BUSSINES LAW CASE STUDY

Investment Dispute of CEMEX Asia Holdings Ltd and

Indonesian Government (Semen Gresik)

Prepared by :

Muhammad Zakky Alif

Pramita Riskia Dhaliarti Putri

Master of Management International Class 1

Gadjah Mada University
2016

Muhammad Zakky Alif and Pramita Riskia Dhaliarti Putri

Magister of Management, UGM. International Class 1
Lecturer: Gatot Soemartono, PhD
Background
Indonesian cement industry investment in the more promising, it is marked with the
number of property development undertaken. Forbes July 2014 edition put Semen Indonesia in
17th position for 2014 Indonesia Best Company. Another cement company, Holcim Indonesia is
entering the 28th position. The progress of cement companies in Indonesia cannot be separated
from issues of privatization. Privatization is the sale of stock to the public and the resulting
reduction in the percentage of government ownership.
Semen Gresik is the largest government-owned cement company. In 1998 CEMEX Asia
Holdings Ltd a Singaporean subsidiary of CEMEX took a minority stake of Semen Gresik and
held an option to buy a 51% stake by 2001. This option lapsed thanks to local opposition to a
foreign-takeover of Semen Gresik. CEMEX sought to pressure the government to make good on
its commitment, or to purchase back CEMEXs minority share in Semen Gresik. When talks
reached a stalemate, the investor lodged a claim at the International Centre for Settlement of
Investment Disputes (ICSID) for breach of contract and de-facto expropriation under the 1987
ASEAN Agreement for the Promotion and Protection of Investments on Article III (2)
Investments of nationals or companies of and obligations Party in the territory of other
Contracting Parties shall at all times be accorded fair and equitable treatment and shall enjoy
full protection and in the territory of the host country.
An ICSID arbitration tribunal consisting of Yves Fortier, Robert Von Mehren, and
Brigette Stern received written jurisdictional objections from Indonesia in December of 2004,
but a decision on jurisdiction had yet to be reached in the case. Settlement agreed by the parties
and settlement recorded at their request in the form of an award (Award embodying the parties'
settlement agreement rendered on February 23, 2007, pursuant to Arbitration Rule 43(2)).
(2) Any objection by a party to the dispute that that dispute is not within the jurisdiction of the
Centre, or for other reasons is not within the competence of the Commission, shall be considered

by the Commission which shall determine whether to deal with it as a preliminary question or to
join it to the merits of the dispute.
The details of the settlement arrangement have not been made public, however the AFX
news service has reported that the arrangement may involve the sale of other cement assets to
CEMEX in return for its abandoning its arbitral claim.
Problems
1. Why CEMEX Asia Holdings Ltd. sought to pressure the government to purchase back
CEMEXs minority share in Semen Gresik?
Analysis
Disputes between CEMEX and the Indonesian government initiated by the disappointment
of CEMEX Asia Holdings Ltd to the Indonesian government to rig the conditional purchase
agreement (conditional sale and purchase agreement / CSPA) SG by CEMEX shares which were
signed on 17 September 1998. CEMEX to buy 14% stake in Semen Gresik by the Indonesian
government with the method put option. A put option is an option contract giving the owner the
right, but not the obligation, to sell a specified amount of an underlying security at a specified
price within a specified time. This is the opposite of a call option, which gives the holder the
right to buy shares. However, the agreement with CEMEX did not have a realization. The
government does not want to sell their shares due to pressure from various parties.
Because the Asian market is a promising market, especially Indonesia, CEMEX declined
to sell their shares back to the government because they want to maintain their existence in
Indonesia. That is when the CEMEX stake in Semen Gresik has been increased to 25.53%. Then
CEMEX filed Indonesian government to ICSID arbitration in Singapore with big demands of
US$ 500 million.
During the process of resolving issues both within and outside of the trial, the
government judged to be transparent in explaining issues to the public. Because as a public
company, any plan related to the disposition of assets should be communicated to the public.
This makes the public speculate negatively about the government. One is the public allegations
to the Indonesian government to release Tuban I, II and III belong to SG to CEMEX. In the

resolution of this case, the Indonesian government was considered not confident of winning the
case, despite the fact that a lot of evidence that can be presented at the ICSID.
Suggestion
Some experts considered that the solution to fix this problem is primarily to repurchase
shares of Semen Gresik by the government. Offers from CEMEX deals can be closed by a
dividend of Semen Gresik, Semen Padang and Semen Tonasa. However, this solution is likely to
be difficult, because CEMEX may still determine to maintain the investment in Semen Gresik.
Another solution is Semen Gresik must release ownership of two subsidiaries, Semen Padang
and Semen Tonasa to prevent concentration of national cement market by foreign investors.
But, regarding to current condition a Singaporean subsidiary of the Mexican cement
company, CEMEX Asia Holdings Ltd. has agreed to settle a claim against the Indonesian
government in relation to a disputed option to purchase a majority stake in an Indonesian firm.
Source
1. ICSID CONVENTION, REGULATIONS AND RULES by https://icsid.worldbank.org/ICSID
2. The 1987 ASEAN Agreement for the Promotion and Protection of Investments by
http://www.asean.org/
3. Cemex Asia Holdings Ltd v. Republic of Indonesia (ICSID Case No. ARB/04/3) in
https://icsid.worldbank.org/apps/icsidweb/cases/Pages/casedetail.aspx?caseno=ARB/04/3
4. Investment Law and Policy Weekly News Bulletin, February 6, 2004
www.iisd.org/investment

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