KS, POSCO joint plant to open sooner than planned

Indonesia’s biggest steel maker, PT Krakatau Steel Tbk (KRAS), will speed up construction work on the US$6 billion plant that it is building jointly with South Korean steel giant Pohang Iron and Steel Company (Posco), aiming for the plant to start operating late next year.

The plant, which is located in Cilegon, Banten, and is to have an initial output of 3 million tons per year, will be complete in late 2013, a few months sooner than the initial schedule of 2014, Krakatau Steel corporate communication vice president Wawan Hernawan told The Jakarta Post on Friday.

PT Krakatau Posco, which is the official name of Krakatau Steel’s joint venture with the world’s third-largest steel maker, recently started construction on the plant by installing the steel structure after completing the land preparation process.

The plant is expected to produce steel plates, steel labs and hot rolled coil.

“We expect the production to begin at the end of 2013 after construction is finished. So far, the progress is at about 10 percent,” Wawan said in a telephone interview.

The plant is part of the two stages of construction planned by Krakatau Posco to create an overall output capacity of 6 million tons, he added, without disclosing details on the types of steel that are to be produced under the project’s second phase.

Krakatau Posco had applied for tax breaks through the government’s so-called tax holiday facility to exempt companies from paying income tax for 10 years after commencing commercial operations.

The tax facility requires a minimum investment of Rp 1 trillion ($111 million) and is only available for manufacturing projects in five sectors: base metals, oil refining, basic petrochemicals, machinery, renewable energy and telecommunications equipment.

High labor absorption and transfer of technology will be considered.

Kim Dong-ho, president director of Krakatau Posco, has said that incentives, including tax facilities, are necessary to support and encourage steel industry projects, which require large investment.

The steel plant project is expected to draw its supporting industry into Indonesia. At least 40 South Korean firms with investments ranging from S$10 million to $30 million each reportedly would set up factories in the country to support the operations of the new plant.

South Korea is gearing up to become one of the top foreign investors in Indonesia. Last year, South Korea for the first time broke onto the top-five foreign investor list, with investments of $1.2 billion, representing 6.22 percent of the total foreign direct investment into Indonesia, which is $19.28 billion.

Krakatau Steel’s shares, listed on the Indonesia Stock Exchange (IDX), traded at Rp 850 apiece on Friday, down 1.16 percent from the prior day. With a market capitalization of Rp 13.4 trillion, Krakatau Steel has seen its shares rise 1.2 percent so far this year, compared with the broader stock index’s 2.4 percent gain.