Volkswagen, Europe’s biggest automaker, plans to build a factory in Indonesia by the end of this year at the latest, Industry Minister MS Hidayat said, Jakarta Globe reported.

“I had a talk with them [Volkswagen] about their plan. They already have a blueprint for the project,” Hidayat said after attending the Asean-European Union business summit at the Jakarta Convention Centre on Thursday.

Volkswagen has explored the possibility of setting up a production facility in Indonesia for the past three years, and the minister said it now hoped to realise those plans later this year. However, he did not reveal how much investment Volkswagen planned to put into Indonesia.

Muhammad Lutfi, the previous chief of Indonesia’s Investment Coordinating Board (BKPM), was quoted by Bloomberg as saying Volkswagen planned to spend $ 140 million to build its first factory in Indonesia. The plan was to set up a factory that could produce 50,000 Touran multipurpose vehicles per year, but the plan has laid dormant since, says the report.

“This is good news for the domestic automotive industry because the European automotive industry has no base yet in Indonesia, where the market has so far been dominated by Japanese and Korean brands,” Hidayat said.

Volkswagen’s intention to expand its business in Indonesia was in line with Germany’s plan to increase its investment in the country, especially in the automotive sector, which is believed to possess huge potential, the report pointed out.

Germany’s foreign direct investment in Indonesia stood at $ 157.6 million in 2010, representing 5.6 percent of the European Union’s $ 2.78 billion in total investment in Indonesia last year, said the report. 

Local media reports quoted Julian Wilson, the European Union ambassador to Indonesia and Brunei, as saying in March that there were 700 European companies investing in Indonesia. Their investment represents 1.6 percent of the total EU Investment in Asia, noted the report.

Indonesia, the chair of Asean, hosted the business conference ahead of the 18th Asean Summit, which is scheduled to take place this weekend, also at the Jakarta Convention Centre.

The business summit hosted by Indonesia, the Asean Chair this year, was held ahead of this weekend’s 18th Asean-EU Summit. Hundreds of top company executives from both economies, economic ministers and Karel de Gucht, the EU commissioner for trade, are expected to take part in the summit, the report added.