No significant progress in government-Cemex dispute<\/p>\n
Vincent Lingga, Jakarta<\/p>\n
The President's lack of leadership to act firm and fast in
\nresolving the government's four-year dispute with Cemex over the
\nMexican company's investment in the state-controlled Semen Gresik
\nGroup (SGG), could cost the government half a billion dollars and
\nlonger delays in the return of foreign direct investment.<\/p>\n
It is now almost three months since the government initiated
\nnegotiations with Cemex to iron out an amicable solution to the
\nimpasse.<\/p>\n
But it seems that no substantial progress has been made,
\ndespite a string of official claims that a final resolution is
\nimminent. Indeed, State Minister of State Enterprises Sugiharto
\ntook everyone for a ride when he said a memorandum of
\nunderstanding would be signed on Tuesday.<\/p>\n
The government initially appeared determined to resolve the
\nCemex case, as one of four high-profile disputes with foreign
\ncompanies it expected to settle during the first 100 days of its
\nrule to jump-start the inflow of foreign direct investment (FDI).<\/p>\n
However, the only achievement thus far has been Cemex's
\ntemporary (60 days) suspension of arbitration proceedings on its
\nclaim at the International Center for the Settlement of
\nInvestment Disputes (ICSID) in Washington.<\/p>\n
A costly, messy lawsuit still looms over the government, and
\nits failure to reach a basic agreement by February could trigger
\nlitigation proceedings at the ICSID, a World Bank affiliate. And,
\ngiven its frustration with the capricious stance of the previous
\nadministration, Cemex will not likely commit to anything, unless
\nit is absolutely sure of a smooth, clean deal.<\/p>\n
The government has insisted that it proposed six options to
\nresolve the dispute, but most of them are either politically
\nunacceptable or commercially and fiscally unfeasible. It has
\nruled out selling its 51 percent stake in the SGG and buying out
\nCemex's 25.50 percent holding in the SGG.<\/p>\n
The most commercially viable solution acceptable to both
\nparties seems to be the option disclosed by Coordinating Minister
\nfor the Economy Aburizal Bakrie in November, after flying around
\nthe world to initiate a series of initial negotiations with Cemex
\nmanagement in France, Chile and Mexico.<\/p>\n
Aburizal then said the government would sell three units of PT
\nSemen Gresik, one of the SGG's three subsidiaries, with a total
\ncapacity of almost seven million metric tons to a new joint-
\nventure company to be controlled by Cemex.<\/p>\n
The other two subsidiaries of the SGG are PT Semen Padang in
\nWest Sumatra, with a capacity of five-and-a-half million tons,
\nand PT Semen Tonasa in South Sulawesi, with three-and-a-half
\nmillion tons.<\/p>\n
Under this option, the government would maintain its 51
\npercent control of the SGG, but the holding company would retain
\nonly the other two subsidiaries, Semen Padang and Semen Tonasa.<\/p>\n
This transaction, besides halting the litigation process --
\nwhich could otherwise inflict US$500 million in losses on the
\ngovernment -- would bring in hundreds of millions dollars in
\nfresh capital to the SGG, which it could immediately invest in
\nbuilding a green-field cement factory to capitalize on the
\nsteadily rising demand for building materials.<\/p>\n
Most analysts have predicted that, based on the current annual
\neconomic growth of 5 to 6 percent, Indonesia would see a
\nsignificant cement deficit in 2007 if the industry does not
\nincrease its capacity.<\/p>\n
Yet another important effect is the greatly positive signal
\nthe settlement of the dispute would give to foreign investors.<\/p>\n
Sadly, though, even before the government and Cemex began
\nserious negotiations over the basic principles of how to
\nimplement this option, PT Semen Gresik's \"trade union\" has
\nlaunched a massive campaign to torpedo the plan.<\/p>\n
The \"trade union\" -- fully backed by Semen Gresik's management
\n-- has lobbied the House of Representatives, trumpeting fear that
\nthe government's sale of the cement unit would make the country
\nvulnerable to cartel-like practices in the cement trade.<\/p>\n
But this campaign seems to be modeled on the \"rebellion\" of
\nthe previous Semen Padang management, which, with the support of
\nvested-interest politicians and senior officials in West Sumatra,
\nsucceeded in blocking the government's put option to sell its 51
\npercent stake in the SGG in October, 2001.<\/p>\n
Rent-seekers in West Sumatra, in a desperate attempt to
\nmaintain Semen Padang as their cash cow, also whipped up narrow
\nnationalistic sentiments against the government's plan to sell
\nits controlling stake in the SGG.<\/p>\n
Unfortunately, though, the then Megawati government, notorious
\nfor its lack of political leadership, simply succumbed to the
\nrent seekers and left behind a time bomb for the new government
\nof President Susilo Bambang Yudhoyono to defuse.<\/p>\n
Even now the SGG holding company still suffers from the
\ndamaging impact of the Semen Padang rebellion.<\/p>\n
Even though SGG shares were still traded on the Jakarta Stock
\nExchange, the SGG's consolidated financial reports for 2002 and
\n2003 were classified by its independent auditors with a
\ndisclaimer. No one really knew the actual market value of the SGG
\nuntil the findings of a forensic audit, ordered by SGG
\nshareholders on PT Semen Padang last year, were disclosed.<\/p>\n
But the Susilo government seems about to repeat the mistake of
\nits predecessor.<\/p>\n
The ministerial team of privatization is not so ignorant as
\nnot to know that, what is claimed to be the Semen Gresik \"trade
\nunion\" is actually synonymous with Semen Gresik's management
\nbecause virtually all the union leaders consist of the company's
\nmanagement and heads of divisions, departments or sections.<\/p>\n
Blue-collar workers, who make up 90 percent of Semen Gresik
\nemployees, seem not represented in the trade union leadership.<\/p>\n
This clearly indicates that what the union leaders claim to be
\nthe aspirations of Semen Gresik workers and the local people is
\nactually the vested interests of those in the current management
\nwho want to do \"business as usual\".<\/p>\n
Yet, the government seems unable to adequately respond to the
\nrent-seekers' negative campaign and xenophobia sentiments.<\/p>\n
The government should demonstrate its political leadership to
\nresolve the dispute, once and for all, by making a firm decision
\non what it feels to be best for national interests, rather than
\nbowing to political pressure from vested interests, who claim to
\nrepresent the workers and local people.<\/p>\n
The stakes are high, both in terms of potential financial
\nlosses and severe damage to the government's credibility.<\/p>\n
The Susilo government, which has gained such a strong
\npolitical mandate, should be able to make a bold -- albeit
\npolitically unpopular -- decision, as long as it is highly
\naccountable, and in the best interests of the people.<\/p>\n
The writer is Senior Editor at The Jakarta Post<\/p>", "url": "https:\/\/jawawa.id\/newsitem\/no-significant-progress-in-government-cemex-dispute-1447893297", "image": "" }, "sponsor": "Okusi Associates", "sponsor_url": "https:\/\/okusiassociates.com" }