Dubious business

Published : Aug 12, 2005 00:00 IST

The Andhra Pradesh government's payment of Rs.11.67 crores to a Delhi-based company in a deal meant to manufacture the Volkswagen car in Visakhapatnam leads to a controversy.


COURTING controversy seems to have become second nature for the 14-month-old Congress government in Andhra Pradesh. Most of its major decisions have run into trouble, be it tenders for the grandiose Rs.45,000-crore programme of completing pending irrigation projects, reservations for minorities in employment and educational institutions or the sale of temple lands.

The latest in the series of scandals to hit the government is the advance payment of 2 million euros (Rs.11.67 crores) to the New Delhi-based Vashishta Wahan Private Limited, ostensibly a nominee company of Volkswagen AG. Following in the footsteps of his predecessor N. Chandrababu Naidu, who began the process in 2002, Chief Minister Y.S. Rajasekhara Reddy has been aggressively wooing the German automotive giant to set up a manufacturing unit at Visakhapatnam.

A payment of Rs.11.67 crores was cleared at breakneck speed to form part of the government's equity in the car project at Visakhapatnam. The payment became a matter of controversy after the resignation of Volkswagen's representative in India, Dr. Helmut Schuster, following charges by the Public Prosecutor of "fraud and breach of trust". The services of Ashok Jain, chief adviser of Volkswagen's India project and the prime mover of Vashishta Wahan, too, were withdrawn by Volkswagen earlier in July.

While assuring that the payment was made at the instance of Schuster and that the money was safe, the Chief Minister requested the Union government to order an inquiry by the Central Bureau of Investigation (CBI). He also shifted Major Industries Minister Botcha Satyanarayana to a relatively unimportant marketing department.

The government has been able to salvage partially its reputation after Volkswagen decided on July 21 to pay 2 million euros towards damages to Andhra Pradesh, assuming responsibility for the misdeeds of one of its key officials, Schuster. However, with Volkswagen making it clear that it never held an interest in the company, several questions about the payment remain unanswered.

The government conceded that there was no Memorandum of Understanding (MoU) for the project, nor for the payment of the money, and that a draft MoU was still under negotiation. There was also no formal approval for the deal from the Volkswagen board. Questions are also being asked about the role played by the Major Industries Minister, who led an official delegation to Wolsberg, Volkswagen's headquarters in Germany, and who pushed for the controversial payment. Earlier too, he had caused a flutter by taking his younger brother, B. Muralikrishna, to Wolsberg after recommending him to the German Embassy for a visa. Defending his actions he said he needed his brother's assistance to operate his laptop.

IT is the speed with which the file was circulated and the amount was released that has raised eyebrows in political circles. On January 7, Schuster and Ashok Jain visited Hyderabad and conveyed to the Chief Minister in writing that a decision has been taken by Volkswagen to set up a project in Visakhapatnam. In response, the government decided to participate in the equity through the Andhra Pradesh Industrial Infrastructure Corporation (APIIC) to the tune of 5 million euros. The Industries and Commerce Department issued orders on January 10 that the equity would be released through the APIIC. On the same day, Schuster gave details of the new company Vashishta Wahan, "a special purpose vehicle" formed exclusively for the implementation of the project. He went on to request the release of equity to the new company. After taking legal advice the APIIC, on January 13, authorised the HSBC to release the Indian currency equivalent of 2 million euros towards the equity share capital of Vashishta Wahan.

Between January and July, there were "extensive discussions" and visits by delegations from Andhra Pradesh to Wolsberg and Volkswagen officials to Hyderabad. Everything appeared to be on track until Volkswagen communicated to the State government on June 22 that Schuster had resigned on June 15 and consequently the services of Ashok Jain were also withdrawn. The government says it was assured by Volkswagen that it still had "a strong interest in the project" notwithstanding these developments.

The government's stand, conveyed by Rajasekhara Reddy, is that "any act done by Schuster as the head of India Volkswagen project prior to June 22, the date on which Volkswagen conveyed the withdrawal of services of Schuster, would ipso facto, [be] an act done by the Volkswagen itself as the principals".

Though the government has sent an official team to Wolsberg to sort out the issue, no one is sure about the fate of the Rs.11.67 crores. News reports from Germany suggest that Schuster could have siphoned off and invested the money in car and other projects across the world and lost heavily in some of them. Soon after Volkswagen spoke of filing criminal charges against him, there were reports of intermediaries bargaining against his prosecution in India. However, the Andhra Pradesh government remains tight-lipped on the issue.

The Opposition Telugu Desam Party, which brought the issue to light, cried foul and challenged the government's argument. Picking up bits of information trickling in from the German media, the party says the government has botched up the deal. Chandrababu Naidu targeted the Chief Minister. "He [Rajasekhara Reddy] cannot be absolved. After all, he was the one who signed the file paving the way for the release of Rs.11.67 crores. The government did not check the antecedents of Vashishta Wahan and the people behind it. The episode has sullied the image of the State and the country," he said.

Making it clear that his party still favoured the car project, Chandrababu Naidu said it was only against the corruption. He justified his decision to purchase 50 ambulance vehicles from Volkswagen when he was Chief Minister, saying it was necessary to attract investment. "But we did not enter into any financial dealing," he said.

Chandrababu Naidu said that the government did not take adequate precautions before releasing the amount, and that the decision to release the money was not discussed in the Cabinet. "It is possible that some of the bigwigs in the government had stakes in Vashishta Wahan and there was an attempt to hijack the equity. Since the Minister was involved all through, he should be dismissed," Chandrababu Naidu said.

The other parties were equally critical. B.V. Raghavulu, Polit Bureau member and State secretary of the Communist Party of India (Marxist), wanted the government to make public the details of the entire deal. He wondered how the government could enter into a deal with the management of a company steeped in "corruption and scandals". The Bharatiya Janata Party demanded that the CBI probe the alleged involvement of the Chief Minister too. TDP leaders such as M.V. Mysoora Reddy wonder why the Indian company changed from "People's Wahan" to "Vashishta Wahan" in a matter of a few days, after the GO releasing the Rs.11.67 crores was issued.

Other questions remain: Was the government conned by a glib operator? Why did the government release the money to Vashishta Wahan and not to Volkswagen, and that too, without an MoU? Could such a payment be made to a company whose authorised share capital is just Rs.1,00,000 and which operates from a one-room office in Delhi? Why did Ashok Jain resign and why were Jagadish Alagar Raja and Bhuvanesh Chaturvedi included as directors of the new company? There are no convincing answers, and perhaps only the premier investigating agency may be able to unravel the mystery.

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