RI, Cemex likely to resume legal battle

Rendi A. Witular, The Jakarta Post/Jakarta

With the deadline fast approaching, and no out-of-court deal made, the government is gearing up for a legal battle at the international arbitration court to settle its years of dispute with Mexican cement giant Cemex SA.

Coordinating Minister for the Economy Aburizal Bakrie said on Friday the two opposing sides were unlikely to reach a settlement by the Feb. 28 deadline, prompting both parties to continue with the legal proceedings.

Still, Aburizal refused to completely rule out the possibility of striking an out-of-court deal, even when the deadline had passed.

"After Feb. 28, we will launch a parallel effort to continue the court battle, while at the same time seeking a better option for the out-of-court settlement," said Aburizal after attending the opening of the Capital Market Exhibition.

Cemex had earlier agreed to the government's request for the suspension of a lawsuit scheduled for Jan. 11 to pave the way for settling the dispute out of court, with both parties agreeing not to continue with any proceedings until Feb. 28.

The Cemex dispute arose when the government failed to fulfill its side of an investment deal signed in 1998. Under the deal, Cemex was to acquire majority control in state cement producer PT Semen Gresik, but its West Sumatra subsidiary, PT Semen Padang, opposed the arrangement.

Cemex countered by filing a lawsuit with the International Center for the Settlement of Investment Disputes.

The government has been under pressure to resolve the dispute quickly to help restore investor confidence and avoid paying huge penalties of over US$500 million.

Aburizal said the government would remain with its current options to help settle the dispute with Cemex out of court, with the small possibility of adding a new one.

"We are still sticking with the current options for settling the dispute. We will do our best so that Cemex will finally agree to one of the options," he said.

Aburizal refused to disclose the options, but according to sources at the Office of the State Minister of State Enterprises, the options will include the sale of Semen Gresik plants in Tuban, East Java, to Cemex, the proceeds of which would probably be used to build new cement plants.

Other options include a buy-back mechanism, whereby the government would purchase Cemex's 25.5 percent stake in Semen Gresik. After selling off Gresik's subsidiaries -- PT Semen Tonasa and PT Semen Padang -- it would allow Cemex to retake control of Gresik.

Another is to allow Cemex to build new cement factories in the country to help meet the increasing demand expected from the government's massive infrastructure projects.

Elsewhere, regarding a proposal from Bank Mandiri to help settle the dispute by buying back Cemex shares in Semen Gresik at the expense of selling the bank's 10 percent shares to the public, Aburizal said it was not a feasible option for the government.

"The proposal by Bank Mandiri is not feasible. We have rejected it," said Aburizal.