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Krakatau gets more shares in venture with Posco
After prolonged negotiations, state-owned steel maker PT Krakatau Steel has finally secured a bigger portion of ownership in a joint venture with Korea’s PT Pohang Steel Iron Corporation (Posco)
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fter prolonged negotiations, state-owned steel maker PT Krakatau Steel has finally secured a bigger portion of ownership in a joint venture with Korea’s PT Pohang Steel Iron Corporation (Posco).
State-Owned Enterprises Minister Mustafa Abubakar said Krakatau would control 45 percent of the planned steel plant in Tangerang, Banten, with the remaining shares going to Posco.
The companies would sign a joint venture agreement by the end of July, two months later than originally planned.
The portion of shares owned by each company, however, does not reflect the share of investment in constructing the plant.
Posco will be responsible for 70 percent of construction costs while Krakatau the rest, as stated in the preliminary agreement in December, Mustafa said.
He declined to elaborate on why the plant ownership composition did not reflect the initial share of investment as agreed in preliminary negotiations between the two companies.
“Posco insisted on controlling 70 percent of the shares, while Krakatau also demanded 45 percent, so this is a compromise solution for the two companies,” he said.
At the latest round of negotiations between the two companies that was also attended by government representatives, both Posco and Krakatau had agreed on the price of land owned by the latter where the plant would be erected.
“The two companies have agreed to a price range of between US$72 and $74 per square meter,” Mustafa said. Previously, Posco had offered $60 per square meter while Krakatau demanded $85.
Construction of the new plant, which will take three years, is expected to start next year and is estimated to absorb $6 billion in total investment.
Upon completion, the plant will have a production capacity of five million metric tons of 4-meter-wide steel plates annually.
The steel plates, generally used for ship building, will be sold to Vietnam, South Korea, China and Singapore.
Krakatau, the biggest steel maker in Indonesia, aims to increase its production from about 400,000 tons of steel products to 2.8 million tons this year to meet rising domestic demand, which is expected to grow 12 percent.
Indonesia produced 4.5 million tons of steel last year. Currently, domestic steel producers only provide 70 percent of national demand.
The government plans to sell a 30 percent stake in Krakatau through an initial public offering in the fourth quarter of this year, expecting to raise $600 million, which will be used to finance expansion plans.
The company 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.
