Govt may seek new investor to buy out Semen Gresik

Govt may seek new investor to buy out Semen Gresik

The Jakarta Post, Jakarta

The government is considering seeking a new investor to buy out
the shares of Cemex SA in state-owned cement maker PT Semen
Gresik in a bid to resolve a protracted dispute with the Mexican
cement giant, State Minister for State Enterprises Laksamana
Sukardi said on Monday.

He said that the government did not have enough money to
repurchase the shares. "I don't think we have the funds. Our
state budget is in deficit," he told reporters as reported by
detik.com.

"Resolving the dispute does not have to involve only the two
parties (government and Cemex). There could also be a third party
(new investor)," he said, adding that the prospects for the
country's cement industry was still quite promising.

He declined to name the potential investor, saying that it was
still confidential.

Last week, Cemex asked the International Center for the
Settlement of Investment Disputes (ICSID), an affiliate
organization of the Washington-based World Bank, to act as an
arbiter in its dispute with the government over its investment in
Semen Gresik, Indonesia's largest cement maker with a
consolidated annual output of 14 million tons.

The dispute centers on Cemex's failure to acquire a
controlling stake in Semen Gresik as stated in a 1998 agreement
with the government of Indonesia.

In the wake of the country's late 1990s financial and economic
crisis, Cemex reached an agreement with the government to buy a
25.5 percent stake in Semen Gresik for US$290 million. But the
September 1998 deal also provided an option for Cemex to increase
its stake to 51 percent by the end of 2001. Cemex is the world's
third largest cement maker.

However, the government could not perform its side of the deal
due to strong protests from PT Semen Padang, the West Sumatra-
based unit of Semen Gresik, and local politicians, who ostensibly
claimed to be opposed to the idea of the company being controlled
by a foreign investor. Attempts to resolve this problem have been
unsuccessful, leaving Cemex's investment here facing an uncertain
future.

Cemex has asked the ICSID to rescind the 1998 purchase
agreement and demanded the government of Indonesia cover the
company's investment outlay and pay damages.

But a spokesman for Cemex in Jakarta last week told The
Jakarta Post that an out of court settlement was still possible
as long as the government could come up with a "convincing
proposal".

Laksamana said that the government was now in negotiation with
Cemex to seek the best possible solution to the case. Analysts
have said the Cemex case could further undermine foreign investor
confidence in the country.