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16 May 2010

Indonesia keeps ‘plan b’ for Krkatau Steel J-V with Korea’s firm

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The planned joint venture between state-owned PT Krakatau Steel (KS) and South Korean-based company Posco may be in limbo after State-Owned Enterprises Minister Mustafa Abubakar suggested Krakatau prepare a "plan B", reported national the Jakarta Post.

"I have told the Krakatau management to settle the negotiation with Posco this year, or prepare a new plan, like constructing a new steel plant itself," Mustafa told reporters in Jakarta on Friday.

Mustafa said that although the steel plant without Posco's investment would have to operate on a smaller scale in terms of production capacity, the plant will be able boost Krakatau's steel production and generate additional income.

"The capacity *of the new plant* may be about one million metric tons of steel plate annually, smaller than five million tons, which had been planned in the joint venture," he said.

Posco and Krakatau planned to set up a joint venture to construct a steel plant in Tangerang, Banten, with an estimated US$6 billion investment to produce five million metric tons of 4-meter-wide steel plates annually, beginning from 2013.

The steel plates, generally used for ship building, will be marketed to Vietnam, South Korea, China and Singapore.

Krakatau and Posco had planned to sign an agreement in May this year. The planned joint venture between two companies hangs in balance as the two companies have not yet reached an agreement on the portion of shares and management composition.

Mustafa said the government demanded 45 percent of the new joint venture's stake and put more than one commissioner in the management. Previously, under a preliminary agreement signed in December last year, Krakatau was to take a stake of 30 to 45 percent in the company, while Posco would control the rest.

"We have a good bargaining position as well as Posco. That is why we have to get more than a 30 percent stake. Besides, Krakatau has a strategic location for the plant which is near the port," Minister Mustafa said.

The two companies must also resolve problems pertaining to differences of land acquisition prices, in which Posco has offered $60 per meter square, less than the $85 sought by Krakatau. "I hope the problem will be settled, otherwise I will offer plan B," he said.

Krakatau Steel aims to increase its production by about 400,000 tons of steel products to 2.8 million tons this year to meet rising domestic demand, which is expected to rise by 12 percent. Indonesia produced 4.5 million tons of steel last year.

The biggest steel maker in Indonesia plans to sell its 30 percent stake through an initial public offering (IPO) in the forth quarter of this year, generating $600 billion of fund, which will finance expansion and maintain its existing plants.

Mustafa said Krakatau has appointed three underwriters; PT Danareksa Sekuritas, PT Bahana Securities and PT Mandiri Sekuritas to supervise Krakatau in selling its stake Krakatau expects to book a 29 percent increase in total sales this year rising to Rp 21 trillion ($2.2 billion). Its sales last year dropped to about Rp 16 trillion due to the global economic crisis.


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