Hyderabad, Sep 13 (IANS) The Andhra Pradesh government has conveyed to German auto major Volkswagen that it would have to stick to its plans to set up a small car manufacturing unit in the state.

"We have written a strong letter to Volkswagen that it will have to stick to Andhra Pradesh and reconsider its decision," Chief Minister Y.S. Rajasekhara Reddy told reporters here Wednesday.

He was reacting to reports that Volkswagen has finalised an agreement with the Maharashtra government to locate its Indian greenfield car manufacturing plant at Chakan on the outskirts of Pune.

"When (Volkswagen's India representative) Helmuth Schuster on behalf of Volkswagen entered into an MoU, it was offered facilities in other states. When that sort of reasoning was not valid then how can it be valid now?" asked Reddy while referring to facilities and incentives offered by other states to get the plant.

The Maharashtra government has decided to allot 400 acres of land at Chakan for this Rs.25 billion facility. According to the agreement, the plant will manufacture small cars, eventually broadening its portfolio to include models for other segments.

Asked what his government would do if Volkswagen refused to consider its decision, the chief minister termed it a "hypothetical question."

However, the Andhra Pradesh government is reportedly mulling to sue the German car major for going back on promises made in the agreement. The government had already paid 2 million euros to Vashishta Vahan, a special purpose vehicle to set up a joint venture Volkswagen plant in the coastal city of Visakhapatnam.

The deal was signed and the money was paid as advance towards the equity in joint venture in January 2005 but a scandal had surfaced in July when the company sacked Schuster for alleged illegal dealings.

However, Volkswagen owned up moral responsibility for the wrongdoings of Schuster and promised to abide by its commitment to set up a plant in Visakhapatnam. In September last year, the state government refused to accept Rs.115.74 million ($2.6 million) which Volkswagen offered to pay back.

The talks between the two sides continued for a year and Volkswagen had all along maintained that it would honour the pledges made by its representative Schuster on its behalf.