Putting the Semen Padang case to rest

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