September 2015, the EPA went public with this admission of guilt.

2. Soon thereafter the VW stock crashed and the senior management was fired. Later some 30,000 jobs were cut and it has thus far cost the carmaker some US$ 18 billion in losses.’

The Deputy Minister said that in Sri Lanka,

‘1. This scandal that rocked VW was a complete shock to everyone, obviously including us in Sri Lanka. Apparently Senok Automobiles who had signed for VW had attempted to save the agreement and continue with the investment as planned.

2. However, at one point, I believe after much negotiation, the Government had decided it would be better not to go with a dedicated VW assembly plant due to possible legal issues that could crop up due to the massive fallout from their emissions scam. This we knew today when the PM explained the sequence of events to us.

3. Given the BOI agreement had still been in place with Senok Automobiles for the original VW assembly I understand that they had rescued the project by agreeing with the BOI to go ahead to establish the plant to assemble various makes of European automobiles.

4. It had been for this assembly plant, renamed Western Automobile, the foundation stone laid for an automobile assembly. At no point at the foundation laying ceremony (which I could not attend) had there been any mention of the plant being for VW.

He adds further,

‘In fact since I moved out of my earlier portfolio of Deputy Minister of Policy Planning and Economic Affairs to the new one in the Foreign Ministry in August 2015, I had no dealings with the project and was sincerely unaware of the various changes until it was explained today. I would appreciate that fact be respected.

I hope the above explains the confusion and we as a country can be satisfied that the assembly plant is being established and many jobs will be created besides thousands of training opportunities for young people.’

There was also a subsequent interview published in the English media where BOI Chairman Upul Jayasuriya was running down Sri Laka’s only car assembly company Micro and its Chairman Dr. Lawrence Perera.

“This is not what he should do.Jayasuriya must speak to Dr. Perera and try to offer him more concessions.This is a very sad stance taken by the BOI Chairman,” the CMTA official said.

He also asked as to why the Finance Minister was hell bent on offering concessions to a new second hand car assembly plant without promoting Micro.

 


 

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