Krakatau Steel, Antam team up for steel plant

Novia D. Rulistia, The Jakarta Post, Jakarta | Wed, 04/23/2008 1:07 AM

State-owned PT Krakatau Steel is teaming up with PT Aneka Tambang (Antam) to build a steel plant in South Kalimantan with a total investment of US$60 million.

Krakatau's president director Fazwar Bujang said Tuesday the joint venture was the follow up to a memorandum of understanding signed by the two companies.

"In phase one, the plant will have a capacity to produce direct-reduced iron bars from 315,000 tons of iron ore, which will be used by Krakatau's plant in Cilegon, Banten province," said Fazwar.

He said the two companies would finance 35 percent of total project cost from equity while securing the remaining 65 percent via a loan from state-owned Bank Mandiri.

"We plan to start construction in November this year and will be operational by 2010," he said, adding that the plant would be named PT Meratus Jaya Iron & Steel.

According to Fazwar, 66 percent of the ownership will belong to Krakatau Steel and 34 percent to Antam.

In the longer term, he said, the plant had potential to be developed into an integrated steel production facility with a total annual production capacity of one million tons through the expansion of downstream products.

He added that the project could also be integrated upstream with the development of ore mining.

"The total investment needed for the overall expansion is estimated at $600 million, excluding funds needed for complementary infrastructural development," Fazwar said.

The long-term expansion proposal is still at the feasibility study stage with Krakatau Steel and due for completion by the end of 2009.

The total production capacity of Krakatau Steel currently is up to 2.5 million tons yearly.

Krakatau Steel's president commissioner Taufiqurrahman Ruki said the project was part of an effort to increase the production capacity up to five million tons per year, as well as to stimulate the economy outside Java.

Recently, the world's largest steelmaker Arcelor Mittal was reported to be eyeing a 40 percent stake in Krakatau Steel.

The government said it needed to study Mittal's proposal to make sure any steps taken would result in the improvement of production capacity.

The government said it planned to conduct either an IPO or strategic sales for Krakatau Steel as part of its privatization program.

According to Krakatau's financial director Sukandar, the firm is targeting a total net profit of Rp 850 billion this year, compared to Rp 367 billion last year. In quarter one 2008, the company already booked Rp 297 billion net profit.

He expects total revenue to reach Rp 19 trillion this year.