Putting the Semen Padang case to rest

Saldi Isra, Padang

A new page was turned in the history of Indonesia's antigraft campaign when the district court in Padang, after a few weeks of legal process, ruled in May that 43 councillors of West Sumatra's legislative assembly were guilty of corruption.

Most people in the province attributed the great achievements of the anti-graft drive to the hard work and perseverance of local civil-society organizations and the good cooperation of local law-enforcing agencies.

Yet more important is that the success has triggered similar anti-corruption drives in many other provinces, resulting in the prosecution of hundreds of district or provincial legislators.

However, the great success is not able yet to improve foreign investors' negative perception of the people and local administration in West Sumatra in specific relations to the imbroglio encountered by PT Semen Padang company since 2001.

It is still fresh in our memory that on Nov. 1, 2001, the West Sumatra legislature issued a political decision endorsing the statement of a group, which claimed to represent the local people, which in effect put PT Semen Padang under their control until this cement unit spun off from its holding company, PT Semen Gresik, and was restored to its pre-1995 legal status as a fully state-owned company.

Semen Gresik, a publicly-listed company, which is 51 percent owned by the government, almost 25.5 percent by Mexico's Cemex and 23.5 percent by the investing public, is Indonesia's largest cement group.

In terms of constitutional law, the decision of the assembly is basically flawed, reflecting inconsistencies and a breach of law on the part of the legislature. Moreover, in the context of corporate law, there is no such term as a "temporary takeover".

Therefore, the statement on the "temporary takeover" only led to legal confusion, in that problems related to criminal law were mixed with those related to civil law -- and that the authority of the administration was jumbled with that of legitimate shareholders of a legal business entity.

In retrospect, it is known that, at the community level, many people in West Sumatra even questioned the legitimacy of the"political declaration" which was purportedly made on behalf of the people.

People who live around the Semen Padang site, for example, do not even care about the spin-off issue. What mostly matters to them is how their communal land, from which the raw materials for cement production have been extracted, will give them the biggest economic benefits and how Semen Padang's community programs will help local economy.

Sponsors of the spin-off campaign desperately tried to link the "temporary takeover" with an attempt to restore the dignity and pride of the West Sumatra people. They even labeled those opposing the takeover as traitors.

In fact, it must honestly be admitted that after Semen Padang developed into a financially strong company, this cement unit had been exploited by local political leaders as their cash cow.

This course was not unusual, especially under Soeharto's New Order administration, where almost all state companies had been treated as cash cows by senior officials and political leaders in collusion with their business cronies.

Immediately after the launching of regional autonomy in 2001, members of the legislature joined the rent-seeking fray and easily colluded with government officials to milch Semen Padang.

Several vested interest groups had mounted opposition to the central government's decision to divest its controlling stake in Semen Gresik to Mexico's Cemex, the world's third largest cement group, in 2001, afraid that they would no longer be able to use Semen Padang as their cash cow.

They subsequently escalated their opposition to demanding that Semen Padang be restored as a wholly state-owned company through a spin off from Semen Gresik.

When the spin-off campaign needed local political support, some councillors of West Sumatra legislative assembly found this as a good opportunity to gain access to Semen Padang's business.

Just witness how local and national newspapers reported between 2001 and 2003 so many questionable and allegedly collusive business deals between Semen Padang and a number of local officials and regional councillors.

These collusive business deals had been made possible by Semen Padang's previous management, which had fully supported and used the company's funds to finance the campaign in the province and lobbying in Jakarta.

In view of the development of circumstances around Semen Padang, many people believe that the drive to make Semen Padang an independent state-owned enterprise is nothing but a tactical step to preserve the company as a "milch cow".

Given these circumstances and developments, we cannot consider the campaign for the spin-off a genuine aspiration of the majority of West Sumatra people.

One indication could be seen in what the sponsors of the spin-off claimed to be the "grand rally for the spin-off struggle" on May 22, 2004, which actually was attended only by few hundreds of people. This clearly showed that the spin-off issue did not enjoy broad support from the local community.

I believe the majority of West Sumatra people are quite rational when viewing the development of this spin-off issue. They also should have taken note of the financial mismanagement in Semen Padang until the old management was finally ousted last September.

An internal audit of Semen Padang, for example, found that in the 2002-2003 period the company incurred losses of Rp 115 billion or US$13 million (Kompas, 24/02, 2004).

Field observations have shown that many people hope the Semen Padang case can be settled once and for all, but, unfortunately, the Megawati government remains hesitant about making a firm decision.

Consequently, a lot of damage has been done to Semen Padang and to its holding company, Semen Gresik, which had several times been suspended from trading on the Jakarta Stock Exchange because its independent auditor classified its consolidated financial reports for 2002 and 2003 with a disclaimer.

Protracted legal problems with Semen Padang also had prompted Cemex last December to file a law suit against the Indonesian government at the International Center for Settlement of Investment Dispute, an affiliate of the World Bank, in Washington.

Now is the right time to take a concrete step toward the settlement of the Semen Padang case. Legal action must be immediately taken before the spin-off issue becomes part of the political agenda of the new councillors of the West Sumatra legislative assembly for the 2004-2009 period.

The writer is a lecturer at the School of Law at Andalas University and coordinator of the Forum Peduli Sumatera Barat (FPSB, Forum for Concern for West Sumatra), which was largely responsible for the anticorruption campaign against legislators in the province. Saldi can be reached at sisralat@yahoo.com