Krakatau to sell subsidiaries

State-owned steel maker PT Krakatau Steel plans to divest a portion of its shares in subsidiaries PT Krakatau Pipa and PT Krakatau Platinum Nusantara to raise cash to help finance an expansion plan in South Kalimantan.

Company president Daenul Hay did not say when and divestment would take place, but he said it would be conducted either via initial public offering or by a sale to strategic investors.

Krakatau is planning to set up new plants if South Kalimantan to be close to raw materials as part of its efforts to boost competitiveness both at home and in the export market.

Daenul was quoted by Antara as saying Sunday that the company was serious about the expansion plan, which government officials have said would cost around US$500 million.

He said the expansion program, which will increase the company?s annual production capacity from 2.5 million tons to around 3.5 million tons, was projected to be completed in 2008.

Daenul said that in the first stage, the company would set up a pelletizing plant (ore processing plant) with a production capacity of 4.3 million tons per year.

He said when this new plant is running, Krakatau, which is based in Cilegon, West Java, would no longer have to import pellets, a material produced by processing steel ore.

"The expansion to South Kalimantan is crucial as part of the effort to increase competitiveness, save money, and improve efficiency", Daenul said.

He added that the expansion plan had been approved by the government as the owner of the company.

At present, steel produced by Krakatau Steel is more expensive than that from other international companies because Krakatau has to import raw materials from Brazil and Australia as well as fuel to generate electricity for its production process.

According to Industry Minister Fahmi Idris, steel produced by companies in China sells at around US$300 per metric ton, while that produced by Krakatau Steel cost some. $400 per metric ton.

The government has recommended South Kalimantan to Krakatau as an area suitable for steel producers because of its abundant natural resources for steel, as well as a sufficient coal supply for fueling power plants.

The company recorded around Rp 11 trillion ($1.22 billion) in sales revenue last year, with the figure likely to remain at the same level this year due to a predicted low demand from the domestic market.

Cheaper steel products imported from China, Japan and Russia also contribute to the lower demand for the company?s steel products. (*)