Averting messy litigation<\/p>\n
Minister for State Enterprises Laksamana Sukardi has often
\nacknowledged that the government has failed to honor the terms of
\nthe conditional sale and purchase agreement on the acquisition of
\n25.50 percent of PT Semen Gresik (SG) in 1998 by Mexico's Cemex
\nS.A., the world's third largest cement group.<\/p>\n
Laksamana has also implied that the government, as the 51
\npercent owner of publicly-listed SG, would lose if Cemex brought
\nthe problems it has faced since its investment in the country's
\nlargest cement group to an international arbitration tribunal.<\/p>\n
Yet Laksamana has failed to come up with any new initiative to
\nresolve the problem once and for all even though it is now only a
\nmatter of days before Cemex will file the case with the
\nWashington-based International Center for the Settlement of
\nInvestment Dispute, an affiliate of the World Bank, for
\narbitration proceedings in Singapore.<\/p>\n
The imbroglio faced by Cemex in its dealings with SG over the
\npast five years again surfaced at an international investment
\nseminar in Bali over the weekend and both analysts and the
\ngovernment agreed that the way in which the SG debacle was
\nresolved would influence foreign investor sentiment as regards
\nIndonesia.<\/p>\n
The problem itself arose almost four years ago after PT Semen
\nPadang in West Sumatra and PT Semen Tonasa in South Sulawesi,
\nwith the full support of local vested interests, demanded that
\nthey be totally spun off from their holding company, SG. Semen
\nPadang was especially aggressive with its all-out fight for a
\ntotal split from SG, even embroiling SG in a series of messy
\nlawsuits.<\/p>\n
Laksamana and his deputy Roes Aryawijaya did set up a joint
\nteam in August to mediate the dispute with Cemex but again that
\ninitiative was only a cosmetic response to a strong warning from
\nCemex, which threatened to bring the issue to international
\narbitration.<\/p>\n
The mediation negotiations stopped in September after only
\nthree meetings because the government failed to respond to the
\nthree alternative solutions proposed by Cemex: Cemex buys out the
\ngovernment's 51 percent stake in SG, the government buys out
\nCemex's 25.50 percent holding, Cemex increases equity investment
\nin SG, thereby diluting the government's ownership of SG to a
\nminority stake.<\/p>\n
Laksamana and Roes instead kept playing around with the
\nissues, often making conflicting statements to the media in a
\ndeceptive attempt to buy time, without realizing, or perhaps
\ncaring, that the protracted problems, especially with Semen
\nPadang, have been causing severe damages to the whole SG group.<\/p>\n
It would be completely understandable if Cemex, after five
\nyears of fruitless waiting, finally decided to go, as a last
\nrecourse, to international arbitration given that SG's problems,
\nespecially with Semen Padang, have not only damaged the value of
\nCemex's investment in SG but also adversely affected SG's credit
\nrating, increased the cost of its borrowing and severely damaged
\nthe whole SG group.<\/p>\n
Since the rebellious Semen Padang failed to complete its
\naudited financial report for 2002, SG could not publish its
\nconsolidated financial report. This in turn caused a lot of
\ntrouble for Cemex, which is listed on the New York stock
\nexchange. Until a forensic audit on Semen Padang has been
\ncompleted, nobody will know what damage was done to that company
\nbetween 2000 and September, when the old, \"rebellious\" management
\nwas finally ousted.<\/p>\n
At a time when most foreign investors did not want to touch
\nIndonesia at the height of its multi-dimensional crisis in 1998
\nfollowing the fall of authoritarian president Soeharto, Cemex
\nentered the country in good faith in response to a public tender
\nfor a portion of the government's shares in SG.<\/p>\n
However, the endless imbroglio Cemex has been facing over the
\npast five years seems to be finally becoming too much for the
\nMexican company. In fact, based on the latest SG share price on
\nthe Jakarta stock market, the value of the Cemex investment is
\nnow only around $150 million, a far cry from Cemex's original
\ncapital outlay of about $290 million in 1998.<\/p>\n
While there is always the risk of the value of an investment
\ngoing up or down, what makes the Cemex experience particularly
\nworrisome for would-be new investors in Indonesia is the blunt
\nfact that the SG debacle has been caused largely by the
\ngovernment's failure to enforce its own laws.<\/p>\n
It is imperative now for Laksamana to seriously discuss with
\nthe House of Representatives one of the three options proposed by
\nCemex that is considered the most feasible politically.<\/p>\n
If the House can be made to understand the devastating impact
\nof an arbitration or litigation process on the country's
\ninvestment climate, the legislators should be sensible enough to
\ncooperate with the government to work out a win-win solution to
\nthe SG fiasco.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/averting-messy-litigation-1447893297",
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"sponsor": "Okusi Associates",
"sponsor_url": "https:\/\/okusiassociates.com"
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