Indonesia set for Cemex litigation

The Indonesian government is in for a multimillion dollar litigation after the Washington-based International Center for Settlement of Investment Disputes (ICSID) has registered a request for arbitration submitted by Cemex regarding a dispute involving the Mexican company and its late-1998 acquisition of 25.50 percent of state-controlled PT Semen Gresik.  Cemex’s representative office here confirmed on Thursday the decision by the ICSID, an affiliate of the World Bank, but declined to provide further information.

A lawyer familiar with the ICSID’s arbitration proceedings said on Thursday that the process could take between one to three years, but once the arbitration body reached a decision, the verdict was final and neither party could make an appeal.  "The ICSID’s registration of the Cemex request shows that the Mexican company has a very strong case against Indonesia, because the arbitration body is very selective regarding those cases it is willing to hear," added the lawyer, who requested anonymity.

According to ICSID rules, the losing party, besides having to pay an award to the winner as decided by the tribunal, is required to reimburse all costs for the arbitration proceedings borne by the winning party.  The lawyer estimated that the costs of the proceedings -- including the fees of arbitrators and lawyers and their out-of-pocket expenses -- could reach more than US$50m.

The  Gresik issue arose almost four years ago after its subsidiaries -- PT Semen Padang in West Sumatra and PT Semen Tonasa in South Sulawesi -- with the full support of vested interest local groups, demanded complete independence from Gresik.  Most analysts have criticized the government, which owns 51 percent of the company, for its unwillingness to resolve the dispute. While the government did attempt negotiations with Cemex, the options it offered were so economically and politically unfeasible that the effort was seen by Cemex more as a stall for time.