E. Java joins in to urge govt to scrap Gresik deal

Berni K. Moestafa and Dadan Wijaksana The Jakarta Post Jakarta

The government may have lost its last bit of provincial support for the planned sale of PT Semen Gresik this year, as the governor of East Java joined opposition in West Sumatra and South Sulawesi rejecting the sale of state-owned cement firms to Mexico's Cemex SA de CV.

The governor of East Java, Imam Utomo, said on Tuesday he had sent a letter to President Megawati Soekarnoputri urging the government to maintain a majority stake in Semen Gresik, which is located in the province.

"But the point was that I wanted the government not to sell PT Semen Gresik," he was quoted as saying by Antara.

He said it was the second letter he had sent to the central government since last year, prompted by protesting Semen Gresik employees who rejected the sale.

Some 500 Semen Gresik employees have threatened to go on strike if the government pursues its plan to sell its majority stake in the firm.

They joined forces with West Sumatra and South Sulawesi, where Semen Gresik operates two major subsidiaries.

The government planned to sell its 51 percent stake in the Semen Gresik Group, a holding company comprising Semen Gresik, PT Semen Padang in West Sumatra and PT Semen Tonasa in South Sulawesi.

But the plan has been staunchly resisted by those with vested interests in it from West Sumatra and South Sulawesi. Local political leaders insist that Semen Padang and Semen Tonasa should remain state firms without foreign investors to meddle.

Last week the government unveiled a new plan, in which it would sell its remaining 51 percent stake in Semen Gresik and use the proceeds to buy back a majority stake in Semen Padang and Semen Tonasa, leaving the two under national control.

Cemex would still own 76 percent of Semen Gresik and a minority stake in Semen Padang and Tonasa.

But what was hoped to be a win-win solution has drawn fire from certain West Sumatra leaders.

Some legislators and informal leaders of the province called the new plan an insult to the province's pride, repeating demands that Semen Padang be spun off from Semen Gresik entirely.

Protests also broke out in South Sulawesi.

"We'll obviously lose out in the sale. With the ownership in the hands of a foreign investor, we won't be able to control anything," East Java governor Imam explained.

The fiery demonstrations that occurred in West Sumatra and South Sulawesi have not occurred in East Java.

But, if the East Java population were to turn against the plan, as in the other two areas, it would make it very difficult for the government to justify the sale, and the privatization program could shatter and become fruitless, further alienating foreign investors as well as multilateral lenders.

By privatizing Semen Gresik, the government hopes to net at least $200 million, and possibly as much as $520 million under the previous plan, to finance this year's state budget deficit.

More at stake though is the government's credibility, after three years of attempts to sell Semen Gresik have got it no where closer to a deal.

The government is torn between appeasing regional leaders, and demonstrating to foreign investors that it is able to push ahead with much needed asset sales.

The government has been lagging behind with a number of asset sales, most notably the Bank Central Asia case, which underscores the difficulties investors face in acquiring Indonesian assets.

Through privatization and asset sales, the government hopes to revitalize investment in this country and as such boost economic growth.

With domestic investors still reeling from a crippled banking sector, much of the investment is expected to come from overseas.

Few investors, if any, still have confidence in the country. But, now what little remained of that confidence may soon vanish if the government loses the Semen Gresik deal and that could spell economic disaster.

However, State Minister of State Enterprises Laksamana Sukardi stood firmly by his plan on Tuesday, saying it was the best option.

The new plan has yet to receive Cemex's consent, and is also subject to approval of Semen Gresik's independent shareholders, who comprise 23 percent of the total.

"Cemex has not received an official offer from us yet. There will be terms and conditions that we will propose as soon as possible," he said.