Krakatau Steel to face difficulties in business expansion amid high gas prices
Monday, October 30 2000 - 04:00 AM WIB
State steel producer PT Krakatau Steel (KS) will find an alternative in gas supplies and halt its expansion plans if the government maintains at selling Pertamina's gas at US$2.00 per Million British Thermal Unit (MMBTU), according to KS president Sutrisno.
"If the finance minister maintains its decision that we have to pay $2.00 per MMBTU of gas from Pertamina, we will heed it and will pay according to the set price. But it will affect our cash flow," Sutrisno said after launching a duck husbandry in Cilegon over the weekend.
To overcome the cash flow problems, Sutrisno said KS would find an alternative in gas supplies that would offer lower prices of gas to KS. Or, it would use coals as source of energy for its steel mills. And consequently, this would affect KS future expansion plans.
"If only the gas price is set at US$1.60 per MMBTU until 2015, I guarantee that KS will continue with its expansion plan... But if the government set the gas price at $2 per MMBTU, it would be difficult to realize our expansion plans," he said.
One of the biggest planned expansion projects was a venture with China Steel Corporation (SCS) of Taiwan to build a $1.4 billion steel plant with capacity of 3 million tons of steel. However, CSC was reluctant to enter Indonesia now because of increasing political risks in the country. Nevertheless, the plan was still there, if the situation improves, and KS has good cash flow, the venture will go on.
KS owed a total of Rp 300 billion as of the end of July 2000 to state oil and gas firm Pertamina for gas supplies KS consumed for the last two years. The unpaid gas debt was mainly resulted from the ending of the 1996-1998 gas supply contract between KS and Pertamina, in which the gas price was set at US$1.325 per Million British Thermal Unit (MMBTU). And the new gas supply contract having been applied since January 1999, set gas price at US$2.00 per MMBTU. Despite the new contract and the new gas price, KS still paid Pertamina's gas at $1.50 per MMBTU since January 1999. Because of the price difference of US$0.40 per MMBTU, KS booked a total debt to Pertamina of Rp 300 billion.
Sutrisno confirmed about the company's due debt to Pertamina, but he noted that the amount did not reach Rp 300 billion. He noted that KS's debt to Pertamina did not even reach Rp 150 billion.
Sutrisno said that the finance minister had promised him to settle the problems of gas price for KS by the end of this month. (*)