By Kang Seung-woo
JAKARTA – POSCO is making a foray into Indonesia to construct an integrated steel mill in cooperation with an Indonesian partner as part of efforts to develop the promising Southeast Asian market and expand its global presence.
The Korean steel giant held a groundbreaking ceremony for the steel plant on Thursday in Cilegon, 100 kilometers west of Jakarta, along with its joint venture partner PT Krakatau Steel.
“It is significant to enter Indonesia, which has a high potential in Southeast Asia, earlier than our competitors and it will help us secure a footing in the Southeast Asian market,” POSCO Chairman Chung Joon-yang told reporters in a press conference ahead of the ceremony.
Indonesia has iron ore and coal deposits totaling 2.2 billion tons and 93.4 tons, respectively, and the Southeast Asian market has seen annual steel demand escalate by more than 30 million tons.
“Given that the steel industry is a cornerstone for developing countries like Indonesia, this steel mill will be a win-win project for both sides.”
In efforts to meet the growing demand in Southeast Asia and tap the natural resources in the region, POSCO, the world’s third-largest steel maker, announced its plan to establish a steel mill with state-owned PT Krakatau Steel in December 2009, and officially signed a joint venture deal in August 2010.
PT Krakatau Steel, founded in 1970, meets 60 percent of the steel sheet demand in Indonesia and has an annual capacity of 2.4 million tons of steel.
“The first steel plant in Southeast Asia will play a key role in POSCO evolving into a global enterprise beyond the local player,” said the 62-year-old, Chung who has headed the company since March 2009.
Under the contract, POSCO will own 70 percent of the venture with PT Krakatau holding 30 percent, but the Indonesian steel producer has an option to increase its share to up to 45 percent after the business stabilizes.
The steel plant project is comprised of two stages, with construction of the first phase slated for completion by 2013 with an initial annual capacity of 3 million tons. When the second phase is complete, total annual production capacity is estimated to reach 6 million tons.
The chairman said POSCO will invest $2.7 billion during the cited period thanks to its adoption of a cost effective investment approach, or brown field investment.
It is purchasing or leasing existing infrastructure, such as harbors, land, water and electricity, when launching a new production activity, which is often used in foreign-direct investment. The steel mill will be built on unused land owned by POSCO’s partner.
The Indonesian government fully supports the project, and is preparing lots of investment incentives such as tax benefits and designation of a special economic zone.
In return, POSCO aims to localize itself, including many corporate social responsibility (CSR) activities.
“The construction of the steel plant will be able to contribute to the economy of Cilegon, furthermore that of Indonesia. In addition, about 150,000 jobs will be created annually,” Chung said in a speech during the ceremony.
He also said that the company will pursue a variety of policies for local people, including scholarship programs, job training centers and Korean classes.