Govt ready to face worst scenario in Cemex dispute

Govt ready to face worst scenario in Cemex dispute

Rendi A. Witular, The Jakarta Post, Jakarta

Ahead of the hearing on the dispute between PT Semen Gresik and
Cemex SA at the International Center for the Settlement of
Investment Disputes in Washington D.C., scheduled to last from
July 28 through July 30, the Indonesian government says it has
prepared itself "for the worst".

"Despite our preparations for the worst-case result on Cemex
at international arbitration, we are still keeping our doors open
for negotiations outside the legal framework," Coordinating
Minister for the Economy Aburizal Bakrie said at the State Palace
on Wednesday.

The decision to bring the dispute to arbitration was taken by
giant Mexican cement producer Cemex after the Indonesian
government failed to offer proposals that were acceptable to the
company by the due date of Feb. 28.

Cemex had earlier agreed to the government's request for the
suspension of a lawsuit scheduled for Jan. 11 to pave the way for
settling the dispute out of court, with both parties agreeing not
to continue with any proceedings until Feb. 28.

The dispute arose out of the government's (alleged) failure to
fulfill its side of an investment deal signed in 1998. Under the
deal, Cemex was to acquire a majority stake in Semen Gresik, but
the management of the company's West Sumatra subsidiary, PT Semen
Padang, adamantly opposed the deal.

Cemex then filed for arbitration with the International Center
for the Settlement of Investment Disputes.

The government has been under pressure to resolve the dispute
quickly to help restore investor confidence and escape paying
huge penalties of over US$500 million.

Aburizal, however, said the government had strong legal
grounds to oppose Cemex. He said that based on the 1998 deal,
there was no clause stipulating a government obligation to sell a
majority stake in Semen Gresik to Cemex within a certain period
of time.

"We are in a strong position. The contract says Cemex can buy
the controlling stake if the government, at its own volition, has
decided to relinquish it. It is a put-option deal, without any
time constraints," he said.

The government has insisted on retaining a majority stake in
Semen Gresik because of anticipated high demand for cement in the
local market following the government's decision to embark on a
massive infrastructure development program.