Indocement will boost production by 50 percent

JAKARTA (JP): Indonesia's largest private cement maker PT Indocement Tunggal Prakarsa expects to boost its production by almost 50 percent within two years, the company has said.

The company's finance director Benny S. Santoso said yesterday Indocement would be able to produce about 15.8 million tons of cement in two years, up from 10.8 million tons currently.

Additional production would come from its eleventh plant in Citereup, West Java, which would start operating in early 1999, and from its affiliate, PT Indo Kodeco Cement in South Kalimantan, Benny said.

The new plant, in which construction started in December 1996, would be able to produce 2.5 million tons of cement per year, and Indo Kodeco would produce 2.45 million tons by next year, he said.

"Overall, we expect to export about 10 percent of our 1999 production to neighboring countries such as Singapore, Bangladesh and Malaysia," he said yesterday after a loan signing.

Benny said the ongoing Citereup plant project would cost about US$229 million in investments, some of which would come from offshore loans.

The publicly-listed company, part of the Salim Group, signed yesterday a loan agreement worth $132.74 million with the Export Import Bank of Japan (Exim) to partly finance the cement plant expansion.

The loan was initially given in Japanese yen worth 14.98 billion yen.

The loan had an interest rate of 6.3 percent annually, or approximately 40 basis-points above the London Inter Bank Offered Rate (LIBOR). It is due to mature in 10 years.

Benny said the company would finance the remaining $96.26 million of the project costs using its own funds.

The chief representative of Exim in Jakarta, Seiichiro Shimamoto, said yesterday the loan was the first one given by the bank to a fully-operated private company in Indonesia.

"Traditionally, we have only given loans to the government, and governmental agencies or projects, and to do that we needed a letter of guarantee from the government," Shimamoto said.

In Indocement's case, however, the exporters would guarantee the commercial risks to the Exim bank, while the bank would guarantee the country's risk, he said.

Shimamoto said the bank decided to grant the loan to Indocement because it was confident that the company would remain a major cement supplier in Indonesia.

He said the country's annual cement consumption of about 130 to 140 kilograms per capita was still very low and would continue to increase.

As a developing country, Indonesia still has a high demand for cement, he said.

Commenting on the fact that the cement industry was facing an oversupply partially caused by many project cuts, Benny said he remained optimistic that the country's cement industry would pick up again within the next two years.

"The cement industry is a long-term industry, while the oversupply is temporary," he said.

"We still have to prepare to supply our customers when the demand rises again," he said.

Indocement's executive director D. Hariadi said yesterday the annual growth of the cement demand might decline this year by around eight percent from an average of 10 to 12 percent before the currency crisis, which had caused many projects to be delayed or halted.

Hariadi said the Indonesian Cement Association predicted next year's growth would be around five percent.

"But we expect the growth will be no more than 3.5 percent next year," he said.

He said domestic demands for Indocement's products had not declined much since the crisis, but payments had been made more slowly. (das)