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tate-run cement giant Semen Indonesia gears up for growth in Papua, having signed a formal agreement with the local government to start the construction of a US$150 million plant that is expected to supply not only the country'€™s easternmost province but also neighboring Papua New Guinea (PNG).

Semen Indonesia corporate secretary Agung Wiharto said Tuesday his company had signed a memorandum of understanding (MoU) with Jayapura municipal government last week to construct a cement facility, which was expected to produce up to 1 million tons of cement per year.

'€œThe results of our preliminary study indicate that Jayapura is geographically suitable for our business expansion plans, both in terms of its location and the availability of raw materials, with efficiency potentials in distribution and transportation costs,'€ he explained.

The publicly listed cement maker, Agung said, would allocate up to $150 million for the integrated cement facility. Most of the funding would come from the company'€™s own cash. The remainder was expected to come from a syndicated loan from domestic banks.

Semen Indonesia, he continued, was working on permits for the facility and planed to start construction next year, with commercial operation expected to begin in 2019.

The company announced late last year that it aimed to strengthen its market grip in eastern Indonesia by establishing the first cement plant in the region, looking to meet rising demand from infrastructure projects there and cut transportation costs associated with transporting cement from plants in Gresik, East Java, and South Sulawesi.

Papua and Maluku recorded the highest nationwide demand growth last year, 6 percent, twice that of domestic consumption growth, show Indonesia Cement Association data.

The company said logistics and distribution issues had been problems for business in eastern Indonesia, leading to inflated prices: around Rp 1 million ($77) a sack in inland Papua, versus Rp 60,000 in Java. Output from the new facility is supposed to cater not only to the local Papuan market and nearby Maluku market but also to the neighboring PNG market.

'€œWe will still prioritize local consumption, and we will only export if there is an excess [...]. Cement needs in Papua and Maluku are around 1.2 million tons of cement combined, and our market share in eastern Indonesia is around 60 percent [...], growth is quite rapid,'€ Agung said.

The local Papuan market will likely absorb around 720,000 tons from the facility'€™s initial annual production, with around 180,000 tons perhaps being exported.

As for the international market in PNG, Agung said the country offered an exciting opportunity for his company. '€œThe country currently has no cement producer,'€ he added.