Gresik dispute intensifies

Cemex is preparing to take the Indonesian government to court over its long-delayed plan to take over the country's largest cement maker. After years of delays, Cemex is expected this week to ask a panel of international arbitrators to rescind the purchase agreement and award damages to the Mexican-based company.  "The central government looks like it doesn't have the credibility or power to exercise its rights as the owner of Semen Gresik," said Anton Gunawan, an economist at Citibank in Jakarta. "This will hurt the already bad investment climate in Indonesia."

Cemex also will ask arbitrators to order the Indonesian government to pay all related costs and expenses, including compensatory damages, according to the person. The World Bank's arbitration affiliate, known as the ICSID, provides mediation services in disputes between private investors and governments; ICSID has resolved 79 cases since the mid-1970s, and currently has 64 cases pending. Cemex's problems with Semen Gresik date to the middle of 2001, when the legislature of the province of West Sumatra declared that it was taking over Semen Padang to prevent it from being sold. Semen Padang accounts for about a quarter of Semen Gresik's total cement capacity of 14Mta.  The lack of cooperation from Semen Padang officials has prevented Semen Gresik from finalizing its financial accounts for the 2002 financial year. The Jakarta Stock Exchange has threatened to delist Semen Gresik's shares unless it does so soon.