Indonesia: PT Semen Gresik to relocate planned cement plant

Indonesia: PT Semen Gresik to relocate planned cement plant
Published: 23 June 2009

PT Semen Gresik, the country’s largest cement manufacturer, will relocate a planned IDR3.5trn (US$339.5m) plant to ensure it meets its target for expansion, a top executive from the company has said.

President director Dwi Soetjipto announced the relocation plans on Monday, saying the decision was made because issues of land acquisition for both the originally planned factory and exploration sites in Pati, Central Java, remained unresolved.

“We will move the sites from Pati to Tuban [East Java] instead, which is near the location of our existing plants,” Dwi said.

The company has factories managed by subsidiaries PT Semen Padang in West Sumatra, PT Semen Gresik in East Java and PT Semen Tonasa in South Sulawesi.

The relocation, Dwi added, was necessary to ensure the new plant meets the company’s 2012 deadline, as part of its wider expansion plans.

“We cannot risk any delays as the demand for cement will continue to grow,’ he said.

While the country’s cement industry, like many others, has been hit hard by a decline in demand stemming from the global economic downturn, an upward trend has been seen since the end of the
first quarter.

Demand for cement largely recovered in April, increasing by six per cent from March, although this is still a 5.8 per cent contraction from the same time last year.

Dwi speculates that demand for cement will fully recover by the end of the year to eventually book an average full-year growth rate of three per cent, as the government’s stimulus program (for infrastructure projects) will compensate for the fall in demand from the private sector.

Semen Gresik accounts for more than 40 per cent of market share in the cement industry.

The new plant, which will have an estimated production capacity of 2.5Mt, is part of PT Semen Gresik’s plan to increase its total production capacity to 25Mt over the next three years.

At present, the company produces 18Mta of cement.

Aside from the new plant in East Java, the company is in the process of constructing a 2.5Mta plant in Tonasa.

The company has set a budget of US$1.3bn for its expansion project, of which $670 m has been allocated for the construction of the two new plants. The company has been seeking additional financing though bank loans.

On Monday, the company signed a IDR3.55trn loan agreement with a consortium of local banks, led by Bank Mandiri, to build the Tonasa cement factory and two power plants with a combined total capacity of 70MW.

Dwi said the company had also secured another lending agreement worth IDR2.9trn, although he added the company would not spend it on the Java plant, but instead on other strategic investments.

“We still have a lot of cash and we will use that for constructing the Java plant, so, maybe we will use the money for other investment projects,” he said.

Semen Gresik is 51.09 per cent owned by the government. Blue Valley Holdings — a subsidiary of business conglomerate Rajawali Group — owns a 24.01 per cent stake and the remaining 24.9 per cent is held by the investing public.