Govt to reneg on Cemex deal again

Berni K. Moestafa, The Jakarta Post, Jakarta

The government decided on Friday to sell a 51 percent stake in state-owned cement producer PT Semen Gresik to Mexico's Cemex SA de CV and use part of the proceeds to repurchase majority shares in two subsidiaries, striking a path between appeasing those opposed to foreign control, while hopefully upholding legal certainties before foreign investors.

Highlighting the cost of this compromise, the plan may cut the net proceeds from a deal with Cemex by a hefty US$320 million.

"We expect a net proceed of $200 million," said State Minister for State Enterprises, Laksamana Sukardi.

Semen Gresik's original deal was worth $520 million.

Still, this assumes that the government can convince Cemex as well as the people involved in the subsidiaries in question, PT Semen Padang and PT Semen Tonasa, to approve the plan.

A deal to sell Gresik to Cemex has been floundering apparently due to nationalistic opposition of foreign control in Gresik's two units.

Laksamana said the government would sell Gresik but use the proceeds to buy back its two units in a spin off from Gresik.

"To accommodate everybody, the government will buy back its majority shares in PT Semen Padang and PT Semen Tonasa from Semen Gresik," Laksamana said.

The complex deal would involve the government first selling its remaining 51 percent stake in Semen Gresik to Cemex, which already owns a 25 percent stake and bring it up to 76 percent, with the remaining 23 percent owned by individual investors.

Using the proceeds from the sale, the government would then buy back a majority stake of 51 percent in the two subsidiaries.

Laksamana said the deal would allow Padang and Tonasa to remain under national control, a key demand from people in the provinces of West Sumatra and South Sulawesi, who have a stake in keeping it under national control. Those people include workers and local leaders.

If Laksamana's plan was to go into effect Cemex would still control a 49 percent stake in each of the two companies.

From this deal the $200 million profit would be applied toward this year's privatization target of Rp 6.5 trillion (about $622 million). Thus far, the government has nothing to show for its privatization plan as none of the state-owned companies have been sold.

Proceeds from the privatization will help cover the state budget deficit of an estimated Rp 50 trillion this year.

Laksamana further cautioned that the new plan was subject to approval from Cemex and Gresik's public shareholders.

He said a team would immediately start negotiating with Cemex.

"I am sure Cemex is still interested...but we need to renegotiate the terms of the contract," he said.

Cemex first entered Gresik in 1998 with an 11 percent stake, which it plans to increase through a put option deal.

Under this put option deal, the government owns the right to sell a 51 percent stake in Semen Gresik for $520 million, which Cemex must accept.

The deal should have expired in October, but its deadline was postponed to Dec. 14, 2001 upon the government's request, bowing to opposition pressure at Padang and Tonasa.

At Semen Padang, where the opposition is strongest, locals argued that the company was a source of provincial pride, and should remain under national control.

Semen Gresik has become a showcase for foreign investors who complain of the difficulties in obtaining Indonesian assets.

Political instability, inconsistent law enforcement and a weak legal system, all of which are plagued by corruption are dampening investor interest in the country.