Semen Padang Dispute Settlement through the Center for Settlement of Disputes
By: Irma Hanafi
The Semen Padang dispute is the impact of problems following the change in the implementation of the regional government system from a centralized system to a decentralized regional government, resulting in lawsuits arising against state assets located in the regions, including the extent of the authority and involvement of local communities in these assets and lawsuits against the Central Government's policies in managing these assets.
Furthermore, the protracted Semen Padang case reflects legal uncertainty for investors in Indonesia. Various conflicts of interest have arisen, including those concerning the application of corporate law, investment law, customary law, and various other legal aspects. Various political overtones have also influenced the resolution of the dispute, leading foreign investors, in this case Cemex, to divest their investments in Semen Padang, a subsidiary of Semen Gresik.
The conflict between the old Board of Directors (who had been dismissed through an EGMS) and the new Board of Directors (who were appointed through the same EGMS) reflects the occurrence of legal uncertainty in the application of corporate law as regulated in Law No. 1 of 1995 concerning limited liability companies. This causes legal uncertainty for the shareholders of PT Semen Gresik as the owner of PT Semen Padang, especially the foreign partner of PT Semen Gresik shareholders, namely Cemex.
Even though the new Board of Directors was finally able to enter the factory area through the execution process, however, the Semen Padang case has provided a negative picture for legal certainty for making investments in Indonesia, because in any case, the interests of investors who have good intentions to make investments in Indonesia must be protected by the laws applicable in Indonesia.
Due to legal issues within PT Semen Padang, the sale of shares to Cemex, as agreed in the Conditional Sales and Purchase Agreement (CPSA) between the Indonesian government and Cemex, was ultimately not realized. Cemex ultimately submitted this dispute to the International Center for Settlement of Disputes (ICSID) as the international commercial arbitration court.
Some legal facts about the Semen Padang dispute,
1) In 1958, Dutch companies were nationalized. Indonesian President Sukarno announced that all Dutch assets in Indonesia would be nationalized, including Semen Padang.
2) To make PT Semen Padang healthy, the people of Nagari Lubuk Kilangan handed over 127 hectares of customary land to the West Sumatra Regional Government without payment and the West Sumatra Regional Government handed over the land to PT Semen Padang.
3) In July 1995, Semen Padang and Semen Tonasa were acquired by Semen Gresik. In October 1998, Semen Gresik was privatized.
4) In 1998, Cemex entered Indonesia by purchasing 25,5% of shares in Semen Gresik and made an agreement with the Indonesian government through a conditional sales and purchase agreement (CSPA) which one of the objectives was that Cemex could increase its shares to a majority (put option) in other words, Cemex could purchase 51% of the government's shares, this option was valid until the deadline of October 26, 2001, but until that deadline, the government did not realize the sale of shares to Cemex.
5) The government's option to sell 51% of its shares to Cemex was opposed by the West Sumatran community. Semen Padang's top management argued that the factory was built on customary land that could not be easily sold, let alone to a foreign party. Furthermore, Semen Gresik's acquisition of Semen Padang was not supported by adequate legal documentation, such as government regulations. On November 1, 2001, the West Sumatran community, through the Regional People's Representative Council (DPRD), demanded the separation of Semen Padang from Semen Gresik.
6) On March 28, 2002, State-Owned Enterprises Minister Laksamana Sukardi requested that Semen Padang's board of directors be replaced through an Extraordinary General Meeting of Shareholders (EGMS). Semen Padang rejected the request for the replacement of the board of directors. This objection was then brought to the Padang District Court. The Padang District Court's decision denied permission for Semen Padang to hold an EGMS with the agenda of replacing the board of directors.
7) On September 19, 2002, Semen Gresik filed an appeal against the Padang District Court's decision and on April 29, 2003, the Supreme Court permitted the Semen Padang EGMS, the result of which was the replacement of the Semen Padang Board of Directors.
8) August 13, 2003, Cemex asked the government to immediately resolve the turmoil at Semen Gresik, and threatened to file a lawsuit with international arbitration.
9) January 27, 2004, a lawsuit was filed with ICSID (International Center for Settlement of Investment Disputes) in Washington, DC, United States. In the lawsuit, Cemex asked the court to impose a fine of around US$ 400 million on the government.
10) January 2005, the Government, in this case Semen Gresik and Cemex, agreed to postpone the arbitration hearing and choose to resolve the dispute outside the court.
11) March 2, 2006, Cemex stated that it would release its shares in Semen Gresik and submitted its share sale plan to the Ministry of State-Owned Enterprises.
12) May 4, 2006, Rajawali Group purchased 24,9% of Cemex's shares in Semen Gresik for US$ 337 million (Rp. 2,9 trillion).
13) In early 2007, the Indonesian Government and Cemex exchanged documents, including regarding the withdrawal of claims at the ICSID arbitration court.
