Nissan, Tamil Nadu close to settling incentives feud in a major win for PM Modi

Nissan Motor Co and authorities in Tamil Nadu are close to settling a dispute over which the Japanese carmaker initiated international arbitration, seeking more than Rs. 49 billion in unpaid dues and damages, as per sources.

Under the proposed settlement, which could be finalised as early as this week, Nissan would take a lower payout of about 20 billion rupees in unpaid dues and forego sums it has sought in damages, two sources aware of the matter said.

The resolution would be a victory for Prime Minister Narendra Modi, who faces a general election next year and has spent the last four years trying to transform India's image as a business-friendly nation.

Nissan sent a legal notice to the Modi government in 2016, seeking payment of incentives it said it was due from the government of Tamil Nadu as part of a 2008 agreement to set up a car manufacturing plant in the southern state.

The carmaker, in its notice, had claimed 29 billion rupees in unpaid incentives and 21 billion rupees in damages, plus interest and other costs. The Tamil Nadu government has since paid some money and now owes Nissan about 20 billion rupees in unpaid incentives, one of the sources said.

According to the proposal, the two sides are close to agreement on, the state would pay the automaker 3 billion rupees upfront once the deal was signed, with the remainder paid by the end of 2019 in 10 instalments, the sources said.

Nissan would drop the arbitration case against India once the settlement was agreed, the sources said. The proposal has been drawn up by state government officials and Nissan India executives and needs to be approved by Tamil Nadu's chief minister and the carmaker's executives in Japan before it is finalised, one of the sources said.

M. C. Sampath, Tamil Nadu's industries minister, confirmed the state was in advanced talks with Nissan. "A final decision on this matter will be taken soon, there is a conducive environment that prevails between the two parties now," he said, without commenting on the detail of the proposal.

The Nissan case, covered by a bilateral trade and investment agreement between New Delhi and Tokyo, is one of more than 20 international arbitration proceedings brought by investors against India, among the highest against any single nation.

Companies including Vodafone Group, Cairn Energy and Deutsche Telekom have initiated arbitration seeking to protect their investments against retrospective tax claims and cancellation of contracts. India last year cancelled investment treaties with about 50 foreign governments, making it harder for investors to seek international arbitration for disputes.