Govt proposes six options to Cemex

Urip Hudiono, The Jakarta Post, Jakarta

The government will propose six final options in its negotiations with Mexican cement giant Cemex SA for an out of court settlement over a lengthy investment dispute in the country's largest cement producer PT Semen Gresik, a senior economic minister said.

Besides the six options, the government will also allow Cemex to build new cement factories in Indonesia as part of its package of deals for the case, as well as to fulfill the country's expected rise in cement demand on the back of planned infrastructure development projects next year.

"We have agreed on six final options, which we will immediately start negotiating with Cemex," State Minister of State Enterprises Sugiharto told reporters on Saturday, after a meeting with senior ministers on the case.

The Cemex case is handled by the Coordinating Minister for the Economy Aburizal Bakrie, Minister of Finance Yusuf Anwar, Minister of Trade Mari E. Pangestu, Minister of Industry Andung Nitimihardja, State Secretary Yusril Ihza Mahendra, and Sugiharto himself.

Sugiharto, however, refused to disclose what the options were, and only reiterated that their main parameter was to keep the government's 51 percent controlling stake in Gresik.

"We will negotiate all of the options one by one with Cemex, beginning with the first option, then the second then the third, until an agreement is reached," he added. "And we will fight all out over each option."

Sugiharto then explained that the government has formed a five-person team to negotiate the options with Cemex.

"The team will consist of deputy ministers from the related ministries, and will begin negotiating with Cemex on Dec. 20," he said. "We are expecting a solution by the end of the year, with a main target of Cemex' law suit being withdrawn."

And Sugiharto was sure that a solution for the case was not far off, as Cemex has been showing positive signs as well.

"Gresik's recent shareholder meeting was successful, without any dispute over its management lineup," he said.

Although refusing to explain what the options were, Sugiharto revealed that the government would also let Cemex build new cement factories in the country.

"Building a new factory is an option. It could be carried out parallel to our efforts to seek an out of court settlement for the Cemex case," he said, explaining that Indonesia desperately needed such investments by next year in connection with major infrastructure projects planned in 2007.

"So anyone who has money is welcome to invest in building new cement factories, particularly in Gresik, which still has the potential to increase its production capacity," he said.

The Cemex case emerged after the management of Gresik's subsidiary PT Semen Padang and local politicians opposed an option to let Cemex increase its shares in Gresik to a majority stake -- as stipulated in a 1998 investment deal -- on fears that foreigners would dominate the country's cement industry. Cemex then filed a lawsuit with the International Center for the Settlement of Investment Disputes, demanding the government pay damages.

Besides the risk of having to pay huge penalties, the government is also under pressure to quickly resolve the dispute to help revive investor confidence in the country.