Aburizal's subterfuge

The tactics used by Coordinating Minister of the Economy Aburizal Bakrie in his attempt to reach an amicable, out-of-court settlement in the government's dispute with Mexican cement firm, Cemex, over its investment in state-owned PT Semen Gresik is utterly ill-advised and could even kill the negotiations before they start.

It was initially a good decision on the part of the Susilo government to treat the four-year dispute with Cemex as a high- profile case -- one that needs to be resolved quickly to restore investor confidence. Aburizal, who was assigned by President Susilo Bambang Yudhoyono, to handle it, spent last week traveling around the world meeting with Cemex directors in France, Chile and Mexico.

The President's decision to make the case a priority demonstrates that the government does not want to repeat the gross mistakes made by the Megawati government in handling its disputes, particularly with Karaha Bodas Company (KBC). The American-controlled power firm ended up with an international arbitration court's ruling -- and subsequent court rulings -- requiring the government to pay almost US$300 million in damages to the American company.

Even though the government has stubbornly refused to pay KBC, and has even hit back at the American power company by jailing on Tuesday one of its executives in Jakarta on charges of tax evasion, Indonesia's reputation among international investors has again been severely damaged. In yet a more devastating consequence, American banks, on orders from a U.S. court, have frozen around $650 million in Pertamina and government accounts.

But now a blunder by Aburizal of an otherwise good decision by the government, could kill the new government's initiative even before the government-Cemex negotiations advance to a point where they are discussing actual resolutions. The government should realize that a loss in this Cemex case could cost Indonesian taxpayers at least $500 million.

Some of the information that has been leaked out about the series of preliminary talks Aburizal engaged in over the last week, could lead the Susilo government into the same big mistakes as those repeatedly made by then Minister of State Enterprises Laksamana Sukardi under the Megawati government.

Koran Tempo newspaper, quoting sources close to Aburizal, reported on Tuesday that the government would propose to Cemex that it take over the Gresik unit of PT Semen Gresik in Surabaya, East Java and in return, the Mexican company would withdraw its arbitration case at the Washington-based International Center for the Settlement of Investment Disputes (ICSID), an arm of the World Bank.

Such a premature disclosure of the proposal, without first notifying the people in East Java, including the local legislators, about the plan, could unnecessarily set off a new wave of excessive nationalistic emotions directed against Cemex if the foreign company were to take over one of the largest companies in that province. Semen Gresik is one of the three cement units owned by the Semen Gresik group. Semen Padang in West Sumatra and Semen Tonasa in South Sulawesi are the other two units.

In fact, it was just such a nationalistic uproar that was exploited by vested interest groups in West Sumatra, thus precipitating a plan to split Semen Padang from the Gresik Group after Cemex bought 25.5 percent of Gresik's shares in 1998.

It is worth reminding that Semen Gresik, the country's largest cement group, has been embroiled in an endless dispute and litigation with its Semen Padang subsidiary, which demanded a total spin off from Semen Gresik as its holding company.

The failure of the government, as the 51 percent owner of Semen Gresik, to resolve the dispute and control the "rebellious" management of Semen Padang between 2000 and 2003 caused the violation of the 1998 Conditional Sale and Purchase Agreement between the government and Cemex and forced the Mexican company to take its case to the ICSID.

Yet even more devastating was the hundreds of billions of rupiah in losses found through a recent investigative audit of Semen Padang by PricewaterhouseCoopers.

The Megawati government had previously offered Cemex two options, but the options were so commercially and politically infeasible that it appeared to be a smoke screen to buy time. The Megawati government last August tried again to delay the arbitration proceedings at the ICSID by offering to buy Cemex's 25.5 percent stake. But again, this offer turned out to be another simplistic deception to buy time.

Unfortunately, the Susilo government risks committing similar mistakes. The premature disclosure of the government-Cemex negotiations while the talks are still at a very preliminary stage, could again be seen by the Mexican company as another form of subterfuge by the government to buy time.

This will not help build mutual trust between the disputing parties, but trust is what is needed most, as it is the basic foundation for successful negotiations that could lead to a win- win settlement.