Japanese firms seek amicable resolution to Inalum dispute

The Japanese owners of Southeast Asia’s only aluminum smelter are seeking an amicable resolution to a dispute with the Indonesian government over its takeover of the plant and are holding off on possible arbitration, Reuters reported.

“Our negotiations are still continuing, but both parties think we should come to a conclusion as soon as possible,” Jun Yamamoto, general manager of the aluminum division at Sumitomo Chemical Co. Ltd., which represents a consortium of Japanese shareholders, said on Friday.

“We still want to resolve this issue amicably, but we are also prepared to seek arbitration at ICSID [the International Center for Settlement of Investment Disputes] if no agreement is made,” he said.

A week has passed since Indonesia took control of Sumatra-based PT Indonesia Asahan Aluminium (Inalum) despite a failure to produce an agreement over the price and other details for transferring ownership of the smelter to Indonesia.

The Japanese side earlier had said it would bring the case to the ICSID if talks failed.

Some Japanese government officials are worried the dispute will hurt relations between Indonesia and Japan, which has billions of dollars of investments in the resource-rich Southeast Asian country, according to industry sources.

Indonesia’s takeover of PT Inalum, which produced 246,000 tons of aluminum in the year that ended March 2012, is part of efforts by Southeast Asia’s biggest economy to earn more revenue from its natural resources and curb foreign ownership.

With the termination of the cooperation agreement on Nov. 1, Inalum is under full ownership of the Indonesian government.

Differences in the valuation of the company’s assets were driving its Japanese shareholders to threaten to bring the case to an international arbitration body.

“As of Nov. 1, all Inalum assets have been returned to the Indonesian government. The company is now a new entity under the management of the State-Owned Enterprises Ministry,” Industry Minister MS Hidayat said in Jakarta last week.

Set up in 1976, Inalum was originally 41.12 percent controlled by the Indonesian government and 58.88 percent owned by Nippon Asahan Aluminium (NAA), which comprised 12 Japanese companies, including Sumitomo Chemical Co. Ltd., Sumitomo Shoji Kaisha Ltd., Mitsui Aluminium Co. Ltd. and the Mitsubishi Corporation.

Under a master agreement, the 30-year contract between Indonesia and the consortium was set to expire on Oct. 31, while the takeover will be conducted through an asset transfer. The Indonesian government refused to extend the contract and offered to acquire the Japanese consortium’s shares.

Intensive talks have taken place over the past few months to determine the value of Inalum’s assets that will be used as the basis in determining the price the government has to pay for the Japanese consortium’s shares.

After some hard bargaining, both parties finally agreed that the government would pay US$558 million (Rp 6.37 trillion) for the consortium’s 58.88 percent stake, according to Industry Ministry officials. The figure is based on the estimated value of Inalum’s total assets as calculated by the government’s internal audit agency, the Development Finance Comptroller (BPKP).

However, the consortium sent a letter to the government on Thursday, just a day before the contract ended, expressing its intention to appeal to the ICSID over a disagreement allegedly over the auditing mechanism that was used to determine the value of Inalum’s assets.