The state of Nuevo Leon’s discomfort over the contract signed with South Korean auto maker Kia Motors means production probably won’t begin as scheduled, and the matter could finish up in arbitration at the World Bank.
Milenio business columnist Bárbara Anderson wrote today that the state government is now more than nine months behind in meeting its obligations under the agreement signed by the previous administration.
That’s because Governor Jaime Rodríguez Calderón, also known as “El Bronco,” believes the incentives provided to Kia by his predecessor were excessive and not even constitutional. The document, he claims, is not legal.
Now, Anderson wrote, the state has told the company the conditions of the contract are impossible to meet and the entire project needs to be renegotiated.
Kia Motors has invested some US $2 billion in the plant, which is 97% complete, and the first vehicle was expected to roll off the production line in a testing phase of the facility on May 16.
But the state government has not yet moved a natural gas pipeline that crosses the land the plant occupies, nor has it finished other infrastructure components specified in the contract.
One thorny element in the incentives granted to Kia is a 20-year exemption from state income tax. A businessman close to the situation said he had no doubt that the exemption was unlawful because the state can only provide such a tax break for five years, with the option for a four-year renewal.
But the legality of the contract, according to a Kia spokesman who remained anonymous, is something only a judge can decide. “We have the best international arbitration lawyers and are ready to take the matter to the International Center for Settlement of Investment Disputes” at the World Bank in Washington, D.C.
That, he said, would affect the federal government more than that of the state of Nuevo León.
Relations between the Nuevo León government and Kia Motors began to sour in November when the former made public the agreement signed by the previous governor, Rodrigo Medina, in 2014.
Business columnist Alberto Aguilar wote in El Universal last month that Kia’s relocating the plant to the United States could not be ruled out.
Such news, he wrote, would not represent the best sort of introductory letter to prospective foreign investors.