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T Krakatau Posco, a joint venture between Indonesia'€™s biggest steel maker PT Krakatau Steel (KRAS) and South Korean steel giant Pohang Iron and Steel Company (Posco), is scheduled to commence the operation of its US$3 billion integrated steel mills in Cilegon, Banten, by the end of this year.

Krakatau Posco'€™s vice president director Kim Dong Ho said on Tuesday that the full operation of the facilities would begin on Dec. 23 after an inauguration ceremony by President Susilo Bambang Yudhoyono. '€œWe are on schedule, the commissioning of the facilities started this month, on most of our main plants,'€ he told The Jakarta Post.

During the day, the firm officially heated up its coke oven plant in a ceremony marking the final stage of the facilities'€™ development, attended by Industry Minister MS Hidayat and Trade Minister Gita Wirjawan, the former chief of the Investment Coordinating Board (BKPM).

The US$357 million coke oven plant will each year produce 1.3 million tons of coke that will serve as an energy source for the firm'€™s steel plants.

The integrated steel facilities, which comprise a blast furnace, a sintering plant, a coke oven plant and a plate mill, represent the first part of the two-phase development that Krakatau Posco has planned with an overall investment of $6 billion to create a total output of 6 million tons of steel products.

In the initial phase of the project, the steel mills will produce 3 million tons of steel slab and plate. Around half of the output will be allotted for domestic customers, while the rest will be sold overseas.

Krakatau Posco would likely begin the second phase of the project at the end of 2015, one year after issuing a final acceptance certificate for the initial phase, Kim said.

The types of steel to be produced under the project'€™s next phase would be discussed with Krakatau Steel, he added.

Posco, the world'€™s third-biggest steel maker which controls a 70 percent stake in Krakatau Posco, was recently in conflict with its local partner Krakatau Steel following the latter'€™s move last December to set up another joint venture with Japan'€™s Nippon Steel and Sumitomo Metal Corporation (NSSMC).

The new joint venture plans to build a $378 million steel plant that will supply high-grade and more expensive steel for Indonesia'€™s fast-growing automotive industry. NSSMC holds a majority stake of 51 percent, with the rest owned by Krakatau Steel.

The industry minister told reporters after the ceremony that the government would not limit supply from any company to meet domestic demand, which at present relies heavily on imports.

'€œThe government wants to see demand met domestically as much as possible,'€ he said.

Indonesia, Southeast Asia'€™s largest economy, is expecting sizeable demand for steel for infrastructure projects, shipbuilding and the automotive industry in the coming years.

Domestic steel consumption is expected to surge by between 6 percent and 9 percent this year from the 10.4 million tons estimated last year, according the Indonesian Iron and Steel Industry Association.

At present, the country imports between 35 percent and 40 percent of the total annual demand for steel due to limited capacity in the local industry.