Nissan tussle: Our case is very strong, says Tamil Nadu officials

CHENNAI: The Japanese automaker Nissan Motor, which is running its plant in the city’s outskirts, has initiated an international arbitration against India seeking Rs 5,000 crore as compensation for the unpaid incentives promised by the Tamil Nadu government for setting up the plant.

However, government officials privy to the issue said Nissan was “incorrect” in moving for international arbitration. “We have already paid Rs 1,600 cr for an investment of Rs 4,000 cr made by them,” said
a senior official.

The company had sent legal notice to Prime Minister Narendra Modi last year seeking payment of the incentives which was due in 2015, according to a report by Reuters. After repeated negotiations failed, the company has now moved for international arbitration seeking a total of Rs 5,000 cr.

Unfazed by the huge compensation claimed by Nissan Motors for overdue of incentives, the Tamil Nadu officials said the Japanese company officials have got it wrong several aspects of the MoU signed in 2008 to set up its car-making plant at Oragadam in Chennai’s outskirts.

Nissan has sought Rs 2,900 cr of unpaid dues from the state government and Rs 2,100 cr as compensation for the delay by initiating an international arbitration in perhaps the biggest among the recent international trade disputes. The company has alleged that the Tamil Nadu government’s stopping of the incentives as “arbitrary” and resulted in “significant and increasing losses”.

When contacted by Express, the company’s spokesperson did not go into details of the dispute. "We are committed to working with the Government of India toward a resolution,” the statement said. The
brief statement recalled that the company has created over 40,000 jobs in India and invested “around a billion dollars.”

But the state government officials said Tamil Nadu’s case was strong and company was “incorrect” in moving for international arbitration. A state government official said that the Nissan officials are “confusing” the terms of 2008 Memorandum of Understanding (MoU). The company has claimed it to be dispute under the Comprehensive Economic Partnership Agreement, which is an agreement between India and Japan signed in 2011. An official explained that the agreement to set up the plant in Chennai was much older, dated 2008. “We are governed by our own MoUs. So any arbitration should happen only in Chennai,” he said.

Another aspect the official said the company is “confusing” is that, they expect the state government to immediately reimburse the commercial tax paid by company. “Our (promised) incentives are not
refund based. If they think they must immediately get back whatever they paid, we may very well have given them tax holidays,” said the official.

He said as per the agreement, the incentive would be paid back over a period of 21 years, the time frame for the agreement. “Our fear is if we repay them the total money in just a few years, they (Nissan) are
free from us and they can stop supporting the ancillary units or providing employment. They can even shift the plant to some other place. We will pay them up to 115% of their investment, but over a period of 21 years,” he said.

The state government approach, which is said is purely based on the terms of the MoU, is to ensure the company stays for 21 years and provides employment. The officials said the state government’s case is
very strong and in fact Tamil Nadu had already paid Nissan around Rs 1,600 cr, while the total investment made by the company was around Rs 4,000 cr.