Ahead of the hearing on the dispute between PT Semen Gresik and Cemex SA at the International Center for the Settlement of Investment Disputes in Washington DC, scheduled to last from July 28 through July 30, the Indonesian government says it has prepared itself for the worst. "Despite our preparations for the worst-case result on Cemex at international arbitration, we are still keeping our doors open for negotiations outside the legal framework," Coordinating Minister for the Economy Aburizal Bakrie said at the State Palace on Wednesday.
The decision to bring the dispute to arbitration was taken by giant Mexican cement producer Cemex after the Indonesian government failed to offer proposals that were acceptable to the company by the due date of Feb. 28. 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 dispute arose out of the government’s (alleged) failure to fulfill its side of an investment deal signed in 1998. Under the deal, Cemex was to acquire a majority stake in Semen Gresik, but the management of the company’s West Sumatra subsidiary, PT Semen Padang, adamantly opposed the deal. Cemex then filed for arbitration 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 escape paying huge penalties of over US$500 million.
Aburizal, however, said the government had strong legal grounds to oppose Cemex. He said that based on the 1998 deal, there was no clause stipulating a government obligation to sell a majority stake in Semen Gresik to Cemex within a certain period of time. "We are in a strong position. The contract says Cemex can buy the controlling stake if the government, at its own volition, has decided to relinquish it. It is a put-option deal, without any time constraints," he said. The government has insisted on retaining a majority stake in Semen Gresik because of anticipated high demand for cement in the local market following the government’s decision to embark on a massive infrastructure development program.