Local administrations may secure shares in Semen Gresik: Kalla

The Jakarta Post ,  Jakarta   |  Mon, 05/15/2006 12:28 PM  |  Business

The Jakarta Post, Jakarta

The government has not yet responded to Cemex SA's decision to sell its stake in state-owned cement maker PT Semen Gresik (SG) to Rajawali Group, as it is still looking for ways to allow local administrations to have some of the shares.

Vice President Jusuf Kalla told reporters Friday that the State Ministry for State Enterprises was still evaluating the offer and would come up with a comprehensive approach.

""Just wait, we will have an overall settlement package in five days, including options to give local administrations some shares in SG, as well as several settlement proposals related to the ongoing arbitration process,"" said Kalla, a former businessman.

Mexican-based Cemex recently signed a conditional sales and purchasing agreement with local investor Rajawali Group to sell its 24.9 percent stake in SG for US$337 million. But the transaction is still subject to government approval since the government is the majority shareholder. SG is the country's largest cement maker by output.

Cemex, the world's third largest cement maker, owns 25.5 percent of the shares in the publicly-listed SG, with 51 percent controlled by the government and the remaining 23.5 percent by the public.

Kalla's statement came following reports last week quoting a source saying State Minister for State Enterprises Sugiharto had requested that Rajawali, controlled by Peter Sondakh, allocate 14 percent of the SG shares to firms owned by the local governments of West Sumatra, East Java and South Sulawesi.

The East Java-based SG has two subsidiaries including PT Semen Padang in West Sumatra and PT Semen Tonasa in South Sulawesi.

Cemex decided to sell its stake in SG in a bid to end a four-year dispute with the Indonesian government, which failed to fulfill an investment deal signed in 1998. At that time, Cemex agreed to buy SG shares in the government's first major privatization program following the Asian financial crisis.

Under the deal, Cemex was supposed to be able to acquire a controlling stake in SG later, but the management of Semen Padang and some politicians in Jakarta and West Sumatra adamantly opposed the deal in 2002. It was eventually supported by the both the local and central government.

Cemex then filed a legal case against the government of Indonesia with the International Center for the Settlement of Investment Disputes (ICSID) in Washington D.C.

The arbitration is ongoing. Lawyers from the Indonesian side have insisted that the legal battle to be moved to Singapore, claiming that the ICSID is unlikely to come up with a fair judgment.

Sidebar

Govt's move on SG transaction criticized

The plan by State Minister of State Enterprises Sugiharto to allot part of Cemex's shares in SG to firms owned by local governments has not only drawn criticism, but also appears unfeasible due to time constraints.

One obstacle is that local governments first need to obtain the approval of local lawmakers and the Ministry of Finance in order to use local administration budgets to finance the purchase of the SG shares. This is a lengthy process that is unlikely to be completed within five days.

Surprisingly, this is the opinion of the legal department of the State Ministry of State Enterprises, a copy of which was leaked to the press late last week. The opinion highlights the fact that some officials within the ministry disagree with Minister Sugiharto's move to push regional governments to acquire the SG shares, a maneuver that could scuttle the deal between Cemex and Rajawali Group.

In fact, the Secretary of the State Ministry for State Enterprises, M. Said Didu, warned his boss and other top government officials to be very careful in handling the Cemex-Rajawali transaction, as the success of the deal is key to making Cemex drop its arbitration case. The cash-strapped government may have to pay millions of dollars in compensation for Cemex if it loses in court.

Independent observers and lawmakers have also warned the government not to meddle too far in the Cemex-Rajawali transaction. They allege that the move to push local governments to acquire part of the SG shares is only a ploy to put the shares in the hands of certain well-connected investors. -- JP

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