Jakarta, July 16, 2010 - Indonesian steel maker PT. Krakatau Steel and Korea's PT Pohang Steel Iron Cooperation (Posco) will sign on July 23 a joint venture to construct a steel production center in Cilegon, Banten.

Industry Minister Mohamad S. Hidayat told reporters on Thursday that Krakatau and Posco had agreed to all points in the agreement over months of negotiations.

"The signing of the agreement will be held at the Industry Ministry," Hidayat said at a job fair in Jakarta.

The head of the Investment Coordinating Board (BKPM), Gita Wirjawan, told The Jakarta Post in Daejeon, South Korea, earlier this week that Posco had agreed to have a controlling 55 percent ownership of the project, with Krakatau would own the remaining share.

Previously, State-Owned Enterprises Minister Mustafa Abubakar said the ownership composition would not reflect spending on the plant's construction. Posco would pay 70 percent of construction costs, he said.

The costs, Mustafa said, would include the acquisition of up to 400 hectares of land in cilegon. The two companies agreed to a price range of between US$72 and $74 per square meter, he said.

Gita said the plant, which is expected to absorb up to $6 billion in investments, will have a production output of 5 million metric tons of 4-meter-wide steel plates annually.

The steel plates, generally used for ship building, will be sold to Vietnam, South Korea, China and Singapore.

Gita said Posco was among five companies whose executives he met in Seoul that were planning to either invest or expand their business in Indonesia. The combined investment commitment of the firms could reach up to $10 billion, he said.

Korea's second-largest conglomerate group, LG Corp, was considering making Indonesia the production base for its electronics products, thanks to the country's improving investment climate, Gita said.

Realized Korean investment in Indonesia reached $624.6 million last year, or more than double from $301.1 million in 2008. As of the first quarter of this year, the country had received Rp 86.4 million in direct investment from Korea.

Gita said that the Posco deal was a major scalp for the agency's "one stop" investment service policy launched in February.

"It simplifies the decision making process to just under one roof, eliminating the need to go through a number of different ministries to set up a project," he said.

Posco's investment in the Cilegon plant will be part of the company's planned $30 billion overseas investment in India, Vietnam and Indonesia. Posco, Asia's third-biggest steel producer, reported second-quarter net income of 1.2 trillion won ($1 billion) on Wednesday.

Krakatau, the biggest steel maker in Indonesia, aims to increase its production from about 400,000 tons of steel products to 2.8 million tons this year to meet rising domestic demand, which is expected to grow 12 percent.

Indonesia produced 4.5 million tons of steel last year. Currently, domestic steel producers only provide 70 percent of national demand.

The government plans to sell a 30 percent stake in Krakatau through an initial public offering in the fourth quarter of this year, expecting to raise $600 million, which will be used to finance expansion plans.

The company expects to book a 29 percent increase in total sales this year rising to Rp 21 trillion ($2.2 billion). Its sales last year dropped to about Rp 16 trillion due to the global economic crisis.

map reported for The Jakarta Post.