Government - Cemex dispute settlement bombing out

Government - Cemex dispute settlement bombing out

Rendi A. Witular, The Jakarta Post, Jakarta

The government postponed the settlement of its protracted dispute
with Mexican cement giant Cemex SA after both sides failed to
agree on several points in the proposed out-of-court settlement,
a minister said on Tuesday.

"We were hoping that there would be progress in our
negotiations with Cemex on Monday. However, by 2 p.m. we had
failed to reach an amiable agreement," said State Minister of
State Enterprises Sugiharto at the State Palace on Tuesday.

The government and Cemex were scheduled on Tuesday to sign a
memorandum of understanding, which would serve as a basis to end
the four-year dispute over Cemex's right to control state firm PT
Semen Gresik, the country's largest cement producer.

The failure to end the dispute may well further hurt investor
confidence in Indonesia, at a time when the country is in dire
need of foreign financing for its massive infrastructure projects
to support economic growth of above 6 percent annually in the
next five years.

Sugiharto said both parties would need more time to reexamine
the proposed settlement so as to gain mutual understanding to end
the row, without having to disadvantage either party.

"We failed to agree upon several points in the settlement
scheme ... After the delay, we cannot forecast when the
settlement deal will be signed," said Sugiharto, refusing to
specify details of the disputed points.

A source at the Office of the State Minister of State
Enterprises, however, said that the postponement could be mainly
attributed to President Susilo Bambang Yudhoyono, who rejected
the settlement scheme.

"There was a meeting between the President and Sugiharto on
Monday night to discuss the settlement scheme scheduled to be
signed with Cemex the following day. However, the President
rejected the scheme and ordered a revision," said the source.

Solving the dispute is one of Susilo's top priorities during
his 100-day governmentship, which deadline is on Friday.

According to the source, some of the points rejected by the
President concerned a plan to hand over control of Semen Gresik's
three plants in Tuban, East Java, to Cemex, in exchange for
allowing the government to maintain a majority stake in the
company.

Included also in that plan was the setting up of a new joint
company owned equally by Semen Gresik and Cemex, to serve as a
holding company for cement factories to be built in the future.

The Tuban plants are considered the heart of Semen Gresik's
production since they supply 80 percent of market demand in Java,
Bali and Kalimantan with an installed capacity of 7.5 million
tons per year.

Cemex currently has a 25.53 percent stake in Gresik while the
government has a 51.01 percent stake, with the remainder held by
private investors.

The Cemex dispute emerged after the management of Gresik
subsidiary PT Semen Padang and local politicians opposed an
option allowing Cemex to increase its shares in Gresik to a
majority stake as stipulated under a legitimate contract in 1998.

Cemex took the case to the International Center for the
Settlement of Investment Disputes (ICSID), demanding the
government pay damages for not upholding its contractual
obligations.

However, Cemex agreed to postpone the hearing at ICSID earlier
this month, pending the completion of the out-of-court settlement
negotiations.