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)