Tue, 26 Aug 2008
The Jakarta Post, Jakarta

The nation's largest cement maker, PT Semen Gresik Group (SGG), is embarking on various massive projects to boost its production capacity in the next four years to meet increasing domestic demand.

The company plans to build two factories with the aim of increasing its production capacity by 5 million tons per year by 2012. It also plans to build five new power plants to help it save on energy costs. The two projects will require close to a combined US$1.3 billion in investment.

The Jakarta Post spoke to Dwi Soetjipto, president director of SGG, last week to discuss the company's expansion and the measures it is taking to accelerate its projects.

The following are excepts.

Question: What is the status of your projects to build two new plants, one in Central Java and the other in South Sulawesi? Answer: We are still on track in term of schedule; 2011 for the plant in Sulawesi and 2012 for the plant in Java.

In Sulawesi, the process is not a problem as we are building on the area of our existing plant, so there is no issue with the land acquisition process, even for the AMDAL (the analysis for environmental impact) permit; we have secured it.

(But) for the plant in Java, there are still things that need to be sorted out, as you know it is not easy to acquire land in this kind of era, so we intentionally set a one-year time table just to finalize the land-acquisition process.

The land acquisition process started early this year, but with little progress made so far, especially on the Java plant, are you expecting delays?

We target the construction of the plant in Central Java (Pati) to begin in 2009, so we still have time. We expect to finalize the land acquisition and all permits by the end of this year.

But should we fail to meet the deadline, we already have another location as a back-up. It is still on Java island but located near our existing plant in Tuban, East Java.

We are carrying out this process in parallel, and we are also trying to secure a permit in East Java should the plant in Central Java face problems. But all in all we are still sticking to the target (to have a location in Pati). We remain on track.

With the rise in raw material prices, do you envision swelling production costs?

We will address this at the end of December, we are still drawing up a draft of our financial budget, in which we can see that the planned capital expenditure for this year will increase from 15 to 17 percent.

The original cost for the plants was set at $670 million and for the power plants at $570 million.

How will you get the money to fund the projects?

The company is now in a strong position in terms of capital, and we have to remember how to keep our capital in its optimal position; by seeking loans, be it through banks or bond issues, or both.

Many people are asking whether the company will seek loans or issue bonds. There is no need to rush things, especially because we are in a strong capital position, thanks to our business performance.

If let's say the projects are all on track, then we just need to seek the funds sometime next year, because if we were to do it now we would have to start paying interest now.

We are still researching all alternatives, the loans could come from local banks, but we could also consider export credit.

We still have time to see which is the best. We won't close the door on the option to combine everything. But we are sure that from our internal cash, we can get up to between 30 percent and 40 percent of the total funds needed.

How about the plan to acquire transportation companies or cement packaging producers?

We know that the distribution system must be arranged as efficiently as possible ... to be able to increase our efficiency level in terms of distribution in the future, we are indeed talking with firms that deal with transportation issues.

We are basically open to that possibility.

Now the problem is how to make sure such companies add value for us. We have, in fact, been in talks with a number companies dealing with logistics, but no decisions have been made as yet.

While for cement packaging producers, I think that would not be a priority for us, as we are still trying to consolidate our cement packaging units in each plant.



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