“For now, we will return the entire 100% stake to the [Indonesian] government,” said Aria Bima, the deputy head of the House’s Commission VI on trade, industry and state-owned enterprises.

The government increased its valuation of Inalum to $558 million to assume control of Nippon Asahan Aluminium’s (NAA) 58.88% stake in the alumina producer. Lawmakers gave their approval during a meeting in Jakarta with industry minister M.S. Hidayat and the minister in charge of state-owned enterprises, Dahlan Iskan.

He added the legislative approval was expected to smooth negotiations between the Indonesian government and the Japanese consortium, which have yet to reach agreement on the price the Indonesian state should pay. The company, which began trading in 1983, currently operates Southeast Asia’s only aluminum smelter, in the North Sumatra district of Asahan.

Under an agreement signed in 1975, the Indonesian government, which currently holds 41.12% of Inalum, reserved the right to buy the remaining stake in the company once the deal expired on 31 Oct 2013.

NAA had asked for an extension of the contract, and offered $367 million in return, but Indonesia declined the offer as it sought to boost revenues from natural resources, while curbing foreign ownership in the sector.

“The next important step after [the Inalum negotiations are completed] is to build the downstream [aluminum] industry,” Aria said.

Indonesia earlier insisted on $424 million for the NAA stake, but the consortium of 12 Japanese companies — including Sumitomo Chemical, Mitsui Aluminium and Mitsubishi Corp — had demanded $626 million instead and threatened to bring the dispute to international arbitration court.

Negotiations are now three years old, and NAA has yet to respond to the $558 million valuation.

Negotiations have been complicated by Indonesia’s strong decentralised political framework. Regional governments near the Inalum smelter have sought to emphasize their entitlement to shares on expiration of the 1975 agreement.

On Tuesday evening, however, the Indonesian central government, regional administrations and lawmakers agreed that the North Sumatra administration, as well as those of 10 municipalities and districts in the province, would be awarded up to 30% of Inalum.

The Indonesian government and NAA are expected to sign a deal ending the decades-old agreement on 25 Oct 2013.

Source: Daily "The Jakarta Globe", Jakarta.