PT Krakatau Steel Building in South Jakarta - Photo by the Company.

JAKARTA (TheInsiderStories) – State-owned steel producer PT Krakatau Steel Tbk (IDX: KRAS), through its subsidiary, PT Krakatau Tirta Industri (KTI) in collaboration with an integrated petrochemical company, PT Chandra Asri Petrochemical Tbk (IDX: TPIA) is building seawater utilization facilities for producing industrial water.

The cooperation between the two state companies was marked by the signing of a memorandum of understanding held in Jakarta, today (06/17). The water treatment facility is projected to be the largest water treatment facility in the country.

From this project, Krakatau Steel has an ownership portion of between 60-70 percent. Meanwhile, Chandra Asri has a 30-40 percent share of ownership. The investment value disbursed for the construction of the facility reached Rp1.5 trillion (US$104.89 million).

Krakatau Steel’s Managing Director, Silmy Karim, stated that the implementation of this project was in line with the government’s plan which was intensively implementing development in the infrastructure sector. In addition, this is to open access to industrial development in all regions of Indonesia.

“The seawater utilization project is expected to be an effective step to meet water needs for industrial needs, especially for Chandra Asri and its surroundings. This is a new strategy of the company to encourage the development of potential business subsidiaries,” Karim said.

Currently, they are conducting a feasibility study. A project planned to start operating in 2022. Meanwhile, until that year, Krakatau Steel can still supply industrial water from its current water sources. The seawater treatment project has a production capacity of 800 to 1000 liters per second (Lps).

“We urge the management to carry out this project by paying attention to the principles of prudence, good faith, and principles of good corporate governance,” said KTI Managing Director Agus Nizar Vidiansyah in a written statement.

Vidiansyah added that the company is also building a drinking water treatment system in Gresik, Central Java. The company obtained a construction tender along with its operating permit last year. The drinking water treatment facility in Gresik has a capacity of 1000 Lps with an investment value of Rp618 billion.

Reportedly, KTI’s water production capacity currently reaches 2,400 Lps. With this project, KTI projects the company’s production capacity will increase 45.83 percent to 3,500 lps in 2024 from 2,400 Lps this year. The company projects net income to slightly increase by 1.24 percent to Rp163 billion by the end of this year.

Meanwhile, Krakatau Steel is running two strategic projects in this year as part of the Indonesian steel producer’ effort to enter the downstream business and to reduce the production costs.

The first project is the Blast Furnace Complex in the area of ​​55 hectares joined with Capital Engineering & Research Incorporation Ltd., from China and its unit PT Krakatau Engineering (PTKE).

The Blast Furnace facility is a coal-based technology. So it will increase the flexibility of energy use and reduce dependence on natural gas, which is projected to experience an increasing price in the future.

Another project, an addition of hot sheet steel capacity to supply Hot Rolled Coil (HRC) with a capacity of 1.5 million tons per annum.

Meantime, Chandra Asri received government’ tax holiday facility from its $380 million polyethylene plant last week. The company gets a revenue tax deduction by 100 percent for the first 10 years after commercial production, then 50 percent for the following 2 years.

In February 2018, the company has commenced the groundbreaking of a new Polyethylene Plant project with a capacity of 400,000 tons annually from the recent capacity at 336,000 tons per year. The plant located in Cilegon, Banten province. This new polyethylene plant facility will produce High-Density Polyethylene, Linear Low-Density Polyethylene, and Metallocene.

The rapid growth of the plastics and packaging industries in Indonesia has driven Chandra Asri to anticipate the high domestic demand. Indonesia’s current polyethylene market demand is estimated at around 1.4 million ton per annum and will continue to grow along with the country’s GDP.

The completion of the project is scheduled by the end of 2019 and commence operation at the beginning of 2020. The Company currently operates a 336 KTA of polyethylene plant, therefore, this new construction of 400KTA PE plant will bring total CAP’s PE production to 736 KTA.

President Joko Widodo reportedly supports the company’ plan given that Indonesia’ petrochemical industry at present is still relying on imported raw materials. Currently, domestic production of naphtha cracker reached only 900,000 tons, while demand reached 1.6 million tons. Therefore, Indonesia has to import raw material to cover the gap.

The development of the petrochemical plant is an effort by the company to support the Indonesian government’s plan to develop the country’s downstream petrochemical industry and make use of the gas output from the Kasuri gas block in Bintuni.

Currently, Chandra Asri is the largest manufacturer of petrochemicals in Indonesia with an estimated domestic market share of 52 percent for Olefin, 24 percent for polyethylene, and 29 percent for Polypropylene.

US$1: Rp14,300

Written by Lexy Nantu, Email: lexy@theinsiderstories.com