Govt increases offer for Inalum stake in effort to avoid arbitrage

The Indonesian government said on Tuesday that it had raised its valuation of aluminum producer Inalum from $424 million to $558 million — a 31.6 percent increase — in its ongoing negations to assume control of the 58.8 percent stake in the company held by Japanese consortium Nippon Asahan Aluminium (NAA), which is set to expire on Oct. 31.

“We do not want that this Inalum matter to be taken to arbitration,” Industry Minister MS Hidayat said on Tuesday. “Our negotiating team has resumed negotiations with the Japanese.”

NAA, which has controlled the shares since signing an agreement in 1978, has demanded $626 million for them. Under the agreement, the Indonesian government had the right to assume control on Oct. 31, which it has pledged to do.

If the government and NAA cannot agree on a valuation, the dispute will go to international arbitrage — a protracted and expensive process that often takes three to five years.

If NAA were to accept the latest offer, Inalum would become a state-owned enterprise by Nov. 1, Hidayat said.

“I hope that by Oct. 25, everything will be cleared up so that the funds can be transferred to the NAA account,” said Coordinating Minister for the Economy Hata Rajasa. “We do not want to take this matter to the arbitrage court.”

The talks over Inalum, which produced 246,000 metric tons of aluminum in the year that ended in March 2012, are part of Indonesia’s efforts to generate increasing revenues from its natural resources and curb foreign ownership in that sector.

NAA has asked Indonesia to renew the contract or to allow the consortium to retain a minority stake in the venture after the current agreement expires, but the government has indicated that an extension is unlikely.