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December 03, 2009 Janeman Latul An aerial view of the PT Newmont Nusa Tenggara copper and gold mining pit in Batu Hijau. (Bloomberg Photo) Bakrie Group Plays to Win - And Does How do you beat the government? Try convincing it to forfeit, if you know the president. Or try to outspend it, if you have the cash. Or outmaneuver it politically, if you have the skill. Or all of the above, if you are the Bakrie group. The Bakrie group's decisive triumph in the recent Newmont Mining divestment saga has once again proved Aburizal Bakrie's political and commercial clout, analysts say. After all, the group outmaneuvered state-owned enterprises and government ministries, as well as private natural resources companies, to secure a de facto controlling stake in PT Newmont Nusa Tenggara, which holds the rights to the one of the largest copper and gold mines in the world: the massive Batu Hijau project in West Nusa Tenggara. In doing so, the group essentially beat the government in a scramble to reclaim an important piece of the country's natural resources wealth. Moreover, the Bakrie group's victory arguably gave the Chinese government, in the form of sovereign wealth fund and Bakrie group partner China Investment Corp., greater access to those resources than the Indonesian central government. "The central government has abandoned state-owned enterprises and the national interest," said Marwan Batubura, head of the Committee to Save State Assets, who warned in April against allowing politically connected companies from maneuvering to control of Batu Hijau. How did it happen? Yanuar Risky, an independent market analyst, pointed to Aburizal's close ties to President Susilo Bambang Yudhoyono. Aburizal, now leader of the powerful Golkar Party, served as coordinating minister for people's welfare in Yudhoyono's first term. The Bakrie group was believed to be a substantial contributor to Yudhoyono's re-election campaign. "We all know about the Bakrie group's connections in Indonesia's political system," Risky said. "It gave the president campaign funds and it's obvious the support was rewarded, including [with] the Newmont divestment deal." Sidharta Moersjid, a spokesman for group holding company PT Bakrie & Brothers, dismissed allegations of back-door politicking. "Every move that they've taken was based on the business-to-business approach," Sidharta said. However, experts said the Bakrie group gained political cover by forming a partnership with local governments in West Nusa Tenggara, and seeking the approval of the House of Representatives. And it earned the support of those local administrations by offering cash up front - something state-owned enterprises were unwilling to do. The central government and private companies had been waiting years for US-based Newmont Mining to begin divesting NNT - ever since the government approved Newmont's 1986 contract, which required the parent company to sell 51 percent of the subsidiary to Indonesian interests by March 2010. At the same time, Newmont sold a 20 percent stake to PT Pukuafu Indah. More than 20 years later, an arbitration ruling in March removed the final hurdles to the sale of the final 31 percent required under the contract - in separate offerings of 10 percent, 14 percent and 7 percent. Earlier this year, the central government was eager to buy a stake for itself. In May, Finance Minister Sri Mulyani Indrawati confirmed the government's intent to buy a stake in NNT. She reiterated that position as late as August, when she said the government - in the form of state-owned miner PT Aneka Tambang and state investment arm Pusat Investasi Pemerintah - would buy a 14 percent stake in NNT. However, Sri Mulyani had repeatedly said the final decision on the fate of the stakes would be left to the president. According to a source close to the deal, PIP officials and Antam executives met with Newmont representatives in Singapore several times from June through August to discuss the terms of the sale. But the Bakrie group was on the move in the meantime, initiating maneuvers that would allow it to snatch the NNT stakes from the central government's grasp. First, group subsidiary PT Multicapital Indonesia in June approached three West Nusa Tenggara local governments - the West Nusa Tenggara provincial and Sumbawa and West Sumbawa district administrations - about buying the first 10 percent stake offered in NNT. In May, the local governments had publicly announced their intention to form a consortium to purchase the stake, challenging the central government head-on. Suitors began calling from as far away as Texas and the Britain. Heriyadi Rachmat, West Nusa Tenggara's mining chief, said the state-owned enterprises and central government ministries had until then ignored the local governments. In July, Multicapital agreed to form a joint venture with the governments, granting them a 25 percent stake, putting up Rp 3 trillion ($318 million) in to pay for the governments' share of the stake. Multicapital would take a controlling 75 percent of the newly formed consortium, PT Multi Daerah Bersaing. Soon, the consortium decided it wanted the entire 31 percent Newmont would be required to divest, and began seeking political support. In August, House Commission VII, which oversees energy and mining, surprised many political observers by voting to formally endorse the consortium's purchase of the entire divestment. Critics argued the commission, chaired by Aburizal's political ally, Golkar member Airlangga Hartarto, had overstepped its bounds. The State Enterprises Ministry protested the move, demanding that state-owned firm be allowed to lead a consortium with local governments to purchase the 31 percent. Hatta Rajasa, who took over as coordinating minister for the economy in October, met with Sri Mulyani, Energy Minister Darwin Saleh and State Enterprises Minister Mustafa Abubakar in early November. It was decided that the local governments would lead the consortium and have the final say on all members' stakes. State-companies would be granted an interest in the consortium, but not control. This decision eventually proved decisive in the Bakrie group's taking majority control over the consortium and the NNT stakes. Afterward, Hatta cited the House commission's vote in support of the Bakrie-led consortium's bid for NNT in explaining the decision. "We need to accommodate every opinion, including the House of the Representatives," he said. A Finance Ministry source said Sri Mulyani had been pushed out of the NNT picture when the new government took over in October. "Things changed when Hatta Rajasa took over. She couldn't push for it anymore as Hatta and Darwin Saleh took dominant roles in the matter," the source said. Antam had one last chance at a piece of Newmont. To facilitate a deal between Antam and the local governments, the Energy Ministry arranged a meeting on Nov. 11. No agreement could be reached, and Antam shocked industry players the next day when it said it would withdraw from the consortium. The miner said it had wanted at least half of the 31 percent NNT stake then on offer. The local governments instead offered it a little over a third of the stake. However, at Mustafa's urging, Antam returned to the table on Nov. 19 at the Directorate General of Minerals, Coal and Geothermal Energy. But negotiations broke down in heated arguments between Antam president director Alwinsyah Lubis and Zainul. Alwinsyah announced Antam was permanently withdrawing, opening the door for Bakrie's Multicapital to take full control. According to Bambang Setiawan, a senior official at the Energy Ministry who attended the Nov. 19 meeting, the local governments had agreed to give a majority stake in the consortium to Antam, with the Bakrie group getting a minority stake of 25 percent. But it would require Antam to pay for the governments' collective quarter share of the total 31 percent stake, or about $300 million - up front. Antam declined. Bakrie accepted. The deal was done. Related articles S&P Downgrades Ratings for Bakrie Sumatera Plantations 5:49 PM 18/09/2009 The Bakrie Group: Coal Hard Cash and Chinese Whispers 9:59 PM 02/12/2009 Dubai's Debt Crisis Could Hit Investment in Indonesia 10:11 PM 27/11/2009 Bakrie Secures First Piece Of Newmont in $391m Deal 9:44 PM 06/11/2009 Bakrie Mulls Selling $250m More in Debt 12:33 AM 04/11/2009 [Non-text portions of this message have been removed]
