House urges government to dissolve SGG

House urges government to dissolve SGG

JAKARTA (JP): The House of Representatives called on the
government on Monday to dissolve Semen Gresik Group (SGG) and
allow member companies to operate independently.

The House Commission V for trade and industry said the merger
of East Java-based PT Semen Gresik, South Sulawesi-based PT Semen
Tonasa and PT Semen Padang in West Sumatra into Semen Gresik
Group had produced no beneficial results.

In its recommendation, issued after a hearing with the Semen
Gresik Group, the House called on the government as majority
shareholder in the publicly listed cement group to call an
extraordinary meeting of shareholders to approve the breakup.

"Generally speaking, consolidation just has not been
profitable," said Azwir Dainy Tara, deputy chairman of the
commission.

Azwir said the assumed benefits of consolidating the three
companies failed to work out in practice.

In 1995 the government merged Semen Padang, Semen Tonasa and
Semen Gresik into SGG, to prevent private cement producers from
controlling the domestic market.

Semen Gresik paid Semen Padang and Semen Tonasa a total of Rp
1.06 trillion (US$112.76 million at current rate) for their
stakes.

Together, they have a production capacity of 18.2 million
metric tons of cement, against the country's total capacity of 45
million tons.

But president of Semen Gresik, Urip Timuryono, expressed
objections to the House's recommendation, claiming that the
benefits were real.

He said the consolidation allowed state owned cement producers
to leverage their control over market prices against private
cement producers.

"The consolidation can dictate the market price for the
interest of the government," he explained.

Urip also said that joint marketing effort within the three
cement companies had also created synergy, because each company
served the market closest to its location.

Under the joint marketing efforts, he said, the three cement
producers could cut transportation costs in competing against the
private producers.

"Otherwise, state companies will be competing against one
another in different regions," he went on.

However, the House argued that their performance had dropped
after 1995 because of the consolidation.

It cited Semen Padang's explanation that part of its domestic
market share had been allocated to the other two producers. The
West Sumatra-based cement producer is now relying on the export
market.

In its recommendation, the commission said that the three
companies should be allowed to trade and distribute their cement
independently, until the breakup was finalized.

The commission also viewed the presence of the Mexican-based
PT Cemex Indonesia in SGG as not bringing any substantial
benefits.

Cemex, the world's third largest cement producer, entered
Indonesia in 1998, by paying the government about $114.2 million
for a 25 percent stake in SGG.

The company plans to become a majority shareholder in SGG, but
faces resistance from the Padang people, who refused foreign
control over their company.

Urip said the government had agreed to spin off Semen Padang
from SGG, to pave the way for Cemex to raise its stake.

However, he said the government was still counting the breakup
costs.

According to him, Gresik should receive compensation for the
funds it used to acquire Semen Padang's stake. "We must see
whether the government is prepared to do this," he said.

Cemex president Fransisco Noriega said his company was still
waiting for the government to submit a proposal on the planned
spin off.

"We have not been approached by anybody from the government...
so we have nothing new," he told reporters after the hearing.

He said the government had been working on the proposal since
mid-year.

Noriega denied having made threats to pull out of Indonesia,
as reported in several media earlier this month.

"There is no deadline, as a deadline itself. Yes, we want to
have a quick decision from the government, we have been patient
enough," he said.

He suggested that shareholders and group stakeholders sit
together to discuss an amiable solution.

But Noriega refused to comment on the question whether Semen
Gresik was still attractive to Cemex without Semen Padang.

"I prefer to wait until there is a formal proposal from the
government,' he said, adding that the company would be flexible.
(bkm)