More reports on: Automobiles

Nissan sues India over incentive dues; claims over $770 million

01 December 2017

India is being sued by all and sundry for money not paid as the county's dependence on foreign funds for investment increases with every new reform announced by the Narendra Modi government.

After the Tata Group settled a $1.7 billion dispute with Japanese telecom giant Docomo,  Japanese automaker Nissan Motor has now started international arbitration proceedings against India claiming over $770 million in unpaid state incentives, according to a Reuters report which quoted from personal sources and related documents.

Nissan, while demanding that the Tamil Nadu state government meet its obligations under the state assistance offered for making investments in the state or the central government make payments due to Tamil Nadu government.

Nissan seems to be also invoking the India-Japan Economic Partnership Agreement. A Nissan spokesman said the company was ''committed to working with the government of India toward a resolution.''

Nissan had last year, sent a legal notice to Prime Minister Narendra Modi, in which the company sought payment of incentives due from the Tamil Nadu government as part of a 2008 agreement to set up a car manufacturing plant in the state.

Nissan, however, said state officials overlooked repeated requests for the payment, which was due in 2015. Even a plea by the company's chairman Carlos Ghosn to PM Modi in March last year seeking federal assistance did not yield any results, the company said.

Nissan sent a legal notice through its lawyers in July 2016 and followed it up with over a dozen meetings with federal and state officials, who all assured that the payment would be made, but asked Nissan not to take legal recourse.

However, in August, Nissan decided to give an ultimatum that it would proceed with arbitration proceedings. The first hearing in the arbitration is expected in mid-December, according to reports.

The problem that foreign companies face in India is that the governments make promises that are even unrealistic to get things done, but fail to meet these.

A senior Tamil Nadu state official said the government hoped to resolve the dispute without having to go for international arbitration. ''There is no discrepancy with regard to the amount due, and we are trying hard to resolve the issue,'' Reuters quoted the official as saying.

Tamil Nadu government in its enthusiasm to get all automobile companies set up base in the state offered various incentives, including concessions in land acquisition and tax refunds.

The agreement with Nissan dates back to 2008, when Nissan and its global alliance partner, French carmaker Renault agreed to set up a car plant in Chennai.

Nissan and Renault claim to have invested Rs6,100 crore ($946 million) to set up a plant with annual production capacity of 480,000 vehicles, which entitled them to receive the incentives in 2015, according to the legal notice.

While Nissan did not specify the actual impact of the government's non-payment of incentives on its business, Nissan's lawyers say the state government's action was ''arbitrary'', and Nissan has ''incurred significant and increasing losses''.

Nissan also said that state incentives, amounting to Rs2,900 crore, were critical to the project's viability and sustainability. It has sought Rs2,900 crore in unpaid incentives and Rs2,100 crore in damages, plus interest and other costs.

Nissan, which has less than a 2 per cent share of India's passenger car market, builds and sells the Micra hatchback, Sunny sedan and Terrano sport-utility vehicle. It also sells low-cost cars under its Datsun brand.

The company, however, claims to have created more than 40,000 direct and indirect jobs in India.

Several automakers, including Ford and Hyundai Motor, have set up production base in Tamil Nadu, which brought state capital Chennai the nickname of 'Detroit of South Asia'.

In its case, Nissan has also alleged violations of India's Comprehensive Economic Partnership Agreement with Japan.

Reports say over 20 international arbitration cases, ranging from retrospective taxation to payments disputes, are pending against FDI-hungry India.

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