Dian Ariffahmi & Janeman Latul

Trade Minister Mari Elka Pangestu said Pohang Iron and Steel (Posco) was considering investing $5 billion in a plant with Krakatau. (AP Photo)

Korean Steel Firm Denies Krakatau Deal

The government on Wednesday said South Korean steel company Pohang Iron and Steel was considering doubling the size of its planned investment in a joint venture with PT Krakatau Steel to $5 billion, even as the South Korean company continued to deny it had decided to do business with the state-owned firm.

An analyst warned that the publicity could jeopardize the potential venture, much as a planned strategic partnership between Krakatau and ArcelorMittal was scuttled last year.

Trade Minister Mari Elka Pangestu said Pohang Iron and Steel (Posco), Asia’s third-largest steel maker, was considering investing $5 billion in a plant with struggling Krakatau, Indonesia’s biggest producer.

“Posco itself mentioned the number,” said Mari, who was in Seoul last week to attend the funeral of former President Kim Dae-jung.

But Posco spokeswoman Choi Youn-joung on Wednesday told the Jakarta Globe that Indonesia, while potentially a good place to invest, was only “one of many places we are studying for potential investments.”

“We’re being very careful and we haven’t decided to invest anything in Indonesia just yet,” she said.

A source familiar with the matter said Posco was concerned about publicity generating opposition to the deal in South Korea.

“They don’t want to expose the matter to the public until everything is finalized because they have to convince their shareholders that investing in Indonesia is better than investing in South Korea,” the source said.

“They’re also likely to face criticism from the South Korean people if they invest outside the country, including demonstrations that may affect their stock price.”

Fauzi Ichsan, vice president of Standard Chartered Bank, criticized the government for revealing plans for the joint venture before it was finalized.

“It’s too early to announce it,” Fauzi said.

“They should have learned from the [planned] ArcelorMittal strategic partnership with Kratatau Steel which fell through last year. It is the culture of public companies not to say anything until they’ve finalized it.”

ArcelorMittal, the world’s largest steel maker, last year approached high-level Indonesian officials about acquiring a strategic stake in Krakatau.

However, protests from many sides, including Indonesian lawmakers and Krakatau employees, eventually scuttled the deal before it could be finalized.

State Enterprises Minister Sofyan Djalil on Monday confirmed the government was negotiating a $2.5 billion joint venture between Krakatau and Posco which was expected to be finalized by October.

In December, the Indonesian Coordinating Investment Board said Posco was interested in building a steel plant in collaboration with Krakatau that would have annual production of 2.6 million tons to 3.1 million tons.

This would help Krakatau Steel achieve its target of doubling production to five million tons a year.

Industry Minister Fahmi Idris said on Monday that land for the new plant had already been allocated at Krakatau’s industrial territory in Cilegon, Banten.

Ansari Bukhari, director general of metals, machinery and textile at the Industry Ministry, last week said Posco had sent a letter requesting a meeting in early September with the ministry to discuss the plan.

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