The tale of Indonesia's cement Taj
Mahal By Bill Guerin
JAKARTA -
"It's all over for Cemex, and as far as we're concerned
they can go back to Mexico," said Titi Nazif Lubuk,
deputy leader of the West Sumatra legislative assembly.
She was speaking on November 1, 2001, the day the local
parliament usurped Jakarta's authority by announcing its
unilateral takeover of Semen Padang, the local
subsidiary of publicly listed Semen Gresik.
The
move, described by Titi as an example of "people power"
by the coup leaders, a motley crew of provincial
politicians, renegade corporate leaders and local
Islamic clerics, had posed a significant challenge to
the authority of President Megawati Sukarnoputri who
then was less than four months into office.
Now,
with only six weeks to go until the country's first-ever
direct presidential elections and as Jakarta prepares
for international litigation, the Padang locals have
fired a warning shot across the bows of the five
candidates, including Megawati, who are vying for the
top spot.
Local public leaders and senior
politicians, a local tribal leader and a local newspaper
owner, together with the province's Indonesian Youth
National Committee, staged a mass rally over the
weekend, demanding that Jakarta halt the sale of all
state assets, including Semen Padang, to foreign
investors.
Titi was in the front line once
again, as was the provincial governor, Zainal Bakar, who
was widely quoted as saying at the time of the 2001
takeover that Semen Padang is West Sumatra's Taj Mahal,
a symbol of local pride that must not be sold to
foreigners.
Titi put forth another argument at
the time. The fact that the Semen Padang industrial
complex, which employs nearly 3,000 people and is the
largest single employer in the province, is built on
communal lands and customary law prohibits it from being
handed over to foreigners, she said.
But many
believe the real objective of those behind the unlawful
spinoff and the renewed pressure on Jakarta is to keep
Semen Padang as their cash cow ready to be milked at
will.
The Semen Gresik group, which is based in
Surabaya, the provincial capital of East Java, owns
99.99 percent of Semen Padang shares and also owns Semen
Tonasa in South Sulawesi.
The government owns 51
percent of Semen Gresik, while the public holds a
further 23.46 percent and Monterrey-based cement giant
Cemex SA (Cemex) owns the remaining 25.53 percent.
The Washington-based International Center for
Settlement of Investment Disputes registered a request
for arbitration submitted by Cemex in December.
The long-running controversy dates back to 1995
when the Suharto government allowed Semen Gresik to
acquire the Padang and Tonasa subsidiaries in a move
hailed as consolidating the three state-owned cement
companies into a synergic entity, providing higher
efficiency and an increased credit rating, thereby
lowering their borrowing costs.
After Suharto's
resignation, the desperate need for cash forced the B J
Habibie interim administration to sell off a 25.5
percent stake in Semen Gresik in October 1998.
Cemex won a competitive bid at US$1.38 per share
and paid $290 million. This was equal to a 127 percent
premium on the share price, and the deal earned the
Mexicans great kudos as the only major foreign investors
to take the plunge in Indonesia during the grimmest
months of the regional financial crisis.
The
deal made sense for both Cemex, by then the world's
third-largest cement producer, and for Jakarta's
privatization program and the country as a whole. The
sale was the first under privatization and Cemex was
given a special "put option" giving it the right to buy
another 51 percent stake in the company by the end of
2001.
However, amid threats and intimidation
from Padang, Jakarta broke up Gresik's three units two
weeks before the three-year conditional
sale-and-purchase agreement expired.
If the
government caved in, it was argued, other state-owned
holding companies, which own and manage airports,
seaports and mining units in several provinces, might
also face a similar political impasse as renegade local
leaders joined the bandwagon and claimed their rights to
state assets. Sure enough, by the end of 2001, local
legislators in Sulawesi were demanding that the Semen
Tonasa plant also be spun off.
There were also
fears that other groups in West Sumatra might demand the
spinoff of the Ombilin coal unit located in the province
from its holding company, publicly listed,
government-controlled PT Bukit Asam Coal Co, based in
South Sumatra.
Any hopes that the central
government would face down the local government of West
Sumatra and the implicit regional threat to its
authority were wide of the mark. Instead of being
resolute and pushing ahead with Gresik's privatization,
Jakarta allowed the assets to be taken away without
legal grounds.
