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tate energy company Pertamina has agreed to team up with state construction firm PT Wijaya Karya (WIKA) to develop and produce high-grade hybrid asphalt in order to help fill domestic demand and reduce imports.

The two companies signed a memorandum of understanding on Wednesday, concluding plans to construct a hybrid asphalt production factory in Cilacap, West Java. Pertamina says that the joint venture will produce 300,000 tons of hybrid asphalt a year.

Pertamina processing facilities director Rachmad Hardadi explained that the partnership would be able to increase Pertamina'€™s production to 600,000 tons from the present level of 300,000 tons.

A total of US$100 million will be invested into the new hybrid asphalt factory, which is scheduled to be completed by the end of the year, Rachmad told reporters at the Pertamina office during the signing ceremony on Wednesday.

He added that WIKA'€™s infrastructure projects would be helped greatly with the new deal.

The signing of the memorandum was also attended by State Owned Enterprises Minister Rini Soemarno, WIKA president director Bintang Perbowo and Pertamina president director Dwi Soetjipto.

Pertamina is Indonesia'€™s largest producer of asphalt, while WIKA is one of the country'€™s most prominent construction companies. Pertamina mainly produces its asphalt from its processing factory in Buton, Sulawesi.

Indonesia still imports asphalt because local asphalt production is still below demand, which is estimated to reach 1.2 million tons a year. Local production reaches about 600,000 tons at present, made up of 300,000 tons from Pertamina'€™s existing plant in Cilacap and another 300,000 tons from WIKA'€™s plant in Boton, Southeast Sulawesi.

With the additional 300,000 tons from the new factory, the local production will reach 900,000 tons, or about 75 percent of total demand.

'€œEvery year the national demand and need for asphalt grows substantially. WIKA is able to produce up to 300,000 tons of asphalt a year while Pertamina will be able to produce 600,000. That'€™s 900,000 tons a year and covers most of the national need,'€

Public Works and Public Housing Minister Basuki Hadimuljono, however, said that despite a production shortage, there was around 660 million tons of unused asphalt at the moment, and this asphalt would eventually end up being exported overseas.

WIKA expects to expand its market to China by selling value-added asphalt that it will soon develop.

WIKA corporate secretary Suradi said earlier that the company'€™s asphalt unit, Buton-based WIKA Bitumen, was assessing a plan to develop granular asphalt '€” extracted asphalt in the form of particles. This high quality asphalt would be exported to China.

'€œThe Chinese market has great potential for exports. However, pricing will still be our biggest challenge as plunging commodity prices have not allowed us to find favorable prices during discussions with our potential buyers,'€ Suradi said recently.

WIKA'€™s venture into the asphalt business began in late 2013 after the company acquired fellow state-owned firm Sarana Karya for Rp 50 billion, a move that helped it become a fully-integrated construction firm. It then changed the name of the acquired company into WIKA Bitumen.