German auto giant Volkswagen and its local agent Senok Group yesterday signed a Board of Investment (BoI) agreement to set up a US$ 31 million car assembly plant in Kuliyapitiya.

“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,” German Embassy Deputy Head of Mission Dr. Michael Dohman said.

The plant has a capacity to produce 500 cars annually in the rage of 1000cc-2000cc, and would include diesel powered passenger cars, sport utility vehicles, multi utility vehicles and commercial vehicles.

Since Volkswagen will be involved in the export of vehicles, at least 35 percent value addition is required according to regulations, which will be added through local labour and components such as seats.

“This will create 200 jobs initially. Three locations have been identified in Kuliyapitiya but the details haven’t been finalized,” BoI Chairman Upul Jayasuriya said.

He said that BoI had taken just 40 days to negotiate the agreement after the Prime Minister’s office took around 4 months to provide a change in policies to allow government subsidized vehicles to the public.

“The expectation is that the government is going to make it available to the public at a reasonable and affordable cost,” he added.

The Prime Minister had earlier said that Volkswagen cars produced in Sri Lanka would be sold at around Rs.2-3 million.

Jayasuriya further said that the usual 8-year tax holiday was provided to Volkswagen.

According to the agreement, Volkswagen will directly invest US$26.5 million—US$21.5 million of which will be invested in fixed assets during the 2 year construction and evaluation stage.

The rest of the funds will be coming through borrowings.

“This government has looked at it (assembly plant) as beneficial to the country and the people. The main programme was based on training people. Prime Minister Ranil Wickramasinghe said that at least 2,000 people should be trained in the automotive industry,” Senok Group President Noel Selvanayagam said.
Jayasuriya said that the local assembly process would expand to complete local manufacture if export targets are met.

“Firstly it is a localization process, and then a percentage of exports are expected. After that the localization process is expected to increase over time,” he said.

Based in Wolfsburg, Germany, and found in 1937, Volkswagen is best known for its iconic Beetle, Golf and Passat models. (CW)