Maruti Suzuki approaches Gujarat govt to rework arrangements for Hansalpur plant

While the stand-off between Maruti Suzuki India (MSIL) and its mutual fund investors continues, the company,meanwhile, has approached the state government to rework the state support agreement (SSA) with the Gujarat government related to its upcoming manufacturing site here. According to sources in the know, the company has officially approached the state government seeking to rework the SSA to accommodate the new arrangements. Earlier, in end-January MSIL's board had approved the proposal that the Gujarat plant would be built by a wholly owned subsidiary of MSIL's parent company, Japan-based Suzuki Motor Corporation (SMC). "The proposal was recently discussed in the state chief secretary's committee on mega projects, and has been forwarded to the finance department for reviewing," informed a senior government official who is close to the development. A senior finance department official also confirmed the same. The state government stand is that the project should get a go-ahead, and should not get stuck in working out the nitty-gritties of the new arrangements, informed sources. R C Bhargava, chairman, MSIL had told Business Standard earlier that as far as the Gujarat government was concerned, the company was confident that these changes could be worked out, and that there would be no changes in the sops granted to the company. However, the finance department now needs to look at a few things while it makes suggestions for reworking the SSA. According to the earlier arrangement, MSIL was the producer as well as the seller. Now the production would be by a new company Suzuki Motor Gujarat Private Limited (SMGPL), which would be registered by April this year. SMGPL would exclusively contract manufacture and sell vehicles to MSIL. "According to the earlier arrangement MSIL was the producer and it would have, in turn, sold the cars to distributors. However, now, MSIL becomes a distribution agent. Now, the government needs to decide how the tax benefits would be divided between MSIL and SMGPL," informed an official here. Also, as for the land involved in the project, MSIL, on its part, has indicated that the land would be leased by MSIL to the subsidiary company to establish the production facility. "The rent would be determined on an arm's length basis," the company had said in a statement earlier. According to government sources here, the state government had allotted the land originally to MSIL for a specific purpose. "However, now the new arrangement is something similar to a contract manufacturing set up. The state government would need to make an exception in this case to allow MSIL to lease the land to the new entity," the source clarified. Sources also informed that Gujarat government is working out the details and things are likely to be finalised in around a month's time. In June 2012 MSIL had signed an SSA with the Gujarat government with regard to purchase of land and setting up of a manufacturing facility here. SSAs typically contain guidelines related to payment installments, and dates of commissioning etc. MSIL has been offered a refund of value added tax (VAT) for 15 years provided the amount did not exceed the company's investment in the state. The company was offered land at Hansalpur (around 110 km from Ahmedabad) at the rate of Rs 670 per square meter (or roughly Rs 27 lakh per acre). The 640 acre plot, therefore, cost the company around Rs 172 crore. MSIL is learnt to have been making payments for the land in annual installments with a certain interest component. Furthermore, Gujarat government offers certain standard incentives to all projects which entail an investment over Rs 1,000 crore (mega projects), like waiver of stamp duty and registration fee among others. Source :  http://www.business-standard.com/article/companies/maruti-suzuki-approaches-gujarat-govt-to-rework-arrangements-for-hansalpur-plant-114030400667_1.html