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joint venture between Indonesia's PT Krakatau Steel (KS) and South Korea's Pohang Iron and Steel Company (Posco) will kickoff in November with the construction of a steel plant in Cilegon, Banten, a government official said.

Ansari Bukhari, director general for metal, machinery, textile and miscellaneous industries at the Industry Ministry, said Tuesday that the vice president of business development at Posco, Sung Kwan Baek, had Tuesday discussed the initial phases of the venture with Industry Minister Fahmi Idris.

"The construction project is divided into two phases, with a capacity of 2.5 million tons in each phase. The total investment for the joint venture is estimated at around US$5 billion," said Ansari, who accompanied Fahmi to the meeting.

Quoting a Posco representative, Ansari said Posco and Krakatau Steel would source domestic iron ore and coal as raw materials while relying on Posco's technological expertise in advanced steel smelting.

"The new plant will produce slab and billet *two types of steel products* that we still lack domestically. The production of these products will be entirely for the domestic market," said Ansari.

Data from the former Indonesian Iron and Steel Association (Gapbesi), which recently merged with another association to become the Indonesian Iron and Steel Industry Association (IISIA), showed local steel producers could not meet demand in 2007 by 1.61 million tons of billet and 210,000 tons of slab.

IISIA executive director, Hidajat Triseputro, said domestic demand for the semi-complete products billet and slab "continues to increase every year".

Hidajat said the country had to import more than 2 million tons of billets and slab last year to meet domestic demand, totalling 6 million tons per annum.

"The plant construction project is scheduled to finish by 2014 if the study - which calculates return on investment of the joint venture company - yields positive results," he said.

He said Posco officials would officially sign a memorandum of understanding with Krakatau Steel in November, with Posco expected to control the bigger share.

On the other hand, he said, Krakatau Steel had a greater role in providing land and infrastructure for the plant, including a new port that is able to accommodate vessels carrying 200,000 tons of raw materials.

The joint venture company will be handled by a new management, he said.

"Posco will contribute more and get a larger share," Ansari said.

Krakatau Steel president director, Fazwar Bujang, previously said to Bisnis Indonesia daily that Posco would control 60 percent of the joint venture company and Krakatau Steel would hold the rest.