The government was between a rock
and a hard place. If it pressured the main minority
shareholders, Cemex, to agree to the split, the screams
of "nationalization" would have drowned out the noise
coming from the streets of Padang, and would likely have
scared off investors in all sectors for a very long
time.
Conversely the cash-strapped government
could not afford to pay huge amounts of compensation in
the event that Cemex called Jakarta's bluff and agreed
to a spinoff.
A letter sent in April 2003 by
State Minister for State Enterprises Laksamana Sukardi
to West Sumatra Governor Zainal Bakar added to the
confusion. The letter stated that the central
government, as the majority owner of Semen Gresik,
understood the aspirations of the West Sumatra people,
and therefore approved of their demand for Semen
Padang's spinoff from Semen Gresik.
Oddly
enough, the letter, described as a "meaningless
political goodie" by one analyst, also warned that any
decision on the split would be based on the provisions
of the Law on Limited Liability Companies and
regulations governing publicly listed companies. This
meant in essence that government approval was not a
legal requirement because Semen Gresik's minority
shareholders, who consist of the investing public with
23.5 percent and Cemex with 25.5 percent, would approve
any ensuing total separation.
Last September,
after months of failed attempts, Semen Gresik was
finally able to regain control of Semen Padang, but not
before hundreds of troops and police were deployed to
escort the new management into the compound. This took
place despite a local court ordering the existing
management to leave the company.
Their
reluctance to leave was explained in part by media
reports in Jakarta and Padang that claimed the 2001 coup
leaders, who included Semen Padang directors and several
legislators and business owners close to the West
Sumatra governor, had benefited from supply contracts
and other lucrative marketing arrangements with Semen
Padang and exporting Semen Padang cement.
As for
Semen Gresik, PricewaterhouseCoopers was asked in
December to re-audit its accounts, and the Jakarta Stock
Exchange has set a deadline of this Friday, May 28, for
the group to file its consolidated 2002 and 2003
accounts, or face the risk of share suspension.
Cemex plans to ask the Washington-based
arbitration court to rescind the original agreement and
order the Indonesian government to pay all related costs
and expenses, including compensatory damages
Calls for a spinoff have continued, even after
Cemex registered its arbitration claim. Semen Gresik's
president, Satrio, warned off the government in
February, advising it to postpone the plan to sell more
shares to Cemex. "The local people are not in the mood
for such a plan, especially during the general
election," he said.
The bitter experience in
Indonesia, however, has apparently not affected Cemex's
outlook on new acquisitions. "We are interested in being
in any part of the world," chief executive Lorenzo
Zambrano told a shareholders meeting last month. "We
continue to study where we can invest."
The
negative impact on investor confidence in Indonesia by
more international litigation against Jakarta can hardly
be overstated but there is also a wider threat implicit
in the success of the Padang coup.
Foreign
ownership of Semen Gresik is a politically divisive
issue. After Saturday's rally a petition was issued,
signed by senior politicians from the West Sumatra
chapters of the Crescent Star Party (PBB), the National
Mandate Party (PAN), the New Indonesia Alliance Party
(PIB) and the PKPI. Other signatories were the local
regent, who also chairs the provincial chapter of the
United Development Party (PPP), as well as the local
leader of the Prosperous Justice Party (PKS), Mahyeldi
Ansharullah.
Sukardi said at a news conference
shortly after the Padang locals commandeered the factory
in 2001: "This is about the interests of the nation. I
hope that the people of Padang can understand that."
He could not have foreseen the split in
parliament resulting from no single party holding enough
seats to exert its authority, and this division whipping
up regional sentiments by appeals to local pride and
xenophobia. This state of affairs could have dire
consequences for the new government, come this October.
Foreign investors will want to see evidence that
central government policy, widely supported in
parliament, will win the day and that such prevarication
and capitulation to provincial and district governments
will not be perpetuated by a new administration.
As for Cemex, it may well be in the mood to cut
its losses, pursue the arbitration in Washington, and
then get out of Indonesia, as Titi suggested two and a
half years ago.
(Copyright 2004 Asia Times
Online Co, Ltd. All rights reserved. Please contact content@atimes.com for
information on our sales and syndication policies.)
