`Govt must not take unilateral action in cement dispute'

`Govt must not take unilateral action in cement dispute'

Dadan Wijaksana, The Jakarta Post, Jakarta

Any unilateral action by the government to spin off cement
companies PT Semen Padang and PT Semen Tonasa from their
publicly-listed parent company PT Semen Gresik (SG) would cause a
convoluted legal dispute, a law expert said.

The move would also be detrimental to the government's
privatization program, said Todung Mulya Lubis, a lawyer for
Semen Gresik said.

"This (spin-off approval) would create a bad precedent, and
other state-owned firms that have been privatized might ask for
similar treatment," Todung told The Jakarta Post on Monday,
adding that this would further damage the country's credibility
in the eyes of investors.

Owning 99.9 percent of the shares in both Semen Padang and
Semen Tonasa, SG is 51 percent owned by the government, 23.46
percent by the investing public, with the rest of the company
being owned by Mexico's Cemex SA de CV. SG is currently the
country's largest cement manufacturer with a total capacity of
around 17.25 million metric tons.

Todung was commenting on the latest developments regarding the
status of SG's subsidiaries, Semen Padang and Semen Tonasa, which
are located in the provinces of West Sumatra and South Sulawesi
respectively.

Some people, including politicians, local government officials
and employees of the companies in the two provinces have long
been demanding that the central government spin off Semen Padang
and Semen Tonasa from SG.

State Minister for State Enterprises Laksamana Sukardi is
reported to have sent a letter to the governor of West Sumatra
approving the demand for a spin-off as long as it did not violate
the law.

However, Todung challenged this, saying it would run counter
to the prevailing legislation governing limited liability
companies and the capital market.

Under these provisions, minority shareholders are given a say
in any major corporate actions undertaken by publicly listed
companies. "So, the government is not completely to do as it
likes as the majority shareholder in this case," Todung argued.

The fact that, according to sources, copies of the letter were
never sent to SG's management, nor Cemex's, has raised eyebrows
over the validity of the letter, and what it actually means.

Worse still, Todung added, if the government went ahead with
the spin-off plan, it would have to compensate both the public
and Cemex.

"When Cemex, and the public, bought SG shares, the paid their
money based on the assumption that SG's total output was around
17.25 million metric tons.

"But if the two subsidiaries are hived off, this would mean
that the shares were overpriced as the company's production
capacity will be much lower," Todung said.

Semen Padang and Semen Tonasa have a combined production
capacity of around 9 million metric tons in total.

Given the consequences if the government were to proceed with
a spin-off plan, many would tend to doubt that the move would
secure the approval by SG's upcoming shareholders' extraordinary
meeting.

The government has said that it expects the meeting to be held
in the middle of next month at the latest.

The real reasons behind Laksamana's letter remain unclear, but
there is speculation that the move is aimed at cooling down
tensions in the region.

Semen Padang is no stranger to controversy. It was the
company's fierce opposition, backed up by the provincial
executive and legislature, that forced the government two years
ago to cancel the planned sale of the 51 percent SG stake in the
Padang operation to Cemex.