Indonesia in for messy Cemex litigation

Indonesia in for messy Cemex litigation

The Jakarta Post, Jakarta

The Indonesian government is in for a messy, multimillion
dollar litigation after the Washington-based International Center
for Settlement of Investment Disputes (ICSID) has registered a
request for arbitration submitted by Cemex regarding a dispute
involving the Mexican company and its late-1998 acquisition of
25.50 percent of state-controlled PT Semen Gresik (SG).

Cemex's representative office here confirmed on Thursday the
decision by the ICSID, an affiliate of the World Bank, but
declined to provide further information.

ICSID regulations and rules stipulate that an official
registration means that the arbitration body has accepted the
request -- filed by Cemex in mid-December -- as a case that
merits a hearing and is entirely within its jurisdiction.

Cemex, the world's third largest cement company, said in mid-
December that it had been compelled to file a request for
arbitration with the ICSID after several attempts it made failed
to reach a negotiated or mediated solution in the dispute over
its investment in Indonesia's largest cement group.

The ICSID was set up in 1966 under the United Nations
Convention on the Settlement of Investment Disputes between
States and Nationals of Other States, to which Indonesia is a
signatory.

A lawyer familiar with the ICSID's arbitration proceedings
said on Thursday that the process could take between one to three
years, but once the arbitration body reached a decision, the
verdict was final and neither party could make an appeal.

"The ICSID's registration of the Cemex request shows that the
Mexican company has a very strong case against Indonesia, because
the arbitration body is very selective regarding those cases it
is willing to hear," added the lawyer, who requested anonymity.

Both parties -- the government and Cemex -- are required to
propose their respective arbitrators within the next 30 days, and
the ICSID will appoint an independent arbitrator to form a three-
member tribunal.

According to ICSID rules, the losing party, besides having to
pay an award to the winner as decided by the tribunal, is
required to reimburse all costs for the arbitration proceedings
borne by the winning party.

The lawyer estimated that the costs of the proceedings --
including the fees of arbitrators and lawyers and their out-of-
pocket expenses -- could reach more than US$50 million.

The government has often acknowledged its failure to fulfill
several provisions of the agreement it concluded with Cemex in
September 1998. State Minister of State Enterprises Laksamana
Sukardi has also been quoted by reporters as conceding that
Indonesia would possibly lose if Cemex brought its grievances to
an international arbitration court.

The SG issue arose almost four years ago after its
subsidiaries -- PT Semen Padang in West Sumatra and PT Semen
Tonasa in South Sulawesi -- with the full support of vested
interest local groups, demanded complete independence from SG.

Semen Padang was especially aggressive in its fight for a
total split from SG, even embroiling the holding company in a
series of lawsuits. SG has also been in trouble with the Jakarta
stock market watchdog for failing to publish an audited
consolidated balance sheet for 2002, because the old Semen Padang
management refused to have its books independently audited.

Most analysts have criticized the government, which owns 51
percent of SG, for its unwillingness to resolve the dispute.
While the government did attempt negotiations with Cemex, the
options it offered were so economically and politically
unfeasible that the effort was seen by Cemex more as a stall for
time.