Krakatau Steel to raise its capacity to 3.5m tons

Krakatau Steel to raise its capacity to 3.5m tons

JAKARTA (JP): The state-owned steel company PT Krakatau Steel
plans to expand its production capacity to 3.5 million tons per
annum, from the current level of 2.5 million tons, with a total
investment of US$375 million.

At a hearing with the technology and research commission of
the House of Representatives yesterday, B.J. Habibie, chairman of
the Agency for the Management of Strategic Industries, which
overseas Krakatau Steel, said the expansion project is expected
to be completed by 1998.

Habibie, also state minister of research and technology, said
funds for the project would be generated from the public through
an initial public offering.

The government, as Krakatau Steel's shareholder, has prepared
the company, along with tin mining company PT Timah, general
mining firm PT Aneka Tambang and toll road corporation PT Jasa
Marga, to float shares both overseas and on local stock markets.

Krakatau Steel is currently under a restructuring program,
based on a study conducted by foreign consulting company Booz
Allen & Hamilton.

Habibie said Krakatau Steel's restructuring program includes
the rationalization of its manpower and optimization of its
production units and assets, as well as cost reduction.

Under the restructuring program, Krakatau Steel is forming new
companies for the operation of its 400-megawatt coal-fired power
plant, water-purification unit, Cigading seaport and hospital.
Therefore, Krakatau Steel will be more focused on its core
business, the production of steel.

Currently, Krakatau Steel produces hot rolled coils, cold
rolled coils and wire rods. The company can produce 1.8 million
to two million tons of hot rolled coils, 650,000 tons of cold
rolled coils and 250,000 tons of wire rods annually.

The domination of Krakatau Steel on domestic steel markets has
been reduced, especially by the government's May deregulation
package, which cut import tariffs on hot rolled coils and cold
rolled coils to five percent and 10 percent respectively.

Last year, Krakatau Steel posted a net profit of Rp 58 billion
($25.5 million) from its total sales of Rp 1.7 trillion. It
exported 280,000 tons of hot rolled coils, of which 100,000 tons
were sent to Malaysia and 70,000 to Japan, at $455 per ton. This
year, the company projects to collect Rp 2 trillion from steel
sales.

Habibie noted that the company is sounding out the possibility
of establishing a second generation of its steel production units
in Cilegon, West Java, with a total production capacity of four
million tons per annum.

According to the company's president, Soetoro Mangoensoewargo,
$2 billion is needed to build the steel plant, with a total
capacity of 1.5 million to two million tons per annum.

The Australian Financial Review stated yesterday that the
Broken Hill Pty. Co. Ltd. of Australia was involved in talks to
buy a large stake in the steel plant being planned PT Krakatau
Steel.

"BHP's Indonesia country manager, Colin Smith, confirmed on
Friday that BHP had been talking to Krakatau about its plans in
line with the close relationship developed between the two steel
producers in the past 20 years," the newspaper stated, Reuter
reported yesterday.

According to Soetoro, Krakatau Steel is negotiating with BHP,
South Korea's Pohang (Iron and) Steel (Co. Ltd.) and Japan's
Nippon Steel over the four million ton a year facility, which is
planned for construction in 1997.

"We've got difficulties in choosing one of these three
investors, because they're all equally strong," he said.

At yesterday's hearing, Habibie said that during the current
Five-Year Development Plan period, which ends in March 1999,
Krakatau Steel will need a total of $750 million in new
investments for the expansion of its production capacities.

Habibie also disclosed the amount of investment needed by
other companies under his control. The aircraft manufacturer PT
IPTN, for instance, needs $650 million, mainly to facilitate the
marketing of its newest product the N-250 aircraft, the
electronics company PT LEN requires $20 million and the railway
company PT Inka needs $8 million.

He projected that in the 1996-1997 fiscal year, companies
under his control would collect a total of Rp 91.22 billion
($40.2 million) in net incomes, of which Rp 11.39 billion would
be sent to the government's coffer and Rp 4.56 billion would be
used for the development of small and medium enterprises. (rid)