Jakarta – The World Bank on Monday urged Indonesia to immediately defy provincial government attempts to take-over affiliates of state-owned cement producer Semen Gresik, warning the moves were endangering the future of investment.

Jakarta's privatisation program has been thrown into further jeopardy since the government postponed a planned sale of its 51-percent stake in Semen Gresik in response to opposition from the parliament and provinces.

The West Sumatran government last week declared it has taken over the company's local subsidiary Semen Padang, and the South Sulawesi administration on Saturday threatened to follow suit with their local subsidiary, Semen Tonasa. The provinces want the cement affiliates to remain locally-owned and demand they be spun off from the mother company before the Semen Gresik stake are sold.

A senior economist with the World Bank in Jakarta, Vikram Nehru, told a press conference here the central government must overrule the takeovers. "Clearly if this decision is allowed to stand then it will be a big blow to the privatisation program of the government," he said. "It will lead to tremendous investor wariness and uncertainty about the future possibilities of privatisation."

Nehru warned of a dangerous domino effect in which other parts of the country with claims to state enterprises would also try to prevent their sale to foreigners. "It's terribly important that the government resolve this issue immediately and press ahead with the privatisation of Semen Gresik."

State Enterprises Minister Laksamana Sukardi has labelled the unilateral takeover of Semen Padang as illegal but the government has yet to take any firm action against the purported takeover. Nehru would not speculate on whether the takeover moves would affect the outcome of this week's Consultative Group on Indonesia (CGI) donors' meeting. The CGI will being asked to commit some 3.5 billion dollars in loans, Nehru said.

Mexican cement giant Cemex, which already holds a 25-percent stake, was to purchase the government's 51-percent holding for some 5.3 trillion rupiah (million dollars), or around 80 percent of the government's privatisation target. The state asset sell-off program has so far netted no revenue.