How Semen Gresik got into this mess

The Jakarta Post, Jakarta

In retrospect, Semen Gresik's dilemma dates back to 1995.

When then president Soeharto's authoritarian government allowed Semen Gresik to acquire Semen Padang in West Sumatra and Semen Tonasa in South Sulawesi in early 1985, the move was hailed as a strategic effort to consolidate the three state-owned cement companies into a synergic entity.

The synergy resulting from the integration of the three cement units was supposed to generate great benefits through higher efficiency in procurement and marketing and an increased credit rating, thereby lowering their borrowing costs.

Most importantly, as Semen Gresik was already listed on the Jakarta Stock Exchange in 1991, the other two units were automatically subject to strict capital market regulations on audits, disclosure and good corporate governance.

No one dared to challenge the consolidation of the three businesses even though then finance minister Mar'ie Muhammad issued a directive on June 5, 1995, which stipulated that despite the consolidation, Semen Padang and Semen Tonasa remained autonomous companies.

Soeharto's order then always prevailed.

But Mar'ie's directive turned out to be a time bomb that would explode after the fall of Soeharto.

The drive for Semen Padang's separation from Semen Gresik escalated after the government, desperate for cash amid the height of the multi-dimensional crisis left behind by Soeharto, sold shares in Semen Gresik in October, 1998.

Cemex won a 25.5 percent stake in the company through a competitive bid by paying a 127 percent premium on the share price and became the only major foreign investor that took the plunge in Indonesia during that period of great uncertainty.

But the operational consolidation virtually stopped and the synergy between the three cement units evaporated after Soeharto's ouster. Semen Padang, though legally still a subsidiary of Semen Gresik, operated like a stand-alone company with its own marketing and procurement system.

No wonder, Semen Padang never contributed anything to Semen Gresik and has instead become a burden and headache for Semen Gresik over the past five years, according to Semen Gresik's president Satriyo.

Reports in Jakarta and Padang newspapers in 2000 and 2001 told of how a number of local politicians and senior officials allegedly used Semen Padang as their cash cow through questionable transactions with the company.

Semen Gresik's shareholders have even failed since early 2002 to replace Semen Padang's management. The shareholders' order for the Semen management to convene an extraordinary shareholders meeting was bogged down in a law suit that is now awaiting a ruling from the Supreme Court.

Where else in the world can shareholders fail to legally replace the management of their company?

Semen Gresik also failed to issue its consolidated financial report for 2002 by the March 31, 2003, deadline because Semen Padang could not complete its financial audit due to what its management claims were technical problems with its new electronic data processing system.