Semen Gresik asks government to reclaim shares from Cemex

Semen Gresik asks government to reclaim shares from Cemex

Rendi A. Witular, Gresik, East Java

The management of state-owned cement producer PT Semen Gresik
(SG) has asked the government to buy back shares in the firm from
Mexico-based cement giant Cemex SA to resolve a protracted
dispute over Cemex's investment in the state-owned company.

SG president Satriyo said this option would have less of a
negative impact on the future operation of the company, and would
satisfy both Cemex and the government.

"The government should buy back the shares at a premium price
rather than proceeding with the case through arbitration .... It
is more efficient and I believe the government has the funds for
that," Satriyo said over the weekend.

The dispute between the government and Cemex, the world's
third-largest cement maker, centers on the company's failure to
acquire a controlling stake in SG, as stipulated in a 1998
acquisition agreement.

Cemex bought a 25.5 percent stake in SG from the government
for US$290 million in 1998, with an option to increase the stake
to 51 percent by the end of 2001. The sale was part of the
government's privatization program.

However, the government has been unable to deliver its side of
the deal due to strong protests by PT Semen Padang, the West
Sumatra-based unit of SG.

Attempts to resolve this problem have been unsuccessful,
leaving Cemex's investment here facing an uncertain future. The
company has asked the International Center for the Settlement of
Investment Disputes (ICSID) to act as an arbiter in its dispute
with the government over its investment in SG, Indonesia's
largest cement maker.

Cemex has asked the ICSID to rescind the 1998 purchase
agreement and has demanded that the government cover its
investment outlay and pay damages.

However, Cemex would likely face even more problems if it
insisted on taking control of the company because most SG workers
have asked the government to maintain its controlling stake in
the company.

Huge signs outside and inside the company's headquarters in
Gresik, East Java, spell out the desire of the SG workers and its
union for the government to remain in charge of the company.
According to several SG officials, the signs were hung more than
two years ago with the consent of the management.

Satriyo is optimistic the government can resolve the dispute
before the tenure of the current government ends on Oct. 20 of
this year.

Elsewhere, Semen Gresik finance director Cholil Hasan said the
company had allocated some Rp 400 billion ($44 million) to reduce
its consolidated debts in the form of bonds and bank loans, which
totaled Rp 738 billion as of June this year.

"Our debts will mostly mature in 2006. We are trying to
immediately reduce them in order to lower our interest burden,"
Cholil said.

Cholil, however, said the company was likely to reduce its
debts only by about Rp 200 billion by the end of this year, as
most of the company's bondholders refused to redeem their
investment before the maturation period because of the high yield
of the bonds. The bonds carry a rate of 19 percent per annum.

The publicly listed company also plans to allocate about Rp
3.5 trillion for expansion, possibly in the next two to three
years. Currently, the company has a consolidated output of 17.2
million tons of cement per year.