Govt warned not to cancel Semen Padang's spin-off

JAKARTA (JP): State cement producer PT Semen Padang has urged the government to go ahead with plans to spin off the Semen Padang unit from the Semen Gresik holding company, in fear that a reversal might trigger strong reactions from people in West Sumatra.

Semen Padang president Ikhdan Nizar warned that the people in the province of West Sumatra would be very upset if Semen Padang lost its status as a state company.

"They are likely to react harshly," Ikhdan said when asked what would happen if the government reversed its decision to spin off Semen Padang from the Semen Gresik Group (SGG).

He was responding to local media reports quoting several economists as saying on Wednesday that spinning off Semen Padang would be a major setback to attracting foreign investment.

The government plans to spin off Semen Padang from Semen Gresik to allow Mexican-based cement producer PT Cemex Indonesia raise its stake in Gresik after people in West Sumatra opposed Cemex's plan.

Ikhdan urged the government to keep its promise to the West Sumatra people in not letting Semen Padang fall into foreign hands.

"For the people of Padang, the biggest ethnic group in West Sumatra, this is a matter of pride," he said.

According to him, when rumors abounded that Cemex would become SGG's majority shareholder in 1998, locals began blockading Semen Padang's production facilities.

He said the government managed to prevent the situation from worsening, only after it promised that Cemex would remain a minority shareholder.

Asked whether locals could turn violent again, he said,"I don't know, you can try (their reaction) if you dare."

Local protests against companies can turn ugly such as in the case of pulp producer PT Indorayon Utama near Lake Toba in North Sumatra.

Indorayon was forced to shut down both of its pulp and rayon plants in 1998 after strong protests from locals that their operations damaged the environment.

Violent clashes between locals and security personnel added to the resentment locals harbored against the company.

Indorayon has remained closed until today even though the government has allowed it to reopen its pulp plant.

"I just want to operate in a safe and peaceful environment," Ikhdan added.

Locals in West Sumatra claim that Semen Padang's plant occupies their ancestors land, for which they have never received compensation.

The people of Padang, Ikhdan said, were not demanding a share in the company, nor was their local government.

"Their (locals) idea of a state company is a company that is owned by the state and the public," he explained.

Ikhdan said that personally he thought spinning off Semen Padang would bring the company greater economic benefits.

In 1995 the government merged Semen Padang, PT Semen Tonasa and Semen Gresik into SGG, to break the virtual oligopoly of private cement producers in the domestic market.

Ikhdan said during that time, the government regarded cement as a strategic commodity, thereby subject to regulated trading.

But the government later revoked the strategic product status of cement, thus allowing the commodity to be freely traded, he said.

"There is no reason anymore for us (SGG) to remain one (a strategic commodity); let the free market handle competition, it is in line with the IMF (the International Monetary Fund)," he said.

So far, he said, Semen Padang's growth was impeded by SGG's policy not to allow their markets to overlap.

He also dismissed Cemex's important role in raising Semen Padang's global competitiveness, saying that becoming a global player was not his priority.

"Cement is a bulky and cheap product. It's high transportation costs make it rather commercially unfeasible as an international commodity. A cement mill therefore must serve its nearest market to remain competitive," he explained.

SGG is 51 percent owned by the government, 25.53 percent by Cemex, and 23.46 percent by the investing public.(bkm)