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tate-owned steel company Krakatau Steel (KRAS) and state-owned cement producer Semen Indonesia (SMGR) will form a joint venture to produce slag powder, raw material for cement production.

The joint venture, to be called Krakatau Semen Indonesia (KSI), would build a slag powder plant in Ciwandan, Cilegon, Banten, with a total investment of about Rp 440 billion (US$36 million), said KRAS president director, Irvan K. Hakim

Irvan said on Friday the construction of the slag powder plant, which would have a production capacity of 750,000 tons per year, would commence in early 2014.

He hoped commercial production could begin in 2016. The slag powder will be supplied to Semen Indonesia'€™s cement production plants.

KRAS and SMGR would each own 50 percent stakes in the joint venture and would seek bank loans to partly finance the construction of the plant, he said.

Irvan explained that about 30 percent of the investment would come from the two companies'€™ own funds, while the remaining 70 percent would be financed by bank loans.

'€œWe are currently looking for lenders for the project. We hope that the funds to finance the investment will come from state-owned banks,'€ he said.

Previously, PT Banten Global Development (BGD), a firm owned by the Banten provincial administration, had been reported as joining the establishment of the joint venture. Irvan said that BGD had withdrawn for undisclosed reasons, probably due to funding problems, but added that the possibility of a third party joining the venture was still open.

Irvan said that KSI '€” which will be located in a 40,000-square-meter site in Cilegon '€” would manage waste from newly established Krakatau Posco, transforming granulated blast furnace slag into ground granulated blast furnace slag.

Krakatau Posco is a joint venture established by the world'€™s third-largest steel company, Posco, and KRAS in late 2009 and operates a steel mill in Cilegon.

Krakatau Posco is expected to start producing 2 million tons of steel later this month. While awaiting KSI'€™s construction to complete, Irvan said, Krakatau Posco would sell 350,000 tons of its annual waste to a third party.

'€œWe haven'€™t decided to whom we will sell the waste, but we will probably offer it to other state-owned enterprises or to local companies,'€ he said.

Dwi Soetjipto, SMGR president director said that material produced by KSI would supply nearby SMGR facilities producing Portland cement, an ingredient in concrete.

'€œSemen Indonesia relies on our subsidiary Semen Gresik in East Java to generate revenue. By establishing this joint project, we hope Semen Indonesia can grab a greater market share in western Java,'€ Dwi said.

Dwi predicted a bright future for the joint venture, with an increase in construction projects in the coming years. He estimated that the national demand for cement would increase by about 6 percent to 63 million tons next year from about 59 million tons this year. SMGR is expected to produce about 31 million tons of cement in 2014.

This year SMGR is expected to sell between 25.26 million tons and 25.1 million tons of cement, up from 22.55 million tons recorded in 2012.