Government plans to invest up to $1.3 billion in Indonesia Asahan Aluminium

The government plans to invest up to Rp 12 trillion ($1.3 billion) in Indonesia Asahan Aluminium, which engages in smelting and producing aluminum, in order to boost its output and prepare the company for an initial public offering, a top minister said.

Hatta Rajasa, Indonesia’s chief economic minister, reaffirmed on Friday the government’s intention to fully control the company known as Inalum. That will take place once a contract drawn up in 1975, which gave Japanese consortium Nippon Asahan Alumunium a 58.88 percent stake in the company, ends on Oct. 31, 2013.

The government, which currently owns the remaining 41.12 percent stake, has the right to purchase Nippon Asahan’s entire holding. Officials have cited the aluminum smelting industry’s key role in the economy, especially amid rising domestic demand for the metal, as the reason for the state’s purchase.

Hatta said the government’s plan to inject Inalum with Rp 12 trillion and then take it public came after a coordinating meeting with relevant ministries and agencies to discuss the fate of Inalum.

Hatta said the acquisition was unlikely to involve state-owned firms, meaning the government would directly own Inalum.

Also on Friday, Finance Minister Agus Martowardojo said the Inalum takeover was in line with the government’s broader plan to add value to the nation’s production of natural resources. Inalum produces aluminum ingot from the ore material bauxite.

Agus said the value of the commodity was 168 times higher if processed, compared with being shipped in ore form.

The minister criticized the Japanese consortium’s initial management of Inalum, which reported losses in its early years. However, in later years Nippon began to invest in boosting the plant’s capacity, bringing greater production and ultimately increasing the company’s value.

That means the government will pay a higher price to purchase the Japanese group’s stake.

Nippon Asahan had sought to negotiate with the government to extend its contract, including spending $367 million to boost Inalum’s capacity to 317,000 tons. The government turned down that request.

Inalum operates an aluminum smelter in Asahan, North Sumatra, which has been in operation since 1983. It produces 230,000 tons of aluminum ingot annually and is the only aluminum smelter in Southeast Asia.

Sixty percent of production is sold to Japan, with 40 percent allocated for the domestic market.