After a long series of negotiations, PT Krakatau Steel (KS) and South Korea’s POSCO agreed Wednesday to form a joint venture to build and operate a steel plant in Cilegon, Banten province in the western part of Java.

Light moment: Chairman of the Investment Coordinating Board (BKPM) Gita Wirjawan (from left), Industry Minister M.S. Hidayat, State-Owned Enterprises Minister Mustafa Abubakar, Posco’s chief executive officer Chung Joon-yang and Krakatau Steel’s president director Fazwar Bujang take a breather following the signing of a join venture agreement between Posco and Krakatau Steel in Jakarta on Wednesday.JP/P.J. Leo
The agreement was signed at the State-Owned Enterprises Ministry in the presence of Industry Minister M.S. Hidayat, Investment Coordinating Board (BKPM) chairman Gita Wirjawan, State-Owned Enterprises Minister Mustafa Abubakar, POSCO chief executive Chung Joon-yang and South Korean ambassador to Indonesia Kim Ho-young.

The two companies agreed to invest up to US$6 billion to build the steel plant, which will be located near KS’s existing plant and produce 4-meter steel plates.

KS president director Fazwar Bujang said that the joint venture agreement was made after a long process of negotiation that had started in 2009. “The negotiations have taken a long time. We have to be careful because both companies have different interests in the project,” Fazwar told reporters after the agreement’s signing.

Kim said that he fully supported the establishment of the joint venture because it would contribute significant revenue to both companies and help resolve the unemployment problem in Indonesia.

“We expect the revenue from joint venture could reach $6.9 billion a year,” he said.

The construction of the plant will be divided into two phases. In the first stage, the plant will produce 3 million tons of steel plate beginning in early 2014.

In the second stage, the plants’ production capacity is expected to double to 6 million tons.

POSCO, the world’s third-largest steel maker, will have a 70 percent stake in the joint venture, while KS will have 30 percent with an option to increase its ownership to 45 percent not more than a year after the plant begins operating.

KS marketing director Irvan Kamal Hakim said that the state steel company had increased its sales of hot rolled coil (HRC) and cold rolled coil (CRC) steel products in the domestic market due to a surge in demand from the automotive industry.

The company currently sells more than 500,000 tons of HRC and CRC steel products in the country every year, or about 5 percent of the country’s total demand, he said, adding that most of HRC and CRC steel must be imported to meet the domestic demand.

“The market for the automotive steel is quite promising,” he said, adding that he was sure that KS would be able to increase its share of the automotive steel market to 30-35 percent within the next two or three years.

“We need between two and three years to achieve 35 percent market share, because it will take up to three years to procure new equipment in order to be able to produce automotive steel that meets international quality standards,” he said.