Fri, 12 Dec 2003

Cemex seeks arbitration over Semen Gresik row

The Jakarta Post, Jakarta

After showing great patience for several years, Mexican cement giant Cemex SA has finally decided to take its case to an international arbitration panel to resolve a protracted dispute over its plan to acquire Indonesia's largest cement maker state- owned Semen Gresik.

Cemex said that its affiliate Cemex Asia filed on Wednesday a request for arbitration against the government of Indonesia before the International Centre for Settlement of Investment Dispute (ICSID), a Washington-based affiliate of the World Bank.

Cemex said in a statement on Thursday that it was compelled to file the petition with the international court after efforts to negotiate and reach a solution failed. It did not provide details.

In an earlier report, Cemex said it would ask ICSID to rescind the original Semen Gresik purchase agreement and order the government of Indonesia to pay all related costs and expenses, including compensatory damages.

Cemex in September 1998 paid US$290 million for a 25.5 percent stake in state-owned Semen Gresik, with an option to increase its stake to 51 percent by the end of 2001. But the company has not been able to implement the second phase of the acquisition plan amid protests from the management of Semen Gresik's rebellious West Sumatra unit PT Semen Padang and politicians campaigning against foreign control of local assets.

The government has not been able to resolve the dispute, and had asked Cemex to remain patient and continue negotiating.

Many analysts acknowledge that the Cemex case would be viewed by many as an acid test and a negative result would further harm the country's already weak investment climate.

Coordinating Minister for the Economy Dorodjatun Kuntjoro- Jakti as well as State Minister for State Enterprises Laksamana Sukardi declined to comment on the issue.

A senior government official has earlier said that Cemex had offered three options to resolve the case: the government quickly implemented the 1998 agreement; the government buys out the Cemex 25.5 percent stake in Semen Gresik; or Cemex injects fresh capital into Semen Gresik to dilute the government's ownership in the publicly listed company.

But Semen Gresik labor union chief A. Zubair Halim urged the government on Thursday to maintain its 51 percent control over the company, and not to surrender to pressure from Cemex.

He was quoted by Antara as claiming that Semen Gresik was one of the country's strategic assets.

Semen Gresik, which is based in East Java, has a combined production capacity of 17.25 million tons, of which Semen Padang contributes around 5.5 million tons a year, while its South Sulawesi unit PT Semen Tonasa contributes some 3.8 million tons.