Indonesian Government Pursuing $2.5b Joint Venture For Krakatau Steel

By webadmin on 10:59 pm Aug 24, 2009
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Janeman Latul

The government is pinning its hopes on cooperation with the world’s second-largest steel company to help rescue ailing state-owned PT Krakatau Steel and supply the metal to the local market, a senior government official said on Monday.

State Enterprises Minister Sofyan Djalil said the government hoped Krakatau Steel and South Korea’s Pohang Iron and Steel Company (Posco) could finalize a $2.5 billion joint venture project by October.

“The development plan to form a joint-venture company between Krakatau and [Posco] will be discussed by the two sides in early September,” he said.

“This is a very good plan and I’m glad that we are attempting to finalize it.”

Sofyan said the project would be aimed at supplying steel to the local market.

Krakatau Steel produced only 2.5 million tons of steel a year, far below the country’s demand of 6 million to 7 million tons a year.

“If we could build another steel processing plant near the current plant [at Cliegon, Banten], we could produce up to 5 million tons annually,” Sofyan said.

Meanwhile, a source close to the deal said Trade Minister Mari Elka Pangestu was now in Seoul to meet South Korean Trade Minister Kim Jong-hoon, and had met with the management of Posco to promote the government’s plan.

Mari visited Seoul to attend the funeral of former Korean President Kim Dae-jung as an official government envoy.

“This matter is still sensitive. Posco still needs to convince its stakeholders that … the [South] Korean steel market is mature and it needs to expand outside the country,” the source said.

Krakatau Steel president director Fazwar Bujang declined to comment when contacted by the Jakarta Globe.

The steel company informed the government last week that a delegation lead by Posco vice president Sung Kwan-baek planned to come to Indonesia on Sept. 7-8 to meet with Krakatau Steel management and government representatives.

Posco was first approached in June by Krakatau Steel’s chief commissioner, Taufiqurrahman Ruki, about the possibility of a forming a joint venture between the two companies.

Posco was found in 1968. It operates two steel plants in South Korea, and has a joint venture in United States with US Steel called USS Posco, which is located in Pittsburg, California.

Meanwhile, Krakatau Steel has said its plan to conduct an initial public offering this year would likely be postponed because of the low price of steel and market conditions resulting from the financial crisis and global downturn.

In September, Krakatau Steel received approval from the House of Representatives to sell a maximum 30 percent stake in the company to raise an estimated Rp 3.5 trillion ($350 million).

The government had previously complained that lawmakers were taking too long to endorse the IPO, which had first been proposed in February 2008.

Krakatau Steel was formed by the Suharto government in 1971 as a flagship project in its industrialization drive. It has consistently struggled to make a profit.