The Indonesian government was deemed to have violated the CSPA (Conditional Sales and Purchases Agreement), a sales and purchase agreement signed by the government with Cemex in September 1998. One of the points of the agreement was that Cemex was entitled to own 51% of Semen Gresik's shares, which included subsidiaries Semen Padang and Semen Tonasa. Until the deadline of October 26, 2001, the Indonesian government still failed to fulfill its obligations under the agreement to sell 51% of its shares to Cemex.
Cemex filed a dispute with the Indonesian Government to the ICSID as an investment dispute, the hearing of which was then set to take place on January 11, 2005. The Indonesian Government requested a postponement of the hearing until July 28-30, 2005, on the grounds that it would first undergo negotiations or out-of-court negotiations (out-of-court settlement). In early 2006, Cemex appointed JP Morgan as a financial advisor to divest its 25.53% stake in Semen Gresik. In 2007, Cemex shares were purchased by PT Rajawali Group for US $ 337 million, and Cemex withdrew its arbitration demands against the Indonesian government and terminated the CSPA sales and purchase agreement it had entered into with the Indonesian government.
The Cemex dispute with Semen Padang is a dispute in the field of investment, so it is necessary to refer to the International Center for Settlement of Disputes (ICSID) which is tasked with providing various facilities for the implementation of conciliation and arbitration, concerning disputes arising between countries where the investment is made with citizens or with foreign legal entities (Article 1 paragraph 2 of ICSID) in this case Cemex with the Indonesian government. Article 25 paragraph 1 of ICSID states that the agreement to submit the settlement to ICSID is irrevocable unilaterally. In this Cemex case, Cemex together with the Indonesian government agreed to postpone the trial and take a solution by deliberation and consensus, namely negotiation.
Article 32, paragraphs 1 and 3 of Law Number 25 of 2007 concerning Investment regulates the method of resolving disputes arising from investment between the government and foreign investors. There are two methods for resolving disputes between the Indonesian government and foreign investors, namely:
1. Deliberation and consensus
2. International arbitration
Looking at the settlement of the Cemex and Semen Padang case dispute, it was initially going to be resolved through the ICSID International Arbitration Court but was then canceled before there was a court process (decision) and both parties agreed to resolve their problems outside the court by means of deliberation and consensus through negotiation. Negotiation is a direct negotiation between the parties with the aim of finding a solution through dialogue without involving a third party. The positive aspect of negotiation in this case is that the parties are trying to find a solution that is acceptable and satisfactory to the parties, so that there is no winner or loser but both parties are trying to win.
Regarding the annulment of an award under ICSID, “Either party may request annulment of the award by an application in writing addressed to the Secretary-General” is an affirmation of Article 52 paragraph 1 of ICSID. The parties are given the right to submit a request for annulment.
ICSID regulates the formal conditions for cancellation, in Article 52, including:
a. Applications submitted in writing, cancellation requests submitted orally are deemed not to meet formal requirements. Thus the application is invalid and consequently the application cannot be accepted.
b. The request is addressed to the Secretary General of ICSID
c. It must be made within 120 days of the decision being rendered. Annulment requests submitted beyond the deadline do not meet the formal requirements and, as a result, cannot be accepted.
In the case of Cemex, the cancellation that was carried out was only in the form of canceling the application to hear the dispute with Semen Padang (the Indonesian Government), not canceling the arbitration hearing decision because the hearing had not yet been held, so perhaps only formal requirements a and b had to be fulfilled.
There are five reasons for an annulment request that are justified in ICSID according to article 52 paragraph 1 (b):
a. The formation of the tribunal was inappropriate
b. The court exceeds its authority, for example if it has decided or granted something that was not at all demanded in the claim by the party filing the dispute.
c. One of the corruption arbitrators
d. Serious deviations from the examination procedures, for example the decision does not include or attach the opinion of each member of the arbitration panel.
e. Insufficient basis for consideration of the decision, meaning that the court failed or was unable to express and explain the basic reasons for the legal considerations in the decision.
The five grounds for annulment above are grounds for annulment of decisions that already have an arbitration award. The Cemex dispute with Semen Padang (the Indonesian government) did not reach the arbitration court decision stage. Clearly, ICSID allows annulment.
The sale of Cemex shares to the Rajawali Group resulted in the CPSA deed with Cemex being terminated and revised again, one of which contained the revocation of the arbitration court, a dispute resolution step taken by Cemex to end the dispute with the Indonesian Government.
Some things to pay attention to,
· Pursuing litigation through an arbitration body is more flexible, meaning there are no mandatory procedures. In this type of dispute, the parties can request a postponement of the hearing and negotiate outside the courtroom.
· The ongoing turmoil within PT Semen Padang reflects the legal uncertainty for investors in Indonesia.
· Cemex no longer has any investments in Indonesia and the dispute with the Indonesian Government ended without going to an arbitration court.
