RI, Cemex likely to resume legal battle

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.