Padang's brinkmanship game

President Megawati Soekarnoputri's government was either so lame-duck that it was incapable of acting immediately and firmly or was so completely ignorant of the grave implications that it simply sat back and relaxed after the West Sumatra administration and legislative council declared on Thursday what they described as the "take over" of the Semen Padang unit of state majority- owned Semen Gresik.

Whatever the reason, the political declaration on the take- over is completely illegal. It could even be classified as a subversive act as it could sabotage whatever the government is doing now and planning to do in the future to lead the nation out of the economic crisis.

It is not yet too late for the government to act firmly against those responsible for the unlawful action, including the Semen Padang board of directors, who have not only supported the declaration but have allegedly been the key players behind the demand for Semen Padang's spin off from its holding company, the publicly-listed Semen Gresik.

The management should immediately be suspended and the central government, as the 51 percent owner of Semen Gresik, should invite Mexico's Cemex, holding 25.53 percent, and the investing public, which owns 23.47 percent, to an extraordinary shareholders' meeting to ensure the cement unit maintains its normal operations.

Alas, we cannot find a word in the dictionary to describe a government that is unable to protect its property rights.

As we have often argued in this column, the demand for the separation of Semen Padang from Semen Gresik is by no means a negotiable issue. That is completely under the authority of the shareholders to decide. It is also an issue that, on the basis of the regulations governing the stock market, should be resolved by the minority shareholders because the clause on conflicts of interest bars the government from taking part in voting on such an important corporate matter.

The argument raised by the supporters of the spin-off demand that Semen Padang cannot be sold to foreign investors because the plant partly uses locals' ancestral lands for its limestone quarries is completely groundless and a total fallacy. The real objective of the sponsors of the spin-off campaign is to keep Semen Padang as their cash cow.

Just look at Semen Gresik's 2000 financial report. Semen Padang was the worst performer among its three cement units and the most inefficient due to questionable practices in its export and local distribution and procurement systems. In fact Semen Padang lost Rp 46 billion last year.

The community in Lubuk Kilangan subdistrict, where Semen Padang operates, has repeatedly asserted in public statements that it doesn't care who owns the plant as long as it improves community development programs, gives high priority to locals with regard to employment and helps locals develop cement distribution capabilities.

This is the issue that the government and Cemex should address seriously. Judging from what Cemex has so far communicated to the central government and local people, that is precisely the approach that has so far been pursued by the Mexican company. Cemex itself seems determined to ensure that its control of Semen Gresik and its Semen Padang and Semen Tonasa units would not damage its impressive track record of good corporate governance in more than 30 countries around the world where it owns or operates over 65 cement plants and almost 500 ready-mix concrete and aggregate plants. Moreover, Cemex is not a fly-by-night fund manager but a respectable company listed on the New York stock exchange.

Cemex has been generous to extend the deadline for the government to exercise its put option to sell its remaining 51 percent stake in Semen Gresik from Oct. 26 to Dec. 14. Moreover, the put option was committed in October, 1998, when Cemex was the only foreign investor willing to take the plunge in Indonesia at the height of its economic and political crises. The price set for the put option in 1998 is also more than three times as high as the Semen Gresik share quotation on the Jakarta stock exchange now.

Besides bringing in more than US$520 million to the cash- starved government, the deal with Cemex will help reinvigorate a cement industry that is now suffering from huge over-capacity and will jump start the process of restoring foreign investor confidence in Indonesia.

The Semen Padang issue is surely one of the areas where the government cannot compromise, not only because it would set a bad precedent that could precipitate similar unlawful actions in other provinces. A spin off would entirely kill the government's privatization program, destroy the public's trust in the stock market and scare away foreign investors.